Q1 2020 Earnings Call
During this extraordinary time. We're focused on four key areas, since you're the strength and continuity of our business first keeping our employees and other key stakeholders healthy and safe. Second stain monthly connected to our customers are suppliers and our markets third rapidly adapting our businesses to near-term changes and market conditions while remaining focused on positioning us for long-term success back and forth ensuring a strong balance sheet with access to Capital as needed by managing these four areas. Well, I believe we will come through this crisis stronger than ever in January would be formed a dedicated covid-19 response team to assist our asia-pacific Business Leaders to manage through the coronavirus outbreak in China as the virus spread throughout the world. We expanded this team to work in a coordination with our executive team to ensure our operations remain safe and effective through the many Global shelter-in-place restrictions.
During this time, we've implemented enhanced operating protocols to ensure the safety and well-being of our employees their families and our stakeholders. We are taking every precaution including cleaning procedures use of personal protective equipment social distancing employee health screenings restrictions on business travel and work from home requirements at all of our locations consistent with the guidance of the US Centers for Disease Control and prevention World Health Organization and local state and government mandates. In addition. We've enhanced sick leave in other health care benefits for employees to provide assistance and relieve them a financial hardship during this difficult time.
And we have recently given our us salaried employees the opportunity to reduce their work schedules while maintaining health care benefits to balance demands both inside and outside of work.
We're also committed to continuing to serve our customers with the high-quality products and services. They have come to expect from us our operations and products have been deemed essential across the Us and other global locations offer products are necessary to help protect repair and maintain the safety of our homes and other critical commercial industrial structures. In addition. Our materials are critical to the continuity of other essential business in areas such as infrastructure energy transportation and construction. We've received numerous letters from customers Thanking us for maintaining continuity of supply and we are thankful to our support for doing the same. We are all working together to solve common issues and keep the essential supply chain operating effectively and in some cases providing materials that are essential to the structures and equipment that help in the fight against covid-19.
by Design the majority of our
Manufacturing facilities are located within the country or region of the customers. We serve this is proven beneficial and is limited disruptions in our ability to secure raw materials locally and deliver products to our customer. Our teams have remained resilient and worked well with our customers suppliers and Community Partners to find creative ways to continue to operate safely and effectively as expected wage in customer demand slowed dramatically in recent weeks as a result. We have taken proactive steps to balance production across our Network and if temporarily curtailed operations at facilities with adequate inventory to make a U-turn demand
Moving forward we will continue to evaluate the market environment and adjust our manufacturing to meet the needs of our customers and manage our inventories.
Over the past several years we've taken actions to ensure a strong balance sheet with access to liquidity and a well-structured debt maturity profile.
We currently have about nine hundred million of available liquidity including $234 billion in cash during the first quarter. We borrowed four hundred million on our existing revolving credit facility for normal seasonal working capital needs and to strengthen our cash position given the uncertain Market environment. We are focused on reducing or postponing non-critical expenses, including Capital Investments.
Are only near term debt maturity is the remaining $150 million from our term loan due in February 2021 while our current financial position is strong. We will continue to evaluate our liquidity needs and options to reinforce our balance sheet as we see Trends developing the market.
Throughout the first quarter. Our team has demonstrated tremendous resiliency and positive attitude this combined with our strong customer connections and balance sheet positions us to come through this crisis stronger than ever.
Before turning it over to press to discuss our first quarter results. There's one other item. I would like to highlight Owens Corning has a long-standing commitment to sustainability. It is Central to our purpose and drives our actions on a daily basis last week. We published our 14th annual sustainability report detailing our progress toward our 2020 sustainability goals and introducing new metrics to quantify our progress toward our Ambitions twenty Thirty goals. I would encourage you to review our report as it highlights and recognizes the efforts and achievements of our 19,000 employees with that. I'll turn it over to prints and then I'll return to take out our Outlets trip. Thank you Brian and good morning. Everyone as Brian mentioned we find ourselves managing through unprecedented events. I am thankful for the strength of our colleagues across the globe who are all dealing with the difficulties of the covid-19 pandemic driven by their efforts the company delivered strong performance in the first quarter and the face of challenging market conditions dead.
Please turn to slide 6 which summarizes key financial data for the first quarter of 2020 the tables in today's news release and the form 10-q include more detailed financial information for the first quarter. We reported Consolidated net sales of 1.6 billion down about 3% versus 2019 on a constant currency basis. Lower Roofing volumes drove, the majority of the decline do to lower storm demand carry over and reduce shipments to Distributors adjusted ebit for the first quarter of 2020 was 165 million flat to the prior year as a 24 million performance Improvement in insulation was offset by lower eBay and Composites and Roofing net earnings attributable to Owens Corning for the first quarter of 2020. Was it $970 million loss compared to $44 million of net earnings in q1 2019 primarily due to impairment charges.
That I will discuss in a moment.
