Owens Corning (OC) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the fourth-quarter and full-year 2011 Owens Corning earnings conference call. My name is Shantalay and I will be your facilitator for today's call. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference, (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Thierry Denis, Director of Investor Relations. Please proceed.

Thank you, Shantalay. Good morning, everyone. Thank you for taking the time to join us today for today's conference call in review of our business results for the fourth-quarter and full-year 2011.

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 yourself to one question and one follow-up.

Earlier this morning, we issued a news release and filed a 10-K that detailed our results for the year. For the purposes of our discussion today, we've prepared presentation slides that summarize our performance and results for the fourth-quarter and full-year 2011. We will refer to these slides during this call. You can access the slides at owenscorning.com. 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 forecast 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 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. For those of you following along with our slide presentation, we will begin on slide number 4.

And now, opening remarks from our Chairman and CEO, Mike Thaman, who will be followed by CFO, Duncan Palmer. Mike will then provide comments on our outlook prior to the Q&A session. Mike?

Thank you, Thierry. Good morning, everyone. We appreciate you joining us today to discuss our results for the fourth-quarter and full-year 2011.

Owens Corning delivered another outstanding year. For the second consecutive year, adjusted earnings per share growth exceeded 35%. We achieved growth in revenue and EBIT in all of our businesses amid challenging marketing conditions. These results reflect strong execution in our portfolio of market-weighting businesses.

As a Company, we delivered adjusted EBIT of $461 million, a 21% increase over 2010, and increased earnings per share by more than 40%. Our top-line performance of $5.3 billion was also strong, representing a 7% increase over 2010. During this call, Duncan and I will recap the past year, focus on the market conditions for both of our segments, and outline our expectations for delivering another year of EBIT growth in 2012.

I will begin, as has been customary, by commenting on how we performed relative to the expectations we've previously shared with you.

For 2011, we said that we would continue our progress in creating an injury-free workplace. Our rate of injuries in 2011 improved by 27% compared with our full-year 2010 performance. This marks the tenth consecutive year of safety improvement in Owens Corning. We've reduced the number of injuries in our Company by over 90% during this time period.

We said at the beginning of the year, that full-year adjusted EBIT for the Company would be $475 million. We updated this estimate during the year as market conditions changed, and our 2011 adjusted EBIT of $461 million is in line with that updated guidance.

We said Composites would deliver mid-single digit revenue growth and double-digit margins. This business posted a 4% increase in revenue, double-digit margins, and EBIT improvement of $26 million. We are pleased with these results in light of the difficult conditions we faced in Europe in the second-half of the year. I will detail our action plan for Composites later in my comments.

We said Roofing would achieve EBIT margins of 20% for a third consecutive year. The business delivered EBIT of $429 million and EBIT margins of 20%. We responded effectively to storm volume and demonstrated strong price execution.

We said Insulation would narrow its losses and embark on a measured path to recovery. The Insulation business achieved breakeven EBIT in the fourth quarter of 2011, the first time since the third quarter of 2008. The business has built momentum throughout the year, benefiting from the effective launch of our EcoTouch Insulation; the integration of FiberTEK operations; continued improvement in our manufacturing position; and good commercial execution.

Finally, we said that the Company would continue to use its balance sheet to position itself for future growth. In 2011, we extended and refinanced more than $1 billion in credit facilities and we repurchased 4 million shares. Overall, we delivered strong EPS and EBIT growth for the year, and have demonstrated the power of our businesses and our people to deliver, even in challenging market conditions.

Now let me turn to the market environment as we enter 2012. I'd like to start with the outlook for Composites.

We saw some deceleration of global industrial production, especially in Europe, which resulted in our business and the overall industry building excess inventory in 2011. This has put some supply-induced pressure on pricing, particularly in Europe and Asia. As a result, we've seen low-single digit declines in prices in our composites business as we entered 2012.

Overall, we remain positive on the fundamentals in composites. The market grew in 2011, and we expect it to grow again in 2012. While we have experienced price pressure, the level of price loss has been quite mild, underscoring our belief that the overall market continues to be broadly in balance.

We are addressing our oversupply position. We have initiated actions to reduce 2012 production volumes by about 7% by delaying the startup of capacity additions in Russia and Mexico, and increasing downtime during previously-planned furnace rebuilds. These actions will result in a reduction of inventories to target levels by the end of 2012. In addition, we intend to optimize or close certain facilities in Europe, which will improve our competitiveness by the end of this year, and result in a permanent reduction of our global capacity of about 5% when fully implemented.

Our actions in 2012 will further advance our global production strategy to migrate our global network to low-cost scale assets, and to balance regional supply and demand. Despite a record of having grown earnings significantly over the past two years, we do not currently believe that Composites can continue to grow EBIT in 2012. We do believe the actions we are taking will further improve our cost position, rebalance our inventory, and position the business for positive operating leverage and double-digit margins as we enter 2013.

Now let me turn to the Building Materials segment. Seasonally-adjusted US housing starts during the fourth quarter were at their highest level in three years. External forecasts indicate increased housing starts in 2012, a positive sign for our business in the industry. We enter 2012 with cautious optimism for a recovering housing market and with a line of sight to significantly narrow losses in insulation.

The roofing industry experienced 13% demand growth in 2011, and our business enjoyed volume gains consistent with this growth. In 2012, we anticipate three positive trends for the roofing market -- improved new construction demand for shingles; continued growth in re-roof demand, which grew in 2011 for the first time in six years; and some carryover of the 2011 storm demand into the early part of this year. We believe that supply chain inventories are in good shape and the overall market dynamic is stable as we enter 2012.

