Enterprising Investor
6 years ago
Knauf and USG Agree to Transaction at $44 Per Share in Cash (6/11/18)
Provides Knauf with Lasting Presence in North American Wallboard and Ceilings; Enhances USG’s Position Worldwide
USG’s Headquarters to Remain in Chicago
IPHOFEN, Germany & CHICAGO--(BUSINESS WIRE)--Gebr. Knauf KG (“Knauf”) and USG Corporation (NYSE:USG) (“USG”) today announced that they have entered into a definitive agreement pursuant to which Knauf will acquire all of the outstanding shares of USG in a transaction valued at approximately $7.0 billion. Under the terms of the agreement, USG shareholders will receive $44.00 per share, which consists of $43.50 per share in cash payable upon closing of the transaction and a $0.50 per share special dividend that would be paid following shareholder approval of the transaction. The price represents a premium of 31% to USG’s unaffected closing price of $33.51 and a 36% premium to the $32.36 average closing price for the preceding 12-month period, both as of March 23, 2018, and a multiple of approximately 11.6x USG’s adjusted EBITDA for the 12 months ended March 31, 2018. The transaction was unanimously approved by USG’s Board of Directors. Berkshire Hathaway has agreed to vote its shares in favor of the transaction. As of June 11, 2018, Berkshire Hathaway and its subsidiaries owns approximately 31% of the issued and outstanding shares of USG.
he combined company results in a global building materials industry leader that will maximize Knauf and USG’s highly complementary businesses, products and global footprint to better meet the needs of both companies’ end-market customers. Following the close of the transaction, USG will continue to be managed locally in the United States, and Knauf intends to maintain USG’s existing corporate headquarters in Chicago as well as its facilities in North America.
Alexander Knauf, General Partner of Knauf, said, “We are excited to enter into an agreement to acquire USG. As a long-term USG shareholder, we greatly admire USG’s strong brands, leading market positions in North American wallboard and ceilings and highly talented employee base. We look forward to building on USG’s strong presence in North America.”
“As a family-owned company with a long-term focused business outlook, we believe Knauf is the ideal partner for the business as we intend to make significant investments in USG’s operations and its people,” added Manfred Grundke, General Partner of Knauf. “Our long-term investments will benefit all of USG’s stakeholders, including employees, customers and suppliers.”
Jennifer Scanlon, president and chief executive officer of USG, said, “Our Board has worked diligently to evaluate all strategic options to maximize value for our shareholders, and we are pleased to have reached this agreement which provides our shareholders with significant and certain cash value. We believe this transaction will create new opportunities for both companies’ customers and will benefit USG’s employees who will be part of a truly global building products company. Alexander, Manfred and their team have made clear their high regard for our team, and we are confident that Knauf will help to ensure the long-term success of USG’s operations, brands and employees.”
The transaction is expected to close in early 2019, subject to customary closing conditions, including regulatory approvals and approval by USG shareholders.
The transaction is not subject to any financing conditions. The transaction will be financed from existing cash and committed debt financing.
Morgan Stanley Bank AG is serving as the exclusive financial advisor to Knauf, and Baker McKenzie LLP, Shearman & Sterling LLP and Freshfields Bruckhaus Deringer are acting as legal counsel to Knauf. J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC are serving as financial advisors to USG, and Jones Day is acting as legal counsel to USG.
https://www.businesswire.com/news/home/20180611005540/en/Knauf-USG-Agree-Transaction-44-Share-Cash
Enterprising Investor
6 years ago
Knauf Files Investor Presentation (4/17/18)
Presentation Highlights the Value of Knauf's Offer and Risks Inherent in USG's Strategy
Despite Knauf's Repeated and Concerted Efforts, USG's Board Refuses to Seriously Engage and Demonstrate Additional Value
Urges Fellow Shareholders to Send Clear Message to USG's Board to Engage in Meaningful Discussions with Knauf Regarding $42.00 per Share Offer; Vote AGAINST ALL Four USG Director Nominees at 2018 Annual Meeting
IPHOFEN, Germany, April 17, 2018 /PRNewswire/ -- Gebr. Knauf KG ("Knauf") today announced that it has filed an investor presentation with the U.S. Securities and Exchange Commission ("SEC") in connection with its withhold campaign against USG Corporation (NYSE: USG). The investor presentation details the rationale for the value of Knauf's offer, and discussed some of the risks inherent in USG's strategy. Knauf urges USG shareholders to vote AGAINST All four of USG's director nominees at the Company's Annual Meeting scheduled for May 9, 2018 as way to send a clear message to USG's Board to immediately engage in meaningful discussions with Knauf regarding its offer of $42.00 per share.
