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USG (NYSE:USG)

Q1 2014 Earnings Call

April 24, 2014 11:00 am ET

Executives

Ken Banas

James S. Metcalf - Chairman, Chief Executive Officer and President

Matthew F. Hilzinger - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

Mike Wood - Macquarie Research

Trey Grooms - Stephens Inc., Research Division

Robert C. Wetenhall - RBC Capital Markets, LLC, Research Division

Philip Ng - Jefferies LLC, Research Division

Stephen S. Kim - Barclays Capital, Research Division

Michael Dahl - Crédit Suisse AG, Research Division

Garik S. Shmois - Longbow Research LLC

Kathryn I. Thompson - Thompson Research Group, LLC

Keith B. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Operator

Welcome to the first quarter results conference call. My name is Adrianne, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I'll now turn the call over to Ken Banas. Ken Banas, you may begin.

Ken Banas

Thank you, and good morning. Welcome to USG's First Quarter 2014 Earnings Conference Call and Live Webcast. We'll be using a slide presentation in conjunction with our call today. It is available by going to the Investor Information section of our website, www.usg.com, and clicking on the link to the webcast.

Before we proceed, let me remind you that certain statements in this conference call may be forward-looking statements under securities laws. These statements are made on the basis of management's current views, assumptions of our business, market and other conditions, and management undertakes no obligation to update these statements. The statements are also subject to a number of factors, including those listed at the end of the press release, and actual results may be different from our current expectations. In addition, please refer to our earnings press release and presentation slides for disclosures and reconciliations of non-GAAP measures used when discussing our results and outlook.

With me today to discuss our results are Jim Metcalf, Chairman, President and Chief Executive Officer; and Matt Hilzinger, Executive Vice President and Chief Financial Officer. Jim will provide a general overview of the quarter, plus additional insight into some of our businesses. Matt will review the financial results for the quarter for the corporation and the business segments. We will then open the call for questions and conclude with a few comments from Jim.

[Operator Instructions] Jim?

James S. Metcalf

Thank you, Ken, and good morning. We appreciate you joining us this morning to talk about our business. I look forward on giving you an update on the quarter, as well as an insight on the markets for the balance of the year.

In the first quarter, we improved our results over last year, in spite of terrible weather during the quarter. Weather, as you're going to hear throughout our comments this morning, had a very significant impact to our business. Despite the weather and some macroeconomic headwinds, we still feel that the market is improving, and we remain focused on maximizing the leverage in our business and executing on our Plan to Win.

Before Matt and I cover the highlights for the quarter, I'd like to put a couple of things about our business into perspective. By executing our plan over the last several years that we've shared with you, we have fundamentally changed our business. We've lowered our breakeven from about 26 billion feet of industry opportunity down to around 18 billion feet. This has directly improved our operating leverage, and in 2013, we saw the results, as we generated about $450 million of adjusted EBITDA, which is above our historical mid-cycle average, on about 2/3 of the opportunity.

I want to note that the 2013 results were equal to 1996, which had over 1.5 million housing starts. And it was better than our results in 2001 versus 2003, in that period, where housing starts were between 1.7 million and 1.8 million starts. So lowering our breakeven has been a significant initiative and impact to our business. As we return to more normalized demand and with the addition of our joint venture with Boral, we clearly expect to outperform our historic average.

Now I'd like to turn to our business units. In our North American Gypsum segment, wallboard results continue to be a key driver of our improving performance. As a nationwide player that competes in all channels and geographies, we have a very broad product and customer mix. We consider a variety of factors when we make our pricing decisions, including our customers' volumes, product mix, the channel we operate in and our geographies.

During the first quarter, our wallboard price improved by over $13 per thousand. This is the third consecutive year of double-digit dollar increases for our Wallboard business. Our pricing model that we've discussed with you over the last year or so, with a single not-to-exceed price for the year, gives us -- gives our customers transparency to their costs while also giving our current customers an opportunity to improve their margins and lower their administrative costs as well.

Overall, our wallboard volume improved year-on-year in the quarter but was down sequentially, primarily due to the harsh weather that I have talked about. We have seen some positive trends in April, and we think this is a really good green shoot for our business. Our daily wallboard shipments have improved over 15% from the first quarter, and we expect this pace to continue to strengthen throughout the quarter. The year-on-year improvement and the acceleration this month gives us confidence that the recovery is intact.

Now I'd like to turn to our Worldwide Ceilings business. Our results were below our expectations and, quite frankly, as the CEO, I haven't been pleased with the results. Our quarterly performance was impacted by weather, and there was some demand pull-forward in the fourth quarter, as I mentioned to you on our last call. The weather issues in the quarter had a substantial impact on our operations where we have 2 ceiling tile plants, 2 out of our 3, in Minnesota and Wisconsin, and our ability to get product to our customers was very challenging.

