Owens Corning Reports Fourth-Quarter and Full-Year 2018 Results

Company Delivered Record Revenue of $7.1 Billion in 2018;

Generated Net Earnings of $545 Million and Record Adjusted EBIT of
$861 Million

  • Strong portfolio delivered double-digit EBIT margins in all three
    segments
  • Insulation increased EBIT by 64% to $290 million on revenue growth of
    36%
  • Roofing produced EBIT of $434 million on revenue of $2.5 billion
  • Composites generated $251 million in EBIT and 12% EBIT margins

TOLEDO, Ohio–(BUSINESS WIRE)–Owens Corning (NYSE:OC) today reported consolidated net sales of $1.7
billion in fourth-quarter 2018, compared with net sales of $1.6 billion
in fourth-quarter 2017, an increase of 7%. Full-year 2018 consolidated
net sales were $7.1 billion, compared with net sales of $6.4 billion in
2017, an increase of 11%.

Fourth-quarter 2018 net earnings attributable to Owens Corning were $171
million, or $1.55 per diluted share, compared with a net loss of $4
million, or $0.04 per diluted share, during the comparable quarter in
2017. Fourth-quarter 2018 adjusted earnings were $152 million, or $1.38
per diluted share, compared with $125 million, or $1.11 per diluted
share, during the same period one year ago. (See Use of Non-GAAP
Measures, See Table 7).

Full-year 2018 net earnings attributable to Owens Corning were $545
million, or $4.89 per diluted share, compared with $289 million, or
$2.55 per diluted share, during 2017. Adjusted earnings in 2018 were
$550 million, or $4.94 per diluted share, compared with $498 million, or
$4.40 per diluted share, during 2017.

“Owens Corning had another record year in terms of revenue and adjusted
EBIT, with all three businesses delivering double-digit EBIT margins,”
said Chairman and Chief Executive Officer Mike Thaman. “Today, Owens
Corning is a more resilient and diversified company, better able to
generate attractive returns for investors through the cycle.”

Return of Capital Actions and Other Highlights

  • During 2018, Owens Corning repurchased 2.9 million shares of its
    common stock for $203 million. As of the end of 2018, 4.6 million
    shares were available for repurchase under the current authorization.
  • On February 7, 2019, the Owens Corning Board of Directors declared a
    quarterly cash dividend of $0.22 per common share, a 5% increase
    compared with the same period in the prior year. The dividend will be
    payable on April 2, 2019, to shareholders of record as of March 8,
    2019. During 2018, $92 million of cash was returned to shareholders
    through dividends.
  • Owens Corning sustained a high level of safety performance in 2018,
    with a recordable incident rate of 0.52, similar to last year.
  • The Board of Directors elected Brian Chambers, currently President and
    Chief Operating Officer, to succeed Mike Thaman as CEO, effective
    April 18, 2019. Mr. Thaman, who has served as Chairman since 2002 and
    as CEO since 2007, announced his retirement as CEO and will continue
    as Chairman of the Board.

2019 Outlook

  • The company expects an environment consistent with consensus
    expectations for global industrial production growth, U.S. housing
    starts, and global commercial and industrial construction growth.
  • In Insulation, the company expects a flat macroeconomic outlook for
    the North America residential fiberglass insulation business. In this
    business, the company expects continued positive pricing momentum to
    be offset by lower volumes and production curtailments. In the
    technical and other building insulation businesses, the company
    expects earnings growth driven by improved operating performance and
    growth in global construction and industrial insulation markets.
  • In Composites, the company expects growth in the glass fiber market
    consistent with global industrial production growth, with a more
    uncertain global economic environment. The company expects volume
    growth and improved operating performance to be offset by inflation.
  • In Roofing, the company expects relatively flat U.S. shingle
    end-market demand with industry shipments slightly below last year,
    assuming average storm demand. For Owens Corning, the company
    anticipates a favorable geographic mix comparison with the prior year
    and a higher share of shipments. Contribution margins entering 2019
    position the business for continued strong performance.
  • The company estimates an effective tax rate of 26% to 28%, and a cash
    tax rate of 10% to 12% on adjusted pre-tax earnings, due to the
    company’s U.S. tax net operating loss and foreign tax credit
    carryforwards.
  • The company expects general corporate expenses to be between $140
    million and $150 million. Capital additions are expected to total
    approximately $500 million, with an increased focus on productivity
    improvements. Interest expense is expected to be approximately $130
    million.
  • The company anticipates returning to strong conversion of adjusted
    earnings into free cash flow. The company plans to prioritize free
    cash flow to ongoing dividends and reduction of the term loan
    associated with the purchase of Paroc. Additional free cash flow could
    be available for share repurchases under the company’s existing
    authorization.

