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Operator: Hello and welcome to the Owens Corning Q4 Full Year 2022 Earnings Call. My name is Alex and I’ll be coordinating the call today. I’ll now hand over to your host, Amber Wohlfarth, to begin. Please go ahead.

Amber Wohlfarth: Thank you and good morning, everyone. Thank you for taking the time to join us for today’s conference call and review of our business results for the fourth quarter and full year 2022. Joining us today are Brian Chambers, Owens Corning’s Chair and Chief Executive Officer; and Ken Parks, our Chief Financial Officer. Following our presentation this morning, we will open this 1-hour call to your questions. In order to accommodate as many call participants as possible, please limit yourselves to one question only. Earlier this morning, we issued a news release and filed a 10-K that detailed our financial results for the fourth quarter and full year 2022. For the purposes of our discussion today, we have prepared presentation slides that summarize our performance and results and we’ll refer to these slides during this call.

You can access the earnings press release, Form 10-K and the presentation slides at our website, owenscorning.com. Refer to the Investors link under the Corporate section of our home page. A transcript and recording of this call and the supporting slides will be available on our website for future reference. Please reference Slide 2 before we begin, where we offer a couple of reminders. First, today’s remarks will include forward-looking statements based on our current forecasts and estimates of future events. These statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. We undertake no obligation to update these statements beyond what is required under applicable securities laws.

Please refer to the cautionary statements and the risk factors identified in our SEC filings for a more detailed explanation of the inherent risks and uncertainties affecting such forward-looking statements. Second, the presentation slides and today’s remarks contain non-GAAP financial measures. Explanations and reconciliations of non-GAAP to GAAP measures may be found in the text and financial tables of our earnings press release and presentation, both of which are available on owenscorning.com. 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 that enhance shareholder value. The tables in today’s news release and the Form 10-K include more detailed financial information. For those of you following along with our slide presentation, we will begin on Slide 4. And now opening remarks from our Chair and CEO, Brian Chambers. Brian?

Brian Chambers: Thanks, Amber. Good morning, everyone and thank you for joining us. During our call this morning, I’ll start with an overview of our results for the fourth quarter and full year and provide an update on how we are positioning the company for continued success in 2023 and beyond. Ken will then provide details on our fourth quarter and full year 2022 performance and I’ll come back to discuss what we’re seeing in our markets and our outlook for the first quarter. Owens Corning delivered outstanding results in 2022, achieving record financial performance across all our businesses and consistently outperforming the markets we serve. As the year unfolded, many of our end markets began to reset as the marketplace adjusted to a changing macroeconomic environment that included the war in Europe, significant inflation, labor challenges and ongoing supply chain disruptions.

Our global team demonstrated resolve and resourcefulness in the face of these challenges to deliver great financial results driven by our strong customer partnerships, unique product and process innovation and outstanding manufacturing capabilities. In doing so, we continue to strengthen the earnings power of our company and advance our enterprise strategy in support of our mission to build a sustainable future through material innovation. Moving to our results. I’ll begin, as always, with safety. Our commitment to safety remains a critical component to our success and we continue to deliver world-class safety performance in 2022. During the fourth quarter, we achieved a recordable incident rate of 0.41, our best quarter of safety performance in nearly a decade.

This lowered our full year 2022 RIR to 0.65 with 1/2 of our global sites operating injury-free throughout the year. Financially, in the fourth quarter, we delivered revenue of $2.3 billion, a 7% increase over fourth quarter 2021. Adjusted EBIT of $333 million and adjusted EBITDA of $460 million were both up 2% versus prior year. This resulted in an adjusted EBIT margin of 15% and an adjusted EBITDA margin of 20% for the quarter. These results were driven by our team’s strong execution in a number of areas to offset inflation, manage needed production and maintenance downtimes and capitalize on the available market opportunity as volumes declined in most of our product lines as customers adjusted to slowing demand and managed end-of-year inventory levels.

For the full year, we delivered record financial performance with revenues of $9.8 billion, a 15% increase over 2021 and net earnings of $1.2 billion. Adjusted EBIT of $1.8 billion was up 25% year-over-year and adjusted EBITDA of $2.3 billion represented a 19% increase. This resulted in adjusted EBIT margins of 18% and adjusted EBITDA margins of 23% for the year. In addition, we generated free cash flow of $1.3 billion and returned $931 million or 71% of free cash flow to investors through dividends and share repurchases. Our full year results highlight the significant progress our team has made in advancing our strategy to strengthen our core building and construction businesses and expand into new product adjacencies that leverage our market knowledge, material science expertise and manufacturing capabilities while increasing our total addressable markets.

