Thierry Denis - VP-IR Michael Thaman - Chairman, President & CEO Michael McMurray - CFO & SVP.

John Lovallo - Bank of America Matthew Bouley - Barclays Michael Wood - Nomura Instinet Susan Maklari - Credit Suisse Robert Wetenhall - RBC Capital Markets Stephen Kim - Evercore Kathryn Thompson - Thompson Research Group Truman Patterson - Wells Fargo Phillip Ng - Jefferies Scott Rednor - Thalman and Associates Garik Shmois - Longbow Research Mike Rehaut - JPMorgan Kenneth Zener - KeyBanc Keith Hughes - SunTrust Matt McCall - Seaport Global Securities.

Good day, and welcome to the Owens Corning Third Quarter 2017 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. [Operator Instructions] Please note this event is being recorded.

I would like to now turn the conference over to Thierry Denis, Vice President of Investor Relations. Please go ahead..

Thank you, Rachel. Good morning, everyone. Thank you for taking the time to join us for today's conference call in review of our business results for the third quarter of 2017. 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. In response to feedback received and in order to accommodate as many call participants as possible, we’re changing our practice this quarter, and ask that you please limit yourselves to one question only.

Earlier this morning, we issued a news release and filed a 10-Q that detailed our financial results for the third quarter of 2017. For the purposes of our discussion today, we prepared presentation slides that summarize our performance and results for the third quarter 2017, and we will refer to these slides during the call.

You can access the earnings press release, Form 10-Q 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 in 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 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 from period-to-period.

Consistent with our historical practice, we've 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. For those of you following along with our slide presentation, we will begin on slide 4.

And now, opening remarks from our Chairman and CEO, Mike Thaman will be followed by CFO, Michael McMurray and our Q&A session.

Mike?.

Thank you, Thierry. Good morning, everyone, and welcome to our third quarter earnings call. Owens Corning delivered another strong quarter and is continuing to produce sustainable growth. Revenue was $1.7 billion, up 12% for the quarter, and $4.8 billion, up 11% for the first nine months compared with the same period last year.

This performance has led to strong adjusted EBIT for the quarter of $239 million, up 10%; and for the first nine months of $640 million, up 9%. In addition, this is the first full quarter, which includes contribution from the Pittsburgh Corning acquisition.

This acquisition has accelerated our growth as well as expanded our insulation product offering and increased our footprint in Europe and Asia. The FOAMGLAS business has contributed from day one and we're pleased with the performance and pace of integration.

Before I talk about our quarterly financial results, I'd like to give you an update on our safety program. As I said before, safety is the core value of our company, and safety improvement has been a critical area of focus in onboarding the FOAMGLAS business to Owens Corning.

Overall our recordable incident rate for the third quarter was 0.45, an 8% improvement over the same period last year. This quarter, we did experience a serious accident involving a worker in one of our plants. A vivid reminder of how important it is that we were safely each and every day.

We're determined to achieve zero injuries and we won't stop until we get there. Now I'd like to review our performance as it relates to the expectations we set, and then talk about our expectations for the remainder of the year. Our Roofing business delivered EBIT of $147 million, comparable with last year with EBIT margins of 22%.

These results reflect strong shingle and component volumes, continue strong reroof demand and higher strong activity. Year-to-date pricing gained continue to offset the impact of asphalt inflation. Our composites business generated EBIT of $62 million comparable with the prior year, with EBIT margins of 12%.

EBIT was largely driven by our improved operating performance and higher volumes. The business continues to perform at a high level. The operating strength in the quarter-to-quarter was partially offset by a $10 million bad debt charge. We believe this event is isolated and will not affect the remainder of the profile.

The Insulation business produced revenue growth for the third consecutive quarter, increasing $92 million or 19%. While EBIT increased $26 million both compared with the same period last year. The EBIT results were driven by price improvement in the U.S.

residential and new construction business, better volumes and the positive contribution to the FOAMGLAS business. Excluding the $73 million contribution to revenue and the $10 million contribution to EBIT from the FOAMGLAS business, the insulation business produced strong operating leverage.

