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Q4 presentation v1
- 1. Owens Corning Focused onShareholder Value Q4 2016 This presentation shared at the following event(s): 11/16/16 OC Roadshow Hosted by Goldman Sachs – Montreal / Toronto Michael McMurray, Chief Financial Officer
- 2. This presentation andthe associated remarks and comments contain forward-looking statements. We caution you against relying on these statements as they involve risks and uncertainties that are difficult to predict and the Company’s actual results may differ materially from those projected in these statements. Such risks and uncertainties are based on factors such as, without limitation: relationships with key customers and demand for our products; macroeconomic factors like levels of construction activity, global industrial production, industry, economic and political conditions; competitive and pricing factors; currency, commodity and interest rate fluctuations; our level of indebtedness and the availability and cost of credit; weather conditions; energy and raw material availability and cost issues; ability to protect our intellectual property and information technology systems; labor disputes, legal and regulatory proceedings; our ability to utilize net operating loss carry-forwards; issues related to acquisitions, divestitures and joint ventures, including related synergies; and factors detailed from time to time in the Company’s Securities and Exchange Commission filings. For purposes of this presentation, any discussion referring to “year to date” or last twelve months (“LTM”) refers to the period ended on the last calendar day of the quarter preceding the date of the investor event referred to on the first page of this document. Otherwise the information in this presentation speaks as of the date of the investor event, and is subject to change. The Company does not undertake any obligation to update or revise forward-looking statements beyond what is required under applicable securities laws. Any distribution of this presentation after the date of the investor event is not intended and should not be construed as updating or confirming such information. This presentation contains references to certain "non-GAAP financial measures" as defined by the SEC, including adjusted EBIT, adjusted earnings, adjusted EPS, adjusted pre-tax earnings and free cash flow. Management uses non-GAAP measures for various purposes, including reporting results of operations to the Board of Directors, analysis of performance and related employee compensation measures. Although management believes these measures, and exclusions from GAAP therein, provide a useful representation of performance, non-GAAP measures should not be considered in isolation or as a substitute for GAAP measures. A reconciliation of these non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles can be found in the text and Tables 2,3 and 8 of the Press Release furnished on Form 8-K on October 26, 2016 and Appendix B. Adjusted EBIT is earnings before interest, taxes and other items that management does not allocate to our segment results because we believe they are not representative of the Company’s current operations. Free cash flow is net cash flow provided by operating activities minus the sum of cash paid for property, plant, and equipment and purchases of alloy. When the Company provides forward-looking expectations for non-GAAP measures, the most comparable GAAP measures and a reconciliation between the non-GAAP expectations and the corresponding GAAP measures are generally not available without unreasonable effort due to the variability, complexity and limited visibility of the adjusting items that would be excluded from the non-GAAP measures in future periods. The variability in timing and amount of adjusting items could have significant and unpredictable effects on future GAAP results. Forward-Looking Statements and Non-GAAP Measures 2
- 3. Investment Highlights Composites Three Market-LeadingBusinesses Roofing Insulation Market-leading business with improving economic conditions and higher utilization rates Strong market position in attractive industry Progress supports confidence in return to historical profitability 3
- 4. Margin >= 10%0%<= Margin < 10% Margin < 0% '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Insulation Roofing Composites Sources: Owens Corning’s SEC filings since 2006. For comparability purposes, prior years have been provided based on Owens Corning’s SEC filings, internal management reports, and management estimates. Strong Portfolio 4
