Q3 2025 Owens Corning Earnings Call
Speaker #1: Hello everyone , and welcome to Owens Corning . S third Quarter 2020 five Earnings Call . My name is Lydia and I'll be your operator today .
Speaker #1: After the prepared remarks, there will be an opportunity to ask questions. If you'd like to participate in the Q&A, you can do so by pressing star, followed by one on your telephone keypad.
Speaker #1: We kindly ask that you limit yourself to one question and then return to the Q for any follow ups to give everyone the opportunity to participate .
Speaker #1: I'll now hand you over to Amber Wohlfarth Vice President , Corporate and Investor Relations , to begin . Please go ahead .
Speaker #2: Good morning . Thank you for taking the time to join us for today's conference call in review of our business results for the third quarter of 2025 .
Speaker #2: Joining us today are Brian Chambers Owens Corning Chair and Chief Executive Officer . And Todd Fister , our chief Financial officer . Following our presentation this morning , we will open this one .
Speaker #2: Our call to your questions . In order to accommodate as many participants as possible , please limit yourself to one question only . Earlier this morning , we issued a news release and filed a 10-q that detailed our financial results for the third quarter of 2025 .
Speaker #2: 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 .
Speaker #2: You can access the earnings press release form 10-q and the presentation slides at our website , Owens Corning . Com refer to the investors link under the corporate section of our homepage .
Speaker #2: A transcript and recording of this call and the slides will be available on our website for future reference . Now please reference slide two where we offer a few reminders .
Speaker #2: 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 #2: We undertake no obligation to update these statements on what is required under applicable securities laws . Please refer to the cautionary statements and the risk factors identified in our SEC filings .
Speaker #2: For more detail . Second , the presentation slides in today's remarks contain non-GAAP financial measures . Explanations and reconciliations of non-GAAP to GAAP measures may be found in our earnings press release and presentation .
Speaker #2: Available on the investor section of our website , Owens Corning . Com . Third , financials and metrics for current and historical periods discussed on this call continuing operations except for capital expenditures and cash flow measures , which include amounts related to glass reinforcements until the closing of the sale of the business .
Speaker #2: For those of you following along with our slide presentation , we will on slide four . And now , opening remarks from our chair and CEO , Brian Chambers Brian .
Speaker #2: begin
Speaker #3: Thanks , Amber . Good morning , everyone , and thank you for joining us today . During our call , I'll provide an overview of our third quarter results and our work to continue outperforming the market in the near term .
Speaker #3: While investing to strengthen and grow our company for the future . Todd will then provide more detail on our financial performance , and I'll come back to discuss what we're currently seeing in the market and our outlook for the remainder of the year .
Speaker #3: In the third quarter , we delivered
Speaker #3: solid results despite challenging market conditions , demonstrating the strength and agility of our team and the power of our operating model . Because of this , strategic choices and structural improvements we have made .
Speaker #3: new Owens Corning continues to operate with greater efficiency , outperforming The prior cycles . I'll share more about our financial performance in a moment , but first , I'll begin with safety .
Speaker #3: In October , we celebrated our annual manufacturing Appreciation Month , which includes recognizing our teams for their unconditional commitment to safety as they produce the high quality products our customers rely on .
Speaker #3: That ongoing commitment was reflected in our third quarter safety performance , where our recordable incident rate was 0.56 . Financially in the quarter , we generated 2.7 billion in revenue and 638 million in adjusted EBITDA , delivering an adjusted EBITDA margin of 24% .
Speaker #3: We also generated strong cash flow and continued to return capital to shareholders through dividends and share repurchases . Through the first three quarters of the year , we have returned over 700 million of the 2 billion we committed to returning over this year and next .
Speaker #3: This performance reflects our disciplined capital allocation and confidence in our ongoing cash generating capabilities . Our financial results continue to reflect our ability to perform at a high level in challenging market conditions .
Speaker #3: As we see weakening residential trends in the US , impacting our volumes in both repair and remodel and new construction product lines in roofing market demand in the quarter was impacted by a uniquely quiet storm season , with no named storms making landfall in the US in the third quarter for the first time in a decade , and inflation , we saw our nonresidential and European markets remain relatively stable , but continued to see the impact of slower housing starts in our residential insulation business .
Speaker #3: Despite these weakening residential trends , both businesses continued to benefit from the structural improvements made over the past several years . In fact , when we compare today's results to similar market conditions seen over the past ten years , we have improved margins by over 500 basis points in both our roofing and insulation businesses and our doors business volumes continued to be impacted by both slower discretionary spending and repair and remodel , and weaker new construction activity , resulting in lower than expected earnings .
Speaker #3: Even with these headwinds , we continue to make good progress on achieving the anticipated cost and operational synergies and are beginning to see the benefits of our unique commercial position .
Speaker #3: Working with common customers . While I'm disappointed in the current financial performance , I am pleased with how our team is responding to position the business for long term success and remain confident in our ability to achieve our margin and cash flow goals for the business .
Speaker #3: In fact , across all three businesses , we see revenue and margin growth potential driven by our execution and the favorable long term secular tailwinds in North America and Europe .
Speaker #3: Two of the largest and most attractive building products markets globally . In the US , mortgage rates are slowly coming down , improving housing affordability , which we expect to trigger residential market activity as we move through 2026 .
Speaker #3: We also see increasing investments in several non-residential segments , including data centers , manufacturing and energy . And in Europe , macro indicators continue to improve , which will lead to growth , particularly in the non-residential sector .
Speaker #3: Our financial performance today and into the future reflects the strength of the company we've built , one that can sustain annual EBITDA margins above 20% , even as markets fluctuate in the near term .
Speaker #3: We will continue to be disciplined operators focused on our cost , our customer share and our capital allocation . We will leverage our structurally improved cost positions that we have achieved through network optimization and operational efficiencies , while making strategic investments that strengthen our market leading positions and support our growth in roofing .
Speaker #3: This includes unlocking efficiencies and creating network flexibility through ongoing debottlenecking efforts . The successful start up of our new laminate shingle line in Medina earlier this year , and the future addition of a new plant located in the southeast .
