Q3 2024 Owens Corning Earnings Call
Good morning everyone and welcome to Owen's Morning's third quarter, 2024 earnings call. My name is Lydia and I will be your operator today.
Ask to the prepare for Mark Bobbi and Opportunity C to ask questions. If you'd like to join the key, you can do so by pressing star below by one on your telephone keypad.
Speaker Change: Vice President Corporate Feds and Investor Relations to begin. Please go ahead. Good morning. Thank you for taking the time to join us for today's conference call and review of our business results for the third quarter 2024.
Speaker Change: Joining us today are Brian Chambers, Owen Corning's chair and chief executive officer and Todd Fister, our chief financial officer. Following our presentation this morning, we will open this one hour call to your questions. In order to accommodate as many call participants as possible, please let me yourselves to one question only.
Speaker Change: Earlier this morning, we issued a news release in File to TenQ that detailed our financial results for the third quarter 2020-4. For the purposes of our discussion today, we have prepared presentation slides summarizing our performance and results and will refer to these slides during this call.
You can access the earnings press release, form 10Q, and the presentation slides at our website, oincourtning.com. Refer to the Investors' link under the corporate section of our homepage.
Speaker Change: A transcript in recording of this call in the supporting slides will be available on our website for future reference.
Please reference slide 2 where we offer a couple of reminders.
First, today's remarks will include forward-looking statements that are subject to risk on the circumstances and other factors that could cause our actual results to differ materially. We undertake no obligation to update these statements beyond what is required under applicable securities laws.
Speaker Change: Please refer to the cautionary statements and the risk factors identified in our SEC filings for more detail.
Speaker Change: 2. The presentation applies and today's remarks contain non-gap financial measures. Explonations and reconciliation of non-gap to gap measures may be found in our earnings press release in presentation. Available on the investor section of our website, go inscorning.com.
Speaker Change: For those of you following along with our site presentation, we will begin on slide 4. And now, opening remarks from our chair in CEO Branchingverse, Brian.
Brian: Good morning, everyone and thank you for joining us today.
Brian Chambers: During our call this morning, I will share an overview of our third quarter performance and review several strategic initiatives and investments we are making to sharpen our focus as a leader in residential and commercial building products while positioning the companies for future growth.
Speaker Change: Todd will provide further detail in our financial performance and then I'll come back and discuss our near-term outlook.
Speaker Change: Oants Corning delivered another outstanding quarter, with our team continuing to demonstrate best in class, commercial and operational execution despite challenging near-term market conditions.
Speaker Change: I'm going to build a deal to deliver such strong results as a direct reflection of the work we've done over the past few years. To strengthen our marketing positions, improve our operating efficiencies, and increase the earnings power of the company.
Speaker Change: In addition to our strong financial results, we also made progress on a number of key initiatives to further enhance our production capacity and capability, as well as simplify our geographic footprint. I'll speak more about this shortly. But first, I'll begin as always with a critical component to our success, safety.
Speaker Change: Through the implementation of our safer together operating framework, our recordable incident rate was 0.58 in the third quarter. Two thirds of our facilities have operated injury free this year, and more than half has been so for over a year. As a reminder, a recently added door segment has not been included in the RIR calculation.
Speaker Change: As we bring our safety first culture to this business, we continue to see improvements in the performance and look forward to including doors in our safety reporting in early 2025.
Speaker Change: In looking at our financial performance and more detail, our results continued to demonstrate our structurally higher and more resilient earnings profile, despite more challenging market conditions.
Speaker Change: In the third quarter, the company delivered an adjusted unit margin of 19% and adjusted unit to a maximum of 25%
Speaker Change: Marking the 17th consecutive quarter of achieving mid teams are better adjusted, even margins, and 20% are better adjusted, even Tom Markings.
Speaker Change: Sales and margin growth resulted in adjusted diluted earnings per share of $4.38.
Speaker Change: In the quarter, we also continued to demonstrate the cash-generating capability of the company, producing $558 million of pre-cash flow.
Speaker Change: And, given the strength of our balance sheet and focus on being disciplined capital allocators, we returned $252 million to shareholders through dividends and share repurchases.
Speaker Change: Our market leading businesses continue to perform at a high level and generated results in line with our expectations.
Speaker Change: Roofing once again delivered very strong margins with our shingle volume outperforming the market as the overall asphalt shingle market was down slightly versus prior year.
Speaker Change: In installation, we delivered increased sales in the quarter through positive price realization and favorable product mix within our North American residential and technical installation businesses.
Speaker Change: work within our DOORS business continued to focus on integration efforts as we navigated through some choppy near-term end markets.
Speaker Change: results in its first full quarter as part of Owens Corning we're in line with our outlook
Speaker Change: And in composites, the segment performed well despite the macro environment remaining challenging.
Speaker Change: In the quarter, we also began commissioning our new glass-dunwoven line in Fort Smith, Arkansas, giving us incremental capacity to grow this business.
Speaker Change: Our results this quarter continue to reflect the progress we've made in structuring our company to generate higher, more resilient earnings, while also growing our top line.
Speaker Change: Over the past few years, through the execution of our enterprise strategy and operating priorities, we have been reshaping the company, creating multiple paths to achieve 20% or better adjusted EBITDA margins, mid-team returns on invested capital, and significant free cash flow generation.
Speaker Change: Through this process, we have maintained a disciplined capital allocation approach focused on products and applications where we can build market-leading positions.
Speaker Change: This has resulted in acquisitions that have expanded our offering of branded building products as well as investments to drive organic growth.
Speaker Change: As a result of this disciplined approach to enhance our earnings power and focus Owens Corning as a building products leader in North America and Europe, we announced two key decisions this morning.
Speaker Change: Let me start with our announcement to further simplify our geographic footprint by selling our building products business in China and Korea to a member of the Businesses Management Team.
Speaker Change: This sale of assets includes six insulation manufacturing facilities in China as well as a Korean roofing manufacturing facility servicing demand in that region.
Speaker Change: Not included in this transaction are glass reinforcement facilities in Asia Pacific and our manufacturing assets that service our North American and European markets, including our roofing coated wovens manufacturing facilities in India and our cellular glass insulation plant in China.
