Owens Corning Q4 FY2023 Earnings Call

Hello, everyone, and welcome to the Owens Corning Q4 and Full Year 2023 Earnings Call. My name is Seth, and I'll be the operator for your call today. I will now hand the floor over to Amber Wohlfarth to begin the call. Please go ahead.

Good morning. Thank you for taking the time to join us for today's conference call and review of our business results for the fourth quarter and full year 2023. Joining us today are Brian Chambers, Owens Corning's Chair and Chief Executive Officer, and Todd Fister, our Chief Financial Officer. Following our presentation this morning, we will open this 1 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-K that detailed our financial results for the fourth quarter and full year 2023. For the purposes of our discussion today, we have prepared presentation slides summarizing our performance and results and we'll refer to these slides during this call. You can access the earnings press release, Form 10-K and the presentation slides at our website, owenscorning.com. Refer to the Investors link under the Corporate section of our homepage. A transcript and recording of this call and the supporting slides will be available on our website for future reference. Please reference Slide 2 where we offer a couple of reminders. 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. 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 more detail. 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 our earnings press release and presentation, available on the Investor section of our website owenscorning.com. For those of you following along with our slide presentation, we will 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 today. During our call this morning, I will begin with an overview of our results for the quarter and full year, including some of the key drivers of our high performance. Next, I will provide some additional comments on the two transformative moves we announced last week to significantly reshape the company and sharpen our focus on building and construction materials. Todd will then provide more details on our fourth quarter and full year 2023 performance. And I'll come back to discuss what we are seeing in our markets and our outlook for the first quarter. Owens Corning delivered outstanding results in 2023. Our performance demonstrated the strength of our team, the value of our products, and the impact of our enterprise strategy to increase the earnings power of our company in dynamic markets. Through our disciplined commercial and operational execution, we mitigated slowing demand in some segments amid higher interest rates, and ongoing macro headwinds to deliver on our financial targets. I'll begin as always with a critical component to our success, safety. We continue to deliver world-class safety performance in 2023. During the fourth quarter, we achieved a recordable incident rate of 0.4, which was our best quarterly performance in over a decade. Our full year 2023 RIR rate was 0.6, which is top quartile performance for the U.S. manufacturing sector. Turning to our financial results, we finished the year strong with fourth quarter revenues up slightly and EBIT and EBITDA margins expanding year-over-year. For the full year, we delivered outstanding financial performance with revenues of $9.7 billion, adjusted EBIT of $1.8 billion and adjusted EBITDA of $2.3 billion. Despite slightly lower revenue versus the prior year, we were able to expand our adjusted EBIT margins to 19% and increase our adjusted EBITDA margins to 24%, demonstrating the value of our products and improvements in our operating efficiencies. In addition, we maintained our focus on working capital and commitment to shareholder returns, generating significant free cash flow and returning 68% to investors through dividends and share repurchases. In December, the company continued its streak of increasing our quarterly cash dividend, reflecting our continued confidence in strengthening the earnings power of the company and commitment to delivering long-term shareholder value. Through our strategic choices and strong execution of key operating initiatives, we are positioning Owens Corning for long-term success. Over the past couple of years, we have been consistently deploying capital against our three strategic priorities, to strengthen our position in core products and markets, to expand into new product adjacencies that leverage our unique material science, market and manufacturing expertise, and to develop more multi-material and prefabricated construction solutions. The execution of this strategy has led to higher operating margins and cash flows, increased innovation, stronger customer partnerships and a more focused company. Last week, we announced both the acquisition of Masonite and the strategic review of our glass reinforcements business, representing significant steps forward in strengthening our position in building and construction materials, and expanding our portfolio of branded residential products. We are very excited about entering the residential doors category with the acquisition of a market leader in this space. The addition of Masonite expands our leadership position in residential building products and a category that complements our current interior and exterior offering, creates a scalable new growth platform for our company and enhances our financial profile by growing revenue and earnings, lowering our ongoing capital intensity and increasing our free cash flow generation. The Door segment provides a great opportunity to leverage our unique commercial, operational and innovation capabilities to build out another market-leading residential building products business similar to what we've been able to accomplish in our Roofing and Insulation businesses, with a customer base we know well and work with today. We have built a strong operating model within Owens Corning, focused on creating value for our customers, driving continuous improvement in our operations, and developing sustainable solutions through material innovation, which is taking each of our businesses and made them significantly better. We intend to utilize this proven model as we enter the doors and door systems category, accelerating Masonite's Doors That Do More strategy to expand their current base of business and enhance their operating performance. We also announced a review of strategic alternatives for our glass reinforcements business. Like our decision to acquire Masonite, this is a choice consistent with our disciplined capital allocation approach and best owner operating philosophy. We believe each of these transformational moves will create a company that generates higher or consistent margins and stronger free cash flows, while better positioning us for long-term growth. Before turning it over to Todd, I'd like to provide a brief update on two key differentiators for our company, innovation and sustainability. To strengthen our market leadership, we continue to invest in new product and process innovation and our core product platforms to generate additional growth. This included the launch of 39 new or refreshed products in 2023. These innovations focused on increasing the performance and durability of our product offerings, which brings additional value to our customers to help them win and grow in the market. Sustainability, which is core to who we are and how we operate, is another key performance driver for our company. And our work continues to be recognized by the market and differentiate us as a company. In December, we earned a place on the Dow Jones Sustainability World Index for the 14th consecutive year. And next month, Owens Corning plans to issue its 18th annual sustainability report. The report will highlight progress toward our 2030 sustainability goals and further demonstrate our commitment to building a sustainable future through material innovation. Following our strong results in 2021 and 2022, our performance in 2023 once again demonstrated that our agility, consistent execution and commitment to our customers can drive outstanding performance through a variety of market conditions. We believe the actions we are taking to further strengthen our market positions, create new growth opportunities, and reshape Owens Corning to a more focused building products company will accelerate our financial performance in 2024 and beyond. With that, I will now turn it over to Todd to discuss our financial results in more detail. Todd?

