Owens Corning Focused on Shareholder Value

Transcription

1 Owens Corning Focused on Shareholder Value Q This presentation shared at the following event(s): 8/29/17 OC Roadshow Hosted by KeyBanc West Coast Michael McMurray, Chief Financial Officer

2 Forward-Looking Statements and Non-GAAP Measures This presentation and the associated remarks and comments contain forward-looking statements. We caution you against relying on these statements as they involve risks and uncertainties that are difficult to predict and the Company s actual results may differ materially from those projected in these statements. Such risks and uncertainties include, without limitation: relationships with key customers and demand for our products; macroeconomic factors like levels of construction activity, global industrial production, industry, economic and political conditions, including new legislation, policies or other governmental actions by the new U.S. presidential administration and Congress; competitive and pricing factors; currency, commodity and interest rate fluctuations; our level of indebtedness and the availability and cost of credit; weather conditions; energy and raw material availability, price volatility and cost issues; ability to protect our intellectual property and information technology systems; labor disputes, legal and regulatory proceedings; our ability to utilize our net operating loss carry-forwards; issues related to acquisitions, divestitures and joint ventures; and, factors detailed from time to time in the Company s SEC filings. For purposes of this presentation, any discussion referring to year to date or last twelve months ( LTM ) refers to the period ended on the last calendar day of the quarter preceding the date of the investor event referred to on the first page of this document. Otherwise the information in this presentation speaks as of the date of the investor event, and is subject to change. The Company does not undertake any obligation to update or revise forward-looking statements beyond what is required under applicable securities laws. Any distribution of this presentation after the date of the investor event is not intended and should not be construed as updating or confirming such information. This presentation contains references to certain "non-gaap financial measures" as defined by the SEC, including EBIT, adjusted EBIT, adjusted earnings, adjusted EPS, adjusted pre-tax earnings, free cash flow, free cash flow conversion of adjusted earnings, free cash flow yield, operating working capital and return on capital. Management uses non-gaap measures for various purposes, including reporting results of operations to the Board of Directors, analysis of performance and related employee compensation measures. Although management believes these measures, and exclusions from GAAP therein, provide a useful representation of performance or liquidity, non- GAAP measures should not be considered in isolation or as a substitute for the corresponding GAAP measures. A reconciliation of these non-gaap financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP can be found in the text and tables of our most recent earnings Press Release filed with the SEC on Form 8-K and in Appendix B. When the company provides forward-looking expectations for non-gaap measures, the most comparable GAAP measures and a reconciliation between the non-gaap expectations and the corresponding GAAP measures are generally not available without unreasonable effort due to the variability, complexity and limited visibility of the adjusting items that would be excluded from the non-gaap measures in future periods. The variability in timing and amount of adjusting items could have significant and unpredictable effects on future GAAP results. Adjusted EBIT, adjusted earnings, adjusted EPS, adjusted pre-tax earnings and return on capital exclude certain items that management does not allocate to its segment results because it believes they are not representative of the Company s ongoing operations. Free cash flow is a non-gaap liquidity measure used by investors, financial analysts and management to help evaluate the company's ability to generate cash to pursue opportunities that enhance shareholder value. Free cash flow is not a measure of residual cash flow available for discretionary expenditures due to the company s mandatory debt service requirements. As a conversion ratio, free cash flow is compared to adjusted earnings. Free cash flow yield is a non-gaap liquidity measure that management believes is useful to investors to compare a company s ability to generate free cash flow to its market valuation. Free cash flow yield is not a measure of cash flow which accrues directly to the benefit of common stock share owners. 2

3 Agenda The Company Investment Thesis Three Strong Businesses Additional Financial Information

4 Owens Corning at a Glance k $5.7 BILLION Founded Over 79 Years Ago Three Strong Businesses Employees Worldwide Countries Around the World Consecutive Years on the Fortune Sales Source: Owens Corning SEC filings and Fortune Magazine 4

