Q3 2011 Earnings Call

October 20, 2011 11:00 am ET


Brian Moore - President and CEO

Richard H. Fleming - Chief Financial Officer and Executive Vice President

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


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

Angela Uttaro - Oppenheimer Funds

Joshua Pollard - Goldman Sachs Group Inc., Research Division

Michael Dahl - Crédit Suisse AG, Research Division

Rodny Nacier - KeyBanc Capital Markets Inc., Research Division

Jason A. Marcus - JP Morgan Chase & Co, Research Division

James Barrett - CL King & Associates, Inc.

Garik S. Shmois - Longbow Research LLC

Trey Grooms - Stephens Inc., Research Division

James Finnerty

Unknown Analyst -

Seth Yeager - Jeffries & Company

Kathryn I. Thompson - Thompson Research Group, LLC.



Welcome to the USG Corporation Third Quarter 2011 Earnings Conference Call. My name is Monica, 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 Brian Moore, Senior Director, Investor Relations. Mr. Moore, you may begin.

Brian Moore

Good morning, and welcome to USG

Corporation's Third Quarter 2011 Earnings Conference Call and Live Webcast. We will be using a slide presentation in conjunction with our call today. It is available by going to the Investor Relations 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 about business, market 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 today's 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, President and CEO; and Rick Fleming, Executive Vice President and CFO. Jim will provide a general overview of the quarter plus additional insights in some of our businesses. Rick will review the financial results for the quarter, the corporation and the business segments. We will then open up the call for questions and conclude with a few comments from Jim. Jim?

James S. Metcalf

Thank you, Brian, and good morning. Thank you for joining us today, and we appreciate your interest in USG. As we position for success, what I'd like to say about our company is USG provides shelter. It's where our customers live, work and play. We are not a company that solely relies on housing, which is currently less than 25% of our portfolio. We are not just a wallboard manufacturer, even though it currently casts a very long shadow on our business.

USG's portfolio of surfaces, substrates, ceilings and distribution add diversity to our leading wallboard foundation. These industry-leading businesses position USG as a solution provider in building products.

As we look at our current environment, the recovery in the U.S. economy continues to be fragile. For the most part, our key markets continue to experience recessionary levels that are at/or near record lows. Outside the United States, our markets have stronger demand. Some of our international markets, like western Europe, have slowed as well. While we are expecting a recovery, we are not waiting for it to happen. We need to successfully operate USG within the current market demand levels. We need to continue to lower our breakeven, with a very sharp focus on profitability.

To accomplish our objective of profitability and our right aspiration of a more diverse company, we have established 3 strategic priorities: strengthening our core businesses, which is North American manufacturing and distribution; diversifying our earnings; and differentiating through innovation. What I'd like to do is touch on each one of these.

First, strengthening our core. This is a key strategy and has been our major focus over the last few years, in fact we've been spending most of our time, and we continue to do it, on strengthening the core of our business. If you step back from all the facts and figures, we have 2 areas that we need to improve: wallboard gross profit; and L&W profitability, which are 2 very large areas we are extremely focused, and they provide a tremendous upside leverage for the company.

We have initiatives in both areas to continue improvement, such as our launch of SHEETROCK UltraLight Panels and major structural changes in L&W, which has resulted in 6 consecutive quarters of improved results.

Innovation at USG is a core value, and differentiation from competition is vital, particularly in this very challenging market. We continue to have a leadership position providing our customers with very exciting new products. Most recently, we created an entirely new product category, lightweight wallboard. SHEETROCK Brand UltraLight Panels were the first lightweight product to hit the market, now in the over 2,300 locations.

Over the last month, the most exciting news that we have is the introduction of lightweight wallboard for the commercial contractors. We've expanded the product family to include 2 fire-rated lightweight wallboard products targeted at the commercial market. Our 5/8 FIRECODE 30 and our 5/8 FIRECODE Type X will provide increased productivity in large commercial projects where labor rates and efficiency are vital to our commercial contractors. With all the necessary UL certifications, these products, again, differentiate USG in the market.

But we are going to continue to invest in innovation. We are currently exploring methods to expand our lightweight technology to other product lines. And we are actively developing new environmentally-friendly technologies for our products and our manufacturing processes. Our goal is to significantly reduce energy in manufacturing and meet our customer's demand for greener, more sustainable products with continued cost efficiencies.

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