Volumes and margins in both tile and grid were lower than our expectations, but we do believe this was primarily due to the severe weather. Our Ceilings business, as we've talked about, has performed extremely well through the downturn, and we've had pricing improvement each year, including a recent price increase for both tile and grid in February. We believe that this business will continue to perform well as the commercial market recovers. But as we've said in the past, in the short term, we're going to see continued choppiness in the commercial opportunity.

Now turning to L&W Supply. At L&W, our distribution business, we recorded a fourth consecutive quarter of operating profit, despite losing several days during the quarter in many of our key markets, including the Mid-Atlantic, Atlanta and the Carolinas, which typically don't have that type of weather in the winter. As a reference point at L&W, this is the first time we've been profitable in the first quarter since 2007. And in 2007, we shipped twice as much wallboard and had $200 million more in sales, a great proof point that the plan is working. The evidence of our strategy of branch rationalization and our focus on commercial construction where our value proposition really strongly resonates with our customer is really getting some traction. And I believe that this business will continue to improve throughout 2014 as the commercial opportunity recovers and more velocity runs through our system.

Next, I'd like to turn to an exciting part of our business, the USG-Boral joint venture. We're very excited to report that the JV closed the end of February during the first quarter. The combined teams are working closely together, and we are deep into the first phase of our technology upgrades. The JV sales and marketing team has begun selling adjacent products, and we are seeing some early successes in Ceilings in Thailand, Joint Treatment in Australia and FIBEROCK in the Middle East.

Now I'd like to take a moment to briefly touch and remind you about our strategy. As we've said in the past, we're very focused on executing the 3 parts of our Plan to Win: strengthening our core, diversifying our earnings, and differentiating through innovation. Strengthen, diversify and differentiate will be the driver of our performance.

Our commitment to strengthening the core can be seen in our steps towards delevering our balance sheet. This is a major initiative as our business improves. During the first quarter, we called the remaining $75 million of our 10% convertible notes. We have now called the full $400 million in converts, without risking any limitation on the use of our NOL. And while this is an important step in strengthening our core business, we still plan to reduce our debt by over $1.5 billion as we work towards the target that we've identified, our target leverage ratio of 1.5 to 2x debt-to-EBITDA at mid-cycle. This is an extremely important initiative to lowering our breakeven and strengthening the core of our business.

Diversifying our earnings is our second pillar of our strategy, and we took a very important step forward over the quarter with the finalization of USG Boral. USG Boral Building Products gives us a significant presence in the fastest-growing construction markets in the world. With improving adoption rate for Western construction practices, growing populations and GDP growth in excess of North America, the timing is right for us to make this investment. We're very excited about the potential for this business and we really believe that it will help us dampen some of the cyclicality that we have in our future earnings by 10% to 15%.

The third pillar of our strategy is differentiating through innovation. We continue to make investments in strengthening our entire portfolio of products, including our commercial roofing, commercial flooring, gypsum mat sheathing and specialty wallboard to deliver the most complete portfolio of products to our customers around the world. This also includes expected strategic extensions in our UltraLight platform of products this year. UltraLight currently represents over 60% of our wallboard shipments in the quarter. And during the first quarter, we substantially increased the points of distribution for our UltraLight Mold Tough products, which we will expect to continue further adoption as the year unfolds. Our product innovations contribute to our customer successes and really differentiates USG in the market. And as we've talked before, innovation continues to be a core component of our plan.

Now I'd like to turn it over to Matt, and he's going to give greater detail on our financial results from the quarter. Matt?

Matthew F. Hilzinger

Thank you, Jim, and good morning, everyone. This morning, I'll take you through our first quarter results and provide some additional details on each of our business segments.

As Jim said, weather clearly had an adverse impact on our results, affecting both revenue and our costs. During the first quarter, net sales were $850 million, up 4% from the first quarter last year. First quarter GAAP operating profit was $66 million compared to an operating profit of $49 million in the first quarter of 2013. Adjusted operating profit for the first quarter this year, including our share of the income from our new joint venture with Boral, was $69 million compared to adjusted operating profit of $51 million last year.

We recorded GAAP net income of $45 million and positive earnings per diluted share of $0.32 during the first quarter. On an adjusted basis, our net income was $19 million, which excludes, amongst other items, a $27 million gain on deconsolidation for the difference between the fair value and the book value of our contributed entities through our joint venture with Boral. Diluted EPS on an adjusted basis was $0.14 per share, with a fully diluted share count of about 140 million.

Based on our level of adjusted net earnings, the recently converted 6.6 million shares associated with our 10% convertible notes were not dilutive in our first quarter adjusted EPS, but they should be included in the share count in future quarters.

Before I begin my comments on each of our business units, I'd like to point out that although our JV with Boral is accounted under GAAP as income from equity method investment, and its results are not consolidated, we've included our portion of net income in our adjusted operating profit. Even though our share of the joint venture is 50%, we view this joint venture on equal footing with our business units. The USG-Boral JV is an important contributor to adjusted operating profit for the benefit of our shareholders, so we are going to report the earnings in our adjusted operating profit going forward.

