Owens Corning (OC)

Building and construction materials manufacturer Owens Corning (NYSE:OC) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 10% year on year to $2.53 billion. Its GAAP profit of $2.95 per share was in line with 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).

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Owens Corning’s sales grew at a solid 9.6% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Owens Corning’s recent performance shows its demand has slowed as its annualized revenue growth of 7.2% over the last two years was below its five-year trend.

This quarter, Owens Corning reported year-on-year revenue growth of 10%, and its $2.53 billion of revenue exceeded Wall Street’s estimates by 0.7%.

Looking ahead, sell-side analysts expect revenue to decline by 5.4% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

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 27.7% gross margin over the last five years. Said differently, Owens Corning had to pay a chunky $72.28 to its suppliers for every $100 in revenue.

Owens Corning produced a 28.7% gross profit margin in Q1, down 1.2 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

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 15.4%. 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.

Looking at the trend in its profitability, Owens Corning’s operating margin decreased by 3.9 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.

This quarter, Owens Corning generated an operating profit margin of 16.1%, down 1.4 percentage points year on year. Since Owens Corning’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

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 full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

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

Sadly for Owens Corning, its EPS declined by 29.4% annually over the last two years while its revenue grew by 7.2%. This tells us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into Owens Corning’s earnings to better understand the drivers of its performance. Owens Corning’s operating margin has declined by 6.8 percentage points over the last two years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Owens Corning reported EPS at $2.95, down from $3.40 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Owens Corning’s full-year EPS of $6.87 to grow 122%.

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 11.9% 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 4.8 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Owens Corning burned through $252 million of cash in Q1, equivalent to a negative 10% margin. The company’s cash burn increased from $128 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared 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 out well. Its five-year average ROIC was 15.5%, impressive for an industrials business.

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 averaged 3.8 percentage point decreases each year. 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 $400 million of cash and $6.00 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 $2.48 billion of EBITDA over the last 12 months, we view Owens Corning’s 2.3× net-debt-to-EBITDA ratio as safe. We also see its $131 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.

It was good to see Owens Corning narrowly top analysts’ revenue expectations this quarter. On the other hand, its EBITDA missed significantly. Overall, this was a weaker quarter. The stock remained flat at $141.79 immediately after reporting.

Updated: May 22, 2025 at 11:01 PM EDT

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.

Owens Corning isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its projected EPS for the next year is lacking. And while the company’s astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its organic revenue declined.

Owens Corning’s P/E ratio based on the next 12 months is 9.1x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $169.77 on the company (compared to the current share price of $138.70).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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