Thank you, Brian, and good morning, everyone. As Brian mentioned, we finished the year strong with our performance in the fourth quarter, which contributed to our outstanding results in 2023. Throughout the year, we remain disciplined in our commercial, operational and capital allocation execution. I'd now like to turn to Slide 5, to discuss the results for the fourth quarter and full year. We delivered another strong quarter with adjusted EBIT of $392 million, which was 18% ahead of the same quarter last year. Adjusted EBITDA was $518 million with adjusted EBIT margins of 17% and adjusted EBITDA margins of 22%. Adjusted earnings for the fourth quarter were $287 million or $3.21 per diluted share, compared with $235 million or $2.49 per diluted share in the same quarter of the prior year. For the full year 2023, adjusted EBIT was $1.8 billion and adjusted EBITDA was $2.3 billion, which are both up 2% from the prior year. Our full year adjusted earnings were $1.3 billion or $14.42 per diluted share, compared to $1.3 billion or $12.88 per diluted share in the prior year. Slide 6 shows the reconciliation between our full year adjusted and reported EBIT. For the year, adjusting items totaled approximately $138 million and are excluded from our full year adjusted EBIT. They primarily include $169 million of charges associated with our ongoing cost optimization and product line rationalization actions, a $189 million gain on the sale of our Santa Clara facility and a $145 million loss on settlement for part of our pension liabilities, which took place in the fourth quarter of last year. Now turning to Slide 7, and moving on to our cash generation and capital deployment during 2023. We continue to focus on generating strong free cash flows for the enterprise. Strong earnings and continued discipline in working capital and capital investments resulted in $562 million in free cash flow in the quarter and $1.2 billion in free cash flow for the year. Free cash conversion was 91% of adjusted earnings. Full year capital additions were $526 million, approximately 5% of revenue, up $80 million from the prior year. We remain focused on reducing capital intensity through productivity and process innovations. As a result of strong commercial and operational execution, our return on capital was 22% for the year. At year end, the company had liquidity of approximately $2.7 billion, consisting of $1.6 billion of cash and $1.1 billion of availability on our bank debt facilities. During the fourth quarter of 2023, we returned $282 million to shareholders through share repurchases and dividends, bringing the year-to-date total to $812 million, approximately 68% free cash flow. In December, the Board declared a cash dividend of $0.60 per share, an increase of approximately 15%. Our capital allocation strategy remains unchanged. We are focused on generating strong free cash flow, returning approximately 50% to investors over time and maintaining an investment-grade balance sheet while executing on our business strategies to grow the company. Now turning to Slide 8, I'll provide additional details on our segment results. The Roofing business delivered another great quarter with revenue growth of 16% and year-over-year margin expansion. Sales in the quarter were $928 million. Overall volume was up versus last year as mild weather extended the roofing season in many regions and the attachment rate for our roofing components remained strong. Revenues were also positively impacted by favorable mix and continued price realization. The U.S. asphalt shingle market on a volume basis was up 24% in the quarter compared to the prior year, driven by favorable seasonality from the mild start to winter and continued storm demand. Our U.S. shingle volume growth trailed the market primarily due to our continued low levels of inventory throughout Q4 and our outperformance versus the market in Q4 2022. EBIT was $284 million for the quarter, up $116 million versus last year. The increase was primarily due to higher volumes, positive price, and favorable mix. Manufacturing costs were favorable in the quarter and input and delivery costs continue to moderate. All of this resulted in EBIT margins of 31% and EBITDA margins of 32%. For the full year, sales increased 10% to $4 billion. Volume was higher in both shingles and components. Positive price and favorable mix also contributed to the year-over-year increase. The U.S. asphalt shingle market on a volume basis was up 6% compared to the prior year, driven by higher levels of storm activity. Our U.S. shingle volumes trailed the market primarily due to our low inventory levels throughout the year. However, we were able to serve more roofing demand as a result of investments in debottlenecking for incremental capacity. For the full year, EBIT was $1.2 billion, up $343 million versus last year. The EBIT increase was primarily due to positive price, higher volumes, input and delivery costs that moderated throughout the year and favorable mix. The resulting EBIT margins for the year were 29% and EBITDA margins were 31%. Now please turn to Slide 9 for a summary of our Insulation business. The Insulation business finished the year strong with another quarter of 20% plus EBITDA margins. Q4 revenues were $931 million, a 3% decrease from the fourth quarter of last year. In technical and global, revenue was down slightly year-over-year. Positive price and favorable mix primarily in Europe largely offset lower volumes tied to the overall weaker macro environment. North American Residential Insulation revenue was down as expected. Volumes were down as demand tracked closer to lagged housing starts. Insulation EBIT for the fourth quarter was $150 million, down $3 million compared to the prior year. The impact of lower volumes and planned maintenance downtime was largely offset by realization of previously announced pricing and favorable delivery cost. Overall, Insulation delivered EBIT margins of 16% and EBITDA margins of 22% in the fourth quarter. For the full year, Insulation net sales decreased 1% to $3.7 billion compared to the prior year, with higher selling prices and favorable mix offset by lower volumes in both North American Residential Insulation and technical and global insulation. EBIT increased $7 million to $619 million with EBIT margins of 17% and EBITDA margins of 23% for the full year. Slide 10 provides an overview of our Composites business. In the fourth quarter, the Composites business continued to experience the impact of the softer macro environment. Sales for the quarter were $514 million, down 13% compared to the prior year. The decreased sales resulted primarily from lower volumes and lower prices as we continue to see spot price pressure for our glass reinforcements products. While overall revenue was down, we continue to see growth in our downstream nonwovens and OC structural lumber businesses. EBIT for the quarter was $26 million, down $38 million from the prior year. The EBIT decline was primarily due to lower volumes and associated production downtime as we maintain discipline to balance inventories with demand, which was partially offset by favorable manufacturing performance. We continue to experience price pressure in the quarter and had slightly negative price over cost, as we saw input and delivery cost deflation. Overall, Composites delivered 5% EBIT margins and 13% EBITDA margins for the quarter. For the full year, net sales decreased 14% to $2.3 billion compared to the prior year. The decreased sales resulted primarily from lower volumes with additional impact from the net impact of divestitures and acquisitions. EBIT for the year was $242 million, a decrease of $256 million from last year. The EBIT decline for the year was primarily due to lower volumes and the associated production downtime, as well as the net impact of divestitures and acquisitions. Input costs were inflationary for the year largely offset by favorable delivery costs. Overall, Composites delivered 11% EBIT margins and 18% EBITDA margins for 2023. Moving on to Slide 11, I will discuss our full year 2024 outlook for key financial items, all of which exclude the impacts of acquisitions and divestitures which have not yet been completed. General corporate expenses are expected to range between $240 million and $250 million. Interest expense is expected to range from $70 million to $80 million. Our 2024 effective tax rate is expected to be 24% to 26% of adjusted pre-tax earnings. Finally, capital additions are expected to be approximately $550 million, which is anticipated to be in line with depreciation and amortization. Now please turn to Slide 12, and I'll turn the call back to Brian to further discuss our outlook. Brian?