This is particularly notable since our insulation business was our business mostly impacted by the hurricanes in Texas and Florida, with an estimated 1% impact to revenue and a $5 million negative impact to EBIT in the quarter. In our residential insulation business, we are gaining momentum.

We successfully implemented three price actions this year and announced another to be effective in January. In September U.S. volume growth slowed but the business is experiencing some recovery and volume growth early in the fourth quarter. Overall the fundamentals of this business remain strong. I would also like to highlight a few recent developments.

So far, this year we've return 226 million in dividends and share repurchase to our shareholders. I'm please to share that we are in placement on the Dow Jones Sustainability Index for the eighth year in a row. Also, we remain the industry leader for the DGSI world building products group for this fiscal year.

The DGSI world is in an elite listing of the world's largest companies based on long-term economic environmental and social criteria. Now onto our guidance and outlook for 2017. Overall, we continue to expect an environment consistent with consensus expectations for U.S. housing starts and improving global industrial production growth.

In Roofing, the market remained strong with growth in single and components volume. Through the first nine months of the year industry shingle shipments were up about 7% above our prior expectations driven primarily by storm activity and replacement demand.

Overall, we now expect the market to grow by mid-single digits for the year with relatively flat fourth quarter volumes. Our margin performance remains strong at 22% for the quarter. We continue to expect that price improvement will offset and all cost inflation for the full-year.

In Composites, we expect to achieve our fifth consecutive year of EBIT improvement. Given the $10 million charge in the third quarter that I previously detailed we now expect EBIT growth of about $20 million versus the previous guidance of about $30 million.

In Insulation, we continue to expect revenue growth of more than $250 million with EBIT of $185 million. We believe that we will see volumes strength through December due to the pricing actions we have announced for early January.

This guidance now assumes that our FOAMGLAS business will generate at least 15 million of EBIT this year an upgrade from our previous guidance. From a full company perspective, we continue to expect adjusted EBITDA of at least $825 million, and we expect to convert adjusted earnings to free cash flow at a rate of 100% or more this year.

In summary, I'm proud of what our organization have accomplished. All three businesses are executing well. We have a proven track record of strong financial performance we've completed the integration of inner rap and we are off to a fast start with this point. I remain confident in our ability to sustain strong financial performance.

We are creating value for our shareholders. With that, I'll turn it over to Michael who will further review the details of our business.

Michael?.

Thank you, Mike, and good morning, everyone. Owens Corning delivered another strong quarter with record net sales of 1.7 billion. For the first three quarters, we have grown revenue by 11%, and delivered record adjusted EBIT of $640 million.

Commercial and operational execution continues to be strong across all three businesses and we are positioned to deliver another record year of financial performance.

The integration of our newly acquired FOAMGLAS business within our insulation segment is off to a strong start and our ability to generate significant free cash flow continues to be bright spot. Now, let's start on slide 5, which summarizes our key financial data for the third quarter.

You'll find more detailed information in the tables of today's news release and the Form 10-Q. Today, we reported third quarter 2017 consolidated net sales of $1.7 billion, up 12% or $185 million compared to sales reported for the same period in 2016.

Insulation, Roofing and Composites reported increased sales of $92 million, $79 million and $18 million, respectively, Adjusted EBIT for the third quarter of 2017 was $239 million, up $21 million compared to $218 million in the same period one year ago. The company delivered adjusted EBIT margins of 14%.

This represents record adjusted EBIT for the third quarter, despite the isolated market challenges we o overcame. Adjusted earnings for the third quarter 2017 were $141 million or $1.25 per diluted share compared to $125 million or $1.08 per diluted share in 2016.

Depreciation and amortization expense for the quarter was $101 million, up $17 million as compared to the third quarter of 2016, the increase was primarily due to the FOAMGLAS business and accelerated depreciation of our Composites business as a result of cost reduction actions announced in the second quarter.

