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Text: Joining us today are Brian Chambers Owens Corning's Chair and Chief Executive Officer and Ken Parks, our Chief Financial Officer.
In order to accommodate as many call participants as possible, please limit yourselves to one question only.
Please reference Slide 2 before we begin where we offer a couple of reminders.
We undertake no obligation to update these statements beyond what is required under applicable securities laws.
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 to enhance shareholder value.
The tables in today's news release in the Form 10-Q include more detailed financial information.
I hope all of you are staying healthy and safe.
Owens Corning posted strong 3rd quarter results today consistent with our July outlook and building on the momentum of an outstanding first half of the year.
Our global team continued to execute extremely well in a very dynamic environment overcoming higher inflation as well as some supply chain disruptions to deliver another great quarter.
Our results continue to demonstrate the resiliency of our team, the strength of our commercial and operational execution and the durability of the earnings power of our company.
I'll start with an overview of our 3rd quarter performance before turning that over to Ken who will provide additional details on our financial results.
I'll then come back to talk about our business outlook for the remainder of the year.
As always, I will begin my review of safety.
During the 3rd quarter, our commitment to safety resulted in an RIR of 0.64, which is a significant improvement compared to the same period last year, with more than half of our facilities operating injury-free for more than a year.
While we are generally encouraged by the recent decrease in COVID cases and gradual increase in vaccinations, It's clear the impacts of the pandemic will persist in the near term.
We will continue to follow enhanced safety protocols and operate our facilities with a strong focus on working together to keep each other, our customers and our suppliers healthy and safe.
Financially, we delivered record 3rd quarter revenue of $2.2 billion, an increase of 16% compared with the same period last year and adjusted EBIT of $400 million.
Our performance during the quarter was again a combination of strong market volumes and outstanding execution with each business delivering a positive price cost mix and great manufacturing performance.
This resulted in an adjusted EBIT margin for the Company of 18% with all 3 of our businesses, posting double-digit EBIT margins for a 5th consecutive quarter.
Demand for our US residential products which account for about half of our enterprise revenues as well as our commercial industrial products remained strong in Q3 and we continue to operate with extended lead times for many of our products.
Within this tight supply chain environment, our global teams, especially in supply chain, manufacturing, customer service and sales continue to work extremely hard to increase our production and meet the needs of our customers.
In addition to our focus to finish the year strong, we continue to make strategic choices to enhance the earnings power of the company and create additional growth opportunities by allocating resources to product lines where we can strengthen our market position and provide a sustainable solution.
I would like to take a few moments now to share more about the work we are doing with 2 of our product lines to position us for the future.
As part of our focus to build market-leading positions, we continuously evaluate the strength of our products and position in the market.
Based on this analysis, we have decided to explore strategic alternatives for one of our glass reinforcements product lines within our composites business thermoplastic dry use chopped strands.
The Dutch product line is primarily used in automotive and electronic applications and generates annual revenues of approximately $270 million.
The focus of our valuation will include divesting or repurposing these assets to manufacture other product lines, whether it's material science capabilities and relationships across a variety of core markets, applications and geographies, our composites business is an integral part of our company and a key contributor to our growth strategy.
The decision to explore alternatives for these production assets and product line is consistent with our approach to focus on high-value material solutions where we can develop market-leading positions, such as in building a construction, renewable energy and infrastructure.
Product and process innovation continues to be keyed how we drive growth, improve our operating performance and create value for our customers.
A great example this ongoing work is our PINK Next Gen Fiberglass Insulation launched in August.
This latest product innovation leverages advanced fiber technology to create a sustainable product that is faster and more comfortable to install compared to existing products in this space.
This is particularly important given the performance expectations and tight timelines of today's contractors and builders.
Given our commitment to sustainability, I'm pleased to note that PINK Next Gen insulation is made with 100% wind powered electricity in such an industry standard for recycled content.
Our launch of Next Gen fiberglass insulation, is the most recent example of how our industry leadership and innovation is expanding growth opportunities for our customers and Owens Corning.
We are also excited to see how our sustainability leadership and mission to build a sustainable future through material innovation is creating new growth opportunities across the enterprise.
As we engage with more and more customers to develop solutions which achieve their key sustainability goals.
The priority topics for collaboration focus on decarbonization including product specific embodied carbon reduction, circular economy, which includes both recycled content and end of life recycling solutions and product design transparency specifically related to the impact of our products throughout their lifecycle.
We look forward to sharing more details about these exciting developments to help our customers and grow our company during our upcoming Investor Day.
As Brian commented Owens Corning delivered another outstanding quarter with strong revenue and earnings growth across all 3 businesses.
While demand conditions remain strong across the markets we serve, our ongoing execution was fundamental to driving this performance, allowing us to manage through supply chain challenges and accelerating inflation.
As we talked about in our second quarter call, inflation continues to impact almost all material input costs especially asphalt and other petroleum based materials along with transportation and energy costs.
