Owens Corning (OC) Q1 Earnings Beat Estimates, Improve Y/Y

Owens Corning OC reported first-quarter 2021 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate. While earnings beat the consensus estimate for the eighth straight quarter, revenues outpaced the same for the fourth consecutive quarter. Moreover, both the metrics improved year over year for the first quarter 2021.

However, following the announcement, shares of the company dropped 2.3% during trading hours on Apr 28.

The company’s results reflected improving customer demand in most of the end markets served. The main factors that positively impacted the company’s businesses are residential repair and remodeling activity, U.S. housing starts, global commercial construction activity, and global industrial production. Moreover, market-leading businesses, innovative product and process technologies contributed to the results. Its commercial and industrial markets are also registering improvement. Notably, all three of its businesses delivered double-digit EBIT margins for the third consecutive quarter.

Inside the Headlines

The company reported adjusted earnings of $1.73 per share, surpassing the Zacks Consensus Estimate of $1.42 by 21.8%. Moreover, the bottom line improved 179% year over year.

Net sales of $1.92 billion outpaced the consensus mark of $1.81 billion by 5.6% and increased 19.6% year over year. The upside was driven by robust revenue growth in the Roofing, Composites and Insulation business.

Owens Corning Inc Price, Consensus and EPS Surprise

Owens Corning Inc price-consensus-eps-surprise-chart | Owens Corning Inc Quote

Segment Details

Net sales at the Composites segment rose 13.2% year over year to $559 million driven by stronger-than-expected volume growth attributable to demand for downstream applications serving the building, construction and wind markets. Notably, earnings before interest and taxes (EBIT) margin of 14% expanded 500 basis points (bps) from the year-ago quarter’s 9%.

Insulation segment’s net sales were $700 million, up 16.1% year over year. This upside is attributed to robust growth in U.S. new construction activity and increased demand in the commercial end markets. In technical and other insulation, the company witnessed increased volume across the business with its highly specified products and continuous demand growth in North America and Europe. EBIT margin expanded 600 bps points year over year to 12% in the quarter. Positive manufacturing performance in the overall insulation business helped to partially offset the continued transportation headwinds and accelerated material inflation.

The Roofing segment’s net sales increased 28% year over year to $711 million driven by 25% volume growth. The Roofing business produced its strongest first quarter as the company continued to operate in a sold-out environment. The U.S. asphalt shingle market grew 26% for the quarter as compared to the prior year with U.S. shingle volumes outperforming the market. EBIT margin expanded 1,000 bps year over year to 22% due to higher sales volumes in both shingles and roofing components along with persistent deflationary impact of asphalt.

Operating Highlights

Adjusted EBIT for the quarter totaled $282 million, reflecting growth of 143.1% on a year-over-year.

Balance Sheet

As of Mar 31, 2021, the company had cash and cash equivalents of $605 million compared with $717 million at 2020-end. Long-term debt — net of current portion — totaled $3.15 billion, up from $3.13 billion at 2020-end. Owens Corning had $1.7 billion of available liquidity at first quarter 2021-end. In the first quarter of 2021, net cash provided by operating activities was $204 million versus $52 million of cash used in operating activities a year ago. Free cash flow came in at $120 million for the reported quarter, up from ($144) million a year ago.

During first-quarter 2021, the company repurchased 1.6 million shares of common stock for $131 million. It returned $197 million to shareholders through share repurchases and dividends.

Second-Quarter 2021 Outlook

For the ongoing quarter, the company expects the U.S. residential market to remain strong and the commercial and industrial markets to continue to strengthen.

Insulation: For the North American residential fiberglass insulation business, the company expects the volume to be up 25% from the second quarter last year with additional price realization. In the technical and other building insulation businesses, volumes are expected to rise mid-teens from second-quarter 2020 with stable to slightly positive pricing. The Insulation business is expected to benefit from $30-million fixed cost absorption while facing material and transportation inflation. Margins are expected to expand sequentially, approaching mid-teens.

Composites: The company anticipates volumes to grow at a strong pace, approximately 30% versus the prior year. The price is expected to rise low to mid-single digits over prior year. The business is likely to benefit from $30 million of curtailment reversals. Additionally, continued favorable productivity may partially offset input material and transportation inflation and margins are projected to remain flat with respect to first-quarter 2021.

Roofing: The company expects industry shipments for U.S. shingle end-market demand to rise 15% to 20% over the prior year and volumes are expected to rise mid to high-single digits. Additional price realization is also expected during the quarter. Increased material and transportation inflation with price/cost is likely to remain favorable for the company and sequential EBIT margins are expected to increase, approaching mid 20%.

2021 Outlook

Owens Corning’s businesses are dependent on residential repair and remodeling activity, U.S. housing starts, global commercial construction activity as well as global industrial production. Although the company expects the COVID-19 pandemic to continue to create market uncertainty, it anticipates the U.S. residential housing market to remain robust and the commercial and industrial markets to strengthen.

General corporate expenses are expected between $135 million and $145 million. Capital additions is estimated approximately $460 million, that is below the anticipated depreciation and amortization of $480 million. Interest expenses are estimated between $120 million and $130 million. The company estimates an effective tax rate of 26-28% and a cash tax rate of 18-20%, both on adjusted pre-tax earnings.

Zacks Rank & Other Key Picks

Owens Corning carries a Zacks Rank #2 (Buy).

A few other similar-ranked stocks in the Zacks Building Products – Miscellaneous industry include TopBuild Corp. BLD, Installed Building Products, Inc. IBP and United Rentals, Inc. URI, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TopBuild, Installed Building and United Rentals’ 2021 earnings are expected to rise 33.2%, 29.5% and 7.9%, respectively.

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