Speaker #3: The largest asphalt shingle region in the country . This facility , which will be built in Alabama , will include leading technology and have the capacity to produce approximately 6 million squares of laminate shingles annually , enhancing service across our network .
Speaker #3: As we continue to invest for growth in roofing , we're also building loyalty and demand through our industry leading contractor engagement model . Since the beginning of the year , our contractor network has grown by about 9% .
Speaker #3: With that growth accelerating throughout the year , reflecting our unparalleled commercial strength and the value we create for our customers in insulation . The strategic investments we have made give us more balanced end market exposure across residential and non-residential applications , and we continue to make structural improvements to maintain a winning cost position , such as our new state of the art fiberglass line in Kansas City , which will provide us with a low cost , flexible production line capable of serving both non-residential and residential customers .
Speaker #3: Depending on market demand . We're also capitalizing on the growing demand in both residential and commercial applications for XPS foam . With a new low cost plant in Arkansas .
Speaker #3: We recently celebrated the grand opening of this facility , which is on track to be fully operational in early 2026 . Indoors , we're capturing cost synergies and applying the same commercial and operational playbook that is driven success in roofing and insulation .
Speaker #3: Over one year into the integration, we have line of sight to achieving all of the $125 million in enterprise cost synergies we committed to by the end of year two of ownership.
Speaker #3: In addition , we have identified an additional 75 million of structural cost savings through operational improvements and plant consolidations , giving us a lower cost position to leverage as volumes increase .
Speaker #3: We're also starting to see the benefit of our commercial strength as we expand the success of our contractor engagement model and roofing to shape the Pink Advantage dealer program in our doors business.
Speaker #3: Through this program , we can serve the more than 4000 small , privately owned dealers across the US . While creating downstream demand and product distribution .
Speaker #3: We are seeing acceleration in dealer signups at an increased the membership count by more than 35% this year . In addition , we are starting to see the power of our enterprise retail capabilities , creating new opportunities for doors and home centers by leveraging our highly recognized and valued brand with homeowners and small contractors , as well as our in-store service and merchandising capabilities .
Speaker #3: By utilizing the unique capabilities of the O.C. , advantage indoors . We are positioning the business for increased revenue and margin growth through our reshaped product and geographic focus .
Speaker #3: We've built a company powered by three market leading businesses with multiple opportunities to win and grow in line with our building products focused strategy .
Speaker #3: We continue to make progress on the divestiture of our glass Reinforcements business , targeting completion by the end of the year . As we work through closing and regulatory approvals .
Speaker #3: Before turning it over to Todd , I would like to thank and congratulate my Owens Corning colleagues for their role in our most recent recognition .
Speaker #3: We have been named to the 100 Best Corporate Citizens list , which ranks the largest publicly traded US companies on their environmental , social and governance performance and transparency .
Speaker #3: Owens Corning ranked third , marking our eighth consecutive year in the top ten and reflecting our commitment to doing business the right way .
Speaker #3: Overall , for the quarter , we delivered solid results in a challenging environment , outperforming previous cycles and operating with greater efficiency and resiliency .
Speaker #3: Our durable margins and strong cash generation reflect the power of our operating playbook , and the strength of our market positions . As we navigate near-term market dynamics and seasonal inventory controls .
Speaker #3: We remain committed to serving our customers , maximizing our performance , and investing in the growth of the enterprise , creating multiple paths to deliver long term value .
Speaker #3: With that , I'll turn it over to Todd . Thank you .
Speaker #4: Bryan , and good morning , everyone . As Bryan said , our performance in the third quarter demonstrates the impact of our structural improvements in portfolio transformation , delivering more resilient earnings and challenging markets .
Speaker #4: I'd now like to turn to slide five to discuss the results for continuing operations for the quarter . In the third quarter , we continued to build on a strong first half and execute well despite weaker end markets where revenue decreased 3% over prior year as a result of lower volumes .
Speaker #4: We still generated adjusted EBITDA of $638 million and adjusted EBITDA margins of 24% in the quarter. We had adjusting items of $784 million, primarily due to a non-cash goodwill impairment charge in our doors business.
Speaker #4: Of 780 million . This impairment is driven by updates to the macro assumptions in our accounting valuation model . Due to near-term market weakness , not a change in our longer term view of the earnings potential of the business .
Speaker #4: Adjusted earnings per diluted share for the third quarter were $3.67 . Turning to slide six . Free cash flow for the quarter was 752 million , compared to 558 million in the same period last year .
Speaker #4: We benefited from disciplined working capital management as well as lower cash taxes as a result of the tax bill updates earlier this year , which more than offset the impact of higher capital investments .
Speaker #4: We continue to invest in capital projects at elevated levels in the near term to drive improvement in long term efficiency and growth . As a result , capital additions for the quarter were 166 million , up 25 million from the same quarter prior year .
Speaker #4: Our return on capital was 13% for the 12 months ending September 30th , 2025 . As a reminder , at our Investor Day earlier this year , we gave a long term target of Mid-teen or better return on capital .
Speaker #4: While currently below mid-teens due to the doors acquisition , there is no change to our long term target at quarter end . The company had debt to EBITDA of two times at the low end of our targeted range of 2 to 3 times during the third quarter , we returned 278 million to shareholders through share repurchases and dividends .
Speaker #4: We repurchased common stock for $220 million and paid a cash dividend totaling 58 million . Year to date through the third quarter , we have returned more than 700 million to shareholders , and we are on track to meeting our commitment of returning 2 billion to shareholders between 2025 and 2026 .
Speaker #4: Our capital allocation strategy remains focused on generating strong free cash flow, delivering mid-teens returns on capital, returning cash to shareholders, and maintaining an investment-grade balance sheet.
Speaker #4: While we invest in attractive capital projects for growth , our capital allocation strategy is focused on compounding long term value for shareholders . Now , turning to slide seven .
Speaker #4: I'll provide additional details on our segment results , starting with our roofing business . Our results in the third quarter continued to demonstrate the power of our contractor engagement strategy .
Speaker #4: And vertically integrated cost position to outperform the market and deliver resilient earnings . Sales in the third quarter were $1.2 billion , up 2% from prior year .
Speaker #4: In the quarter , revenue growth was driven by positive price realization on our April increase , with volumes relatively flat . The US asphalt shingle market on a volume basis was down low double digits compared to the prior year .