Overall positive price realization more than offset the inflation headwind in all 3 businesses in the quarter and year-to-date.
As a result, 3rd quarter operating margins reached 18% nearly 300 basis points higher than the same period last year.
The expanded earnings combined with focused working capital management and capital investments drove healthy free cash flow generation in the quarter and strong free cash flow conversion year-to-date.
Now beginning on Slide 5, we can take a closer look at our results.
Wwe reported consolidated net sales of $2.2 billion for the 3rd quarter, that's up 16% over 2020 and produced double-digit revenue growth in all 3 segments.
Our commercial and operational execution were instrumental in delivering these results as demand conditions remain strong in the markets we serve and we overcame supply chain disruptions with limited inventories.
Adjusted EBIT for the 3rd quarter of 2021 was $400 million, up $111 million compared to the prior year.
Earnings grew year-over-year, in all 3 businesses, resulting in double-digit EBIT margins for the 5th consecutive quarter.
Adjusted earnings for the 3rd quarter were $162 million or $2.52 per diluted share compared to $193 million or $76 per diluted share in the 3rd quarter of 2020.
Depreciation and amortization expense for the quarter was $129 million, up $9 million compared to Q3 2020.
our capital additions for the 3rd quarter were $90 million, up $22 million as compared to the 3rd quarter of last year.
We'll continue to be disciplined in our capital spending as we focus on delivering strong free cash flow and prioritizing investments that drive growth and productivity.
Slide 6 reconciles our 3rd quarter adjusted EBIT of $400 million to our reported EBIT of $394 million during the quarter we recorded $20 million of restructuring costs associated with previously announced actions, which includes $19 million for the Santa Clara facility sale.
Those charges were partially offset by a $15 million gain on the sale of land related to a previously announced facility closure.
In addition, we had $1 million of acquisition related charges for, which was acquired during the quarter.
These items are excluded from our adjusted 3rd quarter EBIT.
Slide 7 provides an overview of the changes in 3rd quarter adjusted EBIT from 2020, 2021.
Q3 adjusted EBIT increased $111 million over the prior year, reaching $400 million.
Despite supply chain challenges and accelerating inflation, all 3 segments delivered year-over-year EBIT growth.
Now turning to slide 8, I'll provide more details on the performance of each of the businesses.
The insulation business, continue to build on the strong performance demonstrated in Q2, delivering double-digit year-over-year EBIT growth and 400 basis points of EBIT margin expansion.
Q3 revenues were $815 million, a 20% increase over the 3rd quarter of 2020.
We saw solid realization on announced pricing actions, as well as volume growth across the business.
Reflecting continued strength in both US new construction and the commercial end markets we serve globally.
In North American Residential Fiberglass Insulation, we saw year-over-year growth driven by positive pricing and stronger volumes benefiting from incremental capacity additions over the past year.
In technical and global insulation, demand remained strong for our highly specified products with the most notable year-over-year growth coming again from North America and Europe, with growth in both foam glass and mineral wool.
Pricing was positive versus prior year and more than double what we achieved in Q2.
For the Insulation business overall, positive price more than offset the impact of accelerating energy, material and transportation inflation.
In residential insulation, we continue to maintain a positive price cost mix in the face of accelerating inflation.
While technical and global insulation price lagged inflation, the price cost gap narrowed considerably versus Q2.
We continue to execute well in our manufacturing operations and benefited from the recovery of $18 million of fixed cost absorption on higher production.
We delivered margins of 15% and EBIT of $124 million a quarterly record and up from $73 million in the 3rd quarter of 2020.
The composites business produced another record earnings quarter.
Sales for the 3rd quarter were $591 million, up 13% compared to the prior year.
The top line growth was driven by strong commercial performance with our ongoing strategy in the business to focus on higher value applications driving favorable mix, which more than offset slightly lower volumes.
We continue to see strength in demand for our higher value applications as well as demand in key geographies where our local supply for local demand model is being valued by customers.
We also continue to see positive pricing in composites resulting from contract negotiations, as well as price increases for non-contractual business.
In the quarter, positive price more than offset the inflation headwinds from materials, energy and higher transportation costs.
Operationally, we continued to execute well with solid manufacturing performance and recovery of $29 million of prior year curtailment costs.
In the 3rd quarter composites delivered record EBIT of $101 million, up $46 million over last year and EBIT margins reached 17%.
Slide 10 provides an overview of our Roofing business.
The roofing business produced a strong 3rd quarter, sales in the quarter were $869 million, up 14% compared to the prior year.
The US asphalt shingle market was down 9% in Q3 as compared to the prior year, while our US shingle volumes were up slightly year-over-year.
We continue to see good realization on our announced price increases more than offsetting accelerating asphalt, other material and delivery inflation.
Contribution margins remained strong.
For the quarter, EBIT was $12 million, up 16 million from the prior year, achieving 24% EBIT margins.
Turning to Slide 11, I'll discuss significant financial highlights for the 3rd quarter and full year 2021.
