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USG Corporation Reports Second Quarter 2016 Results

Second Quarter 2016 vs. Second Quarter 2015

Business Highlights

  • Net sales increase to $1 billion from $970 million
  • Operating profit increases to $133 million from $105 million; adjusted operating profit increases to $138 million from $118 million
  • Net income decreases to $74 million from $79 million; adjusted net income decreases to $68 million from $78 million
  • US Gypsum operating profit margin improvement to 19.9% from 17.6%
  • US Ceilings operating profit margin improvement to 23.8% from 19.0%

CHICAGO--(BUSINESS WIRE)--Jul. 26, 2016-- USG Corporation (NYSE:USG), a leading building products company, today reported results for the second quarter of 2016. “Our focus on operational execution in all of our businesses drove our improved second quarter results,” said James S. Metcalf, Chairman, President, and CEO. “Expanding operating margins is a key priority for USG, and we delivered margin expansion in all of our businesses in the second quarter.”

On a consolidated basis in the second quarter of 2016, net sales were $1 billion, compared to $970 million in the second quarter of 2015. Foreign currency unfavorably impacted net sales by $10 million in the second quarter of 2016. Operating profit increased to $133 million from $105 million, while adjusted operating profit increased to $138 million from $118 million in the second quarter of 2016 compared to the second quarter of 2015.

USG generated $74 million in net income and $0.50 per diluted share in the second quarter of 2016, compared to $79 million and $0.54 per diluted share in the second quarter of 2015. On an adjusted basis, net income of $68 million and diluted earnings per share of $0.46 in the second quarter of 2016 decreased from $78 million and $0.53, respectively, in the second quarter of 2015. Net income and adjusted net income in the second quarter of 2016 include $38 million of tax expense compared to only $1 million in the second quarter of 2015. Foreign currency also unfavorably impacted net income and adjusted net income by $5 million in the second quarter of 2016. A full reconciliation of GAAP to adjusted metrics is set forth on a schedule attached hereto.

The corporation’s Gypsum segment generated $113 million of operating profit in the second quarter of 2016. On an adjusted basis, operating profit of $102 million in the Gypsum segment improved by $5 million over the second quarter of 2015. Surfaces and substrates products drove $8 million of this improved profit. Wallboard volumes were up 3% while wallboard price was down roughly 1% from the second quarter of 2015. On a sequential basis, wallboard price increased 1% from the first quarter of 2016.

The Ceilings segment earned $33 million of operating profit in the second quarter of 2016 compared to $25 million in the second quarter of 2015. Improved price and volume with strong cost control drove second quarter margins to a new quarterly record of 23.8% in the US Ceilings business.

The Distribution segment earned $15 million of operating profit in the second quarter of 2016 compared to $9 million in the second quarter of 2015. Operating margins improved 140 basis points to 3.9% in the second quarter of 2016, with same store sales and wallboard volumes both increasing 8%.

The USG Boral business generated $16 million of equity method income in the second quarter of 2016, up $3 million from the second quarter of 2015 on manufacturing efficiencies and improved plasterboard price and volume. The USG Boral business paid an $18 million cash dividend to USG Corporation during the second quarter of 2016.

“Delivering margin expansion in all of our businesses in the second quarter is a clear indication that our strategy is working,” Mr. Metcalf said. “With a continued focus on keeping our break even low, I believe USG is well positioned to take advantage of our improving end markets.”

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 website, www.usg.com, in the Investor Relations section, where the accompanying presentation materials can be found. The dial-in number for the conference call is 1-800-315-2944 in the United States and Canada (1-847-413-2929 for other international callers), and the pass code is 42891795. 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 Thursday, August 25, 2016. The replay dial-in number is 1-888-843-7419 (1-630-652-3042 for international callers), and the pass code is 42891795.

USG Corporation

USG Corporation is a manufacturer and distributor of innovative, high-performance building systems through its United States Gypsum Company, USG Interiors, LLC, and L&W Supply Corporation subsidiaries and its USG Boral Building Products joint ventures. Headquartered in Chicago, USG's worldwide operations serve the commercial, residential, and repair and remodel construction markets, enabling our customers to build the outstanding spaces where people live, work and play. USG wall, ceiling, exterior sheathing, flooring underlayment and roofing systems provide leading-edge building solutions, while L&W Supply branch locations efficiently stock and deliver building materials throughout the United States. USG Boral Building Products is a leading plasterboard & ceilings joint venture across Asia, Australasia, and the Middle East. USG and its subsidiaries are proud sponsors of the U.S. Olympic and Paralympic teams and the Canadian Olympic team. For additional information, visit www.usg.com.

