Thierry Denis – Director, IR Mike Thaman – Chairman, President and CEO Michael McMurray – SVP and CFO.

George Staphos – Bank of America/Merrill Lynch Kathryn Thompson – Thompson Research Group Michael Rehaut – JP Morgan Mike Wood – Macquarie Capital Stephen Kim – Barclays Capital Alex Rygiel – FBR Garik Shmois – Longbow Research.

Good morning, and welcome to the Q3 2014 Owens Corning Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions). After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Thierry Denis. Please go ahead..

Thank you, Kate, and good morning, everyone. We appreciate you taking the time to join us for today’s conference call in review of our business results for the third quarter of 2014. Joining us today are, Mike Thaman, Owens Corning’s Chairman and CEO; and Michael McMurray, 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 Form 10-Q that detailed our financial results for our third quarter.

For the purposes of our discussion today, we’ve prepared presentation slides that summarize our performance and results for the quarter. We will refer to these slides during this call. You can access the slides on our website, owenscorning.com. We have a link on the homepage and a link on the Investor section of our website.

This call and the supporting slides will be recorded and available on our website for future reference. Please reference to 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 and 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, this presentation in today’s prepared remarks contain non-GAAP financial measures.

Reconciliations of non-GAAP to GAAP measures may be found within the financial tables of our earnings release 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 from period-to-period.

Consistent with our historical practice, we have excluded non-recurring items, and items that we believe are not representative of our ongoing operations when calculating adjusted EBIT.

We adjust our effective tax rate to remove the effects of quarter-to-quarter fluctuations, which have the potential to be significant in arriving at adjusted earnings and adjusted earnings per share.

In the third quarter, we have utilized an effective tax rate of 29%, in line with our anticipated annual effective tax rate on adjusted earnings for 2014. For those of you following along with our slide presentation, we would begin on Slide 4. And now, opening remarks from our Chairman and CEO, Mike Thaman, who would be followed by Michael McMurray.

Mike will then provide comments on our outlook prior to the Q&A session.

Mike?.

Thank you, Thierry, and good morning everyone. We appreciate you joining us today to discuss our third quarter results. Overall, Owens Corning reported positive progress in the quarter. Momentum continues in our insulation and composites businesses.

And our roofing business, through good execution, achieved its commercial objective of regaining its historical market position. Owens Corning’s third quarter revenues was $1.38 billion, up slightly over the same period a year ago.

Adjusted earnings of $74 million are up from $66 million one year ago and adjusted EBIT of $132 million for the quarter is up from $119 million last year. Throughout 2014, we discussed a number of expectations for sustained or improved performance across our businesses for the year.

Let me review our performance against those expectations starting with safety. As is the case each year, we said that we would continue to make progress toward our goal of creating an injury-free workplace.

Owens Corning continues to perform at a very high level of safety performance with a recordable incident rate of 0.53 for the nine months ended September 30, 2014. This is comparable with the rate in the same period in 2013.

As we reported last quarter, the severity of our injuries continues to decrease and our goal is to achieve and maintain injury-free work places across our global network. In insulation, we said we should continue to realize the benefit from the growth in U.S. residential new construction, improved pricing, and operating leverage.

Insulation delivered its 13th consecutive quarter of EBIT improvement, earning $43 million for the quarter, a $25 million increase year-on-year driven by improved pricing, higher volumes and good manufacturing performance.

In composites, we said we expect improved market conditions and pricing to drive EBIT growth with improved manufacturing performance and higher volumes expected to offset higher rebuild cost and inflation. Third quarter composites EBIT was $32 million, an $11 million improvement year-over-year on positive price trends and volume growth.

Strong manufacturing performance offset our third quarter rebuild expenses. In the quarter, we took the final step necessary to achieve the business’s goal of 75% low delivered cost assets by taking the decision to reduce high cost capacity in Japan and Canada and avoid the capital expenditures associated with rebuilds in the next couple of years.

At our last Investor Day, we reviewed our composites’ objectives which includes cost leadership, price realization, product leadership and capital efficiency. Our year-to-date progress and improved outlook support our view that we are well on plan for meeting these objectives.

In Roofing, we entered the year with expectations well above our current outlook. On our last call, we said that the roofing market would be flat to slightly down for the year and our second half goal was to restore our share of the market to historical levels.

Revenue in the Roofing business grew $3 million with year-over-year EBIT down by $38 million. Third quarter roofing volumes grew about 7% while overall industry shipments showed a low single-digit decline.

Our market position has improved sequentially since the first quarter and we have reached our commercial objective of returning to our historical market position. We expect to sustain our third quarter position through the fourth quarter. Margins declined 8% on lower pricing driven by competitive conditions.

Prices stabilized late in the quarter, but remained significantly below last year. I have one additional achievement from the quarter before I turn my comments to our outlook.

For the fifth year in a row, Owens Corning earned placement in the Dow Jones Sustainability World Index in recognition of its sustainability initiatives and was named the industry leader for the world building products group for the second straight year. Now let me review our expectations for the remainder of 2014.

We said that the insulation business would generate 50% operating leverage through the recovery. We’ve been tracking this guidance well over the past four years. We also have guidance that the business would produce $100 million more of EBIT at 1 million US housing starts.

For 2014, the business is expected to generate a full year result consistent with both these guidances. The Composite business continues to benefit from stable global economic growth, improved operating performance and pricing.

Today, we expect to generate about $40 million in total EBIT growth driven by about $30 million of price and additional strong cost performance. While we are pleased with our roofing execution in the quarter, we were disappointed with the overall market shipments were down.

We now anticipate that the second half and full year market will be down compared to last year and that fourth quarter market shipments will also be slightly down compared to last year. Operating margins in 2014 are expected to be below our guidance of average margins of mid-teens or better.