Turning to North American Gypsum. Sales increased 7% to $544 million for the quarter, with operating profit of $65 million compared to $46 million in the first quarter of 2013. Our wallboard price increase was a primary contributor to our year-on-year improvement, adding $16 million. Despite the bad weather, wallboard volumes positively impacted operating profit by $2 million compared to a year ago.

GTL, our shipping business, contributed $7 million in the quarter due to higher shipping volumes, which added $5 million, and a $2 million gain on an insurance settlement. For the year, we still expect GTL to contribute about $20 million. Additionally, we had a favorable adjustment on an asset retirement obligation of $7 million in our Canadian mining operations.

Our wallboard cost increased by $2 million over last year, primarily related to higher natural gas costs. While we are 70% hedged on natural gas, the cold weather pushed the cost of our collars higher, and we also paid higher prices on the 30% of our gas that is unhedged.

For the quarter, due to the harsh winter, our natural gas cost was $1.23 per decatherm higher than the first quarter of last year, but we believe that these higher prices related to the weather are largely behind us.

Before I shift into our realized wallboard price increase, I want to make a couple of comments regarding how we think about our wallboard price. Late last year, we conducted an investor perception study, and one of the most common pieces of feedback from our investors was the desire for more transparency on wallboard price. When reporting shipments for purposes of share and capacity, the calculation includes all wallboard produced and sold domestically, regardless of where it is shipped. In the case of USG, this includes lower-priced sales to our foreign subsidiaries, who act as resellers. While we have consistently used the same methodology to calculate the sales price, the historical delta between our average sales price and the sales price to foreign subsidiaries has been relatively small. However, in the past couple of years, with our effective cost controls and domestic pricing improvement, the difference has become more sizable. So in an effort to be more transparent to our investors, we want to disclose the impact on our average domestic sales price because we expect the difference will grow as prices continue to increase.

During the first quarter, our average domestic price before the effect of sales to our foreign subsidiaries was $174.34 compared to a blended average sales price of $166.66, which includes sales at a lower price to our foreign subsidiaries. On a year-over-year basis, the $174 domestic price represents an increase of 10% from our domestic price of $158 during the first quarter of last year.

We do not intend to provide this information prior to 2013 because it has been so small. However, we will be including this information on our press release going forward to illustrate the impact of our sales price to foreign subsidiaries on our average domestic sales prices.

So turning to our average sales price, including sales to foreign subsidiaries. During the first quarter, we recorded a $13 price increase with an average sales price of $1.66 -- or $166.66, that's a lot of 6s, compared to $153.07 in the first quarter a year ago. This was our third consecutive year of double-digit dollar improvement. As you know, we do not put a price increase percentage on our letters due to our preference for communicating one-on-one with our customers. But with a single not-to-exceed price for the year, we do not believe that weather had an impact on our price during the quarter. Our year-over-year pricing improvement continues to work for our customers and is playing an important role on our path to delivering the right return on invested capital to our shareholders.

Our U.S. Wallboard business shipped approximately 1.15 billion square feet in the quarter. Despite the weather, this was a 4% improvement compared to the first quarter of last year. It is very important to note that in the weather-affected states, we actually saw a decrease of about 2% in our year-over-year shipments, while we saw approximately 9% growth in the non-weather-affected states during the first quarter. Our year-over-year improvement in the non-weather-affected areas and the volume acceleration we've seen in April gives us optimism on the balance of the year. While the cold weather had an impact on our first quarter volumes, at this point, we expect to largely recapture the impacted volumes over the balance of the year.

We continue to get questions from the investment community regarding capacity utilization. Some investors have asked us how we think about adding new capacity, so I wanted to take a moment to talk about it. Although our effective capacity is running in the mid-70% range, our physical capacity utilization is about 50%. So we have sufficient access physical capacity to easily service any uptick in demand. In fact, USG can run well up to the historical averages of about 1.5 million housing starts and 1.3 billion square feet of commercial starts with our current active network of lines and plants before we would have to consider adding physical capacity. Our shareholders -- as our shareholders would expect, we are going to be incredibly financially disciplined in any decision to add further capacity. We have no need or plans to restart a line or plant any time in the foreseeable future, but you may see us add a labor shift or 2 in some of the tighter markets to meet durable demand, especially if there is sudden spikes in demand as the weather improves.

Turning to Worldwide Ceilings business. Our results were also severely impacted by the harsh weather during the first quarter and the pull forward of demand from the fourth quarter. In the first quarter of this year, we recorded operating profit of $14 million on $138 million in sales compared to operating profit of $27 million on $153 million in sales during the first quarter of 2013. Volumes in both our ceiling tile and grid product lines were softer year-over-year, impacting results by $4 million. And we also had some cost increases, including natural gas, that impacted our margins by $7 million. These were partially offset by price improvement, which contributed $2 million.