Speaker Change: Over the years, we've built a strong market presence and customer base, with the business generating revenues of approximately $130 million in 2024.
Speaker Change: The strategic decision to exit this business allows us to put more focus on strengthening our leadership position in North America and Europe, which includes additional investments in these markets.
Speaker Change: The latest example of this is our announcement this morning to increase fiberglass insulation capacity in the United States.
Speaker Change: Over the last few quarters, we have been evaluating options to invest in the continued modernization of our flexible and cost-effective U.S. fiberglass insulation network to meet strong market demand for both our residential and commercial products.
Speaker Change: As a result of this evaluation, we are excited to announce the addition of a new production line within our existing Kansas City manufacturing facility.
Speaker Change: This capacity, which is expected to come online in 2027, will utilize our advanced process technology to produce both light and heavy-density fiberglass products at an improved cost.
Speaker Change: In addition, the new line will give us the capability to rebalance our fiberglass production network to increase capacity of light-density residential installation across our other existing facilities.
Speaker Change: Positioning this new line in Kansas City enables us to grow alongside customers to meet market demand while leveraging our existing footprint and the knowledge of our manufacturing team in Kansas City.
Speaker Change: In addition to these two announcements, we continue to make good progress on our other two key strategic initiatives to sharpen our product and geographic focus.
Speaker Change: the integration of DOORS, and the evaluation of our glass reinforcements business.
Speaker Change: The acquisition and addition of the Doors segment to Owens Corning has strengthened our portfolio of highly valued branded building products.
Speaker Change: as we continue to make progress in integrating DOORS within OC.
Speaker Change: We remain excited about the future growth opportunities within this category and our ability to drive improved financial results as we leverage both companies best-in-class brands, extensive customer and channel knowledge, manufacturing capabilities, and material science expertise.
Speaker Change: We continue to execute our integration playbook, finding cost synergies consistent with our original expectation of 125 million, while we explore new growth opportunities with customers utilizing our expanded product line and long-standing relationships.
Speaker Change: We've delivered sourcing synergies in a number of categories and streamlined operating processes reducing duplicate spending and leveraging our scale.
Speaker Change: In terms of synergy capture, we are on track to realize these cost savings within the first two years and anticipate recognizing about half of the synergies within the DOORS segment and the remainder across Legacy OC.
Speaker Change: Lastly, regarding the strategic review of our glass reinforcements business,
Speaker Change: We continue to make progress on the evaluation of options to both maximize the value to shareholders and determine the best growth path for the business.
Speaker Change: At this time, however, we have not yet concluded our review process.
Speaker Change: As we explore alternatives, we are committed to being a disciplined operator as we plan for the future. As such, while we explore options, we continue to focus on improving the overall cost position of the business through ongoing restructuring actions.
Speaker Change: Before I turn it over to Todd, I would like to congratulate my 25,000 Owens Corning colleagues for their role in our most recent recognition.
Speaker Change: We have been named in the top 10 of the 100 best corporate citizens list for the 7th consecutive year and were ranked first within our industry category.
Speaker Change: This list recognizes outstanding environmental, social, and governance performance and transparency among the largest publicly traded U.S. companies.
Speaker Change: As we make progress toward our mission to build a more sustainable future through material innovation, it's our people that truly make the difference.
Speaker Change: With that view of our performance and progress on strategic priorities, I will now turn it over to Todd to discuss our third quarter financial results in more detail. Todd?
Todd Fister: Thank you, Brian, and good morning, everyone. As Brian mentioned, we delivered another quarter of outstanding results.
Todd Fister: The performance in the third quarter reflects the structural improvements we have made to the enterprise and a consistent commercial and operational execution from our teams.
Speaker Change: We have multiple paths to sustain our structurally higher EBITDA margins, deliver strong cash generation, and continue to return cash to shareholders.
Speaker Change: I'd now like to turn to slide 5 to discuss the quarter in more detail.
Todd Fister: In the third quarter, we continue to build on a strong first half to deliver top-line and bottom-line growth in the quarter for the enterprise.
Todd Fister: Adjusted EBIT of $582 million and Adjusted EBITDA of $766 million grew versus last year by 12% and 19%.
Speaker Change: Adjusted EBIT margin was 19% and adjusted EBITDA margin was 25%.
Speaker Change: Part of the year-over-year growth can be attributed to the first full quarter of operating the door segment after our acquisition of Masonite, with the remainder primarily driven by ongoing excellent commercial execution in our legacy businesses.
Speaker Change: Organically, Adjusted EBIT and Adjusted EBITDA were up 5%.
Speaker Change: Adjusted earnings for the third quarter were $385 million, or $4.38 per diluted share, compared with $380 million, or $4.18 per diluted share in the same quarter prior year.
Speaker Change: For the quarter, adjusting items totaled approximately $73 million and are excluded from our adjusted EBIT.
Speaker Change: They primarily include $61 million of Masonite acquisition-related costs.
Speaker Change: $19 million of gains on the sale of certain precious metals as we shift our ownership portfolio and change the production tooling needs and deposits.
Speaker Change: and $16 million of charges related to the ongoing strategic review of the glass reinforcements business.
Speaker Change: Turning to slide six, our capital allocation strategy remains unchanged. We're focused on generating strong free cash flow, returning approximately 50% to investors over time, and maintaining an investment grade balance sheet while executing on our business strategies to grow the company.
Speaker Change: Operating cash flow was up slightly from prior year in the third quarter. Free cash flow for the quarter was $558 million, compared to $581 million in the same quarter last year.
Speaker Change: The year-over-year decline was due to increased capital additions, which were $141 million in the quarter, up $31 million from prior year, as we make the targeted investments Brian mentioned.
Speaker Change: Our return on capital was 15% for the 12 months ending September 30, 2024, down from last year as we continue to see the impact of the acquisition.
Speaker Change: At quarter end, the company had liquidity of approximately $1.8 billion, consisting of $499 million of cash and $1.3 billion of availability on our bank debt facilities.
Speaker Change: We have $400 million of senior notes due in the fourth quarter.
Speaker Change: During the third quarter of 2024, we returned $252 million to shareholders through share repurchases and a cash dividend.
