Q1 2025 Owens Corning Earnings Call
Sanderson
Lydia: Hello everyone and welcome to Owens Corning's first quarter, 2025 Earning School. My name is Lydia and I'll be your operator today.
Lydia: After the bad remark, there'll be an opportunity to ask questions. If you'd like to participate in the Q&A, you can do so by pressing stuff followed by one on your telephone keypad. We ask that you please limit this to one question to give everyone the opportunity to take part. If you'd like to participate in the Q&A, you can do so by pressing the button.
Speaker Change: On our hand you over to Amber Wohlfarth, vice president of corporate affairs and investor relations to begin. Please go ahead.
Amber Wohlfarth: Good morning. Thank you for taking the time to join us for today's conference call and review of our business results for the first quarter of 2025.
Speaker Change: Joining us today are Brian Chambers, Owens Corning's Chair and Chief Executive Officer, and Todd Fister, our Chief Financial Officer.
Speaker Change: Following our presentation this morning, we will open this one hour call to your question. In order to accommodate as many call participants as possible, please limit yourselves to one question only.
Speaker Change: Earlier this morning, we issued a news release and filed a 10Q that detailed our financial results for the first quarter of 2025.
Speaker Change: For the purposes of our discussion today, we have prepared presentation slides summarizing our performance and results and we'll refer to these slides during this call.
Speaker Change: You can access the earnings press release, form 10Q, and the presentation slides at our website, OwensCorning.com.
Speaker Change: Refer to the Investors link under the corporate section of our homepage
Speaker Change: The transcript and recording of this call and the supporting sides will be available on our website for future reference.
Speaker Change: Please reference side two where we offer a few reminders. First, today's remarks will include forward-looking statements that are subject to risks, uncertainties and other factors that could cause our actual results to differ materially.
Speaker Change: Can 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 filing for more detail.
Speaker Change: Third, financial metrics for current and historical periods discussed on this call will be for continuing operations, except for capital expenditures and cash flow measures, which include amounts related to glass reinforcement until the closing of the sale of the business.
Speaker Change: For those of you following along with our slide presentation, we will begin on slide 4 and now opening remarks from our chair and CEO Brian Chambers. Brian ?
Brian Chambers: Thanks Amber, good morning everyone and thank you for joining us today.
Brian Chambers: During our call, I will provide an update on our overall performance in the first quarter, including some color on the operating environment we are navigating, as well as the progress we are making on our strategic priorities and actions being taken to position us for future success.
Brian Chambers: Todd will then provide a more detailed review of our quarterly performance, and then I'll come back and discuss our outlook for Q2.
Brian Chambers: Our team delivered another strong quarter to start the year, demonstrating the durability of our earnings and the power of the enterprise to outperform in any operating environment.
Brian Chambers: Our results continue to reflect the positive impact of the structural changes we have made to focus on Corning in high-value building product categories where we can build market leading positions for our unique commercial capabilities and discipline operation or execution.
Brian Chambers: As always, underpinning our performance is our ongoing focus on the safety of our people.
Brian Chambers: Our team's commitment to working safely resulted in a recordable incident rate for the first quarter of 0.54, which is 80% lower than the manufacturing industry average.
Brian Chambers: Our enterprise safety results now includes our doors business, which has been on a journey of continuous safety improvement. I'm pleased with how quickly our doors team has integrated the OC Safer Together operating framework to build on a strong safety culture.
Brian Chambers: Turning to other first quarter performance highlights, we delivered revenue of $2.5 billion, an increase of 25% year-over-year compared to the prior year's revenue of $2 billion.
Brian Chambers: Justin Debaton, the first quarter, told five hundred and sixty-five main, for an Justin Debaton margin of twenty-two percent.
Brian Chambers: This marks our 19th consecutive quarter, but delivering a juicity of a Dahl margins above 20% as we continue our track record of sustaining strong and resilient margins in any operating environment.
Brian Chambers: We also remain focused on our operating cash flow, delivering results in the quarter consistent with the seasonality we historically see to start the year.
Brian Chambers: Given the cash-generated power of each of our businesses through the year, we continue to fund high return organic investment [inaudible]
These phased investments in our roofing and insulation businesses.
Brian Chambers: Coming online over the next three years, we'll add needed capacity to support our long-term growth, as well as provide network flexibility with improved cost decisions.
Brian Chambers: In addition to these strategic investments, we've returned significant cash to shareholders who are dividend and share repurchases.
Brian Chambers: Looking to the broader building products market in North America and Europe , we enter in 2025 with a mixed environment.
Brian Chambers: Overall, demand for repair and remodel has remained challenged with the exception of non-discretionary re-roup activity, which has remained solid.
Brian Chambers: New Residential Construction, which accounts for about a quarter-wire enterprise revenue, started the year slower as the interest rates remain elevated.
Brian Chambers: And finally, our non-residential markets which account for about 20% of our business remain fairly stable overall.
Brian Chambers: Like all companies, we continue to evaluate and adjust to the impact of tariffs on our business.
Brian Chambers: Given the localized nature of our production to meet demand, and the fact that our products are USMCA compliant, we would expect to see modest direct impact from current tariffs.
Brian Chambers: Todd will provide additional information on potential impacts on our financial results and the mitigation actions we are implementing.
Brian Chambers: Against this backdrop, our first court of results once again demonstrated the strength of our businesses and resiliency of our earnings.
Brian Chambers: As we move through the year, we will remain focused on the areas we can control. Our customer share positions are operating cost and our capital allocation.
Brian Chambers: Regarding our longer-term organic investments to strengthen our market leading positions, we continue to make good progress on all fronts.