This progress is reflected in our balanced array of strategic acquisitions and divestitures, targeted capacity additions and investments in organic growth through new product and process innovation. Over the course of 2022, we expanded into new product lines, acquiring WearDeck, a premium producer of composite decking and structural lumber for commercial and residential applications; and Natural Polymers, an innovative manufacturer of spray polyurethane foam insulation. We also took actions to strengthen and expand existing product lines, announcing a new joint venture with Pultron Composites to produce our industry-leading fiberglass rebar and acquired the remaining 50% interest in a U.S.-based joint venture producing high-value nonwoven fiberglass mat for roofing applications, both of which support the pivot in our Composites business into higher-value, more capital-efficient applications that leverage our core glass fiber technology in building and construction, renewable energy and infrastructure applications.

In addition, we completed the divestiture of the European portion of our dry-use chopped strands product line. And in December, we completed the sale of our operations in Russia. As we begin the new year, we are on track to complete the land sale of our Santa Clara, California fiberglass insulation facility which we closed down in Q4 as part of our network optimization initiative and start up our expanded Nephi, Utah insulation facility in the second quarter. We also continue to make investments to expand our manufacturing capacity in key product lines. Following our successful 2021 launch of FOAMULAR NGX insulation which provides a significant reduction in embodied carbon, we are adding a new production facility to meet the growing demand for this sustainable building solution.

This is one of many product lines we have been investing in as we accelerate our product and process innovation. In 2022, we launched 54 new or refreshed products across our global businesses, a 13% increase over the prior year. These innovations were well balanced across our core product platforms in Roofing, Insulation and Composites as we focus on increasing the performance, durability and sustainability of our product offerings which brings additional value to our customers to help them win and grow in the market. Now before I turn it over to Ken, I’d like to provide an update on our sustainability efforts which continue to generate multiple advantages by creating additional growth opportunities and helping to fulfill our company’s purpose.

In November, we announced enhanced shingle recycling efforts, including a pilot asphalt shingle recycling partnership that will serve to advance our circular economy aspiration by keeping shingles out of landfills. By 2030, we intend to recycle 2 million tons of shingles annually in the U.S. And in December, we earned a place on the Dow Jones Sustainability World Index for the 13th consecutive year, providing further recognition of our leadership in environmental, social and governance matters. Our strong performance in 2022 demonstrated the resiliency of our team, the strength of our businesses and the earnings power of our company amid changing and challenging market conditions. Challenging times create great opportunities to differentiate which we look forward to continue demonstrating in 2023 and beyond.

With that view of our performance and strategic initiatives, I will now turn it over to Ken to discuss our financial results in more detail. Ken?

Ken Parks: Thanks, Brian and good morning, everyone. As Brian commented, we delivered another solid quarter, resulting in a record year in 2022 with year-over-year revenue and earnings growth across the enterprise. Our disciplined commercial and operational execution continue to be fundamental in driving this performance. As we’ve talked about in prior calls, inflation continues to impact energy costs and most material input costs, along with transportation. Positive price offset these inflation headwinds in the quarter and in the year in all 3 businesses. Beginning on Slide 5, we can take a closer look at our results. We reported consolidated net sales of $2.3 billion for the fourth quarter, up 7% over 2021. Adjusted EBIT for the quarter was $333 million, up 2% from the same quarter in 2021.

Adjusted earnings for the fourth quarter were $235 million or $2.49 per diluted share compared to $224 million or $2.20 per diluted share in the fourth quarter of 2021. For the full year 2022, consolidated net sales reached $9.8 billion, up 15% from 2021. And adjusted EBIT was $1.8 billion, up $347 million over the prior year. Our full year adjusted earnings were $1.3 billion or $12.88 per diluted share compared to $969 million or $9.29 per diluted share in 2021. Slide 6 shows the reconciliation between our full year adjusted and reported EBIT. For the year, adjusting items totaled approximately $39 million. We recognized a $130 million gain from acquiring the remaining 50% interest in an existing joint venture that produces high-quality wet-formed mat for roofing applications and $18 million of gains on the sale of precious metals.

We recorded an impairment charge of $96 million on certain indefinite-lived intangible assets as well as $70 million of losses and execution costs related to acquisitions and divestitures. In addition, we recorded $21 million of net charges associated with restructuring actions. All of these items are excluded from our adjusted 2022 EBIT. Turning to Slide 7, I’ll discuss our cash generation and capital deployment during 2022. Earnings expansion, along with continued discipline around management of working capital, operating expenses and capital investments, resulted in strong free cash flow of $535 million for the quarter, bringing full year free cash flow to $1.3 billion, up $227 million from 2021. 2022 free cash flow conversion was 104%. Full year capital additions were $446 million or 4.6% of revenue, up $30 million from 2021.

We remain focused on reducing our capital intensity through productivity and process innovations. As a result of this and our earnings growth, our return on capital reached 22% for the year. At year-end, the company had liquidity of approximately $2.2 billion, consisting of $1.1 billion of cash and approximately $1.1 billion of combined availability on our bank debt facilities. During the fourth quarter of 2022, the company repurchased 3 million shares of common stock for $259 million. During the full year, the company returned $931 million to shareholders through share repurchases and dividends, equaling approximately 71% of free cash flow. In December, the Board declared a cash dividend of $0.52 per common share, an increase of approximately 50% compared to prior quarterly dividends.