- 5. $ (in millions)Q3 2016 Q3 2015 YTD 2016 YTD 2015 Net sales* $476 $502 $1,275 $1,332 EBIT $38 $58 $83 $90 EBIT as % of sales 8% 12% 7% 7% D&A $26 $25 $78 $75 2015 Revenue by End Market* 5 Insulation Business * before inter-segment eliminations -5% 0% 5% 10% 15% $0 $500 $1,000 $1,500 $2,000 2012 2013 2014 2015 LTM Five-Year Financial Performance Sales* EBIT as % of sales *In millions International 15% U.S. & Canada New Residential Construction 39% U.S .& Canada Residential Repair & Remodeling 22% U.S. & Canada Commercial & Industrial 24% *Owens Corning management estimates; estimated error margin below 5% Source: Owens Corning management estimates and Owens Corning SEC filings; comparability may differ over time * before inter-segment eliminations Q3 2016 Highlights Insulation delivered $38MM of EBIT EBIT declined by $20MM primarily on lower production volumes Expect 2016 revenue could be down by about 5%, and EBIT margin down 1% Announced Q4 decision to retire 200MM lbs residential fiberglass facility (currently mothballed)
- 6. -10% 0% 10% 20% 30% '85 '87 '89'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 EBIT Margin Avg EBIT Margin '85-'08 (15%) Owens Corning Insulation Return to Historical Profitability Levels Historically Delivered 15% EBIT Margins at 1.5 Million Housing Starts; Expect to Average 50% Operating Leverage through the Recovery Source: Owens Corning management estimates and SEC filings of Owens Corning and predecessor company. Segment reporting comparability may differ over time. 6
- 7. ( 0.3) ( 0.6) (0.2) 4.6 4.3 3.7 3.5 2005 Total Capacity Retired 2015 Total Capacity Mothballed Operating Plants Capacity Cold Lines Operating Lines Capacity 2.1MM U.S. Housing Starts Capacity Utilization: 100% 73% 85% 90% 1.1 MM U.S. Housing Starts 2005 2015 CapacityBLbs U.S. and Canada Fiberglass Industry Light Density Network Capacity Light density fiberglass demand and capacity based on assets producing batts, rolls, flexible duct media, metal building insulation, duct wrap and appliance insulation; excludes loosefill products. Source: Owens Corning management estimates as of November 2015 and various industry sources and publications (including North America Insulation Manufacturers Association); all competitive information legally obtained from appropriate 3rd party sources. Excludes any capacity actions or announcements made during 2016. U.S. Housing Starts of 1.2 to 1.4MM Should Require Restart of Mothballed Capacity 7
- 8. OCU.S.NewConstructionPrice Indexedto2006 U.S. and CanadaFiberglass Industry Light Density Capacity and Demand Pricing has Strengthened with Market Recovery ChangeinDemand/Capacity (LightDensityMMLbs) 2006 – 2008 2009 – 2011 2012 – 2015 2016E – 2018E Price Index∆ in Demand ∆ in Operating Capacity Decline Trough Early Stage Recovery Sustained Performance Improvement Light density fiberglass demand, capacity and price based on assets producing batts, rolls, flexible duct media, metal building insulation, duct wrap and appliance insulation; excludes loosefill products. Source: Owens Corning management estimates as of November 2015 and various industry sources and publications (including North America Insulation Manufacturers Association). Demand estimate based on U.S. housing starts consensus. All competitive information legally obtained from appropriate 3rd party sources. 8
- 9. Owens Corning InsulationProfitability Residential Fiberglass Still Vastly Under Historical Earnings Level; Non Residential Has Returned to Prior Peak 9 Residential fiberglass building insulation includes batts & rolls and loosefill sold to insulation contractors and distributors, home centers, and manufactured housing producers in the U.S. and Canada. Engineered insulation and other regions includes pipe and flexible duct media insulation, foam, mineral fiber, and all building material products sold to Latin America and Asia. Source: Owens Corning management estimates. Comparability may differ over time. Margin of error on Intra-segment EBIT estimated to be below $15MM. -200 -100 0 100 200 300 400 Peak (2006) Trough (2009) Current (2015) MM$ EBIT MM$ & Margins U.S. & Canada Residential Fiberglass Building Insulation Engineered Insulation & Other Regions 26% 17% -23% 4% 2% 14%
