Owens Corning Q3 2009 Earnings Call Transcript

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Owens Corning, Inc. (OC)

Q3 2009 Earnings Call

October 28, 2009 11:00 AM ET

Executives

Scott Deitz - Vice President - Investor Relations and Corporate Communications

Michael Thaman - Chairman and Chief Executive Officer

Duncan Palmer - Chief Financial Officer

Analysts

Kenneth Zener - Macquarie Research

Michael Rehaut - J.P. Morgan

Ivy Zelman - Zelman & Associates

Keith Hughes - SunTrust Robinson

Garik Shmois - Longbow Research

Jim Barrett - CL King & Associates

John A. Baugh - Stifel Nicolas

Presentation

Operator

Good day ladies and gentlemen. And welcome to the Third Quarter 2009 Owens Corning Earning Conference Call. My name is Michael and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Scott Deitz, Vice President, Investor Relations. You may proceed.

Scott Deitz

Good morning and thank you Michael. Good morning everyone. Thank you for taking the time to join us for today's conference call in review of our business results for the third quarter of 2009. Joining us today are Mike Thaman, Owens Corning's Chairman and Chief Executive Officer and Duncan Palmer, Chief Financial Officer.

Following our presentation this morning, we will open this one hour call to your questions. Please limit yourselves to one question and one follow-up.

Earlier this morning, we issued a news release and filed a 10-Q that detailed our results for the third quarter. For the purposes of our discussion today, we have prepared presentation slides that summarize our performance and our results for the third quarter of this year. We will refer to the slides during this call. You can access the slides at owenscorning.com. You will find a link on our homepage and a link on the Investors section of our website. This call and the supporting slides will be recorded and available on our website for future reference.

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

Also note that GAAP to non-GAAP reconciliations are found within the financial tables of our earnings release. For those of you following along with our slide presentation today, we will begin on slide four. Now, opening remarks from our Chairman and CEO, Mike Thaman followed by CFO, Duncan Palmer and then our Q&A session. Mike?

Michael Thaman

Thanks, Scott. Good morning everyone. Thank you for joining us today to discuss results for the third quarter of 2009. I am pleased to report that Owens Corning again demonstrated strong progress. We delivered adjusted earnings growth driven by another great quarter Roofing and the return to profitability of our Composites' segment.

Through the first nine months of 2009, Owens Corning generated $275 million of adjusted EBIT, an improvement versus 2008 in a more difficult market. The diversity of our business portfolio served us well strong results in Roofing more than offset weak results in our other businesses. We continue our focus in generating cash and maintaining a strong balance sheet.

During the third quarter of this year, we generated $332 million in free cash flow compared with $8 million during the same quarter last year. At our Investor Day, on October, 1st we upgraded our free cash flow guidance to $250 million for the year. We now believe that free cash flow for full year 2009 could be as much as $300 million based on our strong third quarter performance.

In review of the third quarter, net sales totaled $1.3 billion compared with 1.6 billion in the third quarter of 2008. Revenue was once again impacted by the prolonged weakness in the U.S. housing starts and a year-over-year weakness in the global economy.

We delivered third quarter 2009 adjusted earnings per share of $0.61 compared with $0.57 in the third quarter of 2008. In prior quarterly calls, I have measured our performance against our objectives for the year; I'll do the same today.

We said that we would continue our progress in creating an injury-free workplace. Our commitment to safety remains unconditional. During the first nine months of this year, our safety performance improved 8% compared with our performance in 2008.

We said the strong Roofing momentum would carry into 2009, and it has. The Roofing business has generated EBIT margins that have averaged 26% for the last four quarters.

We said that weakness in our Composite segment would persist through the first half of 2009 and that the segment would return to profitability sometime during the third quarter. I am pleased to report that Composite not only returned to profitability during the third quarter, it achieved profitability for the full quarter. More on that in a moment.

We said that the Insulation business would face a difficult market in 2009; it has and will it likely carry into 2010.

Although EBIT has improved sequentially each quarter during 2009, this business continues to operate at a loss hindered by U.S. housing starts that have shown only modest improvement. Starts remain historically very weak.

We said that we will reduce expenses by $160 million and capital spending by $140 million versus 2008. We are on track on both goals. We said that we would be profitable on our Composites and building material segments in 2009. In the last call, I shared that Composites was unlikely to achieve this goal. Despite a profitable third quarter and a recovery plan that's on track, we continue to believe that Composites' will not be profitable for 2009.

In summary, I'm pleased to report that Owens Corning portfolio of businesses continue to exceed expectations in 2009. Now, we'll review each of our businesses. I do think we just had another excellent quarter. EBIT was up $82 million compared with the third quarter of 2008.

Higher selling prices, lower material costs and the sustainable actions that we've taken to improve our cost and our product mix drove the improvement. The Roofing business delivered another record quarter. We achieved this, despite the fact that third quarter 2009 Roofing sales were actually down $55 million compared with the same period in 2008. Because of lower volume associated with less storm activity and weaker new residential construction.

Looking ahead, Roofing strategic priorities are clearly defined. In a way to fuel our customer success, maintain effective margin discipline, be relentless about cost reductions and capitalize our market growth, which we do expect in 2010. Now, our Insulation business.

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