Adjusted earnings for the first quarter or sixty five million or sixty cents per diluted share compared to fifty-eight million or $0.53 per diluted share in q1 2019 off depreciation and amortization expense for the quarter was $160 million up slightly as compared to q1 2019 due to accelerated depreciation from the insulation restructuring actions announced last October our Capital additions for the first quarter or fifty four million down approximately twenty-five million versus 2019 on slide seven, you will see our adjusting items reconciling our first quarter 2020 adjusted ebit of hundred and sixteen million two are reported a loss of $8,066 million during the first quarter. We recorded five million of restructuring costs primarily associated with the installation Network optimization actions. We announced last month.
The deterioration in our market capitalization in March and near-term economic uncertainty made the covid-19 pandemic triggered an interim impairment off Goodwill and intangible assets as a result of this testing you recognize nine hundred eighty-seven million of impairment charges related to our installation segment. The impervious were mostly driven by the effect of the covid-19 pandemic on the valuation discount rates and near-term cash flows. These charges are described in more detail in the notes and EM any of our form 10-q. Finally, we recognize ten million of gains in sales of precious metals used in our production tooling as a result of productivity and our manufacturing process technology. We have been able to modify the designs of our production tooling and sell certain precious metal Holdings in q1. There was one below the line item that affected wage
Yes in q1. We adjusted out 18 million of non-cash income tax charges related to valuation allowance adjustments against certain foreign and domestic deferred tax assets due to a lower earnings Outlook in these jurisdictions. These adjustments are described in the notes to the form 10-q. Please turn to slide eight which provides a higher level review of full year adjusted ebit comparing 2020 to 2019 adjusted ebit of $160 million was flat to last year installation even increased twenty five million as compared to the prior-year roofing but decreased by ten million and composite see but decreased by $13 million General Corporate expenses of thirty 1 million were flat tire last year.
Now, please turn to slide nine which provides a more detailed review of business results beginning with installation sales for the first quarter was 603 million of 4% from q1 2019 on a constant currency basis during the quarter. We deliver volume growth across all categories except China, which was affected by covid-19 this phone now with his partially offset by lower selling prices in our North American Residential fiberglass insulation business favorable price realization from a January increase help to partially offset negative price carryover from last year, but for the first quarter was $39 million a twenty-four million Improvement compared to 2019 the earnings growth in the segment was broad-based as we saw Improvement in both our residential fiber glass and the technical and other building insulation businesses with the exception of China the overall ebit Improvement wage.
the driven by higher sales volumes
Favorable manufacturing performance and lower curtailment costs now, please turn to slide 10 for a review of our Composites business.
Sales and Composites for the first quarter or 494 million down 4% versus the same period in 2019 and down 2% on a constant currency basis off Merrily on pricing headwinds volumes were up slightly overcoming a further decline in global industrial production as growth in Downstream specialty applications more than offset. The the lines in Gloucester Mont and asia-pacific related to covid-19 evet for the quarter was 44 million down $13 million from the same. A year ago primarily due to lower selling prices. The negative impacts from balancing production would demand were offset by continued strong manufacturing performance in the quarter slide 11 provides an overview of our roofing business.
Roofing sales for the quarter were $555 million down 10% compared with q1 2019 Which single volumes tracking relatively close to the market volumes were down due to the lack of storm carry over and Q on and lower shipping to distributors in March resulting from the onset of covid-19 evet for the quarter was $64 million ten million decrease from the prior, you're primarily due to lower volumes in the quarter selling prices were down slightly. But this is more than offset by input cost inflation. We maintained a favorable price cost relationship and strong cash contribution margins as we exited the quarter. We also benefited from favorable manufacturing performance as our demand did not Trail off until the end of the quarter as a result re-boot margin performance for q1 was in line with the prior-year.
Please turn to slide 12 where I will discuss significant financial highlights for the first quarter of 2023 cash flow improved by over 100 million as compared to the first quarter of 2019. The Improvement was driven by lower seasonal working Capital Growth mainly lower growth in inventories. We are proactively balancing production against demand and will temporarily curtail operations that have adequate inventories to service markets. We are also very focused on managing our liquidity through this period of uncertainty the previously indicated our intent to pay down balance of the term Loan in 2020. And in the first quarter, we paid 50 million towards that loan. We continue to evaluate the possibility of paying the remaining balance and twenty twenty-five now assuming that we will repay the term loan closer to the due date and February 20-21 in addition. We have drawn four hundred million on our revolving credit facility and hold to hug.
34 million of cash and equivalents as it is.
Salt we currently expect interest expense to be between $120 and $125 million in 2020 compared to our previous guidance of hundred and fifteen million moving forward will continue to evaluate potential options to reinforce our strong liquidity position. Now, please start to slide thirteen as I return the call over to Brian to discuss the outlook for our company Bryant as I mentioned earlier. I'm proud of how our team is performed in this very challenging environment. We have clear operating priorities to manage the business office in both the near and longer-term all aimed at creating value for our shareholders. We have market-leading businesses Innovative products and process Technologies and an Enterprise model that creates differentiated value pack and we have a strong team in place dedicated to the success of our customers and our shareholders.