- 10. $ (in millions)Q3 2016 Q3 2015 YTD 2016 YTD 2015 Net sales* $603 $502 $1,711 $1,398 EBIT $146 $103 $388 $213 EBIT as % of sales 24% 21% 23% 15% D&A $13 $10 $34 $29 2015 Revenue by End Market* Roofing Business * before inter-segment eliminations 0% 5% 10% 15% 20% 25% $0 $500 $1,000 $1,500 $2,000 $2,500 2012 2013 2014 2015 LTM Five-Year Financial Performance Sales* EBIT as % of sales *In millions U.S. & Canada New Residential Construction 10% U.S. & Canada Residential Repair & Remodeling 76% U.S. & Canada Commercial & Industrial 13% *Owens Corning management estimates; estimated error margin below 5% Source: Owens Corning management estimates and Owens Corning SEC filings; comparability may differ over time Q3 2016 Highlights Grew EBIT to $146MM, a 42% increase Delivered 24% EBIT margins on higher volume and lower asphalt costs Expect low-teen market growth for 2016, including modest demand from Hurricane Matthew International 1% 10
- 11. U.S. Asphalt ShingleMarket Expect Growth in Both New Construction and Replacement Markets in 2016 Source: Asphalt Roofing Manufacturers Association - Summary of Asphalt Roofing Industry Shipments. Management estimates based on data provided by National Oceanic and Atmospheric Administration (NOAA), National Association of Realtors, EIA, Moody’s Analytics, Oxford Economics reports, U.S. Bureau of Labor Statistics and U.S. Bureau of Economic Analysis. MM Sq. Total 136 143 145 154 161 173 155 129 135 120 108 122 118 111 107 112 30 31 32 34 37 39 35 26 17 11 11 11 14 17 18 19 71 75 81 86 87 95 77 75 73 71 63 61 59 58 60 65 32 34 30 27 28 21 35 25 23 21 28 31 34 30 23 24 3 3 2 7 8 18 8 3 22 17 6 19 11 6 6 4 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 New Construction Age Related/Economic Other Weather Events Major Storms 11
- 12. Strong Market Positionin Attractive Industry Track record of strong financial performance – Delivered average operating margins of 18% since 2008 New construction and replacement markets are growing, after period of extension of replacement cycle – Housing activity forecasts support demand growth – Growth of age-related/economic demand has resumed Strong market position; confidence in sustaining average operating margins of mid-teens or better 12
- 13. InterWrap Acquisition Strengthens Positionof Roofing Components Business Acquired leading manufacturer of synthetic roofing underlayment and packaging materials for $450 million on April 21st, 2016 Value contributors: – InterWrap’s established track record of double-digit revenue growth – Benefit from conversion of organic to synthetic underlayments – OC channel strength and InterWrap strong products, brands and technology – Commercial and operational synergies – Access to new markets and construction applications Expect acquisition to be accretive to 2016 EPS, excluding transaction and integration costs Expect at least $176MM of revenue and $30MM of adjusted EBIT in 2016 Anticipate achieving a run rate of $20 million or more of commercial and operational synergies by the end of next year Sources: Owens Corning management estimates and press release issued February 24, 2016 13
- 14. $ (in millions)Q3 2016 Q3 2015 YTD 2016 YTD 2015 Net sales* $496 $486 $1,486 $1,457 EBIT $61 $61 $199 $188 EBIT as % of sales 12% 13% 13% 13% D&A $36 $29 $103 $92 2015 Revenue by End Market* Composites Business * before inter-segment eliminations 0% 4% 8% 12% 16% $0 $600 $1,200 $1,800 $2,400 2012 2013 2014 2015 LTM Five-Year Financial Performance Sales* EBIT as % of sales *In millions*Owens Corning management estimates; estimated error margin below 5% Source: Owens Corning management estimates and Owens Corning SEC filings; comparability may differ over time * before inter-segment eliminations International 60% U.S. & Canada New Residential Construction 2% U.S. & Canada Residential Repair & Remodeling 9% U.S. & Canada Commercial & Industrial 29% Q3 2016 Highlights Delivered EBIT of $61MM with 12% EBIT margins Price and volume continued to contribute to performance Anticipate continued growth in the glass fiber market driven by moderate global IP growth Expect the business to improve EBIT by about $30 million in 2016 14
- 15. Glass Fiber A $7.5Billion Global Market Glass fiber market defined as glass fiber reinforcements and direct conversion products as consumed, excluding yarns. Source: Fiber Economics Bureau, GlassFibreEurope (APFE), Global Trade Information Services, Inc. and Owens Corning management estimates as of November 2015. Markets Size Building & Construction Consumer Power & Energy Transportation Industrial 15