Brian Chambers: In roofing, we are on track to start up our laminate shingle production line in Medina, Ohio at the end of the second quarter to provide needed capacity to service our contractors and distributors.
Brian Chambers: And we are narrowing our site selection for our new single manufacturing plant in the southeastern US.
Brian Chambers: Both of these investments complement our broader effort to enhance native roofing capacity with the winning cost-positioned as we further modernize our U.S. roofing manufacturing network.
Brian Chambers: In inflation, we also made good progress on our major investments to meet residential and commercial
Brian Chambers: As we look to strengthen our flexible, cost-effective fiberglass network with a new line in Kansas City, expand our formula or XBS capabilities with our new facility in Arkansas, and improve our minimal manufacturing efficiency and capability by converting our plant and Sweden from co-part furnaces
Brian Chambers: And indoors, we are actively driving margin improvement in the near-term through our integration efforts, which are on track to exceed 125 million in cost synergies.
Brian Chambers: College, as we position the business for future growth by applying the broad Owens Corning
Brian Chambers: In addition to these growth investments, progress on our two strategic divestitures continued to track in line with our expectations to close both transactions later this year.
Brian Chambers: The sale of glass reinforcements in our building materials business in China and Korea allow us to streamline our operations and focus on geographies and applications where we can build market leading positions.
Brian Chambers: Show how we're reshaping the company into a branded building products leader and operating as a new Owens Corning, driving higher, working system returns, and long-term value creation.
Brian Chambers: Overall, our company is well positioned for future growth and performance, supported by key secular trends, including the age of existing US housing stock and the significant amount of homeowner equity.
Brian Chambers: The need for heightened investment in new housing capacity, and the continued strength in US commercial construction applications, and market opportunities emerging in Europe .
Brian Chambers: In summary, our strategic investments in decisions, combined with our discipline and operational execution, create multiple paths to drive organic growth, deliver 20% or more justity with DOM margins, and generate significant cash flow and strong returns.
Brian Chambers: Before I close, I'd like to highlight a few other important recognitions.
Brian Chambers: Last week, we announced the promotion of Rochelle Marcon to President of our doors business.
Brian Chambers: Most recently, she led our glass on moving business, which has delivered significant revenue and earnings growth for the company.
Brian Chambers: We are excited to bring Michelle's leadership capabilities and operational experiences to our doors business.
Brian Chambers: In addition, this quarter we published our 19th Annual Sustainability Report that highlights our efforts to keep employees safe, reduce greenhouse gas emissions and waste the landfill, and advance our portfolio of products that help customers save energy and lower emissions.
Brian Chambers: I'm also proud to share that Owens Corning was once again recognized by Behrens as one of the hundred most sustainable companies in the US, ranking fourth on the annual list, and showcasing the strength of our iconic brand in commitment to sustainable growth.
Brian Chambers: Finally, I would like to remind everyone that we will host our 2025 Investor Day on May 14th at our World Headquarters in Toledo, Ohio.
Speaker Change: Todd, myself and other senior leaders look forward to sharing more about our vision, strategy, and longer term financial goals for the new Owens Corning. With that, I'll turn it over to Todd.
Speaker Change: I'd now like to turn to slide five to discuss the results for the quarter. As a reminder, these results are for continuing operations.
Speaker Change: We started the year with revenue growth of 25% driven by the addition of our doors business. Adjusted EBITDA was $565 million, up 10% from prior year, and adjusted EBITDA margin was 22%.
In the quarter, adjusting items did not materially impact EBITDAH.
Speaker Change: Turning to slide six and moving on to our cash generation in capital deployment during Q1.
Speaker Change: Freakashflow for the quarter was a net outflow of $252 million driven by the timing of working capital from seasonality in the business and by capital additions.
Speaker Change: Capital additions for the quarter were 203 million, 51 million from the same quarter prior year.
Speaker Change: At quarter end, the company had liquidity of 1.9 billion, consisting of approximately 400 million of cash and 1.5 billion of availability on our bank debt facility. In Q1, we established a commercial paper program that completed issuance of 500 million of short term notes.
Speaker Change: During the first quarter, we returned $159 million to shareholders through share repurchases and dividends. We repurchased common stock for $100 million and paid a cash dividend, totaling $59 million.
Speaker Change: Our commitment to our capital allocation strategy remains focused on generating strong free cash flow, returning approximately 50% to investors over time, and maintaining an investment grade balance sheet, all while executing on our business strategies to grow the company.
Speaker Change: Now turning to slide seven, I'll provide additional details that are segment results [inaudible]
Speaker Change: As a reminder, the roofing segment now includes our vertically integrated glass nonwoven business and our structural lumber business.
Speaker Change: Additionally, the two glass fiber plants that supply non-woven and external customers now operate in the installation segment.
Speaker Change: The roofing business started the year delivering a great first quarter as demand for our shingles remains strong. Sales in the quarter were 1.1 billion, up 2% from prior year on a like for like basis.
Speaker Change: Positive price realization for previous announcements in strong demand for our non-woven products more than offset the impact of lower components volumes due to normalize attachment rates.
Speaker Change: We expect Q1 to be the last quarter of a negative year-over-year comp from attachment rates.
Speaker Change: The U.S. asphalt shingle market on a volume basis was down slightly compared to the prior year. Lower demand in areas of the country impacted by winter weather was largely offset by growth in the southeast.
R. U.S. Single Volume was in line with the market
Speaker Change: Evidada was $332 million for the quarter, down slightly versus prior year. We saw higher manufacturing cost as we continued to invest in our assets to meet the high level of demand for our products and absorb the cost of maintenance.
Speaker Change: We also saw modest cost inflation. Overall for the quarter, we delivered EBITDA margins of 30%.