It also approved a new share repurchase authorization for up to 10 million additional shares. As of the end of 2022, 14.4 million shares were available for repurchase under existing share repurchase authorizations. We remain focused on consistently generating strong free cash flow, returning approximately 50% to investors over time and maintaining an investment-grade balance sheet while executing our business strategies to grow our company. Now turning to Slide 8, I’ll provide more details on the performance of each of the businesses. The Insulation business continued to build on the strong performance demonstrated through the first 3 quarters of the year. Q4 revenues were $956 million, an 11% increase over the fourth quarter 2021. And EBIT grew approximately 20% year-over-year.

We continued to see solid realization on announced pricing actions and favorable mix across the business, offsetting ongoing inflation. In technical and global insulation, revenue grew as a result of positive price as well as favorable mix primarily within our global mineral wool business. Volumes were down versus prior year due to demand softening primarily in Europe and China and currency translation continued to be a headwind North American residential insulation growth was the result of positive pricing and incremental revenue from the Natural Polymers acquisition. Volumes for residential fiberglass were relatively flat in the quarter versus prior year. EBIT for the fourth quarter was $153 million, up $25 million compared to 2021. Positive price and favorable mix more than offset ongoing inflation, the impact of lower volumes, other manufacturing costs and the previously communicated incremental cost of planned maintenance downtime and production investments.

Overall, Insulation delivered EBIT margins of 16% in the fourth quarter. For the full year, Insulation net sales increased 17% to $3.7 billion compared with 2021 as a result of higher selling prices and favorable mix more than offsetting ongoing currency headwinds and slightly lower volumes. EBIT increased $166 million to $612 million with 16% EBIT margins on higher selling prices which offset energy, material and transportation inflation, planned production downtime and other manufacturing costs. Now please turn to Slide 9 for a review of our Composites business. In the fourth quarter, the Composites business experienced the impact of an accelerated softening in the demand environment. Sales for the quarter were $589 million, down modestly compared to the prior year as lower volumes and continued headwinds from currency translation were largely offset by higher selling prices.

EBIT for the quarter was $64 million, down $34 million from the same period a year ago. The impact of ongoing inflation, lower volumes which stepped down towards quarter end and the associated production downtime and other manufacturing costs were partially offset by higher selling prices. A substantial portion of our inflation was driven by European energy which is estimated to have had a peak impact on results in the quarter. Additionally, the sale of our DUCS manufacturing assets in Chambéry, France and our operations in Russia contributed to the year-over-year EBIT decline. Overall, Composites delivered 11% EBIT margins for the quarter. For the full year, net sales in Composites increased 14% to $2.7 billion in 2022 compared with 2021.

Top line growth was primarily due to higher selling prices and the favorable impact of customer mix, partially offset by lower volumes and ongoing currency headwinds. EBIT increased $122 million to $498 million with 19% EBIT margins on higher selling prices which offset input cost inflation and increased transportation cost as well as lower volumes and other manufacturing costs. Slide 10 provides an overview of our Roofing business. The Roofing business delivered another quarter of strong top and bottom line performance. Sales in the quarter were $799 million, up 12% as compared to the prior year. Strong price realization was partially offset by mid-single-digit volume declines. The U.S. asphalt shingle market on a volume basis was down 20% as compared to the prior year with our U.S. shingle volumes outperforming the market as demand for our products remained strong.

For the quarter, EBIT was $168 million, up $17 million with positive price partially offset by ongoing inflation, the impact of other manufacturing costs and lower volumes. EBIT margins remained strong at 21%. For the full year, Roofing sales increased 14% to $3.7 billion compared with 2021 primarily due to higher selling prices, partially offset by lower volumes. The U.S. asphalt shingle market on a volume basis was down 7% as compared to the prior year with our U.S. shingle volumes outperforming the market as we saw continued strong demand for our products. EBIT increased $78 million to $831 million with 23% EBIT margins mainly due to higher selling prices which offset cost inflation, primarily asphalt and other manufacturing costs. Turning to Slide 11, I’ll discuss our full year 2023 outlook for key financial items.

General corporate expenses are expected to range between $195 million and $205 million. Interest expense is estimated to range between $95 million and $105 million. Our 2023 effective tax rate is expected to be 24% to 26% of adjusted pretax earnings and our cash tax rate is expected to be 26% to 28% of adjusted pretax earnings. Finally, capital additions are expected to be approximately $520 million which is at or below anticipated depreciation and amortization estimated to range between $520 million and $530 million. Now please turn to Slide 12 and I’ll return the call to Brian to further discuss the outlook. Brian?