For the company, we had previously guided full year adjusted EBIT to grow versus 2013. Continued weakness of roofing shipments in the second half has created $15 million of downside risk versus last year’s adjusted EBIT performance of $415 million.

At our Investor Day last November, we discussed three market-leading businesses with sound strategies to maximize value to our shareholders. We remain committed to these strategies. Since the third quarter of 2013, the insulation and composite businesses have grown revenue and earnings producing strong operating leverage.

The roofing business also remains an attractive one for Owens Corning. Obviously, the volume performance and now the margin performance of this business have been quite volatile and difficult for us to forecast. That said, the fundamentals that support our business guidance of average margins of mid-teens are better or unchanged.

With that, I’ll now turn it over to Michael will further review details of our business and corporate performance, I’ll then return to recap and open the call up for questions.

Michael?.

Thank you, Mike and good morning everyone. As Mike mentioned earlier, we are pleased with our continued progress in our insulation and composites businesses and the execution of our recovery plan in roofing. Now, let’s start on Slide 5, which summarizes our key financial data for the quarter.

You will find more detailed financial information in the tables of today’s press release and the Form 10-Q. We reported third quarter 2014 consolidated net sales of $1.4 billion, up 5% compared with sales reported for the same period in 2013. In our roofing business, net sales were flat as higher sales volumes were offset by lower selling prices.

Net sales in our insulation business were up 5%, primarily on higher sales volumes and increased selling prices. Lastly, net sales in our composites business were up 8%, due primarily to higher sales volumes and increased selling prices.

In a moment, I’ll review our reconciliation of items to get to adjusted EBIT, our primary measure to look at period-to-period comparisons. Adjusted EBIT for the third quarter of 2014 was $132 million, compared to $119 million in the same period one year ago.

Adjusted earnings for the third quarter of 2014 were $74 million or $0.63 per diluted share, compared to $66 million or $$0.56 per diluted share in 2013. Depreciation and amortization expense for the quarter was $75 million, and in line with our prior year.

Our capital expenditures for the quarter were $91 million, including the net effect of alloy purchases and sales. Now on slide 6, let me reconcile our 2014 third quarter adjusted EBIT of $132 million to our reported EBIT of $107 million.

In the third quarter, we took actions in our composites business to avoid future capital expenditures and closed two melters, one in Japan and one in Canada. Both of these melters were high cost and scheduled for rebuild in 2015.

We expect to recognize charges of about $30 million associated with these actions between 2014 and 2015 including $21 million this quarter. I’ll provide further details on these actions later in my prepared remarks. We have also adjusted our $4 million of charges related to our European asset restructuring which is now essentially complete.

Now, please turn to Slide 7, and I will provide a high level review of our adjusted EBIT performance comparing the third quarter of 2014 with the same period one year ago. Adjusted EBIT increased $13 million.

The $25 million improvement in our insulation business and $11 million improvement in our composites business were more than offset by a $38 million decline in our roofing business.

General corporate expenses, were $15 million lower versus the prior year due to a reduction in performance-based compensation, strong cost controls and gains related to a favorable energy contract in Brazil. Let me take a moment to talk a bit further on the energy contract in Brazil.

During the quarter, it was determined that the contract did not qualify for hedge accounting. This resulted in a $6 million gain for the third quarter as the contract was mark-to-market. It is expected that this gain will fully reverse in the fourth quarter with the expiration of the contract.

In addition, there was an additional $3 million of profit related to the power sales back to the grid that occurred throughout the third quarter as the facility was down for a melter rebuild.

With that review of key financial highlights, I ask you to turn to Slide 8 where we provide a more detailed review of our businesses starting with building materials. For the third quarter, building materials net sales were $928 million, a 3% increase compared to the prior year.

Building materials delivered $101 million in EBIT, down $13 million from the same period in 2013. Slide 9 provides an overview of our roofing business. Roofing net sales for the quarter were $474 million, flat compared with the same period a year ago. EBIT in the quarter was $58 million, down $38 million compared to the same period in 2013.

The eight point decline in EBIT margins was primarily driven by lower selling prices which more than offset the impact of favorable volumes. As I mentioned earlier in the call, we were pleased by continued sequential improvement of our overall share placements during the quarter, although difficult market conditions persisted.

Our continued commercial actions in the third quarter have returned to show our historical market position although pricing track significantly below the prior year, I am pleased to report selling prices stabilized late in the quarter.

In the third quarter, the market weakness we experienced in the first half continues and volumes were down low single-digits. We previously expected the second half roofing market to be slightly higher to flat compared to the prior year.

Given the performance on a year-to-date basis, we now expect the roofing market to be down in the fourth quarter and full year. Our goal for the second half of 2014 was to restore historical share of placement consistent with the full year 2013.

In the third quarter, our volumes grew 7% versus the prior year restoring our historical share placement in the market. As a reminder, in 2013, we were a bit weaker than the market in the third quarter and a bit stronger in the fourth quarter.

Looking forward, we would expect our share placement in the fourth quarter to track more consistent with the third quarter 2014 than the average for the full year of 2013. As a result, we would expect to trail the market in the fourth quarter. Now slide 10 provides a summary of our insulation business.

Sales for the quarter in insulation of $454 million were up 5% over the same period one year ago, on higher sales volumes and increased selling prices.

The business delivered EBIT of $43 million in the third quarter, compared to $18 million in the same period one year ago, primarily on lower manufacturing cost, increased selling prices, and higher sales volumes. This was our 13th consecutive quarter of EBIT improvement in our insulation business.

The insulation business delivered strong operating leverage for the third quarter, driven by solid manufacturing performance, tight cost controls and higher selling prices. As we have discussed on previous calls, it is our goal to deliver 50% operating leverage through the recovery.

As we’ve experienced in previous quarters, our quarterly operating leverage results will be subject to volatility due to the timing of pricing, shipments, production, and capacity actions. In the third quarter, volume growth slightly trailed our previous expectations.

