USG's Sale a Good Move
The sale of the L&W Supply business will improve this building-material maker's profitability while also dampening its cyclicality.
Narrow-moat
We think the sale of the L&W Supply business will improve USG’s profitability while also reducing the company’s cyclicality. Although the L&W Supply segment generated 38% of the consolidated company's 2015 sales, the segment only accounted for 7% of consolidated operating profit. L&W Supply has been USG's least profitable segment over the past several years, and management estimates that the sale dampens operating profit volatility by 20%. We like that the company is using the sale proceeds to pay down debt, which will allow the company to operate within its targeted capital structure.
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