Brian Chambers: Thank you, Ken. Throughout 2022, our global teams demonstrated great commercial and operational flexibility to respond to changing market conditions and deliver strong financial results. As we move into 2023, we will continue to demonstrate our proven ability to quickly react and respond to shifting market conditions as we see the impacts of ongoing inflation, higher interest rates and continued geopolitical uncertainties leading to slower global economic growth and lower demand. Given this market environment, we expect volumes to decline in the first quarter versus prior year in many of our end markets and product categories as our customers continue to have a more cautious view on ordering given the uncertainty in the outlook.

Pricing is expected to remain positive in the quarter as we continue to realize the benefits of carryover pricing from previously announced actions. Overall, we anticipate offsetting the impact of ongoing energy and material inflation. We also expect to continue to see modest currency headwinds in our Insulation and Composites businesses as well as an impact from our previously announced divestitures. Overall for the company, we expect to realize a moderate decline in net sales and adjusted EBIT margins of low to mid-teens. Now consistent with prior calls, I’ll provide a more detailed business-specific outlook for the quarter. Starting with our Insulation business, we expect revenue to be up modestly versus prior year as continued price realization offsets lower demand and the ongoing impact of currency headwinds.

In our technical and global insulation businesses, we expect continued price realization resulting from our previously announced increases to be more than offset by lower volumes primarily in global mineral wool and ongoing currency headwinds. In our North American residential business, we anticipate continued price realization on our previously announced increases with volumes relatively flat versus prior year as contractors continue to work through a solid backlog of homes under construction. Additionally, we expect revenue from the acquisition of Natural Polymers to be partially offset by the sale of our insulation operations in Russia. From a cost perspective, we expect inflation from materials and energy to continue to be a headwind in the quarter with price/cost remaining positive but narrowing.

Given all this, we expect mid-teen EBIT margins for the business. Moving on to Composites. We expect several factors that impacted the business in Q4 to continue in Q1 but improve as we move through the rest of the year based on our current market outlook as customer inventory levels get reset and we work through some higher-cost inventory. In Q1, we anticipate revenues to be down considerably versus the first quarter of 2022 and down slightly versus what we saw in Q4. As compared to the prior year, the first quarter will be impacted by lower volumes, the impacts from the exit of the DUCS product line and the sale of the Russian operations. Additionally, we expect currency to remain a headwind. From a volume standpoint, we expect to start the year with demand trends in most of our product lines similar to what we experienced in Q4, adjusting for the impact of Chinese New Year, as our customers continue to evaluate their inventory positions and order patterns.

Similar to Q4, we will be proactive in adjusting our production to these reset demand levels. We anticipate ongoing inflation with energy remaining a year-over-year headwind to more than offset a modest overall price benefit as we see favorable contract pricing impacted by reductions in spot pricing. Overall, we expect EBIT margins of high single digits in the first quarter as we absorb the impact of lower volumes, a reduction in spot pricing and the additional costs related to expected production curtailments as we manage our production in line with lower demand. And in Roofing, we anticipate relatively flat revenue with ARMA market shipments down high single digits versus prior year as distributor inventory levels continue to reset based on regional demand trends and improved product availability.

We would anticipate our shingle volumes in the quarter to track largely in line with the market. We anticipate inflation to remain a headwind in many of our materials in Q1. Asphalt costs which declined through Q4, fairly consistent with normal seasonality, have continued to move up from their December lows and are expected to increase further as we exit Q1 and enter into paving season. From a price/cost perspective, we expect to deliver another positive quarter. Overall for Roofing, we anticipate EBIT margins of approximately 20%. With that view of our businesses, I’ll turn to a few enterprise items. While we expect the shifting macro environment to continue to impact our end markets in the near term, the structural improvements made to our businesses, combined with our leading market positions and disciplined execution, position us well to continue generating strong financial results and to outperform previous cycles.

In addition, despite near-term challenges, we believe several secular trends around housing growth and renovation, changing construction practices and the demand for more sustainable solutions create new growth opportunities and broaden our market reach. These long-term trends drive our enterprise strategy and investment choices to strengthen our position in core products and markets, expand into new product adjacencies that leverage our material science, market and manufacturing expertise and develop more multi-material and prefabricated construction solutions. Each of these strategic priorities expand our current addressable markets and increase the earnings power of the company. We’ve also built an incredibly strong balance sheet and plan to leverage our financial strength, as great companies do, to continue investing to strengthen the long-term performance of the company through a balanced capital allocation strategy focused on organic growth and productivity investments; acquisitions which leverage our unique material science, manufacturing and market expertise; and returning approximately 50% of free cash flow to shareholders over time through dividends and share repurchases.

Overall, we are excited about the investments we are making to help our customers win in the market, grow our company and deliver value for our shareholders. Our team delivered great results in 2022. And as we start 2023, we remain focused on delivering on our financial commitments and strengthening our company for the future. With that, we would like to open it up for questions.