We've taken decisive actions that will position us to perform. Well in the various market conditions, we could say so over the balance of this year and into twenty twenty-one.
As we move through the year. Our performance will continue to be influenced by several Market factors, including Global industrial production US housing starts and global commercial industrial construction activity. Foul. Your financial performance will be impacted by the depth and duration of the market disruptions caused by the covid-19 pandemic given the continued uncertainty we faced with federal state local and federal governmental actions in response to managing through the pandemic. I'll Focus my comments on our short-term Outlook based upon the trends we experienced in April that will impact the second quarter results for each of our businesses. Am close with my perspectives on a few key enterprise-wide initiatives and the impact they could have on our full-year performance.
I'll start with our installation business and the impact we are seeing in both our North America and residential fiber glass business and our Global Technical installation businesses.
Within our North American Residential business, we expect that the shelter-in-place restrictions will delay completion of builds and extend the normal leg times. We see to insulate a home while we would normally expect strong growth tied to increasing light housing starts. We are currently experiencing volume declines of about 10% in April versus prior year in this could drop further depending on construction activity over the balance of the quarter dead.
Switching to our Technical and other installation businesses. April volumes have declined between ten and 15% given construction project delays due to various State and Country governmental actions We Believe or decrease further as the quarter progresses one area showing more resiliency is our mineral oil business in the Nordic and Eastern European market where we have seen less volume Impact versus other parts of Europe given these reductions. We are proactively balancing production with expected demand and if temporarily curtailed several manufacturing facilities
Prices in April have remained relatively stable in both our North American Residential and our Technical and other installation businesses, but with reduced volumes and expected curtailment actions, we could sneak mental margins in the installation business of about 40% in the second quarter.
and Roofing, we no longer expect relatively flat single industry shipments for the year given the impact associated with the various shelter-in-place restrictions, which has limited a contractor's ability to complete projects in sign up new business so far this quarter,
as a result of
This near-term slowdown in demand. We have seen Distributors reducing orders to manage their existing inventory positions in the second quarter. We expect manufacturer shipments to significantly lag out the door sales of wage earners based on our April Williams shipments. This quarter could be down approximately 30% depending on storm activity.
Similar to installation the current pricing environment has remained relatively stable through the month while there has been a significant drop in oil prices recently. We won't realize an additional impact from asphalt deflation in the second quarter as it takes several months for this to flow through our costs of goods.
With the recent demand drop we have temporarily curtailed manufacturing across our Roofing Network to manage inventories and while our shingle cash contribution margins remain strong overall margins for business are expected to be negatively impacted by lower volumes and production curtailment leading to eat at margins in the second quarter similar to q1.
A roofing business has proven to be a very resilient in past recessionary Cycles as the business is largely driven by the non-discretionary needs of homeowners replacing age groups or repairing damage caused by storms. We believe the same as likely to be true as the economy starts recovering from the pandemic.
And Composites the global impact of covid-19 is having a dramatic impact on demand. Our April volumes are down about 25% versus last year and we expect this trend will continue in the near-term volumes in our specialty nonwovens business, which is primarily focused on building and construction applications are performing better than in our glass reinforcements business. Although we expect lower roof invite to negatively impact. The second quarter are wind energy business is also proving more resilient as we see wind blade manufacturing beginning to ramp back up.
In terms of pricing we came into the year expecting some headwinds and reported a price decline of 11 million in the first quarter. We expect this trend will continue in the second quarter as with our other businesses. We're proactively managing inventory and work retail manufacturing throughout the quarter as a result. We could see detrimental margins and Composites of approximately 50% in the second quarter wage that view of the businesses. I'll discuss a few Enterprise Focus areas.
Given the uncertain Market environment. We are taking actions to reduce operating expenses and capital investments in the second quarter. We expect total operating expenses for the company to be down 10 to 15 million versus last year. The full-year Outlook will be dependent on how the recovery plays out. But the second quarter Trend would be a good indicator of the second half reductions we would make if demand is not significantly improved in addition. We have reprioritize our capital investment plan and now expects full-year Capital spending in the range of a hundred and fifty to two hundred million below last year.
Regarding some of our longer-term commitments. We remain committed to generating strong free cash flow and to our long-term Target of returning at least 50% to investors over time and have already returned a hundred thirty-three million so far this year through share repurchases and dividends for the remainder of the year. We do not anticipate any further share BuyBacks.
regarding our
Then we currently do not have plans to modify our dividend policy having said that we will continue to closely monitor market conditions and will respond accordingly. As I stated at the beginning of the call log current operating environment is extremely Dynamic. Our focus is on taking thoughtful decisive actions to be responsive to the current market environment while positioning our businesses to quickly regain momentum as we see Mom conditions improve across our broad set of geographies, and then Market applications.
Our team remains committed to operating safely servicing our customers and creating value for our shareholders.
With that. I'll turn the call back over to Scott to open up for questions Scott.
