Hello, everyone, and welcome to the Owens Corning Second Quarter 2022 Earnings Call. My name is Daisy, and I'll be coordinating today's call. I would now like to hand over to your host, Amber Wohlfarth, to begin. So Amber, please go ahead.

Thank you, and good morning, everyone. Thank you for taking the time to join us for today's conference call and review of our business results for the second quarter of 2022. Joining us today are Brian Chambers, Owens Corning's Chair and Chief Executive Officer; and Ken Parks, our Chief Financial Officer. Following our presentation this morning, we will open this one-hour call to your questions. In order to accommodate as many call participants as possible, please limit yourselves to one question only. Earlier this morning, we issued a news release and filed a 10-Q that detailed our financial results for the second quarter 2022. For the purposes of our discussion today, we have prepared presentation slides that summarize our performance and results, and we'll refer to these slides during this call. You can access the earnings press release, Form 10-Q and the presentation slides at our website, owenscorning.com. Refer to the Investors link under the Corporate section of our home page. A transcript and recording of this call and the supporting slides will be available on our website for future reference. Please reference Slide 2 before we begin, where we offer a couple of reminders. First, today's remarks will include forward-looking statements based on our current forecasts and estimates of future events. These statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. We undertake no obligation to update these statements beyond what is required under applicable securities laws. Please refer to the cautionary statements and the risk factors identified in our SEC filings for a more detailed explanation of the inherent risks and uncertainties affecting such forward-looking statements. Second, the presentation slides and today's remarks contain non-GAAP financial measures. Explanations and reconciliations of non-GAAP to GAAP measures may be found in the text and financial tables of our earnings press release and presentation, both of which are available on owenscorning.com. Adjusted EBIT is our primary measure of period-over-period comparisons, and we believe it is a meaningful measure for investors to compare our results. Consistent with our historical practice, we have excluded certain items that we believe are not representative of our ongoing operations when calculating adjusted EBIT and adjusted earnings. We adjust our effective tax rate to remove the effect of quarter-to-quarter fluctuations, which have the potential to be significant in arriving at adjusted earnings and adjusted earnings per share. We also use free cash flow and free cash flow conversion of adjusted earnings as measures helpful to investors to evaluate the company's ability to generate cash and utilize that cash to pursue opportunities that enhance shareholder value. The tables in today's news release and the Form 10-Q include more detailed financial information. For those of you following along with our slide presentation, we'll begin on Slide 4. And now opening remarks from our Chair and CEO, Brian Chambers. Brian?