Speaker Change: Now please turn to slide 8 for a summary of our installation business.
Speaker Change: The installation business started the year strong, expanding margins in delivering its 16th consecutive quarter of 20 plus percent EBITDA margins.
Speaker Change: In North American non-residential, volume was down, inline with the market. In Europe , volume was relatively inline with prior year, as we've continued to see market stabilization. These businesses both recognized positive price in the quarter.
Speaker Change: Installation EBITDA for the first quarter was $225 million of slightly compared to prior year. Strong operational performance in the quarter resulted in favorable manufacturing cost.
Speaker Change: As expected, we incurred input cost inflation but maintained a positive price cost for the business overall. Installation delivered EBITDA margins of 25% in the first quarter.
Speaker Change: Moving to slide 9, a provided overview of the doors business.
Overall, the business performed well in a challenging market.
Speaker Change: In the quarter, the business-generated revenue of $540 million in line with the outlook we provided on our last call, revenue was down modestly from Q4 primarily on lower volume in North America and Europe .
Speaker Change: Yvodah for the quarter was 68 million with the Yvodah margins of 13%.
Speaker Change: The integration is progressing very well. When we close in the acquisition, we had line of sight to deliver you 125 million of enterprise synergies by the end of year two, with about half hitting the doors business. We are on track to exceed the enterprise commitment that we'll share more at our upcoming investor day.
Speaker Change: Overall for the company, there was minimal impact from tariffs on our financial results in Q1.
Speaker Change: Our sourcing and supply chain teams responded immediately to the tariff announcements and focused on negotiating with our suppliers, shifting sources of supply and purchasing additional inventory out of tariffs.
Speaker Change: As a result, we expect to reduce the approximately 50 million gross tariff exposure in the second quarter to a net impact of around 10 million, primarily in the doors business.
Speaker Change: This impact is included in the outlook Brian will share in a moment.
Speaker Change: Owens Corning is well-positioned to address rising tariffs with our primarily local for local manufacturing and US-MCA compliant product portfolio, but we would expect to step up in net tariff exposure in the second half of 2025.
Speaker Change: The net impact of tariffs in the second half of the year could be in the range of one to two percent of cost of good sold, assuming current tariff policies.
Speaker Change: Moving on to slide 10, I will discuss our full year 2025 outlook for key financial items.
Speaker Change: As a reminder, our corporate eliminations changed with the resegnetation. The 39 million in revenue eliminations we saw in Q1 should serve as a good proxy for the remainder of the year.
Speaker Change: Capital additions are expected to be approximately 800 million. This level of capital investment reflects the strategic investments Brian mentioned in his opening. We have several multi-year organic investments to bring on new manufacturing capacity and drive long-term growth. This CAPEX continues to include glass reinforcements.
Speaker Change: We expect CapEx to remain elevated in the near-term as we work towards completing the high-return, capital-efficient projects we've discussed on this call. Now please turn to slide 11, it'll turn the call back to Brian to further discuss our outlook. Brian ?
Speaker Change: Thank you, Todd. Our first quarter results highlight the impact of the structural changes and strategic choices we've made to generate higher, more resilient earnings within very dynamic
Brian Chambers: As we move through Q2, we expect our building products and markets in North America in Europe to provide solid but mixed opportunities.
Brian Chambers: North America, we expect near-term demand for non-discretionary review activity to remain solid. While residential new construction and other remodeling activity is expected to remain weaker through the first half of the year, as interest rates remain elevated and consumers remain cautious.
Brian Chambers: With non-residential construction in North America, we're starting to see some market headwinds emerge, but in Europe we expect market conditions to gradually improve throughout the year.
Brian Chambers: Given this near-term outlook, we anticipate second quarter revenue for continuing operations to grow high single digits compared to prior year's revenue of 2.5 billion.
Brian Chambers: For Adjusted Ubita, we expect to deliver another strong quarter with margins in the low to mid-20% range for the enterprise.
Brian Chambers: Now, consistent with prior calls, I'll provide a more detailed business specific outlook for the second quarter.
Brian Chambers: Earlier this week, we provided updated historical financials that reflect the re-segmentation by quarter for 2024, which serves as the baseline for the year-over-year changes I will discuss.
Brian Chambers: Starting with our roofing business, we anticipate revenue growth of low single digits.
Brian Chambers: While demand for shingles remains solid as we enter peak roofing season, we expect armor market shipments to decline by low to mid-single digits compared to prior year due primarily to more normalized storm demand.
Brian Chambers: We expect our single volumes to track largely in line with the market.
Brian Chambers: We anticipate normalize attachment rating components with growth in non-woven to partially offset lower single binds.
Brian Chambers: Compared to Q2 of last year, rich by tire manufacturing cost as we invest in our assets to continue to meet the high level of demand for our products and absorb the necessary maintenance costs. We also anticipate moderate cost inflation during the quarter.
Brian Chambers: For the business, we expect positive price from our previous announcements to drive you over your top line growth and positive price cost.
Brian Chambers: Overall, for Rooping, we expect to generate an Eva-Dah margin slightly below prior year.
Brian Chambers: Moving on to our insulation business, we anticipate revenue to decline mid single digits compared to the prior year, with ongoing price realization slightly offsetting lower vines and current
Brian Chambers: In our North American residential inflation business, we expect revenue to be down low to mid-Keens versus prior year, due to lower demand as we work through a step down light housing starts and customers adjust to ongoing market uncertainty.
Brian Chambers: For North American non-residential, we expect revenue to remain relatively in line with prior year, driven by steady demand for our products.
Brian Chambers: Overall, for the Inflation Businesses Quarter, we expect cost-inflation to be offset by positive pricey.