Our capital additions for the quarter were $73 million. On Slide 6, you’ll see the detail of our third quarter adjusting items. We’ve recorded restructuring expenses of approximately $7 million in the quarter, primarily related to cost reduction actions in our Composites business, which we discussed in last quarter's earnings call.

We also recorded $7 million cost related to Pittsburgh Corning acquisition. Finally, we recorded $2 million pension settlement gains related to the actions taken in the second quarter. Now, please turn to Slide 7, where we provide a high-level review of our adjusted EBIT performance, comparing the third quarter of 2017 to the third quarter of 2016.

Adjusted EBIT increased $21 million. Insulation increased by $26 million. Composites and Roofing EBIT increased by $1 million each. General corporate expenses were up $7 million from the prior year.

With that review of key financial highlights, I ask you to turn to Slide 8, where I provide a more detailed review of our business results, beginning with Insulation business. The Insulation business demonstrated continued commercial progress, despite slower volume growth in September.

Sales of Insulation of $568 million were up 19% from the same period a year ago, primarily on the contribution of the FOAMGLAS business, higher sales volumes and disciplined commercial execution, including progress on pricing. We recently announced the price increase in the U.S. residential new construction market, effective January of 2018.

We are optimistic about making further progress given the underlying strength in the market. U.S. volume growth slowed in September, primarily as a result of the impact of hurricanes in Texas and Florida. The top line impact of this slowdown was about 1% of revenue for the quarter.

I'm pleased to report the business is currently experiencing recovery volume growth and the quarter is off to a strong start. Insulation EBIT increased $26 million to $64 million for the quarter, primarily an improved manufacturing performance; the contribution of the FOAMGLAS business and improved pricing in U.S. residential new construction.

These improvements were partially offset by increased transportation and other supply chain costs as a result of the Texas and Florida storms, and higher raw material costs and our exclusive polystyrene foam insulation business. The impact to EBIT from the storm related challenges was about $5 million.

As discussed on the last earnings call, our new mineral wool facility, started shipping during the third quarter. We’ve made significant progress in moving towards stable operations. Volumes are building and we are approaching breakeven. We continue to be excited about the expansion of this business and expect tailwinds as we move into 2018.

The FOAMGLAS integration is progressing well, and we are enthusiastic about the opportunity and people of this acquisition brings to Owens Corning. The business delivered $73 million – delivered revenue of $73 million in the third quarter. We now expect EBIT contribution to be at least $15 million in 2017.

As a reminder, we anticipate a run rate of $20 million of operational and commercial synergies by mid-2019. For the full year, we continue to expect revenue growth of more than $250 million and EBIT of about $185 million.

Our outlook includes the expected benefit of some pre-price increase buying late in the fourth quarter related to our January 2018 price increase in our U.S. residential new construction business.

Let me remind you that the Insulation business had delivered 20 consecutive quarters of year-over-year EBIT growth and operating leverage of over 50% during the period that ended in the third quarter of 2016.

Beginning this quarter and looking forward, we are pleased that the Insulation business is back on track, in delivering year-over-year quarterly EBIT improvements and strong operating leverage. Now, I'll ask you to turn your attention to Slide 9 for a review of our Composites business.

The Composites business continue to perform to expectations with improved operating performance and higher volumes. Sales for the third quarter were $514, up 4% as compared to the same period in 2016 and volume growth of 3%. Market demand continues to be strong and broad-based across most geographies and product lines.

EBIT for the third quarter was $62 million, a $1 million increase when compared to the same period in 2016. The benefit of stronger volumes and lower permits rebuild and start-up costs were offset by $10 million bad debt charge primarily associated with a large Brazilian customer.

Without this charge, the Composites business would have grown EBIT by $11 million over the prior year and showed continued margin progression to 14%. Our low-delivered cost position and product leadership actions continue to fuel growth and margin expansion.