Additionally, during the quarter, for the first time in about 15 years, we saw some natural gas curtailments at our largest tile facility in Cloquet, Minnesota. And the weather also created some challenges in getting raw materials into some of our other plants as well. Both of these issues impacted our quarterly volumes and efficiencies, and we are seeing some of this carry over into the second quarter, as there are still some challenges with gas and rail issues, which continue to impact our ability to get raw materials. Nevertheless, we expect our costs will normalize as we get through the second quarter.

Our Ceilings business is about 85% levered towards the commercial market, and while we expect the choppiness in our results to continue, we are bullish on the long-term outlook for commercial.

At L&W Supply, net sales were $300 million in the first quarter, an increase of 7% year-on-year, with same-store sales up 6%, which includes the adverse impact of weather. Our operating profit of $1 million in this year's first quarter compares to an operating loss of $2 million a year ago. We saw margin expansion across most of our core products, with volume and spread improvement on wallboard as the primary contributor, adding $3 million. We also had a favorable bad debt adjustment of $2 million due to our continued improvement in our collections and the strengthening of our customers' balance sheets. Our cost of goods sold related to our branch delivery and overhead cost was slightly higher during the quarter, impacting results by $3 million. L&W Supply, which is 2/3 levered to the commercial market, is poised to capitalize its opportunity returns to the commercial market. We simply need more velocity to drive L&W's profit line.

As Jim said, we are very excited to include our new JV with Boral in our operating results. Please take note that our quarterly results only include March, as we finalized the transaction at the end of February. So for the first quarter of this year, we recognized $3 million in earnings, which is our share of the joint venture's net income, on $89 million of aggregate joint venture sales.

I want to remind you that full-year earnings estimates should be adjusted for 10 months based on the closing date and point out that January and February are summer months in certain parts of the JV territory. Additionally, our guidance is prior to foreign currency adjustments, which may have a slight impact on actual results. We are extremely excited about this joint venture with Boral for all of its growth potential but also because it's immediately cash and earnings accretive, NPV positive, balance sheet neutral, and self-funding, with no capital calls expected from USG Corporation. Lastly, regarding our joint venture, we intend to show more details on this business than you might expect from an equity method investment, but please note that our current slide does not contain historical information because this is a new business for us. As we get more quarters, you'll be able to see more comparative information.

Shifting to liquidity. As of March 31, we had total liquidity of $618 million compared to $767 million a year ago. Consistent with prior years, we expect that our use of cash will be higher during the first quarter due to lower levels of seasonal demand, rebate and incentive payments and year-end accruals. This year, we also used $513 million in cash to fund our upfront payment to Boral. Based on our expected pace of the recovery, I believe that we have adequate liquidity at this point in the cycle.

Lastly, I want to reiterate our commitment to organically delevering our balance sheet and talk about our decision to call the remaining $75 million of 10% convertible senior notes in March. Due to trading activity during the quarter, we were in a position to call the remaining convertible debt without jeopardizing our $2.1 billion net operating loss carryforward for tax purposes. While converting this debt to equity created 6.6 million shares, we removed about $7.5 million in interest expense this year. We have now called the full $400 million in convertible notes, reducing our total debt burden and decreasing our annual interest obligation by $40 million. As Jim said, and as I'm committed to, delevering our balance sheet is a top strategic priority, and we will continue to evaluate every opportunity to organically pay down debt.

At this time, I'd like to turn the call back to Jim.

James S. Metcalf

Thank you, Matt. Before we take questions, I'd like to take a few minutes just to discuss our views on the overall market.

As you've heard, during the first quarter, weather was obviously a major impact to our business. 20 of our U.S. plants lost production. And across the network, we lost more than 100 hours’ worth of total production hours. Plus, our customers' businesses were also impacted, which delayed shipments in deferred demand. However, and I want to reiterate this, we believe that the short-term weather disruptions in the quarter have not altered the overall recovery in our business.

If you look at the 3 segments, first, on residential, as you all look at the numbers, seasonally adjusted housing starts for March were just below 950 million, which was lower than last year but sequentially stronger. We believe that housing starts will improve as the year unfolds and our outlook remains between 1 million and 1.1 million starts. Longer term, we believe that there is pent-up demand for housing, and the overall demographics indicate durable strength in the residential recovery.

One of our big markets, Repair and Remodel, continues to be a key driver for our business. In the first quarter, the Harvard Joint Center for Housing and NAHB both projected that spending on residential R&R will continue to improve in 2014. In commercial R&R, we're seeing signs of strengthening. Office vacancy rates are improving slightly this year from a high in 2010 of almost 18% to 16% nationally, where some major markets, like New York City, the vacancy rates are below 10%. Through our partnerships with large customers in the big-box channel and our strong distribution position, we're going to benefit from this continued recovery in the commercial Repair and Remodel segment.

In overall commercial construction, new commercial, the macro factors continue to point to a very modest second half recovery. The indicators that we all look at, ABI, have been positive for 16 of the past 20 months. But while yesterday's report showed a contraction on a national basis, if you look at the non-weather-related areas in the South and the West, both reported growth. This is consistent with what we've been seeing in our overall commercial business, and with volume that we looked at at our L&W shipments on steel, they've been improving slightly in the non-weather-affected areas during the quarter. So early indication that things are improving slightly, but we are going to continue to see a choppy market.