Among other things, the presentation highlights:
• Knauf's offer of $42.00 per share presents USG shareholders with substantial cash value after a decade without dividends or meaningful share price appreciation. As a long time USG shareholder, Knauf knows USG and the industry well; Knauf believes the offer reflects the full and fair value of USG. Knauf's offer represents an attractive multiple of 11.2x USG's 2017 fully adjusted EBITDA, a 25% premium to the last unaffected trading day prior to the public announcement of the offer, and a 30% premium to USG's average closing share price for the 12-month period ended March 23, 2018. The offer value is in excess of USG's highest stock price over the last decade (measured since January 1, 2008) and allows USG shareholders to realize an attractive premium today.
• The offer price provides full and fair value and de-risks any future business plan execution and cyclicality. USG has dramatically underperformed the market since 2000, including the S&P 500 and the Dow Jones U.S. Construction & Materials Index. USG wants shareholders to believe that its new plan will deliver significant turnaround and margin expansion, but, based on publicly available sources, since the financial crisis USG has missed approximately 75% of its quarterly EBIT consensus numbers. Over the last 25 years USG's EBITDA has suffered from significant volatility with peak to trough variation of over $1.1B and an average annual volatility of $168MM. Given the cyclical nature of USG's business, Knauf believes that evaluation of USG's full and fair value should focus on long-term, sustainable cash flow and EBITDA on a through-the-cycle basis, not near-term margin targets. These factors, including the value of USG's Investor Day strategy have been factored into Knauf's offer of $42.00 per share.
• Market response to Knauf's offer indicates broad support from USG shareholders. When USG introduced its ambitious new strategy at USG's Investor Day on March 8, 2018, the share price declined almost 3%. In contrast, when Knauf's offer was publicly disclosed on March 26, 2018, USG's share price increased almost 20%. Knauf believes that this stock price comparison is a clear indication that USG shareholders favor the substantial, immediate and cash-certain value of Knauf's offer over the potential risk inherent in a cyclical and mature industry and with USG's ambitious business plan.
• Berkshire Hathaway, a long-term USG shareholder with an approximately 31% ownership stake, has offered Knauf an option at $42, which Knauf believes validates the value of its offer, and has publicly stated its intention to VOTE AGAINST USG's four director nominees. Berkshire Hathaway disclosed a proposal to grant Knauf an option to purchase all of Berkshire Hathaway's shares in USG, exercisable if Knauf agrees to a transaction to acquire all of the outstanding shares of USG. Additionally, after Knauf initiated its "Withhold" campaign, Berkshire Hathaway publicly stated its intention to vote against USG's director nominees. Knauf believes that this is a clear indication that Berkshire Hathaway views $42.00 as a reasonable offer price.
• Despite Knauf's repeated and concerted efforts, USG's Board has refused to seriously engage at every step. Despite their assertions to the contrary, USG has refused to engage meaningfully with Knauf regarding its substantial cash offer. Knauf has repeatedly reached out to USG in an attempt to commence serious negotiations, or at least have them demonstrate where there might be additional value, expressing its willingness to enter into a non-disclosure agreement. USG's refusal to engage is further protected by the Company's extensive structural defenses. Knauf can only conclude that USG is unable to present substantive evidence to support its claims that the Company is worth more than $42.00 per share. Shareholders should NOT let USG's extensive structural defense policies prevent them from making their voices heard.
Knauf's "Withhold" campaign is an effort to take the value of its compelling offer directly to fellow shareholders. Knauf urges USG shareholders to send a clear message to the USG Board to engage in serious discussions by voting AGAINST ALL four USG director nominees.
About Knauf
Gebr. Knauf KG is the ultimate parent company of the German based Knauf Group. Knauf is a leading manufacturer of building materials operating more than 220 factories worldwide. In 2017, Knauf achieved a global turnover of approximately 7 billion Euros and employed more than 27,000 people.
https://www.prnewswire.com/news-releases/knauf-files-investor-presentation-300631694.html
Enterprising Investor
6 years ago
USG Board Sends Letter to Stockholders (4/12/18)
USG Board Sends Letter to Stockholders
• Says Knauf’s “Vote No” Campaign is Misguided Attempt to Pressure the Board into Accepting a Proposal That is Substantially Below USG’s Intrinsic Value
• Notes that Campaign is Designed to Undermine Board’s Ability to Work to Maximize Value
• Rebuts Knauf’s Disingenuous and Misleading Comments Regarding USG’s Engagement with Knauf
• Urges Stockholders to Vote FOR USG’s Director Nominees
CHICAGO--(BUSINESS WIRE)--USG Corporation (NYSE:USG) today sent a letter to stockholders urging them to vote the WHITE proxy card “FOR” the election of USG’s highly qualified independent directors, in connection with the Company’s upcoming Annual Meeting of Stockholders (the "Annual Meeting") to be held on May 9, 2018.