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Operator: Our first question for today comes from Michael Rehaut from JPMorgan.

Michael Rehaut: I wanted to get a sense for the Insulation business. You mentioned for the outlook in the first quarter continued price realization. I’m curious if that’s kind of the result of prior or earlier price increases from earlier in 2022. And if you could comment on the industry’s announced price increase for December, January, how that’s progressing. And secondly, I know I’m kind of working in a second one here but just on the topic of price, how should we think about capacity additions for the industry as we progress in 2023?

Brian Chambers: Okay. Mike, thanks. Just we’ll talk a little bit about price realization. So overall, we expect to deliver another quarter of positive price/cost as we guided to. I think the majority of that is carryover on previously announced price actions through 2022. We did announce a December increase that is in the market. I would say we were seeing good realization on that increase as well but all of that pricing is coming through from those previously announced actions. From a capacity additions in the industry, I’d say the ones that were announced earlier and brought online in loosefill, those have been brought up online. We see continued strong demand in both loosefill and batts and rolls and continued good price realization there.

So I think those increases have been absorbed into the market based on the demand and we’ve not seen really any impact on that. From a batts and rolls perspective, the one that was previously announced, I think, is not slated to even come up until we get into 2024. So for 2023, we wouldn’t see any impact on any of those additional capacity increases. For our network, we have continued to work through our progression as we talked about last quarter. So we shut down the Santa Clara facility in Q4. We’re in process then of upgrading our Nephi facility to expand, to make batts and rolls there. That’s all on track. So those facilities, it came down — Santa Clara came down as planned. Nephi is down and we’re still planning for a start-up of that facility sometime in the second quarter.

Operator: Our next question comes from Stephen Kim of Evercore ISI.

Stephen Kim: Appreciate the color here. On the Composites business, you talked about weakening demand. Was curious if you could give us a little bit of a sense for how that weakness may have been different by product segment within Composites or regions. In particular, I’m wondering whether some of the higher value-add products that you’ve been moving more into, whether they saw a similar kind of a deterioration in their end markets or not. And then in a similar vein, I know the Insulation business has a very large technical business. So curious if you could comment a little bit about whether you’re seeing the trends in the technical side, I’m thinking particularly your Pittsburgh Corning business. Is that holding up better than maybe some of the more commodity-oriented products?

Ken Parks: Thanks, Stephen. Let me touch on the Composites question and then Brian will probably jump in a little bit on the Insulation question. On Composites, I will tell you that across the quarter, across all regions and effectively all products, we did see lower volumes in Composites. Now coming into the quarter, we anticipated that. What we really saw happen as we moved through the latter part of the quarter was we saw some of the North American volumes start to be a bit weaker as we moved into the last half of the quarter which is really what drove our performance versus our early outlook. So simple point: all regions, all products, including those higher value-added products that you’re talking about, in general, saw lower volumes.

North America decelerated a little bit towards the end of the fourth quarter. And as a result of that, where — customers were looking and Brian mentioned this in his comments, customers looking at their inventory levels in a more uncertain market environment, they started to adjust their patterns of buying, again, specifically in North America. What we are really pleased about is the team actually, as that started to happen, started to actually take a look at where the production needed to be in order to keep inventory levels where we wanted them to be across the business. And that’s part of the reason that you saw operating margins step down the way they did in the fourth quarter. Very simply put, lower volumes, reacting to that by making sure that we take proactive measures to curtail where we needed to curtail.

And that will actually carry a bit into the first quarter because you heard us guide to maybe even a slightly lower operating margin level as we move into the first quarter. I’ll give you just a color — a couple of color points on that because I think they’re important as you think about Composites in 2023. One is we’ll continue to take curtailment actions in early 2023, specifically the first quarter, as a result of what the trends were in the fourth quarter. So that puts a little bit of pressure on margins. I’ll also take an opportunity to make a comment about energy costs which are affecting the Composites business as well as the Insulation business but the Composite business a little more heavily just because of their use of natural gas.

You heard me in my scripted comments say that natural gas costs or energy costs kind of peaked in the — the impact on us in the fourth quarter. And the way that our hedging program works is exactly what you would expect. Hedging programs kind of defer and moderate kind of the fluctuations of hedging gains and losses. We’re expecting energy cost impact on us to be relatively similar in Q1 as what we saw in Q4 just because of the way that the hedging program works. But we would anticipate, based upon what we’re seeing in the market, for rates for both European and U.S. natural gas cost that we’ll start to see some benefit from that as we move out of Q1 into Q2. So, I think that hopefully gives you a little bit of color on the demand within Composites and how the team is kind of proactively making sure that we work through that.

Maybe with that, I’ll give it to Brian to talk about Insulation.

