Dahlman Rose Comments On Georgia Gulf Corporation Following Recent Earnings Report

Georgia Gulf Corporation GGC reported 1Q11 earnings of $0.35 missing consensus of $0.40 but beating Dahlman's $0.16 estimate, as it had expected 1Q to be lighter due to seasonality and rising ethylene prices during the quarter. Dahlman believes the earnings miss from consensus estimates was driven largely by weaker results from the Building Products segment that reported 1Q11 operating loss of $12 MM due to an 8% y/y revenue, a result of lower volumes along with higher raw material, conversion, and selling costs. While the earnings release did not provide an update on management's earlier guidance for 2011 EBITDA to be at the higher end of $245-265 MM range, implying y/y growth of 18-27%, Dahlman Rose suspects some price and margin improvements during the second half of the year should partially mitigate the 1Q Building Products operating loss along with the expected 2Q PVC volume shortfall due to the announced force majeure. Dahlman Rose is a buyer especially on weakness as it believes the underlying thesis remains intact. Dahlman expects strong export demand along with higher offshore prices to support higher domestic PVC prices and margins during 2H11. Additionally, while it is still in the early innings; a housing recovery down the road should ultimately benefit lower cost PVC producers. Dahlman Rose has a $38 PT and Buy rating on GGC Georgia Gulf Corporation closed Wednesday at $36.29