It has been about a month since the last earnings report for Owens Corning (OC). Shares have added about 6.8% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.
Owens Corning's Q3 Earnings & Sales Beat Estimates
Owens Corning reported impressive results for third-quarter 2024, wherein earnings and net sales surpassed the Zacks Consensus Estimate, given the success of its strategic initiatives and structural improvements, leading to strong cash flow and higher margins despite challenging market conditions. This marks the seventh consecutive earnings beat for the company.
Owens Corning’s strategy includes focusing on high-margin products, enhancing operational efficiencies, and divesting lower-margin, capital-intensive businesses (like in China and Korea). This approach is expected to maintain their strong financial performance and position them for growth in 2025 as demand trends stabilize.
Inside OC’s Q3 Results
The company reported adjusted earnings per share (EPS) of $4.38, which topped the consensus mark of $4.01 by 9.2% and increased 5% from $4.18 a year ago.
Net sales of $3.05 billion topped the consensus mark of $3.04 billion by 0.2% and increased 23% year over year from $2.48 billion.
Owens Corning’s Segment Details
Net sales in the Composites segment decreased 6% year over year to $534 million. This was primarily due to tough market conditions and price drops in glass reinforcements.
Earnings before interest and taxes (EBIT) margin contracted to 11% from 14% in the year-ago period. EBITDA margins of 20% also decreased 20 basis points (bps) from a year ago. Lower glass reinforcement prices and additional costs from starting up a new nonwovens line in Fort Smith, Arkansas, were partially offset by improved manufacturing performance.
The Insulation segment’s net sales were $946 million, up 4% year over year, largely due to positive price realization in North America residential, technical, and global insulation markets. Growth in North America residential volume was mostly offset by weaker demand in Europe due to economic challenges.
EBIT margin rose 30 bps year over year to 19%. EBITDA margin of 25% was up 30 bps from the year-ago period, thanks to strong commercial performance led to effective price increases.
The Roofing net sales were steady at $1.1 billion compared with the third quarter of 2023, as shingle volumes outpaced the U.S. asphalt shingle market, which saw a slight decline from the previous year. Higher prices, a favorable product mix, and growth in shingle volumes balanced out the impact of reduced component sales due to inventory adjustments by distributors and the exit from protective packaging.
EBIT and EBITDA margins expanded 10 bps and 20 bps to 33% and 35%, respectively, from a year ago. The improvement was mainly backed by favorable pricing, product mix, and delivery efficiencies.
The Doors segment reported net sales of $573 million in its first full quarter as a separate reporting segment for Owens Corning. Market conditions remained challenging, with reduced discretionary spending on repairs and remodels affecting both demand and prices. EBIT and EBITDA margins were 6% and 16%, respectively.
Operating Highlights of Owens Corning
Adjusted EBIT and adjusted EBITDA improved 12% and 19%, respectively, on a year-over-year basis. Adjusted EBIT margin of 19% was down 20 bps from the prior year, while adjusted EBITDA margin contracted 10 bps to 25%.
OC’s Financials
As of Sept. 30, 2024, the company had cash and cash equivalents of $499 million compared with $1.62 billion at 2023-end. Long-term debt — net of the current portion — totaled $5.03 billion, significantly up from $2.62 billion at 2023-end.
In the first nine months of 2024, net cash provided by operating activities was $1.22 billion, up from $1.02 billion in the previous year. Free cash flow came in at $766 million in the same period, up from $631 million a year ago.
OC’s return on capital for the 12 months ending Sept. 30, 2024, was 15%, reflecting a decrease from the previous year as the effects of the acquisition continued to play out. At the end of the quarter, the company maintained liquidity of approximately $1.8 billion, including $499 million in cash and $1.3 billion in available credit under bank debt facilities. It also has $400 million in senior notes maturing in the fourth quarter.
OC’s Q4 Guidance
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 near-term demand to be affected by market challenges and seasonal trends. In North America, non-discretionary repair and remodeling should stay strong, while discretionary projects and new single-family construction are expected to weaken. Internationally, economic growth remains slow due to geopolitical and macroeconomic factors.
For the fourth quarter, the company anticipates strong results, projecting about 20% net sales growth, driven by portfolio changes and cost efficiencies. Owens Corning expects a mid-teens EBIT margin and an EBITDA margin of around 20%.
Segment-wise, for Roofing, revenues are expected to decline mid-single digits due to lower component volumes, though positive price realization may offset some impact. The company expects demand for shingles to remain relatively flat, with an EBIT margin of around 30% and an EBITDA margin of approximately 31%.
For Insulation, revenues are projected to decrease slightly compared to the previous year, with stable North American demand offsetting some volume drops due to slower housing starts. EBIT and EBITDA margins are expected to align with the same period last year.
Doors segment is expected to experience high single-digit sequential declines in revenues due to market pressures and inventory management by distributors. Expected EBITDA margin is in the low to mid-teens.
Composites revenues should remain similar to last year, driven by volume growth in North America but offset by lower pricing. EBIT margin is projected to be in the mid-to-high single digits, with EBITDA margin in the mid-teens.
Owens Corning Updated 2024 Outlook
The company expects general corporate expenses to be approximately $250 million, slightly reduced from $255 million-$265 million due to ongoing cost controls.
Interest expenses are still estimated to be within $210-$220 million.
Capital additions, as well as depreciation and amortization, are still estimated at an approximate value of $650 million. The company expects 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 review.
The consensus estimate has shifted -7.11% due to these changes.
VGM Scores
Currently, 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. Notably, Owens Corning has a Zacks Rank #3 (Hold). We expect an in-line 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, TopBuild (BLD), a stock from the same industry, has gained 0.4%. The company reported its results for the quarter ended September 2024 more than a month ago.
TopBuild reported revenues of $1.37 billion in the last reported quarter, representing a year-over-year change of +3.6%. EPS of $5.68 for the same period compares with $5.43 a year ago.
TopBuild is expected to post earnings of $5.08 per share for the current quarter, representing a year-over-year change of +8.3%. Over the last 30 days, the Zacks Consensus Estimate has changed -1.1%.
TopBuild has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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