The full text of the letter follows:
Dear Fellow Stockholder,
Recently, Gebr. Knauf KG, a private German company which is a 10.5% stockholder in USG and a competitor in the global gypsum market, sent an open letter to all USG stockholders asking you to vote against four USG Board nominees who are up for election at the upcoming Annual Meeting of Stockholders on May 9, 2018. This is a misguided attempt to pressure the Board into accepting a proposal from Knauf to purchase USG, that we believe is substantially below our intrinsic value. The Board will not yield to this pressure and is committed to acting in the best interests of all USG stockholders even in the face of Knauf’s campaign.
The Board is committed to creating value for all our stockholders through the execution of our strategic plan, which we outlined at our recent Investor Day. While the Board has not made the decision to sell the Company, it remains open to the evaluation of any proposal to acquire USG, as it has done with Knauf’s proposals. If Knauf, or any other viable bidder, makes a proposal that reflects the Company’s intrinsic value, the Board would seek to negotiate an appropriate confidentiality arrangement to allow it to share information with the potential counterparty. The USG Board has declined to share confidential information with Knauf because, in addition to being a competitor, Knauf’s acquisition proposal is not at a value that the Board believes adequately compensates all stockholders.
To be clear – Knauf’s campaign is designed to undermine the Board’s ability to maximize value for all stockholders.
This vote, which has no legal bearing on any corporate action or the retention of the incumbent directors, only serves as a propaganda tool for a competitor who is unwilling to pay an appropriate value for your Company.
VOTE THE WHITE PROXY CARD “FOR” THE ELECTION OF USG’S HIGHLY QUALIFIED INDEPENDENT DIRECTORS
OUR BOARD HAS ENGAGED REPEATEDLY WITH KNAUF AND IS ACTING IN THE BEST INTERESTS OF ALL STOCKHOLDERS
Since Knauf’s first approach, our Board has engaged with them in good faith and has carefully evaluated their proposals – Knauf would have you believe that is not the case and has made disingenuous and misleading public statements regarding the Company’s level of engagement. To set the record straight:
• On November 29, 2017, Knauf first proposed to acquire USG for $40.10 per share, which represented a 9% premium to our prior day closing stock price.
• After careful evaluation, our Board rejected this proposal and USG management subsequently spoke with Knauf to explain the Board’s rationale and elements that impact USG’s intrinsic value.
• Our stock traded as high as $41.18 in January 2018 – unaffected by public takeover speculation.
• On March 8, 2018, we held our Investor Day (which had been under development since mid-2017), where we outlined our strategy
– Knauf representatives attended in person.
• On March 12, 2018, at Knauf’s request, Steven Leer, our non-executive Chairman and Jennifer Scanlon, our CEO, met with Alexander Knauf and Manfred Grunke, Knauf’s Managing Partners, in person.
• Three days later, Knauf submitted its revised proposal of $42.00 per share, which was then only a 2% premium to our recent 52-week high.
• Our Board again carefully considered and rejected this revised proposal on the basis of USG’s intrinsic value, which has been increased by the materially positive impact of the reduction to U.S. corporate tax rates, which had been signed into law after the initial Knauf proposal.
• On March 26, 2018, in connection with a letter outlining the rationale for the rejection of Knauf’s offer, we suggested a further call with Knauf’s leadership team, which took place on March 29, 2018.
• Following the March 29, 2018, call, the Board directed USG’s financial and legal advisors to meet in person with advisors from Knauf, which took place on April 5, 2018.
• On April 10, 2018, Knauf issued a letter to USG stockholders claiming – among other things – that the USG Board did not engage in good faith with them. This is clearly not true.