Speaker Change: Through the first nine months of the year, we have returned $486 million to shareholders through share repurchases and dividends.
Speaker Change: At the end of the quarter, we had 6.9 million shares available for repurchase under our current authorization.
Speaker Change: Exiting Q3, our net debt to adjusted EBITDA was slightly below our targeted range of two to three times, inclusive of returning $252 million to shareholders in the quarter.
Speaker Change: Now, turning to slide 7, I'll provide additional details in our segment results.
Speaker Change: The roofing business had another quarter of shingle market outperformance as we continue to demonstrate the strength of our contractor engagement model.
Speaker Change: Overall revenue was $1.1 billion, in line with prior years, positive price and favorable mix offset the impact of lower components volumes and the net impact from the exit of protective packaging.
Speaker Change: In the quarter, we saw positive price realization on our August increase, and demand for our shingles remained strong.
Speaker Change: The U.S. asphalt shingle market, on a volume basis, was down slightly in the quarter compared to the prior year. Coming into the quarter, we anticipated the market would be down mid-to-high single digits.
Speaker Change: As we expected, our U.S. shingle volume outperformed the market, up slightly as demand for our shingles remained strong.
Speaker Change: Also, as expected, overall segment volumes were impacted by lower roofing components volumes as distributors worked through channel inventory of these products.
Speaker Change: Volume continued to be impacted by the strategic decision to exit our protective packaging business. We would anticipate Q4 will be the last quarter of impact from protective packaging.
Speaker Change: EBIT was $359 million for the quarter, up $16 million versus last year. The increase was primarily due to positive price and favorable mix offsetting the volume decline. All of this resulted in EBIT margin of 33% and EBITDA margin of 35%.
Speaker Change: Now, please turn to slide 8 for a summary of our installation business.
Speaker Change: In the third quarter, the installation business delivered growth and expanded margin versus prior year. We continue to execute well in a fairly stable North American market, while Europe and Asia-Pacific remain weak.
Q3 revenues were $946 million, up 4% over prior year. Within installation, revenue for our North American residential business grew in the quarter.
Speaker Change: Volume was up despite choppiness and housing starts.
Speaker Change: We also continue to realize positive price in North American Residential on previously announced pricing actions.
Speaker Change: and Technical and Global, revenue was similar to last year.
Speaker Change: Through strong commercial execution, revenue for our fiberglass technical insulation products in North America has continued to grow. Demand remains challenged by the macro environment in Europe.
Speaker Change: Overall, for insulation, EBIT in the third quarter was $183 million, up $33 million compared to prior year.
Speaker Change: Consistent with the first half, the EBIT growth in Q3 was primarily due to positive price realization and lower delivery cost. Input costs were fairly neutral for the quarter. For the quarter, insulation delivered an EBIT margin of 19% and EBITDA margin of 25%.
Speaker Change: Moving to slide 9, I will provide an overview of the DOORS business.
Speaker Change: Overall, the business performed in line with our outlook as we navigated challenging market conditions for doors in North America and Europe.
Speaker Change: The integration is continuing to progress well.
Speaker Change: In the quarter, the business generated revenue of $573 million. This revenue includes the impact of a softer market in North America and Europe on volume and some pricing pressure.
Speaker Change: Even for the quarter was $36 million, including $22 million of impact from purchase accounting.
Speaker Change: In order to share a clear view of Doors' performance in the quarter and to exclude the impact of the purchase price accounting, EBITDA for the quarter was $89 million.
Speaker Change: Overall, DOORS generated an EBIT margin of 6% and EBITDA margin of 16% in the third quarter.
Speaker Change: Slide 10 provides an overview of our composites business.
Speaker Change: In the third quarter, the business continued to perform well in a challenging macro environment.
Speaker Change: While end markets for glass reinforcements continued to be soft, we saw volume stabilization sequentially. Lower glass reinforcement pricing remained consistent with the impacts we saw in the first half.
Speaker Change: Revenue for the quarter was $534 million, down 6% compared to prior year.
Speaker Change: EBIT for the quarter was $61 million, down $19 million from prior year. EBIT was primarily impacted by lower glass reinforcement prices.
Speaker Change: We also incurred some incremental costs in the quarter as we began to start up our nonwovens line in Fort Smith, Arkansas. We more than offset the impact of startup costs with positive manufacturing costs.
Speaker Change: Overall, composites delivered an 11% EBIT margin and 20% EBITDA margin for the quarter.
Speaker Change: Moving on to slide 11, I will discuss our full year 2024 outlook for key financial items.
Speaker Change: General corporate expenses are now expected to be approximately $250 million, down from our prior range of $255 to $265 million as a result of ongoing cost controls as we exit the year.
Speaker Change: In line with our prior outlook, interest expense is estimated to range between $210 and $220 million, including the impact of additional interest expense on the higher debt from the acquisition and less interest income on our lower cash balance.
Speaker Change: Our 2024 effective tax rate is expected to remain unchanged between 24% to 26% of adjusted pre-tax earnings.
Speaker Change: Next, capital additions are expected to be approximately $650 million in line with depreciation and amortization. Now, please turn to slide 12, and I'll turn the call back to Brian to further discuss our outlook. Brian?
Brian Chambers: Thank you, Todd. Our third quarter results demonstrated the impact of the strategic choices and structural improvements we have made to strengthen Owens Corning and build a company that continues to deliver strong free cash flow and sustainably higher margins despite challenging market conditions.
Speaker Change: The near-term market outlook for many of our residential and commercial end markets is likely to remain choppy as we close out 2024 and enter into the new year.
Speaker Change: However, as we move through 2025, we do expect to see demand trends in both repair and remodel and new construction to strengthen in North America as interest rates come down and investments in housing and non-residential projects improve.
Speaker Change: We've also seen some signs of economic recovery in Europe that should continue to evolve and strengthen market conditions next year.
Speaker Change: Specific to the fourth quarter, we expect overall demand for our products to be impacted by challenging market conditions, as well as normal end-of-the-year seasonality.
Speaker Change: In addition, we will realize some operational impact from manufacturing disruptions from the recent hurricanes in each of our businesses.