Growth in the quarter got off to a slow start and was tampered by the mix of US multi-family versus single-family housing starts as well as flat market conditions outside of the US. Although volumes showed expectations, they continue to strengthen as the quarter progressed.

We typically build inventories in the front half of the year to support seasonal demand in the second half of the year. Given the weaker volumes in the third quarter, we will likely curtail production in the fourth quarter to meet year end 2014 capital goals.

As a result, we anticipate higher manufacturing cost in the fourth quarter, and operating leverage below 50%, but we continue to expect operating leverage greater than 50% for the full year.

Looking forward, we continue to expect the insulation business to benefit from growth in US residential new construction, improved pricing and strong operating leverage. Now, I ask you to turn your attention to Slide 11, for a review of our composites business.

Net sales in our composites business for the quarter, were $489 million, an 8% increase compared to the same period in 2013. The increase in revenue was driven by higher sales volumes, increased selling prices and favorable customer mix. Selling prices continued their sequential improvement for the fifth consecutive quarter.

EBIT for the quarter was $32 million, compared to $21 million in the same period last year, due primarily to improved selling prices and higher sales volumes. Continued strong manufacturing performance helped to offset higher expenses associated with plant rebuilds.

In composites, this was our fifth consecutive quarter of year-over-year EBIT improvement driven primarily by improved operating performance, pricing and higher volumes. For the year, we continue to expect moderate global industrial production growth.

Based on our strong year-to-date performance, we expect that full year EBIT improvement for the business will now be around $40 million, largely driven by improved pricing. Strong manufacturing performance and volume growth are now expected to more than offset higher expenses associated with plant rebuilds and inflation.

As a reminder, we said that plant rebuild expenses in the second half were expected to be about $20 higher than in the same period one year ago. About two-thirds of these higher costs occurred in the third quarter. We expect the momentum we have established in the first three quarters will continue to offsetting headwinds in the fourth quarter.

As I mentioned earlier in my prepared remarks, we have taken the decision to avoid future capital expenditures and closed two high cost melters, one in Japan and one in Canada. The closure of the two melters represents the final steps in our multi-year plan for the composites business to achieve a 75% low delivered cost goal.

The actions in investments to achieve this goal has been significant. They include an extensive restructuring of high cost assets in Europe and the successful sale and closure of a high cost facility in China. We also constructed several new low cost production lines and entered into great alliances with China based manufacturers.

The actions we have taken in the capacity tightening environment we are currently experiencing, position this business to continue the momentum we’ve established over the past five quarters. Now let me turn your attention to Slide 12. In September, our Board of Directors approved our third quarterly dividend payment to be made on November 4, 2014.

The dividend represents added value to our shareholders, and demonstrates confidence in our earnings and free cash flow outlook. As of September 30, 2014, 7.7 million shares remain available for repurchase at the company’s current authorization. Year-to-date, we have purchased 900,000 shares and did not repurchased any in the third quarter.

As we balance our priorities for the future deployment of our free cash flow, both dividends and stock repurchases will be important mechanisms to return capital to shareholders. With that review of third quarter results, I now should turn to Slide 13 where I’ll review our guidance for 2014.

We had previously guided that we expected to grow adjusted EBIT versus 2013. Continued weakness in second half roofing market shipments now create the downside risk of $15 million versus last year’s adjusted EBIT of $416 million. We expect corporate expenses to be about $80 million.

This represents a $20 million to $30 million cost reduction versus our previous guidance due to lower performance-based compensation and strong cost controls.

Capital spending for 2014 is expected to be about $370 million including approximately $65 million of spending associated with the construction of our and is now expected to be about 370 million including approximately 65 million of spending, associated with the construction of our new non-woven facility in Gastonia, North Carolina.

Depreciation and amortization expense is expected to be about $315 million. Our $2.1 billion US tax NOL will significant offset cash taxes for sometime to come. As a result of our tax NOL and other tax planning initiatives, we expect our 2014 cash tax rate to now be about 10% of adjusted pretax earnings.

Our 2014 adjusted effective tax rate is expected to be approximately 28% to 30% of adjusted pretax earnings. Thank you and I’ll now turn the call back to Mike. .

Thank you, Michael. As I noted at the start of the call, I believe that we reported positive progress for the quarter consistent with the strategic goals we laid out for the company. I am as disappointed as anybody with our roofing results this year and our overall impact in OC’s financial results for 2014.

We came into the year expecting earnings growth and now expect relatively flat earnings. But, we are better company today than we were a year ago. Insulation and composites are another year further along and demonstrating their earnings power and value. We are establishing the good track record in these businesses.

Roofings having a down year but it’s certainly poised for real upside if we can recover pricing and margin performance. The best OC is one where all businesses are performing at a high level and I believe that we closer today than we’ve been in a long time.

With that, I’d like to turn the call over to Thierry who’ll liaison the question-and-answer session.

Thierry?.

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

Thank you. We will now begin the question-and-answer session. (Operator Instructions) The first question comes from George Staphos from Bank of America. Please go ahead..

Hi everyone. Good morning. Thanks for taking my question. Thanks for all the details.

I guess, my first question is this and it’s on roofing, if prices decline throughout the quarter and then stabilize late in the quarter would that suggest that fourth quarter margins are likely to be down at least as much as the third quarter versus third quarter variance so down at least 8 percentage points versus the year ago? And then on insulation, given the fact that you are taking curtailments that would suggest that the incremental progress you’ve been seeing would slow in the fourth quarter, but you would still expect fourth quarter insulation EBIT improvement, would you care to comment on that as well? Thank you guys..

Let me take the insulation question and I’ll turn the roofing question over to Michael on the progression of roofing prices through the quarter and fourth quarter outlook.