Speaker #4: The big driver of the year over year decline was lower storm related demand . As Brian shared for the first time in a decade , no named storms in the Atlantic made landfall in the US .
Speaker #4: Our US shingle volume down slightly outperformed the market as we continued to see good demand for our shingles and ongoing contractor pull through distribution .
Speaker #4: We had another strong quarter of EBITDA performance as we navigated a declining shingles market. EBITDA was $423 million for the quarter, up slightly from the prior year. Positive price more than offset the impact of cost inflation.
Speaker #4: Overall , for the quarter , we delivered EBITDA margins of 34% in line with prior year . Now , please turn to slide eight for a summary of our insulation business in the third quarter .
Speaker #4: Insulation sustained 20 plus percent EBITDA margins and more difficult markets , showing the impact of the structural improvements we have made . We continue to deliver results above historical performance in similar markets , highlighting our ability to create value for customers .
Speaker #4: Q3 revenues were $941 million , a 7% decrease from Q3 last year . The decline was primarily due to lower demand for residential products in North America , and the sale of our building materials business in China .
Speaker #4: In North America , residential . We saw volume decline in line with our expectations for fiberglass due to ongoing weakness in demand for residential new construction in North America , non-residential revenue was down slightly versus prior year on the timing of projects in the US and Mexico and in Europe , we continue to see stable markets , strong operational performance , partially offset the impact of lower demand that resulted in additional production downtime .
Speaker #4: As we remain disciplined in inventory management , insulation delivered EBITDA margins of 23% in the third quarter , resulting in EBITDA of $212 million , down 36 million from prior year .
Speaker #4: Moving to slide nine , I'll provide an overview of the doors business . Overall , the business is responding well to a challenging market in the quarter .
Speaker #4: The business generated revenue of $545 million, down 5% from the prior year. The decline in revenue was primarily due to lower volumes, as the doors business continues to navigate challenging market conditions for both new residential construction and discretionary repair and remodel.
Speaker #4: We are also seeing a decline in EBITDA versus prior year . As a result of lost leverage . Price cost was negative in the quarter as pricing was down slightly and inflation primarily tariffs , continues to impact the business .
Speaker #4: Despite these market headwinds, the integration is progressing well. We are run-rating slightly ahead of our $125 million in enterprise synergies.
Speaker #4: To date , we have captured about 40% of our synergies in doors and the other 60% across the remainder of the enterprise . This reflects our ability to scale the OC advantage while applying the same playbook that structurally improved margins in roofing and installation over time .
Speaker #4: We continue to take actions in support of achieving these savings in driving network optimization , which include the decision we made in the third quarter to close a facility in Texas .
Speaker #4: And another announcement this week to close a facility in Canada . EBITDA for the quarter was 56 million , with EBITDA margins of 10% overall for the company .
Speaker #4: There was about 12 million in net impact from tariffs in Q3 . Our sourcing and supply chain teams have continued to demonstrate agility and discipline , mitigating tariff exposure and preserving margins .
Speaker #4: We expect net tariff exposure to continue at a similar rate in Q4 , with the biggest headwind in the doors business . As a reminder , last year indoors , we also saw a 14,000,001 time benefit from tariff recovery efforts in Q4 that will not repeat this year .
Speaker #4: This impact is included in the outlook Brian will share in a moment. Moving on to slide ten, I will discuss our full year 2025 outlook for key financial items. General corporate EBITDA expenses are expected to be approximately $240 million at the low end of the range we had previously shared of $240 to $260 million.
Speaker #4: We expect our 2025 effective tax rate to be 24 to 26% , and anticipate a cash tax benefit of approximately 100 million in the year .
Speaker #4: For the recent tax bill , capital additions are expected to be approximately 800 million . This level of capital investment reflects the strategic choices we are making to expand capacity and drive improved efficiency .
Speaker #4: This CapEx continues to include glass reinforcements , which is expected to be approximately 80,000,000 in 2025 . We expect CapEx to remain elevated in the near term as we work towards completing the high return capital efficient projects currently underway .
Speaker #4: We remain focused on executing our strategy , delivering strong returns and compounding long term value for our shareholders . Now , please turn to slide 11 and I'll turn the call back to Brian to further discuss our outlook .
Speaker #4: Brian .
Speaker #3: Thank you Todd . In the third quarter , our team continued to perform well , responding to slowing demand trends in most of our product lines .
Speaker #3: For the fourth quarter , we expect residential new construction and remodeling to remain challenged with softer market conditions and customers carefully managing year end inventory for non-discretionary roofing repair activity .
Speaker #3: We expect the market to be down significantly on lower second half storm activity and Q4 seasonality . Non-residential construction activity in North America is expected to decline slightly and market conditions in Europe are anticipated to gradually improve .
Speaker #3: As Todd shared , we remain disciplined in our inventory management in this environment , as a result , we will realize additional year over year production curtailment in the fourth quarter .
Speaker #3: Given this near-term outlook , we anticipate fourth quarter revenue for continuing operations to be approximately 2.1 to 2.2 billion , down mid to high teens versus prior year for adjusted EBITDA , we expect to deliver margins of approximately 16 to 18% for the enterprise .
Speaker #3: Now , consistent with prior calls , I'll provide a more detailed , business outlook for the fourth quarter , starting with our roofing business .
Speaker #3: We anticipate our revenue to be down mid 20% versus prior year . While we typically see a decline in roofing shipments in the fourth quarter due to colder weather , we expect to see a more significant drop this year due to much lower storm activity and a more pronounced reduction in end of year inventory levels at distribution versus prior year .
Speaker #3: Given this environment , we expect a high 20% decline in armor market shipments based on our strong contractor engagement model , we would expect our volume to decline slightly less than the market overall .
Speaker #3: We anticipate volume declines for components and nonwovens to be down a similar amount tied to lower demand for shingles for the quarter , we expect pricing to be up slightly versus prior year , but with ongoing inflation , we anticipate seeing negative price costs for the fourth quarter .
Speaker #3: We also expect to take additional production curtailment to manage inventory and perform needed maintenance on our production lines , partially offset by productivity overall for roofing , we expect to generate a mid 20% EBITDA margin in the fourth quarter .
