USG falls after CEO points out headwinds for Q3 during industry presentation

Shares of wallboard maker USG (USG) are falling after CEO Jennifer Scanlon spoke earlier at the RBC Industrials Conference. HURRICANE RALLY: Shares of the wall board maker have rallied nearly 30% since mid-August on the thesis that the destruction from this season's two powerful storms, Harvey and Irma, would drive demand for wall board and other building materials. CEO COMMENTS: Speaking earlier at the RBC Global Industrials Conference, CEO Jennifer Scanlon alerted investors to the fact that the company's Houston plant was shut down for a week due to Hurricane Harvey. Scanlon pointed out the obvious demand drivers from the rebuilding efforts that will transpire from the storms but noted that the plant damages from the storms will be a near term operational headwind, especially in the third quarter. Scanlon added that the company is "looking at" cost headwinds just from Harvey in the "$1M-ish" range. The CEO pointed out the change in the company's logistics to get raw materials due to storm damage. "You also do have to pay attention to the longer-term picture that a fair amount of raw materials, the chemicals, are used by this entire country are manufactured in that Texas region. So for the longer term, you also have to pay attention to what it's going to do to cost and inflation and supply chain. But for us in the third quarter, we do see some headwinds on that," said Scanlon during the presentation. Q3 CONSENSUS MAY BE OPTIMISTIC: "But I think it's important to point out that even prior to the hurricane when I was looking at consensus for third quarter and consensus for fourth quarter, in aggregate, the consensus numbers felt correct to me prior to the hurricane. But parsed out quarter-by-quarter, the third quarter felt more optimistic than some of the trends that we're seeing and the fourth quarter felt more pessimistic than some of the trends that we're seeing. And when you add the hurricane, I think it makes that even more pronounced," said Scanlon. WALLBOARD PRICING: Scanlon said that during conversations with customers during the summer about reconstituting price she feels that the company had "good conversations" with customers "despite the fact that we're not going to see pricing in the third quarter." INPUT COSTS RISING: During the company's presentation, the current cost problems with a key manufacturing component OCC, or old corrugated containers, came up. Scanlon pointed out that USG focuses on costs that the company can control, "but OCC is something that we can't control." Scanlon noted the incredible spike in OCC costs for USG due to the demand in China. PRICE ACTION: Shares of USG are down 4% to $30.70 per share in afternoon trading. OTHERS: Shares in other companies in the building materials space are all lower, including Vulcan Materials (VMC), Martin Marietta (MLM), Eagle Materials (EXP), U.S. Concrete (USCR), and Continental Building (CBPX).