Based on discussions with our commercial contractors, really, over the last month, they remain very optimistic about 2014 as they start to see their backlogs continuing to grow. So while we see some quarterly disruptions and ongoing choppiness, our outlook for the year on commercial still remains in the mid-single-digit range, with activity picking up slightly as we get further into the year.

We believe the recovery needs for our end-use markets is intact. And for the full year in 2014, we're projecting wallboard industry shipments to be around the 23 billion-foot market as we continue to grow USG as the market recovers.

So now what we'd like to do is open up the call to you, and we'll be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we have Michael Rehaut from JPMorgan on line with a question.

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

My first, I guess, and only question is on wallboard pricing. I appreciate some of the additional detail there. The 10% increase, roughly -- or, I guess, on an effective basis, 9% year-over-year, a couple of the other manufacturers announced a 20% increase for the year. And certainly, you don't necessarily get the full realization of that in the marketplace, there's always back and forth, but you did mention that, if I heard you right, that you believe that weather did not impact pricing or your ability to achieve price in the marketplace. So just wanted to get a sense of, did you kind of go out with a price increase that was similar to other manufacturers? Was it a little bit less? And would you expect, even though you said you don't expect weather to be an effect -- I mean, is this the price that you'd expect would be with us for the rest of the year, for the rest of 2014?

James S. Metcalf

Yes, Michael, let me just touch on a couple of things. First, as both Matt and I said, this is the third consecutive year of a double-digit increase in wallboard price. And as you know, we supply all channels: retail, the specialty dealers, which focus on both housing and residential and manufactured housing. We ship in all 50 states. And it is a local market. There are different dynamics locally. Market is different in Seattle than it is in Miami. We do feel that we have a wonderful value proposition with our customers with the full product line. And we're quite pleased with getting this increase. You get a double-digit increase in the midst of what we talked about on weather. But weather had no impact. We go to our customers on an individual basis anywhere from probably Thanksgiving to the end of the year, that's really before weather hit, so we're expecting we have one price for the year, it's not to exceed. And a long answer to your question on is this the number we're as -- if you looked at last year, our number bounced around. It was pretty steady. It maybe bounced $1 or so. But the beauty of this pricing policy for our customers is it gives them clarity for their cost for the entire year. So they can lock that into their models and they can run their business. And what our customers have told us, it makes a lot of sense for them because they can focus on growing their business, they know where their costs are, and it's really helped them on administrative costs. So yes, this is going to be the range for the year. It may bounce around because where we ship and some geographies. But what you see is our, basically, $166, $167 price. That's the number you'll probably see as the year unfolds.

Operator

And our next question comes from Mike Wood from Macquarie.

Mike Wood - Macquarie Research

I had a question on incremental margins, both in the U.S. Gypsum and the L&W Supply. On the U.S. Gypsum, if I do the math, your price realization looks to be more than the year-over-year profit improvement in U.S. Gypsum. So I was wondering what -- if there's anything unusual driving that negative incremental margin in the U.S. Gypsum business. And L&W Supply, same question in terms of was the pass-through at no incremental margin on the wallboard price just pulling back on that incremental margin in L&W Supply?

James S. Metcalf

Let me just touch on that, and I'll turn it over -- a little more detail Matt will give you. As we've talked, we've been averaging, the last couple cycles, between $0.35 and $0.50 of incremental margins. And if you look at the last 12 months, we've done a little better than that, but it bounces around quarter-on-quarter. I'll specifically answer your L&W question and then turn it over to Matt. If you looked at the waterfall breakdown of the L&W results, L&W did get margin improvement on wallboard. So their spread did improve in the quarter. Their comp store sales were up, but they also got price improvement above what their cost increase were. So we were pleased with L&W's performance. And quite frankly, in a very difficult market from a weather standpoint, when you have a 150 locations, I think getting that improvement in the market from L&W was very positive. But I'll turn it over to Matt to talk about the incrementals that -- you had a question on Gypsum and the overall business.

Matthew F. Hilzinger

Yes, Mike, I'd focus in again on the -- Mike, I would focus in on, really, the impact of weather. We've gone through it. It's hard -- this is not science, so it's difficult to get an absolute, precise impact of what we think the weather had on our cost. But if you look at, for instance, gas, and then you look at just additional transportation cost to get raw materials into our plants, we think that was probably somewhere $10 million or plus between the wallboard side and the ceiling side. And then you look at -- on the revenue side, we actually think that there was a depression in revenues of somewhere, call it, $10 million to $15 million, and that had an impact on operating profit, call it, between $5 million and $10 million. So those 2 numbers, when you factor those in, I think had a pretty significant impact on why our incremental operating profit went down. And as Jim said, I mean, typically, when we come -- when you come out of a recession, you're between 30%, 50%. We've been over 50% over the last couple of years, and our anticipation would be is that we would run the business and keep it at the high end of that range. And I think Jim spent a lot of time talking about our focus on keeping our breakeven low, and those are things we're going to continue to do. So I would -- I don't want to use weather as an excuse, but I want to just tell you that I think it had a pretty significant impact on those numbers.