Thanks, Amber. Good morning, everyone, and thank you for joining us for today's call. I hope all of you are continuing to stay healthy and safe. During our call this morning, I'll provide a high-level view of our performance and the progress our team is making on several strategic investments to expand our addressable markets, accelerate growth and strengthen the earnings power of our company, all supporting our ability to continue delivering strong results in diverse market conditions. Ken will then provide details on our second quarter financial results, and I'll come back to talk about our outlook for the third quarter and broader business trends. Now I'll turn to our second quarter results, where we delivered another outstanding quarter, in line with the expectations that we shared with you during our April call. As always, we'll begin with a review of our safety performance. As you know, safety is a top priority for our company. Year-to-date, approximately two-thirds of our global facilities remain injury-free, and half of our sites have worked injury-free over the past 12 months. In the second quarter, our recordable incident rate was 0.81. This result was above our second quarter 2021 performance and reminds us of the daily focus we must have on safety in order to achieve an injury-free workplace. Financially, we delivered second quarter revenue of $2.6 billion, a 16% increase over the second quarter of 2021; adjusted EBIT of $525 million, up 29% year-over-year; and adjusted EBITDA of $656 million. This resulted in a record adjusted EBIT margin of 20% and an adjusted EBITDA margin of 25% for the quarter. In addition, we generated free cash flow of $361 million and returned $136 million of cash to investors through dividends and share repurchases. During the quarter, our global teams continued to execute incredibly well to service our customers and deliver strong financial results despite ongoing supply chain disruptions, regional impacts of COVID and high inflation. Positive price realization in the quarter once again offset energy, raw material and transportation inflation in each of our three businesses. As we continue to outperform the market in the near term, we are also investing and taking actions to build Owens Corning for the future. Last November, at our Investor Day, we shared our strategy to accelerate the company's growth and generate higher or resilient earnings by strengthening our core businesses and expanding into new products and applications that leverage our market knowledge, material science expertise and manufacturing capabilities. The progress we are making, driven by great execution from our teams, optimizes performance across our manufacturing networks, and highly focused, growth-oriented investments establishes Owens Corning as a stronger company with increased earnings potential. This strong foundation positions us to continue delivering exceptional results even if market conditions shift from the elevated levels we've recently experienced. I'll now share several updates that directly support our strategy and our mission to build a sustainable future through material innovation. During the second quarter, we completed our acquisition of WearDeck, a premium producer of composite weather-resistant decking for commercial and residential applications. This acquisition expands our product offering into a new high-value building material solution. With current annual revenues of approximately $60 million, we see the opportunity to leverage our glass fiber science and market knowledge to accelerate material conversion in this fast-growing product category. Continuing with Composites, in June, we announced a new joint venture with Pultron Composites, a producer of our industry-leading fiberglass rebar. Today, fiberglass rebar makes up less than 1% of the $9 billion North American rebar market, and we see the potential to significantly grow in this space over the coming years with a more sustainable, durable product solution. The joint venture with Pultron will expand our manufacturing capability and improve market access for our products, including PINKBAR+ Fiberglass Rebar used for flatwork and residential applications. In July, we entered into an agreement to acquire the remaining 50% interest in an existing joint venture based in the U.S. that produces high-value nonwoven fiberglass mat that we expect to close in the third quarter. In addition to these investments, on July 1, we completed the sale of the European portion of our composites dry-use chopped strand product line, which includes our manufacturing assets located in Chambéry, France. Our two other DUCS manufacturing facilities are being repurposed with minimal capital investment to produce other glass fiber products needed to support our growth in building and construction applications. Each of these moves support our pivot in Composites into higher-value, more capital-efficient applications focused on building and construction, renewable energy and infrastructure, all of which leverage our core glass fiber technology. Switching to Insulation. In June, we signed an agreement to acquire Natural Polymers, an innovative manufacturer of spray polyurethane foam insulation for building and construction applications. In recent years, we've seen significant advancements in the spray foam industry that make the material a much more attractive solution. The Natural Polymers technology, in combination with our material science knowledge, will enable us to provide customers with a broader insulation product offering, featuring long-term, sustainable solutions. Natural Polymers expects to deliver annual sales of about $100 million with continued double-digit growth over the next several years. We expect to close this transaction in the third quarter. And as previously shared, we are also moving forward to exit the Russian market. While the environment is complex to complete such transactions, we are working through the options to transfer or sell our facilities. To complement these strategic moves, we also continue to invest in accelerating our organic growth through product and process innovation as well as expanding our sustainability leadership. During the first half of the year, the company launched more than 30 new or refreshed products across our global businesses. These products span many of the core platforms in our Roofing, Insulation and Composites businesses. Of particular note in the second quarter was the launch of seven products focused on supporting our leading market position in wind energy. Our continued progress in developing new and refreshed product lines is a demonstration of our ability to transform customer insights into new functionality and solutions that promote business growth. Before I turn it over to Ken to walk through our financial performance in more detail, I'd like to share a brief update on the sustainability front. In May, we were honored to earn the top spot on the 100 Best Corporate Citizens list for an unprecedented fourth year in a row. This ranking recognizes outstanding environmental, social and governance performance and transparency among the largest publicly traded U.S. companies. This is one of several recent achievements that demonstrate the commitment of our 20,000 employees to making an impact in ESG. While recognition is never the aim of our activities, it reinforces the importance of the work we do and the way we do it. And it inspires our team to continue toward our goals to increase the positive impacts of our products, reduce the negative impacts of our operations and help our employees and communities thrive. With that view of our performance and strategic initiatives, I will now turn it over to Ken to discuss our financial results in more detail. Ken?

