Owens Corning Earnings: No Surprises

Owens Corning (OC) today reported sales of $1.534 billion during the second quarter, compared with $1.722 billion in the second quarter of 2006, an 11 percent decrease from the prior year.

Second-quarter net earnings were $29 million, or $0.22 per diluted share. Excluding comparability items (Prior bankruptcy related items), adjusted net earnings were $49 million, or $0.37 per diluted share. Analysts were expecting OC to earn 31 cents a share, before items, on revenue of $1.54 billion.

"The ongoing decline of the residential construction market in the United States continued to weaken demand for building materials during the second quarter," said Dave Brown, president and chief executive officer. "We believe that year-over-year performance improvements in our Roofing & Asphalt and Composite Solutions segments will partially offset cyclical weakness in insulation demand. Despite the challenging market, our business mix enables us to reaffirm prior guidance for 2007.

"In addition, we've announced strategic steps to significantly improve our business portfolio and accelerate our global growth," said Brown. "The acquisition of Saint-Gobain's Reinforcement and Composites business and the sale of our Siding Solutions business will further our ability to generate profitable growth and drive shareholder value."

Other Items

-During the second quarter of 2007, Owens Corning increased its ownership of Owens Corning India Limited from 60 percent to 78.5 percent to leverage this low-cost production platform to bolster the company's growth in the Asia Pacific region.

-Owens Corning announced a share buy-back program in the first quarter under which the company is authorized to repurchase up to 5 percent of Owens Corning's outstanding common stock. The company did not repurchase any shares during the first six months of 2007.

-Owens Corning projects that the to-be acquired business will generate earning before interest, taxes, depreciation and amortization (EBITDA) in excess of $100 million for full year 2007.

-The company continues to estimate that 2007 adjusted EBIT should exceed $415 million, not including the impact of the proposed acquisition of Saint- Gobain's Reinforcement and Composites business, the divestiture of Owens Corning's Siding Solutions business or other strategic organizational changes. This forecast will be updated and communicated quarterly.

All in all, given what has happened in housing, this is a good result. Composite sales grew 3% and this number will continue to grow when the St. Gobain acquisition is completed. They also anticipate an additional $100 million is synergies annually from the buy that are not factored into any earnings outlook.

All in all, vanilla and meeting analyst expectations are the reason the stock has not moved significantly. As I have said before the key is housing and when it turns, OC takes off with it (or an active hurricane season). Also, a key note is that the company has not bought any shares back yet. That is good because it is basically an insurance policy going forward that we can take 5% of the shares off the market and boost EPS.

Still holding shares...