One item of note, our [indiscernible] facility is a key contributor to our year-over-year EBIT improvement. We are pleased with the operations of this plant and continue to be excited about the prospects of this business. In 2017, we continue to expect growth in the glass fiber market driven by improving global industrial production.

The underlying performance of the business continues to be strong, but as a result of the bad debt charge, the company now expects EBIT growth of about $20 million for the full year versus the previous guidance of $30 million improvement. Slide 10 provides an overview of our Roofing business. The Roofing business delivered another outstanding quarter.

Roofing sales for the quarter were $682 million, a 13% increase compared with the same period a year ago, driven by increased sales volume in shingle and component. Third quarter and year-to-date industry shingle shipments grew approximately 10% and 7% respectively, with continued growth in age-related reroof and storm activity in the Midwest.

Our shingle volume shipments track the market and growth in our Components business helped fuel strong overall sales growth of 13% in the quarter. The storms in Texas and Florida should have a positive impact on demand in the fourth quarter and into 2018.

We now expect full year market growth in the mid-single digits with relatively flat fourth quarter volumes. EBIT in the quarter was $147 million, up $1 million compared to the same period in 2016. Stronger volumes and higher pricing were primarily offset by input cost inflation and higher logistics cost.

Roofing delivered 22% EBIT margins in the quarter on strong commercial execution and continued growth in Components. Year-to-date pricing has offset asphalt inflation that continues to be our full year expectation.

We are experiencing higher than normal delivery and logistic cost, in order to service storm demand and higher transportation rates associated with the security and additional transportation. These additional costs total about $10 million in the third quarter, and are expected to continue into the fourth quarter.

Now let me turn your attention to Slide 11. As I mentioned on last quarter's call we took advantage of favorable capital markets and completed a 30-year $600 million bond issuance in the second quarter. Proceeds from this transaction were used to fund a portion of the Pittsburgh Corning acquisition and retire $284 million of higher cost debt.

The company occurred a loss on extinguishment of debt of 71 million in the quarter associated with these actions. Since the second quarter of last year, we have successfully deployed about $1 billion on value-creating M&A for the acquisition of InterWrap in 2016 and Pittsburgh Corning in 2017.

We financed both the acquisitions with roughly 50% long-term debt and 50% pre-payable bank debt. In 2015, we retired all the bank debt associated with the InterWrap acquisition and return 328 million to shareholders via dividends and buybacks.

Through the third quarter of 2017, we have also retired all the bank debt associated with the Pittsburgh Corning transaction and return 226 million to shareholders via dividends and buybacks. This is a testament to our ability to generate strong free cash flow and allocate capital to drive long-term shareholder value.

In the third quarter under our previously announced share repurchase program we repurchased approximately 320,000 shares of the company stock at an average price of $65.79 per share. As of September 30th, 7.5 million shares remained available for repurchase under the company's current authorization.

During the first nine months of the year the company paid its shareholders 67 million in dividends. 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. Now I will provide our outlook for 2017.

For 2017, the company continues to expect an environment consistent with consensus expectations for U.S. housing starts and improving global industrial production growth. In Composites, we now expect EBIT growth of about $20 million driven by increased volume and improved performance.

For Insulation, we continue to expect revenue growth of more than $250 million with EBIT of about $185 million, including the contribution from our FOAMGLAS business. In Roofing, we expect another great year. We now expect full-year market growth in the mid-single digit with the relatively flat fourth quarter.

We continue to be optimistic about the earnings growth potential for Owens Corning. Year-to-date adjusted EBIT grew 10% over to comparable period in the prior year despite some isolated market challenges.

As we look to the fourth quarter of 2017, we continue to expect to deliver full-year adjusted EBIT of at least $825 million, representing a growth rate of at least 11% over 2016.

Finally, improved earnings, better working capital performance and our advantaged tax position will translate into a high conversion ratio of adjusted earnings to free cash flow. We expect a third consecutive year with conversion of 100% or more. Now please turn to slide 12, where I provide guidance on other financial items for the year.