Operator

And we have Trey Grooms from Stephens on line with a question.

Trey Grooms - Stephens Inc., Research Division

Jim, you mentioned in your remarks that you're expecting industry shipments of about 23 billion square feet this year. I think that's up from about 21 billion last year. And assuming you guys maintain current share, that implies somewhere in the 10% to 12% range for volume growth for the next 3 quarters or so to get up to that. Should we be expecting -- because I know you talked about an acceleration in April. Should we be expecting 2Q to get more than their typical share this -- more than its typical share this year, given just the timing and the weather and all things combined with your outlook?

James S. Metcalf

Yes, I think that's definitely going to have to happen, Trey. As I've said, we're seeing early -- we're now almost through April. We're up about 15% on a daily rate, 15%, 16%. That needs to continue, and yes, we're going to need to see some seasonal uptick. Everything's going to have to -- we had talked last time, the range could be 23%, and I was a little optimistic, maybe north of that. We think housing's going to return. Repair and Remodel is very strong for us. I mean, we follow comp store sales of our big customers, and we're seeing some nice movement there. But to get in that 23% range, we're going to have to have that second and third quarter, which typically are the strong quarters, to have some pretty good -- we have to continue to be shipping where we are right now. But we still haven't -- we haven't given it up. I don't think we're being overly optimistic. I think our track record is we've been always cautiously optimistic. And the volume is there. It's just it's when it's going to hit. But we're starting to some early signs. L&W's shipping, construction steel at higher rates now, which is typically earlier in the construction cycle, steel studs go up first. So that's a little early indicator. And one thing that's -- this is the first time that we've heard this since the recession, our commercial contractors are starting to see a nice backlog, which, again, we won't see that maybe for 9 to 12 months. But they're starting to -- they're getting the backlog of their business, which we didn't see at this time last year. So long and the short of it, yes, we need to have the second quarter, have a nice bump followed up by a nice third quarter on volume. And we're cautiously optimistic that we're going to get some wind at our back.

Operator

And we have Bob Wetenhall from RBC Capital on line with a question.

Robert C. Wetenhall - RBC Capital Markets, LLC, Research Division

I just wanted to ask you about SG&A, SG&A investments that you made in the North American Gypsum business and Ceilings. And if you could help us think about the trajectory of spending and how that's going to progress through the year. Is it going to be mostly front-loaded in the first half, or do you see it being more consistent throughout the year?

Matthew F. Hilzinger

Bob, this is Matt. I think I would view it as fairly consistent throughout the year. I think we have said, I think, in the last call that we expected our total SG&A for the company to be between $330 million and $340 million for the year. We still believe that, that's the right estimate. And that's up from what we spent in 2013 as we continue to make some very focused investments that are really focused around the customer. And there are some things in IT, as an example, around customer ordering systems and around Sales Force Automation. And it benefits not just Ceilings, but it benefits our other businesses as well. We continue to work, and we're doing some things around customer branding, and we've got some new products that are coming out. So from our standpoint, we've kind of defined it internally as good cholesterol, bad cholesterol. We're going to continue to get the bad cholesterol out, lowering our breakeven, finding efficiencies and making investments where we think it's going to really help the customers and grow the top line and add to profitability. So I would view this as something that would be consistent with the guidance that I've given in the past. And it's going to be a little bit lumpy because you're just -- that's the way it is. But I think I'd stick with the guidance that we've given in the past.

Operator

And we have Philip Ng from Jefferies on line with a question.

Philip Ng - Jefferies LLC, Research Division

Can you help quantify the headwind for weather in your Ceilings business during the quarter? And do you expect margins demand to return to more normalized levels in 2Q? I mean, you guys generally sound more upbeat about non-res.

Matthew F. Hilzinger

Yes. As we talked about, we talked about weather a lot, and we thought it was important to quantify it. If you look at the total business, and then I'll touch on Ceilings, we think the revenue impact on weather was between $30 million and $50 million. And we think, from an operating profit standpoint, could anywhere between $10 million and $15 million. On Ceilings, we have a range. It probably impacted us $5 million to $6 million on operating profit, and we got a price increase. So one of the things that is a key point, when we talked about natural gas, when we get a $1 increase a decatherm on our natural gas, that has a major impact on ceilings. For example, a $1 increase a decatherm on our wallboard cost is just like $1.5, $2 on cost. $1 a decatherm on ceiling tile is almost $6 per thousand on cost. So it's almost 3x as much on a cost standpoint. So the commercial market is still going to be choppy. We're still very optimistic about our Ceilings business. But the quarter was tough, and we didn't comp even if you throw these numbers in. And I just want to reiterate it wasn't a surprise to us. It's kind of where our plants are located. But we need to reverse this trend, and we think -- we know we can do that. So I would say on the non-res opportunity, it's still back half of the year. There's still a lot of -- we talked about vacancy rates, but there's still some headwinds from a macroeconomic standpoint there. But we are still very pleased with the overall performance of our Ceilings business.