Thanks, Brian, and good morning, everyone. As Brian commented, we delivered another record quarter with strong revenue and earnings growth across the enterprise. While demand conditions remain solid in the markets we serve, our ongoing execution was fundamental to driving this performance, allowing us to continue to manage through accelerating inflation and supply chain challenges. As we've talked about in prior calls, inflation continues to impact energy costs, nearly all material input costs as well as transportation. In each of the three businesses, positive price more than offset the inflation headwinds in the quarter. Overall, second quarter operating margins reached 20%, an expansion of 200 basis points versus the same period last year. Beginning on Slide 5, we can take a closer look at our results. We reported consolidated net sales of $2.6 billion for the second quarter, up 16% over 2021, with double-digit revenue growth in all three segments. Adjusted EBIT for the second quarter of 2022 was $525 million, up $117 million compared to the prior year. Adjusted earnings for the second quarter were $377 million or $3.83 per diluted share compared to $283 million or $2.68 per diluted share in the second quarter of 2021. Slide 6 shows the reconciliation between our second quarter 2022 adjusted and reported EBIT. For the quarter, adjusting items totaled approximately $36 million. We recognized $7 million of gains on the sale of precious metals. We also recognized a $29 million charge associated with the sale of the European portion of our DUCS product line. In addition, we recorded $11 million of restructuring charges associated with our already announced actions. Finally, we recorded $3 million of costs related to acquisitions announced in the quarter. All of these items are excluded from our second quarter adjusted EBIT. Turning to Slide 7, I'll discuss our cash generation and capital deployment during Q2 of 2022. Earnings expansion, along with continued discipline around management of working capital, operating expenses and capital investments, resulted in strong free cash flow of $361 million for the quarter while beginning to replenish historically low inventory levels. Capital additions for the second quarter were $105 million or 4% of revenue, up $12 million from 2021 as we return to more normal capital spending while we continue prioritizing investments that drive growth and productivity. Consistent with what we shared at Investor Day, we remain focused on reducing our capital intensity through productivity and process innovations. As a result of this and our earnings growth, our return on capital continued to expand and reached 21% for the 12 months ending June 30, 2022. At quarter end, the company had liquidity of approximately $1.9 billion, consisting of $810 million of cash and nearly $1.1 billion of combined availability on our bank debt facilities. During the second quarter of 2022, we returned $136 million to shareholders through share repurchases and dividends, bringing the year-to-date total cash returned to shareholders to $400 million. In the quarter, we repurchased one million shares of common stock for $86 million and paid a cash dividend of $35 million. We remain focused on consistently generating strong free cash flow, returning at least 50% to investors over time and maintaining an investment-grade balance sheet while executing our business strategies to grow our company. Slide 8 summarizes the changes in second quarter adjusted EBIT from 2021 to 2022 by business. Second quarter 2022 adjusted EBIT increased $117 million over the prior year, reaching $525 million. All three segments delivered significant year-over-year EBIT growth. Now turning to Slide 9, I'll provide more details on the performance of each of the businesses. The Insulation business continued to build on the strong momentum of Q1, delivering record results in the second quarter. Q2 revenues were $934 million, a 16% increase over second quarter 2021. North American residential fiberglass insulation growth resulted from positive pricing with modest volume growth. In technical and global insulation, demand remains strong for our highly specified products. However, we saw an impact from COVID restrictions in China contributing to the slightly lower volumes in the quarter for overall technical and global insulation. Pricing was positive and continued to offset accelerating inflation. We also recognized positive product mix, while currency became a larger headwind in the quarter. EBIT for the second quarter was $157 million, up $45 million as compared to 2021. The EBIT increase primarily resulted from positive price more than offsetting accelerating energy, material and transportation inflation. Additionally, we benefited from favorable mix and solid execution in our manufacturing operations. Insulation delivered EBIT margins of 17% in the second quarter. Now please turn to Slide 10 for a review of our Composites business. The Composites business delivered another strong quarter in Q2 with EBIT growth of 57% year-over-year. Sales for the quarter were $719 million, up 23% compared to the prior year. We benefited from favorable spot pricing and contract price realization as we continue to face ongoing inflation. The top line growth was also driven by strong commercial performance and delivered another quarter of favorable mix. From a volume perspective, we saw an impact from the COVID restrictions in China contributing to the modestly lower volumes for the overall Composites business in the quarter. EBIT for the quarter was $154 million, up $56 million from the same period a year ago, resulting from positive price more than offsetting the impact of accelerating energy, material and transportation inflation in addition to favorable mix. Composites delivered 21% EBIT margins for the quarter. Slide 11 provides an overview of our Roofing business. The Roofing business delivered record quarterly top and bottom line performance. Sales in the quarter were $1 billion, up 11% as compared to the prior year, with positive price realization partially offset by the anticipated mid-single-digit volume decline. The U.S. asphalt shingle market on a volume basis was down 3% as compared to the prior year with our U.S. shingle volumes slightly trailing the market. For the quarter, EBIT was $258 million, up $24 million from the prior year as we continued to service the strong market demand, along with positive pricing more than offsetting accelerating inflation from asphalt, other material and delivery costs. EBIT margins remained strong at 25%. Turning to Slide 12, I'll discuss our 2022 outlook for key financial items. General corporate expenses are now expected to range between $170 million and $180 million. This is an increase from our prior outlook and reflects higher performance-based compensation driven by our strong results, partially offset due to ongoing discipline around cost controls. Interest expense is estimated to be between $115 million and $125 million. We expect our 2022 effective tax rate to be 25% to 27% of adjusted pretax earnings and our cash tax rate to be 22% to 24% of adjusted pretax earnings. Finally, capital additions are expected to be approximately $480 million, which is below anticipated depreciation and amortization of approximately $520 million. Now please turn to Slide 13, and I'll return the call to Brian to further discuss the outlook.