Thank you Brian. Well now open the call for questions. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone off speaker phone. Please pick up your handset before pressing the keys to withdraw your question, please press * then two as a reminder. Please limit yourself to one question. The first question today comes from Jeff Thompson of Thompson research, please. Go ahead. Hi. Thank you for taking my questions today first focusing on Composites and understanding that's going to have a a greater impact to the company's results most likely for the remainder of this year. And then the 20 21. Could you break out in terms of appreciate the help that you could break out in Greater color from the bank graphic impact in terms of volumes and relative earnings had wins and what have you seen out of Asia as they are a little bit further along in the recovery.
And also give a look particularly into Europe and how they're responding to lower demand and how that impacts Composites. Thank you.
Good morning, Catherine. Thanks for the question. So on Composites, I guess when we start talking about our performance, I'll look for you to I guess I'd want to start by saying like this. This is very often volume dependent in terms of our performance in our businesses and that includes composite so, you know, our performance isn't necessarily indicative of what may materialize for the back half of the year into twenty Twenty-One, but it's certainly a near-term Outlook in terms of how we're how we're looking at the business cell as you said Catherine. We we've got a pretty diverse mix regionally and buy in Market applications and and I-10 are Composites business. What is often held up very well over the last year and including in the first quarter is our strategic areas of focus around really focusing in on some key geographies where we have Market leadership great job process technology is great customer support and that's in North America Europe India. We do have businesses in China there, but it's it's so much lesser extent but when we take a look at our April Thursday,
In terms of how those materialized I think North America and Europe for us were performing very well through the first quarter, but but clearly are Composites business. And then also our Roofing businesses was probably
The most impacted by some of the March shelter-in-place orders in Europe and then in North America that we saw play out. So when we look at volumes and installation and composite to be down about 25% here in April, I share with you geographically, you know, it started impacting in Europe and if you look Europe is about 30% of our our business so long we've seen order volumes tracking pretty consistent with the overall Outlook we gave in in Europe in terms of what those track down and and um in April North America probably tracked a little above that 25% Mark as we just saw some of these shelter-in-place restrictions kind of taking hold in the automotive sector and other kind of key End Market applications in in the us as we went forward, but I think with our regional mix then I think gives us some strength on on the recovery. You mentioned China that is actually a a place where we look and potentially gives us a blueprint to how other markets will work through Thursday.
As they work through the phases of confinement reopening in recovery. So our business in China actually in April was returning back to demand levels to about 90% versus prior year. So only about a 10% decline. So we saw that demand profile really tracked down dramatically in the first part of the quarter and then gradually it's recovered in March and then again in a trending upwards again. So again the down 25% for the month we said this is what could occur in the near term and and that that's very very dependent again though in terms of how may Market start to reopen and how the recovery kind of plays out and I do think our Geographic diversity in the business and in North America and in your place in our favor India is the one spot where we have seen probably more. In fact India locked down in March, it continues to be very contained so our operations there are slowly ramping back up, but that's going to create probably the biggest headwind in Q2 in terms of our other regions as we go Foy.
The next question today comes from Mike would of no Mera instinet, please. Go ahead.
Hi, thanks for providing all the data on April. I appreciate it. Can you talk about your installation and composite business the exposure you have facing energy markets and perhaps also just Pittsburgh Corning specifically, which I recall has LNG exposure just that just if you could talk about what you're seeing there what steps you're taking maybe adjust to potential declines in that business. Thank you. Thanks my Kia, you know in terms of the energy markets overall clearly the the dislocation we've seen in oil is going to happen to have an impact rolling through both are Composites in business in a little bit in the insulation business. I'd say in Composites. It's probably more near-term impact in terms of how material in the operations and and we would expect that's going to have an impact here in Q2 and and then for the first few up a future until there's some stabilization in the oil markets with regards to
Malaysian, you know.
Sorry to phone glass. That is a business that that does a lot in the industrial segment. I'd share with you that for the most part are materials go into projects towards the end stages of those projects. So, you know, we've seen some delays in those construction timelines, but not any cancellation. So in the near term kind of through this year, we would expect that we're going to see those projects get completed. And then what we're going to be watching really is kind of how this could potentially impact as we go into Twenty-One twenty-two in terms of any capital expenditure changing around oil or natural gas facilities, but for this year, we we think it's it's probably not going to have as big of an impact because those projects are are well in place and and progressing again we come in at the tail end of that. All right. Thanks.
The next question comes from Matthew bully of Barclays, please. Go ahead.
Hey, good morning. Thanks for taking the question. I hope everyone is doing well. I wanted to ask for a little more color around the the decremental margins across the business sort of beyond the second quarter. I I'm trying to understand sort of what level of of cost is more fixed in the very near-term kind of amidst this quick volume drop off. You know, what can you flesh kind of in the next few months so so that you know, or or at least sort of what what could that mean for decremental margins be on the second quarter as you flex your costs like dead.