Fourth-Quarter and Full-Year 2018 Conference
Call and Presentation

Wednesday, February 20, 2019

9 a.m. Eastern Time

All Callers

  • Live dial-in telephone number: U.S. 1.888.317.6003; Canada
    1.866.284.3684; and other international +1.412.317.6061.
  • Entry number: 732-4995 (Please dial in 10-15 minutes before conference
    call start time)
  • Live webcast: https://services.choruscall.com/links/oc190220.html

Telephone and Webcast Replay

  • Telephone replay will be available one hour after the end of the call
    through February 27, 2019. In the U.S., call 1.877.344.7529. In
    Canada, call 1.855.669.9658. In other international locations, call
    +1.412.317.0088.
  • Conference replay number: 101-28-253
  • Replay available at https://services.choruscall.com/links/oc190220.html
  • Webcast replay available until February 20, 2020.

About Owens Corning

Owens Corning is a global leader in insulation, roofing, and fiberglass
composite materials. Its insulation products conserve energy and improve
acoustics, fire resistance, and air quality in the spaces where people
live, work, and play. Its roofing products and systems enhance curb
appeal and protect homes and commercial buildings alike. Its fiberglass
composites make thousands of products lighter, stronger, and more
durable. Owens Corning provides innovative products and solutions that
deliver a material difference to its customers and, ultimately, make the
world a better place. The business is global in scope, with operations
in 33 countries. It is also human in scale, with approximately 20,000
employees cultivating local and longstanding relationships with
customers. Based in Toledo, Ohio, USA, the company posted 2018 sales of
$7.1 billion. Founded in 1938, it has been a Fortune 500® company for 64
consecutive years. For more information, please visit www.owenscorning.com.

Use of Non-GAAP Measures

Owens Corning uses non-GAAP measures in its earnings press release that
are intended to supplement investors’ understanding of the company’s
financial information. These non-GAAP measures include EBIT, adjusted
EBIT, adjusted earnings, adjusted diluted earnings per share
attributable to Owens Corning common stockholders (“adjusted EPS”),
adjusted pre-tax earnings, free cash flow and free cash flow conversion.
When used to report historical financial information, reconciliations of
these non-GAAP measures to the corresponding GAAP measures are included
in the financial tables of this press release. Specifically, see Table 2
for EBIT and adjusted EBIT, Table 7 for adjusted earnings and adjusted
EPS, and Table 8 for free cash flow.

For purposes of internal review of Owens Corning’s year-over-year
operational performance, management excludes from net earnings
attributable to Owens Corning certain items it believes are not
representative of ongoing operations. The non-GAAP financial measures
resulting from these adjustments (including adjusted EBIT, adjusted
earnings, adjusted EPS and adjusted pre-tax earnings) are used
internally by Owens Corning for various purposes, including reporting
results of operations to the Board of Directors, analysis of
performance, and related employee compensation measures. Management
believes that these adjustments result in a measure that provides a
useful representation of its operational performance; however, the
adjusted measures should not be considered in isolation or as a
substitute for net earnings attributable to Owens Corning as prepared in
accordance with GAAP.

Free cash flow is a non-GAAP liquidity measure used by investors,
financial analysts and management to help evaluate the company’s ability
to generate cash to pursue opportunities that enhance shareholder value.
Free cash flow is not a measure of residual cash flow available for
discretionary expenditures due to the company’s mandatory debt service
requirements. As a conversion ratio, free cash flow is compared to
adjusted earnings. Free cash flow and free cash flow conversion are used
internally by the company for various purposes, including reporting
results of operations to the Board of Directors of the company and
analysis of performance. Management believes that these measures provide
a useful representation of our operational performance and liquidity;
however, the measures should not be considered in isolation or as a
substitute for net cash flow provided by operating activities or net
earnings attributable to Owens Corning as prepared in accordance with
GAAP.