At this point, it is not possible to estimate how much new storm-related volume we will see in 2012. Regardless, we are confident in our market position and our ability to sustain strong performance. We are eager to see the new construction market improve, and are pleased with some of the second-half trends that support industry estimates of 2012 housing starts of approximately 700,000 units, including both NAHB and blue-chip. An improving housing market should more than offset the impact of near-term market conditions in Composites, particularly in Europe.

The market outlook for our business ,combined with the strong competitiveness of our portfolio, positions us to deliver another year of adjusted EBIT growth and strong cash performance in 2012. Further, we remain confident that in an environment of modest global economic growth and 1 million US housing starts, Owens Corning can achieve our mid-term goal of $1 billion or more of adjusted EBITDA.

Now let me turn the call over to Duncan to provide more details on our business and corporate performance drivers. Duncan?

Thanks, Mike. And good morning, everyone. As Mike has discussed already, we continue to deliver strong operating results in the face of challenging market conditions. Adjusted earnings per share grew in excess of 35% for a second consecutive year, as we grew sales and EPS across each of our businesses.

Let's start on slide 5, which summarizes our key financial data for the year and the fourth quarter. You will find more detailed financial information in the tables of today's news release and the Form 10-K.

As I point out in our quarterly calls, in recent years, we have excluded items that were unrepresentative of our ongoing operations to arrive at adjusted earnings before interest and taxes -- our primary measure to look at period-over-period comparisons. In 2011, we did not have any adjusting items to our reported EBIT.

Today, we reported 2011 consolidated net sales of $5.3 billion, a 7% increase over 2010, with sales growth across all of our businesses. Our Roofing business grew 17%; our Insulation business grew 5%; and our Composites business grew 4% compared with 2010.

EBIT for 2011 was $461 million, an impressive 21% increase over adjusted EBIT of $381 million in 2010. Adjusted earnings for 2011 were $276 million or $2.23 per diluted share compared to adjusted earnings for 2010 of $199 million or $1.57 per diluted share. Fourth-quarter 2011 EBIT was $88 million compared to $64 million in fourth-quarter 2010.

Adjusted earnings for the fourth quarter of 2011 were $48 million or $0.40 per diluted share compared to adjusted earnings of $29 million or $0.23 per diluted share in fourth-quarter 2010. Our 2011 effective tax rate was 21%, below our previous guidance of 25%. We realized the benefits of some effective tax planning late in the year, which lowered our overall rate.

Depreciation and amortization expense was $318 million for 2011, in line with 2010 depreciation and amortization expense of $320 million. Capital expenditures for 2011 were $442 million compared with $314 million in 2010. The increasing capital spending was primarily to support expansions of low-cost facilities in our Composites business, and was slightly higher than our prior guidance.

Net debt increased year-over-year by more than $300 million. This was a result of our growth investments in the Composites business, higher working capital, a relatively large contribution to our pension, the FiberTEK acquisitions, and share repurchases. We increased inventory levels in our Composites business, which we will address later in our outlook, and made an investment in additional inventory in our Roofing business to support service levels for our customers in 2012. Based on our outlook and the actions we are taking, we would expect that in 2012, working capital will be a net source of cash.

Now if you turn to slide 6, I will provide a high-level review of our adjusted EBIT performance comparing the full year of 2011 with 2010.

EBIT in 2011 was $461 million, an increase of $80 million from 2010. Roofing improved EBIT by $24 million; insulation improved EBIT by $5 million, with a $28 million improvement in the second-half; and Composites improved EBIT by $26 million. Lastly, corporate expenses and other items contributed an additional $25 million in EBIT, primarily through the elimination of losses from the US Masonry Products business, which we divested in December 2010.

General corporate expenses were $71 million in 2011, relatively flat to 2010 and less than our 2011 guidance of $80 million to $90 million. The improvement relative to our guidance was due to lower incentive compensation expense and the net impact of nonrecurring items, including foreign exchange gains.

With that review of the key financial highlights, I now ask you to turn to slide 7, where we provide a more detailed review of our businesses, starting with building materials.

For the fourth quarter of 2011, building materials net sales were $771 million compared to $717 million for the same period a year ago. Building materials delivered $55 million in EBIT in the fourth quarter of 2011 compared to $9 million in 2010. Full-year 2011 Building Materials net sales were $3.5 billion compared to $3.2 billion in 2010, reflecting increased sales in both our Roofing and Insulation businesses. Building materials delivered $332 million in EBIT in 2011 compared with $281 million in 2010.

The following two slides present the results in more detail by highlighting the two businesses within our Building Materials segment. Slide 8 provides an overview of our Roofing business. For the fourth-quarter 2011, roofing net sales were $384 million, up 13% from the same period a year ago. EBIT for the fourth quarter was $55 million compared with $37 million in 2010. Roofing net sales for the year were $2.2 billion, a 17% increase compared to 2010, primarily driven by higher sales volumes from a strong storm season.

The US shingle market grew in the low-teens in 2011 and our shipments increased in line with the market. For the third consecutive year, our Roofing business achieved EBIT margins of 20% or higher. EBIT for the year was $429 million compared to $405 million in 2010, driven by strong volumes and good execution in manufacturing productivity.

As Mike mentioned in his comments, the outlook for US housing supports modest improvement in the new construction market; re-roof demand ended a six-year decline in 2011; and some carryover of storm demand from 2011 is expected into the first-half of 2012. Assuming that additional storm demand is more in line with historical average levels, we would expect the US market overall to comp negatively in the mid-single digits year-over-year. We expect to sustain our market position, and therefore, that 2012 will be another strong year for our Roofing business.

