As a cyclical performer, USG's returns are heavily dependent on the recovery of the economy - particularly the residential and commercial real estate.
Demand/Supply Analysis:
Current estimate of wallboard demand holds at ~18 billion sqft. The southeast is still incredibly weak. The Midwest is fairly stable, solid in relative terms, as well as the intermountain area and Texas, and then obviously there's weak pockets in Arizona, Vegas, and California. So it is a regional demand scenario and there's differences in regional prices as well. In terms of capacity in the industry, current estimates is ~35 billion sqft. This translates to a simplistic industry averaged capacity utilisation of 51.4%. Currently, USG presented in the quarterly discussions that their plant utilisation ~46%.
Pricing Analysis:
USG's pricing philosophy has not changed despite the recessionary pressure to maintain sales and market share. With the value proposition they provide, such as new products, research and development, marketing and their sales coverage, USG will continue to market as a premium product brand. USG realised an average selling price of $115.33 per thousand sq ft compared to their competitor Eagle with an average of $92.70 for the last quarter.
Cost Base:
With workforce reduction (SG&A now at 9% of rev), curtailed operations at older less efficient wallboard lines, optimisation of their L&W supply network, reduction of plant operations, USG is trying hard to lean out its operations.
With its strict disciplined cost management, continued focus on innovative and industry leading products, a strong competitive advantage of local presence (as opposed to Mr Jay's view that transportation of massive wallboards is a negative for USG, it is actually a positive moat against foreign imports!), USG just needs to wait it out for the tide to come in again.