Yeah, thanks man. You know again I are detrimental margins. I'll look in Q2 is very much depending on kind of looking through at the volume declines that we're seeing in April could continue through the rest of the quarter but I decremental margins as we go forward are going to be very dependent on the volume and and demands that that materialized for our business so long, I think in the near-term a lot of these margin deterioration is is really being caused by the fixed cost assets that we have. So while every every busy going to be impacted by volume declines here in the in the second quarter certainly are Composites and our installation business are glass building businesses where the fixed cost absorption is so much higher, you know, we're going to be more detrimental margin deterioration and how we're looking at those is for for right now. We're looking at curtailing these operations so we can take some coughing.
In terms of energy and raw materials while we're Eileen these facilities, but we're going to maintain the bulk of the energy cost the bulk of the labor cost as we continue to hot idle these assets and and get a clear view to how you know, the wage in half is going to materialise. So now in the near-term those are going to be pretty fixed costs that are in the business that we're going to absorb to the p&l longer-term. We can take other actions around, you know, I'm taking furnaces cold or taking lines cold, which we've done in the past and that would remove a lot of the other energy costs and other Associated operating costs with that. But right now these margins are are really good indication of what we would see in the in the second quarter based on certain volume declined and then based on us holding a lot of these assets hot idle while we see how the second half of environment materializes off.
The next question comes from Stephen King of evercore is I please go ahead.
Yeah, thanks a lot guys and appreciate all the color obviously, you know really difficult environment and your your outlook. I think sufficiently paints that picture off but there was some things that were mentioned in your queue that I thought were I was hoping you could elaborate on a little bit in particular related to favorable manufacturing performance across all three of your divisions installation costs. And Roofing was wondering if you could talk a little bit more about that specifically, what were they related to so that we can get in a sense for how the covid-19. That we're in May influence whether they were you know, the weather you would see, you know reductions in the benefits in those improvements or if there was something about the way that that going into this covid-19 meant cause those money factoring performance improvements to actually increases you made your way through the quarter or just any more color you can provide on that and what we can expect going forward would be helpful.
Yeah, thanks. Even, you know our Focus really on improving. Our manufacturing performance is one of the key operating priorities I talked about last year, which is driving improved operating efficiencies so long, we've been hard at work for the for the last several years around improving our manufacturing efficiencies over all across the company through uses of advanced manufacturing techniques other operating disciplines. And so the results that we we delivered in terms of manufacturing performance in q1 is very indicative of what we were delivering last year and we think those are not covid-19 dependent. Those are just good focused actions. We were taking every day to improve unit cost productivity to become more efficient to reduce maintenance costs across the the Enterprise so often that is actually good solid work that is going to continue. I think that has helped to offset some of the curtailment costs that we are also absorbing because we're able to just generate good unit cost product page.
And that's going to continue going forward and I think that's going to be a benefit as we as we start to see volumes improve in terms of incremental operating margin improvement in our glass melting businesses. I think we're going to have a bath factoring cost base as we go forward and that's going to help our margin improvements as we come through this and start to see volume improvements across the businesses.
Next question comes from Mike Doyle of RBC Capital markets, please. Go ahead.
Morning, and thanks for taking my question. So just in terms of some of the April commentary when when we're thinking through some of these volume declines and and incrementals that you're speaking with two in in 2 Q. It seems like it's putting the Consolidated business at or or maybe slightly above Breakeven from Annie bit standpoint. So so long they just wanted to kind of confirm that that's um, that's fair based on what you're saying and and then be I guess the bigger question is, you know speaks to Steve's question as well. When you talk about last cycle, obviously your your high fixed-cost businesses, like installation Composites had some down years for from an adjusted ebit stand point. There have been significant changes to those businesses over the past cycle, but on the flipside, we're in another kind of synchronized downturn across regions across end markets today. So just wanted to get your thoughts on just those dead.
Those businesses. Um
Cause it's an installation their ability to remain profitable in the current environment.
Yeah, that's a great question. Thanks. I think on the corner in terms of Consolidated I'd say like the the overall operating profitability is going to be very very dependent on on the volumes that materialized how quickly you know markets reopen. So that's they're going to be the biggest driver. I think if some of the profitability inside installation and composites on the volume peace, but you know, our focus is on a quarter and going forward is really on on generating great and solid free cash flow by managing the items. We can control really good topics reductions minimizing capex really managing our our inventories tightly. So so we can generate good free cash flow through this quarter and and going into the back half of the year. So now the performance is going to be dependent on volumes, but our free cash flow. So performance would feel is is going to be very solid as we go through the corner and into the back half of the year. I think with regard to your other question, maybe back to a Stevens a little bit on just how things might have changed. I think I think the the our glass building business.
