It has been about a month since the last earnings report for Owens Corning (OC Quick QuoteOC - Free Report) . Shares have lost about 1.5% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Owens Corning due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Owens Corning Q2 Earnings & Sales Top, Margins Rise

Owens Corning reported impressive results for second-quarter 2023, wherein earnings and net sales surpassed the Zacks Consensus Estimate. Moreover, earnings increased on a year-over-year basis despite net sales decline.

Given the quarter’s solid bottom-line results, the company maintains its optimistic outlook of elevating performance and achieving higher earnings.

Inside the Headlines

The company reported adjusted earnings of $4.22 per share, which topped the Zacks Consensus Estimate of adjusted earnings of $3.30 per share by 27.9%. The metric also grew 9.6% from the prior-year quarter’s reported value of $3.85 per share.

Net sales of $2.56 billion beat the consensus mark of $2.52 billion by 1.8% but declined 1.5% year over year.

Segment Details

Net sales in the Composites segment decreased 14% year over year to $620 million. This was due to lower volumes and the impact of the previously announced buyouts and divestitures. Earnings before interest and taxes (EBIT) margin contracted to 14% from 21% in the year-ago period. EBITDA margins of 21% also declined from 28% reported a year ago. Reduced sales volume, the impact of production downtime and input cost inflation hurt margins.

The Insulation segment’s net sales came in at $905 million, down 3% year over year due to lower volumes, partially offset by positive price realization and favorable product and customer mix. Yet, EBIT and EBITDA margins of 18% and 24% increased 100 and 200 basis points (bps), respectively, year over year.

The Roofing segment’s net sales rose 10% year over year to $1.1 billion, mainly driven by higher volumes related to storm activity in the quarter and positive price realization. Both EBIT and EBITDA margins expanded 500 bps to 30% and 32%, respectively.

Operating Highlights

Adjusted EBIT and adjusted EBITDA increased approximately 2% and 1%, respectively, on a year-over-year basis. Adjusted EBIT and adjusted EBITDA margin expanded 100 bps, each, from the year-ago figure.

Balance Sheet

As of Jun 30, 2023, the company had cash and cash equivalents of $968 million, down from $1,099 million at 2022-end. Long-term debt — net of the current portion — totaled $3 billion, up from $2.99 billion at 2022-end.

In the first six months of 2023, net cash provided by operating activities was $330 million, down from $624 million in the previous year. Free cash flow came in at $372 million in the reported quarter, up from $361 million a year ago.

In the second quarter, OC returned $160 million to shareholders via dividends and share repurchases. It paid a total quarterly cash dividend of $47 million and repurchased 1.1 million shares of common stock for $113 million. As of June-end, 11.8 million shares were available for repurchase under the current authorization.

Q3 Outlook

Owens Corning's businesses primarily depend on residential repair and remodeling activity, U.S. housing starts, global commercial construction activity and industrial production. The company expects challenges in many of its end markets due to inflationary pressures, increased interest rates and continued geopolitical uncertainties.

OC expects most of its end markets to remain relatively stable in the upcoming quarter despite slow global economic growth.

For the third quarter of 2023, the company expects net sales to remain flat year over year and EBIT margins in the high teens, compared with 19% reported in the prior-year quarter.

For the quarter, the company expects revenues in the Insulation segment to be down by low-single digits, compared to the prior year’s value of $965 million.

The EBIT margins are expected to be in the mid teens, compared to 18% in the year-ago quarter.

For the Composites segment, the revenues are anticipated to be down by mid-single digits, compared to $638 million reported in the prior-year quarter. The EBIT margins are expected to be on par with second-quarter 2023.

For the Roofing segment, the revenues are expected to be up by mid-single digits in comparison with $1 billion year over year. The EBIT margins are expected to be approximate with the second-quarter 2023 reported margin of 30%.

Revised 2023 Outlook

For 2023, the company now expects general corporate expenses to be between $215 million and $225 million, up from the previous expectation of $195-$205 million. Interest expenses are now estimated to be between $70 million and $80 million, down from the previously expected range of $95-$105 million.

Capital additions are estimated at an approximate value of $520 million, and depreciation and amortization within $520-$530 million. The company projects an effective tax rate of 24-26% and a cash tax rate of 26-28%, both on adjusted earnings.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted 26.99% due to these changes.

VGM Scores

At this time, Owens Corning has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Owens Corning has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.