Disciplined Financial Strategy Focused on Shareholder Value Creation. Michael McMurray Chief Financial Officer

Transcription

1 Disciplined Financial Strategy Focused on Shareholder Value Creation Michael McMurray Chief Financial Officer 1

2 Sustained Focus on Shareholder Value Grow earnings and drive free cash flow Sustain a strong balance sheet Maintain disciplined capital deployment Free cash flow defined as net cash flow provided by operating activities less additions to plant and equipment. 2

3 2015 Guidance The company expects full-year adjusted EBIT to be at or above the high end of the guidance range of $460 million to $500 million Estimate cash taxes of 10% to 12% and book tax rate of 32% to 34% on adjusted pre-tax earnings Expect free cash flow conversion of adjusted earnings to be about 100% On track to deliver best return on capital performance since 2011 Free cash flow defined as net cash flow provided by operating activities less additions to plant and equipment. Return on capital defined as net operating profit after tax divided by total capital. Total capital includes property, plant and equipment and working capital; calculated as average of beginning and ending balances. Working capital defined as accounts receivable, plus inventories, minus accounts payable. 3

4 Millions of $ Sustaining a Strong Balance Sheet 1, Long-Term Debt Maturity Profile $ $600 $ $250 $158 $144 $ Bonds Securitization Capacity Revolver Capacity Maturity Profile Supports Capital Allocation Strategy 4

5 Strong Earnings and Cash Flow Outlook Free cash flow conversion of adjusted earnings expected to be about 100% on average over 2015 to 2018 Advantaged tax position with cash tax rate of 10% to 12% Continue to improve working capital efficiency Capital spending at about 100% of D&A over the next three years to support operations and approved growth projects Maintain disciplined SG&A management Expect to continue momentum of improved return on capital performance through the next three years Significant Growth in Earnings & Free Cash Flow Achievable in an Environment of Recovering U.S. Housing & Global Economic Growth Free cash flow defined as net cash flow provided by operating activities less additions to plant and equipment. Return on capital defined as net operating profit after tax divided by total capital. Total capital includes property, plant and equipment and working capital; calculated as average of beginning and ending balances. Working capital defined as accounts receivable, plus inventories, minus accounts payable. 5

6 Tax Position is a Significant Asset Benefit from $2.0 billion U.S. Federal N.O.L. with estimated present value of approximately $5 per share Delivering cash tax savings of about $60MM per year Expect long-term book tax rate of 32% to 34% based on geographic mix of earnings and tax planning Cash tax rate approximately 10% to 12% over the next few years Source: Owens Corning management estimates. Year-end 2015 management estimate for U.S. Federal N.O.L. 6

7 Working Capital Focus Anticipate best performance in three years As a percent of revenue, expect to improve by more than 150 basis points vs Inventories expected down by more than $125MM in 2015 Expect to make further progress in 2016 Working capital defined as accounts receivable, plus inventories, minus accounts payable. 7

8 SG&A Peer Benchmarking Building Materials Peers UNIVERSAL FOREST PRODS INC USG CORP OWENS CORNING MASONITE INTERNATIONAL CORP GIBRALTAR INDUSTRIES INC PLY GEM HOLDINGS INC QUANEX BUILDING PRODUCTS ARMSTRONG WORLD INDUSTRIES APOGEE ENTERPRISES INC LENNOX INTERNATIONAL INC GRIFFON CORP MASCO CORP NCI BUILDING SYSTEMS INC BUILDERS FIRSTSOURCE NORTEK INC ALLEGION PLC FORTUNE BRANDS HOME & SECUR SMITH (A O) CORP Source: Capital IQ. SG&A includes R&D spend. 0% 5% 10% 15% 20% 25% SG&A as % of 2014 Revenue Owens Corning s SG&A Productivity is in the Top Quartile of Building Material Peers 8

9 Return on Capital 10% 9% 9.0% 8% 7% 7.9% 7.5% 6% 5.8% 5% 4% E 2015 Return on Capital Expected to Improve 300 Basis Points over 2012 Return on capital defined as net operating profit after tax divided by total capital. Total capital includes property, plant and equipment and working capital; calculated as average of beginning and ending balances. Working capital defined as accounts receivable, plus inventories, minus accounts payable based on analyst consensus estimates, company guidance, and management estimates. 9

