A surge in roofing prices late in 2008 enabled Owens Corning's building materials subsidiary to more than double its pretax profit to $401 million last year from $175 million in 2008, the company's latest profit report indicated today. Earnings before interest and taxes (EBIT) for the roofing group jumped to $530 million in 2009 from $185 million in 2008, while the insulation segment swung to an $85 million loss from a $14 million profit in 2008. The loss for all other building materials products deepened to $44 million from $24 million.
Sales in 2009 for the building materials subsdiary shrank 9% to $3.31 billion from $3.66 billion. Roofing sales rose 1.8% to $1.9 billion, while those for insulation products shrank 18.3% to $1.29 billion. Sales of other products fared even worse, sinking 40% to reach $141 million.
Building materials EBIT for the fourth-quarter alone was virtually unchanged at $49 million, up just $1 million from the final three months of 2008. Roofing EBIT inched up to $72 million from $70 million, while the insulation segment had a $9 million loss both quarters and the rest of the subsidiary posted a $14 million loss vs. $13 million a year earlier. That relative stability came despite a 15.5% drop in sales for the subsidiary. Insulation sales actually rose, to $379 million in the fourth quarter from $375 million a year before, while roofing sales tumbled 27.5% to $338 million from $466 million. Sales of other products dropped a third to $31 million from $46 million.
Lower housing starts in the United States were the prime reason for the drop in Owens Corning's worldwide building materials sales in 2009, the company said. (The company doesn't break out sales for America alone.) The company attributed the higher roofing profits to price increases the company instituted in late 2008 to cover higher costs of asphalt and other raw material costs. "Since that time, selling prices have remained generally stable," it said, despite the lower demand that came from reduced housing starts and fewer storms in 2009.
As for insulation, lower sales volumes represented more than three-fourths of the decline in net sales, it said. "Lower sales volumes, including the impact of underutilization of the Company's production capacity, accounted for substantially all of the decrease in EBIT," it said. "Other items impacting EBIT were slight price declines in certain sectors, which were offset by improved manufacturing productivity; deflation in raw material costs; and lower marketing and administrative expenses."
The Toledo, Ohio-based company expects this year that "effective price discipline and gains in manufacturing and material efficiencies" will enable the roofing division to drive profitability despite weak demand. But it cautioned: "Uncertainties that could affect roofing gross margins include competitive pricing pressure and the cost and availability of raw materials, mainly asphalt."
Demand in the United States for insulation usually lags housing starts by about three months, a fourth-quarter 2009 U.S. housing starts were 19% lower than in the fourth quarter of 2008, it said. "Therefore, it's expected that new residential construction-related market demand in the Insulation business will be weaker in the first quarter of 2010 than it was in the first quarter of 2009," Owens Corning concluded.
Company-wide, EBIT shrank to $192 million from $234 million on consolidated net sales of $4.8 billion, down from $1.2 billion in 2008.