Thank you, Ken. Our global teams continue to drive our business forward, focused on servicing our customers, enhancing our market-leading positions, and making strategic investments to expand our total addressable markets. As we move through the third quarter, we expect conditions in most of our applications in key geographies to remain positive even in the face of high inflation and rising interest rates. In U.S. residential and commercial markets as well as most of our global construction end markets, we anticipate continued good demand for our solutions. Based on current trends, we also anticipate inflation to continue to significantly impact our costs across all of our businesses. Even with this inflation, we expect to maintain positive price/cost in each of our businesses in Q3 as we realize the benefits from announced pricing actions. We will also continue to closely manage the ongoing impacts of supply chain disruptions and the regional impacts of COVID on our businesses. Overall for the company, we expect to have another quarter of net sales and adjusted EBIT growth versus prior year. Now consistent with prior calls, I'll provide a more detailed business-specific outlook for the third quarter, starting with Insulation. We expect revenue to grow mid- to high teens versus prior year, driven by a combination of continued price appreciation and modest volume growth, partially offset by the continued impact of currency headwinds, which should be similar to Q2. In our North American residential fiberglass business, we anticipate our volumes to be up slightly versus prior year, supported by the start-up of our Eloy facility and ongoing productivity efforts. We expect price realization as a percent of sales to be similar to what we experienced in the second quarter. In our technical and global insulation businesses, we expect volumes to remain relatively flat versus prior year as demand for our products and global building and construction applications remains stable. We would expect price realization as a percent of sales similar to what we experienced in Q2. In terms of overall inflation, we expect material and energy costs to increase from what we experienced in the second quarter and anticipate that price realization will result in positive price/cost in the quarter. Given all this, we expect to see earnings growth in Q3 versus prior year with EBIT margins in the mid-teens for the business. Moving on to Composites. In the third quarter, we expect revenue to increase low double digits year-over-year, primarily driven by continued price realization, partially offset by some volume impact from the sale of our DUCS business in Europe, the continuing impact of the COVID restrictions in China as well as continued currency headwinds. We anticipate composites pricing will remain steady with a slightly lower year-over-year comp versus what we saw in Q2 as we begin to anniversary some of the spot pricing increases that started as we entered into the second half of 2021. While we anticipate inflation to continue to be a headwind, we believe we are positioned to deliver a positive price/cost for the quarter. Overall, we expect to realize strong earnings growth in the quarter versus prior year with high-teen EBIT margins. And in Roofing, we anticipate revenue growth of high teens with ARMA market shipments relatively flat to prior year, driven by solid repair and remodel demand and ongoing regional inventory replenishment opportunities. We would anticipate our shingle volumes in the quarter to track largely in line with the market. As in our other businesses, we expect inflation to remain a meaningful headwind in the quarter with asphalt and transportation costs continuing to increase. From a price/cost perspective, we expect to deliver another positive quarter, including realization from our upcoming increase effective in August. Overall, we anticipate earnings growth versus prior year with EBIT margins of low 20s for Roofing. With that view of our businesses, I'll close with a few enterprise items. Our team remains committed to generating strong operating and free cash flow. In terms of capital allocation, our priorities remain focused on reinvesting in our business, especially organic growth and productivity initiatives, returning at least 50% of free cash flow to shareholders over time through dividends and share repurchases and maintaining an investment-grade balance sheet. In addition, as evidenced by the recently announced acquisition of WearDeck and Natural Polymers and the new joint venture with Pultron, we are continuing to actively evaluate strategic investments to leverage our unique material science, manufacturing and market expertise and expand our addressable markets. We are also continuing to invest in organic growth through our product and process innovation and market development, in support of our enterprise strategy to grow through expanding our building and construction product and system offerings. Overall, we are excited about the investments we are making to help our customers win in the market, grow our company and deliver value for our shareholders. As we move through the second half of the year, we will remain focused on delivering strong financial results and positioning the company for long-term success. With that, I will now turn the call back to Amber to open it up for questions. Amber?

