USG’s Latest Miss Means Sell USG Stock (USG)

Despite improvement in housing, USG continues to lower earnings estimates

USG (USG) delivered weaker-than-expected Q3 results last week, including a nearly 9% miss on the bottom line as gypsum wallboard sales declined amid lower volumes and pricing power.

Management does not provide specific revenue or EPS guidance, but they did communicate that they expect weak volume in wallboard to continue into 4Q15 with a rebound in 2016.

This propelled the majority of USG stock analysts to quickly cut estimates for this year and next, essentially wiping out any positive growth projections for 2016.

Here are the Zacks Detailed EPS tables which tell the continued tale of downward trending estimates for the wallboard maker who depends on 55% of sales from that product…

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The main theme for analysts after last week’s report was a lot of head-scratching. Analysts were not sure they understood why in the middle of a booming housing market, USG’s volumes and pricing power should be under pressure.

USG believes it could be a lengthening of the lag to housing starts with the trend towards multi-family units. In other words, there is a longer lag from start to installation of wallboard with bigger high-rise projects. Management also talked about a shortage of skilled labor.

Whatever the reasons, the analysts have pushed estimates lower for several quarters forward until the outlook is clearer.

Until then, just keep your eye on the Zacks Rank to know when the earnings momentum turns around.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money (FTM) portfolio.

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