|
|
 | | | |
- close
- close
- close
- close
Suggest other news sources for this topic
WIKI ANALYSIS
USG Corporation (NYSE:USG) is the largest manufacturer of gypsum wallboard (drywall) in the US and a distributor of specialty construction materials. The company's products are used in new residential and commercial construction, as well as the remodeling and repairing industry. The latter, which generates 43% of demand for gypsum wallboard, has helped mitigate the negative effect of the ongoing housing slump on USG's sales. USG owns more gypsum plants, paper mills and other manufacturing facilities relative to its competitors such as National Gypsum Corporation and Eagle Materials. Home Depot is USG's largest customer, accounting for roughly 11% of the company's sales.
The company emerged from bankruptcy in 2006 following a surge of asbestos-related lawsuits. With financial help from Berkshire Hathaway, which owns a substantial portion of USG's shares,[1] the company has hedged future risks by investing in a $4 billion fund to resolve further asbestos claims. The company is replacing old gypsum factories with high-quality, low-cost plants to increase efficiency and counter increasing prices of key raw materials.
Company Overview
USG Corporation is the largest manufacturer of gypsum wallboard in the US and a specialty distributor of construction materials. It's gypsum-based products account for about 48% of business net revenue while product distribution and other construction materials comprise the rest. USG's sales are contingent on the housing market and have experienced losses since the market collapse in 2005.
Business and Financial Metrics
Net sales for USG Corporation and its subsidiaries were $3.2 billion in 2009, a sharp decline from the previous year's sales of $4.6 billion.[2] USG has faced declining revenues since 2006, mostly as a result of the collapse of the housing market. As a result, its net income for 2009 was a loss of $787 million.[2]
Business Segments
North American Gypsum
USG's North American Gypsum products include a line of interior finishing applications used for floors, walls, and ceilings in residential, commercial and industrial construction. A majority of its gypsum wallboard products are sold under the SHEETROCK brand name while it's major cement board product line is under the DUROCK brand name.
Building Products Distribution
This business segment comprises L&W Supply, USG's specialty distributor of building and construction materials. Overall, wallboard accounted for 47% of L&W sales. Operating mainly in the US, L&W Supply has over 220 distribution centers nationwide.[3] L&W Supply is service-oriented, and offers on-site delivery to contractors.
While owning a distributional segment, USG is not completely vertically integrated. L&W Supply is not limited to selling USG-manufactured products. Likewise, it's manufacturing segment supplies construction materials to other distribution facilities as well.
Worldwide Ceilings
Worldwide Ceilings include USG Interiors, USG International and CGC. This segment handles USG business outside North America and the manufacturing and marketing of specialty ceiling products (including the ceiling grid and ceiling tile) in North America, Europe, Latin America and the Asia-Pacific. CDG is the largest manufacturer in Canada, while USG Mexico is the largest in the country. USG has not fully developed in the international market because of the high cost of shipping and handling overseas, although this is an opportunity for hedging domestic risks.
Trends and Forces
The housing industry determines the construction industry, hence revenues are highly cyclical in nature.
The housing crisis has adversely affected the construction industry in the last few years. There has been a virtual stop in terms of new home constructions since the housing bust. In response, USG reported lowering its selling price, lowering its revenue. In addition, the opportunity for future repair and remodeling activity is reduced because of the ongoing housing crisis.
The cost and availability of key raw materials are volatile
Manufacturing costs for USG increased by 9%, mainly due to the increasing cost of raw materials (including natural gas, wastepaper, and other materials). In addition, the company acquires materials from a limited number of suppliers, increasing the risk of unavailability. In terms of natural gas, the company enters into fixed-price supply agreements and hedging transactions (generally for the next 12 months). However, if the price of natural gas declines, USG will be unable to take advantage of lower costs.
Competition
- National Gypsum Company (or NSG) is a privately-owned, fully-integrated construction company and is the second-manufacturer of gypsum wallboard in the US, next to USG. [4] USG operates on a wider scale than National Gypsum, owning 22 gypsum wallboard plants and 8 paper mills, compared to National Gypsum’s 19 plants and 4 mills.
- Eagle Materials (EXP) manufactures construction materials including gypsum wallboard, cement and recycled paperboard. Its products are distributed throughout the US, but are more concentrated in regions close to its 5 wallboard plants. In contrast, USG supplies materials more evenly through its own L&W Supply and other distribution facilities.
- CertainTeed is a subsidiary of the French industrial company Compagnie de Saint-Gobain, sells construction materials to residential and commercial contractors in the US. CertainTeed has 13 gypsum plants in the country.[5]
- Lafarge North America is a supplier of construction materials in the US and Canada. Unlike USG, Lafarge isn’t focused on the production of gypsum materials. Its gypsum segment accounts for 10% ($411 million) [6] while 48% USG’s sales come from gypsum-based products.
References
| |||||||
