Highest Quarterly Net Sales Since Q3
2007
USG Corporation (NYSE:USG), an industry-leading manufacturer of
building products and innovative solutions, today reported
financial results for the second quarter of 2018. As compared to
2017’s second quarter, results for 2018’s second quarter are
below:
- Net sales of $880 million up $69
million, or 9%
- Operating profit of $75 million down
$20 million, or 21%
- Net income of $58 million up $22
million, or 61%
- Diluted EPS of $0.41 up $0.17, or
71%
As compared to 2017’s second quarter, non-GAAP financial
measures for 2018’s second quarter are below:
- Adjusted operating profit of $96
million down $13 million, or 12%
- Adjusted net income of $70 million up
$6 million, or 9%
- Adjusted diluted EPS of $0.50 up $0.06,
or 14%
Consolidated Second Quarter
Results
Second quarter 2018 net sales were $880 million on a
consolidated basis, compared to $811 million in the second quarter
of 2017. Operating profit decreased to $75 million from $95
million, while adjusted operating profit decreased to $96 million
from $109 million in the second quarter of 2018 compared to the
second quarter of 2017. The lower operating profit in the second
quarter of 2018 was driven primarily by higher planned SG&A
costs to support USG’s Customer-First strategy and rising costs,
including higher transportation costs.
USG recorded $58 million in net income, or $0.41 per diluted
share, for the second quarter of 2018, compared to net income of
$36 million, or $0.24 per diluted share, in the second quarter of
2017. On an adjusted basis, net income of $70 million, or $0.50 per
diluted share, for the second quarter of 2018 increased from $64
million, or $0.44 per diluted share, in the second quarter of 2017.
A full reconciliation of GAAP to adjusted metrics is provided in
the attached schedule.
The Company remains on track with Advanced Manufacturing, which
delivered $6 million of incremental EBITDA this quarter. The
program is expected to deliver $25 million of incremental EBITDA in
2018. In addition, the 2018 adjusted SG&A target of $355
million has not changed.
U.S. Wallboard & Surfaces
The U.S. Wallboard & Surfaces segment net sales for the
second quarter of 2018 increased $30 million, or 6%, compared with
the second quarter of 2017. The segment generated $81 million of
operating profit in the second quarter of 2018. On an adjusted
basis, operating profit of $68 million decreased by $10 million
compared to the second quarter of 2017. Wallboard price increased
2% from the second quarter of 2017 due primarily to a January 2018
price increase. In addition, wallboard volumes increased 2%
compared to the second quarter of 2017. However, wallboard costs
were $12 million higher than the prior year primarily due to rising
input and transportation costs.
U.S. Performance Materials
The U.S. Performance Materials segment net sales increased by $5
million, or 5%, year over year due to a higher average realized
selling price. The segment generated $6 million of operating loss
in the second quarter of 2018 partially due to proactively
terminating a longstanding marketing contract, which resulted in an
$8 million loss. On an adjusted basis, operating profit of $2
million in the U.S. Performance Materials segment declined by $6
million compared to the second quarter of 2017 primarily due to
rising input costs and SG&A investments to accelerate the
adoption of new products.
U.S. Ceilings
The U.S. Ceilings segment net sales increased $21 million, or
18%, compared to the second quarter of 2017. The segment generated
$23 million of operating profit in the second quarter of 2018. On
an adjusted basis, operating profit of $27 million increased by $4
million from the second quarter of 2017 primarily due to improved
pricing and volumes across tile and grid products.
USG Boral
USG Boral net sales increased $10 million, or 3%, compared to
the second quarter of 2017. The segment generated $12 million of
equity income in the second quarter of 2018, which is a $2 million
decrease compared to the second quarter of 2017 primarily due to
higher input costs and SG&A expenses.
Pending Knauf and USG Merger
On June 11, Gebr. Knauf KG (Knauf) and USG announced that they
had entered into a definitive merger agreement pursuant to which
Knauf will acquire all the outstanding shares of USG. Under the
terms of the merger agreement, USG stockholders will receive $44
per share, which consists of $43.50 per share in cash payable upon
closing of the transaction and a $0.50 per share conditional
special dividend that would be paid following shareholder approval
of the transaction. The transaction is expected to close in early
2019, subject to customary closing conditions, including approval
by USG stockholders and regulatory approvals.
Second Quarter 2018 Conference
Call
In light of the announced transaction with Knauf, the Company
will not hold a conference call for its results for the second
quarter of 2018. The Company plans to file its Quarterly Report on
Form 10-Q for the second quarter with the SEC on or about July 25,
2018.