With respect to insulation, I think you’ve got it just right based on what we tried to say in our prepared remarks which is, the timing of operating leverage in insulation is obviously something that is not smooth.

And it’s dependent upon when we are building inventories, when we are depleting inventories, what level is the utilization we are running. Michael in his remarks said, that third quarter volumes got up a little bit more slowly than we expected and actually built through the quarter.

So we were pretty happy with the run rate of the business late in the third and I would say generally that’s continued in what we’ve seen early in the fourth quarter. But it left a little bit of a demand gap in our outlook for the year.

So we are going to have taken a bitter curtailment in the fourth quarter in order to get our year end inventories where we’d like them to be and manage through working capital and cash target. That will not be so sizable that I wouldn’t expect that we would go backwards on earnings in the fourth quarter.

So I think you should expect earnings growth for the quarter obviously great performance for the year and as Michael said, 50% operating leverage or better for the full year. So those are kind of the key things we said about insulation. I’ll let Michael make a few comments about the progression of roofing pricing and margin..

Yes, thanks, Mike and thanks, George. Yes, so, I think the good news is that, pricing did stabilize late in the third quarter and we would expect that trend to continue as we move into the fourth quarter and then quite frankly, there was a September price increase that was out and we’ve actually made a little bit of progress in some geographies.

Now, the one thing that I’d point you to is that, if you go back over a number of years and look at the progression of the third quarter margins to fourth quarter margins, they typically go down, because the level of production in the fourth quarter typically is the less for the entire year, therefore we get the least amount of production leverage.

So what I would encourage you to do is just kind of go back and look at the last three or four years to kind of understand the function of how they drop down quarter-over-quarter. But the good news is that pricing has stabilized and contribution margins as we move from the third quarter into the fourth quarter have stabilized as well..

Michael, I appreciate that.

I mean, would it be fair to say that you are looking at mid-single-digit type margins in roofing in the fourth quarter? I realize it might be a finer point than you’d like, but I figure I’d give it a try?.

Yes, it’s probably a finer point than we’d like..

Okay, thank you guys. I’ll turn it over..

The next question comes from Kathryn Thompson of Thompson Research Group. Please go ahead..

Hi, thanks for taking my questions today..

Good morning, Kathryn..

Question primarily focuses on composites and it’s two-fold.

Of the $21 million charge with the decision not to rebuild two composite plants, will this impact 2015 or will it impact 2014? And then as a follow-up, you previously had outlined, roughly $20 million of cost for rebuilds that were going to hit in the second half of 2014, two-thirds of it hitting in Q3, the balance in Q4.

Is that still on track?.

I’m going to let Michael handle those questions.

Michael?.

Yes, so I think the important thing, Kathryn, is that the two are unrelated. So let me first talk about the decision that we took in the third quarter related to the two high cost melters, one of which is in Japan and one of which is in Canada.

These melters were scheduled for rebuild not this year, but next year and as I said in my prepared remarks, these are kind of the final steps of a multi-year plan we’ve been on to achieve our 75% low delivered cost goal.

The charges associated with these two melters over 2014 and 2015 will total about $30 million, of which $21 million we took in the third quarter. So that’s the decision we took around the two sub-scale melters.

Now, moving back to rebuild activity that we have going on this year, so we have a number of melters that are being rebuilt taking you back to the previous quarters, we said that, rebuild activity is on the order of kind of 2x. Rebuild expense for the full year will be up roughly $30 million year-on-year.

On the last call, we said that in the second half of the year, we would have about $20 million of cost and then what I said in my prepared remarks today, of that $20 million, roughly two-thirds happened in the third quarter, the balance will happen in the fourth quarter. I am pleased to say that that both melters, the rebuilds are complete.

They’ve been lit and they are in start-up mode and the rebuilt has gone according to plan..

That’s helpful and so the $30 million total charges and that $21 that’s in the current quarter, it seems will the balance of that hit in the Q4 or will it be more a 2015 event?.

Yes, so, there will be a little bit of accelerated depreciation in the fourth quarter and then, accelerated depreciation over the balance of 2015 and in the other kind of miscellaneous charges..

Okay, great. And the second question, the extremely low corporate expense in the quarter, I know you went through a laundry list of items in the prepared commentary but you’ve been averaging in a $20 million to $30 million range.

Could you clarify that $1 million for corporate expense?.

Yes, Kathryn, this is Mike.

Just a few comments on corporate then maybe Michael would have something to add, but obviously, we brought down our estimate for corporate pretty significantly since the beginning of the year and that’s really been driven by two main factors, one is, we’ve reined in some spending and given you a tighter spending targets and have actually reduced our spending in the corporate areas year-on-year.

And then the second is we run our performance-based compensation accrual to the corporate. So when we get off of our business plan and get off of our guidance, it reduces the size of our bonus pools and therefore reduces the amount of money that’s in the corporate expense budget.

If you look at the four quarters of the year, we were around $30 million in the first quarter, $20 million in the second quarter. We are about effectively zero in the third quarter and then we guided to $80 million for the full year. So, you can do the math to see on how that plays through for the remainder of the year.

We have said, and we are very clear about – there was a $6 million mark-to-market that was a positive in the third quarter that will be a negative in the fourth quarter. So, it’s going to be a push to corporate expense.

So if you work your way through those numbers, what you’ll really see is the first quarter accrual is a lot higher than the other three quarters and the third quarter is lower and primarily that’s the impact of we were still accruing at a high level for performance-based compensation in the first. We reversed out some of the accruals in the third.

So, we try to be as transparent as we could be on that. I think it distorts quarter a touch but the way we are handling accounting at the corporate level, I think gives you better comparability for the businesses..

Okay, that’s helpful. Thank you very much..

Our next question comes from Michael Rehaut from JP Morgan. Please go ahead..

Thanks. Good morning everyone.