Now, slide 9 provides a summary of our Insulation business. For the fourth quarter of 2011, Insulation net sales were $387 million compared with $356 million in 2010. Our Insulation business delivered breakeven EBIT in the fourth quarter of 2011 compared to a loss of $22 million in 2010. The last time our Insulation business achieved breakeven was in the third quarter of 2008, when seasonally-adjusted lagged US housing starts were over 1 million, or about 65% higher than lagged US housing starts in the fourth quarter of 2011. This demonstrates the progress we have made in positioning our Insulation business for an eventual US housing recovery.

In 2011, Insulation increased net sales by 5% to $1.4 billion and narrowed EBIT losses by $5 million, primarily due to higher sales volumes. We've seen sequential improvement throughout the quarters in 2011 in both revenue and EBIT, driven by cost reductions, strong commercial execution, and overall housing market improvements during the year, while effectively integrating the FiberTEK acquisitions and successfully launching EcoTouch.

Looking ahead to 2012, industry estimates, such as Blue Chip and the NAHB, indicate that US housing starts will be slightly higher than 700,000, supported by the run rate in the fourth quarter of 2011. On this basis, we would expect the momentum we have felt in 2011 to carry over into 2012, and that the Insulation business will significantly narrow losses for the year. Historically, Insulation has been a seasonal business and profitability is typically stronger in the second-half of the year.

As I remind you on each of our quarterly calls, this is a great business in a well-structured industry. Owens Corning's PINK insulation is a powerful and enduring brand. We are the clear market leader, well-positioned to return to historical performance levels when demand improves, as we know it will.

Now I will ask you to turn your attention to slide 10 for a review of our Composites business.

For the fourth quarter of 2011, Composites net sales were $459 million compared with $475 million in the same period a year ago. EBIT for the fourth quarter was $49 million compared with $59 million in 2010. Overall, our shipments were stable, although European market demand was weak during the quarter, and EBIT was also impacted by the May 2011 divestiture of our Brazilian facility.

Our Composites business delivered increases in both sales and profitability for the full year. Net sales for 2011 were nearly $2 billion, a 4% increase over 2010. This increase was primarily due to higher selling prices and the impact of favorable exchange rates. On a year-over-year basis, sales volumes increased. The global glass reinforcements market grew by 4% in 2011, below historical levels due to weakness in Europe and Asia. EBIT for 2011 of $201 million was up 15%, due largely to the benefits of productivity from excellent execution in our manufacturing operations and higher selling prices, which more than offset inflation.

I would like to touch on current global market conditions as we head into 2012. Historically, the long-term global growth rate for glass reinforcements has been 5% to 7% per year, growing with industrial production. We believe that the slower-than-anticipated growth in the market in 2011, particularly in the second-half, has contributed to Owens Corning and our competitors holding excess inventory at year-end. This has placed pressure on pricing, particularly in Europe and Asia, with overall declines in the low-single digits, although the impact has been somewhat less than we've seen in the past.

We expect global industrial production to continue to grow in 2012, but that the Eurozone's economy will decline. We are confident that there will be overall market growth in glass fiber reinforcements.

In response to the current market conditions, we are taking decisive action to improve our competitive cost position and balance supply within our manufacturing network. We believe that these actions will result in a reduction of our inventory to target levels by year-end 2012. We expect to incur approximately $130 million in charges in 2012 and early 2013, of which half will be cash-related. We expect that the sale of assets, including land and precious metals associated with these actions, will offset a significant portion of the cash costs. The impact of these charges will be adjusted out of our financial results.

As we look to 2013, the benefits from the continued migration of our Composites global network to low-cost, scale assets; positive operating leverage, as new and curtailed assets come back online; and anticipated market growth, position us to return strongly to double-digit EBIT margins.

Let me now turn your attention to slide 11, other financial matters. The Company continued its disciplined approach to balance sheet and capital management for the long-term benefit of investors, and we strengthened our portfolio by the execution of several key transactions.

During 2011, we acquired the two FiberTEK facilities and divested our glass reinforcements facility in Capivari, Brazil. We repurchased 4 million shares in 2011 under our previously-announced share repurchase program; 3.7 million shares remain available for repurchase under our existing authorization. As we've said previously, we expect to complete the current authorization by the end of 2012.

Our $2.3 billion US tax NOL will significantly offset cash taxes for some time to come. In 2011, our advantaged tax position delivered a third consecutive year of cash tax savings of about $70 million, and our cash taxes paid in 2011 were below $25 million. In addition, we refinanced our $800 million senior revolving credit facility during 2011 to extend maturity to 2016 at lower borrowing rates. We closed on a $250 million receivable securitization facility during 2011 that will mature at the end of 2014, providing additional sources of liquidity at an attractive cost.

With that review of the 2011 performance of our businesses, I now ask you to turn to slide 12, where we provide some additional guidance for 2012.

We anticipate that corporate expenses in 2012 will grow to about $110 million to $120 million. This is driven by higher pension expense; higher year-over-year incentive compensation; and nonrecurring items, which were a net benefit in 2011. For 2012, we expect capital spending to be about $350 million. Reported capital spending will include about $20 million of precious metal purchases that we expect to be offset by precious metals sales during the year. As a result, net capital spending will be roughly in line with depreciation and amortization of approximately $320 million.

Cash flow is anticipated to be strong in 2012, as we reduce inventory in our Composites business, reduce capital spending, lower our pension contributions, and continue to benefit from an advantaged tax position. On the basis of our tax NOL and successful tax planning, we expect our cash taxes to be about $30 million. Our effective tax rate on adjusted earnings in 2012 will be about 25%.

Our outlook for the year assumes that there is improvement in US housing starts and modest growth in the global economy. On this basis, we expect business performance and market conditions to support growth in adjusted EBIT in 2012, with improvement in Insulation offsetting near-term market conditions in Composites; a moderate decline in overall roofing demand; and increases in general corporate expenses.