Brian Chambers: Yes. Thanks, Ken. I think on the technical and global insulation business, Stephen, we continue to see good trends in our U.S. commercial business. I’d say we’ve got a very diversified product offering there. We’re in data centers, airports, hospitals, a lot of different areas. So I’d say that the high-rise kind of office construction trends are showing a bit of weakness. But overall, for us, we like the category and we’re seeing some good strength there. One area you mentioned, Pitt Corning, that we do see a strength and — big strength and big pickup in quoting activity, is around our FOAMGLAS product line and specifically for LNG applications. So we’ve seen that pick up quite a bit over the last 6 months and that project is used extensively in these LNG terminals around the base tank and then all the piping.

So we see that order — or sorry, quote activity picking up and we think that’s going to lead to an increase in orders as we go along. And that’s — these are multiyear projects but I think it is a good segment for us that can grow as we go forward.

Operator: Our next question comes from John Lovallo from UBS.

John Lovallo: The first, really, it’s focused on the divergence in the OC’s roofing volume versus the industry. I know you mentioned that demand for the product remained very strong. I guess the question really is, how are inventory levels right now in the channel? And do you expect any destocking as we move forward?

Brian Chambers: Yes. Thanks, John. What we saw in Q4, I would characterize as really kind of a continuation of what we saw in Q3 from a standpoint of distributors becoming much more selective on the products and brands they were buying based on local demand trends and more available product to them. So we saw these trends emerging in Q3. We talked about that. In Q4, we saw it much more acutely as I think all distributors were looking to rightsize their inventories. And outside of a couple of storm markets, particularly Florida, upper Midwest, we saw manufacturing shipment volumes down considerably in that area. So I think there is a big push from distributors to rightsize their inventories to what they’re seeing in terms of local demand.

And certainly, product availability is more available widespread than we were a few quarters ago. So I think that’s impacted Q3, Q4. I would say just to characterize, though, the fourth quarter volumes, even though they stepped down considerably, if you look over the last 7, 8 years kind of average volumes in the fourth quarter, they were more in line with the average volume. So I think still good purchasing activity, just a pretty significant step-down from the last couple of years. And I would characterize that’s what we’re seeing in Q1. So we’re guiding to a step-down in inventory or in manufacturer purchases in the market in Q1, again, as distributors keep rightsizing their inventory. I think the divergence is really the continued strong demand for our products based on our strength of our contractor network.

So this is a key part of our strategy in our Roofing business. The team has been executing incredibly well for the last several years which is to focus on converting contractors and helping to build their business through our unique products, our brand, our commercial skills and capabilities and digital tools. And so I think we just continue to see that in terms of drawing great strength in our product. And so while we were seeing some markets getting softer and some of those step-down in purchases overall from a distributor standpoint, demand for our products remained strong through the quarter. And I think that was a bit of the disconnect and divergence that you talked about in Q4. And we think that strength for our products is going to continue here into Q1.

And we think we’re set up for a good year in Roofing.

Operator: Our next question comes from Joseph Ahlersmeyer from Deutsche Bank.

Joseph Ahlersmeyer: Congrats on the residential business results, guys.

Brian Chambers: Thank you.

Joseph Ahlersmeyer: My question is if you could just talk about the resilience in the volumes in North America. I think some might be surprised that — with what starts have done since last summer that your 4Q volumes were flat and your 1Q volumes are expected to be flat. I guess my question really is, I know you tend to only talk a quarter ahead just based on visibility. But if you could just help us hypothetically think about, if we are seeing starts — single-family starts bottoming in the first quarter, how might that shape up for the rest of the year for your North America resi volumes?

Brian Chambers: Yes. Joe, let me maybe talk a little bit about Q4, Q1 volumes because you’re right, they’ve held up very strong. Demand for our products have been strong. And this is where we’ve seen, I think, starting last year, demand for our products being more driven on completion rates than on starts. So we saw that kind of emerge back half of 2021 coming into 2022 that even as starts grew, when you look at completion rates, they seem to top out at around 1.4 million units and really driven by what we believe are constraints in labor availability, material availability. And so while starts continued to grow, completion rates didn’t and that has created a backlog and elongated the construction cycle. So in the back half of last year, even though we saw starts coming down, they were still above completion rates and therefore, still building the backlog.

And I think what we’ve seen in Q4, that finally kind of evened out. We saw November, December starts kind of roughly in line with completion rates, about 1.4 million units. And that’s what’s driven great strength to finish the year in our residential business, great strength to start the year. Now, we do expect that starts continue to trend down and they start falling below those completion rates, that this backlog is going to get worked through. And I think regionally, I would say we’re — we would expect some of that to work through as early as the end of the first quarter. Some markets might be continuation into the second quarter. But clearly, if starts continue to come down below that 1.4 million rate, we think that’s going to start to impact future demand.