Speaker Change: We also expect the decline in lagged housing starts to result in lower demand from single-family new construction in the quarter.
Speaker Change: Outside North America, we anticipate ongoing macroeconomic trends and geopolitical tensions will continue to negatively impact demand for our products.
Speaker Change: Given this backdrop, we expect fourth quarter revenue growth for the company of around 20% with anticipated revenue from our legacy OC business to be slightly below prior year.
Speaker Change: Now, consistent with prior calls, I'll provide a more detailed business-specific outlook for the fourth quarter.
Speaker Change: Starting with our roofing business, we anticipate our revenue to be down mid-single digits, with lower components volume partially offset by positive price utilization.
Speaker Change: Based on more normal seasonality in the fourth quarter, and with the majority of demand from recent storm activity being serviced next year, we expect ARMA market shipments to be down low to mid-single digits for the fourth quarter in 2024, with demand for our shingles relatively flat.
Speaker Change: For components, we anticipate volumes in the quarter to be down versus prior year, as we see attachment rates for our roofing components to shingles running at more normalized levels versus last year.
Speaker Change: In addition, we will realize the last quarter of impact from the exit of our protective packaging business. As a reminder, this business had approximately $100 million in revenue annually.
Speaker Change: We expect positive price from our previous announcements to partially offset the revenue impact of lower components volumes. Compared to Q4 of last year, we anticipate higher manufacturing costs as we invest in our assets to continue to meet the high level of demand for our products and absorb the cost of maintenance and some operational disruptions.
Speaker Change: Overall for roofing, we anticipate an EBIT margin approaching 30% and EBITDA of approximately 31%.
Speaker Change: Moving on to our installation business, we expect revenue to be down slightly versus prior year, with ongoing price realization largely offsetting lower volumes.
Speaker Change: In our North America residential inflation business, we anticipate revenue to be relatively flat. We expect realization from the June price increase to be offset by lower volumes in line with the near-term decline in lagged housing starts.
Speaker Change: In technical and global, we expect revenue to be down slightly versus prior year, driven primarily by lower volumes which will be partially offset by positive price realization, primarily in North America.
Speaker Change: Outside of North America, demand remains challenged by the soft market environment.
Speaker Change: For the overall insulation business in the quarter, we expect to incur incremental costs in some of our facilities tied to impact from the recent hurricane activity. Also in the quarter, we anticipate input materials and delivery to be relatively neutral, with price costs remaining positive.
Speaker Change: Given all this, we expect to generate EBIT and EBITDA margin for insulation similar to the fourth quarter last year.
Speaker Change: Turning to doors, we expect to be impacted by continued market pressure and distributors tightly managing end-of-year inventories, resulting in lower volumes, with Q4 revenue down high single digits sequentially from Q3.
Speaker Change: We anticipate price costs to be positive in the quarter, primarily driven by an incremental catch-up of tariff recovery for input costs.
Speaker Change: For EBITDA, we expect lower volumes and associated deleverage to impact the quarter, partially offset by early synergies in line with what we have realized to date.
Speaker Change: Overall for DOORS, we anticipate low to mid-teen EBITDA margin.
Speaker Change: Going forward, we will guide on EBITDA for this business to focus on the operational performance and take away the noise of purchase price accounting.
Speaker Change: And in composites for the fourth quarter, we anticipate overall revenues to be similar to last year as volume growth, primarily in our North America glass reinforcements business, is offset by lower price and unfavorable mix.
Speaker Change: During the quarter, we expect the nonwovens business to continue to perform well with solid demand and pricing, even as we absorb some incremental startup costs with the commissioning of our new Fort Smith nonwovens line.
Speaker Change: Overall, for the business, we expect favorable manufacturing costs from lower production downtime and productivity.
Speaker Change: For the fourth quarter, we expect mid-to-high single-digit EBIT margin in composites and mid-team EBITDA margin.
Speaker Change: With that view of our businesses, I'll turn to a few enterprise items.
Speaker Change: As I shared at the start of the call, our team is demonstrating best-in-class execution each and every day to consistently deliver higher, more resilient earnings.
Speaker Change: It is this consistent performance, coupled with the strategic initiatives and investments we have made, which has accelerated our growth, strengthened our earnings power, and positioned Owens Corning to outperform the market.
Speaker Change: We believe the strategic decisions to invest in our North American fiberglass network, along with the addition of our DOORS business,
Speaker Change: Combined with the review of strategic alternatives for our glass reinforcements business and exit of our China building materials business are the latest examples of how we are using a disciplined approach to reshape and grow the company.
Speaker Change: As we integrate Masonite and look at additional opportunities to invest organically and inorganically, we will continue to be disciplined operators, focusing on markets and product lines where we can build leading positions through our customer and channel knowledge, material science and innovation capabilities, and manufacturing and process expertise.
Speaker Change: We have built an incredibly strong balance sheet which we will continue to utilize as we invest to strengthen the long-term performance of the company. Going forward, we remain committed to strong cash flow generation and a balanced capital allocation strategy, returning at least 50% of free cash flow to shareholders over time.
Speaker Change: In closing, I want to recognize the great work being done by our team to deliver for our stakeholders today and position OC to grow in the future.
Speaker Change: We've built multiple paths to achieve 20% or more adjusted EBITDA margin, mid-team returns on invested capital, and generate significant free cash flow. As we finish 2024, we are focused on executing our priorities, serving our customers, and creating value for our shareholders.
Speaker Change: With that, we would like to open the call up for questions.
Speaker Change: Thank you. Please press star followed by the number one if you'd like to ask a question and ensure your device is unmuted locally when it's your turn to speak. We kindly ask that you limit yourself to one question only.
Speaker Change: Our first question comes from John Lovallo with UBS. Please go ahead, your line is open.
Speaker Change: Hey, guys. Good morning. This is actually Spencer Kaufman on for John. Thank you for the question. Apologies if I missed this, but how much incremental capacity will the new insulation line in Kansas City be bringing online in 2027? And are you concerned about any certain competitors that are also bringing capacity online? Or is the North American resi market just simply running too tight right now? Thanks.