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.
Non-GAAP Financial Measures
In this press release, the company’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 company presents
the non-GAAP financial measures adjusted net sales, adjusted
operating profit, adjusted net income, adjusted selling and
administrative expenses, EBITDA, adjusted EBITDA, and adjusted
diluted earnings per share, 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 company’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 company’s core
operating results. Adjusted operating profit on a consolidated
basis includes the equity method income from USG Boral and USG’s
income from other equity investments because management views USG
Boral and its other equity investments as important businesses. In
addition, the company uses adjusted operating profit and adjusted
net income as components in the measurement of incentive
compensation. 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 company’s
use of non-GAAP financial measures, and the 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, statements regarding the proposed
transaction with Knauf, including expected timing, completion and
effects of the proposed transaction, advanced manufacturing returns
and adjusted SG&A target. Actual business, market or other
conditions may differ materially from management’s expectations
and, accordingly, may affect our sales and profitability, liquidity
and future value. 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, and we undertake
no obligation to update any forward-looking statement. Among the
risks, contingencies and uncertainties that could cause actual
results to differ from those described in the forward-looking
statements or could result in the failure of the proposed
transaction to be completed are the following: the failure to
obtain stockholder approval of the adoption of the merger
agreement; the failure to obtain necessary regulatory or other
governmental approvals for the proposed transaction, or if
obtained, the possibility of being subjected to conditions that
could result in a material delay in, or the abandonment of, the
proposed transaction or otherwise have an adverse effect on USG;
continued availability of financing or alternatives for the
financing provided in the Knauf debt commitment letter; the failure
to satisfy required closing conditions; the potential impact on the
USG Boral joint venture in the event the proposed transaction is
not completed, including the risk that, in connection with the
execution of the merger agreement, Boral Limited has the right to
exercise its option to acquire USG’s ownership of the USG Boral
joint venture; the risk that the proposed transaction may not be
completed in the expected timeframe, or at all; the effect of
restrictions placed on USG and its subsidiaries’ ability to operate
their businesses under the merger agreement, including USG’s
ability to pursue alternatives to the proposed transaction; the
risk of disruption resulting from the proposed transaction,
including the diversion of USG’s resources and management’s
attention from ongoing business operations; the effect of the
announcement of the proposed transaction on USG’s ability to retain
and hire key employees; the effect of the announcement of the
proposed transaction on USG’s business relationships, results of
operations, financial condition, the market price of USG’s common
stock and businesses generally; the risk of negative reactions from
investors, employees, suppliers and customers; the outcome of any
legal proceedings that may be instituted against USG related to the
proposed transaction; the amount of the costs, fees, expenses and
charges related to the proposed transaction; and the occurrence of
any event giving rise to the right of a party to terminate the
merger agreement. Information describing other risks and
uncertainties affecting USG that could cause actual results to
differ materially from those in forward-looking statements may be
found in our filings with the SEC, including, but not limited to,
the “Risk Factors” in our most recent Annual Report on Form
10-K.
USG CORPORATION CONDENSED CONSOLIDATED STATEMENTS
OF INCOME (dollars in millions, except share and per share
data) (Unaudited)
Three months ended June 30,
Six months ended June 30, 2018
2017(a)
2018
2017(a)
Net sales $ 880 $ 811 $ 1,666 $ 1,578 Cost of products sold 696
643 1,343 1,251 Gross profit 184 168
323 327 Selling and administrative expenses 109 73
202 148 Operating profit 75 95 121 179 Income from
equity method investments 12 14 21 27 Net interest expense (13 )
(19 ) (26 ) (38 ) Loss on extinguishment of debt — (22 )
— (22 ) Other (expense) income, net (3 ) (2 ) — 4
Income from continuing operations before income taxes 71 66
116 150 Income tax expense (13 ) (20 ) (22 ) (49 ) Income
from continuing operations 58 46 94 101 Income (loss) from
discontinued operations, net of tax — (10 ) 1
(10 ) Net income $ 58 $ 36 $ 95 $ 91
Earnings per average common share -
basic: Income from continuing operations
$ 0.41 $ 0.32 $ 0.66 $ 0.69 Income (loss) from discontinued
operations — (0.07 ) 0.01 (0.07 ) Net income $
0.41 $ 0.25 $ 0.67 $ 0.62
Earnings per average common share -
diluted: Income from continuing operations
$ 0.41 $ 0.31 $ 0.65 $ 0.68 Income (loss) from discontinued
operations — (0.07 ) 0.01 (0.07 ) Net income $
0.41 $ 0.24 $ 0.66 $ 0.61 Average common shares 139,617,875
144,526,900 140,540,426 145,753,098 Average diluted common shares
140,879,921 146,860,939 142,763,192 148,291,473 (a) -
Historical results have been recast to reflect our adoption of
Accounting Standards Update 2017-07 on January 1, 2018.