KNAUF HAS DISREGARDED THE FACT THAT USG IS A TRANSFORMED COMPANY POISED TO DELIVER SIGNIFICANT VALUE
Knauf’s letter to USG stockholders focuses on a decade-old history of USG, which includes the period of the great recession and housing bubble, and is completely irrelevant to where the Company is positioned today. The reality is that our Board and management team have completely transformed our company, most significantly in the last two years, resulting in a drastically improved cost position, profitability, capital structure and portfolio.
As an example of 10 years of dramatic change, consider that our 2017 Adjusted Operating Profit was approximately two times greater than our 2007 Adjusted Operating Profit, with housing starts approximately 11 percent lower. Knauf is well aware of these facts and is trying to mislead you.
More recently, the last five years have shown significant improvements across key USG financial metrics:
[tables deleted]
USG is now a pure manufacturer with an enhanced portfolio and greater exposure to the highest growth construction markets in the world. This transformation has positioned us for significant growth and value creation ahead.
USG HAS PIVOTED TO A NEW STRATEGY THAT WE ARE CONFIDENT WILL CREATE LONG-TERM VALUE FOR ALL OUR STOCKHOLDERS
Knauf indicates their proposal “de-risks” any future business plan – the reality is their proposal would prohibit all USG stockholders from sharing in the benefits of USG’s strategic plan, which positions the Company to drive meaningful financial and operational improvements, including significant margin expansion and more than double our 2017 free cash flow by 2020. Other key strategy elements include:
• Our favorable cost position is improving further through advanced manufacturing, which we expect to deliver $100M of run-rate EBITDA by the end of 2020. Our advanced manufacturing initiatives and other cost efficiency efforts are powerful levers that are independent of market conditions and are already funded in our plan.
• Recent innovative product launches are gaining meaningful traction due to strong customer demand, and are expected to deliver significant upside over the next few years. Exciting additional new products are in our pipeline.
• These innovations drive continued differentiation and support USG’s price premium in the market.
As reflected in the chart (see attached), management expects its strategy to result in improved adjusted operating profit margin.
• This clear potential is, in part, why we view Knauf’s proposal as opportunistic.
• Knauf is attempting to scare USG stockholders by claiming we will have to make significant capital investments, but in fact significant investments have been and are being made, and we expect to generate more than enough cash to fund capex needs in the coming years while also retaining the ability to return capital to stockholders.
THE HIGHLY SUPPORTIVE MACROECONOMIC ENVIRONMENT IS EXPECTED TO FURTHER ACCELERATE THE BENEFITS OF USG’S STRATEGY
Knauf’s focus on industry cyclicality and cycle timing is another attempt to obscure observable market data: While there has been modest growth in this recovery, key industry indicators still meaningfully lag long-term means. We continue to believe significant industry upside remains in residential and non-residential starts and repair and remodel activity. (see attached)
Our transformation, including the sale of our distribution business, expansion into Asia, Australasia and the Middle East, and reduction of debt, has dampened out our cyclicality. In addition, the initiatives underway will drive meaningful value regardless of where we are in the cycle.
THE STRATEGIC VALUE OF USG TO KNAUF IS SUBSTANTIAL AND THEY ARE NOT COMPENSATING ALL STOCKHOLDERS
Knauf is a private German company which has been in existence for 86 years, with stated net sales in excess of $8 billion and EBITDA in excess of $1.6 billion. While Knauf has operations in many regions of the world, it does not have a significant presence in North America and, in particular, the U.S. gypsum market.
• Knauf stands to benefit substantially from a combination with USG, as its proposals reference “compelling strategic logic” and its principals acknowledged its expectation of meaningful synergies for Knauf.
• USG’s #1 market position in North America and industry leading technology, patents and brands, such as our Sheetrock® brand, make us the “crown jewel” of the industry, and we are critical for Knauf to achieve their goal of being the global leader in wallboard. ? Indeed, it is this technology and intellectual property portfolio that Boral sought and placed a high value on in the formation in 2014 of our highly successful USG Boral joint venture.
SEND A STRONG MESSAGE THAT YOU SUPPORT OUR BOARD’S EFFORTS TO MAXIMIZE VALUE FOR ALL STOCKHOLDERS
VOTE THE WHITE PROXY CARD “FOR” THE RE-ELECTION OF USG’S STRONG BOARD TODAY
Vote the WHITE card “FOR” the re-election of USG’s highly qualified and experienced director nominees: Jose Armario, Gretchen R. Haggerty and William H. Hernandez and our new director nominee: Dana S. Cho.