Speaker Change: Thanks Spencer. This is Todd. Good morning. I'll take that one. So when you look at the line in Kansas City, you could think of that as being an incremental, you know, two to three percent increase in capacity for the fiberglass industry.
Speaker Change: What's great about that asset is really a couple of things for us. It's a very capital efficient asset that we're adding because we're using existing footprint and infrastructure that we have in our Kansas City facility.
Speaker Change: It also is a really attractive ongoing operating cost because, again, we're able to use the fixed cost overhead of that facility with this new line.
Speaker Change: We've designed the new line to give us flexibility across our network. Flexibility to better serve the technical inflation market.
Speaker Change: So when we look at that addition, you know, we like it as a way to support the ongoing growth of the insulation business but it also is part of our strategy to, you know, continue to focus on growth of technical insulation, growth of other attractive markets.
Speaker Change: and give us, you know, a really nice cost structure of our network and our assets. So that was the big rationale for adding it.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Stephen Kim with Evercore ISI. Your line is open.
Stephen Kim: Thanks a lot guys, appreciate it. Just sort of to follow up a little bit on insulation, just with respect to your 4Q guide, you mentioned some hurricane aspects. I was wondering if you could quantify that. And then also, with respect to the...
Speaker Change: to, I guess, the big news last night.
Speaker Change: In the situation where you got a Republican sweep, I know the House is still up for grabs, but assuming you did get a Republican sweep, do you think there's risk to the HUD energy code mandate? And if that were to actually be reversed, I'm curious how that would affect your calculus around the Kansas City expansion?
Speaker Change: Yeah, so we'll just, we'll go with that, thanks.
Speaker Change: Thanks Stephen. Good morning. I appreciate both of those and I'll answer the hurricane first and then we could talk a bit about the HUD changes.
Speaker Change: There may be some positive demand associated with the hurricanes, you know, typically that lags a bit, so, you know, we wouldn't expect to see a lot of that in Q4, but certainly could see some of that the first half of the year as that demand comes through.
Speaker Change: As we look at policy and housing, we all know housing has been underbuilt in the U.S. for a very long period of time. One of the things we saw talked about, really on both sides, was the need for more housing supply.
Speaker Change: So, you know, fundamentally, we think the macros are good for housing in North America.
Speaker Change: Fundamentally, our products add a lot of value in housing.
Speaker Change: As Brian and I have talked about this on previous calls, we always viewed it as an outcome that would be impacted by what happened yesterday with the election.
Speaker Change: So, you know, when we think about capital investments, we're making long-term investments based on the fundamentals of the business.
Speaker Change: and really we weren't contemplating volume from HUD as we thought about what we would do with Kansas City that was not part of the calculus one way or the other as we thought about that asset that we were adding. Thank you for the question.
Speaker Change: Our next question comes from Philip Inwood-Jethrey
Speaker Change: Your line's open. Okay.
Philip Inwood-Jethrey: Hey guys, congrats on another strong quarter. On roofing, can you size up any potential uplift from some of the recent hurricanes?
Philip Inwood-Jethrey: How do you see that kind of getting layered in perhaps 2025? The demand backdrop for roofing has obviously been really strong the last year. So as you lap that, just curious, you know, your ability to grow, to sustain, call it low 30% margins, and perhaps even drive prices higher as we look out the next year.
Speaker Change: Thanks, Phil. Good morning. Yeah, let me talk a little bit about the hurricane impact.
Speaker Change: We're still assessing, I mean, these were two really devastating hurricanes that impact a lot of folks, so I think there's some infrastructure that really needs to be repaired, but as we look at some of the potential impacts, I think on
Speaker Change: Beacon's call, they had done some analysis and were estimating somewhere around three million squares of potential impact.
Speaker Change: You know, I think at this point, we'd be right in line with that thought in terms of how that might play out for us. And as Todd mentioned, I think given the broadness of flooding and some of the other damages that are going to need to be repaired as we go into next year, I think there's some incremental potential upside in our other businesses as well. But from a roofing standpoint, I think that's our initial estimate. As you know, you know, the damage repair takes a long time when we're talking about hurricanes. So we would expect this to be much more impacting demand and volumes as we move through 2025.
Speaker Change: So, not a lot here early on in the fourth quarter. There might be a little bit of inventory stocking.
Speaker Change: but we don't think that's going to be significant. We think the broader play is going to be into next year. In terms of the overall setup for 2025, you've said it. I mean, the last few years, we've been in a very strong roofing market. I think we continue to see fundamental trends for R&R stay pretty strong this year in many regions. We think that's going to continue, especially if we start to see some more interest rates, more existing homeowner turnover that generally drives a little bit of R&R activity.
Speaker Change: And new construction, again, based on the expectation of some lower interest rates, we think new construction is going to start to pick up as we move through 2025. So I think that the setup and roofing for 2025 is...
Speaker Change: as we think we're going to start off with another pretty strong first half given some of our fundamentals that we think will carry over, some of the new construction trends we think will pick up, and then some of the incremental storm demand. So for our ability to grow, I think we've been making significant investments as we've talked about over the last number of calls around investing to grow our laminate capacity.
Speaker Change: We continue to see that mix shift in roofing from strips to laminates. That continues to be a positive mix impact on our results. And we've been investing in our existing footprint to expand that capacity.
Speaker Change: We are expecting to bring our new Medina laminator up online in the first half of the year.
Speaker Change: Sorry, about mid-year, next year. That's going to be an incremental couple of million squares of land capacity. That's going to add to the existing network increases we've had. So, I think we're facing what we think is going to be another positive backdrop for roofing demand going into 2025. And certainly the investments that we're making in capacity adds, we believe, are going to put us in a better position to continue to service our customers' growth as we go forward.
Speaker Change: The next question comes from Anthony Patinari with City. Your line is open.
Anthony Patinari: Have a good morning.
Anthony Patinari: I was wondering if you could talk about underlying demand for doors and how that's kind of trended versus expectations since you closed the acquisition. If there's any kind of finer point you draw on interior versus exterior or, you know, US versus rest of world.
Anthony Patinari: And then assuming we do have a stronger R&R backdrop next year, can you maybe just talk broadly about the prospect for, you know, volume improvement and maybe price improvement in endorsed next year?