Speaker #3: Moving on to our insulation business , we anticipate overall revenue to decline high single digits compared to the prior year , primarily due to a volume decline in North American residential and the sale of our building materials business in China .
Speaker #3: As a reminder , this business had approximately 130 million of revenue annually in our North American residential insulation business . We expect revenue to be down low double digits versus prior year due to lower demand .
Speaker #3: As we work through a step down in housing starts and overall market uncertainty . Additionally , we anticipate targeted price moves to result in slightly lower price year over year for North American non-residential , we expect revenues to be down slightly versus prior year in line with the declines , Todd shared for the third quarter .
Speaker #3: Tied to lower project related demand in North America and in Europe . We anticipate revenue to be up versus prior year , as we see gradual market recovery and currency tailwinds overall for the insulation business , we expect ongoing cost inflation resulting in negative price costs in the quarter .
Speaker #3: Additionally , we anticipate strong operational performance and cost controls to largely offset the incremental production curtailment tied to the volume decline from the market pressure in North American residential .
Speaker #3: Given all this, we expect the EBITDA margin for insulation to be slightly above 20%. Turning to doors, we expect our business to continue to be challenged by slower discretionary repair and remodel spending, as well as weaker new construction activity.
Speaker #3: Also in the quarter , similar to our other residential product lines , we expect to see distributors reduce end of year inventories as a result , we expect revenue in Q4 to decline high single digits versus prior year , driven primarily by lower demand .
Speaker #3: While we anticipate synergies and cost control realizations to continue , we expect EBITDA to be impacted by lower volume and the resulting leverage loss from production curtailment .
Speaker #3: Additionally , we expect price costs to remain negative with relatively flat pricing and ongoing inflation , driven primarily by tariffs overall for doors , we expect fourth quarter EBITDA margin of approximately 10% , similar to Q3 .
Speaker #3: With that review of business outlooks , I want to close out with a few enterprise comments based on this outlook for the fourth quarter , we expect 2025 revenue for the enterprise to be up modestly versus prior year , inclusive of the full year impact of the doors business .
Speaker #3: Despite ongoing market challenges throughout the year , we expect to deliver full year EBITDA margin of approximately 22 to 23% as we finish the year .
Speaker #3: We remain focused on executing our strategy with discipline , leveraging our reshaped portfolio , structurally advantaged cost position and the unique capabilities of the OC advantage .
Speaker #3: These strengths position us well to navigate near-term market pressures while continuing to invest in the long term efficiency and growth of our enterprise to achieve the targets shared , at Investor Day in May .
Speaker #3: Moving forward , we remain energized by the opportunities to continue positioning Owens Corning as a best in industry performer . We are building a stronger , more resilient company , one that delivers higher earnings and cash flow creates lasting value for our shareholders and is built to outperform .
Speaker #3: In closing , I want to recognize the continued dedication and resilience of our global Owens Corning team . Their commitment to safety , operational excellence and customer service is what enables us to perform at such a high level in any market environment .
Speaker #3: With that , we would like to open the call for questions .
Speaker #1: 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 , a kind reminder to please limit yourself to one question and then return to the queue .
Speaker #1: If you have additional follow ups . Our first question today comes from Stephen Kim with Evercore ISI . Please go ahead . Your line is open .
Speaker #5: Thanks very much , guys . Yeah , I appreciate all the color . Obviously a tough market out there . I'm going to focus on roofing and particularly the margins .
Speaker #5: I think you've guided for margin . Sorry . Pricing in for Q to be up slightly year over year . But we have been understanding that there's some you know , growing pricing pressure sequentially in roofing .
Speaker #5: And I'm wondering if you could describe where you feel more pressure . Is it more prevalent among manufacturing peers , distribution , retail or end users ?
Speaker #5: And how does your pricing strategy generally change if the pressure comes from one channel versus another ?
Speaker #3: Good morning Stephen . Thanks . Thanks for the question . I think pricing has continued to remain positive all year . We've talked about that in terms of our realization , and it's really driven by the value that we're bringing to our contractors and distributors through our brand , through our innovation , through our commercial strengths in the market , so that positioning in the market , that investments we've made to build out all of those capabilities , I think reflect a strong pricing for our products .
Speaker #3: And that's . Retained and been maintained throughout the year . I think typically we see some pricing moves as we close out the year , and we see that more generally in a more normalized roofing market , which clearly we are we are facing today with limited storm activity .
Speaker #3: Q4 , seasonality , distributors taking a harder look at inventory levels . So in the fourth quarter particularly , we've been normally see some pricing moves to make some pricing moves as distribution adjust their end of your inventories .
Speaker #3: And we've made some of those pricing moves to remain competitive . And those have been very targeted . When we look at pricing actions like that in roofing or in insulation or indoors , we're very targeted .
Speaker #3: We're very focused regionally . We're very focused on specific product lines . So we've made some of those moves . So I'd say the pricing environment , though , is fairly typical to what we have seen in past fourth quarter cycles .
Speaker #3: Nothing unusual given any of the distribution changes or any of the consolidation moves out there . So those are what I would call pretty typical seasonal pressures .
Speaker #3: And we're still , as we said in our guide , maintaining a positive price in the quarter . But we are seeing some continued inflation .
Speaker #3: So we're going to have a negative price cost next when we take into account the ongoing inflation in the quarter . So in terms of the overall pricing strategy , we remain consistent with how we price our products .
Speaker #3: We want to be competitive in the market , but we also want to be recognized for the value we bring relative to our brand or innovation .
Speaker #3: Our service , our commercial skills and capabilities . And that's how we'll continue to price our roofing products and all our products as we go forward .
Speaker #1: Our next question comes from Antony Pettinari with Citi . Please go ahead .
Speaker #6: Good morning . In insulation , I think you discussed North America non-res revenue down slightly in three . Q with the timing of projects , I think you cited , and you also discussed for Q revenue slightly down , and I'm just wondering if you can give us some back background on Non-res demand .
Speaker #6: And are these projects are they moving from three Q to four Q or 25 to 26 , or any further detail on the Non-res side ?
Speaker #4: Good morning , Anthony . Thank you for the question . I can give more detail on both Q3 and Q4 . We're seeing some project delays in both the US and in Mexico .
