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Owens Corning (OC) Up 9.2% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Owens Corning (OC). Shares have added about 9.2% 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 Q3 Earnings Beat, Adjusted EBITDA Flat

Owens Corning reported mixed results for third-quarter 2022. Quarterly earnings surpassed the Zacks Consensus Estimate, but net sales marginally missed the same. The metrics increased on a year-over-year basis on the back of strong pricing action.

Brian Chambers, OC’s chair and chief executive officer, stated, “The resilience of our global teams and disciplined execution of our enterprise strategy continue to drive our success and create value for our customers and our shareholders. We are well positioned to deliver on our financial commitments and invest in our businesses to strengthen our company for the future."

Inside the Headlines

The company reported adjusted earnings of $3.57 per share, which topped the consensus mark of $3.17 by 12.6% and increased 42% from $2.52 a year ago.

Net sales of $2.53 billion lagged the consensus mark of $2.54 billion by 0.6% but increased 14% year over year. The uptick was mainly backed by solid segmental results.

Segment Details

Net sales in the Composites segment increased 8% year over year to $638 million. The upside was driven by higher selling prices and the favorable impact of the customer mix partially offset by lower volumes. Earnings before interest and taxes (EBIT) margin of 20% increased by 300 basis points (bps) from the year-ago quarter’s levels.

The Insulation segment’s net sales came in at $965 million, up 18% year over year on higher selling prices and the acquisition of Natural Polymers. EBIT increased to $173 million and the EBIT margin of 18% increased by 300 bps.

The Roofing segment’s net sales rose 15% year over year to $1 billion, driven by higher selling prices and partially offset by lower sales volume. EBIT increased to $229 million. EBIT margin contracted 100 bps year over year to 23%.

Operating Highlights

Adjusted EBIT and adjusted EBITDA rose 22% and 16% on a year-over-year basis, respectively. Adjusted EBIT margins rose 100 bps from the year-ago period’s levels and adjusted EBITDA remained flat.

Balance Sheet

As of Sep 30, 2022, the company had cash and cash equivalents of $751 million compared with $959 million at the 2021-end. Long-term debt — net of current portion — totaled $2.99 billion, up from $2.96 billion at 2021-end.

In the first three quarters, net cash provided by operating activities was $1,085 million compared with $1,168 million in the year-ago period. Free cash flow came in at $367 million for the third quarter, down from $400 million a year ago.

In the first nine months of 2022, the company returned $639 million to shareholders through dividends and share repurchases. In the third quarter, it paid dividends of $33 million and repurchased 2.5 million shares of common stock for $206 million. At quarter-end, 7.4 million shares were available under the current authorization.

Outlook

Owens Corning's businesses primarily depend on residential repair and remodeling activity, U.S. housing starts, global commercial construction activity and global industrial production.

For the fourth quarter, the company expects a moderate end market with the changing macroeconomic environment. For the fourth quarter, it expects net sales and adjusted EBIT to grow year over year.

For 2022, general corporate expenses are expected to be between $170 million and $180 million. Capital additions are estimated at $480 million, below the anticipated depreciation and amortization of $535 million (up from the previous expectation of $520 million). Interest expenses are estimated between $110 million and $115 million versus $115-$125 million expected earlier. The company now estimates an effective tax rate of 24-26% (25-27% expected earlier) and a cash tax rate of 22-24%, both on adjusted earnings.

How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted -6.96% due to these changes.

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 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.

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