Earnings expansion along with continued discipline around management of working capital, operating expenses and capital investments resulted in strong cash flow.
Free cash flow for the 3rd quarter of 2021 was $400 million bringing year-to-date free cash flow to $925 million, up $411 million over the same period last year.
Year-to-date free cash flow conversion remains strong.
With this cash flow performance, we further strengthened our already solid investment grade balance sheet by repaying in the quarter the remaining $184 million due on our 2022 senior notes.
At quarter end, the company had ample liquidity of approximately $2 billion, consisting of $920 million of cash and nearly point $1.1 billion of combined availability on our bank debt facilities.
During the 3rd quarter of 2021, the company repurchased 1.7 million shares of common stock for $160 million.
Through September 30, 2021, the company returned $516 million to shareholders through share repurchases and dividends equating to approximately 56% of year-to-date free cash flow.
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.
Now turning to our 2021 outlook for key financial items, general corporate expenses are expected to range between $150 and $155 million.
Capital additions are expected to be approximately $460 million, which is below expected depreciation and amortization of approximately $500 million.
For interest expense, we've narrowed our estimated range to be between $125 and $130 million and finally, we expect our 2021 effective tax rate to be 26% to 28% of adjusted pre-tax earnings and our cash tax rate to be 18% to 20% of adjusted pre-tax earnings.
During the 3rd quarter, our company continued to perform well, giving us great momentum as we finish the year.
In the 4th quarter, we expect US residential repair and remodeling and new construction markets as well as our global commercial and industrial end markets to remain strong.
Based on current trends we are seeing across the enterprise, we anticipate the impact of inflation to be at or slightly above what we experienced in Q3.
Given our pricing actions throughout the year, we expect each of the businesses to maintain a positive price cost mix in Q4.
Moving through the quarter, we will continue to closely monitor and manage inflation supply chain disruptions and the regional impacts of COVID on our businesses.
Through the first 3 quarters of the year, our commercial and operational execution has generated strong financial results and we expect this to continue in Q4 delivering earnings in the quarter close to last year.
Now consistent with prior calls, I will provide a more detailed business specific outlook for the 4th quarter.
Starting with Insulation, we expect year-over-year growth in our North American residential fiberglass insulation business and anticipate our volumes to be up mid to high single digits versus prior year.
We expect price realization, similar to what we experienced in Q3.
With the recently announced December increase having more impact as we get into the first quarter of next year.
In our technical and global insulation businesses, volumes should grow low to mid single digits with ongoing demand for our products in global building and construction applications.
Similar to residential installation, we would expect price realization in these businesses to be similar to what we saw in Q3.
In terms of inflation, we expect material and energy cost increases in the 4th quarter to be higher than what we experienced in Q3 and anticipate that continued price realization will result in a positive price cost mix in the quarter.
Additionally, we expect our fixed cost absorption to improve by approximately $5 million versus prior year.
Given all this, we expect to see strong earnings growth in Q4 versus prior year with EBIT margins of approximately 15%.
Moving on to composites, in the 4th quarter, we expect revenue to improve year-over-year primarily driven by continued price realization and favorable mix which we would expect to more than offset volume declines of mid-single digits for the quarter.
We anticipate composites pricing will improve by mid single digits offsetting the impact of additional inflation and that we should benefit from the recovery of $15 to $20 million of curtailment costs versus 4th quarter 2020.
Overall, we expect to realize strong earnings growth in the quarter versus prior year with EBIT margins of approximately 14% and in roofing, we anticipate the market to finish up for the year, but expect a more difficult comparison to the 4th quarter of prior year with market volumes down mid-teens driven by the expectation for a more normal winter season,;ower storm demand and the likelihood of ongoing supply chain disruptions.
We would expect our volumes to largely in line with the market.
Roofing pricing is expected to be favorable in Q4 based on the continued realization of our previously announced price increases.
Although, less than what we saw in Q3 due to the lower volumes.
Additionally, in terms of revenue, we expect a headwind from mix in the quarter, similar to what we saw in Q3.
Overall, we anticipate 4th quarter Roofing EBIT margins of approximately 20% on lower volumes and a narrowing but positive price cost mix.
With that, view of our businesses, I'll close with a couple of 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 productivity and organic growth 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, we continue to evaluate investments and acquisitions that leverage our commercial, operational and geographic strengths and expand our building and construction material product and system offering.
One last note before moving on to the Q&A session, I'd like to remind everyone, we will be hosting a virtual Investor Day on Wednesday.
Ken and I will be joined by members of our executive leadership team to discuss the company's strategic priorities, financial objectives and initiatives to drive long-term stakeholder value.
We hope you will join us in 2 weeks.
In closing, our team is proud of the outstanding operational and financial performance we delivered in the 3rd quarter and are excited by the opportunities we have to grow our company, help our customers win in the market and deliver value to our shareholders.

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compname reports q3 adjusted earnings per share $2.52.
q3 adjusted earnings per share $2.52.
q3 sales rose 16 percent to $2.2 billion.

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