This is both Composites and installation. There's been a lot of work in terms of improving our cost position in both the business certainly since the last downturn and our residential installation business that I'm going to cost actions that we've talked about last year where we've reduced capacity. We've improved manufacturing productivity efficiencies. I think we really restructured the res part of the installation business in a way that has a lower cost base and allows us to produce profitability at a lower housing and start based and certainly where we were looking at in terms of the last housing recession. So I think we're in a better position there. I think the investments in our technical side of the inflation business as well as really strengthened the earnings potential of the business where we've been able to diversify into some higher value in different projects or more Geographic diverse. So I think the overall inflation business is is in much better position to perform well through this kind of a downturn than in the last cycle and I'd say similar to the Composites business when I log
Could the business today versus a you know over a decade ago? We're much more focused in in our shared positions are stronger in in key markets, which has been a big part of our strategy North America Europe India Thursday. We're very much focused and have made great progress and and and growing our share positions and especially nonwovens and especially Downstream applications, like wind energy and then when you look at the the fixed asset base, we had a lot of sub-scale melters during that last downturn we have gotten those all out of the network. We have much more higher-performing scalable assets wage manufacturing performance productivity is better. Our unit costs are are improved. So I think we're we're in a much better position to come through this kind of volume down turn and produce better results than we were positioned during the last recession.
The next question comes from Phil.
Any Jefferies just go ahead.
Good morning. Good morning. Everyone cares. How are your inventory levels kind of holding up for installation business and appreciating starts are going to be done. Pretty noticeably April. How much backlog do you still have that cuz your commentary around April certainly sounded better than most of us probably expected.
Yeah, so things I think when you look inside our quarterly just overall inventory levels at a dollar value. We were pretty flat and in terms of where we we finished the year, I'd say that our inventory positions were we're in very good position and insulation we work some down. I think we saw a little bit of inventories in Roofing really because the volumes and shipments posted a decline in the back half of March and and normally we were running our production in Roofing to build up for the seasonal demand we expect so when demand kind of dropped off a little bit and Roofing at the end of the March we saw some inventory build that we've corrected with some of the curtailment actions we've we've taken here in April. So I think that's going to be a continued key Focus area for us is is we're going to want to manage inventories very tightly. We want to make sure that we're not getting out ahead of demand in terms of of building out inventory through the corridor going into next year. So we're going to continue to manage inventories tightly wage.
So we so we're prepared if volumes improve in the in the back of the year, which we think there's a good possibility for that to occur. We can ramp up our operations and get good manufacturing efficiencies as we finish out the year.
The next question comes from Truman Patterson of Wells Fargo, please go ahead. Good morning guys. Glad to hear everybody's healthy. So first with all the productivity initiatives, it's you know, nice to hear that installation decrement a lot margins, you know, we're only down 40% We were expecting something, you know, a little more severe but you know looking at the residential side clearly be slowed meaningfully. Could you just give an update on on April pricing whether you know pricing is started to to roll back and then also looking out into you know late 2025 or 21. I know some competitors were bringing on some Supply. I'm just hoping you can give an update of how you think, you know Supply kind of plays out the next year or two.
Yeah, thanks for the question on pricing again. It's I said in my prepared comments. We've seen pricing through April remain relatively stable and the residential business. So we we came in in the year off with light housing starts increasing and a good volume environment. We announce our our January increase. We began realizing some of that pricing kind of through the p&l in q1 home prices of of maintained relatively good stability here through the month. So, you know in terms of how this might play out through the rest of the year. We're going to continue to evaluate the market wage. Keep a close eye. It will keep competitive and will respond accordingly. But but right now through the month, they remain relatively stable. So in regards to your question on on the other kind of a Sly an incapacity ads that are coming on stream, you know, we we really don't have I don't have any good feel or commentary on on how they're going to be thinking about doing that. You know, it's a very different environment when to when those capacities
Add for an ounce so, you know, we're going to have to wait and see in terms of if there are any announcements around what they do with those capacity edges we get through the rest of the year.
But so not sure how that could potentially impact 21 without knowing for sure if if those ads are going to come on stream.
Next question comes from Justin's Almond and Associates, please go ahead and just just some contacts to color what you're saying April from the volume and pricing perspective. And just any sense. If you can do this any sense for the inventory situations how those are shaping up and Roofing currently.
Yeah, thanks. So coming into the year. We we felt like it was going to be another really strong Roofing year. So we said we thought by his overall we're going to be pretty flat with with last year off and threw the quarter, you know volumes were down a little bit year-over-year as we expected because we're bringing in a little less storm carry over and we talked about that on the last call that that we felt was going to impact volumes and I think she dropped in in March more with response to just the shelter-in-place restrictions that were starting to to get laid in in the in the US. So I think that caused, you know Distributors that we're buying from us at least 2 to start to pull back on those purchases to manage their inventories until there was a clear picture of what the demand Outlook might materialize over the quarter. So, you know, we saw that drop it all wrote a book towards the end of March in April we've seen, you know continued probably conservative buying as as our distribution customers archives.