When the company provides forward-looking expectations for non-GAAP
measures, the most comparable GAAP measures and a reconciliation between
the non-GAAP expectations and the corresponding GAAP measures are
generally not available without unreasonable effort due to the
variability, complexity and limited visibility of the adjusting items
that would be excluded from the non-GAAP measures in future periods. The
variability in timing and amount of adjusting items could have
significant and unpredictable effect on our future GAAP results.

Forward-Looking Statements

This news release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. These forward-looking statements
are subject to risks, uncertainties and other factors and actual results
may differ materially from those results projected in the statements.
These risks, uncertainties and other factors include, without
limitation: levels of residential and commercial construction activity;
relationships with key customers; competitive and pricing factors;
levels of global industrial production; demand for our products;
industry and economic conditions that affect the market and operating
conditions of our customers, suppliers or lenders; domestic and
international economic and political conditions, including new
legislation, policies or other governmental actions in the U.S. or
elsewhere; changes to tariff, trade or investment policies or laws;
foreign exchange and commodity price fluctuations; our level of
indebtedness; weather conditions; issues involving implementation and
protection of information technology systems; availability and cost of
credit; availability and cost of energy, transportation, raw materials
or other inputs; labor disputes; legal and regulatory proceedings,
including litigation and environmental actions; our ability to utilize
net operating loss carry-forwards; research and development activities
and intellectual property protection; interest rate movements; uninsured
losses; issues related to acquisitions, divestitures and joint ventures;
achievement of expected synergies, cost reductions and/or productivity
improvements; levels of goodwill or other indefinite-lived intangible
assets; defined benefit plan funding obligations; price volatility in
certain wind energy markets in the U.S.; and factors detailed from time
to time in the company’s Securities and Exchange Commission filings. The
information in this news release speaks as of February 20, 2019, and is
subject to change. The company does not undertake any duty to update or
revise forward-looking statements except as required by federal
securities laws. Any distribution of this news release after that date
is not intended and should not be construed as updating or confirming
such information.

Owens Corning Investor Relations News

         

Table 1

Owens Corning and Subsidiaries

Consolidated Statements of Earnings (Loss)

(unaudited)

(in millions, except per share amounts)

 
       

Three Months Ended
December 31,

   

Twelve Months Ended
December 31,

        2018     2017     2018     2017
NET SALES       $ 1,724       $ 1,606       $ 7,057       $ 6,384
COST OF SALES       1,313       1,210       5,425       4,815
Gross margin 411     396 1,632     1,569
OPERATING EXPENSES
Marketing and administrative expenses 169 163 700 620
Science and technology expenses 23 21 89 85
Other expenses, net       (3 )     25       36       67
Total operating expenses       189       209       825       772
OPERATING INCOME       222       187       807       797
Non-operating (income) expense       (3 )     37       (14 )     60
EARNINGS BEFORE INTEREST AND TAXES 225 150 821 737
Interest expense, net 25 26 117 107
Loss on extinguishment of debt                         71
EARNINGS BEFORE TAXES 200 124 704 559
Income tax expense 29 127 156 269

Equity in loss of affiliates

                  (1 )    
NET EARNINGS (LOSS) 171 (3 ) 547 290
Net earnings attributable to noncontrolling interests             1       2       1

NET EARNINGS (LOSS) ATTRIBUTABLE TO
OWENS CORNING

      $ 171       $ (4 )     $ 545       $ 289

EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE
TO OWENS
CORNING COMMON STOCKHOLDERS

Basic $ 1.56 $ (0.04 ) $ 4.94 $ 2.59
Diluted $ 1.55 $ (0.04 ) $ 4.89 $ 2.55
Dividend $ 0.22 $ 0.21 $ 0.85 $ 0.81
WEIGHTED AVERAGE COMMON SHARES
Basic 109.4 111.2 110.4 111.5
Diluted 110.3 112.9 111.4 113.2
         