Brian Chambers: Given all this, we expect EVA-Dahl margin for insulation near the mid-20% range.
Brian Chambers: Turning to our doors business, we continue to perform well relative to market conditions and expect Q2 revenue to increase low single digits sequentially, driven by slightly stronger seasonal demand.
Brian Chambers: Additionally, we anticipate ongoing synergies and cross-controls to largely offset the impact of announced tariffs. In the near term, doors faces the most tariff exposure due to cross-border product moves into Canada, which we are actively working to mitigate.
Brian Chambers: Overall for doors, we expect even Dom Margin in the low double digits to low teams for the quarter, similar to Q1.
Brian Chambers: Todd mentioned another factor that could impact our enterprise results in Q2 is the implementation of additional tariffs.
Brian Chambers: While most of our products are made with local materials, installed in local markets, our Integrated Supply Chain spans Canada, Mexico and the US, which could result in additional costs.
Brian Chambers: In summary, our team continued to deliver strong results in the first quarter, within a very dynamic marketing environment. As we progress through the year, we will remain focused on delivering value to our customers and shareholders, as we invest a further strength in Owens Corning as a building products leader.
Brian Chambers: We are well-positioned to capitalize on key secular trends that provide significant long-term growth opportunities for our company.
Brian Chambers: Although we anticipate mixed near-term market conditions, we are confident in our ability to continue outperforming the market.
Brian Chambers: With that, we would like to open the call up for questions. Thank you very much.
Speaker Change: Thank you. Please press star follow by the number one if you'd like to ask a question and ensure your devices are muted locally when it's your turn to speak.
Brian Chambers: A kind reminder to please them if you have to one question I need.
Speaker Change: Our first question today comes from Michael Rehaut with JP Morgan. Please go ahead, your line is open.
Thanks, good morning everyone, thanks for taking my questions.
Michael Rahout: I think there's some concern in the marketplace with some of the...
Scheduled Capacity Editions in the Inflation Section, sector, rather.
Michael Rahout: over the next few years to two years and I was hoping if you could kind of review not just your plans but maybe more broadly the industry as you see it today particularly as you know at least for the last few years you know single family starts have been
Good morning, Mike. This is Todd. I appreciate the question.
Michael Rahout: Let me start with a little bit of context about where we're at overall with capacity.
Michael Rahout: We clearly have seen the canoff line in McGregor, Texas, come online and we're seeing that capacity even now in the market. We've seen other competitors announce capacity that will come online in future years. [inaudible]
Michael Rahout: It is important an installation to differentiate between capacity that produces bats and rolls, and capacity that produces loose fill.
Michael Rahout: Bad & Roll capacity is what analysts typically think of when they think of insulation capacity.
Michael Rahout: These tend to be larger assets. They tend to be assets that you run consistently. You can't turn them on and off frequently. Loose fill assets are very different. Loose fill assets you can turn on and off as needed to meet market demand.
Michael Rahout: We've said historically we thought the insulation industry could support a market between 1.4 and 1.5 million starts depending on single family mix depending on codes growth depending on other factors.
Michael Rahout: We also know that over time, consistently, Code's growth is driven greater volume per unit for residential housing, increasing demand. And the third thing we know is that housing in the US has been underbuilt now for well over a decade.
Michael Rahout: Long-term we do see a rising need for insulation materials.
Michael Rahout: In a short run, the market will bounce around. We do know this is an industry that has a wide range of cost structures. Some assets are very cost effective. Other assets are less cost effective. [inaudible]
Michael Rahout: We and, you know, presumably other manufacturers continue to work through how they balance capacity to supply in any market condition that we're in. But long term, we continue to see North America housing as being underbuilt.
Michael Rahout: and the secular demand for translation to be good and provide support for environmental capacity additions.
Thank you, bye [inaudible]
Speaker Change: And next question comes from John Lovallo, would you be asked? Please go ahead
Speaker Change: Thank you, John . This is Todd. I'll take that one as well. When you look at the shape of pricing last year and this year, we did have a mid-year increase in 2024 that got a good traction for residential insulation.
Speaker Change: That grow pricing in the back half of last year, but then also into the first half of this year is we have a good year on your comp. We're certainly watching a market dynamics very closely in res.
Speaker Change: to make sure we're staying on top of share positions and where we're placed.
Speaker Change: But certainly in the second half, we still benefit from that favorable year on your come and when we got the price increase last year.
Speaker Change: You have certainly seen analyst reports that suggest limited uptake on the 2025 increase.
Speaker Change: And that's certainly consistent with what we're seeing in the market. But as you saw in the first quarter, we did have positive price and even in the second quarter, we're guiding overall for positive price in the installation segment. Thank you, John .
Stephen Kim: Next in queue, we have Stephen Kim with Evercore ISI. Please go ahead.
Hi, this is a T Sean Ferris-D, thanks for taking a question.
Atish Shanforski: I just want to touch on some of the tariff exposures that you spoke to. Specifically, what mitigation efforts will be used to kind of offset the impact in 2Q and in the backpast, mostly pricing, and I'll have to get you to expand on that a little bit and that'll be helpful.
Speaker Change: Thanks to T-Shall, I'll take that one as well. Let me go back to what we shared on the last call on tariffs and then bring it forward to the guidance and then the mitigation actions.
Speaker Change: So in the last call, we shared that we thought less than 5% of our total cost could be impacted by tariffs.
Speaker Change: We also said it would disproportionately impact our doors, business, with about two thirds of the impact of an installation, with about one third of the impact, with little net impact on roofing.
Speaker Change: Since then, we've seen a couple things move around, is Brian Shared and is prepared comments.
