Owens Corning Inc (OC) Earnings & Analysis

Latest quarter

Owens Corning reported second-quarter revenue of $2.8 billion, above the $2.7 billion consensus. Adjusted earnings per share of $3.93 also exceeded the $3.06 consensus. Revenue came in above the company’s own guidance of $2.6 billion to $2.7 billion.

Revenue was $2.8 billion, compared with $2.7 billion a year earlier. The filing shows net sales rose $9 million, as higher insulation volumes and currency translation benefits were mostly offset by divestitures in insulation and doors. Roofing sales increased with favorable product mix, while insulation sales rose on higher volumes. Doors sales fell because of lower volumes and the distribution business divestiture.

Gross margin fell to 28.8% from 31.2%, and operating margin declined to 17.5% from 18.4%. The filing attributed the decline in gross margin dollars partly to higher delivery costs, input inflation and production downtime. Diluted earnings per share fell to $2.80 from $4.25, while free cash flow rose to $225.0 million from $139.0 million.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

On the call, CEO Brian Chambers said roofing purchases were pulled into the second quarter ahead of a June price increase. Asked how that would affect the rest of the year, he said distributor inventories were heavier than normal overall but varied by region. He said second-half demand would depend on storm activity and where it occurs.

Chambers said the company was seeing price realization from its April and June roofing increases. He expected pricing to help recover cost inflation in the third and fourth quarters, although the company still anticipated input and transportation inflation would outpace pricing in the third quarter.

CFO Todd Fister said insulation demand included growth in North American non-residential applications and recovering European markets. Asked about the insulation margin, he said price increases, a shift toward non-residential and European business, and productivity improvements could help move it closer to the company’s longer-term target. He said a residential price increase had been pushed to September.

Fister said second-quarter adjusted EBITDA included $25 million in tariff refunds, which partly offset $30 million in net cost inflation related to the Iran conflict. Asked about further refunds, he said a little over $20 million remained pending, but he could not determine whether it would arrive in the third or fourth quarter; it was excluded from the third-quarter outlook.

Chambers said the company had achieved $135 million in run-rate cost synergies from its doors acquisition. He also said broader distributor placement had generated incremental doors volume. For insulation capacity, he said Owens Corning would restart its Nephi, Utah plant in the fourth quarter, while its new Kansas City line would initially focus on non-residential products. Fister said the company expected little short-term cost increase from restarting Nephi.

Guidance

For the third quarter, Chambers expects roofing revenue to fall by mid to high single digits year over year; the prior-quarter outlook called for a low to mid-single-digit decline. He expects insulation revenue to grow by mid single digits, compared with the prior-quarter forecast of a low single-digit decline.

Chambers expects an insulation EBITDA margin of 22% for the third quarter, versus approximately 20% in the prior-quarter outlook. For doors, he expects an EBITDA margin of approximately 10%, compared with the prior forecast of high single digits.