We now expect corporate expenses to be approximately $140 million. Capital additions will be about $385 million including capital expenditures associated with the FOAMGLAS business. Depreciation and amortization expense is expected to be about $370 million. Interest expense is expected to be about $110 million. Our $1.8 billion U.S.

tax NOL will significantly offset cash taxes for some time to come. As a result, for our tax NOL and other tax planning initiatives, we expect our 2017 cash tax rate to be 10% to 12% of adjusted pre-tax earnings. Our 2017 effective tax rate is expected to be 32% to 34% of adjusted pre-tax earnings.

One final item, we are excited to host an Investor Day here in Toledo on November 16. The management team will review our businesses in more detail, including how we continue to build upon our track record of operational and financial performance. With that, I'll turn the call Thierry to lead us in the question-and-answer session.

Thierry?.

Thank you, Michael. Rachel, we're now ready to begin the Q&A session. And again, I would ask that you limit yourself to one question only, and we’ll take request for questions [indiscernible] have been received..

We will now begin the question-and-answer session. [Operator Instructions] Remember, so please limit yourself to one question. If you have further questions, you may reenter the question queue. The first question comes from John Lovallo with Bank of America. Please go ahead..

Hey guys, thank you for taking my call. I guess the question would be on the bad debt charge.

So, I’m curious if any of this is recoverable, is this a recurring charge and what percentage of your business is discussed to represent?.

Yeah, thanks for the questions. This is Michael. A couple of things I pointed out. I think first and foremost, we do pretty well in Brazil overall, despite it being a pretty difficult economic environment, right now. So, the last few years from an overall economic perspective have been pretty rough.

Now this is a long-term customer that we've had in Brazil, that we had a good relationship with and the customer has been profitable for many years. Unfortunately, the customer lost a material sales contract, which represented the majority of their business. So, things went from south pretty quickly.

They're going through a reorganization process, but we thought it’s appropriate to take a full charge on the outstanding receivable. I think our point of view at this point in time is that recovery is probably pretty low. I would say that from an overall credit perspective, the Owens Corning team has a pretty strong track record.

We have strong credit controls and strong review processes, and at this point, we don’t see other rolling material risk..

The next question comes from Matthew Bouley with Barclays. Please go ahead..

Good morning, thank you for taking my question. So, on the Insulation business, you commented on the pre-buy expectation in December ahead of the price increase.

Could you just elaborate on how that typically plays out in terms of magnitude and to what degree customer inventory levels into year-end would typically play into their buying decisions? Thank you..

Sure. I’m happy to talk about this. This is Mike. We detailed that a little bit in our guidance. I mean, one of the macro things that we're seeing is, housing starts have been a little bit slower through the summer than maybe where the consensus forecasted than for the last earnings call.

So as a result, we think kind of the macro market opportunity for us this year, maybe a little bit less than where we would have been the last time we gave guidance. But I think today, you heard us reiterate our guidance in terms of our confidence on both revenue growth and EBIT growth.

And a part of that is, we do expect that volumes will continue to be strong through the end of the year because of the price action for next year has been announced from very early in January and we announced a sizable price increase. So, we announced a 12% price increase on that Insulation and 15% price increase on [indiscernible].

So, with that type of the increase, if there is some amount of expectation that we will realize a portion of that increase, it’s in our customer's best obviously for them to take an inventory positioning year-end and [Indiscernible] that increase and that's included in the way we are thinking about guidance for the full-year.

Generally, we see good market conditions in October I think in both Michael's prepared comments and mine and also the press release we did say that things slowed down a bit in September particularly related to the hurricanes we saw kind of a choppy middle of the month but we are glad to see business return back to normal kind of early in the report..

The next question comes from Michael Wood with Nomura Instinet. Please go ahead..