5 Balanced End Market Exposure 2016 OC REVENUE BY END MARKET 26% 21% 15% 38% U.S. & Canada Residential New Construction U.S. & Canada Repair and Remodeling U.S. & Canada Commercial and Industrial International Roofing 1% Insulation Composites 3% 12% 8% 16% 36% 11% 25% 60% 26% 79% 23% Source: Owens Corning management estimates; estimated error margin below 5%. Consolidated figures eliminate intercompany sales between reportable segments. 5

6 Agenda The Company Investment Thesis Three Strong Businesses Additional Financial Information

7 Proven Track Record of Financial Improvement ADJUSTED EBIT RETURN ON CAPITAL $ MM 746 Percent 11.9% EBIT 416 AND MARGINS % 7.7% 7.2% 9.3% EBIT AND MARGINS FREE CASH FLOW OPERATING WORKING CAPITAL / NET SALES $ MM Percent % 17.3% 18.0% 16.5% 14.0% 341 EBIT AND MARGINS EBIT AND MARGINS Free Cash Flow Conversion: % 126% Please refer to Tables 1, 2, 3 and 7 of Appendix B for reconciliation to Owens Corning SEC filings. 7

8 Compelling Investment Thesis 1 Attractive Macro Drivers 2 Market Leading Businesses 3 Improved Portfolio, Earnings & Cash Flow Favorable global trends Positive market outlook Leadership positions in attractive industries Valuable brands Low-cost assets Disciplined capital allocation Access to growth opportunities Improving capital intensity Focused on Shareholder Value 8

9 Sustainable Improvement of Earnings Power 2016 Adjusted EBIT Margin: % % 13% Insulation Roofing Composites Acquired and expanded mineral fiber assets Grew business outside North America Returned engineered & regional business to record levels Lowered breakeven point Implemented sustainable cost improvements Drove substantial Components growth Acquired synthetic underlayment leader InterWrap Served market needs with premium products Repositioned low-cost network Reduced capital intensity Accelerated pace of product innovation Demonstrated industry supply tension Please refer to Table 1 of Appendix B for reconciliation to Owens Corning SEC filings. 9

10 Superior Free Cash Flow Yield Within Sector 10% 9% 8% 7% 6% 5% Peer Average 4% 3% 2% 1% 0% Source: Management estimates, based on 2016 data from CapitalIQ. Management believes this disclosure is useful to investors to compare a company s ability to generate free cash flow to its market valuation. Free cash flow yield is not a measure of cash flow which accrues directly to the benefit of common stock share owners. Calculation may differ from methods used by peers in similar disclosures. Peer group represents building materials companies most covered by sell-side analysts who publish on Owens Corning. For detail on the formula and GAAP reconciliation of the Owens Corning measurement, please refer to Table 4 in Appendix B. 10

11 Disciplined Capital Allocation Strategy Drive shareholder returns by enabling organic and inorganic growth and supporting the balance sheet o Maintain investment grade Capital allocation strategy o Investing in attractive organic growth o Pursuing value-creating acquisitions o Returning cash to shareholders Strong cash flow outlook supports dividend growth, share repurchase and acquisitions Benefit from $1.8B U.S. Federal N.O.L. with estimated present value of approximately $5 per share Source: Owens Corning management estimates; U.S. Federal net operating loss ( N.O.L. ) as of 12/31/2016, as reported in Owens Corning SEC filings. 11

12 Agenda The Company Investment Thesis Three Strong Businesses Additional Financial Information

13 Portfolio Financial Profile 2016 (Millions $) Insulation Roofing Composites Corporate Total Net sales 1,748 2,194 1,952 (217) 5,677 EBIT / Adj EBIT (130) 746 EBIT / Adj EBIT as % of sales 7% 22% 14% 13% Source: Owens Corning SEC filings. For the Corporate column, Net sales reflects intercompany eliminations and EBIT reflects General corporate expense and other as disclosed in our SEC filings. The Total column reflects total company Adjusted EBIT, which is reconciled to Owens Corning SEC filings in Table 5 of Appendix B. 13