USG CORPORATION CONDENSED CONSOLIDATED BALANCE
SHEETS (dollars in millions, except share data)
(Unaudited) As of As of June
30, 2018 December 31, 2017 Assets Cash and
cash equivalents $ 246 $ 394 Short-term marketable securities 58 62
Receivables (net of reserves - 2018 - $10 and 2017 - $9) 342 233
Inventories 265 252 Income taxes receivable 16 15 Other current
assets 36 35 Total current assets 963 991 Long-term
marketable securities 38 37
Property, plant and equipment (net of
accumulated depreciation and depletion - 2018 -
$2,111 and 2017 - $2,053)
1,793 1,762 Deferred income taxes 264 287 Equity method investments
666 686 Goodwill and intangible assets 42 43 Other assets 47
45
Total assets $ 3,813 $ 3,851
Liabilities and Stockholders' Equity Accounts payable $ 281
$ 280 Accrued expenses 130 135 Income taxes payable 1 —
Total current liabilities 412 415 Long-term debt 1,078 1,078
Deferred income taxes 4 4 Pension and other postretirement benefits
277 326 Other liabilities 179 183 Total liabilities
1,950 2,006 Stockholders' Equity: Common stock 15 15 Treasury stock
at cost (219 ) (169 ) Additional paid-in capital 3,040 3,057
Accumulated other comprehensive loss (401 ) (389 ) Retained
earnings (accumulated deficit) (572 ) (669 ) Total stockholders'
equity 1,863 1,845
Total liabilities and
stockholders' equity $ 3,813 $ 3,851
Other Information: Total cash
and cash equivalents and marketable securities $ 342 $ 493
Borrowing availability under existing credit facilities 176
155 Total Liquidity $ 518 $ 648
USG CORPORATION CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (dollars in millions)
(Unaudited) Six months ended June 30, 2018
2017 Operating Activities Net income $ 95 $ 91
Less: Income (loss) from discontinued operations, net of tax 1
(10 ) Income from continuing operations 94 101
Adjustments to reconcile income from continuing operations to net
cash: Depreciation, depletion and amortization 76 65 Loss on
extinguishment of debt — 22 Share-based compensation expense 10 9
Deferred income taxes 20 48 Gain on asset dispositions (13 ) (1 )
Loss on sale of equity method investment 8 — Income from equity
method investments (21 ) (27 ) Dividends received from equity
method investments 16 23 Pension settlement — 7 Change in operating
assets and liabilities (176 ) (117 ) Other, net 4 (1 ) Net
cash provided by operating activities of continuing operations 18
129 Net cash provided by (used for) operating activities of
discontinued operations 1 (1 ) Net cash provided by
operating activities $ 19 $ 128
Investing
Activities Purchases of marketable securities (49 ) (54 ) Sales
or maturities of marketable securities 51 53 Capital expenditures
(109 ) (72 ) Net proceeds from asset dispositions 14 2 Net proceeds
from sale of equity method investment 3 — Working capital
adjustment from acquisition of business 2 — Other investing
activities — 1 Net cash used for investing activities
of continuing operations (88 ) (70 ) Net cash provided by investing
activities of discontinued operations — 6 Net cash
used for investing activities $ (88 ) $ (64 )
Financing
Activities Issuance of debt — 500 Repayment of debt — (520 )
Payment of debt issuance fees — (8 ) Issuances of common stock 6 3
Repurchase of common stock (76 ) (97 ) Repurchases of common stock
to satisfy employee tax withholding obligations (7 ) (4 ) Net cash
used for financing activities of continuing operations $ (77 ) $
(126 ) Effect of exchange rate changes on cash (2 ) 6
Net decrease in cash and cash equivalents from continuing
operations $ (149 ) $ (61 ) Net increase in cash and cash
equivalents from discontinued operations 1 5 Net
decrease in cash and cash equivalents (148 ) (56 ) Cash and cash
equivalents at beginning of period 394 427 Cash and
cash equivalents at end of period $ 246 $ 371
USG CORPORATION SEGMENT BUSINESS RESULTS
(dollars in millions) (Unaudited)
Three months ended June 30, Six months ended June
30, 2018 2017 2018
2017
Net
Sales
U.S. Wallboard and Surfaces $ 512 $ 482 $ 953 $ 951 U.S.