When we look at how much that’s going to depend on, I think, where starts kind of bottom out, as you said, relative to where they’re running today, one key element we’ve talked about in the past are mortgage rates. And we continue to believe that consumers are resetting the higher mortgage rates. They continue to kind of sit on the sidelines in terms of wanting to get into the market. But once we see rates stabilize, we think that consumers will reset. They’re going to come into the market. So we think any kind of slowdown should be shorter in duration given that there’s a high demand for housing. We’ve been underbuilt for so many years. There is very little inventory to no inventory in the channel to work through. Demographics and household formations still require housing.

So we think the depth and duration of any slowdown is going to be more shallow than previous cycles and shorter. And I think once we start seeing interest rates stabilize, we’re going to see people coming back into the market pretty quickly. We saw a glimmer of that here in January when interest rates, even when they kind of hovered around that 6%, a little above 6%, we’ve seen a lot more positive comments from builders and some more foot traffic in looking at homes. So we hope that, that’s going to play out, interest rates stabilize and any kind of a slowdown would be shorter and shallower. So it might get a little choppy for the next couple of quarters. But long term, we feel very good about the fundamentals of the business.

Operator: Our next question comes from Truman Patterson of Wolfe Research.

Trevor Allinson: This is Trevor Allinson on for Truman. Can you talk about how you’re thinking about roofing industry volumes and pricing for the full year 2023? Appreciating you’re not giving full year ’23 guidance but just looking at where housing starts are or existing home sales are, where we expect there to be some softness. But you’re guiding shipments being down high single digits in 1Q and ARMA comps become progressively easier throughout the year. So just curious if you’re thinking maybe 1Q represents the bottom on a year-over-year basis and maybe how you’re thinking about industry volumes for the full year.

Brian Chambers: Yes. Thanks for the question, Trevor. When I look at just the demand drivers of our Roofing business, a little over 80% is repair and remodeling demand, a little less than 20% into new construction. So when we think about the big demand drivers, a small portion is going to be driven by new construction starts. So based on my previous conversation, we have seen a slowdown in housing over the last 12 months. Moving forward into 2023, we would expect that could impact lower roofing volumes and that’s more impactful in certain markets that are more heavily new construction. In terms of repair and remodeling, we still see good fundamental drivers of the remodeling business. People are still investing in their homes.

When we look at our contractor backlogs, it’s regionally variable. But overall, we’re still seeing good contractor backlogs and demand for remodeling efforts. So we think that’s going to stay pretty steady. It could take a step back but still pretty steady. The — always the bigger uncertainty is around storm demand and storm volumes. On average, that’s about 30% of demand in a given year. And so that’s something that we’re really not going to get a feel for until we get more into Q2 in terms of how that could evolve in terms of demand for the full year. So, I think to start the year, as I said, I think we’re seeing distributors pretty cautious in their buying. We’re probably expecting the first quarter volume purchases more in line with historical averages than what we’ve seen in the last couple of years.

But I think a lot of this is going to be a little bit — we need to wait and see as we get further into the season into Q2 how these remodeling investments continue to play out, how new construction plays out and then ultimately, what kind of storm demand we see going forward. I think the last thing I’d say, we do — when we look at storm markets like in Florida, I think the repair work is going as we would expect. We’re seeing good demand still in Florida. We think it probably takes most of the year to get that completed. We’re still seeing good demand strength in the Upper Midwest, Minnesota. Now it’s a tough market to roof in here in February but we think that picks back up in the spring. And then some storms out West, particularly in California, has generated a lot of quote activity.

And so I think the storm pockets, we’re going to continue to see good demand at the start of the year. And then we’ll see how the rest of the year plays out around renovation and other storm events as we go forward. But again, we still expect to have a good, strong, healthy roofing market in 2023 overall.

Operator: Our next question comes from Mike Dahl of RBC Capital Markets.

Mike Dahl: I had a follow-up on the composite pricing dynamic. You mentioned you still have some tailwinds from the contract pricing but you now expect that to be offset by lower spot. Given the pieces between kind of your mix of contract versus spot, can you just help us then size what that — what you’re seeing on spot prices and then how we should be thinking about that as your contracts roll through the year?

Ken Parks: Yes. Thanks, Mike. Great question. So a little more color on Composites pricing. As mentioned, to be very clear, in the first quarter of 2023, like in each of the quarters of 2022, we’re anticipating pricing for Composites overall to be positive. The carryover of either existing contracts that are multiyear in nature and/or new contracts that were negotiated, we’re seeing positive — neutral or positive pricing on all those contracts. We mentioned that in the last quarter call that we were kind of working through the contract renegotiations for those that were up for renewal and we were seeing kind of good pricing discussions on those contracts. So we expect contract pricing to be positive in the first quarter of 2023.

