Owens Corning (OC)

Q2 2010 Earnings Call

August 04, 2010 11:00 am ET

Executives

Michael McMurray - Vice President of Investor Relations and Treasurer

Duncan Palmer - Chief Financial Officer and Senior Vice President

Michael Thaman - Chairman of the Board, Chief Executive Officer, President and Chairman of Executive Committee

Analysts

Michael Rehaut - JP Morgan Chase & Co

Dennis McGill - Zelman & Associates

John Kasprzak - BB&T Capital Markets

Garik Shmois - Longbow Research LLC

Joshua Pollard - Goldman Sachs Group Inc.

Herbert Hardt - Monness

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2010 Owens Corning Earnings Conference Call. My name is Shequana, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Michael McMurray, Vice President, Investor Relations and Treasurer. Please proceed, sir.

Michael McMurray

Thank you, Shequana. Good morning, everyone. Thank you for taking the time to join us for today's conference call in review of our business results for the second quarter 2010. Joining us today are Mike Thaman, Owens Corning's Chairman and Chief Executive Officer; and Duncan Palmer, Chief Financial Officer.

Following our presentation this morning, we will open this one-hour call to your questions. Please limit yourselves to one question and one follow-up. Earlier this morning, we issued a news release and filed a 10-Q that detailed our results for the quarter. For the purposes of our discussion today, we have prepared presentation slides that summarize our performance and our results for the second quarter. We will refer to these slides during this call. You can access the slides at owenscorning.com. We have a link in our homepage and a link on the Investors section of our website. This call and the supporting slides will be recorded and available on our website for future reference.

Before we begin, we offer a couple of reminders. First, today's presentation will include forward-looking statements based on our current forecasts and estimates of future events. Second, these statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. Please refer to the cautionary statements and the risk factors identified in our SEC filings for a more detailed explanation of the inherent limitations of such forward-looking statements.

This presentation and today's prepared remarks contain non-GAAP financial measures. Also note that GAAP to non-GAAP reconciliations are found within the financial tables of our earnings release.

For those of you following along with our slide presentation, we will begin on Slide 4. And now, opening remarks from our Chairman and CEO, Mike Thaman, followed by CFO, Duncan Palmer, and then our Q&A session. Mike?

Michael Thaman

Thank you, Michael. Good morning, everyone. Thank you for joining us today to discuss our second quarter results. Owens Corning delivered strong performance in the quarter. Composites demonstrated operating leverage as the global markets continued their recovery, and Roofing delivered another outstanding quarter.

Total revenue in the second quarter increased 13% to $1.4 billion compared with $1.2 billion in the second quarter of 2009. Adjusted EBIT was $130 million in the second quarter, a 20% increase compared with the same period a year ago. Based on our strong year-to-date performance, we remain confident that we will deliver as much as $450 million in adjusted EBIT in 2010, consistent with last quarter's guidance. This equates to adjusted earnings per share of about $2.

Our continued confidence for our outlook in 2010 and beyond led to today's announcement that our Board of Directors has approved a share buyback program, under which we are authorized to repurchase up to 10 million shares. This is in addition to the 1.9 million shares remaining in our existing buyback program. While we did not purchase shares in the second quarter, we do expect to purchase shares in the second half of this year.

I'll start by reviewing how our company is performing against the expectations we framed for 2010. We said that we would continue our progress in creating an injury-free workplace. Our ongoing focus on safety resulted in a 13% reduction in injuries compared with 2009.

We said that we would drive improved profitability in Composites this year. We are executing well against this goal. We demonstrated significant operating leverage during the quarter, generating a $61 million increase in EBIT compared with the same period in 2009, with operating margins of 9%.

We said that we would sustain Roofing margins in excess of 20% for the year. We remain on target to reach this goal, generating operating margins in Roofing of 26% in the second quarter and 25% on a year-to-date basis.

We also said that we would work to narrow losses in the Insulation business. We did trim our losses in the second quarter. We'll discuss this further in the call as we did have some short-term operating performance issues that offset what could've been more positive leverage. Overall, I'm pleased with what we have accomplished.

Now I'll review each segment starting with Composites. Composites financial results improved dramatically as we benefited from strong operating leverage associated with the continued improvement in market demand. We were well positioned to benefit from the improved market conditions due to the aggressive actions that we took in 2009.

During the quarter, we continued to see the sequential improvement in pricing that began in the third quarter of 2009. We maintained production levels that are in line with sales volumes and did experience tight supply in certain markets, particularly Asia and the Americas. Consistent with our prior guidance, we believe that demand in this segment will continue to trend upwards as global industrial demand improves. We estimate that the Reinforcements market will grow by as much as 25% in 2010 compared to 2009.

Still, despite improvements in the market, we do not expect to return to the 2008 demand levels this year. We continue to bring production online to respond to current and future market demands.

During the quarter, we saw particularly strong demand for composites in Asia, which reinforces our growth strategy in this important region. Our investment in a new composites plant in China is expected to be completed by year end. This additional production capacity will significantly strengthen our presence in the region and is expected to further improve our financial performance within the Composites segment beginning in the first half of 2011. We believe that the Composites business will return to double-digit operating margins within the next four quarters.

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