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Owens Corning (OC) Up 3.9% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Owens Corning (OC - Free Report) . Shares have added about 3.9% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Owens Corning due for a pullback? 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 Beat Estimates, Gives Q3 View

Owens Corning reported mixed results for second-quarter 2024, wherein earnings surpassed the Zacks Consensus Estimate but net sales missed the same. On a year-over-year basis, both earnings and net sales increased on the back of strong commercial execution and manufacturing performance as well as the strategic choice to acquire Masonite.

Inside the Headlines

The company reported adjusted earnings per share (EPS) of $4.64, which topped the consensus mark of $4.37 by 6.2% and increased 9% from $4.25 a year ago.

Net sales of $2.79 billion missed the consensus mark of $2.87 billion by 3% but increased 9% year over year from $2.56 billion, backed by the acquisition of Masonite.

Segment Details

Net sales in the Composites segment decreased 12% year over year to $546 million. This was due to lower volumes and price declines resulting from low spot prices in glass reinforcements.

However, earnings before interest and taxes (EBIT) margin contracted to 11% from 14% in the year-ago period. EBITDA margins of 19% also decreased from 21% reported a year ago. The decline was due to lower prices and volumes in glass reinforcements, as well as the impact of production downtime, which was partially offset by favorable manufacturing and delivery costs.

The Insulation segment’s net sales were $916 million, up 1% year over year. Although demand was strong for the segment’s North American business, its European business was impacted by the weaker macro environment. The favorable mix and positive price offset lower volumes in Europe.

EBIT margin rose 200 basis points (bps) year over year to 20%. EBITDA margin of 26% was up from 24% reported in the year-ago period, thanks to positive price, favorable delivery and favorable mix offset lower volumes and costs to evaluate capacity expansion within the U.S. fiberglass network.

The Roofing segment’s net sales decreased 2% year over year to $1.11 billion due to lower volumes, which were largely offset by positive price realization and favorable mix. Shingles volume declined modestly, outperforming the market. Additionally, volume was affected by the exit of protective packaging and lower component sales as distributors reset inventory in the channel.

EBIT and EBITDA margins expanded 400 bps and 300 bps to 34% and 35%, respectively. The EBIT improvement was mainly backed by strong commercial execution leading to positive price realization and favorable mix.

The Doors (reported for the period May 15 through Jun 30) segment reported net sales of $311 million, performing in line with the company’s expectations, despite market pressure in North America and Europe. EBIT and EBITDA margins were 11% and 20%, respectively.

Operating Highlights

Adjusted EBIT and adjusted EBITDA improved 10% and 12%, respectively, on a year-over-year basis. Adjusted EBIT margin of 21% was flat from the prior year, while adjusted EBITDA margin expanded 100 bps to 27%.

Balance Sheet

As of Jun 30, 2024, the company had cash and cash equivalents of $254 million compared with $1.62 billion at 2023-end. Long-term debt — net of the current portion — totaled $5.02 billion, significantly up from $2.62 billion at 2023-end.

In the first six months of 2024, net cash provided by operating activities was $517 million compared with $330 million in the previous year. Free cash flow came in at $336 million in the reported quarter compared with $372 million a year ago.

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 most of its North American building and construction end markets to be healthy in the near term.

The company also expects ongoing demand for single-family new construction, given the overall need for housing, and the high price and low availability of existing homes for sale. Non-discretionary repair and remodeling activity is expected to drive solid demand while discretionary repair and remodeling activity remains soft. Moreover, macroeconomic trends and geopolitical tensions continue to result in slow global economic growth.

For the third quarter, the company expects net sales to grow in the low-20% range. Legacy business is expected to be in line with the third quarter of 2023, including the addition of a full quarter of revenue for the Doors segment. It is expected to generate an EBIT margin in the high teens with an EBITDA margin in the low-20% range.

2024 Outlook Updated

For 2024, the company expects general corporate expenses between $255 million and $265 million ($240-$250 million expected earlier). Interest expenses are estimated to be within $210-$220 million versus the prior projection of $70-$80 million.

Capital additions, as well as depreciation and amortization, are estimated at an approximate value of $650 million (previously expected at $550 million). The company projects an effective tax rate of 24-26% on adjusted earnings.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Owens Corning has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Owens Corning has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Owens Corning is part of the Zacks Building Products - Miscellaneous industry. Over the past month, Otis Worldwide (OTIS - Free Report) , a stock from the same industry, has gained 1.9%. The company reported its results for the quarter ended June 2024 more than a month ago.

Otis Worldwide reported revenues of $3.6 billion in the last reported quarter, representing a year-over-year change of -3.2%. EPS of $1.06 for the same period compares with $0.92 a year ago.

Otis Worldwide is expected to post earnings of $0.97 per share for the current quarter, representing a year-over-year change of +2.1%. Over the last 30 days, the Zacks Consensus Estimate has changed -1%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Otis Worldwide. Also, the stock has a VGM Score of C.


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