Thank you, Todd. Throughout 2023, our results demonstrated the strength of our team, the value of our products and the impact of our enterprise strategy. As we move into 2024, we are entering the year with a market that is fairly stable to where we exited 2023. Within the U.S. housing market, we expect single-family new construction to improve through the year based on pent-up demand and the expectations for lower interest rates, with repair and remodeling investments being more product and price dependent. We expect the macro environment in Europe to continue to be challenging, while global IP is expected to grow modestly in the year. Overall for the company, we expect our performance in Q1 to result in net sales slightly below the prior year while generating mid-teen EBIT margins. Now consistent with prior calls, I'll provide a more detailed business-specific outlook for the first quarter. Starting with our Roofing business, we anticipate revenues will be up low single digits in the quarter. Based on the strength of the market and storm carryover demand, we expect ARMA market shipments could be up approximately 20% versus the prior year, but would anticipate our volumes to trail ARMA shipments in the quarter due to our very strong performance in Q1 of last year as distributors were rebuilding inventory of OC products. We anticipate that our overall volume will be flat to slightly down as volume growth in shingles and roofing components will be more than offset by the impact from the exit of our protective packaging business within components. As a reminder, we made the decision to exit this approximately $100 million business in the third quarter last year. So the impact of exiting will be a headwind to volume and revenues throughout most of the year. We expect to realize some carryover price, slightly favorable mix, as well as modest inflation. Compared to Q1 of last year, we anticipate favorable manufacturing costs. Overall for Roofing, we anticipate EBIT margins in the high 20%. Before I move on to Insulation, I want to provide an update on the long-term EBIT margin outlook for our Roofing business. Each quarter, we've been updating you on the performance of the business and the investments we've been making to strengthen our contractor and distributor partnerships, improve our operating efficiencies, and accelerate our innovation. The result of this work has generated financial results for the business that have been running well ahead of our 20% long-term guide, demonstrating the improvements made to capitalize on strong market conditions. Based on the structural changes to improve the margin performance, we are updating the long-term EBIT margin guide for Roofing from approximately 20% to mid-20% on average. In the near-term, with current market conditions, we would expect margins to exceed this guide. Moving on to our Insulation business, we expect revenue to be down slightly versus the prior year, with lower demand being largely offset by positive price and slightly favorable mix. In technical and global, we expect revenue to be down slightly versus the prior year. Favorable mix and price realization resulting from previously announced increases are expected to be more than offset by lower volumes, tied primarily to the market environment in Europe and slightly softer demand in North America. In our North American Residential Insulation business, we anticipate volumes to be relatively flat versus the prior year. For the overall Insulation business, we expect input materials to be inflationary, partly offset by favorable delivery costs. Overall, we anticipate positive, but narrowing price costs for the quarter. Given all this, we expect to generate mid-teen EBIT margins for Insulation in Q1 similar to the first quarter last year. And in Composites for the first quarter, we expect results similar to what we delivered in Q4. From a market standpoint, we expect to start the year with demand trends and most of our glass reinforcements product lines similar to what we experienced in Q4. For Q1, we anticipate overall revenues to be down low to mid-teens versus the first quarter of 2023 driven by volumes which are expected to be down in glass reinforcements. Additionally, we anticipate overall pricing to step down year-over-year with glass reinforcement contracts resetting and spot prices continuing to be pressured. We also expect mix to remain a headwind. Within our nonwovens business, we expect volumes to be up modestly given the strength of Roofing demand. With slightly positive price costs, this contract pricing offsets anticipated inflation. Overall for the segment, we anticipate the impact of price and volume to be partially offset by favorable manufacturing costs year-over-year. And we will continue to be proactive in adjusting our production to demand. For the first quarter, we expect EBIT margins in the mid-single digits, similar to what we had last quarter. With that view of our businesses, I'll turn to a few enterprise items. Over the past few years, we've made several strategic choices and operational investments to increase our capabilities and consistently deliver higher, more resilient earnings. As we look at additional opportunities to grow, we will continue to be disciplined operators, focusing on markets and product lines where we can build leading positions through our customer and channel knowledge, material science and innovation capabilities, and manufacturing and process expertise. We will also look for investments that improve our position to capitalize on key secular trends around the increased levels of upgrades being made in residential living spaces, the demand for more sustainable building solutions, and changing construction practices, creating the need for more multi-material and prefabricated systems. In evaluating these opportunities, we will remain committed to a balanced capital allocation strategy, focused on organic growth and acquisitions that support our strategic priorities and leverage our unique operating capabilities and returning approximately 50% of free cash flow to shareholders over time through our consistently increasing dividend and ongoing share repurchases. Our team delivered outstanding results in 2023. And as we start 2024, we will continue to deliver for our customers and shareholders, while making significant strides to further strengthen Owens Corning's position as a market leader in building and construction materials. With that, we would like to open the call up for questions.

