USG To Acquire Ceilings Plus, Expand Ceilings Product Line

USG Corporation (NYSE:USG) entered into an agreement to acquire Ceilings Plus, a leading maker of specialty ceiling product, for $52 million in cash. The deal is expected to close by the end of this year. Notably, Ceilings Plus is expected to generate sales in excess of $45 million in 2017.

Shares of the company did not witness any significant movement following the announcement, increasing to $34.10 on Nov 15 from $34.09 on Nov 13.

Buyout Benefits

Ceilings Plus is expected to add a broad range of products to USG’s portfolio and also accelerate innovation. Also, Ceilings Plus is expected to fortify USG’s presence in the high-growth specialty ceilings market.

The buyout is also likely to facilitate cross-selling opportunities for USG’s existing tile and grid ceiling products along with increased penetration into architectural specifications.

The Ceilings segment is a leading supplier of interior ceiling products primarily for commercial applications. The company is also estimated to be the second-largest manufacturer of ceiling grid and acoustical ceiling tiles worldwide. Though segment sales were down 3.1% year over year in the first nine months of 2017, the addition of Ceilings Plus is expected to boost sales to some extent.

The company plans to continue to pursue M&A activities through which it can enhance returns on invested capital and drive core business growth.

Quick Glance at Q3 Results

The company reported third-quarter adjusted earnings of 47 cents, compared with 46 cents in the third quarter of 2016. Net sales of $795 million increased 3.7% year over year. On a year-over-year basis, operating profits declined to $93 million from $97 million, and overall adjusted operating profit fell to $111 million from $127 million. Higher input costs in the Gypsum and Ceilings businesses primarily led to the declines.

Stock Price Movement

USG’s shares have gained 21.2% in the last one year, outperforming the industry’s rally of 14.8%. The company surpassed the Zacks Consensus Estimate for earnings in only one of the trailing four quarters. Current-year earnings estimates moved down by 0.6%, while next year estimates moved up 2.4% over the last 30 days. While investors may expect slight short-term troubles, this Zacks Rank #3 (Hold) is a solid investment proposition for the long haul.

Stocks to Consider

A few better-ranked stocks in the industry are Patrick Industries, Inc. (NASDAQ:PATK) , United Rentals, Inc. (NYSE:URI) and Armstrong World Industries Inc (NYSE:AWI) .

Patrick and United Rentals sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Patrick earnings are expected to grow 24.5%, while United Rentals is expected to see a 21.3% rise in 2017.

Armstrong World Industries carries a Zacks Rank #2 (Buy). The company’s earnings are expected to improve 23% in 2017.

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