Anthony Patinari: Certainly, in the third quarter, I'd say,
Speaker Change: You know, the business performed well relative to these market conditions and in line with our outlook.
Speaker Change: But we are facing, you know, tougher market conditions and a more challenging market condition certainly here in the back half since we've closed out the acquisition.
Anthony Patinari: The business, as a reminder, is pretty evenly split between new construction and R&R activities.
Anthony Patinari: and we've continued to see, you know, some of the lagged housing starts coming down a little bit here over the last quarter and third quarter. We expect that to continue. So that's going to create some demand challenges inside the new construction. And certainly the R&R activity has been down, not just indoors, but across a lot of other building material product categories here this year. And we think that's playing into some of the more challenging market conditions that we're seeing. When we look at our business, I would say the volume declines we've seen have been pretty consistent between interior and exterior. So we are not seeing a lot of big differences there. I think, again, fundamentally tied to we've seen this step down in both new construction and R&R going forward.
Anthony Patinari: And the US business, we've got a smaller business in Europe You know those those demand trends are challenging as well. So I think it's a near-term backdrop that is more challenging But back to our discussion in terms of a 2025 outlook we do believe that as we see interest rates come down with... we expect
Anthony Patinari: where we see housing turnover increase, where we see new construction starts improve, we do see a backdrop going into 2025 that's going to create a more favorable demand environment for doors overall. And then we are a category leader in this space.
Anthony Patinari: We value innovation. We value service. We value quality. We value the commercial partnerships that we're building. So we believe we're going to be able to be set up to take advantage of that volume growth.
Anthony Patinari: in terms of going forward. In the near term, we're continuing to execute our integration playbook. So as I talked about in my prepared comments, we're on track to deliver 125 million across Synergies.
Anthony Patinari: in line with our expectation. And we're also leveraging our operation on our commercial playbook. So we're looking at potential growth opportunities with our customers as we go into 2025.
Anthony Patinari: across the broader platform opportunity. And then we're also looking operationally in terms of additional cost synergies, as well as looking at the manufacturing footprint for optimization opportunities. And that's something that we've got a good track record of executing against. So we're going to prepare ourselves for the near-term market challenges to operate a very cost-effective business. We're going to continue to focus on service and quality and innovation as differentiators.
Anthony Patinari: and then we're going to prepare ourselves as the market does improve that we can take full advantage of that to grow our volumes as we go into 2025.
Anthony Patinari: David MacGregor, David MacGregor, David MacGregor, David MacGregor,
Speaker Change: Our next question today comes from Sam Reid with Wells Fargo. Please go ahead.
Sam Reid: Awesome, thanks so much. I actually wanted to piggyback off the last question on Mace Knight, but maybe drill down a bit more on pricing.
Sam Reid: So when you talk about price and give back, could you just aggregate between repair remodel pricing and maybe what you're seeing on price in terms of what you're selling into the new build channel? It sounds like most of the weakness was on the repair remodel side, but we'd just like to maybe hear a finer point on that.
Anthony Patinari: And then if we were to see discretionary repair remodel spend recover in 2025, kind of consistent with your expectations, do you think that would have a corresponding impact, positive impact on pricing in Mace Knight? Thanks.
Speaker Change: and very modest and I would say really did get us in line with some of the Competitive pricing dynamics we're seeing in some markets. So we've made some modest moves there. We're still focused on value pricing and
Speaker Change: maintaining the value that we have relative to our service, our quality, and our innovation in the market, but we did make some of those moves in the quarter. Really broadly, I would say not a lot of differences between new construction, repair, and remodeling. These were more broader market-based moves that we felt we needed to make to stay competitive while maintaining our value premium in the market. So as we go forward into next year, you know certainly a better volume environment and better demand environment creates the opportunity for improved pricing. And so we'll look at that as we go forward into next year and manage the business relative to that market demand and also relative to the value premium that we would expect to have in the marketplace.
Speaker Change: Our next question comes from Trevor Allenson with Wohlfarth Research. Please go ahead.
Trevor Allenson: Hey, good morning. Thank you for taking my question. I wanted to follow up on ARMA shipments. They were better than you were anticipating. It looks like your volumes were kind of right in line with your guidance.
Anthony Patinari: He talked about what helped the market perform better than you anticipated with that just less distributor destocking than you were looking for.
Anthony Patinari: And then, was it capacity limitations or planned downtime, or what was it that kept your volumes from also being better than what you were anticipating at the end of the quarter, given a better market? Just trying to understand your capacity and your ability to take advantage of some of the tailwinds you're talking about prior to Medina coming online next year. Thanks.
Speaker Change: Thanks Trevor. In terms of the armor market, they were slightly stronger than we were anticipating. I think a couple of factors played into that. One is we saw some incrementally
Anthony Patinari: better storm demand, particularly in Texas.
Anthony Patinari: to put more roofs on. And so we saw that demand, and particularly those regions, kind of step up more than we would have expected. So overall a good
Anthony Patinari: a good quarter.
Anthony Patinari: Our shipments outperform that a little bit. We continue to see strong demand for our products and so some of the limitations, as you mentioned there, are really tied to our capacity limitations. That's why we're making these significant investments to increase the laminate capacity. We have very strong demand for our products.
Anthony Patinari: We've got a great contractor network that we invest a lot.
Anthony Patinari: to grow the businesses together with them and that's created a great demand environment for us and that's why we're making the investments we are to try to continue to increase that capacity. I think we have increased our lamb capacity year on year, we're going to produce more laminates this year than last.
Anthony Patinari: We'll continue that as we go into 2025 with another big step up, as you said, with the Medina Laminators. So, we feel like the demand outlook for our products is going to remain strong as we go into 2025.
Speaker Change: Our next question comes from Adam Baumgarten with Salmon & Associates. Your line is open.
Adam Baumgarten: Hey, thanks, good morning. Just on the sale of the China and Korea building materials businesses, any impact on earnings from that sale? I know you gave the revenue, and then I may have missed this, but when do you expect it to close?
Speaker Change: Thanks Adam, appreciate the question. I can give a little more color on on the business itself then we could talk about closing time.