Speaker #4: When we think about the delays , we do view it as is shifts from quarter to quarter , but potentially also shifts from 25 into to 26 .
Speaker #4: We've seen some customers in this space share similar data for the commercial and industrial segment that they're also seeing some project delays . So we don't think this is unique to us .
Speaker #4: We think it's more a broad phenomenon that we're seeing in the industry . We are seeing a bit of a slowdown in construction activity in Mexico , where we we do report that through our North American Non-res piece of the business .
Speaker #4: Some of those delays appear to be related to just overall economic activity in Mexico . Those could be delayed a bit , a bit longer into next year .
Speaker #4: But in the US , we think it's more related to just normal kind of delays we see in projects that occur from from time to time .
Speaker #4: So not too unusual relative to what what we've often seen .
Speaker #1: Our next question comes from John Lovallo with UBS . Please go ahead .
Speaker #7: Hi , guys . Thanks for taking my question as well . Maybe just sliding over to the door segment around to round it out here .
Speaker #7: You took a sizable impairment based on the outlook for the business . However , it does seem like you guys are outperforming your largest peers .
Speaker #7: So I guess the question is two part one . Do you still think you're gaining share in this business despite the softer market ?
Speaker #7: And then what assumptions within the kind of the fair value analysis change the most ? And should we expect further impairments in the fourth quarter ?
Speaker #4: Well , John , let me start with some more detail on the impairment itself . And then I'll kick it over to Brian to share more on on the business and what we're doing from a share standpoint .
Speaker #4: So as a reminder for everybody , when we finalize goodwill , by definition , there's there's zero cushion between the value of the goodwill and the assumptions that we have in the model .
Speaker #4: And then in an accounting basis , if we have triggering events in a quarter , we have to retest that model and all the assumptions .
Speaker #4: So we did have a triggering event in Q3 , which was the revenue decline that we we saw . And when you look at these goodwill models , the really sensitive to early year dynamics in particular around market growth rates and then the subsequent impact on our , our margins .
Speaker #4: So when we look at the business , we did need to take an impairment in the quarter based on that counting model . We remain confident that we're going to see margin improvement over time .
Speaker #4: But the model has put a heavy weight on the near-term results as we discount some of those future year results . Just as as we look at the math of it .
Speaker #4: So really , from our standpoint , no fundamental change in long term how we view the business , how we view the earnings potential .
Speaker #4: It's just we're facing into near market weakness here . That is different from what we assumed when we calculated goodwill originally in the models .
Speaker #3: And John , maybe I'll pick it up from there . I think we we continue to stay very focused on the actions we can take to position the business for success in both the near-term and this environment and then longer term , we've talked about the ongoing focus and cost synergies .
Speaker #3: We continue to see good realization there and are on track for the $125 million and overall enterprise synergies. We announced another $75 million of targeted production efficiencies, and we're making very good progress on that.
Speaker #3: And then I talked last quarter on on some green shoots that were emerging around some of the commercial opportunities we saw in the market .
Speaker #3: And I think we continue to see those come through . And I highlighted some of those in the prepared comments . We continue to see great conversion at the lumber dealer level .
Speaker #3: And these are dealers that are servicing very local communities with a wide variety of products . But but inclusive of doors . And we're we're seeing some increased interest in positioning as we bring the broad product offering of Owens Corning to these dealers in roofing , insulation and doors that they can take in the market , build their business and grow their business through our brand and our marketing and and merchandising capabilities .
Speaker #3: bring and have been able to differentiate So ourselves around our service proposition and quality . And the teams have done really , really great work to build a really strong value proposition around around service and quality that that we think is benefiting the benefited in the market today .
Speaker #3: And then the last one I talked about was around the home center again , back to leveraging the capabilities , the brand , our merchandising capabilities .
Speaker #3: We've seen some some pickups there and some business opportunities . Unfortunately , a lot of that in the near term is getting overshadowed by the market declines .
Speaker #3: But we do see that accelerating as we see kind of market volumes pick up as we move into next year . We see some more of those volumes coming through , and we think that's going to give us some great incremental operating leverage as we take the business forward .
Speaker #1: Thank you . Our next question comes from Michael with J.P. Morgan . Your line is open .
Speaker #8: Thanks . Good morning everyone . Thanks for taking my questions or question . I'd rather wanted to zero in on hopefully a couple of areas , if you don't mind .
Speaker #8: One is just trying to get a sense and parse out , you know , in roofing and and it sounds like a little bit perhaps a insulation in terms of the year over year revenue , expected decline in four .
Speaker #8: Q if if it's possible to try and break out , how much of that was due to inventory reduction in the channel and then secondly , in insulation , you know , maybe if you could just describe what's going on from a pricing standpoint sequentially .
Speaker #8: And if that's something that you would expect to , you know , persist into 26 , absent any rebound in demand .
Speaker #3: And Mike , let me start with roofing . And then I'll have Todd and kind of come in on the insulation front on the roofing .
Speaker #3: Step down in the quarter . It's it's probably a combination of three factors that are that are driving the more substantial kind of decline in the quarterly volumes .
Speaker #3: One is as we as we work through the year , I think we've seen the market resetting to more normalized storm volumes and we saw that in Q2 , we expected in Q3 , we're going to see some declines relative to some lower storm activity versus prior year .
Speaker #3: In fact , in Q3 , we saw really no major storm activity . As we talked about first time in a decade . So we saw that kind of step down more dramatically .
Speaker #3: So I think in Q4 now , when you look at the big sequential and both year over year decline , I mean , best guess is we probably say maybe it's probably half and half , half tied to a bigger step down in storm activity that's limiting volume .
Speaker #3: And about half in terms of of more dramatic inventory corrections versus prior year on lower overall demand . So as I look at the opportunities in the quarter , probably been a few years since we've seen this kind of significant step down .
Speaker #3: Q four of 2022 is probably the last time we saw a pretty weak second half storm year in 22 , and we saw that step down in volume .
Speaker #3: So we have seen these kind of big decreases . That was about a 20% decrease in Q4 . This one's a little more impactful though because of the lower storm activity .