Speaker Change: We've got a lot of good movement that occurs between the US, Canada, and Mexico. The good news is our products are largely USMCA compliant, so those tariffs are no longer impacting us.
Speaker Change: We also, though, saw higher tariffs on Chinese imports, which are now around 145% which is higher than what we knew of on the last call.
Speaker Change: So when we look at the shape of the quarters and the impact in our mitigation efforts, we saw very little impact in the first quarter from tariffs and the results that we just shared.
Speaker Change: In the second quarter, we expect to see a 50 million of gross tariff impact.
Speaker Change: But when we look at all the mitigation steps that we've taken in all the color on that in a minute, the net impact is down to about 10 million. And that's mostly in the doors business.
Speaker Change: Now what did we do to go from 50 million of gross to 10 million of net exposure?
Speaker Change: Our sourcing and supply chain teams stepped in immediately on the announcement of the tariffs to do a few things.
Speaker Change: Where we could, we positioned inventory in the U.S. in advance of the tariffs taking effect.
Speaker Change: We also did other things. We worked with our suppliers where possible to reduce the impact of tariffs on us.
Speaker Change: We're also seeking sources of supply outside of China. Obviously we're China at 145% tariffs.
Speaker Change: That's a big number on anything we're importing from China, so we're doing what we can to offset that. So with all of those moves, some of which are longer term. The work we're doing to move.
Speaker Change: Supply out of China, the work that we're doing in negotiation with our suppliers. That tends to be longer term. The work to position inventory in advance of terrorists is clearly a short term. So when we got to the back half of the year.
Speaker Change: You can think of the high end of that range that the 2% number is being our current mitigation plans tracking into the back half of the year.
Speaker Change: You can think of 1% as being, we do additional mitigation steps, everything I described, as well as working in Canada to address some of the reciprocal tariffs that we're still facing in our doors business.
Speaker Change: We're looking very closely at our own supply chain and product portfolio to make sure we mitigate a tariff exposure. We're looking at all of that to try to offset
Speaker Change: is much of the gross tariff exposure as we can in the back cap, but those are plants in progress, which is why we got into that one to 2% range.
Speaker Change: So clearly it's a dynamic environment, tariffs could move before the next time we connect on our next call.
Speaker Change: But our teams have proven over the last five years through very dynamic market conditions, whether it's COVID, whether it's supply chain challenges, whether it's inflation, whether it's now the terror scenario, that we react very quickly to address this.
Brian Chambers: in Brenner, both very proud of what our teams are doing and this environment to deliver the lowest cost we can. Thank you.
Speaker Change: And next question, comes from Brian Biros with Thompson Research. Your lines open, please go ahead.
Hey, good morning. Thanks for taking my question.
Speaker Change: How are you thinking about balancing taking market share versus defending margins in the current environment of rising prices and trying to pass on price increases into the challenging market conditions that are out there? Thank you.
Speaker Change: Thanks, Brian . I think we continue to operate with the same playbook in terms of how we always balance pricing share. We want to invest in the items that can bring value for our customers and help them winning ground market. We make investments in innovation and marketing tools, our brand, our commercial teams.
Speaker Change: All that helps them grow their businesses that results in a value that then we can charge for our production to the market. So we continue to be value focused in terms of bringing more to our customers that they want to partner with us and do more business with us.
Speaker Change: When we come into environments that we start to see demand challenges or we start to see pricing pressures, we clearly are going to want to
Brutane and Main-Jane Arkham Pettinari in the market.
Speaker Change: The most of our product categories, we are able to maintain some price premiums relative to that value we bring over other manufacturers and we look to maintain that but we are going to be competitive in the market to the market dynamics we're facing and then we continue to work the value side with our customers and we continue to work the cost side internally to make sure we're optimizing our network we're sourcing in the best way and we are being the most efficient with a winning cost position that allows us to flex our pricing [inaudible]
Thank you.
Speaker Change: And that's generally been our philosophy in all economic conditions and that's one we certainly are going to continue and the playbook we're going to continue to run in the market conditions we're facing here in the near term.
Matthew Booley: The next question comes from Matthew Bouley with Art Police. Please go ahead.
Matthew Booley: Hey, I'm morning everyone. Thank you for taking the question. I wanted to follow up on the insulation capacity side.
Matthew Booley: in the context that you guys in the past have been really disciplined and I would say flexible around capacity, it's not easy to do but you both...
Matthew Booley: Open Dan Closed to pass the where it's right to do so over the years so I wanted to kind of press on your thoughts around being flexible with capacity decisions here.
Matthew Booley: I guess not knowing how your competitors may act, but I guess at what point would you make a decision to adjust your capacity investments?
Matthew Booley: or are there other higher cost facilities in the network today, or lines where you could be more flexible? So really what I'm asking is kind of what is the risk of the industry becoming over-capacitized for a period? Thank you.
Speaker Change: Thanks, Matt. I appreciate the question. Let me add a bit more color here and let me step back.
and say, we've...
Speaker Change: We've made a number of operating choices and strategic choices in the installation business over the last five years to position our business for.
Speaker Change: The work to build a more flexible network, including the accident of our Santa Clara facility and the addition of a much more flexible facility in Nephi to support the West Coast.
Speaker Change: So, we believe we're well positioned to deal with a market like this. We're also entering this market environment with low inventories. We've been largely in sold out conditions and our installation business for an extended period of time.
Speaker Change: So we're in a position where we would seek to rebuild our inventories to better serve our customers going forward and this market condition allows us actually to do that that positions us better for both customer service and future growth coming out of this.
Speaker Change: We're always very disciplined about understanding the market, understanding our inventory levels, understanding how we want to be positioned as I alluded to earlier. We continue to have high cost and low cost assets within our network. We continue to have high cost assets within our network.