The first question I had was on the composites rebuild and just wanted to confirm it sounds like decision not to go ahead with the rebuild of those furnaces, as you’re saying it’s part of the plan to get to 75% of low cost, but just wanted to kind of confirm that perhaps even from a timing perspective that that decision, it kind of sounds like it was irrespective of any type of global demand trends, i.e.

perhaps a little bit below trend line, global GDP growth in the last year or two.

I am just trying to get a sense if the – maybe slightly softer than expected demand trends globally had anything to do with that decision?.

Michael, thanks for the question. Really, this is not a demand-driven decision for us at all. It’s very much of a low cost capacity-driven decision for us and really trying to take capital when you come to these moments of decision which is rebuilding a melter.

So, on a cash cost basis, most melters make profit during the life of the melter and then when you get to the end of the melter you have to rebuild the melter and put all the capital back in. We’ve been looking at our Canadian asset and our Japanese asset and they were quite high cost.

We’ve been working over the last three or four years as Michael said to add in some low cost capacity into our global network, we did a facility in Mexico, we did a facility in China.

We did an expansion in Russia, all of that is operating today and it’s very low cost and it’s given us some flexibility to meet our market share goal and to meet our customers’ demand requirement while taking out high cost assets.

So this has been a four or five year plan of evolving and migrating our asset base from some of our sub-scale high cost melters into the really scale low cost stuff. The stuff that’s in rebuild now, if you look at what we have in 2014, it’s a big melter in Europe that’s very cost-effective. It’s our melter in Brazil which is very cost-effective.

As we look into 2015, our rebuild is primarily going to be big scale low cost North American capacity.

So, we are now starting to be able to put our capital where we have the best cost position and where we have the most profitability and unfortunately it causes after that’s back out of some other geographies where we did not see the cost position that we needed to succeed..

Okay, thank you Mike.

And I guess, just then on roofing, kind of two questions if I could sneak them in, one, just following up on an earlier question on 4Q margins versus 3Q given that pricing stabilized the quarter towards the end of the quarter which would imply maybe pricing slipping throughout most of the quarters and then at the lower end of that range combined with, I think normal seasonality in 4Q.

I would presume it is safe to say that there would be another sequential decline in gross – I am sorry, EBIT margins in roofing for 4Q.

And then, separately thinking about it longer term, I think you reiterated your view that this is a business that could do mid-teens or better and just wanted to get a sense of what drives that confidence, because even that low double-digit margins, I think, you’ve commented in the past that there is still pretty good level of profitability and just trying to get my arms around if that profitability is decent in a low double-digit range, why the industry would allow for – from a competitive standpoint, allow for something greater than that?.

Okay, let me take the first part of your question and then I’ll address the second part of your question. The first part of your question related to kind of sequential margins from third quarter to fourth quarter.

I think if you look at history, typically fourth quarter margins have been a bit weaker than third quarter margins and I think that’s a reasonable expectation again this year. So, we are not looking at fourth quarter and believing that will come margins positively in roofing.

I think in prior years, you may be seeing a bigger drop-off in margins than what we would be expecting this year. So, we are going to be somewhere between maybe what history would suggest and where we were in the third quarter.

I think that’s largely driven by a couple of things, one is, we’ve been very good in expense control this year, so, I think we are going to have some expense reductions and other things that we had put through the business earlier in the year will continue to help us in the fourth and that will come through in margins.

I think the second issue is, the nature of some of the pricing deals that we have with our customers there are yearend rebates and other things and that when we are having a bad year, where our volumes are down, some of those gates in rebates are not met and as a result, we have rebated close and other things that we’d come back a little bit in the fourth quarter that would help a bit.

So, I think we are going to be somewhere between what you might have seen historically and where we were in the third, but it might be overcooking it a little bit to think that we are going to drop as much as what we’ve seen over the last couple years unless we see some adverse movement in the market situation and the competitor situation.

As it relates to kind of reiterating our guidance that we probably can average mid-teens margins or better, and many of you have been at our Investor Day as we went through that analysis the first couple times and it was really driven off of a very detailed competitive analysis.

We went through a detailed benchmarking of our business in the late 2000s and 2010. We thought about a $150 million of what we thought were proprietary cost improvements, single redesign product line upgrades, where we have to get mix improvements in our product.

Some things we did from a sourcing point of view, some things we did in terms of rationalizing some fixed outs that’s been shutting some facilities, which we think improved the structural margins of our business by about 7 or 8 points versus where we have been historically. So, historically, our business had been kind of mid to high single-digits.

We felt that we had added 7 or 8 points of real margin to our business through good execution and things that either our competitors had already done. So in some cases we are catching up or things that our competitors couldn’t do.

So in some cases, where we are getting proprietary improvement versus our competition, which would have caused us to believe that the sustainable margins we have seen historically of the mid to high single-digits were now mid-teens type margins.

We’ve looked at this year every way you possibly can in terms of our own performance, what we think is happening competitively, where our prices are relative to our competitors, where our costs are relative to our competitors and we don’t see any fundamental change in that analysis that led us to that conclusion.

So, we think our business is well positioned based on the product lines we have and how we are able to price relative to our competitors and where our cost position is and where our costs are relative to our competitors that we should be able to average mid-teens or better margins over a period of time.

We are obviously not going to do that this year, we are obviously well above that, if you take the last three, four, five years. It’s a harder call to make when you are below that guidance then it is when you are above that guidance, but as you can see with the pricing dynamic that we’ve had this year.

If we have some constructive pricing for Owens Corning in the first part of next year, that would do a lot to rehabilitate our margins and get us back on track and that’s certainly how we are looking into next year is trying to figure out, how we can get our business off to a faster start on next year, and improve our margins earlier in the year and then have a much better year..

Thanks, and I just – just one last quick one.

What sort of factors would have to come together to drive the realization of $12 million, $15 million or downside on full year EBIT versus 2013?.