Non-GAAP Financial Measures

In this press release, the corporation’s financial results are provided both in accordance with accounting principles generally accepted in the United States of America (GAAP) and using certain non-GAAP financial measures. In particular, the corporation presents the non-GAAP financial measures adjusted operating profit, impacts of foreign currency on current period results using prior period translation rates, adjusted net income, and adjusted net sales, which exclude certain items. The non-GAAP financial measures are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help investors’ ability to analyze underlying trends in the corporation’s business, evaluate its performance relative to other companies in its industry and provide useful information to both management and investors by excluding certain items that may not be indicative of the corporation’s core operating results. In addition, adjusted operating profit includes the income from the corporation's equity method investments, including USG Boral Building Products, because management views the joint ventures as a business unit, even though the corporation’s share of the joint venture is 50%. In addition, the corporation uses adjusted operating profit and adjusted net income as components in the measurement of incentive compensation. Adjusted results also exclude results from Gypsum Transportation Limited (GTL), a shipping operation that the corporation has exited. Adjustments to net earnings are shown net of the tax effect computed at applicable statutory rates. The non-GAAP measures should not be considered a substitute for or superior to GAAP results and may vary from others in the industry. For further information related to the corporation’s use of non-GAAP financial measures, and reconciliations to the nearest GAAP measures, see the schedules attached hereto.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 related to management’s expectations about future conditions, including but not limited to, management's expectation about the improving end markets and USG's performance in 2016. Actual business, market or other conditions may differ materially from management’s expectations and, accordingly, may affect our sales and profitability or other results and liquidity. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Actual results may differ materially due to various other factors, including: economic conditions, such as the levels of new home and other construction activity, employment levels, the availability of mortgage, construction and other financing, mortgage and other interest rates, housing affordability and supply, the levels of foreclosures and home resales, currency exchange rates and consumer confidence; our ability to maintain or achieve price increases; our substantial indebtedness and our ability to incur substantial additional indebtedness; capital markets conditions and the availability of borrowings under our credit agreement or other financings; competitive conditions, such as price, service and product competition; certain of our customers having significant buying power; the loss of one or more major customers and our customers’ ability to meet their financial obligations to us; shortages in raw materials or changes in raw material and energy costs; our ability to successfully operate the joint venture with Boral Limited, including risks that our joint venture partner, Boral Limited, may not fulfill its obligations as an investor or may take actions that are inconsistent with our objectives; volatility in the assumptions used to determine the funded status of our pension plans; our ability to protect our intellectual property and other proprietary rights; a security breach of company information; changes in laws or regulations, including environmental and safety regulations; the outcome in legal and governmental proceedings; the occurrence of an “ownership change” within the meaning of the Internal Revenue Code; the effects of acts of terrorism or war upon domestic and international economies and financial markets; and acts of God. We assume no obligation to update any forward-looking information contained in this press release. Additional information concerning these and other factors may be found in our filings with the Securities and Exchange Commission, including the “Risk Factors” in our most recent Annual Report on Form 10-K.

 
USG CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except share and per share data)
(Unaudited)
     
Three months ended June 30, Six months ended June 30,
2016   2015 2016   2015
Net sales $ 1,002 $ 970 $ 1,972 $ 1,879
Cost of products sold 790   787   1,565   1,543  
Gross profit 212 183 407 336
 
Selling and administrative expenses 79 79 150 156
Recovery of receivable (3 )
Gain on disposal of shipping operations, net   (1 )   (1 )
Operating profit 133 105 260 181
 
Income from equity method investments 16 14 23 22
Interest expense (38 ) (40 ) (78 ) (83 )
Interest income 1 3 1
Loss on extinguishment of debt (2 ) (4 ) (19 )
Other income, net 2   1   5    
Income before income taxes 112 80 209 102
 
Income tax (expense) benefit (38 ) (1 ) (68 ) 1  
Net income $ 74   $ 79   $ 141   $ 103  
 
 
Basic earnings per average common share $ 0.50 $ 0.54 $ 0.96 $ 0.70
Diluted earnings per average common share $ 0.50 $ 0.54 $ 0.95 $ 0.70
 
Average common shares 145,933,165 145,424,853 145,856,220 145,393,548
Average diluted common shares 147,994,032 146,990,178 147,321,420 147,167,248
 

USG CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
(Unaudited)
    As of     As of
June 30, 2016 December 31, 2015
 