Performance Materials 105 100 197 186 U.S. Ceilings 139 118 277 230
Canada 121 104 232 200 Other 65 59 125 115 Eliminations (62 ) (52 )
(118 ) (104 )
Total USG Corporation Net Sales $ 880 $
811 $ 1,666 $ 1,578
Operating Profit
(Loss)(a)
U.S. Wallboard and Surfaces $ 81 $ 78 $ 130 $ 157 U.S. Performance
Materials (6 ) 8 (5 ) 14 U.S. Ceilings 23 23 42 43 Canada 8 2 10 4
Other 4 1 8 2 Corporate (35 ) (17 ) (64 ) (41 )
Total USG Corporation Operating Profit $ 75 $
95 $ 121 $ 179
USG Boral
Building Products (UBBP)
Net sales $ 297 $ 287 $ 584 $ 563 Operating profit 31 40 59 75 Net
income attributable to UBBP 24 28 43 53 USG share of income from
UBBP 12 14 21 27 (a) - Historical results have
been recast to reflect our adoption of Accounting Standards Update
2017-07 on January 1, 2018.
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,
2018 2017 2018 2017
Net sales - GAAP $ 880 $ 811
$ 1,666 $ 1,578 Adoption of revenue
standard — — 9
— Non-cash purchase accounting amortization 3 — 4
—
Adjusted Net sales - Non-GAAP $ 883
$ 811 $ 1,679
$ 1,578 U.S. Wallboard and Surfaces net
sales - GAAP $ 512 $ 482 $
953 $ 951 Adoption of revenue standard —
— 6 —
U.S. Wallboard and Surfaces adjusted
net sales -Non-GAAP
$ 512 $ 482 $
959 $ 951 U.S. Performance
Materials net sales - GAAP $ 105 $
100 $ 197 $ 186 Adoption of
revenue standard — — 1 —
U.S. Performance Materials adjusted net
sales -Non-GAAP
$ 105 $ 100 $
198 $ 186 U.S. Ceilings net
sales - GAAP $ 139 $ 118 $
277 $ 230 Adoption of revenue standard — — 2 —
Non-cash purchase accounting amortization 3 — 4
—
U.S. Ceilings adjusted net sales - Non-GAAP
$ 142 $ 118 $
283 $ 230 Operating profit -
GAAP(a)
$ 75 $ 95 $
121 $ 179 Income from equity method
investments 12 14 21 27 Knauf merger related costs 8 — 9 — Gain on
sale of surplus property (13 ) — (13 ) — Loss on contract
termination 8 — 8 — Non-cash purchase accounting amortization 3 — 4
— Integration and realignment costs 3 — 6 — Contractual legal
judgment — — 5 — Adoption of revenue standard — — 3
—
Adjusted operating profit - Non-GAAP $
96 $ 109 $ 164
$ 206
U.S. Wallboard and Surfaces operating
profit -GAAP(a)
$ 81 $ 78 $ 130 $
157 Gain on sale of surplus property (13 ) — (13 ) —
Adoption of revenue standard — — 2 —
U.S. Wallboard and Surfaces adjusted
operatingprofit - Non-GAAP
$ 68 $ 78 $
119 $ 157
U.S. Performance Materials operating
profit - GAAP(a)
$ (6 ) $ 8 $ (5
) $ 14 Loss on contract termination 8 —
8 —
U.S. Performance Materials adjusted
operatingprofit - Non-GAAP
$ 2 $ 8 $ 3
$ 14 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, 2018 2017
2018 2017 U.S. Ceilings operating profit -
GAAP(a)
$ 23 $ 23 $
42 $ 43 Integration and realignment costs 1 —
3 — Adoption of revenue standard — — 1 — Non-cash purchase
accounting amortization 3 — 4 —
U.S.