- 16. 27% 12% % Market Revenue % OC Revenue China 33% 47% %Market Revenue % OC Revenue Americas Owens Corning Composites Positioned to Win #1 Position #1 Position Emerging Position #1 Position Positioned to Compete Anywhere in the World OC glass fiber manufacturing site OC downstream fabrication site 16 % Market Revenue = market revenue in region as % of 2015 global market size; % OC Revenue = OC revenue in region as % of OC Composites global 2015 sales; Glass reinforcements market defined as glass fiber reinforcements and direct conversion products as consumed, excluding yarns. Sources: Fiber Economics Bureau, GlassFibreEurope (APFE), Global Trade Information Services, Inc. and Owens Corning management estimates of 2015 global market. 23% 28% % Market Revenue % OC Revenue Europe 17% 13% % Market Revenue % OC Revenue Rest of World
- 17. 0.5 1.7 0.6 1.7 0.8 0.6 2005-09 2010-15 2016E-18E 50% 60% 70% 80% 90% 100% '05'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16E '17E '18E Glass Fiber Industry Estimated Capacity Glass fiber market demand excludes E-glass yarns. Sources: Fiber Economics Bureau, GlassFibreEurope (APFE), Global Trade Information Services, Inc. and Owens Corning management estimates as of August 2016 (high probability capacity additions only). Estimated demand calculated as 2015 demand grown at 1.6x global IP per June 2016 Oxford Economics. Change in global demand (MM T) Change in global capacity (MM T) EstimatedCapacityUtilization China Emergence Capacity Overbuild Tightening Capacity Price Inflection Supply Tension Improved Returns Supply Tension Environment Expected in the Near Term 90% Threshold 17
- 18. Disciplined Capital AllocationStrategy Drive shareholder returns by enabling organic and inorganic growth and supporting the balance sheet – Maintain investment grade Capital allocation strategy – Investing in attractive organic growth – Pursuing value-creating acquisitions – Returning excess cash to shareholders Quarterly dividend initiated in 2014 conveyed confidence in long-term financial outlook and cash flow generation; 6% annual dividend increases in 2015 & 2016 During Q4, the Board of Directors approved an additional share repurchase authorization for up to 10 million shares 18
- 19. 2016 Corporate Environment& Guidance Macro Environment Environment consistent with consensus U.S. housing starts Expect moderate global industrial production growth Primary Guidance Full-year adjusted EBIT of $700MM or more Free cash flow of about $450MM Insulation: revenue and EBIT margin could be down 5% and 1% respectively Composites: EBIT growth of about $30MM Roofing: low-teen growth of the U.S. asphalt shingle market Corporate expenses at bottom half of $120- $130MM range Interest expenses about $110MM Capital expenditures about $385MM, including about $50MM for the completion of a mineral wool insulation plant Depreciation & amortization about $320MM Cash tax rate of 10-12% and book tax rate of 32-34% on adjusted pre-tax earnings Source: Owens Corning management estimates Other Guidance Items 19
- 20. Appendix A Q3 2016Highlights ($ in millions, except per share data) Q3 2016 Q3 2015 YTD 2016 YTD 2015 Net sales $1,518 $1,447 $4,294 $4,053 Net earnings attributable to Owens Corning $112 $112 $307 $221 Diluted earnings per share attributable to Owens Corning common stockholders $0.97 $0.95 $2.65 $1.87 Earnings before interest and taxes (EBIT) $207 $196 $563 $410 Adjusted EBIT $218 $198 $589 $414 Adjusted Earnings $125 $113 $337 $225 Adjusted EPS (diluted) $1.09 $0.96 $2.91 $1.91 Adjusted EBIT as a % of sales 14% 14% 14% 10% Depreciation and amortization $84 $73 $242 $224 Net cash flow provided by operating activities $353 $304 $679 $410 Free cash flow $259 $214 $398 $136 Total debt (excluding rate swap), net of cash $2,046 $1,917 $2,046 $1,917
- 21. Maintained ahigh level of safety performance Delivered record third-quarter adjusted EBIT Insulation produced $38 million of EBIT Composites delivered EBIT of $61 million with 12% EBIT margins Roofing grew EBIT to $146 million, a 42% increase Improved free cash flow performance by $262 million YTD Board of Directors approved an additional share repurchase authorization for up to 10 million shares Anticipate continued growth in U.S. housing starts and moderate global industrial production growth in 2016 Continue to expect full-year adjusted EBIT of $700 million or more Appendix A Q3 2016 Highlights and Outlook
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