Speaker Change: So what we shared was $130 million of revenue. It's six plants in China, it's one plant in Korea. The Chinese plants are really primarily China for China insulation products. And then the Korean plant is shingles that go into Korea and Japan.
Speaker Change: When you look at that business, it's a pretty low EBITDA margin business. So it's consistent with what we've been doing across the portfolio to really focus on our higher value product lines that add a lot of value for customers.
Speaker Change: and have structurally more attractive margins going forward. So this one had pretty low EBITDA margins, also pretty high capital intensity, just given the footprint that we've got, especially in those Chinese insulation plants.
Speaker Change: When we think about timing to close, this is going to be, you know, a couple quarters to work through everything and get everything set up to actually execute the sale. So, we would expect, you know, Q2 timing for this to be complete. Thank you.
Speaker Change: Next we have Keith Hughes with Truist. Please go ahead.
Keith Hughes: Thank you. You've given us the guidance for EBITDA margin for May, tonight in the fourth quarter. It's a little fuzzy on what that compares to. Would that compare to a high single-digit EBITDA margin in the fourth quarter of last year, given with the structure of the businesses?
Speaker Change: Yeah, Keith, this is Brian. You know, tough with all the moving parts in terms of that. I think that would continue to equate to kind of a mid-single-digit EBIT margin guide from our perspective in terms of how we are operating the business. So, that's where there's a lot of noise inside the Purchase Accounting. We're getting that set, and that's why we're really wanting to try to change the EBITDA margin guide. I think on a year-over-year comparison, that's also going to be something that is a relative data point as well in terms of how we're operating the business post-acquisition. But that's going to be the guide that we continue to focus on as we go forward versus the EBIT side.
Speaker Change: Our next question comes from Mike Dahl with RBC. Your line is open.
Mike Dahl: Thanks. I want to focus on roofing, so continued strength and margins. When you think about the margin in fourth quarter, I know you talked about the manufacturing costs. Can you quantify the manufacturing costs and then where you are on kind of input and
Speaker Change: delivery cost because it seems like he still had some sequential price realization. And then the second part, if I can, would be as you look into 25, given the strength in demand and potentially some continued price.
Mike Dahl: offset by maybe some of these laminate investments. Can you give us a view on how you think about roofing margins setting up into 2025?
Speaker Change: Thanks, Mike. In terms of the fourth quarter margin, we continue to operate the business very well and continue to generate very strong margins, certainly relative to history and in terms of the performance that we're seeing and the work that's being done in the business. So I think great execution by the team is continuing to lead to very strong margins going forward. In terms of input costs that we see, we're seeing really just modest inflation in a few areas and some deflation in others. So I think we're seeing pretty stable input costs across the business.
Speaker Change: and that's been a pretty constant theme here over the last couple of quarters.
Speaker Change: So the pricing realization we're seeing off the August increase, that's creating, you know, a positive price cost relative to those input materials. And we'll look and see what kind of happens as we go into 2025, but we think that's going to stay stable for the fourth quarter here.
Speaker Change: In terms of the 2025 set-up on margin performance, I think we've...
Speaker Change: We've talked about what would be positive indicators to retain and maintain these kind of margin levels would be a continued strong market.
Speaker Change: which we expect to see in terms of set up for 2025. Continued strong demand for our products, which we continue to see going into 2025.
Speaker Change: Thank you.
Speaker Change: maintaining some kind of a price-cost positive mix.
Speaker Change: but very normal attachment rates as we track that. So we're seeing still good demand for our components and we're seeing good demand from contractors selling the full system and package on the roof. So we think that's gonna continue going into 2025. So I'd say the setup for next year is very well for us in terms of volume, in terms of our product demand, in terms of price costs, in terms of our components business. So we think we're set up for a good first half.
Speaker Change: Thank you.
Speaker Change: The next question comes from Susan McClary with Goldman Sachs.
Speaker Change: Please go ahead.
Susan Mcclary: Thank you. Good morning, everyone.
Susan Mcclary: As you think about the changes that you're making to the portfolio with the additions and exiting some of the other businesses and regions, can you talk a bit about what that will mean for the cash flow dynamics of the business over time? And with that, just any comments on priorities for that capital allocation and how you're thinking about that balance between deleveraging and the shareholder returns, especially with the buybacks that you did this quarter?
Speaker Change: Thanks Stu, appreciate the question. Let me let me talk a bit about the changes in the portfolio and then we could talk about implications on capital allocation.
Speaker Change: We're being very thoughtful as we think about the changes we're making. As I alluded to a moment ago about our sale of the assets in China and Korea, these were pretty low EBITDA margin, high capital intensity businesses. We've talked before about glass reinforcements as being really a great business, but a business that requires capital going forward.
Speaker Change: and the Doors acquisition being a business that structurally shifts our portfolio into
Speaker Change: So we've got an eye to the future of really, you know, building a company that's a branded leader and in building products
Speaker Change: in both North America and Europe that also has an attractive cash flow profile in terms of the ongoing capital requirements of the business and also the significant free cash flow that we can generate off of that portfolio to both reinvest in the business and also return to shareholders.
Speaker Change: When we think about our priorities right now for capital allocation, our priorities, you know, first and foremost, is to integrate Masonite very successfully and deliver returns to shareholders from the investment.
Speaker Change: In the near term here, we also have a little bit of deleveraging in the fourth quarter. We've got $400 million of senior notes that are coming due that we will retire in Q4, and we're building a little bit of cash on sheet to do that.
Speaker Change: Beyond that, as Brian discussed, we're making very strategic capital investments into our business, into businesses that we want to grow.
Speaker Change: additions to capacity, whether it's Medina with the laminator, whether it's the Russellville plant for our extruded polystyrene foam business.
Speaker Change: our Fort Smith, Arkansas non-movements plan, or the Kansas City addition that we discussed today.
Speaker Change: So we're focused on these targeted, you know, very strategic capital investments that we think are both capital efficient but also cost efficient to, you know, really continue to drive attractive cash flows for the business.
