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WIKI ANALYSIS
Owens Corning (NYSE: OC) makes building materials, including fiberglass insulation, asphalt, and roofing products.[1] The company is best known for its trademarked PINK colored residential and commercial fiberglass insulation - but in 2000, the company was forced to file Chapter 11 bankruptcy after over 460,000 personal injury lawsuits filed against the company due to the use of asbestos in its insulation.[2] Owens Corning emerged from bankruptcy in October 2006,[3] and it has since regained its 50% market share in the home and industrial insulation, reinforced plastics, and roofing supplies industries. The company eared $4.8 billion in net sales and $64 million in net income in 2009.[4]
A key factor for the company are the high fixed costs involved in making Owens Corning's products, and that its industry is characterized by short-term contracts that don't guarantee that these costs will be recouped if demand slows. Furthermore, Owens Corning's revenue is also heavily correlated to the slumping U.S. Housing Market -- as new home construction stagnates, so does the demand for Owens' products.
Company Overview
Owens Corning makes building products for both residential and commercial applications. The company has four main business divisions: Insulating Systems, Roofing and Asphalt, Other Building Materials, and Composite Solutions. Owens Corning's largest division by sales is Insulating Systems, followed closely by Composite Solutions and Roofing and Asphalt. The company's smallest division is Other Building Materials and Services, as seen in the charts below. The company sells its products primarily to the transportation, wind energy, consumer electronics, telecommunications, infrastructure, and consumer products markets.
Business Segments[5]
Owens Corning's business is divided into four different segments:
Building Materials (67% of sales)
- Insulating Systems (34% of Sales) Owens Corning is known best for its largest division, its trademark pink insulation. In fact, Owens Corning is the largest manufacturer of residential, commercial and industrial insulation in the United States. Owens Corning uses the brand name PINK FIBERGLAS Insulation. The pink colored insulation, along with the name, PINK FIBERGLAS which the Pink Panther mascot endorse for the company, were trademarked in 1985. The insulation is mainly sold to insulation installers, home centers like Home Depot (HD) and Lowe's Companies (LOW), lumberyards and distributors.
- Roofing and Asphalt (27% of Sales) Owens Corning is the largest manufacturer of industrial, specialty, and roofing asphalts and the second largest producer of asphalt roofing shingles in the United States. There has been a recent industry shift in the roofing industry toward using a new type of laminate shingle. Owens Corning has been able to leverage this shift due to its flexible production procedures, and has been able to adapt its factories to produce more of the new type of shingle.
- Other Building Materials and Services (6% of Sales) The Other Building Materials and Services division is dominated by the Masonry Products business and the Construction Services business. The Masonry Products division sells stone veneer products, which provide the texture and look of natural stone with the benefits of cost efficiency, installation ease, and reduced weight. The Construction Services business offer clients both remodeling and new construction services. Owens Corning's has 32 franchised branches offering its Basement Finishing System and SunSuite Sunrooms construction services.
Composite Solutions (33% of Sales)
Owens Corning's Composite Solutions is one of the world's leading manufacturers of glass fiber reinforcement material. These fiberglass products are key components to the automotive, transportation, industrial, infrastructure, building products, and consumer markets. Its fiberglass products are used in shingles, tubs, showers, automotive body panels, rail cars, shipping and refrigerated containers, trailers, and commercial ships. Fiberglass products also have thousands of uses in the consumer market, such as sporting goods and the marine industry.
Business Growth
FY 2009 (ended December 31, 2009)[4]
- Net sales fell 18% to $4.8 billion. The company attributes the decline to lower sales in its Composite segment and Insulation business due to the weakness in the U.S. Housing Market and global economy.
- The company reported a net gain of $64 million compared to a net loss of $813 million in the previous year.
Trends and Forces
The struggles of the U.S. housing market have hurt OC's revenues
Sales of Fiberglass insulation, Owens Corning's's most profitable product, has been negatively affected by the slumping U.S. Housing Market. Demand for insulation products, and building products in general in the US, is highly levered to the U.S. Housing Market and more specifically New Home Construction and new commercial construction. Due to the collapse of the Subprime lending industry, housing construction has slowed, demand for building products is the US is down, and building companies are being forced to fire employees. Demand for building products is also highly levered to Interest Rates. When rates are high, fewer people build new homes or choose to remodel their existing homes because of the high cost of borrowing money.
Increasing Costs of Energy, Materials and Costs of Transportation Keep Owens Corning's Costs High
Price increases in commodities such as natural gas, asphalt and a large number of chemicals increased Owens Corning's costs and reduce its margins. Despite the slumping U.S. Housing Market, building material costs continue to rise, due to the high cost of fuel to both manufacture and transport the products.[6]
Increasing Public Awareness of Energy Efficiency Forces Owens Corning to Develop Better Products
Owens Corning is investing more heavily in Research and Development, recently developing a new type of attic insulation (Atticat), and Advertising. In order to keep its products ahead of the competition in the minds of environmentally conscious customers. Public demand for more energy efficient and 'green' products is rising due to decreased energy costs over time, as well as the desire to decrease individual carbon footprints.
Competition
All of the industries which Owens Corning operates in are highly competitive. Despite its high level of brand recognition with its PINK INSULATION, the company's products are generic and compete heavily on price. Owens Corning's four closest competitors are:
- Johns Manvile: An American based manufacturer of insulation, roofing products, and other building materials. In 2001 conglomerate holding company Berkshire Hathaway (BRK) bought Johns Manvile which is now acting as one of its subsidiaries.
- Compagnie de Saint-Gobain (EPA: SGO): The manufacturers of CertainTeed Building products. This company operates more than 1,000 companies in three different sectors: Building Distribution, Construction Products and Innovative Materials.
- Guardian Industries Corporation: Guardian Industries is a major manufacturer of float glass, fabricated glass products, building materials, and a small number of products used in the automotive industry.
- PPG Industries (PPG) An American manufacturer of glass and chemical products. PPG has many different divisions, however, their fiberglass manufacturing division, competes most closely with Owens Corning.
References
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