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Weak Roofing Material Demand Lowers Owens Corning's 2014 Outlook

October 11, 2014

Weak demand for roofing materials has led building-materials producer Owens Corning to lower its outlook for this year. The company said it could fall short of its goal to reach $500 million in earnings after sales of roofing materials dropped 18% in the first quarter. Owens Corning saw modest gains in composites and insulation, while the lackluster demand for roofing materials may have been caused by a slowdown in the housing market, said Stephanie Karol, an economist at IHS Global Insight.

Officials had been holding out hope that the firm could still meet its target of $500 million in adjusted earnings before interest and taxes this year, even after a disappointing first quarter for roofing. While net sales of composites and insulation were up modestly, sales of roofing materials plummeted 18 percent. However, on Friday the company said that business hasn’t recovered as quickly as officials thought it might, with weakness continuing through April and May. OC said volumes may be down by as much as 20 percent in the year’‍s first half compared to last year.
In a news release, OC said it expects to recover a portion of that shortfall in the second half of the year, “however, continued weakness in the second quarter has introduced further uncertainty in the full-year financial outlook for the company’s roofing business.” Matt Schroder, a spokesman for the company, declined to comment further. “The factors that play into that, as they relate to our company and our point of view on the industry, is commentary and color we will provide during our July 23 conference call,” he wrote in an email to The Blade. Stephanie Karol, an economist at IHS Global Insight, said the market for single-family homes has not been performing as well as many people had predicted. Building permits for single-family homes have been mostly level since October, she said. “The winter certainly didn’t help, but it gave a lot of people a really handy scapegoat for what’‍s really going on and what’s really going on is an affordability problem,” Ms. Karol said. She said builders were facing rising material prices, while consumers are continuing to see slow wage growth. Ms. Karol couldn’t speak directly about OC’‍s situation, but said many industry observers lowered their expectations following Federal Reserve Board Chair Janet Yellen’s comments in early May that reflected concern about the U.S. housing sector. She said OC may have been slow to follow suit, but found it unavoidable. Owens Corning is one of the leading producers of composite shingles and insulation, and its fate often tracks the housing market. Though revenue rose in the insulation business last quarter, volumes were flat year-over-year. There are some signs that the housing industry could turn around, though. The National Association of Home Builders/Wells Fargo Housing Market Index rose four points in June to 49.
However, it remains one point shy of what is considered a good market for builders. “Consumers are still hesitant, and are waiting for clear signals of full-fledged economic recovery before making a home purchase,” NAHB Chief Economist David Crowe said earlier this month. “Builders are reacting accordingly, and are moving cautiously in adding inventory.” The association also noted that single-family building permits were up almost 4 percent in the most recent government data. Officials with the association said they are sticking to their previous expectation of a 12 percent increase in housing starts over last year. IHS is projecting a better market for housing starts in the second half of the year. “We do think it’s going to pick up by the end of the year,” Ms. Karol said. “We don’‍t think it’s going to be a dramatic pickup, we just think right now it’s in a holding pattern.” Owens Corning said Friday that improvement in its insulation and composites businesses should more than offset the weakness in roofing for the year. The company didn’t give a specific earnings guidance, but said the full-year adjusted earnings before interest and taxes should be more than last year’‍s $416 million.


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