A month has gone by since the last earnings report for Owens Corning (OC). Shares have added about 10.8% 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 drivers.
Owens Corning reported better-than-expected results for fourth-quarter 2023. Both earnings and net sales surpassed the Zacks Consensus Estimate and increased on a year-over-year basis.
Chair and chief executive officer of OC, Brian Chambers, said, “Looking ahead, we will continue to focus on delivering outstanding results in the near-term as we execute the strategic moves announced last week which will further strengthen our leadership in building and construction materials and position the company for long-term success.”
Impressively, Owens Corning has updated the long-term EBIT margin expectation for its Roofing segment to mid-20% on average from approximately 20%.
The company reported adjusted earnings per share (EPS) of $3.21, which topped the consensus mark of $2.82 by 13.8% and increased 29% from $2.49 a year ago.
Net sales of $2.3 billion beat the consensus mark of $2.24 billion by 3% and increased 1% year over year from $2.29 billion.
Net sales in the Composites segment decreased 13% year over year to $514 million. This was due to lower volumes and price declines, resulting from low spot prices in glass reinforcements. Earnings before interest and taxes (EBIT) margin contracted to 5% from 11% in the year-ago period. EBITDA margins of 13% also declined from 18% reported a year ago. Together with price, the impact of lower demand in glass reinforcements and the actions OC took to balance inventories with corresponding production downtime ailed the bottom line, which was partially offset by favorable manufacturing performance.
The Insulation segment’s net sales were $931 million, down 3% year over year due to lower volumes in both the North American residential insulation and technical and global insulation businesses, partially offset by favorable price and mix. EBIT margin of 16% was flat from the year-ago period and EBITDA margin of 22% rose 10 bps, thanks to lower volumes offset by positive price realization.
The Roofing segment’s net sales rose 16% year over year to $928 million, driven by strong demand tied to the mild weather extending the roofing season in many regions and strong components attachment rate, as well as favorable mix and positive price. EBIT and EBITDA margins expanded 1,000 bps and 900 bps to 31% and 32%, respectively. The EBIT improvement was mainly backed by higher volumes and favorable input and delivery costs. Also, positive price, favorable mix and manufacturing costs aided the same.
Adjusted EBIT and adjusted EBITDA improved 18% and 13%, respectively, on a year-over-year basis. Adjusted EBIT and adjusted EBITDA margin expanded 200 bps each from the year-ago figure.
Adjusted EPS came in at $14.42 for the year, up 12% from 2022. Net sales were $9.68 billion, down 1% from the previous year. Adjusted EBIT and adjusted EBITDA each rose 2% on a year-over-year basis. Both adjusted EBIT and adjusted EBITDA margins expanded 100 bps.
As of Dec 31, 2023, the company had cash and cash equivalents of $1.62 billion compared with $1.1 billion at 2022-end. Long-term debt — net of the current portion — totaled $2.62 billion, down from $2.99 billion at 2022-end.
In 2023, net cash provided by operating activities was $1.72 billion versus $1.76 billion in 2022. Free cash flow came in at $1.19 billion for 2023 compared with $1.31 billion at 2022-end.
In 2023, the company returned $812 million to shareholders through dividends and share repurchases.
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 building and construction end markets to be relatively stable in the near term amid unfavorable macroeconomic trends outside of the United States and elevated interest rates.
For the first quarter of 2024, the company expects net sales slightly below the first quarter of 2023, while generating mid-teens margins.
For 2024, the company expects general corporate expenses between $240 million and $250 million. Interest expenses are estimated to be between $70 million and $80 million.
Capital additions, as well as depreciation and amortization, are estimated at an approximate value of $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 an upward trend in fresh estimates.
VGM Scores
Currently, Owens Corning has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. 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 A. 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. 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, Otis Worldwide (OTIS), a stock from the same industry, has gained 6.8%. The company reported its results for the quarter ended December 2023 more than a month ago.
Otis Worldwide reported revenues of $3.62 billion in the last reported quarter, representing a year-over-year change of +5.3%. EPS of $0.87 for the same period compares with $0.75 a year ago.
Otis Worldwide is expected to post earnings of $0.87 per share for the current quarter, representing a year-over-year change of +8.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.8%.
Otis Worldwide has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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