Speaker Change: And then we've been we've been committed to our capital allocation strategy, you know, we we like the leverage of you know, two to three times EBITDA
Speaker Change: We're a little below that coming out of Q3, even including, you know, returning $200 million to shareholders through buybacks in the quarter. So we're happy with that two to three times range.
Speaker Change: But as Brian said, we've got a very strong balance sheet and we've got a lot of flexibility on what we do in terms of capital allocation as we go forward.
Speaker Change: But we've returned a lot of cash to shareholders through dividends and repurchases over time, 58% over the last 12 months.
Speaker Change: Our next question comes from Garek Szmoys with Elite Capital. Your line is open.
Garek Szmoys: Oh, hi, thank you. Sorry if this was asked as my line was dropped earlier, but on composites, can I hear you correctly, the pricing?
Speaker Change: while down year-on-year really hasn't weakened sequentially. Is that right? Is that on spot primarily? And then maybe just some thoughts ahead of the contract negotiations and pricing going into next year.
Speaker Change: Thanks for the question. I'll take that one. So yes, I mean we're down still year over year from a pricing standpoint. Sequentially, we've seen a good stability and in composites. You know, both Brian and I are really proud of how that business is executed, both commercially to drive sequential stability.
Speaker Change: but also on the manufacturing side. They've done outstanding work this year on manufacturing productivity to really drive the kind of stable margins you've seen the last few quarters.
Speaker Change: It is really early days on contract negotiations, so it's a little early to say much about where we're at.
Speaker Change: We're in the midst of it, but the business has really prioritized, you know, how do we add value to customers? How do we keep our costs really efficient?
Speaker Change: and we're trying to drive as stable margins as we can in pretty challenging market environments still in China, which certainly is impacting the global demand environment.
Susan Mcclary: The next question is from Matthew Booley with Barclays. Please go ahead.
Matthew Booley: Morning, everyone. Thank you for taking the question.
Matthew Booley: I wanted to ask on insulation and volumes, just given you're guiding the volumes to flip a little bit negative here, exiting 2024.
Matthew Booley: Wanted to get your thoughts on kind of how you're thinking about the first half of 25 given that exit rate.
Speaker Change: Obviously this can be...
Matthew Booley: sort of high fixed cost manufacturing assets. So kind of any near term thoughts on the volume decrementals and if any kind of need to right size production if we do still have that volume headwind early next year. Thank you.
Speaker Change: Thanks Matt, appreciate the question. So you know when we look at where we're at right now, we're dealing with you know really a little bit of an air pocket of weaker starts that we saw from March through July. As we saw interest rates a bit high, we saw you know a little bit of a downturn in starts. That said, I mean starts are still in a pretty good range for us.
Matthew Booley: And I'll remind you, we re-engineered the insulation business.
Matthew Booley: to be able to deliver really attractive margins and cash flows and return on capital in exactly this kind of market environment where we're around this 1.3 to 1.4 million starts range.
Matthew Booley: Our view, fundamentally, is the housing market is still under built. We really have not approached the 1.5 million annual starts number since the late 2000s.
Matthew Booley: We also continue to see support from COATS, that when you go back over a long period of time, we see the pounds per home roughly 30% higher over a 10-year period than where we were a decade ago.
Matthew Booley: It's not linear. We're year in and year out. We see, you know, two and a half, three percent increases in volume from codes, but certainly long term, it's a strong support for the volume dynamics in the industry.
Matthew Booley: So, we'll watch housing starts closely as we end the year, we'll watch interest rates as we end the year, but we're confident, you know, we've engineered a business that can deliver a good margin stability as we go forward, and that's very intentional around the choices we've made with the cost structure and how we've positioned the business for success.
Speaker Change: Thank you. The next question is from Katherine Thompson with Thompson Research Group. Your line is open.
Katherine Thompson: Hi, thank you for taking my question today. You touched this earlier in the Q&A just around pricing.
Katherine Thompson: in the door segment in particular, but if we step back and take a look at
Matthew Booley: balancing value over volume. This certainly has been, I would say, an issue but a focus area indoors, but as we look at you getting out of Asia for certain products
Matthew Booley: and that continued push to nearshoring or reshoring, how does Owens Corning approach the value over volume?
Matthew Booley: and how do you think that changes over the next three years? Thank you.
Speaker Change: Thanks Catherine. I think the approach, I'll just kind of step back. High level, you know, we are investors of innovation. We're investors in marketing tools, commercial tools.
Matthew Booley: quality service, the things that bring value to our customers and the things that help them grow in the market. And so we always start
Matthew Booley: with a premise of how can we help our customers win and grow in the market through our product offering, through our innovation, through our commercial tools, through our commercial resources.
Matthew Booley: to our service, our quality, anything that can help the business and help them grow. So, we invest to create value. Now, when we say value over volume, I think that's a trade-off that
Matthew Booley: I don't really look to make. We look to drive increased value.
Matthew Booley: We have to be competitive in our pricing, we have to be competitive in our offering.
Matthew Booley: But we are always going to expect that through that value proposition that we're creating that we can see a value premium for our products in the market. And not only that we see a value premium, but our customers see that value premium as they take those products into the market. So that's our overall approach. When we look at insourcing or outsourcing, we have a fundamental belief that we want to manufacture close to our customers. We think that improves that quality and service angle.
Matthew Booley: So, we're always going to be mindful of imports and other areas that could impact the cost structure within our businesses.
Matthew Booley: But we also have a philosophy of local manufacturing for local demand and local service. So that's something that is...
Matthew Booley: sharpening our focus on the geographic footprint that we've talked about. We really are focused on executing our strategy to reshape the company as a building products leader in North America and Europe. And we're going to invest in manufacturing assets and sourcing to suppliers that are local to our markets and local to our manufacturing facilities there to create the best service platform for our customers.
Speaker Change: Thank you. This concludes our Q&A session, so I'll now pass you back to Brian Chambers for any final comments.
Brian Chambers: Well thanks, Lydia. I'd like to thank everyone for making time to join us on today's call and for your ongoing interest in Owens Corning, and we look forward to speaking with you again on our fourth quarter call. Thanks and have a safe day.
Speaker Change: This concludes our call. Thank you for joining. You may now disconnect your line.