Owens Corning (OC)

Q2 2011 Earnings Call

August 03, 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

Josh Levin - Citigroup Inc

Michael Rehaut - JP Morgan Chase & Co

Robert Wetenhall - RBC Capital Markets, LLC

Garik Shmois - Longbow Research LLC

Keith Hughes - SunTrust Robinson Humphrey, Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Owens Corning Earnings Conference Call. My name is Deana, and I'll be the operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Michael McMurray, Vice President, Investor Relations and Treasurer. Please proceed, sir.

Michael McMurray

Thank you, Deana. Good morning, everyone. Thanks for taking time to join us for today's conference call and review of our business results for the second quarter of 2011. Joining us today are Mike Thaman, Owens Corning's Chairman and Chief Executive Officer; and Duncan Palmer, Chief Financial Officer. [Operator Instructions]

Early 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've prepared presentation slides that summarize our performance and results for the second 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.

The 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 in today's prepared remarks contain non-GAAP financial measures. Reconciliations of GAAP to non-GAAP are found within the financial tables of our earning release.

For those of you following along on our slide presentation, we will begin on Slide 4. And now, opening remarks from our Chairman and CEO, Mike Thaman, who will be followed by CFO, Duncan Palmer. Mike will then provide some comments on our outlook prior to the Q&A session. Mike?

Michael Thaman

Thanks, Michael. And good morning, everyone. We appreciate you joining us today to discuss our second quarter and first-half 2011 results. Owens Corning delivered a strong quarter. The actions we took in the quarter built significant momentum across the company and position us for a strong second half. As a result, we've increased our EBIT outlook for the year to $500 million or more, up from our previous guidance of $475 million. Let's begin by reviewing the key highlights for the quarter. Net sales totaled $1.5 billion, a 5% increase over the same period last year, and second quarter adjusted EBITDA improved to $135 million, a $5 million increase over 2010. The Roofing business saw a substantial increase in both volume and revenue, supported by the spike in first-half storm activity. The Composites business also delivered strong performance, although the growth was tempered by weakness in the Chinese wind energy market. The Insulation business continue to focus on strong cost control to mitigate the ongoing impact of the weak housing market, and it's positioned to make money in the second half of the year.

We completed several significant transactions, including the divestiture of our composites plant in Capivari, Brazil; the acquisition of 2 FiberTEK businesses to increase our loosefill insulation capacity; the refinancing of our $800 million revolving credit facility; and the repurchase of 1.2 million shares of common stock during the quarter.

The FiberTEK move is a further demonstration of our approach to capital deployment and portfolio management. We are a great owner of this business. We have strengthened our Insulation business with great assets that we will operate well. And, I would note, the investment is roughly on par with the overall proceeds we will receive from our Masonry Products divestiture that we made last year, a business for which we did not believe we were the best owner. Before Duncan provides a more detailed reconciliation of our second quarter results, I would like to also review how we are performing relative to the expectations we framed at the outset of this year. We said that we would continue our progress in creating an injury-free workplace. At the midpoint of 2011, our rate of injuries has improved by 21% over our full year 2010 performance. This positions us favorably to achieve a 10th consecutive year of safety improvement. We said Composites would deliver another year of double-digit revenue growth, and $75 million of EBIT growth. We grew second quarter Composites EBIT by more than 30% compared with the same period last year. EBIT growth was driven by continued pricing momentum and production leverage. Through the first half, we've grown the EBIT by $30 million, representing 41% growth. With recent volume developments, we believe that our previous goal of 40% EBIT growth in 2011 is now overly aggressive, but we do expect another strong year with growth of about 25% in EBIT.

We said Insulation would narrow its losses and embark on a measured path to recovery in 2011. The Insulation business lost money in the quarter, primarily the result of a challenging market conditions. With actions we have taken, we now see a clear path to making money in Insulation during the second half of the year. Finally, we said that Roofing EBIT margins of 20% were achievable for the year. Aided by successful pricing actions and significant storm activity in the United States, Roofing delivered EBIT of $141 million and EBIT margins of 22% in the second quarter. We remain focused on growth and profitability and are well on track to achieve our 20% margin goal for the year in this business.

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