Table 2

Owens Corning and Subsidiaries

EBIT Reconciliation Schedules

(unaudited)

 

Adjusting income (expense) items to EBIT are shown in the table
below (in millions):

 
       

Three Months Ended
December 31,

   

Twelve Months Ended
December 31,

        2018     2017     2018     2017
Restructuring costs $ (3 )     $ (11 ) $ (22 )     $ (48 )
Acquisition-related costs (3 ) (16 ) (15 )
Recognition of acquisition inventory fair value step-up (2 ) (5 )
Litigation settlement gain, net of legal fees 29
Pension settlement losses (36 ) (64 )
Environmental liability charges             (15 )           (15 )
Total adjusting items       $ (3 )     $ (65 )     $ (40 )     $ (118 )
         

The reconciliation from net earnings (loss) attributable to Owens
Corning
to EBIT and Adjusted EBIT is shown in the table below
(in millions):

 
       

Three Months Ended
December 31,

   

Twelve Months Ended
December 31,

        2018     2017     2018     2017

NET EARNINGS (LOSS) ATTRIBUTABLE TO
OWENS CORNING

$ 171     $ (4 ) $ 545     $ 289
Net earnings attributable to noncontrolling interests             1       2       1  
NET EARNINGS (LOSS) 171 (3 ) 547 290

Equity in loss of affiliates

(1 )
Income tax expense       29       127       156       269  
EARNINGS BEFORE TAXES 200 124 704 559
Interest expense, net 25 26 117 107
Loss on extinguishment of debt                         71  
EARNINGS BEFORE INTEREST AND TAXES 225 150 821 737
Adjusting items from above       (3 )     (65 )     (40 )     (118 )
ADJUSTED EBIT       $ 228       $ 215       $ 861       $ 855  
     

Table 3

Owens Corning and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

(in millions)

 

 

Twelve Months Ended
December 31,

2018       2017
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES
Net earnings $ 547 $ 290
Adjustments to reconcile net earnings to cash provided by operating
activities:

 

Depreciation and amortization 433 371
Deferred income taxes 141 183
Provision for pension and other employee benefits liabilities 74
Stock-based compensation expense 47 44
Loss on extinguishment of debt 71
Other adjustments to reconcile net earnings to cash provided by
operating activities
(49 ) 18
Change in operating assets and liabilities:
Changes in receivables, net 39 (66 )
Changes in inventories (216 ) (57 )
Changes in accounts payable and accrued liabilities (89 ) 187
Changes in other operating assets and liabilities 7 (10 )
Pension fund contributions (40 ) (72 )
Payments for other employee benefits liabilities (19 ) (18 )
Other 2   1  
Net cash flow provided by operating activities 803   1,016  
NET CASH FLOW USED FOR INVESTING ACTIVITIES
Cash paid for property, plant and equipment (537 ) (337 )
Derivative settlements 64 3
Proceeds from the sale of assets or affiliates 27 3
Investment in subsidiaries and affiliates, net of cash acquired (1,143 ) (570 )
Net cash flow used for investing activities (1,589 ) (901 )

NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES

Proceeds from senior revolving credit and receivables securitization
facilities
1,954 1,133
Payments on senior revolving credit and receivables securitization
facilities
(1,879 ) (1,133 )
Proceeds from term loan borrowing 600
Payments on term loan borrowing (100 )
Proceeds from long-term debt 389 588
Payments on long-term debt (351 )
Dividends paid (92 ) (89 )
Net increase in short-term debt 16 1
Purchases of treasury stock (236 ) (159 )
Other (5 ) 13  
Net cash flow provided by financing activities 647   3  
Effect of exchange rate changes on cash (29 ) 17  
Net (decrease) increase in cash, cash equivalents and restricted cash (168 ) 135
Cash, cash equivalents and restricted cash at beginning of period 253   118  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 85   $ 253  
DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for income taxes $ 91 $ 67
Cash paid during the year for interest $ 158 $ 106
           