Speaker Change: In markets like this, there's always opportunities to make sure low cost assets continue to operate and produce and we mix manage on the cost side to have the most cost effective network that we can.
Speaker Change: That's our plan going forward. What I would say is, certainly we're in two quarters now of relatively weak leg starts.
Speaker Change: But this also is a market that can change quickly as we think about the future. So we want to make sure we're well positioned not just for today, but to serve our customers very well in what could be a strengthening market in future quarters. Thank you.
Thank you.
Speaker Change: And next question comes from Sam Reid with Wohlfarth Goh, please go ahead [inaudible]
Sam Reid: Thompson, thanks so much. I actually wanted to drill down a little bit on insulation just to keep on that topic. But you can segregate the pricing that's embedded in your guidance for Q2.
Speaker Change: Specifically between Resi insulation and commercial and market insulation. It sounds like overall price is going to be positive based on what you're telling us. But are there any deviations between expected pricing on the Resi side versus the non-Resi side that we should be contemplating here? Thanks.
Speaker Change: I appreciate the question. I'll add a bit more color on our Q2 outlook. Let me start with our non-rests in Europe piece of the business.
Speaker Change: which actually now is the majority of our business and installation. We're seeing good pricing dynamics in both of this markets.
Europe has been a relatively weak market overall for cancellation. [inaudible]
Speaker Change: for Europe . We're also seeing a good price environment for our products in Europe .
The same thing is true in non-res for North America.
Speaker Change: We're seeing a good backdrop for our products. It certainly is an inconsistent market in North America. There are pockets of real strength in manufacturing, partially as a result of ensuring, but also in sectors like data centers that continue to be robust. [inaudible]
Speaker Change: Both of the sectors use a lot of our installation, not just for the buildings, but also for the process technologies that occur within those structures.
Speaker Change: But there are pockets of weakness also in in res around retail and in some other areas of commercial and in health care. But within that backdrop, we're still seeing positive price in non res for the American and constructive price environment. [inaudible]
Speaker Change: Within Rez is a shared earlier, we are seeing carry-over price from the mid-year increase.
Speaker Change: Now some of that is the comp that we do have an easier comp against Q1 and Q2 S year where we don't have a price increase in that number. The comp gets harder as we get into Q3, Q4 when we start to laugh that increase.
Speaker Change: and we did not see a lot of traction on the 2025 price increase that was in market.
Speaker Change: So we're not guiding the Q3, Q4 today, but certainly we're considering that as we look at the back half of the year and we're following starts and like starts very closely to understand pricing dynamics in the res market.
John Lovallo, John Lovallo, John Lovallo, John Lovallo,
Speaker Change: The next question comes from Philip Ng with Jeffrey, your lines open.
Speaker Change: Thank you. We're going to take a short break. We'll be right back.
Philip Ng: Hey guys, a question for Brian , I mean a lot of focus on insulation and doors.
Speaker Change: Give us an update on what you see on the roofing side. It sounds like demand, you know, pretty resilient there. Give us some color on and care, we're stormed a man in any storm activity this year, and certainly you got a price increase out there. The roofing for spring, you see any traction in that.
Speaker Change: and just lastly, on the Medina ramp, how should we think about that impact, you know, whether it's a main standpoint or any headwinds from a startup cost standpoint, sorry, a lot of impact here for sure.
Speaker Change: and needed out there in the work that's still being done. So overall, good demand, and we think that continues into Q2 here. Around storm vines, if I kind of break that out, we talked on the last quarter's call that we were coming into the year with a little less carryover than the prior year, but still good carryover from some of the storms that were taking place in the back half of last year. We saw some of that materialized in terms of stronger demand in Florida, North Carolina as they continue to do that storm repair work.
Speaker Change: We think a lot of that gets done here through the second quarter, a little bit of that carries over into Q3.
Speaker Change: When we think about Q2 now, in terms of overall opportunity, in terms of the market, we think repair work that's ongoing is strong. Contractor backlogs are still pretty strong in most parts of the country, so that's underlying repair and reboot business is staying pretty solid.
Speaker Change: First storm to man in the Q2, we're just kind of coming into the season, but we've seen a pickup in some activity here over the last few weeks.
Speaker Change: So a big part of our guide when we say Q2 could be downloading it single digits is really going to depend on how the storm season materializes [inaudible]
Speaker Change: Q2, Q3 is where we see the bulk of the storms coming through the U.S. market, but we're assuming in our guide a more normalized kind of Q2 storm environment, but that could change and fluctuate here over the next four, five weeks.
Speaker Change: Dependant on how hail season materializes and any other kind of storm damage we see. But I think we're set up relatively well in terms of how we're positioned in the market.
Speaker Change: And then lastly, I'm Madinah, this is one we're really excited to be bringing up this new capacity.
Um...
Speaker Change: The laminate growth we've seen in the market and the laminate growth we've seen inside our business over the last few years has exceeded our ability to even continue to optimize and expand capacity on our existing what will. So this will be a new laminate line that we're going to be starting up at the end of the second quarter. We're excited to bring that capacity online here, starting kind of Q3 and really ramping up through Q3 and Q4 to service our customers with additional land products.
Speaker Change: Part of the operating cost and some of the manufacturing costs that are a little higher as we came into the year we talked about this as well on last quarter's call that we did expect to see a step up and some of the manufacturing costs in the business.
Thank you. Bye-bye.
Speaker Change: and set up in two buckets. One was ongoing maintenance of existing assets that we just continued to run our assets full out. And we needed to just take some downtime here in the first half of the year to make needed just updates and modernizations and service that equipment. And then the second part of it is going to be tied to some startup of some new assets. And Medina is one of them. So that is going to create a little bit of a manufacturing cost headwind here in Q2, probably spillovered Q3 as we start that line up.
