Reflecting upon the very different world that we inhabited just six months ago, I am struck by the profound ways in which Fools have been forced to change their expectations and measure success in completely different ways.
For the intrepid group of value investors who have opted to ride out this Category 5 storm with shares of USG (NYSE: USG), I'm sure expectations have had to remain in liquid form. Having looked into the eye of the storm, expectations can go no lower than simple survival. As successive quarterly losses batter the company's bottom line, Fools are hoping USG has the eye of the tiger.
I won't spend long gazing into the wallboard specialist's operational results ... suffice it to say they were horrendous. USG lost at least $172 million for the fourth quarter of 2008, compared to a $32 million loss a year earlier. Selling and administrative costs as a percentage of sales rose as a result of lower volumes, while interest costs on the company's mounting debt climbed higher as well. This is USG’s fifth consecutive quarterly loss.
Further curbing expectations, USG reminds us that a massive goodwill impairment charge of as much as $226 million remains imminent. At this stage, with new housing starts at their lowest level in at least half a century, and homebuilders like Toll Brothers (NYSE: TOL) and D.R. Horton (NYSE: DHI) effectively in hibernation, survival is really the only goal that matters right now.
With 17% of shares, value guru Warren Buffett counts among those investors with an interest in USG's survival, and he did his part recently as Berkshire Hathaway (NYSE: BRK-B) floated 75% of a $400 million convertible debt issuance to raise much-needed capital. Of the cash raised, nearly half has already been utilized to pay down debt.
The bottom line is that for companies within the hardest-hit sectors of the U.S. economy -- like housing, finance, heavy industry, and the woeful realm of consumer-discretionary spending -- I believe viability will replace profitability as the operative word until glimpses of recovery come into view.
While one could argue there is deep value in a company like Century Aluminum (Nasdaq: CENX) after the company's recent dilutive share sale, I see far greater value in a well-run steelmaker like Nucor (NYSE: NUE) on the basis of survivability. I cannot predict USG's fate, but I do see leaks in the hull with no safe harbor for miles to come.
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