Your Board and management team have successfully transformed USG to position the Company for the significant opportunities ahead. We are confident that we have the right strategy, the right management team and the right Board of Directors in place to continue delivering value for all USG stockholders.
Your vote is important and we strongly urge you to protect your investment by voting “FOR” on the white card today.
On behalf of USG’s Board of Directors, we thank you for your ongoing support, and look forward to continued engagement.
Sincerely,
USG Board of Directors
Additional Information
In connection with USG's 2018 Annual Meeting of Stockholders, USG has filed with the U.S. Securities and Exchange Commission (the “SEC”) a definitive proxy statement and other documents, including a WHITE proxy card. STOCKHOLDERS ARE ENCOURAGED TO READ THE DEFINITIVE PROXY STATEMENT AND ALL OTHER RELEVANT DOCUMENTS WHEN FILED WITH THE SEC AND WHEN THEY BECOME AVAILABLE BECAUSE THOSE DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION. Investors and other interested parties may obtain the documents free of charge at the SEC's website, www.sec.gov, or from USG at its website, www.usg.com, or through a request in writing sent to USG at 550 West Adams Street, Chicago, Illinois 60661-3676, attention: Corporate Secretary.
Participants in Solicitation
USG and its directors and executive officers may be deemed to be participants in the solicitation of proxies in connection with the 2018 Annual Meeting of Stockholders. Certain information concerning these participants is set forth in USG's definitive proxy statement, dated March 29, 2018, for its 2018 Annual Meeting of Stockholders as filed with the SEC on Schedule 14A. Additional information regarding the interests of these participants in the solicitation of proxies in respect of the 2018 Annual Meeting and other relevant materials will be filed with the SEC when they become available and as needed.
About USG Corporation
USG Corporation is an industry-leading manufacturer of building products and innovative solutions. Headquartered in Chicago, USG serves construction markets around the world through its Gypsum, Performance Materials, Ceilings, and USG Boral divisions. Its wall, ceiling, flooring, sheathing and roofing products provide the solutions that enable customers to build the outstanding spaces where people live, work and play. Its USG Boral Building Products joint venture is a leading plasterboard and ceilings producer across Asia, Australasia and the Middle East. For additional information, visit www.usg.com.
https://www.businesswire.com/news/home/20180412005690/en/USG-Board-Sends-Letter-Stockholders
Enterprising Investor
6 years ago
USG Corporation Reports Third Quarter 2017 Results (10/26/17)
Business Highlights
Third Quarter 2017 vs. Third Quarter 2016
- Net sales increased to $795 million from $767 million
- Net income increased to $66 million from $62 million; adjusted net income decreased to $68 million from $69 million
- Earnings per diluted share increased to $0.46 from $0.42; adjusted earnings per diluted share increased to $0.47 from $0.46
- Repurchased $56 million of common stock under $250 million share repurchase program
CHICAGO--(BUSINESS WIRE)--USG Corporation (NYSE:USG), an industry leading manufacturer of building products and innovative solutions, today reported results for the third quarter of 2017.
“We had positive momentum in the third quarter, with increased net sales and wallboard volume,” said Jennifer Scanlon, President and CEO of USG Corporation. “We are well positioned for growth as we continue to provide innovative solutions for our customers’ challenges.”
On a consolidated basis in the third quarter of 2017, net sales were $795 million, compared to $767 million in the third quarter of 2016. Operating profit decreased to $93 million from $97 million, while adjusted operating profit decreased to $111 million from $127 million in the third quarter of 2017 compared to the third quarter of 2016. Higher input costs in the Gypsum and Ceilings businesses were the primary driver of the decrease.
USG generated $66 million in net income and $0.46 per diluted share in the third quarter of 2017. On an adjusted basis, the corporation earned $68 million in net income and $0.47 per diluted share in the third quarter of 2017, compared to $69 million and $0.46 per diluted share, respectively, in the third quarter of 2016. A full reconciliation of GAAP to adjusted metrics is set forth on an attached schedule.
The corporation’s Gypsum segment generated $85 million of operating profit in the third quarter of 2017. On an adjusted basis, operating profit of $88 million in the Gypsum segment decreased by $13 million from the third quarter of 2016. US wallboard volumes increased by 5% in the third quarter of 2017. The average realized selling price for US wallboard decreased by approximately 2% sequentially and was impacted by freight costs and changes in wallboard product mix due to hurricanes Harvey and Irma. US wallboard manufacturing costs increased by $10 million due primarily to increased waste paper costs.