Speaker Change: But the teams have done great work to bring that asset in line. We're on track to start that up at the end of the quarter and we're excited to bring some needed capacity into the market.
Mike Dahl: And next question, today comes from Mike Dahl with RBC Cup to market. Your land's open.
Mike Dahl: Morning, thanks for taking my question. I guess I'll stick with Roofing, but maybe brought a little bit. Can we talk about non-tariff related?
Pass on the input side, obviously, okay, it's good things like you're absorbing some-
Speaker Change: Some higher cost maybe in 2Q, but you've seen a big decline on Wohl, you've seen some pullback in natural gas.
Speaker Change: Walker through the timeline and magnitude of how that may impact roofing and then in your insulation business, maybe how to pull back in natural gas, who would impact you as we look at it over the next couple quarters.
Yeah, thanks.
Speaker Change: So when we look over all the inflation we're seeing inside roofing business, you know, big buckets are one large...
Mitchell input cost, Big Bucket is always been asphalt. [inaudible]
Speaker Change: Right now, we've not seen some penny dramatic decreases coming through related WTI oil cost reductions and I think when we look inside of that
Speaker Change: We've seen some of the asphalt market pricing disconnect from WTI over the last couple of years. Part of that is because with lighter croods being processed, there's less asphalt being done, so it's less sensitive. And asphalt inventory levels have actually been running pretty low over the last 12 months, so we've not seen any of that WTI costs.
Speaker Change: and really impact the asphalt cost in a significant way. Now, having said as we come through the year, if oil costs stay low, that's going to keep our asphalt costs running at similar levels. So we would probably see a little bit of seasonal inflation as we worked through the year, but not as high as we've seen in some historical years. So I think that could be a net positive in terms of moderating asphalt inflation as we move through the year depending on what WTI does.
Speaker Change: on in terms of that gas we lost Todd to talk a little bit about that in terms of impact and installation.
Todd Fister: Sure, Brian , happy to. Mike, when we look at natural gas, clearly we're seeing a volatile market right now, is liquefied natural gas exports and the effect of tariffs on that starts to to make its way through the market. Good.
Todd Fister: We do hedge on a go-forward basis, so some of any benefit we would see in a decline in natural gas.
Todd Fister: and then also would roll into next year as we think about those hedge positions just changing over time.
Todd Fister: So there could be some impact. We don't think it's a really big impact based on where the markets are today but we are following the cost closely.
Speaker Change: My next question is from Trevor Allison with Wohlf Research. Your lines open, please go ahead.
Good morning. Thank you for taking my question.
Speaker Change: Todd, I want to follow up on your comments on tariff mitigation. You mentioned several strategies, but I didn't hear you mention price. Last year in doors, you guys took some price adjustments and channels. So, is it your expectation that you don't use price as a primary offset and perhaps you can talk about the current main environment indoors and how that may be playing a role in that decision? Thanks.
Speaker Change: Yeah, maybe I'll jump in on this one Trevor. I think overall we look at a lot of mitigation strategies when it comes to offsetting the impact of tariffs. And we lean hard on optimizing our supply chains in terms of where we're sourcing what types of materials suppliers are working with.
on up for our company. [inaudible]
Speaker Change: in terms of the material cost, supply choices and changes that we can make inside our supply chain. So it's certainly not an option that's off the table but it's one that we try to utilize several other levers in that space to mitigate the operating cost.
Speaker Change: We have used that and looked at that in the past. When I look at the doors business overall, again, part of this is also determining, you know, the long-term nature of these costs increases.
Speaker Change: So in the near term, these are near-term impacts. We want to offset them through the mitigation factors and efforts that Todd talked about. If we see long-term cost rising because of more permanent tear being put in place or changing how we can produce our products [inaudible]
Speaker Change: than Price is always an option. In doors, the biggest impact right now is coming through with some of the retaliatory tariffs on interior doors. We're shipping into Canada to serve our customers there. Some of that has been rolled off. Canada put those in place when the U.S. announced the initial 25% tariffs on all products.
Speaker Change: They've sensed roll back many of those products that are being impacted by that. We're in active discussions.
Speaker Change: with Canadian officials, and we hope to get doors included and interior doors included in the next round of roll-offs, so then that would not require us to make any pricing moves around that. We would return back to just USMCA compliant materials flowing across borders, and then we would stabilize our cost position, and that's our hope that we get that resolved in a constructive way that we don't require price to have to offset any of the impact going forward.
A next question.
comes from Susan Maklari with Goldman Sachs, please go ahead.
Thank you. Good morning, everyone.
Speaker Change: and then a big part. The rest of that really tied to sourcing supply chain synergies that we've seen come through. So as we continue to make progress on those fronts.
Speaker Change: We're finding a little more opportunities on the sourcing side that gives us confidence that we can achieve the 125 main and we'll talk more about that at our investor day next week.
Speaker Change: We're also in early innings looking at the network overall, the network optimization and we've got a very good track record inside our company of looking at manufacturing networks.
Speaker Change: and really looking at how best to optimize those to still meet customer demands around service and quality and capabilities to meet their needs, but doing that in a very cost effective and efficient way. So we're just getting started really with that work, but we see additional opportunities around the network optimization side to drive even more on the cost energy front.
Speaker Change: So I think we're set up well there. Now unfortunately a lot of this work.
Speaker Change: I'm benefiting the P&L. They're getting really offset by now some of these chairs. So we think as we work through the year, we're going to continue to be able to deliver more to the bottom line.