Table 4

Owens Corning and Subsidiaries

Consolidated Balance Sheets

(unaudited)

(in millions, except per share data)

 
December 31, December 31,
2018 2017
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 78 $ 246

Receivables, less allowances of $16 at December 31, 2018
and
$19 at December 31, 2017

794 806
Inventories 1,072 841
Assets held for sale 3 12
Other current assets 73   80  
Total current assets 2,020 1,985
Property, plant and equipment, net 3,811 3,425
Goodwill 1,949 1,507
Intangible assets, net 1,779 1,360
Deferred income taxes 43 144
Other non-current assets 169   211  
TOTAL ASSETS $ 9,771   $ 8,632  
LIABILITIES AND EQUITY
Total current liabilities 1,278 1,282
Long-term debt, net of current portion 3,362 2,405
Pension plan liability 268 256
Other employee benefits liability 190 225
Deferred income taxes 141 37
Other liabilities 208 223
OWENS CORNING STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.01 per share (a)
Common stock, par value $0.01 per share (b) 1 1
Additional paid in capital 4,028 4,011
Accumulated earnings 2,013 1,575
Accumulated other comprehensive deficit (656 ) (514 )
Cost of common stock in treasury (c) (1,103 ) (911 )
Total Owens Corning stockholders’ equity 4,283 4,162
Noncontrolling interests 41   42  
Total equity 4,324   4,204  
TOTAL LIABILITIES AND EQUITY $ 9,771   $ 8,632  
(a)   10 shares authorized; none issued or outstanding at December 31,
2018 and December 31, 2017
(b) 400 shares authorized; 135.5 issued and 109.5 outstanding at
December 31, 2018; 135.5 issued and 111.5 outstanding at December
31, 2017
(c) 26.0 shares at December 31, 2018 and 24.0 shares at December 31, 2017
 

Table 5

Owens Corning and Subsidiaries

Segment Information

(unaudited)

Composites

The table below provides a summary of net sales, EBIT and depreciation
and amortization expense for the Composites segment (in millions):

     

Three Months Ended
December 31,

   

Twelve Months Ended
December 31,

      2018     2017     2018     2017
Net sales     $ 481     $ 506     $ 2,041     $ 2,068
% change from prior year -5 % 9 % -1 % 6 %
EBIT $ 56 $ 74 $ 251 $ 291
EBIT as a % of net sales 12 % 15 % 12 % 14 %
Depreciation and amortization expense     $ 38       $ 37       $ 147       $ 144  

Insulation

The table below provides a summary of net sales, EBIT and depreciation
and amortization expense for the Insulation segment (in millions):

     

Three Months Ended
December 31,

   

Twelve Months Ended
December 31,

      2018     2017     2018     2017
Net sales     $ 732     $ 595     $ 2,720     $ 2,001
% change from prior year 23 % 26 % 36 % 14 %
EBIT $ 115 $ 79 $ 290 $ 177
EBIT as a % of net sales 16 % 13 % 11 % 9 %
Depreciation and amortization expense     $ 48       $ 35       $ 186       $ 124  

Roofing

The table below provides a summary of net sales, EBIT and depreciation
and amortization expense for the Roofing segment (in millions):

     

Three Months Ended
December 31,

   

Twelve Months Ended
December 31,

      2018     2017     2018     2017
Net sales     $ 546     $ 560     $ 2,492     $ 2,553
% change from prior year -3 % 16 % -2 % 16 %
EBIT $ 83 $ 108 $ 434 $ 535
EBIT as a % of net sales 15 % 19 % 17 % 21 %
Depreciation and amortization expense     $ 13       $ 13       $ 51       $ 50  
           

Table 6

Owens Corning and Subsidiaries

Corporate, Other and Eliminations

(unaudited)

Corporate, Other and Eliminations

The table below provides a summary of EBIT and depreciation and
amortization expense for the Corporate,
Other and
Eliminations category (in millions):

 
       

Three Months Ended
December 31,

     