Speaker #3: We feel so best view is about half and half . The good news is that that inventory reduction generally comes back in the first part of next year , as distributors start to restock for the new season .
Speaker #3: But I think we're going to see a pretty cautious buying behavior across all of our distribution customers to close out this year . Given the market uncertainty .
Speaker #4: Mike good morning . I'll comment on what we're seeing in the insulation market in Q4 . And then sequential pricing in in resin solution .
Speaker #4: So when we look at the red side of of the story in Q4 , we are seeing a decline in lagged housing starts in Q4 on a year over year basis .
Speaker #4: We're expecting the market to decline more than the decline in leg start . So why is that ? Some of that is the mix of single family versus multifamily .
Speaker #4: We're seeing a bit weaker mix on the single family side , but some of that also is just conservative inventory posture . As Brian just described .
Speaker #4: On the roofing side . Also in insulation , we are in free supply now . There's enough capacity to serve our customers needs .
Speaker #4: So there's less of a need for folks to build large inventory positions at year end . So it's hard to put a specific number on destocking that we expect .
Speaker #4: We believe more of it is driven by the slowdown in housing and just overall demand for for the market . But we do think the stocking is a part of the story .
Speaker #4: When we look at pricing in Q3 , we made surgical pricing moves on the rest side . As we talked about on on the last call targeting specific , specific product lines , specific regions , specific areas where we needed to respond to competitive issues .
Speaker #4: Overall , though , we expect a relatively stable pricing environment into Q4 . So while the guide includes a bit of year over year pricing down on on rez , that's really the carry over of that Q3 set of surgical actions that we made into Q4 .
Speaker #4: Rather than new actions that we anticipate in the quarter .
Speaker #1: Our next question comes from Trevor Allenson with Wolfe Research . Your line is open .
Speaker #9: Hi . Good morning . Thank you for taking my question . I wanted to ask about capacity utilization rates . Can you comment about on where those were in both your US resi insulation and roofing businesses ?
Speaker #9: And three Q and then given anticipated softer market conditions , where are you expecting utilization rates to move into the fourth quarter next ?
Speaker #4: Well good morning Trevor . I'll start with the red side . And then Brian can talk through the roofing side . So at the highest level we still view the industry .
Speaker #4: If all assets are running in the industry is capable of supporting 1.4 to 1.5 million starts . When we look at Q3 and Q4 , you know , we are tracking below that 1.4 to 1.5 million range .
Speaker #4: As I shared before , we're seeing a weaker mix of single family versus multifamily . And just again , as a reminder , single family starts carry about 30% more pounds of insulation per unit than than multifamily starts now .
Speaker #4: What’s happening is we are taking idle, so we took our Nephi plant cold. We talked in the last call about hot idle versus cold idle.
Speaker #4: We decided to take the Nephi line down completely . We also have maintenance downtime that we're taking in the fourth quarter . That's fairly normal on our assets , but we're able to fit a little more maintenance into the quarter .
Speaker #4: Now that we've got time to to do it . So both of those for us are reducing the amount of production we've got in the quarter .
Speaker #4: We suspect that competitors are taking similar opportunities to do maintenance . We know of a couple of lines that also have been curtailed in in the industry .
Speaker #4: So it's really hard today to point to a specific number in terms of of capacity utilization . But what I would share is we've done a good job of maintaining relatively stable sequential share from Q2 and to Q3 , and we're positioned to maintain pretty stable sequential share .
Speaker #4: Now into fourth quarter . So we're we're balancing out with that sequential stability in share with taking idle to make sure we we maintain the right level of inventory in our in our assets .
Speaker #4: And our businesses .
Speaker #3: Trevor . And then for roofing , clearly with the step down in demand capacity utilization rates are going to come down for us .
Speaker #3: We're going to take advantage of that in the fourth quarter to do some maintenance on on our assets . It's going to be the first quarter in a while for fourth quarter in a while , that we can take some more extended downtimes to do that preventative maintenance work .
Speaker #3: But overall , I'd say in roofing we don't track capacity utilization rates the same as insulation . It's a material conversion business , so the pricing and margin dynamics in the business are generally not tied to capacity utilization rates .
Speaker #3: They're tied to value and price capture over inflation and tied to those material conversion economics of efficiency . So we don't see the same dynamics .
Speaker #3: And trends in terms of the margin of the of the roofing business . Because of the nature of the material conversion side of it .
Speaker #3: I will say , though , we will see in Q4 , as we take down some of the production curtailments , that that does create some higher cost inventory that does generally spill over into the next quarter .
Speaker #3: So we would expect with some more extended downtimes this year , that's going to have an impact in terms of Q1 margin rates in the business on some higher cost inventory that we're going to have to work through .
Speaker #3: That's fairly normal . In the seasonal business of roofing , but I think we've not seen kind of this level of downtime in the last several years .
Speaker #3: So that's going to have a little bit bigger impact as we take that inventory into Q1 and sell it.
Speaker #1: Thank you . Our next question comes from Matthew Bouley with Barclays . Please go ahead .
Speaker #10: Good morning guys . Thank you for taking the question . So on insulation , you know , I guess the volume declines have been , you know , fairly sharp for three quarters at this point .
Speaker #10: More so in North America , residential while still holding the EBITDA margin above 20 . I think back to the Investor Day . You know , you spoke to the insulation margin range .
Speaker #10: I believe was 20 to 27 on a full year basis on 1.2 million total starts at the low end . So understanding you're not guiding beyond one quarter .
Speaker #10: But do you have a view that , you know , in that light , we could be reaching a trough on insulation margins ?
Speaker #10: Or is this more just going to be dependent on utilization and pricing ? I'm just curious on the ability to hold the line on that low end there .
Speaker #10: Thank you .
Speaker #4: Good morning Matt . Overall , there's no change to our guide from Investor Day in terms of where we view insulation margins on a full year basis .
Speaker #4: And that 22 to 27% range , we are seeing pressure on the margins in Q3 and Q4 as we see a relatively stable pricing environment , but we are still absorbing cost inflation in the business .
Speaker #4: We're also taking on idle to catch up for a bit of a heavier inventory position . As we ended the first half of the year that we're correcting now in the back half , as we've seen the market continue to be relatively weak from a volume standpoint .