Operator

And we have Stephen Kim from Barclays on line with a question.

Stephen S. Kim - Barclays Capital, Research Division

Just want to ask a question getting back to the drywall pricing. You were kind enough to break out the foreign impact. I was curious, though, regionally, across the country, isn't it true that your drywall prices generally vary from region to region? And so therefore, I wanted to go back to this question of whether weather impacted the prices this quarter because obviously, weather didn't impact all regions equally. And so I was curious as to whether the regions which were more impacted by weather, whether they generally have a higher price, or is it pretty much consistent with the national average?

James S. Metcalf

So just to reiterate on the price, we feel that weather did not have an impact to where our price landed. We had all of our price pages to our customers, and all of our discussions were basically, in most cases, done by the end of December. So really, all the bad weather hit, as everyone knows, when it -- January, February. There really isn't a correlation on how bad the weather and where the price is. It's really the makeup of the market. Is it more heavily commercial? Is it heavily residential? Is it a big builder market? Are there large -- is there a big influx of the big-box retailers? It's really the supply and demand dynamics. Along with that, it's how far you have to ship into a region. If you have to ship longer distances, pricing tends to be different. So there is not a correlation on affected -- an area that was not affected got a higher price. It's more the customer makeup, the channel, the competitive situation and balancing price and volume.

Operator

And we have Michael Dahl from Crédit Suisse on line with a question.

Michael Dahl - Crédit Suisse AG, Research Division

I wanted to ask about the joint venture. I guess, it's now 2 months in, post close, and you've been looking at the businesses for a couple of months on top of that. So just wanted to get your thoughts on what are the biggest surprises so far you've seen, either positive or negative, whether it's on revenue opportunities or just integration of the businesses?

James S. Metcalf

Great. Thank you for the question on USG Boral. We are extremely excited about this. Strategically, it really positions us to, as I said in my prepared comments, to minimize some of the cyclicality that's been inherent in our business. And we think that has anywhere between a 10% and 15% impact on that cyclicality, which I think is a very, very important point. The first phase of USG Boral has always been on technology. This is to get all their plants level set. We are extremely pleased with the results on the technology side. We got an early start to do it. The cooperation between USG and the Boral team has been exceptional. It's been very welcoming. The big challenge is a lot of geography. We have plants in Indonesia, South Korea, Vietnam, Australia. So we broke up our technology team into kind of SWAT teams. We prioritized the kind of the low-hanging fruit from a technology standpoint. We're doing it in phases. Phase 1, we're going to have completed by the third quarter of this year. And we think the early indications are very, very positive. It's really focusing on quality. It's focusing on level-setting the 24 board lines to do it one way. We've been doing this for 112 years, so we kind of have a system that we do this, and it kind of works. And we're kind of -- we're bringing in USG, the USG system, but it is a kind of -- it's a loose-tight because Boral has a 40% market share in this region. So they're doing a lot of things really well. So it's really, on the technology side, no big surprises. Actually, we reported to the USG Board of Directors, we're very pleased with the early results. Really, the challenge I think we're facing now is how fast can we adopt the adjacent products. We've had some early successes. We need the USG Boral team now selling the full complementary of products, that ceiling, tile, DUROCK, FIBEROCK and Joint Treatment. And we're looking at market shares on Joint Treatment, which are lower than what we expect, so we're putting in USG formulas. And really, having the culture sell those adjacent products is really our next challenge. And it's a lot of training. We've had the USG Boral team in for training. We've infused USG sales and marketing experts over in the region that will be part of the JV. And so really, that would be the area that we really need to -- the adoption -- we really have to accelerate the adoption rate. So the good news is the technology is getting implemented, and we're very pleased there. The area that, as you asked, what is one of the things that we just have to keep our eye on and where maybe what may keep us up at night is we just have to make sure that adoption rate in 12 countries with the full product portfolio gets into the market ASAP.

Operator

And your next question comes from Garik Shmois with Longbow Research.

Garik S. Shmois - Longbow Research LLC

I have a question on Ceilings. You highlighted, in the deck, $7 million in cost inflation. Jim, you mentioned that there were some energy inflation and supply constraints, and these are going to continue into the second quarter. So I guess, just a follow-up to a previous question. Could you help us quantify, perhaps, what the overhang is going to be from some of these supply constraints into 2Q? And maybe talk about -- you mentioned that you were unpleased with how the business performed in the first quarter. Anything specifically you can do to tighten it up in the second quarter and beyond?