We continue to make progress against our mid-term goals. The significant achievements made in 2011, along with our expectations of adjusted EBIT will grow in 2012, continues to support our confidence that we are on track to deliver our goal of $1 billion or more of adjusted EBITDA at 1 million US housing starts and with continued global economic growth.

Thank you. I will now turn the call back over to Mike.

Thank you, Duncan. As I said at the outset of today's call, we're pleased to have delivered another outstanding earnings performance in 2011. This performance demonstrates the power of our market-leading business portfolio, and our ability to execute across a wide variety of challenging market conditions. Based on our 2011 performance, we are confident in our ability to deliver adjusted EBIT growth and strong cash generation in 2012.

The decisive actions we are taking in Composites will contribute to our delivery of good cash performance this year. We expect that strong performance in Building Materials will enable us to overcome the growth in corporate costs, and some of the anticipated weakness in Composites to provide overall EBIT growth for Owens Corning.

In summary, this year, we see Building Materials delivering our earnings growth; Composites delivering cash growth; and Owens Corning delivering both cash and earnings improvement over 2011. As we look further into 2013, we would expect to have our Composites-related actions completed. With an improving housing market, we will be positioned for both Composites and Building Materials to deliver cash and earnings growth, and Owens Corning to operate on all cylinders.

Owens Corning has a strong track record, outstanding talent, and enviable global market positions to take advantage of the opportunities before us. We are up to the challenge to deliver another great year in 2012 and beyond.

With that, I'll now turn it over to Thierry, who will lead us into the Q&A session. Thierry?

Thank you, Mike. Shantalay, we are now ready to begin the Q&A session.

(Operator Instructions). Stephen Kim, Barclays Capital.

I wanted to just first start off by asking you if you could comment on your -- the sources of cash that you anticipate coming in this year. I know you've got a buyback authorization, and in addition, you've outlined that there might be 60-some-odd-million that you'll need to put out for your Composites restructuring. I was wondering if you could comment on what you think the offsetting inflows for cash might be this year?

Sure, Stephen. Maybe let me top-line that a little bit and then I'll turn it over to Duncan, and he can go across the major captions of our cash flow statement.

But in broad terms, obviously, we're going to have another great EBIT year. And we're not a cash taxpayer; so obviously, cash earnings in our Company are very, very good. We have brought down our level of capital expenditure, not so much in response to weaker market conditions; just really that we have done, we think, a good job over the last couple of years, putting the capital investments into support growth around the world of low-cost and scaled assets that would support long-term growth in Composites, and even near-term growth in Composites.

So from a capital point of view, we felt that like this was the year that we didn't need to put as much capital into the business. We thought we would continue to have very good earnings performance. And really, those are two very key drivers.

There's a number of other kind of balance sheet changes that I think Duncan talked about in a broad sense in his comments, but I'll let him talk about those maybe a bit more specifically. Duncan?

Yes, thanks, Mike. So I mean, I've got some of the different items which are probably really driving this to be a good outlook from a cash flow point of view.

And first of all, Mike mentioned CapEx we expect to be more in line with depreciation. We spent quite significantly more than depreciation in 2011, because we had a number of Composites growth investments that we were doing. So we'd expect that to be quite an improvement.

On the working capital side, we actually grew quite a lot of working capital in 2011 -- I mean, over $200 million. So we expect that net-net to be pretty much a source in 2012. So that's quite a big cash flow change year-over-year.

On the pension side, we probably put in a little more than we would typically expect to put into pension in 2011. I think it's more like $112 million, something of that order of magnitude. And we'd expect that to be more like $70 million, $74 million, I think, in 2012. That's going to be a source.

As Mike mentioned, we have a very strong tax position. As we continue to make earnings, particularly earnings in the United States, given our NOL position and our tax planning, we would not expect cash taxes to be particularly large. They were of the order of $25 million in 2011. They will probably be on the order of $30 million in 2012, so that's going to help us from a cash point of view.

You mentioned the restructuring costs in Europe. What we said there was we expect to take charges over '12 and '13, which would include cash and non-cash items. We said about half of that would represent cash expenses over the period. I'm not sure it's reasonable to conclude that all of those would be in 2012. And we would expect -- simply a matter of those to be offset by sales of assets and precious metal and other benefits. So that would probably mean we could offset a lot of that as well. So I do think that, therefore, we have a pretty good outlook to why this year would be a pretty good cash flow year for us.

Okay, great. No, that helps tremendously, thanks. The second question relates to your Building Products business and Insulation businesses. In particular, you talked about, I think you mentioned 700,000 starts, which was the combination of two services. What we're hearing from the field in housing is continuing to strengthen pretty much across the board; we are getting confirmation that sales traffic through the builders' community centers and so forth is very strong.

And I think at this point, it might be fair to ask the question, if you see a level of housing starts, let's say, closer to 800,000, if we were fortunate enough to see that in 2012, I think in the past, you had indicated that that might be enough to drive Insulation into profitable territory. I wanted to confirm that that hadn't changed even after the Masco relationship.

And then in Roofing, I was curious as to what kind of volume lift you might see from an extra 100,000 starts in 2012 in your Roofing sales?

Sure. Let me talk about Insulation first. Obviously, we believe getting to breakeven performance in the fourth quarter in Insulation was a significant milestone. So if you look at the underlying demand, we work on about a 90-day lag. You know, we were basically at about a 615,000 seasonally-adjusted housing start market in the fourth quarter, which would have been Q3 2011 demand -- which was basically flat from the market opportunity we saw in Q4 2010.

