Owens Corning (OC)

Q1 2011 Earnings Call

April 27, 2011 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, Chief Executive Officer, President and Chairman of Executive Committee

Analysts

Kathryn Thompson - Thompson Research Group, LLC.

Josh Levin - Citigroup Inc

Michael Rehaut - JP Morgan Chase & Co

Robert Wetenhall - RBC Capital Markets, LLC

Dennis McGill - Zelman & Associates

Joshua Pollard - Goldman Sachs Group Inc.

Jonathan Ellis - BofA Merrill Lynch

Presentation

Operator

Good day, ladies and gentlemen and welcome to the First Quarter 2011 Owens Corning Earnings Conference Call. My name is Shaquana, and I will be your coordinator for today. [Operator Instructions] I would now like to turn this 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, Shaquana. Good morning, everyone. Thanks for taking the time to join us for today's conference call in review of our business results for the first quarter of 2011. 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 1 question and 1 follow-up.

Earlier this morning, we issued a news release and filed a 10-Q that detailed our results for the quarter. For the purpose of our discussion today, we've prepared presentation slides that summarize our performance and results for the first quarter of 2011. We will refer to these slides during this call. You can access the slides at owenscorning.com. We have a link on 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.

Please reference Slide 2 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. Reconciliation of GAAP to non-GAAP are found within the financial tables of our earning 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

Thanks, Michael. And good morning, everyone. We appreciate you joining us today to discuss our first quarter results. Driven by continued strong performance in our Composites and Roofing businesses, Owens Corning delivered profit that was in line with our expectations for the first quarter. This performance positions us to reaffirm our full year guidance of $475 million in adjusted EBIT. I'll talk more about this in a few moments.

Reviewing our first quarter results, total revenue was $1.2 billion, down 2% compared with the same period last year. In the face of markets that continue to perform well below their potential, EBIT was $61 million, down from $97 million 1 year ago. EBIT was negatively impacted by lower year-over-year volumes in our Building Materials businesses, as well as operating investments to expand our Composites capacity and convert Insulation facilities to boost our new EcoTouch Insulation. We expect that Building Materials and volumes will improve through the year and that our first quarter operational investments will start showing a positive impact by the end of the second quarter. Duncan will provide a more detailed reconciliation of our first quarter results in his comments.

So let's now review how Owens Corning is performing relative to the expectations we framed for 2011. We said that we will continue our progress in creating an injury-free workplace. During the first quarter our rate of injuries improved by 30% over our full year 2010 performance. As you may recall, 2010 marked our ninth consecutive year of safety improvement. Achieving this level of further progress is particularly noteworthy.

We said that Composites would deliver another year of double-digit revenue growth and $75 million in EBIT growth. We delivered 6% revenue growth in the quarter, continued pricing momentum and strong production leverage drove a 55% improvement in the first quarter EBIT. Our first quarter results are consistent with achieving our full year goals for this business.

We said that Roofing EBIT margins of 20% were achievable for the year. The business delivered EBIT margins of 16% in the first quarter. And our Roofing results were slightly better than we expected. We were pleased to see volume recovery in the first quarter after closing 2010 with 2 quarters of very weak demand. We are focused on profitability and believe we are on track to achieve our 20% margin goal.

We said Insulation would narrow its losses and embark on a measured path to recovery in 2011. First quarter Insulation losses were greater than last year due to challenging market conditions and planned operating costs associated with the conversion to EcoTouch production. We expect this business to continue to lose money in the second quarter and for the year. However, with moderate improvements in the new construction markets, we have actions in place that will produce profitability for the second half of the year. I'll speak more about the Insulation business later on my prepared marks.

First quarter was in line with our expectations although weaker than last year and below Street consensus. In our fourth quarter call, we spoke about many of the items that impacted results in the first quarter. In particular, negative comps on Roofing volumes and contribution margins, further weakness in the residential new construction markets, costs associated with the EcoTouch conversion and start-up cost in our Composites business.

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