Managing their inventories very tightly to expect to demand. So that's why I believe in the quarter as we sit here today that our shipments is manufacturers. We'll probably lag out the door sales. We have seen some trends that from our contractors that that business is is is still continuing a lot of the shelter-in-place restrictions deemed construction as essential. So that's allowed to occur but concern over some of the lead generation and and how that that materializes in May and June. So again, I think what we're expecting is that we're going to see a bit of a slog down here in Q2 Distributors manage inventories, but then as we get into the back half, we start seeing markets reopen, you know, Roofing has proven to be a very resilient product. It's a nod kind of investment in homes. So as storm demand creates more demand for repairs and Replacements as we come into the second quarter third quarter and as people, yep,
As you shelter and place restrictions are lifted. We think that contractors are going to get back to work at a at a more robust level and we're going to see some improvements in volumes as we as we come into the second half, but for the near-term, they're going to continue to manage inventories and and were expecting that in the in our order Outlook of being down 30% But again that's very dependent on storm activity which could accelerate and and improve that and it's very dependent on the pace of how States reopen and Recovery starts which could also improve that as we work through the quarter.
The next question comes from Michael of JPMorgan, please. Go ahead. Thanks. Good morning everyone and hope everyone's healthy and safe across Europe your company. I just wanted to Circle back to the comments around the installation business for a moment and you know particularly around, you know, the the volume commentary certainly appreciate, you know, the prices and such but when you talked about North American res April Vines down about 10% a year and also on a global the global business down 10 to 15 for both of those businesses, you talked about, you know, kind of saying they could fall further as time progresses and I'd love to get a sense of what was driving those comments, you know, in terms of perhaps, you know, if a portion was more due to the fact
That you're you're curtailing production or facilities or or you know facilities are are kind of being shut down in Europe or or different parts some more from a production standpoint versus perhaps what you're seeing, you know from a from a man standpoint and if there's any way to kind of, you know frame, you know, what the further drop could be as we looking to May in June from that.
Okay. Yeah, thanks. So to be clear the commentaries more around the rate of Market recovery and Adam and comment not anything tied to production. I think we're just looking at very much within the businesses. How demand could materialise in May or June? I would say both commentaries on it could decline further are real life very dependent on how quickly States or countries and our Tech know inflation business reopen and the recovery efforts start. So again, the shelter-in-place rejections that are in place today, you know those remain in a get extended into May and into June that's where we could see some detrimental demand declines in terms of our volume Outlook in both residential and our technical business. So that's kind of the context for the for the statement. It's assuming that it takes a little while longer to get markets reopen Thursday.
The the recovery slow. So on the rez side, I'd share with you that the the downward Decline and we're could get potentially further decline is is really tied to again shelter-in-place directions. Don't get listed don't get lifted. And then we see just the the lag from housing start to completion of a home get extended because construction crews are limited to get on site off and houses just take a longer to build. So we see that extend and and that that impacts demand and then I think any potential where there was a start that hasn't begun or is it took so long that might get delayed until uh, a homeowner actually wants to buy the home so it limits kind of stuck building that could further impact. So those are the possibilities I would share with you though that you know, as we come through this, you know, we're we're in a different spot certainly than the last recessionary cycle because housing has not been over built and I think there's been some good early indicators just over the last few days with them.
Major home builder that started to see some weekly sales improvements mortgage application rates have started approve week-over-week. So I think there's you know an equal Opera.
Usually around these shelter Place restrictions can be lifted and and housing kind of coming back and and because it's not an in an overbuilt situation, it could recover even at a quicker pace. So I think our Outlook is very dependent on on those factors around shelter-in-place restrictions getting lifted What's the timing of that? And then how fast the recovery begins in res it could recover, you know much faster speeds on the technical installation side. Again, this is kind of a broad view around how sheltered Place orders get lifted here in the US and then in Europe, so we're actually seeing in parts of Europe minimum wage in the Nordic for example is performing relatively better in terms of volumes versus other parts in Europe. So I think again it's an indicator of where there's different shelter-in-place for directions, there's different construction restrictions, and if those get lifted out we could see some improvements, but if they remain in place for the entire quarter, we could see that demand continuing where it is dead.
In terms of the decline. So hope that helps kind of frame the the context of the statement.
The next question comes from Ken Center of KeyBank, please go ahead. Good morning. Gentlemen, appreciate your comments gentlemen. Yes. Yes. Good morning Ken. I'm sorry. I just wanted to confirm I just want to ask because I'm a very different Regional Trends in the US and I'm located in the San Francisco area, which probably has the most extreme shelter-in-place no construction allowed mandates. Can you talk about how these hot Idols impact, you know your network I assume the Northern California playing the down cuz there's no construction as opposed to some other plans perhaps that are better regions, you know, South Central Texas or parts of Florida. That's the first part. Could you talk about how that hot idle Works in terms of
You managing the system and perhaps it was context in terms of how you think about demand for your price point. And then if you could just comment on the impairment a little further. Thank you very much.
Yeah, thanks Kyle starting I'll turn it over to so in terms of our operations again, you know really points to the value of our products and and how essential they are. I mean argh our products have been deemed essential in terms of the operations of our facility. So even in in Santa Clara in California, our operations has has remained. In fact what we're looking about what we're looking at and talking about our curtailment actions really relative to the demand environment. So again, we're very focused, uh in this environment to control levers, we can control around managing our cost position maintaining tight inventories good focus on working capital and and maintaining and reducing capex to talk to generate good cash flows. So we're being probably more proactive in terms of curtailment actions in our in our businesses across the board our installation business are Composites and our roofing business to make sure that we're dead.