14 Strong Portfolio '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Insulation Roofing Composites Margin >= 10% 0%<= Margin < 10% Margin < 0% Last 20 years of performance. Source: Owens Corning s SEC filings since For comparability purposes, prior years have been provided based on Owens Corning s SEC filings, internal management reports, and management estimates. 14

15 Insulation Business Progress supports confidence in return to historical profitability Track record of proven performance $2,000 15% Strong brand and broad product portfolio $1,500 10% Investment opportunities for global $1,000 5% expansion $500 0% Confidence in return to historical profitability $ LTM Sales* * In millions EBIT as % of sales -5% Source: Owens Corning SEC filings; segment reporting comparability may differ over time INSULATION 15

16 Return to Historical Profitability Levels 30% EBIT Margin Avg EBIT Margin '85-'08 (15%) 20% 10% 0% -10% '85 '90 '95 '00 '05 '10 16 '15 Historically Delivered 15% EBIT Margins at 1.5 Million Housing Starts; Expect to Average 50% Operating Leverage through the Housing Recovery Source: Owens Corning management estimates and SEC filings of Owens Corning and predecessor company. Segment reporting comparability may differ over time. INSULATION 16

17 B Lbs U.S. & Canada Fiberglass Industry Light Density Network Capacity and Demand MM U.S. Housing Starts MM U.S. Housing Starts Capacity Utilization: 100% 80% 73% 85% 85% 90% 90% ( 0.5) ( 0.3) ( 0.2) Total Capacity Retired 2016 Total Capacity Mothballed Operating Plants Capacity Cold Lines Operating Lines Capacity Light density fiberglass demand and capacity based on assets producing batts, rolls, flexible duct media, metal building insulation, duct wrap and appliance insulation; excludes loosefill products. Capacity utilization reported in 5% increments. Source: Owens Corning management estimates as of January 2017 and various industry sources and publications (including North America Insulation Manufacturers Association); all competitive information legally obtained from appropriate 3rd party sources. INSULATION 17

18 Market Pricing Still Significantly Below Historical Levels OC U.S. New Construction Price Index 100% % 80% 70% 60% Source: Owens Corning management estimates as of January Owens Corning nominal price index based on average price of fiberglass batts to U.S. contractors. INSULATION 18

19 MM$ Residential Fiberglass Below Historical Levels; Non-Residential at Record Levels % EBIT MM$ & Margins % 14% 100 4% 2% (Peak) -23% 2009 (Trough) U.S. & Canada Residential Fiberglass Building Insulation Engineered Insulation & Other Regions 2015 Residential fiberglass building insulation includes batts & rolls and loosefill sold to insulation contractors and distributors, home centers, and manufactured housing producers in the U.S. and Canada. Engineered insulation and other regions includes pipe and flexible duct media insulation, foam, mineral fiber, and all building material products sold to Latin America and Asia. Source: Owens Corning management estimates. Comparability may differ over time. Margin of error on intra-segment EBIT estimated to be below $15MM. INSULATION 19

20 Acquired global brand leader of cellular glass insulation and accessory products for approximately $560MM in cash, on a cash-free and debt-free basis, subject to regulatory approvals Consistent with Insulation business strategy of geographic and product technology extension Value contributors: o o o o Pittsburgh Corning Acquisition Strengthens Position of Insulation Business Broadens range of attractive industrial & commercial applications Adds strong and stable margins through the cycle Significantly strengthens our global Insulation platform Leverages OC core glass technology strength Business delivered revenue of over $240MM in 2016 and adjusted EBITDA margins in a 25%-27% range over last 4 years Expect acquisition to be accretive to 2017 EPS, excluding transaction and integration costs; up to $15MM of EBIT in H Anticipate a run rate of $20MM of operational and commercial synergies by mid-2019 Sources: Owens Corning SEC filings; management estimates and press release issued May 15, 2017 INSULATION 20