The downside really we see is on the roofing volume side.

So, we came into the second half of the year, coming out of our second quarter call, believing that the full year might be flat, maybe a little bit down, but just it was down to the first half we were expecting the second half to be up, maybe not enough up to offset the first half, but certainly up, we were disappointed that, our shipments were okay in the third quarter, but overall industry shipments were in fact down.

We’ve now had three consecutive quarters of down shipments, the rate at which we are trailing last year has continued to decline through down more in the first quarter than the second, down more in the second than the third in terms of industry shipments.

So we think, kind of best case, fourth quarter industry shipments maybe track last year or maybe slightly down and that loss of volume between the third quarter and fourth quarter industry shipments and our current market share puts some volume weakness into our outlook and that’s really the single driver of the downside.

So, we don’t see anything today, versus where we were 90 days ago on composites or insulation performance we really don’t see anything today versus where we are 90 days ago in terms of our market share in roofing or where we expected margins to be, the big issue is just with the market opportunity for us in terms of what’s going to get shipped thus year..

The next question comes from Mike Wood from Macquarie Capital. Please go ahead..

Hi, thank you.

Can you give us some color in terms of what drove the share gains versus the market commentary you had given for roofing volumes in the quarter? Whether it’s geographic retail, the price cuts that you’d made and should we be expecting OC to gain share in the fourth quarter as the price cuts came through late in the third quarter?.

Yes, it was a lot of really good work and hard work by our commercial team and I think they executed very well in the third quarter.

But, at a very high level, I think the explanation is relatively simple which is, our pricing in the first quarter and probably first half of the second quarter wasn’t where we needed to be competitively and when we got back into the market and priced our shingles where we’ve historically been competitively.

We got back to our historical market share position and I think that’s evidence that our customers like buying and selling our shingles contract is like working with our shingles and home owners think they would grade on your house.

So, the fundamentals that drive long-term market share which is people who want to do business with you and believe that they can make money buying your products, those fundamentals hadn’t changed in the first half with the exception we’ve got a little bit out of the market in terms of pricing.

And I think, now we are back at market pricing or our competitive pricing and that allows us to enjoy our market share. We are expecting our share to be relatively flat in the fourth quarter versus the third. Michael tried to go through this in his prepared remarks, it’s a little bit tricky.

And that we think our third quarter market share was right on where we wanted to be versus overall share last year, overall share in the second half of last year. So, we came in where we are hoping to be.

Last year in the third quarter, our share was actually a little bit below average, last year in the fourth quarter our share was a little bit above average. So in fact, our out performance in the third quarter was not a share gain versus history it was just a positive comp through last year’s third quarter share.

We would expect we will comp negatively in the last year’s fourth quarter share, but the overall second half will comp right on last year’s second half and that the overall second half of this year will comp right on last year’s overall full year..

Great, and then in terms of the corporate expense color, thank you for all the indication you had given on the call, but looking into 2015, should we think about that level of tracking alongside, sales growth, can you sort of frame what certain triggers maybe to help us model that into next year?.

Well, typically, our corporate guidance and – I don’t want to give a definitive number right now, but you know, our corporate guidance at the beginning of the year has typically been more in the 120 range and that is, targeted at a full bonus pay out in our performance-based compensation programs associated with our business plan.

So, obviously we would go into next year with business plans that we intend to deliver against and therefore we’d be accruing against on having performance-based compensation back in the corporate expense line. So, that will be a bit of a head wind, it’s a well-designed program.

I think it’s shareholder-friendly when the business is not doing well Our corporate expenses come down because our performance-based compensation goes down and then at the beginning of any given year, we are going to have that earn back, the bonus pool in order to grow earnings. So, it’s consistent with how it’s been in the last three or four years..

Our next question comes from Stephen Kim from Barclays. Please go ahead..

Thanks very much guys, wanted to ask about first the composite segment, you indicated, I think that you are looking for a more favorable pricing outlook. I think you said this year $30 million I think out of $40 million improvement if I remember correctly.

I was curious just to whether the pricing outlook in general, in corporate any positive impact from fixed cost contracts which I know tend to get renegotiated around this time of year or if actually that comment is before you’ve seen any potential benefit from renegotiating contracts up?.

Yes, thanks, Stephen. It’s Michael. I’ll take that question and maybe just to kind of back this at the beginning of the year, so at the beginning of the year, we expected to improve our composites business financial performance on the order of about $20 million to $30 million which we said was going to be largely driven by pricing.

On our call last quarter, we upgraded that to kind of the high end. So, let’s call it $30 million and then on this call, we have upgraded our outlook for the composites business to be about $40 million year-on-year largely driven by pricing, but we are also seeing some benefit from excellent manufacturing execution as well.

And then, from a pricing perspective again, five consecutive quarters of progress, you are right, we have about 50% of our volumes are in fixed price contracts. Those contracts tend to get negotiated in the fourth quarter of every year. I think it’s probably a little bit too early to give any flavor around what we expect.

Although I’d say that we expect to make progress..

Great, that’s very helpful. Appreciate that.

Second question relates to the insulation segment which – thanks for your comments about how the incrementals are going to moving in 4Q and results for the year, that’s helpful and I think you attributed the fact that you are going to see a lower incremental in the fourth quarter than you had in the third quarter.

I guess, an implication there was inventory build, because you said, I guess you are going to have some curtailments in 4Q I guess, just generally, what seems to me that inventory, kind of store insulation, I mean the stuff is very difficult to – it take up trends than a room and what not.

And so, I was curious, how big of a deal was that? And to the degree, there was any inventory build, was it intentional or was it a reflection of some softness in the market on the demand side that that happened? So, if you could just give a little flavor about this curtailment that affects the incremental, that would be interesting. Thanks..

Thank you, Stephen. Certainly your observation that insulation is big and bulky and difficult to store is one that is a content topic of our internal reviews when we talk about inventory levels in our insulation business.