Now you did also hear us say that we see some pressure on spot pricing. That, we don’t expect to fully offset the favorability from contract pricing but it will kind of bring the contract pricing number down a little bit. If you remember in 2022, we kind of started out with strong contract pricing as we came through the negotiations at the end of 2021 into 2022. And then with the strength of the markets that we were operating in, especially in the first half, we saw some really good uplift from spot pricing. So as the markets start to soften up a little bit and/or reset in certain places, we are anticipating not just in the first quarter but probably as we move through the year a little bit more pressure at spot pricing adjust. I’ll also tell you very specifically that where we’re seeing most of that spot pricing reset is in our Asian markets.

We’re not necessarily seeing significant pressure on, first of all, contract pricing as well as spot pricing in North America and Europe. But it really is an Asian kind of move. And a lot of that are driven by the fact that the Chinese economy and the big China producers there, the Chinese economy hasn’t fully reopened yet. So we see some of that product moving into other markets, more specifically India. And that’s where we’re seeing some of the spot pricing pressure, both in China and India.

Operator: Our next question comes from Phil Ng from Jefferies.

Phil Ng: With demand expected to soften through the year, how do you plan on managing your production and just costs, particularly in your fixed cost-intensive businesses in Insulation and Composites? And then you guys did an awesome job last year staying ahead of cost on the price side of things. Help us think through that. Should we expect that to be neutral? And do you have the levers in place to kind of deliver that mid-teen margin in those 2 businesses? You kind of gave us a framework in terms of the downside scenario at your Investor Day.

Brian Chambers: Yes. Phil, thanks. I think on the demand — well, maybe Ken and I will tag team this. But on the demand versus production, I think we are going to continue to be very proactive in terms of how we balance that out, particularly in Roofing and Insulation. And I think the work we have done in terms of our network optimization work, we believe we’ve got a better cost structure as we manage that. We’ve got more flexible assets as we manage that. But that is always going to be our challenge in front of us to try to be in front of that. We talked a little bit about that in Composites, where we were trying to be proactive in Q4 as we saw demand soften because we’re very conscious on maintaining great working capital and great cash flow.

So we want to continue to balance that as we go through the year. But again, I think we’ve made structural improvements to our costs in our operating facilities that are going to give us a more flexible network and a more cost-effective network as we manage those curtailments going forward. In terms of price and going forward and price/cost, you’re right. I mean, we’ve been able to manage it. I think our commercial teams did fantastic work throughout 2022 to be in front of these inflation trends in terms of getting price of anticipated inflation. We start the year with a positive price/cost outlook and that’s something we’re going to continue to manage in terms of price. Now in some categories and some businesses, we’ve gotten price in excess of expected inflation.

So we’re going to see some inflation trends catch up to us but that’s still maintaining a balanced view of price over cost. And we’re going to manage that. I think the other piece that we continue to push heavily on is productivity. And our focus there from a manufacturing productivity that gives us also the capability to offset inflation is something that remains important and will become more and more important as we go forward. But I think if you roll all that up, we still feel very confident and comfortable in our mid-teens guides through the cycle in our Insulation and our Composites business. We think the commercial strategies we’ve put in place have given us access to a more profitable product offering. And we think the operational improvements we’ve made in these businesses, we feel very comfortable with that guide.

Ken Parks: Yes. I think Brian covered everything on that question. The only tiny thing I would add is just think about what we’re all seeing in the inflation environment which is softer markets, not just ours but across the globe and softer markets — and by the way, resolution of a lot of the supply chain issues that we all were dealing with as we came out of COVID. And those 2 kind of moves give us some pretty good feeling that we’re going to see a better inflationary environment as we move through the year. We’re still expecting inflation but we expect it to be significantly less. You guys see the numbers. You can see the numbers in the 10-K but I’ll just kind of — at an overall level, we saw about $1 billion of inflation across all 3 of our businesses last year.

And rounded off, it’s probably about 1/4 of that number is tied to energy and asphalt-related costs. And what we see as we’re looking at those trends just, based upon the true market conditions right now, is we should see some relief there which also helps in that price/cost mix.

Operator: Our final question for today comes from Adam Baumgarten of Zelman & Associates.

Adam Baumgarten: Just on Roofing, to — given the inflation you’re seeing pick back up, are you expecting the need to raise price further to offset some of that asphalt and other inflation?

Brian Chambers: Adam, as we sit today, we’re still seeing positive price/cost mix to start the year. So we’ll continue to watch the inflation trends as we go forward and we’ll make adjustments as needed. But I think we’ve got a very good track record of being able to manage price relative to inflationary environments or deflationary environments. So we’ll continue to manage that closely and make those decisions as we see the year play out.

Operator: That concludes the Q&A session for today. So I’ll hand back to Brian Chambers for any further remarks.

Brian Chambers: Okay. Thanks, Alex and thanks, everyone, for your time today and your questions. We really appreciate your interest in Owens Corning and look forward to speaking with you all again during our first quarter call. Hope you all have a great day.

Operator: Thank you all for joining today’s call. You may now disconnect your lines.