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Owens Corning warns
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June 26, 2000: 10:08 a.m. ET
Company blames shortfall on soft housing market and rising costs
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NEW YORK (CNNfn) - Building materials company Owens Corning Monday warned that sales and operating income for the second quarter will be below Wall Street forecasts and year-earlier levels, blaming the soft housing market and rising raw materials costs.
Owens Corning (OWC: Research, Estimates) said earnings excluding one-time items will be about $1 a share fully diluted, compared to $1.31 a share a year earlier. The Toledo, Ohio-based company said it will report a net loss for the second quarter after including a charge estimated at $700 million to $1 billion for asbestos-related liabilities.
Wall Street was expecting profits of $1.24 excluding one-time items, according to First Call, which tracks analysts' estimates. Owens Corning expects to report results July 13.
Owens Corning said it expects its second-quarter revenue to be slightly below the $1.3 billion reported in the same period last year. The company said this reflects weaker demand in its roofing, siding and insulation businesses, as the housing market responds to a rise in interest rates.
The company forecast Monday that its revenue for the full year will rise about 4 percent. However, continued margin pressure, increased borrowing costs, and continued housing market weakness are likely to reduce earnings per share, excluding the asbestos-related items, to about $3.74, Owens Corning said. That would be 20 percent below the $4.67 the company earned in 1999 and 19 percent below the $4.61 that analysts were expecting for 2000, according to First Call.
Owens Corning said it needed to take the $700 million to $1 billion asbestos-related charge because the company has continued to expand the size of its national settlement program (NSP) for asbestos injury claims and because settlement demands and payments in asbestos cases "have increased dramatically in many jurisdictions."
"Recent large verdicts against other asbestos defendants in certain jurisdictions, including Madison County, Illinois and Orange County, Texas, illustrate the unpredictability and high cost of resolving non-NSP cases," Owens Corning said in a statement issued before the start of trading Monday. "Consequently, the reserve adjustment will also take into account the company's revised estimate to settle non-NSP claims in its remaining backlog of approximately 26,000 cases."
To make matters even worse, some of Owens Corning's co-defendants in asbestos litigation, such as Babcock & Wilcox and Pittsburgh Corning, have gone bankrupt.
Owens Corning said that the large charge for asbestos-related claims will be partly offset by a $335 million settlement payment from a group of insurers. Of that amount, $125 million was previously recorded as income. The balance of $210 million will be recorded as net pre-tax income in the second quarter, Owens Corning said.
The company sells a variety of home building products, including glass fiber, foam and mineral wool insulation, roofing materials, and vinyl and metal siding. It competes in the insulation market with Johns Manville, which was just sold to an investor group for $2.4 billion. 
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