Speaker #4: So that starts to get spread out more as we get into to next year . As we reset inventory levels at year end .
Speaker #4: So fundamentally , no change to the guide on the business in terms of what we expect to see . And we were really happy with the execution in the third quarter as we see the strategy play out of really focusing over time on growth in the non-res and European pieces of the business that are holding up really well from a volume standpoint , but also a pricing standpoint .
Speaker #4: And while pricing, we've had to make some selective moves. We are seeing some product lines and end markets within the non-res and Europe piece where we're seeing positive pricing in our markets.
Speaker #4: So the long term strategy is , you know , continues to pay off for us in terms of relative stability in the insulation business .
Speaker #4: But we are working through this . Choppier period on on the red side .
Speaker #1: Our next question comes from Philip Ng with Jefferies . Please go ahead .
Speaker #11: Hey guys . I appreciate all the great color , Brian . I guess from an inventory destock whether it's your system or the channel .
Speaker #11: How long do you expect this to kind of take to flush out ? Is this a one quarter event or is it going to take a few quarters ?
Speaker #11: And when I look at your roofing margin guidance for the fourth quarter , you're calling for mid 20% EBITDA margins . Certainly magnified by the Destock and the seasonal dynamic , but is inventory and store demand normalizes at these lower levels ?
Speaker #11: You know , the 27 to 35% EBITDA margins you provided at your Investor Day . Is there a good way to think about that ?
Speaker #11: As we kind of settle down at these levels , looking out to 2026 .
Speaker #3: Yeah . Thanks , Phil . Let me let me start then and I'll talk about the Destock . Yeah . The margin profile of the roofing business .
Speaker #3: When we set the guide of approximately 30% annually , on average in that range was really contemplating at the 30% level , a more normal seasonal business .
Speaker #3: And I think we're going to see that. So normally in the roofing business, you’ve got to go back a few years.
Speaker #3: But you know , we would see lower margin performance in Q4 and in Q1 coming out of the downtimes and some higher cost inventory .
Speaker #3: And then Q2 , Q3 is where we'd see an acceleration in margins based on operating leverage and just higher demand . So that that seasonality and that cycle where we would call a Q4 at mid 20% would would not take us away from our expectation that we could still operate on an annualized basis around that 30% EBITDA margin business .
Speaker #3: So I think it's just that we have not seen the seasonality in the business for several years. And so that cycle, that performance through the year, that moves up in the mid part of the year and then comes back down in the fourth quarter and into Q1, is more typical, more normal.
Speaker #3: And given the guidance we're setting , we still think we have the ability to achieve that 30% on average annual margin profile for the business .
Speaker #3: So on the inventory destocking , I think we normally see things in Q4 get destocked and then restocked in Q1 . I would say because of of probably the cautious buying nature in distribution that we're seeing this quarter .
Speaker #3: It might take us into the second quarter, into the first half, to really see everything get restocked. We would normally see a big portion of that come through in Q1.
Speaker #3: Is is distributors are getting ready for the season , but I think some of that's going to kind of play out in terms of the beginnings of a Q2 storm season , how people are going to buy and set up for the year .
Speaker #3: But I would expect that distributors will get back to more normalized inventory levels . But that might , depending on the start of the year , take more into the second quarter .
Speaker #1: Our next question comes from Michael Dahl with LBC. Please go ahead.
Speaker #12: Hi . Thanks for taking my question . Yeah , Brian , I just want to follow up on that . Just so we're clear , because if I think about what this implies for for Q , I think this is going to be the lowest roofing volumes in a decade .
Speaker #12: If your guide is is correct and , and , you know , so I guess the first part of the question is , you know , I didn't get the sense that inventories were necessarily that elevated .
Speaker #12: So just the as you go into year end , do you have a more quantitative sense of where channel inventories would would be relative to normal and then to your point , in response to Phil , I think the last time we saw this and kind of 22 , you did see a similar year on year decline in one Q of 23 .
Speaker #12: We still have a tough comp in against one Q 25 . When we flip to next year . So should we still be thinking about a 20% decline in in shipments in one ?
Speaker #12: Q. Is that kind of the order of magnitude that you're thinking about, at least initially?
Speaker #3: Yeah . Mike , in short , yeah , I think you're describing it how we're kind of seeing it play out in real time .
Speaker #3: I think it would be the lowest roofing volume in about a decade, given the fact that there have been no named storms here in Q3.
Speaker #3: On top of a pretty light overall storm season . So the combination of those two factors just leading to some lower storm activity as we as we finish the year , that on top of just normal Q4 seasonality , I think and I think a little bit more cautiousness on distributor buying behaviors given that .
Speaker #3: So the last time we saw this in 23 , you're exactly right . We saw a Q1 that was also down , you know , 22 , 23% in terms of prior year shipments .
Speaker #3: And that could be the setup . We're not guiding to Q1 , but but that certainly feels like a a realistic setup to how 2026 is going to start .
Speaker #3: Now , that year also saw more normalized storm volumes coming through . And , you know , we saw the margin progression in the business and the volume progression in the business throughout the year .
Speaker #3: But I think the next couple of quarters for roofing volumes are going to be pretty light relative to the last couple of years , and would probably take on that .
Speaker #3: That shape of the year .
Speaker #1: Our next question comes from Garik Shmois with Loop Capital Markets . Please go ahead .
Speaker #13: Oh , hi . Thank you . I'm just to follow up on that point on roofing . Historically , the industry has done a good job of pricing to recover cost inflation .
Speaker #13: Just given these volume run rates that you're describing . As we get into the next season , do you anticipate any change in the industry's ability to recover the cost inflation you're seeing right now ?
Speaker #13: Or is there anything changing , perhaps competitively or for capacity standpoint or anything happening in distribution that might give you some pause ?
Speaker #3: Thanks , Garrett . At this point , I would say no , nothing that would change our view of kind of the historical pricing practices that we've had in the business and the overall ability to recover inflation through through price .
Speaker #3: I go back to roofing . Shingles are still the most affordable roofing material in the market . It is still architecturally the most widely used product in the market .
Speaker #3: So there are a number of fundamental demand drivers . It is a non-discretionary repair and replace product category . So I think we're seeing some some adjustments and resetting on more normalized storm volume .