So, with very little change in the market, we were able to improve our EBIT by $22 million on revenue growth of about $30 million. So I think you're seeing fundamental performance improvement in our business in what has been basically a flat market.

We saw seasonally-adjusted starts in the fourth quarter start to tick up; we're back kind of to 650,000 for the fourth quarter. Obviously, it's a seasonal business, so fourth quarter starts at 650,000 does not provide us the same market opportunity because it's winter, and the seasonally-adjusted starts reduce the number of actual holes in the ground during the wintertime. So, we won't see the effects of a really strong market until we get through a spring selling season and see what the second quarter, third quarter type starts might be coming out of where spring selling is.

If some of the chatter in the industry -- I mean, a lot of us were at the Home Builders show last week, heard generally positive things from the builders. I think there is more positivity in the home builder confidence index than there's been in a very long time; but we saw that this morning. If we were to see a good spring selling season and see some momentum through the year, our lag starts would underpin the guidance we gave today, which was based on 700,000 starts in 2012.

I'm not uncomfortable saying that we've given guidance that we believe the business could be breakeven at 800,000 starts. That was kind of a linear interpolation we had set at 1 million starts, which was the last time the business broke even. We thought this time around we would make $100 million. We said that at 600,000 starts when the business was losing $100 million.

So many of the analysts have looked between those two numbers and said, well, it seems like you'd be at breakeven about halfway. And I think with the improvements we've seen in the business in the latter part of 2011, and with the opportunity for some momentum, if we were to get into that kind of lagged housing start environment, our expectation would be we'd get breakeven or better.

On the Roofing side, you know it's important to remember that the main underlying market in Roofing is, in fact, the re-roof and repair market. On a 15-year average basis, about 75% of the overall market is driven by classic re-roof and remodel and repair-type business.

We were actually pretty pleased in 2011. We published roofing industry numbers on volumes. We'll talk about those a little bit on our Investor Day in March. We think re-roof demand grew in 2011 versus 2010, really, for the first time in about six years. So we've reversed a downward trend in re-roof demand.

Growth in re-roof demand is probably a much more important driver of the overall market than would be growth in new construction. So we've estimated at 600,000 starts, we think the overall market for new construction shingles is around 11 million squares. That's pretty linear. It can vary a little bit geographically. But if we went from 600,000 starts to 800,000 starts, we'd probably expect to see that number grow by about 3 million squares or by about one-third.

So, the opportunity for re-roof demand to go from the low 90's back to the 15-year average of 105 million squares would probably dominate the new construction impact in Roofing. And we do think those two go somewhat hand-in-hand -- that existing home sales, repair and remodel, peoples' willingness to invest in their home, generally, is pretty highly correlated to a good new construction market. So as new construction improves, we would expect to see attitude towards investment in existing construction to also improve and start to pick up that re-roof market and give us some growth there.

Okay. Thanks. That's a very good answer. Thank you.

Kenneth Zener, KeyBanc.

In Composites, the down year is causing both down demand and inventory absorption. The last time this happened in '09, as you guys highlight in your slide 10, segment margins were negative. Given your less specific guidance this year versus last year, can you walk us through your thinking a little more?

Mike, I think I heard you say you didn't expect growth in Composites; flat in that environment also seems perhaps not likely. So can you walk us through your thinking? Europe is 40% of the business. The slowdown isn't global this time. How is that negative leverage going to look, given that you're burning off inventory and the payback period on your restructuring?

Yes, Kevin. I think the key difference between the things we said and the way you laid out the case is we are not expecting down demand in 2012. In fact, we expect the overall composites market to grow globally.

We do expect down demand in Europe, so we think Europe right now is in a negative industrial production. We think that was in the second-half of 2011. We certainly, in our outlook, would expect that to continue at least through the first-half of 2012. But Europe represents probably less than 30% of the overall composites market, with Asia still growing with the developing countries still growing. China, obviously, with a good outlook for growth. And then good growth here in North America.

We do expect the overall composites market this year to grow. Given our market-leading position which you described, we would expect that we would see better overall volumes in 2012 than we saw in 2011.

The two headwinds that we have, though, that cause us not to be able to translate that into earnings growth is, we have seen low single-digit declines in prices associated with what we would say is a supply overhang rather than weakness in demand. And that's working its way through. We think that's mostly behind us. We think that was primarily a late 2011, early 2012 kind of event, and that we would expect for the full year, pricing would now start to stabilize.

And then the other thing is we'll have some absorption economics as we take out the 7% of production that I talked about in my prepared remarks. So obviously, whenever we liquidate inventory, we've absorbed some cost in inventory that will come out as we ship those inventories, but we have other curtailment costs that then back up onto our P&L.

So, when we look at 2012, we see that we'll have some curtailment costs coming into our P&L and a bit of negative pricing, combined with overall demand growth and continued productivity in our operations. As we get to the end of 2012, we would expect to have had completed enough permanent capacity reduction restructuring, primarily in Europe, that would take out about 5% of our overall capacity. That would then allow us to get some of the low-cost capacity we've been building out over the last two or three years, loaded in a world of continued demand growth, which is what we expect, and fairly stable pricing.

We'd expect to go into next year, therefore, with a better global network; a higher percentage of our assets being low-cost; better utilizations in loading; no year-over-year curtailment costs -- in fact, that would then become an add-back, as curtailment costs we had in 2012 didn't repeat in 2013; and decent volume growth leading to good margin expansion. So that's kind of the whole walk-forward from where we are today and how we work our way through this year.