Thank you, Brian. We are now ready to begin the Q&A session.

Our first question is from Stephen Kim from Evercore.

Really great results. Thanks for all the information. I've got a bunch of questions, but I'll stick to one. On the Roofing business, where you've continued to just form historical levels. But there was one other time that your margins got roughly this high, and it was kind of in the late '09 period. And when that happened, your margins quickly collapsed in the following years. And it was caused by winter discounting, which I assume isn't going to happen again, as well as the economy and the housing market were still recovering from the GFC. So today, when you look at your margins in Roofing and you think about the dynamics that would affect that over the course of the next few years, knowing that there's uncertainty out there but also recognizing that the drop, it seems like it's fundamentally better, I'm wondering if you could talk about why this time we might see perhaps a more gradual descent back to a normalized level as opposed to something abrupt. And if you could also talk about how storm activity is faring so far this year.

Thank you, Stephen. You experienced some connectivity issues, but it seemed your questions were focused on roofing margins and storm activity trends. Regarding roofing margins, you're correct in recalling their past fluctuations. There are a few changes now: one is market conditions and the other relates to our operational improvements since that earlier period. In the market, we are observing increased roofing demand, which has been consistent over the past couple of years. The margins that weakened after 2009 coincided with a significant shift towards newer technologies and a higher replacement cycle for roofs. We are now through that transition and have entered a stable replacement cycle, which is promising for future roofing demand. Additionally, a strong repair and replacement market is developing because many homes built in the early 2000s are nearing a 20-year mark and will require upgrades. We believe this trend will yield favorable replacement opportunities in the coming years. Overall, we anticipate strong demand trends to continue. Historically, we have been able to maintain our pricing in relation to asphalt costs. While asphalt costs have risen, asphalt shingles remain the most cost-effective choice for homeowners compared to other options. We see continued demand potential driven by replacement cycles, with roofing still being an economical choice, even at slightly higher prices. From an operational standpoint, we have improved our efficiency in shingle production over recent decades, leading to lower conversion costs and better throughput. We have also expanded our components business, which now contributes significantly to our revenue and margin performance. Internally, we believe we are better organized now than in the past, enabling improved margin performance through both shingle sales and components. Regarding storm activity, as I mentioned in the last earnings call, we entered the second quarter with reduced storm demand, which posed some uncertainty for the second half of the year. However, during the second quarter, we encountered several smaller storms, especially in the Midwest and other regions, which increased demand. While we are still slightly behind in terms of major storm events, numerous smaller storms have contributed to demand. Certain areas, like the Rocky Mountains, are not experiencing significant storm-related activity, with a notably light hail season. Overall, storm demand is improving, and as we transition into Q3—a historically active storm quarter—we expect the Q4 and 2023 volumes to largely depend on how the storm season develops in the upcoming months. Currently, the situation appears to be improving and is fostering a strong demand environment for us.

Let me add one more point because I agree with everything that Brian said. It's worth considering the gradual descent you mentioned. While we may have different perspectives on housing starts over the next few quarters, we have been closely monitoring how completions are tracking. Although new housing isn't the largest segment of the market, it significantly influences what may happen as new housing starts change. We observed a month where housing completions, particularly for single-family homes, almost matched new housing starts. However, we still believe that the gap between new housing starts and housing completions could lead to a soft landing in the coming months if the market gets adjusted.