James S. Metcalf

Yes, let me just touch on a couple of items, and then I'll turn it over to Matt. From a gas standpoint, we got curtailed, as Matt said. It's been a long time since that happened, particularly in our Cloquet, Minnesota, plant, and we lost a lot of production there. So that has ended. We're-- the supply has opened up. The snow has started to melt. We were -- we could not get trucks on raw materials into our plants because of the harsh winter. We switched it over to rail, then the rail hung up. And those supply lines have started to open up. So in the second quarter, we're going to see some relief on that -- those costs headwinds that we had. And quite frankly, we're still in a fairly, fairly choppy commercial market. So we're -- the overhang on the cost, we think, is going to start minimizing as the second quarter results show. And I think we have our supply lines opened up.

Matthew F. Hilzinger

Yes, Jim, I would just add a couple of things. We did and have expected to just see some normal inflation in '14 over '13. And so -- but when you get this kind of weather anomaly, it's very hard to just pull out exactly what's weather and what's some inflation. But I would say, when you look at the ceilings number and you see the tile and grid cost number of $7 million, a really big portion of that is gas. And as I had mentioned, we -- I think last year, our total gas cost for the company was around -- right around $3.75, and we expected it to be somewhere around $3.90 to $4 this year. It peaked at $6.15, and we did have some hedges that I talked about before and we did have some open position, but even now, the current spots at $4.73. So it's not like on April 1, everything got back in the kind of a normalize view. So the positive thing is, when you look out into 2015 gas cost, right now, the forward curve shows it at $4.20. So I think we are in a supply-demand situation caused by the weather right now. And to the extent that, that clears itself up quicker, we'll obviously see that in our P&L a little faster than we normally would. But I do think we are going to see a little bit of that carry forward just into the second quarter just because it's going to take a while to get this -- the gas back to what we think is a much more reasonable and normalized side. And then I had also talked a little bit about railcars and getting supplies up to our plants. With all the weather and the snow, it just -- it's been more difficult to get trucks up there. At the same token, a lot of people wanted to use rail, not just us, and that put pressure on cost to get rail and finding railcars. And so I think, as the snow melt continues and we get trucks back on the road, I think we'll get a supply back up and we'll get our costs back in line. So I -- it's hard to give you an exact number, but I think by the end of the second quarter, our view is our costs will be back in line with what we would expect them to be. But we'll see a little bit of it in the second quarter.

Operator

And we have Kathryn Thompson from Thompson Research Group on line with a question.

Kathryn I. Thompson - Thompson Research Group, LLC

In light of higher cost and improving demand for ceiling tiles, in particular, do you think there's room for an additional price increase on top of the February price increase in 2014? And if not, could you clarify why it wouldn't be the case?

James S. Metcalf

On our Ceilings business, I think, really, through the recession, Kathryn, we've had pretty good success on price increases, both ceiling tile and grid. So we don't have one price for the year on ceilings and grid. And we will -- any pricing increase decision will be -- we put those factors in. We look at demand. We look at raw material costs. We look at -- one of the things you -- what drives our Ceilings business, really, is our grid business. We talk a lot about tile costs, which had a major impact, but the question would be what's going to happen with raw steel? If you look at the steel indexes, if we see an increase in the steel index, which is a forward-looking curve, absolutely, we're going to beat inflation by raising our grid prices. So all of those factors come into hand. And if those all come together, and we will -- we want to continue to grow our return on invested capital on ceilings, and we would put another price increase in the market, absolutely.

Kathryn I. Thompson - Thompson Research Group, LLC

So there's a greater bias to an increase than not?

James S. Metcalf

I love increases.

Operator

We have Keith Hughes from SunTrust on line with a question.

Keith B. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Yes, just final question. A follow-up on your curtailments that you discussed in the ceiling plants. How many days were you curtailed on natural gas there?

Matthew F. Hilzinger

I think it was a handful of days. I don't know the exact number, but it was -- I don't think it was -- I don't think it was a ton.

Operator

And I will now turn the call back over to Ken Banas for final remarks.

James S. Metcalf

Well, in lieu of Ken, this is Jim. And I'd like to just, first of all, thank everyone for your questions and, really, your interest in our company.

One of the things -- and we had quite a few challenges during the quarter, but fundamentally, the business has really repositioned itself, as I've said earlier about lowering our breakeven and growing the business. But I want to do take this moment. The USG team had a tremendous amount of challenges this quarter with the weather and curtailments and railcars and all the things we're talking about. But at the end of the day, we were in front of our customers, taking care of our customers day in and day out.

In the first quarter, what our team has done -- and we've took some very important steps as we talked about deleveraging our balance sheet, that is extremely important, of lowering our breakeven. We entered into the USG-Boral joint venture. And we generated positive operating results in the net income despite all the headwinds in our face.

Our outlook is very favorable. We believe that the long-term fundamentals still remain solid. We're well positioned to capitalize as demand continues to improve in each of our end-use markets, and we're going to continue to execute the plan that we've talked about to grow USG.

As always, we thank you for your time today and your interest in USG.

Ken Banas

A taped replay of this call will be available until Thursday, May 8. Information is available on usg.com. This concludes our conference call. Thank you, all, very much.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, and you may now disconnect.

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