It is our natural rhythm of the year to produce more insulation in the first half of the year than we sell and just sell more insulation in the second half of the year than we produce. And that really has to do with the seasonality of demand and an effort to get better fixed asset capital productivity and better returns on capital.

So what we effectively do with inventory is we shift capacity from the first half of the year to the second half of the year.

The alternative manufacturing strategy would be to build capacity above your average demand and build capacity to your peak demand which would mean that in the first half of the year, you would have a pretty sizable portion of your capacity curtailed and in the second half of the year you’d run pull out.

We do that math all the time and it is more cost-effective and capital-effective and produces better returns to actually shift capacity from the first half to the second half and exercise your fixed assets harder.

Now, obviously when we do that, we have to make a lot of assumptions about the progression of housing starts and other things and how that will affect are going to have some demand.

We have a lot of levers that we can pull to make annual adjustments and we tend to manage to kind of year-end working capital targets in both of our building materials businesses because that tends to be the seasonality of the business from the beginning of the winter to the end of winter.

So, we were a little bit ahead of ourselves really for two reasons. One is our manufacturing performance is going to outstanding. So the team is producing at record levels in virtually all of our facilities which is helping us on the cost side. Our demand was a little bit lighter.

As Michael said, it’s somewhat related to the mix of single-family, multi-family. We probably had the starts numbers, pretty close but, with a little bit more multi-family – so we didn’t see quite as much demand pick up and that’s been a little bit better late in the quarter, late in the third and early four.

So, we feel pretty good about our outlook between now and year end but we are going to take a little bit of curtailment in order to get our inventories back..

The next question comes from Alex Regal from FBR. Please go ahead..

Thank you.

With regards to the roofing margins in 2015, can you go into some detail on some actions that could be taken over the next few months to attempt to drive margins higher in that business?.

Sure Alex. This is Mike. Obviously, probably the most critical time of a year for establishing a really great year of performance in roofing is from the middle of December or probably to the middle of May.

I mean, that tends to be the time of a year where a lot of decisions get made that have big impacts on volume and pricing and the timing of volume and pricing for the following year. So, in our history, we have given incentives in the first quarter to encourage distributors to bring inventories of our products.

I’ve said on a number of calls, I think going back probably two or three years, as the manufacturer we thought three good reasons to do that.

One is, typically this time a year, asphalt costs are a little bit less expensive, because of paving demand, the second reason historically has been that we don’t run our assets as strongly in the winter as we normally did in the summer. And because of end-use market demand being shut off by bad weather.

And then the third reason is, you want your customers to e have some inventory when the snow breaks and spring comes because that’s the beginning of roofing season and that’s very hard for us to forecast. We rather have some inventory forward deployed.

A couple of years ago in 2012, when we had, had a challenging year in terms of margins, we were pretty explicit in talking about the fact that for the most part we were not seeing that those three variables were driving good decisions for us around winter discounting.

So, we haven’t typically seen nearly as much asphalt cost will leak in the winter as what we might see, say five or ten years ago.

Obviously, the way the first quarter incentives have been structured by us as a manufacturer, we’ve encouraged our distribution partner to purchase well beyond their first quarter needs and actually I would say, you have created some speculation in the market our speculative buying behaviors in the market were, people are buying in the first quarter on expectation that they can carry low cost inventory deep into the year and then obviously the third reason is still a valid reason, like our distributors to have products out there at the beginning of the season.

Right now, asphalt costs are above where they were last year even though we’ve seen oil come down we expect to maybe get a little bit of a relief from the inflation we are seeing and that might be something that would help us avoid further margin deterioration as we head later into the year with lower volumes, but we do not expect to have a really inexpensive asphalt environment in the first quarter.

So, as we sit here today, we would love to see an environment where we can avoid the incentives in the first quarter and continue to price our products where they are today, at least earlier in the year and then if there is a spring pricing activity, where we are able to raise prices, because volumes start to get a little bit better, that would be the path back to better margins.

But obviously, based on this year, we are very cautious about ensuring that we are listening to the market very carefully and are staying competitive..

And secondly, regarding your share repurchase initiative, it sounds like Michael’s comments would suggest that the Board believes maybe a share buyback is a little bit higher priority today to maybe three or six months ago, is that the case and how aggressive could the company become in the next three to six months?.

Well, earlier in the year, we came into the year expecting good results and good earnings growth and earlier in the year we both had declared a dividend and we are buying back some shares.

I think as we guided to the middle part of the year realize we are going to have a big gap in our roofing performance and roofing is a huge cash generator for our company, because it’s primarily US based earnings. Not a terribly capital-intensive business and we have the really nice NOL position in the US.

So pretty much roofing EBIT flows through to cash flow. We changed our cash flow expectations for the year based on our roofing outlook.

Looked to the shares we had bought, looked at the dividend we have declared, looked at some of our goals for our balance sheet in terms of debt and some of our key ratios and got a little bit more cautious in the second half of the year in terms of share repurchases.

I think we continue to believe that share repurchases are a good thing for us to do with excess capital and then we can’t find great investment opportunities, we would get more aggressive with investment capital with little bit share repurchase.

I think we are getting into a period in composites in particular where this multi-year restructuring program that we had in place is coming more to an end and the capital call for that business over the next five years is probably quite a bit different in terms of what we need for investments to get the low cost capacity what we need for investments and restructuring.

It should start to vein and as a result, we have better visibility to – I think better free cash flow performance in composites, better visibility to good free cash flow performance in insulation as we see continued recovery in housing.

If we can get roofing margins to recover, we would obviously have immediate visibility to better cash flow performance in roofing. So, those would be some of the variables that would go into the Board’s discussion and management’s thought process around share repurchase..

Hey Kate, this is Thierry. You would probably have time for one more round of questions..