Ceilings adjusted operating profit - Non-GAAP $
27 $ 23 $ 50
$ 43 UBBP operating profit -
GAAP $ 31 $ 40 $ 59
$ 75
Income from equity method investments
owned byUBBP
4 5 8 8
Operating profit attributable to
non-controllinginterest, pre-tax
(1 ) (2 ) (2 ) (3 )
UBBP adjusted operating profit -
Non-GAAP $ 34 $ 43
$ 65 $ 80
Selling and Administrative Expenses - GAAP(a)
$
109 $ 73 $ 202 $
148 Knauf merger related costs (8 ) — (9 ) — Loss on
contract termination (8 ) — (8 ) — Integration and realignment
costs (3 ) — (6 ) — Contractual legal judgment — — (5
) —
Adjusted Selling and Administrative
Expenses - Non-GAAP
$ 90 $ 73 $
174 $ 148 Net income -
GAAP $ 58 $ 36 $ 95
$ 91 (Income) loss from discontinued operations, net
of tax — 10 (1 ) 10 Knauf merger related costs 8 — 9 — Gain on sale
of surplus property (13 ) — (13 ) — Loss on contract termination 8
— 8 — Non-cash purchase accounting amortization 3 — 4 — Integration
and realignment costs 3 — 6 — Loss on sale of joint venture 8 — 8 —
Contractual legal judgment — — 5 — Adoption of revenue standard — —
3 — Pension settlement charge — 7 — 7 Loss on extinguishment of
debt — 22 — 22 Tax effect on adjustments (b) (5 ) (11 ) (8 ) (11 )
Adjusted net income - Non-GAAP $ 70
$ 64 $ 116 $
119 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, 2018 2017
2018 2017 Earnings per average diluted
common share - GAAP $ 0.41 $ 0.24
$ 0.66 $ 0.61 Adjustments per average
diluted common share: (Income) loss from discontinued operations,
net of tax — 0.07 (0.01 ) 0.07 Knauf merger related costs 0.06 —
0.06 — Gain on sale of surplus property (0.09 ) — (0.09 ) — Loss on
contract termination 0.06 — 0.06 — Non-cash purchase accounting
amortization 0.01 — 0.02 — Integration and realignment costs 0.01 —
0.04 — Loss on sale of joint venture 0.06 — 0.06 — Contractual
legal judgment — — 0.03 — Adoption of revenue standard — — 0.02 —
Pension settlement charge — 0.05 — 0.05 Loss on extinguishment of
debt — 0.15 — 0.15 Tax effect on adjustments (b) (0.02 ) (0.07 )
(0.04 ) (0.07 )
Adjusted earnings per adjusted average
dilutedcommon share – Non-GAAP
$ 0.50 $ 0.44 $
0.81 $ 0.81 Average
diluted common shares – GAAP 140,879,921
146,860,939 142,763,192 148,291,473
Net income - GAAP $ 58 $ 36
$ 95 $ 91 Less: (Income) loss from
discontinued operations, net of tax — 10 (1 ) 10 Add: Interest
expense, net 13 19 26 38 Add: Income tax expense 13 20 22 49 Add:
Depreciation, depletion and amortization (c) 36 33 70
66
EBITDA - Non-GAAP $ 120
$ 118 $ 212 $ 254 Add:
Share-based compensation expense 6 5 10 9 Add: Knauf merger related
costs 8 — 9 — Add: Gain on sale of surplus property (13 ) — (13 ) —
Add: Loss on contract termination 8 — 8 — Add: Non-cash purchase
accounting amortization 3 — 4 — Add: Integration and realignment
costs 3 — 6 — Add: Loss on sale of joint venture 8 — 8 — Add:
Contractual legal judgment — — 5 — Add: Adoption of revenue
standard — — 3 — Add: Pension settlement charge — 7 — 7 Add: Loss
on extinguishment of debt — 22 — 22 Less: USG's equity income from
UBBP (12 ) (14 ) (21 ) (27 ) Add: USG's share of UBBP Adjusted
EBITDA 23 27 44 51
Adjusted EBITDA -
Non-GAAP $ 154 $ 165
$ 275 $ 316
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, 2018
2017 2018 2017 UBBP Net
Income - GAAP $ 25 $ 28 $
45 $ 54 Less: Net income attributable to
non-controlling interest 1 — 2 1
Net income
attributable to UBBP - GAAP $ 24 $
28 $ 43 $ 53 Add: income tax
expense 10 16 22 28 Add: Depreciation, depletion and amortization
12 10 24 21
Total UBBP Adjusted EBITDA -
Non-GAAP $ 46 $ 54
$ 89 $ 102 USG's share of
UBBP Adjusted EBITDA - Non-GAAP $ 23
$ 27 $ 44 $
51 (a) - Historical results have been recast
to reflect our adoption of Accounting Standards Update 2017-07 on
January 1, 2018. (b) - Tax effect on adjustments is calculated
using country specific statutory rates. (c) - Depreciation,
depletion and amortization excludes the amortization of deferred
financing fees which is included in interest expense.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180725005120/en/
MediaKathleen Prause, 312-436-6607kprause@usg.comorInvestorsBill Madsen,
312-436-5349investorrelations@usg.com
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