Why has Owens Corning (OC) increased 0.1% since the last earnings report?
A months have passed since Owens Corning’s (OC) last earnings report. Stocks added about 0.1% over that time frame, underperforming the S&P 500.
Will the recent positive trend continue until its next earnings release, or should Owens Corning suffer a pullback? Before we dive into how investors and analysts have reacted in recent times, let’s take a look at the latest earnings report to get a better understanding of the important factors.
Owens Corning beats second quarter earnings and revenue, high volumes
Owens Corning reported impressive results for the second quarter of 2021. Both upper and lower results exceeded Zacks’ consensus estimate and have improved significantly year over year. The strong quarterly result was supported by high volumes, broad price realization and high manufacturing efficiencies across all businesses.
President and CEO Brian Chambers said, “Owens Corning had another exceptional quarter delivering record results, with all three companies continuing to perform well in a dynamic market environment. These results were driven by strong and consistent business and operational execution and demonstrate the exceptional capability of our global team and the profit power of our company. “
In the headlines
The company reported adjusted earnings of $ 2.60 per share, exceeding the consensus mark of $ 2.10 by 23.8%. In addition, said metric has improved by almost 186% year over year.
Net sales of $ 2.2 billion exceeded the consensus mark of $ 1.97 billion by 13.5% and were up 37.8% year-over-year. The uptrend was mainly supported by a robust US residential real estate market and stronger commercial and industrial markets.
Composites segment net sales increased 46% year-over-year to $ 583 million. Segment sales increased primarily through volume growth of 30%.
The profit margin before interest and taxes (EBIT) of 17% improved significantly from the 2% reported in the same quarter last year.
Net sales for the Insulation segment were $ 806 million, up 35% year over year. The strong improvement is mainly due to high volume, favorable prices and currency advantages. The EBIT margin also increased by 900 basis points to 14%.
Roofing segment net sales jumped 35% year-over-year to $ 917 million. The US asphalt shingle market increased 19% from a year earlier as US shingle volumes were better than expected thanks to stronger manufacturing performance. The high achievement through previously announced price increases helped price / costs stay positive during the quarter. Yet it still faces additional materials and transport inflation. The EBIT margin increased 400 basis points year-on-year to 26%.
Highlights of operations
Adjusted EBIT for the quarter totaled $ 408 million, up 144.3% year over year due to improved margins across all segments.
As of June 30, 2021, the company had cash and cash equivalents of $ 888 million, compared to $ 717 million at the end of 2020. Long-term debt – net of the current portion – stood at 3 , $ 14 billion, up from $ 3.13 billion at the end of 2020. Owens Corning had $ 2 billion in cash on hand at the end of the first quarter of 2021.
In the first half of 2021, net cash from operating activities was $ 702 million, compared to $ 229 million a year ago. Free cash flow was $ 405 million for the current quarter, up from $ 233 million a year ago.
During the second quarter of 2021, the company repurchased 1.3 million common shares for $ 131 million. It returned $ 318 million to its shareholders through share buybacks and dividends. At the end of the second quarter, 6.6 million shares were available for repurchase under the current authorization.
Outlook for the third quarter of 2021
For the current quarter, the company expects the US residential market to remain strong and commercial and industrial markets to continue to strengthen.
Insulation: For the residential fiberglass insulation business in North America, the company expects volume to be up 10% from last year’s levels with additional price realization . In the technical and other building insulation sectors, volumes are expected to increase by 10% from Q3 2020 reading with growing demand for its products in global building and construction applications. The Insulation business is expected to benefit from a fixed cost absorption of $ 20 million while dealing with comparatively higher inflation in materials and transportation. EBIT margins are expected to increase in the middle of adolescence.
Composites: The company expects volumes to be stable year over year. Still, revenue is expected to improve year over year thanks to the improved sales mix and additional price realization, given its strong sales work. The price is expected to increase by a few digits from the level of the previous year. The company is expected to benefit from $ 30 million in cutback cancellations. In addition, continued favorable productivity could partially offset inflation in raw materials and transport, while margins are projected in the mid-teens range, close to second-quarter figures.
Roofing: The company expects the market and volumes to be relatively stable in the third quarter compared to the previous year’s count. Prices are expected to improve during the quarter, given the previously announced price increases. Inflation of asphalt and other materials inputs is expected to be higher in the second half of the year. To offset this inflation, management announced a price increase of 5 to 7% from the end of August. The roofing EBIT margin should increase by 25% as the price / cost mix remains positive.
Owens Corning’s business is dependent on its home repair and renovation business, US housing starts, global commercial construction activity as well as global industrial production. The company expects the US residential housing market to remain robust and the commercial and industrial markets to strengthen.
The company’s overhead costs are now expected to be between $ 150 million and $ 155 million compared to $ 135 to 145 million forecast earlier. Capital additions are estimated at approximately $ 460 million, below the anticipated depreciation and amortization of $ 500 million (up from the previous projection of $ 480 million). Interest expense is estimated at 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 profit before tax.
How have the estimates evolved since then?
Over the past month, investors have seen an upward trend in revised estimates. The consensus estimate has changed by 9.1% due to these changes.
Right now, Owens Corning has a strong Growth score of A, although he lags a lot on the Momentum score front with a D. However, the title received an A rating from the side of value, which places it in the top quintile. for this investment strategy.
Overall, the stock has an overall VGM score of A. If you’re not strategy-focused, this score is the one you should be interested in.
Estimates are on the rise for the stock, and the magnitude of these revisions looks promising. It’s no surprise that Owens Corning has a Zacks Rank # 2 (Buy). We expect an above-average return on the security over the next few months.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.