Obviously, we don't see anything near either the kind of price decline that we saw in 2009. We're not seeing volume decline, period. And as a result, while we are signaling today that we don't expect that we can have a third consecutive year of earnings growth in Composites, we expect that the decline in earnings will be relatively mild, in that we can overcome them with some improvement in the Insulation business and with the Building Materials segment. And with corporate costs going up a bit, obviously, Composites is going to have to hang in there and have a reasonable year, for us to be able to get to our guidance of growing earnings on 700,000 starts.

Okay. I do appreciate that. And then Roofing, the margins, obviously -- it's a volatile business. I think broadly, people saw a very strong demand and market demand because of weather and storm, which led to end market pricing that was stable; when seasonally, the December and then March quarters tend to be sequentially weaker than the prior.

Can you talk about what you saw -- I think it came in a little lighter. I mean, you guys -- it was 20% -- would you reiterate the 20%, for example, this year in terms of the operating margin? And the price increase you have in the channel, can you comment on that relative to the January/February asphalt prices this year being up 20% versus last year, although flat with the March through December run, more or less? I'd appreciate that. Thank you.

Sure. I mean, we were very pleased with Roofing's fourth quarter. I mean, we've talked a lot on these calls over the course of the last three or four years on how difficult it is, we believe, to forecast quarterly results in the Roofing business. We tend to look at it as a full-year kind of business.

When we look at the full year for Roofing, what we accomplished is we grew our revenue by about 17%, which was a combination of market demand growth of 13%, which we talked about today, and some growth in our prices because of increased asphalt costs. So, we obviously kept up with the market and we're able to get good pricing. We're able to grow earnings or EBIT overall, for the business. And we're able to achieve our margin goal of 20%.

Now in the fourth quarter, I think if the market had grown full-year 2011 by, say, 15% instead of 13%, it's not hard to see that a couple of additional points of overall growth for the market would have all shown up in our fourth quarter. It would have all have been on the margin. It would all have produced additional EBIT. But I would tell you that any couple additional points that we saw at the end of 2011 was likely storm demand that would have then come out of our outlook for 2012.

So there's a lot of timing in terms of when the market serviced the demand that we saw materialize in 2011. And we were very happy with the amount of demand that we saw for our business in the fourth quarter of 2011, and we're pretty happy with the market dynamics as we head into 2012.

We don't really see anything today in terms of our outlook to raw material costs, our outlook to inflation. the pricing environment, supply chains, or inventories, that causes us to be uncomfortable with saying that we think we'll continue to have very strong performance from our Roofing business. We've come off now three consecutive years of 20% operating margins, and we think that's awfully strong and consistent with our long-term guidance of mid-teens or better.

But not 20%?

Well, we haven't -- we just haven't given specific guidance at the segment level this year. One of the things that we're trying to do in the way we talk about the businesses this year is to step back a little bit from some of the very, very specific guidance we've given in the individual businesses, and talk about Owens Corning more as a whole. I think it's not hard to do some numbers and see that the Roofing business is going to have to have another great year for Owens Corning overall to growth EBIT. So, we think that that's pretty much in the guidance we've given.

Thank you.

Garik Shmois, Longbow Research.

First question is just on Insulation. I was wondering if you can just remind us when you completely anniversary the higher costs associated with the EcoTouch conversion, as well as when the volumes associated with the Masco agreement were fully loaded into the numbers in 2011?

Yes, Garik, I think if you go back and look at the first half of last year, we were still in transition on EcoTouch, so we had some costs in our business in the first-half. It felt like we ran pretty well in the second-half, so I would say we had a stable manufacturing environment and a stable technology in the second-half.

We were also transitioning some of the Masco branches that we were pleased to have successfully integrated into our business in the first-half of 2011. And I would say that pretty much our relationship, as one of their primary suppliers, was fully onstream by the second-half of 2011.

So, the first-half of 2011 would have both those impacts in it. I think the second-half is a pretty good and stable run rate. And generally, if you look at last year, we trailed 2010 performance in the first-half. And then in the second-half is where you saw the year-over-year improvement in EBIT. So we have pretty nice momentum on a sequential basis in that business coming into 2012.

Okay. Thanks. And just a follow-up question on Roofing with respect to the price increase that you have announced. Have you seen your competitors announce a price increase for either the March or April timeframe just yet? And if you could just provide some color on what kind of feedback you're seeing in the channel, with respect to distributors' appetite to absorb higher prices here in 2012, that would be great.

Yes. We did announce a price increase for early March. I don't believe we've seen any competitive activity regarding pricing at this point. We have certainly seen in our business that we did not have a typical seasonal falloff in asphalt costs as we went through the winter, and that our asphalt costs today continue to be at relatively high levels. So we think one of the things that we're looking to do in the first-half of this year is find a way to get some price recovery that would allow us to cover the inflation that we've seen.

We're obviously going to continue to be very, very competitive in the industry and it's a competitive industry. But our expectations for the year would be that we'll be able to execute sufficient pricing in order to continue to sustain very good margins in the business.

Okay. Thank you very much.

Michael Rehaut, JPMorgan.

First question on the composites, I was just hoping to get a little bit more granular, if possible. And I know -- recognize you guys are trying to maybe get away from maybe the level of quantification you did before. But just to get a sense of the degree of magnitude here, you're certainly mentioning that the issues that are facing the industry right now are much milder compared to late '08, early '09.

But just to clarify your statements here, I think initially, you said Composites EBIT, that there'd be no growth. In answer to a previous question, though, I think you said maybe a mild decline in EBIT itself. So just wanted to clarify -- you're expecting EBIT flat or EBIT down slightly?

And second, in terms of how to think about the first quarter itself, given that's where you would be encountering the most, probably in terms of the adjustment, in terms of your capacity and production, are we to think a turn into negative territory in the first quarter? Or is some type of mid-single digit more reasonable?