I just wanted to follow-up on the residential inflation pricing, like you've mentioned you announced several fairly large prices increases this year probably choose to be in the results in third quarter.

It looks like by my math maybe there is about 20% realization of those residential price increases that seems like a world realization rates just wondering if you can put that in context historically if there is anything impacting the success of that other competitors and new capacity? Thank you..

Sure. Happy to take that. We've been happy with the progression of pricing through the year I think one off the real positives that we would see which has been into green light for the businesses is that we have been successful now and to be pricing actions.

I think in each of those pricing actions we had announced relatively sizeable increases and I think the market settled out at a number that was less than what we had announced which is not uncommon.

I think if you look at the timing of the increases our January increase really was designed to recover the prices we have lost in the second half of last year, so that really didn’t represent a lot of progress on pricing it represented kind of reversing the headwinds that we had coming in the year.

So, most of the price you would see in the business on a year-to-date basis would have come from the pricing action took way in the second quarter and we did report a reasonable amount of price utilization in the third as a result of that actions we had another price increase obviously that was in the September time frame.

We saw some amount of that contribute to the third I think so that will contribute more significantly to the fourth. So, as you roll it through we would expect and will continue to see very strong operating leverage and I think I commented on that in my prepared remarks.

If you pull out the impact of the FOAMGLAS business which was 73 million of revenue and 10 million of EBITDA in the quarter the underlying business had 19 million of revenue growth and about 16 million of EBITDA growth so again very, very strong operating profit leverage and I think in Michael's comments and mine we have also said we lost about 5 million of revenue and 5 million of EBITDA in the quarter associated with the Hurricanes.

So, with that add-back little bit stronger revenue growth have we've been able to get that revenue and then obviously very strong operating leverage.

So, our optimism of our report comes from kind of the market conditions where we are in the September price increased, how we felt about volumes coming out of the month of September and also the fact we are not going to carry some of these incremental costs we had in September into the fourth quarter.

So, we're expecting a strong fourth quarter that will finish off the year in good shape..

The next question comes from Susan Maklari with Credit Suisse. Please go ahead..

I'm wondering if you could talk a little bit to how you are thinking about the incremental margins in Insulation for next year. Clearly it seems like the pricing has been pretty effective and FOAMGLAS sounds like it's coming together pretty well and at least with in line with your expectations if not perhaps a little bit ahead of that.

So, can you just help us think about how we should be sort of projecting that going forward?.

Sure, Susan. So, we are going to have a fair number of moving pieces in our numbers for next year and let me kind of talk you through what we see as some of the puts and takes as we look into Insulation. Obviously, we're going to have a full-year of Pittsburgh Corning.

We’ll detail that out and you'll be able to kind of have visibility and transparency through some of those numbers. So, they won’t show a tremendous amount of operating leverage, but they will show a contribution in terms of revenue and EBIT margin because that business is a very stable and good contributor.

I think we will have a tailwind in our mineral fiber business. I think Michael has detailed at the start of our job facility, it is up and running now in the third quarter. Our goal is to get it in the range of breakeven by year end.

So, the losses that we incurred in that business through the first half of the year, on the last quarter call we said that those were around the $11 million, maybe we cut those into half in the second half of this year.

So, going into next year, we would hope to have a throwback in the Insulation results associated with much better performance in that facility, much better performance of our domestic mineral fiber business.

Which then get you back to kind of the residential insulation business, which is where we had a real focus on trying to get our margins back to historical levels associated with some pricing actions. Historically we've always said, if you kind of get to that remaining piece of the business, 50% operating leverage is a good number for that business.

We demonstrated that over about a 20-quarter period of time, up to the second quarter of last year. Then we’ve done a little bit [indiscernible] for the last four quarters as we worked our way through some market share disruption, I think now we're back to the right position in the market and the right look on operating leverage.

So, it'll be all of those pieces combined to kind of get and make sure its outlook, but I would say if you come back to that residential new construction piece of the business and our light density FIBERGLAS products which has really been the focal point of our margin improvement efforts we would expect to continue to show with 50% operating leverage on that piece of the business..