The first question comes from Joe Ahlersmeyer from Deutsche Bank. Please go ahead.

Hey, good morning, everybody. Thanks for taking my questions and congrats on the results.

Thanks, Joe.

Yes, if I could just spend a minute on Roofing, obviously, thanks for the update on your longer-term thoughts on Roofing margins. Maybe if you could just go into a little bit more detail on bridging where you were before to where you see things now. I know you went over it a little bit in the prepared remarks, but just some additional building blocks would be great.

Sure. Thanks. Our Roofing team has just done incredible work to strengthen the performance of our Roofing business, and you saw that in results in the quarter and full year. And we were getting a lot of questions kind of throughout last year as we saw the margins increasing around the durability of the margins. And I said at that time that we were making structural improvements to the business that we felt were increasing the durability of our margins. And some of that was going to be tied to a strong market. And we felt like it was important to start this year by updating the guide and moving that up from our approximately 20% that we've been working with for the last several years to our mid-20% on average guide. So when we look at the structural changes we've made in the business, they really come across a few key areas in addition to our really strong contractor pull-through demand network that we've created, and it's really a robust demand network. I think a couple of the changes that are more durable are one around our operating efficiencies overall and our overall operational performance in the business. So we've continued to invest, as Todd talked about, around some debottlenecking and increasing our land capacity. So we are getting great efficiencies out of our production lines through productivity, through automation, through process technologies. And that's opening up and giving us great operating leverage on our assets that are ongoing and very durable. We are looking and have made a lot of plant optimization moves within our components business. A few years back, we shipped a lot of production out of China to India. I've talked about the exit of our packaging business. So we continue to look at manufacturing optimization, plan optimization efforts. So that's a big focus around our operational efficiencies in the space. The other big area has been around the growth and expansion of our Roofing components business. So we continue to increase the products we can bring to market. And this is tied to our multi-material system sell around roofing, where hip and ridge, starter, ventilation products, all the pieces and parts to install a roof we can now provide, and those increase our mix. Those are high-margin products. So the expansion of that business has also added to the durability of our overall margin. So that combined with now a strong market, where we are seeing higher volumes that are giving us overall operating leverage, a good pricing environment, that's really led to the strength of the earnings that we are seeing in the business. But even when you set aside the market dynamics, we feel these structural improvements are going to allow us to maintain these kinds of operating margins in the mid-20% on average over time.

Our next question is from Stephen Kim at Evercore ISI. Please go ahead.