Yes. Well, let me start with our overall outlook to EBIT, and then I'll come back and talk about how some of this might play out through the year.

What I'd said in my prepared remarks is, Composites had grown EBIT for the last two years. And in fact, if you look at Owens Corning's overall improvement from 2009 to 2011, really the driver of that improvement has been Composites, as we've kind of muddled through a bit of a difficult building materials market here in North America. I did say that we did not expect we would be able to continue that string of growing EBIT this year.

Said a different way, we do think we'll see some EBIT decline in Composites this year, based on our current outlook, and that that EBIT decline will be more than offset by growth in performance in our Building Materials segment, so that we can produce overall EBIT growth for the Company.

I wouldn't -- I don't think it's appropriate to think about the first quarter adjustment as being -- or your question is about the first quarter. It wouldn't be appropriate to think about the production adjustment as we're slamming on the brakes, and as a result, kind of stopping a lot of production immediately.

We have a big fleet of melters globally. They go through turnarounds or rebuilds -- the chemical industry tends to call them turnarounds; we tend to call them rebuilds. We have the ability to time those rebuilds in such a way that they create natural opportunities for us to reduce inventories. We can take a melter down a little bit earlier or we can leave it down a little bit longer and then bring it back up. That's a very low-cost way for us to take curtailment.

We had also planned to bring capacity into our network this year in both Russia and in Mexico. These are two great investments for us that are low-cost facilities. Our plan right now is to just bring those online a little bit later in the year in each instance than we had previously planned, which will take some production out of our production plan.

So it's really a number of those types of adjustments that allow us to adjust through where we find ourselves. Because mind you, we're not seeing demand decline. What we're seeing is a need for us to correct some inventories out in a growing demand market. And as a result of that, we just need to take our rate of production down sufficient that we can get the inventories out of our system, so that we can get back to operating leverage.

So I don't think the kinds of reversals of fortune that we saw in 2009 are anywhere on the agenda for us this year. It's much more of using the strength of our fleet of melters to get an adjustment that gets the inventory positions where we need them to be, to get back to operating leverage. And I think what we demonstrated with this business is, in a stable or slightly improving pricing market -- which we do think is the long-term pricing market for Composites -- and with good operating leverage and low-cost assets, that the business can put up some awfully good numbers.

Shantalay, we have time for two more questions. We have time for two more questions at this point.

Kathryn Thompson of Thompson Research.

Thank you for taking my questions today. The first one, once again, with Composites, not to beat a dead horse, but I do have questions on Europe.

We are increasingly getting word that the Chinese are back to their old ways with weak pricing, which you alluded. Is there a possibility that European regulators could increase the current Chinese composite tariff? Any color you have about that process and what we could see in coming months?

Yes, that's a good question, Kathryn. As we said in our comments, we did see some mild pricing actions late in 2011, early 2012, that those pricing actions were primarily related to Europe and some in Asia. In fact, we saw some of it start when the euro was still at $1.40. So Europe was probably a bit more attractive a market at that time than it is today at EUR1.30 -- EUR1.30 to the -- $1.30 to the euro -- I'm sorry, I want to make sure that I'm clear about that.

So, on an exchange rate basis, if you're going to sell in other places of the world in US dollars, the European market was still a pretty attractive place, given the strength of the euro. Some of that decline has probably made Europe a little bit less attractive. And anti-dumping duties have helped to protect the European manufacturers a bit, including Owens Corning.

I would defer to the European Composites Manufacturing Association, which is the group that has gone to the European Union originally to seek the anti-dumping duties. We are a member of that group. I know that that group has had some focus on whether or not the current market environment potentially would suggest that the levels of anti-dumping duties, that were put in, were not aggressive enough to keep stability for the European manufacturers. I can only speculate where that process might go, so I don't have any insight or inside knowledge on that.

It sounds like there has (technical difficulty) --?

Yes, I think it's an ongoing dialogue. Any time you get into your trade association talking with governments about anti-dumping duties, or the European Union about anti-dumping duties, I think there's a discussion before it happens; there's a discussion during implementation; and then there's ongoing dialogue as to whether or not the duties are working as designed. I can only speculate.

Okay. And then going back -- you talked about reducing production by 7% in 2012, but I know there are some capacity additions in Mexico. First, are those still on track? Are there any other composite manufacturers, to your knowledge, that are taking down capacity in the next 12 to 18 months too -- or adding capacity?

Yes, the 7% reduction that we were talking about on today's call is 7% off of a growing capacity base for Owens Corning. So we, obviously, deploy long-term assets in this industry to meet long-term demand. And we have been building out low-cost assets, first with our plant in China; then, with the capacity expansion we're doing in Russia; now with the capacity expansion that we're doing in Mexico. We have been building out low-cost assets to meet long-term growth and demand.

Our goal is actually to bring those assets on as quickly as possible because they are low-cost assets. And the quicker we bring them online, make them a part of our network, and get them loaded, the more our average cost structure goes down, the more competitive our global network is.

So this year in transition, delaying those assets for a period of time to help us reduce our inventories is the right thing to do. But trying to take a bit more permanent capacity reduction in Europe, that would take out some of our higher-cost assets, get us competitive in Europe again, allow us to have line of sight and visibility to good profitability in Europe, and also ensure that we're not taking curtailments in our low-cost assets, in order to keep high-cost European assets running; much more trying to focus our global network to balance supply and demand in each of the regions of the world.

So we've got to work our way through that; but generally, our outlook for Composites continues to be long-term demand growth, long-term need for us to continue to add low-cost capacity, and that low-cost capacity continuing to improve the richness of our margin mix, and driving our operating margins to the mid-teens, which has been our long-term guidance in that business.