Speaker #3: But when I look at the fundamental repair and remodeling drivers of the business, those are still staying very strong in terms of the need for roofing materials.
Speaker #3: When when a roof is damaged . So I think those underlying drivers of non-discretionary repair business , the ability that the fact that it's the lowest cost roofing material in the market , the fact that it's architecturally the most desired .
Speaker #3: I still think create demand drivers , even though it's stepping down on a year over year basis on an absolute basis . That would still allow us to to to get pricing in the market and an expectation that we'd be able to recover inflation over time .
Speaker #1: Our next question comes from Susan McClary with Goldman Sachs . Please go ahead .
Speaker #14: Thank you . Good morning everyone . I wanted to change a bit and talk about capital allocation . Understanding that 1 or 2 quarters doesn't necessarily change the longer term needs , but can you talk about what you're looking for to determine if you need to make any changes to plans to add capacity across the different segments , and then with that as well , can you just talk about your priorities for capital allocation in this kind of an environment and anything that has changed relative to the last couple of quarters ?
Speaker #4: Good morning . Thanks , Sue . I appreciate the question from a capital allocation standpoint , is , as we think about the the major projects we've got underway , these are multi-year projects that generally are going to add capacity in in the out years .
Speaker #4: In 2027 and and beyond . When we look at our markets , we still have a lot of confidence in the long term tailwinds that support both new construction and repair and remodel activity in North America and in Europe .
Speaker #4: So there's no fundamental change long term to our outlook for for the business . And we know we're , in short cycle businesses where things can change very quickly .
Speaker #4: On the upside as well , around market conditions and really all three of our businesses when when we look at those larger projects , there's no change today in our work underway against those , in part because they support growth , but they also support cost efficiency and capital efficiency for us going forward .
Speaker #4: So these are important projects for us as we think about generating long term EBITDA growth and cash flow growth for for investors right now , our priority from a balance sheet standpoint is staying very , very disciplined when it comes to working capital .
Speaker #4: As you've heard throughout the call today, we're taking idle and curtailment on our existing assets to make sure we keep enough inventory to serve our customers.
Speaker #4: But we remain appropriately postured for the current market environment in terms of total inventory in the business and as a result of that , and focus on accounts payable , we're maintaining good cash flows and , you know , a fairly challenging market environment today that's enabling us to continue to to invest in these longer term projects to support earnings and cash flow growth .
Speaker #4: It's enabling us to continue to make great progress on our on our target of returning 2 billion to shareholders . This year and next year through dividends and repurchases .
Speaker #4: We're 700 million along that journey already this year . But then at the same time , we're preserving a really strong balance sheet at the low end of our targeted range of 2 to 3 times .
Speaker #4: So really , no change in terms of how we're thinking about capital allocation in today's market environment . Even with the challenging market conditions that we're seeing , which speaks , again to the new Owens Corning and the cash generation power of the business that we've created .
Speaker #1: Next in queue, we have Sam Reed with Wells Fargo. Please go ahead.
Speaker #12: Thank you so much for taking my question . One more on roofing . Was just hoping you could disaggregate some of the inventory comments , but perhaps in the context of the components business , just thinking through that destock stock up dynamic that you talked to on some of the prior answers , we'd just love to know if the components business is going to follow a similar path , you know , or whether there could be a divergence between shingles and components .
Speaker #12: Thanks .
Speaker #3: Yeah , thanks for the question , Sam . The we would expect that the inventory destocking on components would follow a similar path to shingles .
Speaker #3: Generally distribution will buy those products in tandem . They'll manage the balance of out sales of shingles and the level of components and attachment rates .
Speaker #3: And keep those inventory positions in balance . So we would expect a similar step down in terms of volumes in our components business .
Speaker #3: In Q4 . And then we also talked about Nonwovens . We're vertically integrated , which gives us a great cost and innovation advantage .
Speaker #3: But we'd expect to see a similar step down there . But in the component side , I think it follows the same path .
Speaker #3: And then again , when we think about the first part of 2026 and distributors starting to rebuild those inventories , I would also expect the same restocking mindset towards components to match the restocking that we would expect to see in the first part of next year .
Speaker #1: Next , we have Ralph Jedrzej from Bank of America , your line is open .
Speaker #13: Hey . Good morning . Thanks for taking my questions . Can you just walk us through the downtime that your impact to EBITDA that you're assuming for roofing , installation and doors in the fourth quarter ?
Speaker #13: And then if the macro sort of stays consistent and soft into next year , is that something that you would expect to persist , or is any of that related to temporary sort of maintenance downtime ?
Speaker #3: I think overall , maybe I'll give an overarching answer because it's going to vary a little bit by business , but you can see some of the downtime curtailments .
Speaker #3: I'd say in in insulation . We've we've been able to manage those really , really well . You look at third quarter downtimes , we've been able to offset by other productivity , and that some of that you can see in the MDA , you know , we'd expect to continue similar trends here in Q4 in terms of that , roofing will be a more significant sequential and year over year impact because of the extent of downtimes .
Speaker #3: We're going to start to take in the business . But when we think about the decremental margins in Q4 year over year , it is primarily all volume and deleverage that fits inside of that .
Speaker #3: So the bulk of that volume and then a little bit more incremental and then indoors , you'll see that come through with some higher manufacturing costs .
Speaker #3: In Q3 . We think that continues into Q4 with kind of similar levels . So as we move into next year , I think , you know , given the volumes that we're running at today , we might see some some more incremental depending on on the business in terms of how we set up the year to stay very disciplined around working capital and inventory management and cash flow .
Speaker #3: But I think the bigger impacts will probably be on the year over year comps in the businesses where you'll see a higher amount of production downtime going forward versus prior year , that will impact some of the margin performance in all three businesses .
Speaker #3: To start the year . But we'll have to see how the rest of the year plays out . If that would continue . But we are going to be very disciplined in terms of managing working capital and inventories as we operate the business going forward .
Speaker #1: Thank you . This concludes our Q&A session . So I'll pass you back over to Brian Chambers for any closing comments .
Speaker #3: 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 .
Speaker #3: We look forward to speaking to you again in the fourth quarter . Call . Thanks and have a very safe day .