Assets
Cash and cash equivalents $ 479 $ 442
Short-term marketable securities 208 194
Restricted cash 9
Receivables (net of reserves - $12 and $14) 433 391
Inventories 331 314
Income taxes receivable 5 5
Other current assets 35   45  
Total current assets 1,491 1,400
Long-term marketable securities 2 36
Property, plant and equipment (net of accumulated
depreciation and depletion - $2,003 and $1,936) 1,749 1,788
Deferred income taxes 658 728
Equity method investments 648 682
Other assets 97   102  
Total assets $ 4,645   $ 4,736  
 
Liabilities and Stockholders' Equity
Accounts payable $ 287 $ 259
Accrued expenses 184 214
Current portion of long-term debt 363 500
Income taxes payable 6 9
Litigation settlement accrual   9  
Total current liabilities 840 991
 
Long-term debt 1,676 1,675
Deferred income taxes 4 5
Pension and other postretirement benefits 347 392
Other liabilities 212   237  
Total liabilities 3,079 3,300
Stockholders' Equity:
Preferred stock – $1 par value, authorized 36,000,000 shares; outstanding - none
Common stock – $0.10 par value; authorized 200,000,000 shares; issued: 2016 - 145,954,000 shares; 2015 - 145,667,000 shares 15 15
Additional paid-in capital 3,033 3,027
Accumulated other comprehensive loss (331 ) (314 )
Retained earnings (accumulated deficit) (1,151 ) (1,292 )
Total stockholders' equity 1,566   1,436  
Total liabilities and stockholders' equity $ 4,645   $ 4,736  
             
Other Information:
Total cash and cash equivalents and marketable securities $ 689 $ 672
Borrowing availability under existing credit facilities 341   295  
Total Liquidity     $ 1,030       $ 967  
 

USG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
(Unaudited)
    Six months ended June 30,
2016     2015
Operating Activities
Net income $ 141 $ 103
 
Adjustments to reconcile income from continuing operations to net cash:
Depreciation, depletion and amortization 72 72
Loss on extinguishment of debt 4 19
Recovery of receivable (3 )
Share-based compensation expense 9 6
Deferred income taxes 66 1
Gain on asset dispositions (11 ) (7 )
Income from equity method investments (23 ) (22 )
Dividends received from equity method investments 18 18
Pension settlement 2
(Increase) decrease in working capital:
Receivables (40 ) (66 )
Income taxes receivable 1 (1 )
Inventories (17 ) 6
Other current assets 5 1
Payables 25 (33 )
Accrued expenses (20 ) (25 )
Decrease in other assets 1 1
Decrease in pension and other postretirement benefits (51 ) (40 )
Decrease in other liabilities (3 ) (4 )
Other, net (12 ) 5  
Net cash provided by operating activities $ 164   $ 34  
 
Investing Activities
Purchases of marketable securities (167 ) (32 )
Sales or maturities of marketable securities 187 103
Capital expenditures (28 ) (48 )
Return of capital 1
Net proceeds from asset dispositions 12 42
Insurance proceeds 2
Release (deposit) of restricted cash 9   (49 )
Net cash provided by investing activities $ 14   $ 18  
 
Financing Activities
Issuance of debt 350
Repayment of debt (141 ) (386 )
Payment of debt issuance fees (6 )
Issuance of common stock 2 4
Repurchases of common stock to satisfy employee tax withholding obligations (2 ) (8 )
Net cash used for financing activities $ (141 ) $ (46 )
 
Effect of exchange rate changes on cash (3 )
 
Net increase in cash and cash equivalents $ 37 $ 3
Cash and cash equivalents at beginning of period 442   228  
Cash and cash equivalents at end of period $ 479   $ 231  
(continued)
USG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(dollars in millions)
(Unaudited)
Six months ended June 30,
2016 2015
Supplemental Cash Flow Disclosures:
Interest paid, net of interest capitalized $ 76 $ 80
Income taxes paid, net of refunds received 5 1
 
Noncash Investing and Financing Activities:
Amount in accounts payable for capital expenditures 4 6
Reversal of USG Boral Building Products earnout (24 )
 
 

USG CORPORATION
CORE BUSINESS RESULTS
(dollars in millions)
(Unaudited)
    Three months ended June 30,     Six months ended June 30,
2016   2015 2016   2015

Net Sales:

Gypsum:
United States $ 538 $ 516 $ 1,081 $ 993
Canada 86 87 168 163
Mexico / Latin America 49 48 93 96
Canadian Mining 2 2
Gypsum Transportation Limited 10
Eliminations (38 ) (36 ) (72 ) (70 )
Total 635   617   1,270   1,194  
Ceilings:
United States 126 121 245 236
Canada 14 14 27 28
Mexico / Latin America 8 8 16 17
Eliminations (11 ) (12 ) (26 ) (27 )
Total 137   131   262   254  
Distribution:
L&W Supply 386 364 743 698
Eliminations (156 ) (142 ) (303 ) (267 )
Total USG Corporation Net Sales $ 1,002   $ 970   $ 1,972   $ 1,879  
 

Operating Profit (Loss):

Gypsum:
United States $ 107 $ 91 $ 210 $ 157
Canada 5 3 11 4
Mexico / Latin America 4 5 6 9
Canadian Mining (3 ) (2 ) (6 ) (5 )
Gypsum Transportation Limited   1   3   1  
Total 113   98   224   166  
Ceilings:
United States 30 23 57 42
Canada 2 1 3 2
Mexico / Latin America 1   1   2   2  
Total 33   25   62   46  
Distribution:
L&W Supply 15 9 26 13
Corporate (26 ) (24 ) (47 ) (47 )
Eliminations (2 ) (3 ) (5 ) 3  
Total USG Corporation Operating Profit $ 133   $ 105   $ 260   $ 181  
 

USG Boral Building Products (UBBP):

Net sales $ 273 $ 264 $ 502 $ 492
Operating profit 41 34 64 57
Net income attributable to UBBP 32 26 46 42
USG share of income from UBBP 16 13 23 21
 

USG CORPORATION
RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES
(dollars in millions, except share and per share data)
(Unaudited)
       
Three months ended June 30, Six months ended June 30,
2016   2015 2016   2015
Income from equity method investments $ 16 $ 14 $ 23 $ 22
Less: Income from equity method investments - Other joint ventures   1     1  
Equity income from UBBP $ 16   $ 13   $ 23   $ 21  
 
Net sales - GAAP measure $ 1,002 $ 970 $ 1,972 $ 1,879
GTL - Shipping operations       (10 )
Adjusted net sales - Non-GAAP measure $ 1,002   $ 970   $ 1,972   $ 1,869  
 
Operating profit - GAAP measure $ 133 $ 105 $ 260 $ 181
Gain on sale of surplus property (US Gypsum) (11 ) (11 )
GTL (recovery) of receivable / shipping operations (1 ) (3 ) (1 )
Income from equity method investments 16   14   23   22  
Adjusted operating profit - Non-GAAP measure $ 138   $ 118   $ 269   $ 202  
 
Gypsum operating profit - GAAP measure $ 113 $ 98 $ 224 $ 166
Gain on sale of surplus property (11 ) (11 )
GTL (recovery) of receivable / shipping operations     (1 )   (3 )   (1 )
Gypsum adjusted operating profit - Non-GAAP measure $ 102     $ 97     $ 210     $ 165  
 
Net income - GAAP measure $ 74 $ 79 $ 141 $ 103
Gain on sale of surplus property (11 ) (11 )
GTL (recovery) of receivable / shipping operations (1 ) (8 )
Loss on extinguishment of debt 2 4 19
Tax effect on adjustments (38.6% tax rate) 3     5    
Adjusted net income - Non-GAAP measure $ 68   $ 78   $ 131   $ 122  
 
Earnings per average diluted common share - GAAP measure $ 0.50 $ 0.54 $ 0.95 $ 0.70
Adjustments per average diluted common share:
Gain on sale of surplus property (0.08 ) (0.08 )
GTL (recovery) of receivable / shipping operations (0.01 ) (0.05 )
Loss on extinguishment of debt 0.02 0.03 0.13
Tax effect on adjustments (38.6% tax rate) 0.02     0.04    
Adjusted earnings per adjusted average diluted common share – Non-GAAP measure $ 0.46   $ 0.53   $ 0.89   $ 0.83  
 
Average diluted common shares – GAAP 147,994,032 146,990,178 147,321,420 147,167,248
Adjustment to add common shares that would be dilutive based on adjusted net income        
Adjusted average diluted common shares – Non-GAAP 147,994,032   146,990,178   147,321,420   147,167,248  

 

Currency impacts on consolidated and segment results have been derived by translating current period results at the quarter-to-date average foreign currency rates for the period ending June 30, 2015.

Source: USG Corporation

USG Corporation
Media
Sasha Bigda
(312) 436-6511
sbigda@usg.com
or
Investors
Ryan Flanagan
(312) 436-5304
investorrelations@usg.com