Owens Corning (OC)

Building and construction materials manufacturer Owens Corning (NYSE:OC) fell short of the market’s revenue expectations in Q4 CY2025, with sales falling 24.6% year on year to $2.14 billion. Next quarter’s revenue guidance of $2.15 billion underwhelmed, coming in 3.4% below analysts’ estimates. Its non-GAAP profit of $1.10 per share was 18.8% below analysts’ consensus estimates.

Company Overview

Credited with the discovery of fiberglass, Owens Corning (NYSE:OC) supplies building and construction materials to the United States and international markets.

Traditionally, home construction materials companies have built economic moats with expertise in specialized areas, brand recognition, and strong relationships with contractors. More recently, advances to address labor availability and job site productivity have spurred innovation that is driving incremental demand. However, these companies are at the whim of residential construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of home construction materials companies.

Other companies that offer insulation, roofing, and composite products include Beacon Roofing Supply (NASDAQ:BECN), Boral (ASX:BLD), and Kingspan (LSE:KGP).

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Owens Corning’s sales grew at a mediocre 7.4% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Owens Corning’s recent performance shows its demand has slowed as its annualized revenue growth of 2.2% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs.

This quarter, Owens Corning missed Wall Street’s estimates and reported a rather uninspiring 24.6% year-on-year revenue decline, generating $2.14 billion of revenue. Company management is currently guiding for a 15% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 3.3% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

Owens Corning’s gross margin is slightly below the average industrials company, giving it less room to invest in areas such as research and development. As you can see below, it averaged a 28.4% gross margin over the last five years. Said differently, Owens Corning had to pay a chunky $71.65 to its suppliers for every $100 in revenue.

In Q4, Owens Corning produced a 23.2% gross profit margin, down 4.5 percentage points year on year. Owens Corning’s full-year margin has also been trending down over the past 12 months, decreasing by 2.4 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Owens Corning has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 13.2%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, Owens Corning’s operating margin decreased by 13.4 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q4, Owens Corning generated an operating margin profit margin of negative 10.5%, down 2 percentage points year on year. Since Owens Corning’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Owens Corning’s EPS grew at an astounding 18.7% compounded annual growth rate over the last five years, higher than its 7.4% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

We can take a deeper look into Owens Corning’s earnings to better understand the drivers of its performance. A five-year view shows that Owens Corning has repurchased its stock, shrinking its share count by 25.1%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Owens Corning, its two-year annual EPS declines of 7.5% mark a reversal from its (seemingly) healthy five-year trend. We hope Owens Corning can return to earnings growth in the future.

In Q4, Owens Corning reported adjusted EPS of $1.10, down from $3.22 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Owens Corning’s full-year EPS of $11.95 to shrink by 13.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Owens Corning has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 12% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Owens Corning’s margin dropped by 3.3 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Owens Corning’s free cash flow clocked in at $333 million in Q4, equivalent to a 15.5% margin. The company’s cash profitability regressed as it was 1.3 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, leading to short-term swings. Long-term trends trump temporary fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Owens Corning hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked. Its five-year average ROIC was 13%, higher than most industrials businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Owens Corning’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Owens Corning reported $345 million of cash and $5.71 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.27 billion of EBITDA over the last 12 months, we view Owens Corning’s 2.4× net-debt-to-EBITDA ratio as safe. We also see its $128 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its EPS missed and its revenue fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 1.3% to $124.99 immediately after reporting.

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Owens Corning.

We see the value of companies helping their customers, but in the case of Owens Corning, we’re out. First off, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. While its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its projected EPS for the next year is lacking.

Owens Corning’s P/E ratio based on the next 12 months is 12.2x. While this valuation is reasonable, we don’t see a big opportunity at the moment. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $137.69 on the company (compared to the current share price of $124.99).