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|Owens Corning Management Discusses Q3 2012 Results Robert C. Wetenhall RBC Capital Markets, LLC, Research DivisionGood day, ladies and gentlemen, and welcome to the Third Quarter 2012 Owens Corning Earnings Conference Call. My name is Chanel, and I ll be your operator for today. [ Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Thierry Denis, Director of Investor Relations. Please proceed. Thank you, Chanel, and 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 2012. Joining us today are Mike Thaman, Owens Corning s Chairman and CEO; and Michael McMurray, Chief Financial Officer. Following our presentation this morning, we will open this 1 hour call to your questions. [ Instructions] Earlier this morning, we issued a news release and filed a 10 Q that detailed our results for the quarter. For the purposes of our discussion today, we ve prepared presentation slides that summarize our performance and results for the third quarter and 9 months ended September 30, 2012. We will refer to these slides during the call. We have 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. Please reference Slide 2 before we begin, where we offer a couple of reminders. First, today s presentation will include forward looking statements based on our current forecasts and estimates of future events. Second, these statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. Please refer to the cautionary statements and the risk factors identified in our SEC filings for a more detailed explanation of the inherent limitations of such forward looking statements. This presentation and today s prepared remarks contain non GAAP financial measures. Reconciliations of GAAP to non GAAP are found within the financial tables of our earnings release. Consistent with our historical practice, we have excluded items that we believe are unrepresentative of our ongoing operations to arrive at adjusted EBIT, our primary measure to look at period over period comparison. We exclude significant nonrecurring items, such as the impact of the restructuring actions discussed in our most recent earnings call. We believe that adjusted EBIT is helpful to investors for comparing core results from period to period. 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. In the third quarter, we have utilized an effective tax rate of 25%, in line with our anticipated annual effective tax rate on adjusted earnings for 2012. For those of you following along with our slide presentation, we will begin on Slide 4. Now opening remarks from our Chairman and CEO, Mike Thaman, who will be followed by CFO, Michael McMurray. Mike will then provide comments on our outlook prior to the Q session. Thanks, Thierry, and good morning, everyone. We appreciate you joining us today to discuss our third quarter 2012 results. Owens Corning revenue in the third quarter was $1.3 billion, down Nittany Lions 6 White Stitched Ncaa Jersey 12% compared with the same period last year. Adjusted EBIT was $81 million, down from $177 million 1 year ago. Before I discuss the key drivers contributing to our business results in the quarter, let me make a few observations about the year to date and the overall environment in which our businesses are operating. roofing market or the impact of slower than expected growth across many of the global markets for our Composites business. We re disappointed in our third quarter financial results and the need to lower our full year earnings forecast. Despite the change in our near term outlook, we remain positive with regard to the strength of our businesses. These are market leading businesses, operating in well structured industries. We have a strong brand, technological leadership and manufacturing and supply Hurricanes 26 Sean Taylor Orange Stitched Ncaa Jerseys chain strength to serve our valued customers around the globe. As we disclosed earlier this month, we now anticipate full year adjusted EBIT in the range of $280 million to $310 million. This earnings outlook reflects a weaker environment for both our Roofing and Composites businesses this year. I will discuss the specific outlook for each of the businesses in a few minutes. Each of our businesses is making progress against the strategic objectives we ve set. Roofing is a great business with a strong market leading position. This business has delivered great margins in recent years. We believe it is well positioned to sustain that performance. Our Insulation business is benefiting from an improving housing market. We are narrowing losses and progressing towards positive earnings. construction market. The Composites business is transforming its global network to low delivered cost assets, while building stronger positions in markets where we are growing. Now I ll review our third quarter results. We continue to make progress toward our goal of creating an injury free workplace. Our safety performance in the third quarter improved by 18% compared with the same period 1 year ago. As you may recall, our year to date rate of injuries at the halfway point of the year had increased by 13% over our full year 2011 rate. Our strong third quarter performance enabled us to bring our year to date safety rates in line with full year 2011 results. Now let s turn to our Building Materials business. Roofing net sales for the quarter were $471 million, a 27% decline compared with the same period 1 year ago. EBIT in the quarter was $83 million, down $73 million compared to the same period in 2011, driven largely by lower sales volume. Let me take a moment to walk through the developments that have impacted the roofing market and our business this year. Coming into the year, we had expected that the roofing market would decline mid single digits. It s on a negative comparison with 2011 s strong storm related demand. We saw very strong volumes in the first 5 months of the year. We experienced weaker volumes in June and July as the market stalled in the mid summer heat. Demand began to build again at the end of July and into August. Although volumes were still weak, the weekly shipment rate continued to improve up to the point of our price increase in mid September. At that time, we saw another significant drop in demand, as well as significant reductions in the shipments of asphalt and glass that we provide to other roofing manufacturers. We ve now gone back and revisited our estimates of the overall Ncaa Football Shop Online roofing demand. The resulting forecast is actually quite similar to our market outlook when we entered the year. Unfortunately, strong demand and storm activity early in the year had caused us to believe that both reroof and storm demand would be at the high end of our internal ranges, demand estimates that we no longer believe will materialize. We misjudged the market despite warning signs that we should have seen. Strong purchase incentives early in the year had caused us to ship too many shingles in the first part of the year and to have done so at too low margins. A mild winter had front end loaded the roofing market, but did not increase the market size. Hot summer weather was keeping contractors off of roofs, but was not actually deferring demand. The weakness in demand in late September, combined with the downwardly revised outlook for demand for glass and asphalt from other roofing manufacturers, resulted in our decision to revise our guidance and issue the 8 K earlier this month. Despite the weakness of the second half, the overall market outlook and competitive environment support continued confidence in the Roofing business. This is a great business with strong fundamentals and very real opportunities for improved financial performance. Turning to Insulation. Net sales were $384 million, up 5% from the same period a year ago. This increase reflects higher sales volumes and strong commercial execution across the business. Insulation delivered EBIT of $3 million in the third quarter compared to a loss of $12 million in the same period 1 year ago. Increased sales provided incremental margin across the business. In addition, increased production drove higher capacity utilization, and manufacturing costs were lower on improved productivity.
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