The Ceilings segment earned $28 million of operating profit in the third quarter of 2017, a $5 million decrease from the third quarter of 2016 primarily on higher input costs across both tile and grid products.
The USG Boral business generated $15 million of equity income in the third quarter of 2017. On an adjusted basis, equity income of $15 million decreased by $3 million from the third quarter of 2016. The impact of increased plasterboard volumes was more than offset by unfavorable operational reserve adjustments in India and higher plasterboard manufacturing costs across the business.
Ms. Scanlon continued, “I am proud of everyone at USG for their efforts and commitment to putting our customers first in the wake of the challenges presented by recent storms. Our customer service, supply chain and plant teams worked around the clock to ensure we were ready and able to support our loyal customers in a time of need.”
A conference call is being held today at 9:00 a.m. Eastern time (8:00 a.m. Central time) during which USG senior management will discuss the corporation’s operating results. The conference call will be webcast on the USG investor relations website, investor.usg.com, where the accompanying presentation materials can be found. The dial-in number for the conference call is 1-888-771-4371 in the United States and Canada (1-847-585-4405 for other international callers), and the pass code is 45799104. After the live webcast, a replay of the webcast will be available on the USG website. In addition, a telephonic replay of the call will be available until Friday, November 24, 2017. The replay dial-in number is 1-888-843-7419 (1-630-652-3042 for international callers), and the pass code is 45799104.
About USG Corporation
USG Corporation is an industry-leading manufacturer of building products and innovative solutions. Headquartered in Chicago, USG serves construction markets around the world through its United States Gypsum Company and USG Interiors, LLC subsidiaries and its international subsidiaries, including its USG Boral Building Products joint venture. Its wall, ceiling, flooring, sheathing and roofing products provide the solutions that enable customers to build the outstanding spaces where people live, work and play. Its USG Boral Building Products joint venture is a leading plasterboard and ceilings producer across Asia, Australasia and the Middle East. For additional information, visit www.usg.com.
http://www.businesswire.com/news/home/20171026005179/en/USG-Corporation-Reports-Quarter-2017-Results
Enterprising Investor
7 years ago
Building Materials Stocks Should Benefit From Hurricane Harvey… (9/01/17)
...but rental centers might take a hit.
By Teresa Rivas
While there's not much to like about a natural disaster like Hurricane Harvey, one obvious beneficiary is the building materials industry, given construction that it will take to recover.
However, not all companies in the sector will benefit equally, according to Stifel's John Baugh and his team, who take a look at the stocks and extrapolate from damage reports and patterns after past storms to determine which companies stand to gain the most.
They write that they expect Home Depot (HD) and Lowe's (LOW) to be the biggest winners, with the most immediate positive impact on traffic. After Hurricane Sandy, both saw an immediate benefit, and one that last four quarters (heavily weighed to the first two). Baugh writes that Home Depot saw a $550 million combined positive impact, while Lowe's saw a $219 million impact. He thinks Home Depot might be the best positioned, however, as it has more stores and can better serve demand as items start to sell out, but with both firms having about 8% of their store base in Texas, it could be closer to a tie.
Baugh writes that Owens Corning (OC) didn't see much of an impact from Sandy and any benefit it sees would come more from its insulation rather than its roofing business, which would have been a winner from a storm with very high winds.
Flooring companies like Mohawk (MHK) and Lumber Liquidators (LL) should see demand as flooding results in moldy, swollen and warped floors, and he expects both companies should benefit. That said, with more than a third of Mohawk's revenues come from overseas, he doesn't see the boost being able to move the need much there, while Lumber Liquidators should see a similar increase as it did with Sandy, with seven to nine stores benefitting.
USG (USG) and Eagle Materials (EXP) should be see wallboard demand from flooding, and neither company has much exposure to the Northeast, meaning that the impact from Harvey should be higher than it was from Sandy.
One industry that could be negatively affected could be rental companies like Aaron's (AAN), Conn's (CONN), and Rent-A-Center (RCII):
We wrote out thoughts on CONN earlier this week, but would add only a few stores of the 20 that were closed earlier this week are still closed as of Thursday afternoon. AAN and RCII are likely to both be negatively impacted from the storms of course due to lost sales during periods where the stores are going to be closed or inaccessible, but also likely experience situations where customers stop making payments either because the products were damaged or lost or due to the fact that many customers make their payments at the physical store locations. We note many customers have waivers on their contracts that absolve them from responsibility to make payments in the case of damaged goods, but the companies would still experience a write-off in that situation. Lastly, there are no real rebound impacts that we can decipher from previous natural disasters.
http://www.barrons.com/articles/building-materials-stocks-should-benefit-from-hurricane-harvey-1504278237
Enterprising Investor
9 years ago
U.S. New-Home Sales up 5.7% in August (9/23/15)
Growth driven by pent-up demand, reasonable affordability levels and high rental-occupancy rates
WASHINGTON—Sales of newly built homes rose in August to the highest level since the recession ended, a sign the housing market’s recovery is extending into the second half of the year.