Twelve Months Ended
December 31,

        2018     2017       2018     2017
Restructuring costs $ (3 )     $

(11

) $ (22 )     $ (48 )
Acquisition-related costs (3 ) (16 ) (15 )
Recognition of acquisition inventory fair value step-up (2 ) (5 )
Litigation settlement gain, net of legal fees 29
Pension settlement losses (36 ) (64 )
Environmental liability charges (15 ) (15 )
General corporate expense and other       (26 )     (46 )       (114 )     (148 )
EBIT       $ (29 )     $ (111 )       $ (154 )     $ (266 )
Depreciation and amortization       $ 11       $ 17         $ 49       $ 53  
 

Table 7

Owens Corning and Subsidiaries

EPS Reconciliation Schedules

(unaudited)

(in millions, except per share data)

 

A reconciliation from net earnings (loss) attributable to Owens
Corning to adjusted earnings and a reconciliation from
diluted
earnings (loss) per share to adjusted diluted earnings per share
are shown in the tables below:

 
      Three Months Ended   Twelve Months Ended
        March 31,     June 30,     September 30,     December 31,     December 31,  
        2018     2017     2018       2017     2018       2017     2018       2017     2018     2017  
RECONCILIATION TO ADJUSTED EARNINGS
Net earnings (loss) attributable to Owens Corning $ 92     $ 101   $ 121     $ 96   $ 161     $ 96   $ 171     $ (4 ) $ 545   $ 289
Adjustment to remove adjusting items (a) 21 1 8 40 8 83 3 65 40 189
Adjustment to remove tax benefit on adjusting items (b) (7 ) (1) (9) (2) (29) (2) (24) (12) (62)
Adjustment to remove significant tax items and reserve reversals (c) 2 (25 ) 82 (23 ) 82
Adjustment to tax expense to reflect pro forma tax rate (c)       (14 )     (5 )   4       8     5       (9 )   5       6          
ADJUSTED EARNINGS       $ 92       $ 97     $ 132       $ 135     $ 174       $ 141     $ 152       $ 125     $ 550     $ 498  
 

RECONCILIATION TO ADJUSTED DILUTED EARNINGS PER SHARE
ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS

DILUTED EARNINGS (LOSS) PER
COMMON SHARE
ATTRIBUTABLE TO

OWENS CORNING COMMON
STOCKHOLDERS

$ 0.82 $ 0.89 $ 1.08 $ 0.85 $ 1.45 $ 0.85 $ 1.55 $ (0.04 ) $ 4.89 $ 2.55
Adjustment to remove adjusting items (a) 0.19 0.01 0.07 0.35 0.07 0.74 0.03 0.58 0.36 1.67
Adjustment to remove tax benefit on adjusting items (b) (0.06 ) (0.01 ) (0.08 ) (0.02 ) (0.26 ) (0.02 ) (0.22 ) (0.11 ) (0.54 )
Adjustment to remove significant tax items and reserve reversals (c) 0.02 (0.23 ) 0.73 (0.20 ) 0.72
Adjustment to tax expense to reflect pro forma tax rate (c)       (0.13)     (0.05)     0.04       0.07     0.05       (0.08)     0.05       0.06          

ADJUSTED DILUTED EARNINGS PER
SHARE ATTRIBUTABLE TO
OWENS

CORNING COMMON STOCKHOLDERS

      $ 0.82       $ 0.85     $ 1.18       $ 1.19     $ 1.57       $ 1.25     $ 1.38       $ 1.11     $ 4.94     $ 4.40  
 
RECONCILIATION TO DILUTED SHARES OUTSTANDING
Weighted average shares outstanding used for basic earnings per share 111.5 112.3 110.9 111.6 110.0 111.0 109.4 111.2 110.4 111.5
Non-vested restricted shares and performance shares 1.0 0.9 0.8 1.2 0.7 1.4 0.8 1.5 0.8 1.5
Options to purchase common stock       0.3       0.3     0.2       0.3     0.2       0.3     0.1       0.2     0.2     0.2  
Diluted shares outstanding       112.8       113.5     111.9       113.1     110.9       112.7     110.3       112.9     111.4     113.2  

Contacts

Media
Katie Merx
419.248.6496

Investor Inquiries:
Thierry Denis
419.248.5748

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