USG Corporation (USG)

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Q4 2012 Earnings Call

February 06, 2013 11:00 am ET


Ken Banas

James S. Metcalf - Chairman, Chief Executive Officer and President

Matthew F. Hilzinger - Chief Financial Officer and Executive Vice President


Mike Wood - Macquarie Research

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

Robert C. Wetenhall - RBC Capital Markets, LLC, Research Division

Mark A. Weintraub - The Buckingham Research Group Incorporated

Garik S. Shmois - Longbow Research LLC

Neil Frohnapple - Northcoast Research

Trey Grooms - Stephens Inc., Research Division

Dennis McGill - Zelman & Associates, LLC

Kathryn I. Thompson - Thompson Research Group, LLC.

Seth B. Yeager - Jefferies & Company, Inc., Research Division

John F. Kasprzak - BB&T Capital Markets, Research Division

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division



Welcome to the USG Corporation Fourth Quarter 2012 Earnings Conference Call. My name is John, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mr. Ken Banas. Mr. Banas, you may begin.

Ken Banas

Thank you. Good morning, and welcome to USG Corporation's fourth quarter 2012 earnings conference call and live webcast. We'll be using a slide presentation in conjunction with our call today. It is available by going to the investor information section of our website,, and clicking on the link to the webcast.

Before we proceed, let me remind you that certain statements in this conference call may be forward-looking statements under securities laws. These statements are made on the basis of management’s current views and assumptions of our business, markets and other conditions, and management undertakes no obligation to update these statements. The statements are also subject to a number of factors, including those listed at the end of the press release, and actual results may be different from our current expectations.

With me today to discuss our results and our outlook are Jim Metcalf, Chairman, President and Chief Executive Officer; and Matt Hilzinger, Executive Vice President and Chief Financial Officer. Jim will provide a general overview of the quarter, plus additional insight into some of our businesses. Matt will review the financial results for the quarter and the year for the corporation and the business segments. We'll then open the call for questions and conclude with a few comments from Jim. [Operator Instructions] Jim?

James S. Metcalf

Thank you, Ken. Good morning. I appreciate everyone joining us and your interest in USG. I'm looking forward to giving you a quick update on the quarter as well as what we're currently seeing in the market and into 2013. In Q4, we had the best quarter for our Wallboard business in a few years, with volume we haven't seen since 2009 and pricing at 2007 levels. This is evidence that our plan is working, and we continue to see a recovery in our core markets. We had positive adjusted operating profit for the fourth quarter in a row, only missing positive EBIT due to restructuring and asset impairment charges brought on by our continued cost reduction activities. Despite demand in the U.S. that's well below historical levels, we're making strides towards our primary objective of positive net income.

There are 3 reasons our earnings were lower in Q4 than the previous 3 quarters. First and most significantly was seasonality. Second was a continued drop in commercial activity, which primarily impact our Ceilings business at USG Interiors and L&W Supply. And finally, as we planned, we increased our infrastructure spending at our manufacturing plant. Regardless of demand, we remain committed to lowering our breakeven. We're not waiting for the market to fully recover, and as I've said before, we will continue to create our own recovery.

We've taken out over $0.5 billion in costs, including $38 million in additional cost reductions in 2012 by closing L&W branches, consolidating our back office and implementing a recent management workforce reduction. These actions are allowing us to make targeted investments in growth areas, offset some inflationary pressures and continue to focus on lowering our breakeven.

Now I'd like to turn to our business units. In our North American Gypsum segment, wallboard results continue to be the primary driver of improved performance. Wallboard volume increased 12% year-on-year in the fourth quarter. The wallboard price was up slightly from the third quarter. With a full year under our belt, the results of our new pricing strategy are very positive and our customers are pleased as well. We've enabled our customers to reduce their back-office costs with a policy that's easier to manage and now, we can focus on other ways that we can improve our customer sales and profitability with high levels of service, quality and product innovation. As we said in the past, we have implemented the same pricing strategy in 2013 and I'm happy to say we're pleased on what we received so far in the results, and we'll give you more details on pricing in the first quarter in our call in April.

Moving on to other core products in North American gypsum. Our focus continues to produce solid results. Joint Treatment had a great fourth quarter with improvements in all categories: volume, price and cost. We also made positive contributions from our shipping business, which we talked about last quarter, Gypsum Transportation Limited. GTL profitability improved by $11 million in Q4 compared to last year as we redeployed our ships to transport iron ore.

Worldwide Ceilings had solid performance despite the seasonality I mentioned earlier. Ceilings had a record year in operating profit in the United States despite continued flat demand. Worldwide Ceilings profitability was down approximately $3 million compared to the fourth quarter of last year, although this drop is consistent with historical fourth quarter performance. This historical seasonality will point typically to a stronger first quarter, and despite choppy demand in the commercial market, we are confident the Ceilings business will continue its track record of improved profitability in 2013.

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