I have sort of an all-around question on Composites. Looking through the 10-Q, it looked like the natural gas hedges were maybe a $30 million benefit there in the quarter. I guess the overall question is if you could sort of speak to the demand environment, particularly in Europe. And then given what's going on with energy inflation here, sort of what are your thoughts on maintaining the pricing that you'll need to sort of offset what we would think might be a continued, I guess, step-up in energy costs here?

Yes, that's a great question. The natural gas hedges certainly provided a benefit. The actual amount is likely closer to $30 million for the first half, with approximately $16 million to $20 million attributed to the second quarter alone. We continue to apply this hedging strategy consistently for our natural gas requirements, especially for our Insulation and Composites business. Demand for composites in Europe remains strong. However, we did notice some fluctuation in our business in China due to the impact of COVID restrictions, which may be causing some competitive pressure. We expect that as these restrictions ease, demand will stabilize back to normal levels, reflecting the ongoing global desire for our solutions, particularly in local production for local demand. Transportation costs, both by land and sea, continue to rise, adding inflationary pressures. We believe the solutions we offer, including new products like WearDeck and fiberglass rebar, are valuable to customers, encouraging them to remain loyal. Currently, Europe continues to show strength, and we anticipate ongoing energy inflation, especially in that region. The pricing strategies we've implemented, both through spot pricing and contract negotiations for 2022, are adequate to maintain a favorable pricing-to-cost balance. While we expected certain inflation levels when setting our contract prices, costs continue to rise in various areas, but we are still maintaining a positive pricing/cost spread in our business.

Congrats on a really strong performance and really good execution. I think you guys kind of alluded to it, next few months, it's going to be a lookout in terms of how the U.S. market, housing market shapes up with affordability and a more choppy macro backdrop. So I'm just curious, how much visibility do you have? Have you seen any noticeable change in order patterns? And if things do slow down a bit, what's the game plan in managing your business perhaps a little differently going forward?

Thank you for your question and comments. Yes, we recognize the challenges ahead, but demand for our products remains strong. Our volumes, especially in the residential insulation sector, increased slightly in Q2, and we expect modest growth in Q3. We continue to see healthy demand for our products in the short term. However, we acknowledge that the housing market needs to adjust to the higher interest rate environment, which we are witnessing currently. Despite this, we believe there are positive factors supporting our business in the near term. The significant gap between housing starts and completions over recent quarters indicates a substantial backlog that we will address over the coming months. This backlog will help sustain demand for our products during the market adjustment. Looking ahead to 2023 and beyond, we still anticipate strong underlying demand due to favorable demographic trends driving the need for more housing. The U.S. housing market has been underbuilt for years, leading to a persistent demand for new construction. Even as consumers adapt to the current interest rates in the 6% range, which is historically reasonable, we expect a significant adjustment process. Although we may experience some short-term fluctuations, the long-term fundamentals for new construction remain robust, sustaining demand for our products. Regarding potential slowdowns, we have concentrated on implementing structural changes and improvements within our Insulation division and the company as a whole. Specifically, we've focused on optimizing our manufacturing network over the past several years. We are advancing our plans, including the sale and closure of our Santa Clara facility, and have begun operations at our Eloy facility, with our Nephi facility set to start soon. These are smaller, more flexible assets, allowing us to realize operational cost improvements through enhanced productivity and automation. If a slowdown materializes, we believe we will deliver favorable results and stronger margins compared to previous volume declines. Our teams have been diligently preparing for this scenario, and we will see how the market evolves in the next few quarters. Overall, we feel confident about our position.

I wanted to focus on the Composites segment in particular. First, just a greater clarification whether mix or pricing was a greater driver for performance in the quarter and get a little bit more color on what that mix is and what it means going forward. And you had some comments on China with lower volumes, which is understandable, and your guidance is helpful just in terms of outlook in that market. But a greater clarification on the differentiation for volume and outlook for both your U.S. business and your European business, understanding that those are very different end markets.