21 Roofing Business Strong market position sustaining high operating margins Strong market position and leading brands Performance track record through varied market conditions Confidence in sustaining average operating margins of mid-teens or better $2,500 $2,000 $1,500 $1,000 $500 25% 20% 15% 10% 5% $ LTM 0% Sales* * In millions EBIT as % of sales Source: Owens Corning SEC filings; segment reporting comparability may differ over time ROOFING 21

22 IMPACT HIGH U.S. Asphalt Shingle Re-Roof Demand Drivers Replacement age Average replacement age increased driven by technological advances Major storms & other weather events Weather events drive demand and create early replacement of roofs Weather-related demand estimated based on NOAA data and insurance claims information LOW Economic factors Existing home sales, consumer income, and borrowing capacity affect consumer decisions on timing of re-roof ROOFING 22

23 New Construction and Replacement Markets Growing over Last Three Years U.S. Asphalt Shingle Market New Construction Age Related/Economic Other Weather Events Major Storms MM Sq '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Total Source: Asphalt Roofing Manufacturers Association - Summary of Asphalt Roofing Industry Shipments. Management estimates based on data provided by National Oceanic and Atmospheric Administration (NOAA), National Association of Realtors, EIA, Moody s Analytics, Oxford Economics reports, U.S. Bureau of Labor Statistics and U.S. Bureau of Economic Analysis. ROOFING 23

24 % Track Record of Strong Financial Performance Roofing EBIT Margin Average 18% Delivered average EBIT margins of 18% since 2010 (ranging from 13% to 22%) 10 5 Strong market position; confidence in sustaining average EBIT margins of mid-teens or better Source: Owens Corning SEC filings; segment reporting comparability may differ over time ROOFING 24

25 Successful InterWrap Acquisition Strengthens Position of Roofing Components Business Acquired and integrated leading manufacturer of synthetic roofing underlayment and packaging materials for $452MM on April 21 st, 2016 Value contributors: o Established track record of double-digit revenue growth o Benefit from conversion of tar paper to synthetic underlayments o OC channel strength and InterWrap strong products, brands and technology o Commercial and operational synergies o Access to new markets and construction applications Contributed $60MM of adjusted EBIT within first year Continue to anticipate achieving a run rate of $20MM or more of commercial and operational synergies by end of 2017 Sources: Owens Corning SEC filings; management estimates and press release issued February 24, 2016 ROOFING 25

26 Composites Business Market-leading business with improving economic conditions and higher utilization rates A leader in a stable industry with strong growth prospects Improving economic conditions and higher utilization rates $2,500 $2,000 $1,500 $1,000 25% 20% 15% 10% Transformed business delivering double-digit EBIT margins & ROC Strategy to deliver profitable, capital efficient growth Sales* * In millions Source: Owens Corning SEC filings. Segment ROC differs from total company ROC. Please refer to Table 2 of Appendix B for explanation. $500 $ LTM EBIT as % of sales COMPOSITES 5% 0% 26

27 Markets Glass Fiber A $7.5 Billion Global Market With Favorable Exposure Building & Construction Transportation Consumer Industrial Power & Energy Size Glass fiber market defined as glass fiber reinforcements and direct conversion products as consumed, excluding yarns. Source: Fiber Economics Bureau, GlassFibreEurope (APFE), Global Trade Information Services, Inc. and Owens Corning management estimates as of January COMPOSITES 27

28 Positioned to Compete Anywhere in the World World headquarters Composites facilities #1 Position Europe 28% 23% Emerging Position China 26% 11% % Market Revenue % OC Revenue % Market Revenue % OC Revenue #1 Position Americas 33% 47% #1 Position Rest of World 18% 14% % Market Revenue % OC Revenue % Market Revenue % OC Revenue % Market Revenue = market revenue in region as % of 2016 global market size; % OC Revenue = OC revenue in region as % of OC Composites global 2016 sales; Glass reinforcements market defined as glass fiber reinforcements and direct conversion products as consumed, excluding yarns. Sources: Fiber Economics Bureau, GlassFibreEurope (APFE), Global Trade Information Services, Inc. and Owens Corning management estimates of 2016 global market. COMPOSITES 28

