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Published: Sunday, 11/15/2009

Toledo's OC begins to recover from chilled sales of fiber glass

BY GARY T. PAKULSKI
BLADE BUSINESS WRITER

WHEN HARD times cause boaters on Italy's Lake Como to delay trading up, executives at the Toledo headquarters of Owens Corning take notice.

Slumping sales of swimming pools, corrosion-resistant oil pipelines, and windmills - wherever in the world - are also a cause of concern.

A deal with a rival in late 2007 helped cement the downtown Toledo corporation's position as the globe's undisputed No. 1 producer of glass to reinforce plastic, which is commonly known as fiberglass - "composites," in company parlance.

The product has many uses, including sporting goods, blades for windmills, pipelines, construction, auto parts, blast protection for military vehicles, and smart-phone cases. Sliced into fibers, the glass is combined with polymers to form plastic that is tough, corrosion-resistant, and lightweight.

It is so common around the globe that it is something of a bellwether for the international economy.

And late last year, it became a fire bell.

Fiber-glass sales at OC in December plunged 45 percent from 2008's monthly averages as economies around the world fell into a deep recession that experts described as the worst since the Great Depression.

Officials at the firm's Cesar Pelli-designed office building on the Maumee River characterized what happened to fiber-glass sales as a "global demand collapse."

Blades for wind turbines are among uses for fiber glass-reinforced plastics. Blades for wind turbines are among uses for fiber glass-reinforced plastics.
NOT BLADE PHOTO Enlarge

They responded quickly, shutting down more than half of production lines worldwide.

In a conference call with financial analysts three weeks ago, Mike Thaman, OC's 45-year-old chief executive officer, said: "We still have a lot of equipment turned off and a lot of our operations turned off."

Other industry players also experienced declines.

In the United States alone, manufacturers of fiber-glass material shipped 16 percent less product in 2008 than in 2007, according to the American Composites Manufacturers Association.

"Demand dried up," Chuck Dana, head of the division of the Fortune 500 firm that makes fiber glass, said in an interview last week.

But OC's sales of fiber glass are beginning to revive, especially in China, India, and Brazil, he said. The recovery has been slower in western Europe, the United States, and Canada.

"We are restarting capacity in a number of places around the world," Mr. Dana said. He cited a plant in Italy and one in Amarillo, Texas, which had been partially shut down.

After two consecutive quarters of losses, the company's fiber-glass business broke even in the third quarter. But sales in that three-month period, which ended Sept. 30, were down 23 percent from a year earlier to $451 million, according to the firm's financial report issued late last month.

Through the first nine months of the year, the company overall has had a profit of $86 million on sales of $3.6 billion.

The firm's core insulation business also is struggling.

A bright spot is the roofing business, where sales and profits remain strong.

The situation illustrates how OC became much more vulnerable to international economic forces after its purchase two years ago of the fiber-glass business of French rival Saint-Gobain. Fiber glass, which generated $2.4 billion last year, accounted for 41 percent of total company sales in 2008, up from 30 percent in 2006 before the deal with the French firm.

The business has 7,100 of OC's 16,500 employees worldwide, with 100 at the Toledo headquarters.

Two-thirds of fiberglass sales were outside the United States and Canada last year, compared with just 7 percent of building products sales.

The business operates 38 manufacturing plants, including ones in Amarillo, Texas; Jackson, Tenn.; Anderson, S.C.; Chambery, France; Gous, Russia; Vado Ligure and Besana, Italy; Kimchon, South Korea; Ibaraki, Japan, and Apeldoorn, Netherlands.

Construction is under way on a second plant in China in the outskirts of Shanghai. It is to be completed next year.

The renewed importance of fiberglass at OC represents something of a return to the firm's roots.

The company was founded in 1938 as Owens Corning Fiberglas Corp. but dropped Fiberglas from its name in the mid-1990s as then-Chief Executive Officer Glen Hiner sought to enlarge the firm's fiberglass-insulation franchise into a building-materials powerhouse.

Fiberglas, without the second "s," is a company trademark. But it is rarely used in promotional material anymore.

More often, executives refer to "composite materials" or "reinforcements." Consumers continue to talk about "fiberglass boats" and "fiberglass skis." But that is something of a misnomer. In actuality, they are made of glass-reinforced plastic. Fiberglass refers to the glass fibers that are combined with polymers to create the material with which the products are made.

In recent decades, glass' dominance has been challenged by other advanced materials. For example, manufacturers of aircraft and high-end bicycles have mixed carbon fibers with polymers to create a light, steel-like material that is much stronger -and more costly-than glass-reinforced plastic.

But, according to experts, glass continues to represent 85 percent to 95 percent of reinforcements.

Other fiberglass manufacturers include Johns Manville Corp., Denver, and PPG Industries, Pittsburgh.

More recent entrants into the industry include China's state-owned Jushi Group Co. Ltd. Its Web site boasts that Jushi is "the world's leading manufacturer in terms of capacity, technology, and economic efficiency."

OC officials aren't ready to concede leadership in those areas.

"We know Jushi and we know they have grand aspirations," said Mr. Dana. "Their strategy is largely emulating Owens Corning and aspiring to be as big and as technologically oriented as we are."

Said Garik Shmois, a stock analyst with Longbow Research in Cleveland: "OC is certainly No. 1 globally."

He recently raised his rating on OC shares to buy, and predicted that they will reach $27 each. They were in the $24 range in trading last week on the New York Stock Exchange. The stock dropped as low at $5.02 a share over the past year.

The stock analyst expects OC's roofing business to continue to nail down strong profits, sees early signs of a recovery in insulation, and is pleased with progress made by the fiberglass unit.

Even before the Saint-Gobain unit purchase, many of OC's fiberglass sales were outside North America. Partly as a result, business has grown 5 to 7 percent annually for at least a decade as product manufacturers sought out lighter-weight alternatives to steel and other traditional materials, company officials said.

In the United States, shipments of fiberglass material have declined by 26 percent after peaking at 4.2 billion pounds in 2005, according to the American Composites Manufacturers Association.

Problems culminated last year. Losses can be traced largely to problems in three key markets supplied by the industry: boat-building, auto manufacturing, and construction.

However, the crisis of 2008 had been brewing for some time, said John Busel, director of the association's composites growth initiative.

"Our industry was something of a bellwether that something was happening," he said. "We probably didn't know it was going to turn into what happened."

It is difficult to predict how rapidly the U.S. fiberglass industry will recover, but the nation's struggling construction, auto, and boat-building industries are unlikely to lead the recovery, he acknowledged.

OC executives have acknowledged that the firm's fiberglass business is unlikely to turn a profit in 2009.

Jim Barrett, an analyst with C.L. King & Associates, Albany, N.Y., expects losses for the unit to reach $20 million by the end of the year. He predicts a turnaround next year, for which he expects $100 million in profit.

"This assumes that worldwide economies show gradual recovery as we move through 2010," he said in a research note to clients after OC released its third-quarter earnings.

Contact Gary Pakulski at:

gpakulski@theblade.com

or 419-724-6082.



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