Building inventory ahead of expected demand. So we're hot idling because
As we want to take temporary actions to minimize inventory, but that allows us the flexibility to rent back up and and get into full production very quickly depending on the job market recovery rates that we see so that's what we're going to balance and we generally balance a hot item on our on our furnaces for near-term demand disruptions. So again, we'll we'll make those choices to manage inventory wage and then we would have to we could make a different decision. If we saw volumes that that just weren't going to be recovering at a rate that we would expect so but our operations are essential we've maintained them the hot idle costs are really associated with the production procurement actions were taken to manage inventories. Overall High turnover you talk about yeah. Thanks Kevin for the question. So look up as we described, you know in our 10-K and February we had a small cushion between the fair value of our installation business and it's carrying value of about 10% off.
When we did our annual testing at the time, we also indicated that any deterioration in the macroeconomic factors that influence insulation could result in an increased likelihood of of a of an impairment charge. And so what happened here in March with our market cap declining to a level below our book value. We had to do some interim texting and there are two big changes, you know, so we the impairment testing is based on a DCF methodology in terms of valuing the fair value of the business. And so there are two big changes in our in our parameters between our October test and and the current testing in March so first because of the covid-19 pandemic Financial Market uncertainty that has increased significantly resulting in a much higher Equity risk premium, so that really affected our discount rate that we use in October to the one we use in March by increasing
Significantly that and then the effect of the pandemic on near-term cash flows was the second big factor in in changing our our valuation and those two things together choice you made made the you know, the majority of the the chart the impairment charges caused by those two factors.
Thanks. I guess one one item. I I just kind of that can you know when you look at at Goodwill in our installation business if you look at where we ended 2019 it was about a billion a Goodwill and installation in about nine hundred million of that was actually associated with fresh start accounting that we had at emergence coming out of bankruptcy. So a large chunk of that and and at the time that's when you know back oh six level that was housing at too many starts and installation was generated the majority of the earnings. So just to put a little context around the the size of the month. We were carrying an installation and what were the key attribute to that?
Oh, that's I think we have time for one more question.
The last question today comes from Southern Clark of Deutsche Bank, please go ahead.
Hey, thanks for the question. You talked about Roofing shipments being down at 30% range in the second quarter. Could you just remind us how this typically Trends in a slow down and realize this is obviously a you know, an unprecedented situation, but could you just give us a sense around how you're thinking about the timing dynamics? That might help us frame demand in the back half just you know gives the more resilient nature of the roofing business and you know, if we saw, you know an l-shape recovery or Nike Swoosh type recovery would down 30% be the worst of it or how should we kind of think about that in the back half of the year?
Yeah, thanks to the question. You know, I would say this is a very unprecedented event. And and I know that word has been overused but normally in our roofing business because I'm non-discretionary replacement or repair even in recessionary cycles and password section recycles. You can go back the the demand trend for shingles has dropped a little bit cuz there's a little bit of discretionary work around new construction or remodeling activity, but the core kind of repair work has stayed intact. I think the dramatic drop in the quarter name is more around this is a global Health crisis, not a recessionary driven event. So these shelter and place restrictions I think is just limited a contractor's ability to get the job sites do the work and generally I think homeowners have have been pushing off having to make these projects materialized. So in terms of everybody Sheltering in place, so I think it's yep.
Bit of unprecedented in the in the dramatic kind of drop in demand in the quarter and what we would expect coming back as the shelter-in-place restrictions get lifted again. It is a non-discretionary repair. We expect that demand is going to return we would expect that the performance of the business and the demand profile would would return similar to other recessionary Cycles which it holds up very very well. You know, Roofing is an outdoor construction activity so that that certainly helps in in the current view in terms of how people are practicing good social distancing and and wanting to make sure contractors are are outside and doing the work there. So again, I think it's unusual to have this kind of demand drop. I think it's given driven by the Health crisis, but we would expect that demand would return in this business and Thursday. It would perform similar to pass the recessionary cycles.
Just conclude our question-and-answer session. I would like to turn the conference back over to Scott grips for any closing remarks.
Thank you, Alyssa, and thanks everyone for joining today's call with that. I'll turn it back over to Brian for a few closing remarks. All right. Thanks Scott, and thanks everyone for your questions this morning, you know in closing. I am incredibly proud of our team strong execution and ability to deliver results in this Dynamic environment. We have a clear focus on how we need to manage the business and the face of these challenging market conditions, and I'm highly confident. Our team's ability to ensure our company emerges stronger than ever, so I want to thank you for your time this morning. We look forward to speaking you again during the second quarter call and until then. I hope you and your families remain healthy and safe. Thank you.
Conference is now concluded. Thank you.
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