Sales of new, single-family homes rose by 5.7% to a seasonally adjusted annual rate of 552,000, the Commerce Department said Thursday.
Economists surveyed by The Wall Street Journal had expected a rate of 515,000.
The latest figure marks a new a postrecession high, supplanting February’s reading. From February until July, sales had settled somewhat but were well above year-earlier levels. The data largely indicates low-interest rates and stronger job creation are supporting demand for new housing.
July new-home sales were revised up to 522,000 from an initially estimated 507,000.
New-home sales account for about 10% of the home purchase market, with existing homes making up the rest. Month-to-month data can be volatile; August’s increase had a margin of error of plus or minus 16.2 percentage points.
Sales are up 21.6% from August 2014.
The stronger sales figures match home-builder sentiment that is at the highest level in nearly a decade, according to a survey earlier this month from the National Association of Home Builders. The group reports increased buyer traffic and improving sales conditions, though builders are concerned about future sales conditions, including the expectation that interest rates will rise later this year.
Meanwhile, sales of existing homes have returned levels recorded just before the recession began in 2007, though they slipped in August after a strong start to the year, according to data from the National Association of Realtors.
Thursday’s report showed August’s median sales price of new homes was $292,700, a 0.3% rise from a year earlier. The number of new homes for sale rose by 1,000 in August from a month earlier to 216,000. At the current sales pace, it would take 4.7 months to exhaust the supply of for-sale new homes, from 4.9 a month earlier.
http://www.wsj.com/articles/u-s-new-home-sales-up-5-7-in-august-1443103942?cb=logged0.9694351352454062
Enterprising Investor
10 years ago
USG Poised to Rise From a Strong Foundation (8/30/14)
North America's biggest gypsum maker had to gut-renovate its operations in the housing crisis.
It typically takes a few months before the sound of shovels hitting dirt at a new housing project leads to pay dirt for wallboard maker USG . The delay, however, bodes well for USG investors, who can expect to see the recent upswing in housing starts reflected in the company's results shortly.
The Chicago-based company (ticker: USG), which also makes ceiling tiles and other building products, has climbed out of a deep hole since the housing market crashed. But its results have been depressed, as builders remain reticent to ramp up construction. That's created an opportunity.
Coming off its best quarter since 2007, USG trades at just 12.5 times next year's expected earnings. A slight gain in housing and better investor sentiment should lift the shares from a recent $29 to $33, says Sterne Agee analyst Todd Vencil. If the wallboard manufacturer received the same valuation as other building-products outfits, such as Masco (MAS) or Armstrong World Industries (AWI), USG could jump 30%, to about $38.
"We're still in the early stages of what's going to be a protracted housing recovery," says Vencil. "At these levels, there's not a lot of downside in the stock."
USG, the largest manufacturer of wallboard in North America, lost a cumulative $2.2 billion from 2008 through 2012, as construction fell to historic lows. But results have returned to the black, with the company earning $49 million, or 42 cents per share, on $3.6 billion in sales in 2013. It's expected to earn $212 million, or $1.41 a share, on $3.8 billion in sales this year. Earnings could jump to $2.31 in 2015, analysts project, a 64% increase.
"We had to create our own recovery," says CEO Jim Metcalf. "We didn't know when housing was coming back, so we lowered our breakeven. We focused on innovation." Photo: USG
USG was founded in 1902 in a merger of 30 independent gypsum, rock, and plaster companies. In 1916, it developed Sheetrock, a trademarked product that has become as synonymous with wallboard as Kleenex is to facial tissues. Since then, USG has expanded into other products—most prominently ceiling tile—and it has also faced several challenges, including a bankruptcy in 2001, after a flood of asbestos-related claims connected to its products.
After selling $1.8 billion in shares guaranteed by Warren Buffett's Berkshire Hathaway (BRKA), it emerged from bankruptcy in 2006. Buffett again came to the rescue when USG's business collapsed in 2008, buying $300 million in convertible notes that carried a 10% annual payout. Berkshire converted them to equity in December, and now owns 30% of the company, making it the biggest shareholder.