Yes. Thanks very much, guys. I just wanted to follow up on Joe's question regarding Roofing. Appreciate the long-term guide and that explanation as well. But from a volume perspective, this year was a surprisingly strong year. You chose to focus on debottlenecking efforts as opposed to expanding capacity in a more overt manner. And so as a result, you lost a little bit of share. As you look into 2024, if the industry volumes were to normalize, would you expect your share to increase back up to the level that it previously was? And if I could also just take this idea of like maybe losing a little bit of share in a strong market to the Insulation business, you've taken a somewhat similar approach in Insulation, where over the last few years, you've had competitors increase capacity and so forth. It doesn't sound like you're sort of announcing any new capacity expansion in Insulation. And so again, I'm just trying to understand how you think about balancing share with profitability, maybe you could say in these two segments given the outlooks that you've had?

Yes. Thanks, Stephen. Let me take some of these pieces, and I may ask Todd to comment as well. So let me first talk about the decision around debottlenecking versus capacity or plant expansion. This is how we are expanding capacity in a very capital-efficient way. We've got the broadest Roofing network as a manufacturer, and we have opportunities within each one of those facilities to debottleneck, to improve line speeds and to increase capacity. And this is something that we talked about a few years ago. You would have heard Gunner speak to around opening up capacity inside our existing network in a very efficient way. And so we've been doing that. So year-on-year, in '22, we produced a lot more laminates than we did in '21. We did that again last year. We are going to continue to do that. And then we did announce a new laminator that we're adding in our Medina facility that will come onstream mid next year, and that will be another big capacity improvement. So year-on-year, we are producing significantly more laminates, and the total that I would share with you roughly equates to a new four-wide laminator when we're done with that work by the end of 2025. So over a 3-year time period, we've effectively added laminate capacity to equate to a four-wide laminator. And again, in a very capital-efficient way, leveraging our existing network, leveraging our existing workforce, and we feel that's been a really efficient way to bring new capacity onstream. So that's given us the opportunity to grow as we go forward and continues to position us. When we think about our share position, while we saw some tough comps here in Q4, Q1, I will take us back to Q4 of last year, Q4 2022, and Q1 of last year, we significantly outperformed the market. And I think that's a little bit to your question around our ability to gain share. That was an area where demand for our product remained incredibly strong, and distributors had to continue to buy to rebuild inventory levels. And we saw that result in an outperformance to ARMA shipments in Q4 of '22 and outperformance in Q1 of this year. And on balance through 2023, we finished the share position pretty consistent with our historical average. So while we are investing for growth, we are investing to add lam capacity. I would say those are probably the two proof points to your question on, if the market does slow as we go through the year, we feel that our great contractor model, our great distributor partnerships, our product innovation, all the things we've talked about, is going to result in growth in the business. And we feel good about our position in doing that going forward. So in Insulation, maybe, Todd, I'll have you comment on that.

Sure, Brian, and Stephen, thanks for the question. So I mean, if we step back a few years as to what we were trying to accomplish in Insulation, we were really focused on how do we drive structural margin improvement in the business. How do we drive lower fixed costs through a more efficient and streamlined network, and ultimately, try to drive higher and more stable margins in the business, but we also drive a higher return on capital. I mean that was our thesis the last few years. And in some ways, it is similar to Roofing in that for Insulation, the highest return, the highest margin new capacity we had is debottlenecking our existing assets and finding ways to get more production out of our existing facilities and out of our existing fixed costs. And we've been very much focused on that to unlock some of that trapped capacity in our network. We are always evaluating market conditions. We are always looking at the future state of our business and assessing whether or not there's a right time to add capacity in the business. What I would say right now is we are very happy with our current share positions, and we are very happy with the customer and channel mix that we have in the business, and we are also very happy with the margin stability we were able to drive in 2023 in what was a down market overall for residential housing in North America.

The next question comes from Michael Rehaut from JPMorgan. Please go ahead.

Thank you. Good morning, everyone, and congratulations on the results. I wanted to revisit the long-term guidance for Roofing and asphalt. I think it’s encouraging to see the increased long-term margin targets for that business. Brian mentioned that structural operational improvements and manufacturing efficiencies are key drivers. Additionally, you highlighted the enhancements in the components business. I would assume that over the last two to three years, there has been some positive pricing in that sector as well. I’m interested to know how to assess the components regarding the shift from 20% to 25%. Would this primarily be due to manufacturing and operational efficiencies? Also, how do the recent price improvements and the larger mix of components factor into this margin change?

Thank you, Mike. The main factors contributing to our guidance increase from 20% to around 25% are primarily our operational efficiencies and the growth in our components business. These will be significant contributors. Additionally, our product innovations, particularly in high-margin duration shingles, are boosting our sales mix, which we believe is sustainable. We're also focused on the value we provide to our contractors by helping them grow their businesses. We have seen consistent price realizations that reflect the value we deliver to contractors and distributors through our high-quality products and innovation in our offerings. The durability of our progress will hinge on these two key aspects. We also expect sustainable growth from our shift towards laminates, along with the pricing and value we offer through our services. The potential for upside exists when market conditions improve, as we've experienced strong volume leverage in recent years. We've successfully maintained our pricing in line with inflation, ensuring continued value for our products as we move forward.

