Morningstar | USG Releases 3Q Results; Knauf's Acquisition of USG Is Still Expected to Close in Early 2019
Like last quarter, USG's third-quarter results were mixed, in our view. While the no-moat building materials manufacturer reported solid year-over-year revenue growth, profit margins slipped from the year-ago quarter as the firm continues to struggle with rising input costs. USG's third-quarter revenue grew 7% year over year to $851 million, but adjusted operating margin contracted 270 basis points to 10.6% and adjusted EPS of $0.45 came in $0.02 shy of last year's adjusted EPS. Because USG is in the process of being acquired by Knauf, a German-based building materials manufacturer, the company declined to hold a conference call to discuss its third-quarter results with the investment community. USG's press release noted that it still expects the acquisition to close in early 2019. We've maintained our $44 per share fair value estimate, which is commensurate with the per-share deal value.Wallboard segment revenue grew 5% year over year to $487 million. Wallboard volumes were down 2%, but price was up 6%. Still, that price increase was not enough to offset rising input and freight costs, and wallboard adjusted operating margin declined 210 basis points year over year to 13.1%. Ceilings revenue grew over 14% year over year to $143 million, but the segment's adjusted operating margin contracted 120 basis points to 18.8%. Performance materials sales increased almost 10% year over year to $101 million; however, the segment posted a $1 million operating loss due to rising input cost and growth investments.
USG is a manufacturer of building materials and solutions. The company's segments are: Gypsum, which manufactures and markets gypsum and related products primary used in a variety of building applications; Performance Materials, which manufactures and markets products used in a variety of interior and exterior building applications of residential, nonresidential buildings and industrial; Ceilings, which manufactures and markets ceiling interior systems products including ceiling tile, ceiling grid, and specialty ceilings; and USG Boral Building Products, which manufactures and distributes products for wall, ceiling, floor lining and exterior systems that utilize gypsum wallboard.
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