Buffett's investment helped buttress the balance sheet when USG was hurting, but the rebound is based more on cost-cutting and innovation. Since 2007, USG has idled or closed about one-third its manufacturing capacity, shut 125 distribution branches, and cut its workforce from 14,650 to 8,900.
By reducing so many costs, USG was able to generate the same earnings in its most recent quarter on $948 million in sales as it did in 2007's second quarter, when sales were $1.4 billion.
At the same time, USG reinvented its signature product. New UltraLight wallboard weighs up to 30% less than standard wallboard, saving the company money on shipping and lowering labor costs for contractors.
"We had to create our own recovery," says CEO Jim Metcalf. "We didn't know when housing was coming back, so we lowered our breakeven. We focused on innovation."
The company reports results for four segments. Its gypsum division, which includes wallboard and other products, accounts for about 55% of sales. Ceiling products, mostly sold to commercial clients, represent another 15%, and its distribution company, L&W Supply, accounts for 30%. USG also sells its wares through retailers such as Home Depot (HD), which accounts for 15% of its net sales. It also recently created a new international segment.
About half of USG's sales come from repair and remodeling projects, which has helped buttress its results in the past couple of years, as new construction remained subdued. A rebound in that market, however, could have a more pronounced effect.
HOUSING STARTS ROSE 18%, to 924,900 in 2013, and reached an annualized rate of 1.09 million in July, their best showing in seven months. But they remain below the about 1.5 million that has been the yearly average since 1959, and is the rate at which analysts say construction keeps up with population growth. "There's still a huge mismatch between construction activity and demographic trends," says Chuck Lieberman, chief investment officer at Advisors Capital Management, a USG shareholder.
Another potential positive is in commercial building. USG pulls in about half of its revenue from commercial clients, a sector that Morningstar believes will rise 40% in the next five years.
The Bottom Line
Gains in new-housing starts and improved investor sentiment could lift the stock from $29 to $33, according to one analysis. A revaluation could put them at $38.
Metcalf concedes that housing starts might not bounce back right away: "We do see positive trends, but it's been choppy." Still, any uptick could have a big impact on the company's bottom line, given the cost reductions it's made.
USG has many opportunities abroad; it recently entered a joint venture with Australia's Boral (BOALY) to distribute USG products in Asia, Australia, and the Middle East (the new international segment).
Long-term debt makes up 73% of USG's capital, double the percentage of some rivals, which means it's overleveraged. Metcalf's goal is to trim debt toward 1.5 to two times earnings before interest, taxes, depreciation, and amortization, from about six times at the end of last year.
USG has laid a strong base. Now's the time to build on it.
http://online.barrons.com/news/articles/SB50001424127887323949604580113863830642880?mod=BOL_hp_highlight_5
detearing
10 years ago
USG Jumps to 5.5-Year High on Q4 Beat; 2013 Marks First Profitable Year Since 2007 02/06 08:21 AM
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11:21 AM EST, 02/06/2014 (MT Newswires) -- Shares of USG Corp. (USG:$31.886,0$2.446,08.31%) climbed to a 5.5-year high Thursday, after the building-materials maker reported Q4 results above Street forecasts, with a profit for the full year making 2013 the company's first profitable year since 2007.
Shares were up 13% at $33.22 recently, after trading at $33.36, the stock's highest level since June 2008.
The company reported a Q4 net loss of $4 million, or $0.03 per share, compared with a prior-year net loss of $12 million, or $0.11 per share. Excluding one-time items, it earned $0.19 per share in the latest quarter, compared with a loss of $0.48 per share a year earlier. Analysts polled by Capital IQ were expecting EPS of $0.10 for the latest period.
Revenue rose 12% to $915 million, topping analysts' consensus of $906.69 million.
For 2013, the company posted net income of $47 million, or $0.43 per share, with adjusted net income of $73 million, or $0.67 per share, representing its first full-year net income since 2007. In 2012, it had a net loss of $126 million, or $1.19 per share, with an adjusted net loss of $124 million, or $1.17 per share. The Street view was for 2013 EPS of $0.55.
Price: 33.22, Change: +3.78, Percent Change: +13
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Get more news on:SYMBOLS: USG NEWS TYPE: Company News, Earnings News, Earnings Release SECTORS: Materials, Construction Materials
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