Our next question comes from Sam Reid at Wells Fargo. Please go ahead.

Awesome. Thanks guys. So wanted to drill down a bit more on Composite margins and perhaps break out how those looked for glass reinforcements versus say nonwoven. And then thinking about your plans for glass reinforcements, realize it's still early, but are you at the point where there's a particular bias towards selling this business outright or spinning it, especially now that you probably had the opportunity to have perhaps a few more conversations post last week's announcement? Thanks.

Thank you. I'll begin by providing an overview of our Composites, particularly regarding glass reinforcements and their margins. When we announced this, we indicated that the glass reinforcements business accounts for about $1.3 billion of the approximately $2.3 billion total. The remaining amount is likely linked to our nonwovens and structural lumber businesses. Historically, we've noted that the EBITDA margins in these sectors have been fairly consistent over time. However, it's important to mention that the margins in our glass reinforcements business have faced more pressure in 2023 compared to our nonwovens sector. If we look more closely at the nonwovens business, it has been a key focus for investment over the past few years to enhance our capacity and capabilities, significantly contributing to our success in the Roofing segment. Our vertically integrated model allows us to produce both the hybrid and the mat, enabling us to design cost-effective, high-performing products. In addition, we supply nonwoven materials to various roofing manufacturers as well as to other sectors in building and construction. These materials are essential for gypsum, facer, polyiso boards for commercial roofing, and even for ceiling and flooring applications, especially in Europe, aligning well with our building and construction initiatives and expanding our product offerings in that market. The nonwovens business has been well-specified, operating mainly through contracts in North America and Europe, which aligns with our geographic strategy. This segment has shown strong revenue and earnings, and we expect this trend to persist in 2023. Looking ahead, we anticipate robust demand driven primarily by our Roofing business and a favorable price/cost mix. The contracts we've secured in our nonwovens business have demonstrated positive pricing, positioning us well moving forward. This differentiation between the business segments underscores the importance of maintaining our nonwovens operations within the company as we progress. Regarding our plans for the glass reinforcements business, we are still in the early evaluation phase. We have not reached any decisions about a potential sale or spin-off, and this will play a role in our assessment going forward. We'll keep you updated on our progress as necessary. However, I expect it will take a few quarters before we can draw any conclusions or engage with potential buyers to assess interest.

Our next question comes from John Lovallo from UBS. Please go ahead.

Good morning. Thank you for taking my question. When you mention near-term Roofing margins exceeding the mid-20% range, is that specifically a comment about the first quarter? Or could it be applicable throughout 2024? Additionally, Roofing revenue typically increases significantly from quarter to quarter in the first quarter. The outlook seems to suggest a slight decline quarter-over-quarter. If that’s correct, what could be causing that? Thanks.

Let me begin by addressing your question regarding our revenue base. As for our long-term outlook, we provide guidance one quarter at a time, and we have shared our expectations for the first quarter. Based on my remarks about the Roofing business overall, we anticipate a very strong first half of the year, driven by significant pent-up demand from storm activity. In such a robust market, we expect our margins to exceed the mid-20% average we previously indicated. This outlook isn't limited to just one quarter; it could extend as we progress through the year with Roofing. Additionally, could you clarify whether your Roofing revenue question refers to the fourth quarter or year-on-year comparisons?

Quarter-over-quarter, sorry.

Yes. Looking back at the first quarter of last year, we outperformed the overall market significantly, achieving strong volumes. We were shipping everything we produced at the beginning of the year, which continued throughout the year. This year, our revenue growth will benefit slightly from increased volumes, but not significantly. Additionally, we are experiencing some challenges due to the exit from our packaging business, which accounts for about $100 million in revenue spread evenly across all four quarters. This situation is affecting our revenue in the first quarter.

The next question comes from Matthew Bouley from Barclays. Please go ahead.

Good morning. Thank you for taking my question. I wanted to ask about production. In the fourth quarter, there was some downtime across the segments, and I believe the plan was for all three segments to experience this. Could you remind us of the margin impact from the downtime? As you expect volumes to improve in Roofing and possibly see some improvements on the residential side and in Insulation, how are you planning to operate your assets in the first half? What would this mean for your margins? Thank you.

Yes. Overall, I'd say the downtime we took in Q4 was really spread across all the businesses. In Composites, particularly GR, it was tied more to demand balancing and inventory management. I'd say the other parts of the company, we generally take fourth quarter maintenance downtimes to service the assets, and we did that throughout in the space. So we don’t quantify necessarily by facility or by business segment, but I'd say the impact was larger in our Composites business, the glass reinforcements business, and then had an impact but less so in Insulation and Roofing. And we think, again, that was tied to just some temporary maintenance. In terms of how we're running the assets now as we've started the year, Roofing, every facility is back up and running. Our lines are running full out, producing as much product as we can to service our customers. I'd say the same thing in our Residential Insulation business. Again, we've got those assets up and running and producing at a high-level. Our nonwovens business is back up, so I'd say the one that we continue to balance our downtime and curtailments is going to be in our glass reinforcements business as we continue to just, again, balance production to demand, drive good cash flows in that business. But in our Roofing business, our Residential Insulation business, we are back up and running, and we'll continue to operate those assets full out to service demand.

