April 17, 2012
Just a company, and its will to survive.
More than three years have passed since I pondered wallboard manufacturer USG's (NYSE: USG ) chances for survival in the face of a U.S. housing collapse that proved even scarier than Rocky III challenger "Clubber" Lang. As the following chart shows, not only is the fighter still standing, but it's looking surprisingly sure-footed considering the beating it's received on the operations front. With a 165% gain, USG easily has outperformed the S&P 500 (INDEX: ^GSPC ) since that article appeared, while fellow construction materials provider Cemex (NYSE: CX ) and some well-known homebuilders suffered losses.
USG reported first-quarter earnings Tuesday that featured a $27 million operating profit in place of the prior-year period's $58 million loss. Citing "a modest increase in U.S. wallboard demand," the company managed to shrink its quarterly net loss to a reasonable $27 million.
From my ring-side seat, the strong condition of this fighter caught me by surprise. After so many punishing rounds of painful losses, I am impressed to find that the share count has barely budged -- looking back now over the past four years -- from 99 million shares to 105.7 million shares. That conveys to me a proven commitment to shareholder interests within USG's adaptation to the frightful downturn. Meanwhile, homebuilder PulteGroup (NYSE: PHM ) increased its share count by about 50% over roughly the same period. And after playing a hand in creating the crisis, Bank of America added insult to shareholders' collective injury by ballooning its share count by roughly 150% over the corresponding period.
Although USG's long-term debt has, of course, grown since the first quarter of 2008 -- expanding nearly 85% to $2.3 billion -- its cash (and equivalents) increased by 147% to a comforting $470 million. Given the very difficult business environment through which the company continues to trudge, I find the balance sheet surprisingly well conditioned to withstand additional rounds of housing's onslaught. And with the latest housing data showing a 5.8% drop in U.S. housing starts for March, I am concerned that recent optimism toward the sector may have been hoodwinked by that unseasonable winter weather. I remain cautious of the sector, particularly considering the force of the recent rally. Although I do not wish to own USG until I can confidently confirm a very real rebound in residential construction, that sentiment does not prevent me from admiring the means by which the company has held its own in the fight of a lifetime.