10 Long-Term Capital Allocation Strategy Drive shareholder returns by enabling organic and inorganic growth and supporting the balance sheet Maintain investment grade Maintain safety of operations and productivity of existing portfolio Capital allocation strategy Investing in attractive organic growth Pursuing value-creating acquisitions Returning excess cash to shareholders 10

11 2015 Cash Deployment Strategy 2015E Foundation Base Capex Cash Interest Dividend First priorities for cash Fund with cash flow from operations $280MM $110MM $80MM Growth Capex High-return investments $100MM Discretionary Opportunities Share Repurchases / Acquisitions Discretionary cash returned to shareholders M&A if strategic and meaningfully accretive $120MM 2015 based on management estimates. Track Record of Returning Cash to Shareholders 11

12 Growth Investment Focus Strategic assessment of opportunities shaped by our current business assets and capabilities, as well as attractiveness of potential growth areas Geographic & product line expansion in our Insulation business Capital-efficient growth in Composites Components in our Roofing business Focus on targets that drive high potential shareholder value and confer competitive advantage through the acquisition of capabilities and knowledge 12

13 Sustained Focus on Shareholder Value Grow earnings and drive free cash flow Sustain a strong balance sheet Maintain disciplined capital deployment Free cash flow defined as net cash flow provided by operating activities less additions to plant and equipment. 13

14 Questions and Discussion Mike Thaman Chairman and Chief Executive Officer Michael McMurray Chief Financial Officer 14

15 What You Heard Today We operate in markets with attractive near-term and long-term macro drivers We have great businesses in attractive industries We are focused on creating shareholder value We are positioned to grow earnings, deliver strong returns, and generate significant cash flow with continued global economic growth and recovering U.S. housing 15

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17 Appendix A This appendix includes the following non-gaap measures that are intended to supplement investors' understanding of the Company's financial information: Adjusted EBIT Adjusted earnings and adjusted earnings per share Return on capital These measures exclude certain items that management does not allocate to our segment results because it believes they are not a result of the Company s current operations. The adjusted financial measures resulting from these adjustments are used internally by Owens Corning for various purposes, including reporting results of operations to the Board of Directors, analysis of performance and related employee compensation measures. Although management believes that these adjustments result in measures that provide it a useful representation of its operational performance, the adjusted measures should not be considered in isolation or as a substitute for the corresponding GAAP measure. 17

18 Appendix A A reconciliation from net earnings (loss) attributable to Owens Corning to Adjusted EBIT is shown in the table below (in millions): (a) Adjusting items as reported in SEC filings 18

19 Appendix A A reconciliation from net earnings (loss) attributable to Owens Corning to Adjusted Earnings is shown in the table below (in millions): (a) 2014 s adjusted effective tax rate excluded the resolution of a significant uncertain tax position and the reversal of a valuation allowance recorded in prior years against certain European net deferred tax assets. (b) For the nine months ended September 30, 2015, we applied a 33% effective tax rate estimate to the year-to-date earnings. 19

20 Appendix A A reconciliation from diluted earnings (loss) per share to adjusted diluted earnings per share is shown in the table below: (a) 2014 s adjusted effective tax rate excluded the resolution of a significant uncertain tax position and the reversal of a valuation allowance recorded in prior years against certain European net deferred tax assets. 20

21 Appendix A A reconciliation from net earnings (loss) attributable to Owens Corning to net operating profit after tax, and the calculation of return on capital, are shown in the table below (in millions): (a) The adjusted effective tax rate for 2014 excluded the resolution of a significant uncertain tax position and the reversal of a valuation allowance recorded in prior years against certain European net deferred tax assets. (b) The following adjusted effective tax rates for the Company were used: 30% in 2014, 27% in 2013, 23% in 2012, and 21% in (c) Total capital includes property, plant and equipment and working capital; calculated as average of beginning and ending balances. Working capital defined as accounts receivable, plus inventories, minus accounts payable (as disclosed in the Notes to Consolidated Financial Statements in the Form 10-K). 21