Speaker Change: But then as a reminder, just when we set up that 125 and some of the increases we're seeing, that's roughly split about half and half between what's going to materialize inside the doors P&L and then what gets materialized across the enterprise.
Speaker Change: But we do expect that it's going to continue to generate a positive impact on our cost structure in the doors business going forward. We see some more opportunities that we can work in the near term to drive the margin improvement.
Speaker Change: and then the last thing to say is we really are getting more and more confident, too, [inaudible]
Speaker Change: We're setting up now with a more optimized cross structure in the business where we start to see volumes come back with a stronger market.
Speaker Change: The accretive margins that we can generate off of these gains are going to be much better than and historically been done in the business. And we think that's the upside ramp up where we get a little bit of volume leverage that generates additional margins for the business.
David McGregor: And next question comes from David McGregor with Longbow Research. Please go ahead.
Speaker Change: Hi, good morning. This is Joe Newell, and I'm for David, and thanks for taking my question. You guys are guiding the positive price cost in the second quarter. I was just hoping you could talk through on a higher level about some of the puts and takes the higher thinking about price cost into the second half of the year. Thanks.
Thank you. Thank you. Thank you.
Speaker Change: Make them back a little bit to my comments earlier. I think when we again always look to balance.
Speaker Change: The price points in the market relative to the man, relative to the value we're getting, but across our product categories.
Speaker Change: You know, we've purposely chosen high value product categories where we can build out a premium through our commercial activities around brand growing with our customers around innovation strategies so we really look at how we can continue to invest and drive value that translates into price.
Speaker Change: and get that price recognition into the market. So that's kind of our natural operating philosophy. And so the high value product categories we're in, where we can bring that value, we're able to see price. Now we're always going to be reacting to market dynamics, but we feel that we've got a great long term strategy to maintain a price premium in the market. [inaudible]
when it comes to cost. [inaudible]
Speaker Change: We take an equal view around making sure we're getting up every day focused on how we can optimize our operations.
Speaker Change: And we look at this across our op-ex, we look at this across our manufacturing network, we look at this across our sourcing and supply chain teams
Speaker Change: So we are continually looking at how we can balance our production network and how we can drive cross efficiencies across the company. And it's that kind of one two punch around how we look at premiums that we can gain through value creation by helping our customers win and grow with a more optimized cost structure. And so that's always our balance but we take a long term approach to our market positions, we take a long term approach to our customer partnerships.
Speaker Change: So we're gonna always navigate through some of the quarterly choppiness between pricing costs, but over time we feel that we are helping our customers.
Speaker Change: We're bringing them innovative products. We're bringing them quality products that we're going to get a price premium. And then we're always going to walk on the cost efficiency side to make sure we can maintain that winning cost position moving forward. [inaudible]
Thank you.
Speaker Change: The next question comes from Rafe Dragresich, with Bank of America, your lines open, Keith go ahead.
Hi, good morning, thanks for taking my question [inaudible]
Speaker Change: I just wanted to follow up just on the roofing margins in the second quarter. You're guiding for it to be down a little bit. You're over here.
Speaker Change: but it sounds like volume's pretty consistent and you have positive price costs.
Speaker Change: Can you quantify the start-up costs or maintenance that we should expect kind of in the first half and into their quarter? And then excluding those, would you have expected margins to grow your rear?
Speaker Change: of what we're expecting here in Q2. And in your right, it's really kind of a temporary step up we're seeing in some of these costs as we take needed maintenance and downtime on the manufacturing lines to service them. We're going to continue that in the Q2 on a couple of factories.
Speaker Change: And then we've got some of the start across coming at us as I talked about. We started seeing Q1, we expected seeing Q2, Q3 as we ramp up Medina. So that's probably going to be a good guide in terms of what we would expect carrying on in Q2. But that's really the delta between the margin performance year on year. It's not in price, volume, mix, the strength of the business is still performing at that same level. But we're just seeing a little bit more manufacturing had been sitting us here in the first half. [inaudible]
John Lovallo, John Lovallo, John Lovallo,
Michael and your line, Nathan.
Speaker Change: Sorry about that. Thank you for taking my questions. In the door outlook, you noted that you're performing well relative to the market. Can you give a little bit more color on what the market's doing either sequentially or year by year and sort of the drivers of that performance? And then why do you expect sort of a norm better than normal season will step up into the language called out in the outlook as well? I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Yeah, thanks. So, we are...
Speaker Change: You've seen some demand, headwinds coming into business that we've talked about, but overall you have a business continues to perform well. We're seeing the clients tied to, as we talked about in our Resenthalation business, some weaker light housing starts coming through, and some pretty sluggish remodel sales coming out. So on a net net basis, I think we're getting hit by both slower housing starts and less investments in the remodel markets.
Speaker Change: Overall, though, I'd say our wholesale distribution business, probably, which is a little bit more towards new construction, is being a little more impacted than our retail business, where it's a little bit more tied into repair and remodeling, so while we're still seeing some volume headwinds.
Speaker Change: We've seen those kind of start to stabilize a little bit here as we start the year.
Speaker Change: We're expecting that to play out this year's similar, but at a lower pace I would say we are expecting year-over-year vines to be down, but we're seeing that order book kind of steady out and then we would normally expect to see a modest pick up here as we get into more construction activity in the second and third quarter and that's really driving our outlook for a slight seasonal uptake.
Speaker Change: Thank you. We have no further questions in queue, so I'd like to turn the call back over to Brian Chambers for any closing comments.
Brian Chambers: All right. Thanks, Lydia. And 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 hope to see many of you at our investor day next week in Toledo. Thanks and have a great day.
Brian Chambers: This concludes today's call. Thank you very much for joining. You may now disconnect your line.