The next question comes from Kathryn Thompson of Thompson Research Group. Please go ahead.

Hi. Thank you for taking my question today. I would like to focus on your Composite business. I am trying to understand more about the production levels, especially as you consider selling your nonwovens business. Based on our experience visiting plants, different types of Composite products can be produced within a single facility. Could you explain how much nonwoven production is possible compared to other products within one plant? This would help us understand the separation between them. Additionally, I recognize there are various types of nonwoven products versus others. Are there any potential cross-selling opportunities or other advantages that might be lost with the sale? I am looking to gain a clearer understanding of the real differences between nonwoven products and your other core offerings. Thank you.

Thank you, Kathryn. To clarify, our announcement pertains to strategic alternatives for our glass reinforcements business, while our nonwovens business and the necessary glass melting assets will remain part of Owens Corning's core. Regarding our glass reinforcements business, we included this in our announcement on Friday, which involves 18 manufacturing facilities. We can clearly define the separation between glass reinforcements and our nonwovens business. The analysis is complete. Out of those facilities, 9 are glass melting facilities dedicated to glass reinforcements. We also have 5 fabric facilities that produce fabrics used in wind energy applications and 4 alloy facilities that support the bushings and equipment involved in melting glass at our GR plants. This defines our operational perimeter. Additionally, we have 2 glass melting facilities that create the unique fiber required for our glass nonwovens production, which will remain operational to supply our nonwoven facilities. All our nonwoven facilities will continue to function. We believe we can operate these segments independently while exploring alternatives for the glass reinforcements business. As for how this might affect our glass nonwovens products, we will maintain our ability to service all building construction material categories previously mentioned, including gypsum applications, ceiling applications, polyiso, and flooring. This is an integral part of the business that we plan to continue operating, growing, and expanding.

Great. Thank you very much. Thank you. The next question goes to Susan Maklari of Goldman Sachs. Susan, please go ahead. Your line is open.

Thank you. Good morning, everyone. I wanted to switch to Insulation for a minute and talk about the margins there. They've been running in a much narrower range relative to the historical patterns that we've usually seen on a seasonal basis. And when you think about the 1Q guide and the outlook for housing, it would imply that there's a similar trend for this year as well. And so when you think about that segment long-term and the operations and the work that you've done on the cost, do you think that you can sustainably run those margins perhaps a bit higher than that 15% long-term guide that you gave at the last Investor Day? And I guess, what are you waiting to see to have more confidence perhaps to revise that?

I appreciate the question, and I’ll explain why we’re seeing this narrower range and what it may indicate for the future. The narrow range is intentional, as we’ve rebuilt the business to achieve higher and more stable margins through various actions. These include significant changes to our network, such as selling a high fixed-cost asset in Santa Clara and implementing improvements in other plants to increase capacity. We've also made strategic commercial choices regarding the channels and customers we prioritize, and we’ve structured the business to ensure more stable margins over time. We previously mentioned at Investor Day that we have structural margin improvements built into the business. Although we haven’t updated that information yet, we plan to discuss long-term margin expectations for Insulation when appropriate. Your observations regarding the first quarter guide are correct; there is a focus on margin stability. We are currently running our assets at high capacity and seeing stable market conditions, even amid volume declines in Europe, Asia, and some areas of North America. Looking ahead, if volumes return in these regions, we believe there’s potential for earnings growth beyond what we achieved in 2023. While we need to wait for macroeconomic conditions to improve, we’re confident that we’ve designed the segment to deliver more consistent and higher margins over time.

Thank you. And the next question goes to Truman Patterson of Wolfe Research. Truman, please go ahead. Your line is open.

Hi. This is Trevor Allinson on for Truman. Thank you for taking my question. I wanted to touch first on input costs in Composites and Insulation, specifically around energy. It didn't seem like input costs had a significant impact on operating profit in the quarter for those two segments. You've taken on a lot of energy inflation in the last couple of years. I think you had mentioned previously that peak energy for you guys was around mid-2022. So even with your hedges, we would have thought you'd be seeing some more of that here coming through in the form of deflation. So are you seeing other input costs offset that? Or why are you not seeing more of those energy benefits coming through? Thanks.

Let me tackle that one on our hedging policy, and then we could talk a bit about the pockets of inflation. So you're right, I mean, we hedge on a five-quarter rolling basis. The last of our higher-cost hedges really roll off in the first quarter of this year in '24. So we still had some of those hedges in place even in Q3, Q4 last year. We are seeing some input cost inflation. Some of the later cycle input materials that we use in different parts of our process, that are tempering some of the benefits that we would otherwise see from energy. Energy, certainly structurally, is a good news story for us as we get into '24. But there are pockets of inflation on some chemicals, on some input materials that we continue to see on our businesses, and we continue to work through those. So it's a bit of a combination of those two that drove the results in the quarter.

