Owens Corning (NYSE:OC) released results Wednesday and at first look, it was bad. If you read closer, you get a different picture. The company said Q4 2007 EBIT from continuing operations was a loss of $46 million, compared with a loss of $1 million for the same period in 2006. However...
When reviewing the operating performance of the company with its Board of Directors and employees, management makes adjustments to net earnings, earnings before interest and taxes ("EBIT") from continuing operations and diluted earnings per share. To calculate "adjusted earnings", "adjusted EBIT" and "adjusted diluted earnings per share", management excludes certain items from earnings before interest and taxes from continuing operations, including those related to the company's prior Chapter 11 proceedings, employee emergence equity program, restructuring and other activities so as to improve comparability over time (the "comparability items"). As described more fully in the following financial schedules, such comparability items amounted to charges of $199 million, $122 million, $117 million, and $5 million in the Successor twelve months ended December 31, 2007, Combined twelve months ended December 31, 2006, the successor two months ended December 31, 2006 and the Predecessor ten months ended October 31, 2006, respectively.
Great, what does that mean? There are still Chapter 11 items in current results. If we want a true picture of current operations excluding these items that will eventually dissipate, we want to look at these earnings. In doing that, we get results excluding comparability items, adjusted EBIT from continuing operations for Q4 of 2007 was $85 million compared with $137 million during the same period in 2006.
Full year earnings before interest and taxes [EBIT] from continuing operations for the full year ending Dec. 31, 2007, were $145 million compared with $407 million in fiscal 2006. Excluding comparability items, adjusted EBIT from continuing operations for 2007 was $344 million compared with $529 million during 2006, a decrease of 35%.
"Business results for 2007 were in line with our expectations," said Mike Thaman, chairman and chief executive officer. "Owens Corning is performing well through the severe downturn in the U.S. housing market. We generated cash flow from operations of $182 million in 2007."
Composites are now 34% of sales and grew last year at 23%
Roofing & Asphalt sales fell 19%
Insulation sales fell 15%
Other Building Materials sales fell 20%
Expect EBIT to be at a minimum of $240 million assuming 1 million housing starts.
$100 million in cost savings due to integration.
Now, even if housing does not turn in 2008 (it very well may not) there are likely increases coming for OC. We have not had a hurricane of any significance in two years. 84% of the Roofing and 20% of the Insulations divisions sales are for repair and even in low grade storms, roof repair is job #1. We are due and I cannot remember the last time we went three years without a storm. One could say it has been a "perfect storm" of bad news for Owens.
All that being said, even if housing trudges along and only hits the 1 million units, I would expect OC to significantly improve on the $240 million they predict.
Disclosure: Long OC.