Okay, great. And final question -- and I can follow-up later if you prefer to answer later -- there was a sequential decline in revenues for Composites; yet you had a nice improvement in EBIT margins from Q3 to Q4. What was driving that relative improvement in EBIT margins in the face of a decline in top-line Composites? Is it mix? Or is there something else that we should take into consideration?

Well, one of the things that I'd say that I think the business has done a very good job of is, our manufacturing performance has been improving really over the last four or five quarters. I think we've had a fairly stable mix of products in our facilities, which has allowed our manufacturing team to focus on efficiencies and throughputs, and running well.

We had -- we are migrating, in terms of yields and efficiencies, towards some record levels of performance in our Composites business. So we're very proud of them. So I would imagine that a fair amount of that improvement is probably related to just good manufacturing performance in our business.

Okay, great. Thank you for taking my questions today.

Thank you, Kathryn.

Your final question comes from the line of Neil Frohnapple of Northcoast Research. Please proceed.

Can you speak to the success of the 5% Insulation price increase that was implemented in early January? And do you have any further price increases planned at this point for that business?

Yes, we had announced a 5% price increase for January 1 of this year. Generally, we don't like to give a lot of specific guidance in terms of how we think individual price increases are going. So I guess I'd prefer not to comment specifically to that.

I guess, more broadly, what I would comment on is, the belief that increasing our prices and helping our customers increase their prices is critical to the long-term health of our business and our customers' business. So we have, generally, over the last two or three years, been quite active as, I think, one of the recognized leaders in the market, of trying to put price increases in, that would allow our customers to be able to improve the profitability of their business, and also absorb higher costs from us.

Today, insulation prices are quite a bit depressed from where they've been historically. And we think a big part of the recovery of our financial performance in our business, and in the business of our customers, would be for us to get more value for the Insulation system in new construction. If you think about it, it doesn't really make a lot of sense that the Insulation system, which is going to be an enduring part of the value of any well-built home, and is going to be there for 50 or 60 years, saving energy for the homeowner, should be devalued and not valued as a part of new construction.

So we've got some work to do there. I think you would expect that the ability to get price is probably easier in an improving market. We have not yet been really in an improving market, but it continues to be on our agenda for the improvement of our business.

All right. Thanks. And one final one -- did Roofing volumes benefit at all in the fourth quarter due to the milder weather? Or will this be more of a tailwind in the first quarter, do you think?

You know, I think the mild weather for sure is benefiting our customers. So when we talk to distributors, I think what they've said is that they saw roofing season continue later into 2011. And that they've seen, particularly in the northern parts of the country, better opportunity to have some business going out their door in the first part of 2012.

For a manufacturer, a lot of the decisions that distributors make and retailers make, in terms of when they buy product from us and how aggressive their inventory positions are, is largely driven by their expectations and outlook for pricing. So, as we see the first-half of this year develop, and we see expectations for pricing, if the distributors begin to expect that prices will go up, I think you'd start to see a lot of their demand out their door translate into orders on our books. And if that were not the case, I think they would probably continue to just balance and match what's going out their door with what they buy from us.

So, I don't really have a strong point of view today in terms of when that translates into good business for Owens Corning. I'm pretty resolute that it does, ultimately, translate into good business for Owens Corning in 2012.

All right. Thank you.

Very good. Well, thank you for joining us for today's call. And with that I'll hand it over back to Mike for some closing remarks. Mike?

Well, thanks, Thierry. First of all, thank you, everyone, for joining our call. We are always very appreciative of the interest that the investors show in our business.

We, obviously, are very proud of what we accomplished in 2011. We think Owens Corning had another great year. It's our second consecutive year of earnings per share growth of more than 35%. We had a number of very, very important milestones -- Composites did double-digit operating margins; Roofing with good top-line growth and continued to sustain strong operating performance; and the breakeven performance in our Insulation business in the fourth quarter. So, a lot of the things that we set out to do coming into the year, we feel very good are now achievements that we can talk about for our people and for our business.

Coming into 2012, I think, six months ago, we would have said that what we hoped for was a growing global economy and some improving housing. And that as a result, we would have hoped to see the Composites segment and the Building Materials segment now in sync, growing in 2012.

I think we're maybe going to get half of that this year, which is we are expecting some improvement in housing this year, which will help our Building Materials businesses, and particularly, our Insulation business drive performance for us in 2012. On the other hand, we did see some slowdown, as we mentioned earlier, in Europe, which is going to give us the need to take some actions to reduce some inventories, and will cost us some operating leverage in Composites.

I think it speaks to the strength of our portfolio that, even with some of the headwinds we maybe have seen in Composites in terms of small price declines, some volume declines in Europe, that an overall demand growth environment, we're able to offset some of the near-term challenges in Composites, and believe that we can grow earnings in 2012 on 700,000 housing starts here in the US.

I think we're more excited beyond that as we look into 2013 with good execution of our action plan in Composites. And I think we've got a great plan and good track record of being able to execute these types of plans in the business. We can see ahead now 12 months to the potential for Composites business is absolutely geared, with a wonderful asset base facing a growing market and good low-cost in our global network. And a Building Materials segments that is now benefiting from four or five quarters of sustained growth in its marketplace, which should give us positive overall momentum.

Our focus in the near-term continues to be on execution. I think you'll hear us talk through this year about performance in both the earnings line and also in terms of cash flow. I think we have an opportunity to give our investors a very nice year in terms of growth in EBIT, and very nice cash flow performance; and then get Owens Corning really operating on all cylinders as we head into 2013.

I know many of you do intend to come join us in Toledo for our Investor Day in March. We look forward to seeing you in person. And for those of you who will be on our next call, we look forward to talking to you on April 25. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.