Thank you. The next question goes to Philip Ng of Jefferies. Philip, please go ahead. Your line is open.

Hey, guys. For 1Q, I believe you're guiding the low to mid-teen declines in your Composite business. Can you help us unpack the components for volume/mix versus price? And then appreciating margins in Composite tends to be a little lumpier, and there's a fair amount of seasonality. Do you see 1Q as trough margins, and you kind of build off that for the full year for Composites?

Thank you, Phil. Let's discuss pricing and product mix. Regarding pricing, I touched on this in our Q1 guidance. In our glass reinforcements business, about two-thirds of our sales are through contracts, and one-third comes from spot pricing. We've nearly finalized our contract pricing, which will lead to a decrease in our overall prices. With this completion, we anticipate mid-single-digit price declines that will take effect throughout the quarter and continue moving forward due to these contract negotiations. On the spot pricing front, we're observing stability as we move from Q4 to Q1, with a year-over-year decline closer to high single digits for Q1. A significant portion of the price change compared to mix will be price-driven, although we are facing some challenges with our overall product mix based on our geographical business distribution. Regarding the mid-single-digit margins for Composites, I believe we are currently at a low point in terms of volume. We expect to see an increase in volumes over the next few quarters, which will greatly enhance our operating leverage. We have also implemented several cost-reduction measures, and we anticipate those will begin to show results. Finally, we've experienced notable improvements in manufacturing productivity, which we expect will contribute positively moving forward. As we progress over the next few quarters, we foresee volume growth that will enhance our operating leverage, benefits from our cost-reduction initiatives, and continued productivity gains that will uplift our margins for the remainder of the year.

Thank you. The next question goes to Mike Dahl of RBC. Mike, please go ahead. Your line is open.

Hi. Thanks for taking my questions. Regarding Roofing, can you provide more details about your volume expectations for shingle performance in the first quarter, considering the various factors impacting your comparison and the business you exited? Additionally, as we look at the full year, alongside the inventory dynamics from last year, there may be some regional differences that could change this year. How do you anticipate performing against ARMA for the entire year, especially given the fluctuations around your comparisons, which outperformed the industry in the first quarter but have lagged behind in the last few quarters?

Thanks, Mike. So in terms of volumes in Roofing and components, we expect those to be up modestly, I think, in the quarter. So we do see the ability to produce more shingles and more than the first quarter of last year. We also are seeing higher attachment rates on our Roofing component materials that we think continues. But again, against last year's comp, that growth rate is going to be much more moderate than we expect the overall industry to show because we were outperforming in Q4 of last year, but we are going to see some increases. And then again, we see a little bit of a headwind on the exit of our packaging business. In terms of performance as we go through the year, I'd say we expect that we're going to have another good year in Roofing. The demand trends for Q1, the storm carryover, the underlying contractor demand and remodeling and reroof activity we are seeing in our contractor base would lead us to believe we're on path for another strong year. We expect, as Todd talked about, new construction housing to step up through the year, a smaller part of the Roofing business, but again, another positive demand driver. So we would expect that to continue. It may not be operating at the same levels as last year, which was a historically high storm year off a 10-year average. We would estimate probably incremental 40% both in storm demand last year versus the historic average. So if that steps back a little bit, I think that gives us opportunities in the market to continue to grow our business. So as we progress through the year, I would think we would get into easier comps on a year-over-year basis relative to our performance. And then if the market slows a bit versus the prior year, again, I'll go back to what we saw in Q4 of '22 and Q1 of last year. As the market slowed, demand for our products stayed really strong. Distributors had to replenish their inventories of our product. Contractors demanded our product, and we saw good growth and a good share position as a result.

Thank you. And our final question goes to Garik Shmois of Loop Capital. Oh, it appears Garik has disconnected. We will move over to Anthony Pettinari of Citi. Anthony, please go ahead. Your line is open.

Hi. I just had a quick follow-up on Insulation in 1Q. I think single-family starts inflected positively on a year-over-year basis in 3Q. So I'm just wondering if you could talk about sort of the cadence of North American resi Insulation shipments as 4Q progressed. And into 1Q, assuming demand tends to lag starts by 3 months, could North American resi Insulation volumes potentially be positive year-over-year as you lap these easier comps? I think you talked about flattish, but just any more context there?

Sure. Thanks, Anthony. Yes, I mean, as we look at starts for the first quarter, we said relatively flattish. I mean, could we be up a little versus that? Absolutely, it could be modestly, but we're talking very, very low single-digit type of numbers. We think flat is a more appropriate number. As we look at the full year, I think consensus has starts looking pretty similar on a year-over-year basis. So we pick up a bit in single-family on a year-over-year basis as a strength. Multifamily could be down a little bit on a year-over-year basis. But overall, it ends up looking pretty similar to '23. Yes, so as we look at the first quarter, we would expect sort of flattish overall results for volumes at resi.

Thank you. That's all the questions that we have time for today. I'll now hand back the call over to Brian Chambers to close.

Well, I'd like to thank everyone for making time to join us on today's call and for your ongoing interest in Owens Corning, and we look forward to speaking with you again on our first quarter call. Thanks, everyone.

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.