29 Estimated Capacity Utilization Expect Continued Supply Tension China Emergence Capacity Overbuild Tightening Capacity Price Inflection Supply Tension Improved Returns 100% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17E '18E '19E % 90% Threshold 80% Change in global demand (MM T) Change in global capacity (MM T) 70% % 50% E-19E Glass fiber market demand excludes E-glass yarns. Sources: Fiber Economics Bureau, GlassFibreEurope (APFE), Global Trade Information Services, Inc. and Owens Corning management estimates as of May 2017 (high probability capacity additions only). Estimated demand calculated as 2016 demand grown at 1.6x growth rate of global IP per April 2017 Oxford Economics. COMPOSITES 29

30 Agenda The Company Investment Thesis Three Strong Businesses Additional Financial Information

31 Appendix A Q Highlights and Outlook Closed Pittsburgh Corning acquisition Improved safety performance with recordable incident rate down 11% year over year Second-quarter adjusted EBIT of $230MM Roofing: $155MM EBIT; 23% EBIT margins Composites: record EBIT of $84MM; 16% EBIT margins Insulation: $29MM EBIT; 7% EBIT margins Repurchased 1.0MM shares in Q2 Anticipate continued growth in U.S. housing starts and moderate global industrial production growth in 2017 Expect full-year adjusted EBIT of at least $825MM Source: Please refer to the tables in Appendix B for reconciliation of adjusted EBIT to Owens Corning SEC filings. 31

32 Appendix A Key Financial Data - Corporate ($ in millions, except per share data) Q Q Net sales $1,597 $1,545 Net earnings attributable to Owens Corning $96 $138 Diluted earnings per share (EPS) attributable to Owens Corning common stockholders $0.85 $1.19 Earnings before interest and taxes (EBIT) $190 $240 Adjusted EBIT $230 $253 Adjusted earnings $136 $151 Adjusted EPS (diluted) $1.20 $1.30 Adjusted EBIT as a % of sales 14% 16% Depreciation and amortization $84 $82 Net cash flow provided by operating activities $385 $263 Free cash flow $282 $174 Total debt (excluding rate swap), net of cash $2,483 $2,200 Source: Owens Corning SEC filings; Please refer to the tables in Appendix B for reconciliation of EBIT, adjusted EBIT, adjusted earnings, adjusted EPS and free cash flow to Owens Corning SEC filings. 32

33 Appendix A Key Financial Data - Business Insulation Roofing Composites ($ in millions) Q Q Q Q Q Q Net sales $439 $414 $684 $679 $537 $517 EBIT $29 $32 $155 $169 $84 $74 EBIT as % of sales 7% 8% 23% 25% 16% 14% D&A $27 $27 $12 $11 $35 $33 Source: Owens Corning SEC filings; reportable segment totals are shown in SEC filings before intercompany eliminations 33

34 Appendix A 2017 Corporate Environment and Guidance Macro Environment Environment consistent with consensus U.S. housing starts Expect moderate global industrial production growth Primary Guidance Adjusted EBIT: at least $825MM Conversion of adjusted earnings into free cash flow: 100% or more Insulation: more than $250MM of revenue growth; EBIT of about $185MM Composites: EBIT growth of about $30MM Roofing: relatively flat U.S. shingle market Other Guidance Items Corporate expenses: $135-$140MM range Interest expense: approximately $110MM Capital expenditures: about $385MM Depreciation & amortization: about $370MM Cash tax rate: 10-12% and book tax rate of 32-34% on adjusted pre-tax earnings Source: Owens Corning management estimates 34

35 Appendix B Non-GAAP Reconciliations Table 1 35

36 Appendix B Non-GAAP Reconciliations Table 2 36

37 Appendix B Non-GAAP Reconciliations Table 3 37

38 Appendix B Non-GAAP Reconciliations Table 4 38

39 Appendix B Non-GAAP Reconciliations Table 5 39

40 Appendix B Non-GAAP Reconciliations Table 6 40

41 Appendix B Non-GAAP Reconciliations Table 7 41