Thanks, Kathryn. In this quarter, pricing had a more significant impact than mix. Over the past four quarters, we've discussed that mix wasn't showing improvement as we adjusted our products and approach to better align with customer needs further down the value stream. We did see some positive movement in that area, which we expected to diminish slightly each quarter while still maintaining a positive mix impact. Ultimately, we experienced a minor incremental improvement this quarter, but pricing still played the larger role. The favorable difference between price and costs is due to strong global demand. We'll delve into that further in my upcoming comments. This strong demand has allowed us to achieve good contractual pricing results, alongside solid spot pricing, both contributing positively this quarter. Regarding volume outlooks in the U.S. and Europe, the U.S. market remains very robust, especially in the building and construction sector. In contrast, Europe has a different mix of business, but demand for our composite products there also remains strong. Regarding China, we've seen a slight decrease in total composites business volumes, amounting to around $200 million to $250 million annually, primarily due to COVID restrictions impacting operations. However, we are seeing a strong composites market in India. Overall, we remain optimistic about demand for our products as we continue to focus on providing higher-value solutions, and we expect this trend to persist at least through the third quarter. We'll provide updates as conditions evolve, but currently, our order books look solid across all regions.

It's on the supply chain, you mentioned continued challenges there. We've heard from others that there might be some stabilization or at least signs of stabilization. Are you seeing anything that gives you any encouragement on that front?

Yes, thank you, John. Overall, we are still experiencing impacts from disruptions, but I would say they are improving in many areas of our supply chain. Comparing where we started the year to now, we are beginning to see some enhancements in various inputs needed for our products. However, these disruptions still affect our operations as we have to navigate through minor challenges. While conditions are getting better and the disruptions are becoming shorter in duration, we still face issues that need to be addressed. Our manufacturing, operations, and supply chain teams have done outstanding work over the past year, and they continue to strive for a seamless process to minimize the impact of these disruptions on our operations and our shipments to customers. We still have very high demand for our products, and most areas are experiencing extended lead times. The efforts by our teams to manage this situation have been remarkable, but we still have challenges ahead that we need to manage in the current quarter and likely in the near future.

This is Asher Sohnen on for Anthony. Can you just talk a little bit more about the strategic rationale behind the Natural Polymers spray foam acquisition? And what kind of synergies are there to unlock with your existing fiberglass insulation business? How do margins on the acquired spray foam business compare to maybe fiberglass insulation?

Thank you for the question. We believe that Natural Polymers will be a significant enhancement to our Insulation business for several reasons. Firstly, it aligns perfectly with our enterprise strategy, which focuses on strengthening our core performance and expanding into new product and solution applications in the building and construction sector. This acquisition introduces us to a new product category with excellent growth potential and healthy margins, while requiring much lower capital investment compared to other areas of our Insulation business. It effectively supports our growth objectives, providing stable margins with enhanced capital efficiency. Additionally, it strengthens our product range in the Insulation sector. We've considered this product category for a long time, and our customers have expressed a strong interest in our entry into this market. We believe this addition broadens our product offerings, enabling us to meet various insulation solutions tailored to our customers' requirements. The distribution and sales channels for this product will closely mirror those we currently utilize, which offers synergy as we expand this product category. Another key factor in our attraction to Natural Polymers is their unique product formulation with very low VOCs, which provides distinct application and performance advantages. We see excellent opportunities for growth and scalability here. We have carefully assessed health and safety issues related to this product category, and we are confident that recent advancements in formulations and insulation guidelines sufficiently address our concerns. We are very enthusiastic about incorporating this product line into our portfolio, as it presents a unique opportunity to further grow our Insulation business and improve our margins.

As we think about the near-term uncertainty around housing, can you just talk a bit about capital allocation and how you're thinking about further M&A deals that may come up relative to perhaps shareholder returns, buybacks, things of those nature?