Okay, the next question comes from Garik Shmois from Longbow Research. Please go ahead..

Hi, thank you.

I was just wondering if you could talk about some of the revenue trends in the composites by geography and specifically just if you could breakout by region just directionally, how revenue has progressed during the quarter and maybe touch upon if you’ve seen any changes in revenue trends particularly given some of the macro concerns coming out of Europe and some of the deceleration at least from the data points out of Asia?.

Hey Garik it’s Michael. I’ll take it and then I’ll see if Mike wants to follow in with any other color as well. But, as you saw in our reported results, we had decent revenue gains year-on-year and decent volume gains year-on-year.

As I kind of think about maybe the big three regions first, probably North America in particular was probably strongest followed by Europe. So, we made nice progress in Europe, year-on-year. Some of our – some of the developing economies like Brazil have probably been a bit more tampered this year versus maybe original expectations.

So I think all in all, we are pleased with the progress that we’ve made, strongest the North America, followed by Europe and then clearly, we’ve got Europe and other parts of the globe on our radar screen, but so far things have remained stable..

Yes, maybe the one thing I’d add, we’ve seen Asia relatively stable, I mean, particularly China, but also India has been pretty good. Europe, we are cautious obviously based on the things you read. We have seen much better performance in Europe than maybe what the economic statistics or the newspaper would say.

And we probably have a couple of trends that will help us in Europe. So, we have always had kind of Europe for Europe strategy. We’ve really worked on our cost position over there now as you see the euro declining. It’s becoming a less attractive export target for some manufacturing outside of Europe based on exchange rates.

So, while we may anticipate a bit more of a challenged demand environment in Europe, as things truly do slowdown, we think European assets are pretty well loaded not just for us but also for our competition and we expect that it’s going to be a little bit less attractive export market for some of our Chinese based competitors, China-based competitors.

So, all in all, we’d hope to maybe thread that needle a little bit where Europe went a little bit soft, the other dynamics with the exchange rate and some other things might give us a support in Europe that we continue what has been really a great turnaround of what we anticipate will be very, very good performance in Europe for our business..

Okay, it makes sense. Thanks for that and I guess just quickly on insulation.

Good price momentum in the quarter, just wondering if you could help us understand how much of a benefit was there from the June price increase or was most of the price benefit related to actions that you secured late in 2013 and then maybe if you can comment around your expectations maybe initially for pricing next year given that some of the insulation manufacturers have announced fairly sizable increases?.

Yes, our price momentum on a comparable basis is actually slowing down a little bit right now. So this has been an area of focus for us and I think we’ve been able to have really good cost performance and really good manufacturing performance to cover some of the price that maybe we expected to have at this point in the year we didn’t have.

That primarily relates back to the January price increase we reported on both, I guess our fourth quarter call and then our first quarter call that we were not as successful at the first quarter early first quarter price increase as we had hoped to be.

Obviously, terrible weather, we had seen a slowdown in housing a little bit through the third quarter last year. That was coming through in the lag starts when mortgage rates bumped in the middle of 2013, so, the market environment wasn’t that robust.

Our customers were not busy, builders were not busy and then we find it very difficult to pass price in the beginning part of the year. We were more successful mid-year as we thought is appropriate and so as a result, we are now kind of comping to last year with only one price increase in our numbers not two.

There has been announced a sizable price increase for the beginning part of next year by Owens Corning and also by some of the other players in the industry. We think that it’s obviously getting to the point in the construction cycle where we need to work hard to get insulation back to what we would consider to be fair pricing.

If you look at the last decade, insulation prices basically are unchanged on nominal terms for over a decade in real terms, insulation prices have come down quite tremendously with inflation and the value of the insulation package in a home as a percentage of the total cost for the home continues to decline.

So, it’s not that we are somehow trying to push insulation pricing to unseen levels historically. We are trying to get back to levels that allow us to every investment economics and are something more consistent with the value of the product in the home. If we get off to a good start next year, I think that will help for next year.

Obviously, if we don’t have a good price performance earlier in the year, that’s going to become more of a challenge for us as we go into 2015..

Okay, it makes sense. Thanks for your help..

Kate, I think this concludes the Q&A portion of the call. So, thank you everyone for joining us today’s call and with that, I’d like to turn it back over to Mike Thaman for some closing comments..

Well, first of all, I always want to thank everyone who is on the call for your continued interest and support of Owens Corning. I said in my earlier comments that I am as disappointed as anybody with the roofing results that we’ve seen this year and in particular the overall impact on our financial results.

I actually look at our overall execution scorecard for the year and I see very, very high marks virtually everywhere on our execution scorecard with the notable exception of roofing prices and roofing margins.

So we really had one variable that we’ve been managing across the entire company that I think has cast the bit of a cloud across the entire performance of the business.

Our goal in these calls is to try to balance out that perspective and make sure people really do see the great things that are happening inside our insulation business, the great things that are happening inside our composites business and also the people continue to have confidence in what a great business roofing is and that our efforts to get roofing performing at very high levels we believe ultimately will go rewarded.

Owens Corning is the better company, when we have all three of our businesses performing at very high levels. We have come through a period in the last five years, where we’ve produced some results that we’re very proud of, but they were very much dependent upon roofing and roofing only.

I think as we look at Owens Corning going forward, we are expecting to deliver a broad and strong performance across all three of our businesses and that’s going to give us a little bit better diversification of where our earnings and cash flow come from and they also give our investors better ability to have visibility and see where value creation comes from inside Owens Corning.

So, we are pretty happy with the progress we’ve made strategically. We are happy with the strength that we are seeing to emerge in all three of our businesses. We are happy with the way the Owens Corning team is executing and obviously job one in our to do list is to translate that into earnings growth in the coming years.

Thanks for joining us on the call. We look forward to talking to you on the fourth quarter call..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..