Thank you, Sue. I appreciate your question. We have been careful and intentional in our capital allocation strategy, and we believe there are no changes needed at this time. Our priorities remain focused on generating strong free cash flow and maintaining an investment-grade balance sheet. We plan to return approximately 50% of our free cash flow to shareholders through dividends and share repurchases while also investing in the business for organic growth and making capital expenditures. Looking back to the enterprise strategy we outlined last November, we committed to fostering organic growth through innovation, which involves investing capital for that purpose and pursuing acquisitions. We are committed to thoughtfully evaluating potential acquisitions that offer unique product technologies or opportunities for market expansion. We will be diligent regarding the valuations and prices we accept for these acquisitions, ensuring that they represent sound investments. We will continue to assess our pipeline but will carefully consider the timing and pricing of any decisions to ensure they are prudent. Additionally, we have built a robust balance sheet, which is crucial for high-performing companies to leverage during both prosperous and challenging times. This strengthens our long-term company performance, and we aim to maintain this approach. While we may adjust our strategy in the short term based on market conditions, our long-term goal remains to continue investing in the company's growth.

I just wanted to circle back and make clear on maybe a few comments around the topic of inventory and demand patterns. And obviously, you gave the guidance by segment in terms of what you expect for volumes in the third quarter. But I was curious around if you could kind of review where inventory levels are across your three different businesses, particularly in the U.S. and as it relates to composites, also Europe. And to the extent that customers do begin to maybe take a little bit more of a cautious approach, if there is any type of inventory risk in addition to softer order patterns that might impact the business at least on a temporary basis.

Thank you, Mike. I'll begin, and Brian might want to add some thoughts afterward. At a high level, as mentioned, we experienced strong cash generation in the second quarter. Additionally, we increased our inventory by approximately $100 million between the first and second quarters. We believe some inventory has also been added in specific areas of the distribution channel. Over the last couple of years, both our company and the distribution channel have been operating with low on-hand inventory, and we are now starting to rebuild. This is true across all three of our business segments. However, we have not reached inventory levels that would trigger concerns if demand shifts slightly. We do not anticipate significant changes in demand for the third quarter. As we progress through the remainder of the year, our main focus across all three businesses will be to meet our customers' needs amidst stable demand patterns while having the opportunity to further enhance our inventory levels. We are not worried about excess inventory and see potential to align closer to historical norms.

Yes. I would just add, I think that's the same in Roofing, Insulation and Composites. I do think, generally, we're seeing inventory levels get replenished in our customers and points of distribution. So we do see that across the board, but we're not seeing anywhere where there's an overbuild of inventory at our customer level. Now having said that, I think every customer is becoming more concerned with the market environment and the macro environment and demand patterns moving forward. So I think there is more thoughtfulness in what they're buying and how they're buying. But we've not seen any buildup in inventory that would cause a correction at the customer level. And then as Ken said, we've been running with very lean inventories. So if and when we do see demand start to slow, we think we're going to be needing to run our operations in the near term just to refill to get our inventory levels up to be able to get back to normalized service levels. So that would take a few more months to work through.

I have a quick question regarding your outlook for the third quarter. Do you expect the raw material costs mentioned in the Q to remain relatively stable, or will there be some delayed impact from commodity indexes in this period?

Keith, could you please clarify what you're asking about the flow-through of raw materials? If you could rephrase that a bit, it would be helpful.

In the Q, you mentioned that raw materials increased by $92 million in Roofing. Will that number rise further due to ongoing inflation, or do you think it has peaked based on your current knowledge?

No, I think in Roofing specific, Keith, on asphalt, we continue to see asphalt costs escalate, absolute costs. So we saw that through the first quarter. We saw that month-over-month in the second quarter and we expect to see those costs continue to increase month-over-month in the third quarter. So we are seeing those asphalt costs coming through. And in most of our inflationary numbers that we're looking at, we are seeing absolute dollar increases coming through and impacting the P&L. So again, we think we're in a good position with the price increases that we've got in place to stay and keep a positive price/cost, but we continue to see inflation cost escalating and particularly in roofing and in asphalt and in many other materials for our other businesses.

Yes. And yes, that's right. And thank you for the clarification. So as Brian said, seeing it all, asphalt, specifically in roofing, but we're also seeing chemicals continue to inflate. Obviously, energy, which is going into the production process, continues to inflate. So we're anticipating the environment that we've been living in for the last few quarters to continue into Q3.

Thank you, and thanks, everyone, for your time today and your questions. We appreciate your interest in Owens Corning, and look forward to speaking with you again during our third quarter call. And until then, I hope you and your families have a great, safe rest of the summer. Thanks.

Thank you, everyone, for joining today's call. You may now disconnect your lines, and have a lovely day.