The next question comes from Robert Wetenhall with RBC Capital Markets. Please go ahead..

Hey guys, business seems like it has a lot of momentum, glad to see everything working, couple of pieces and noise in the quarter. I hope we could switch gears and talk about composites in the quarter.

I'm just trying to understand a little bit you had it, I'm assuming a negative mix shift just producing more shingles for the roofing business, trying to understand better what like-for-like roofing is? Also, the revenue contribution attributable to the loss of the Brazilian write off, and just thinking about this big picture and you may cover this at the Investor Day.

Could you give us a preview kind of what you're thinking in terms of global industrial production and leverage for that market going into 2018?.

Yeah. So, let me take your first -- the Brazil question first [indiscernible] out of this year's revenue. So, you're not going to really see an impact going forward. And then in regards to global industrial production, it's still tracking at roughly 3.5%, which is roughly two times what we saw last year.

Revenue and volume growth for the year has been pretty good, but you're right, it did decelerate a little bit in the third quarter. So, volume momentum in the third quarter was up about 3% year-on-year. and on a year-to-date basis, it was up roughly 7%.

Now in the first half of the year, we did have customers that were restocking inventory positions in anticipation of better global growth so I think that's a good thing that that's kind of [EBITDAs] we've moved into the second half of the year. And then within us U.S.

construction, in particular to materials that go into our roofing business, we had a really easy comp in the first quarter of this year. So again, the momentum has slowed as we moved into the second half of this year. That said as we as we look forward, next year should set up to be a pretty good year. We are expecting – I think decent volume growth.

The business has delivered really good operational performance and as we move forward we would expect to continue to grow top line and grow bottom line. .

The next question comes from Stephen Kim with Evercore. Please go ahead..

Wanted to just clean-up a little bit here on the cost you'd mentioned in roofing I think you had talked about the transportation.

I think call them logistical cost what's curious if you can give us any sense for if there was a geographic concentration in that and whether or not you've been successful in putting to a sufficient price to be able to cover those as we go forward.

I know you would mention it you thought it was continue into 4Q '17 so I just wanted to understand the interplay if there was any basically hurricane effects and whether that's a net of a price commentary. And I guess I should also say if it's going to extend in to 4Q '17 wouldn’t that also extend maybe into the first half and next year.

So, if you can just give us some broader understanding on the logistics? Thanks..

I think Michael in his prepared comments said we have about 10 million of incremental cost in the quarter related to storm activity. Just to clean up any confusion that would not be hurricanes, that would be other types of storms, hailstorms and high wind events where we did see a fair amount of activity through the spring and into the summer.

So, this is geographically the first away from Houston and Florida and is in places like the upper Midwest in the mountain state. So, when we look at our manufacturing network we got into a position where our Midwestern facilities were running at very, very high levels of activity.

Obviously, the business in roofing right now is all very good business so we certainly wouldn’t want to walk away from any customer opportunity.

So, we made the decision to begin shipping some products across regions in order to be able to service demand and support our position in the market from our point of view given that this is an opportunity for us to service volume that was probably above and beyond what we had expected coming into the year.

We were bending knee to incur some cost in order to make sure that we took care of our business. Our goal would be obviously in our pricing actions do recover any cost inflation we have and some of this is to inflation where we are having to pay more for flat debt trucks and the rates are higher because of the lack of availability of trucks.

So that's something wouldn’t work its way into our pricing thought process as we go into next year. But another part of it we should be able to unwind these costs next year as we have start to see our regional demand balance out with our regional capacity.

So, a part of it is a timing or temporary issue and then a part of it is if we continue to see freight rates that are pushing up against inflation in the business we would think through all of the inflation in the business is not just asphalt and try to figure out how we can recover inflation in the price of a shingle. .

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

On the Insulation segment from a broad industry term where are you in terms of Insulation capacity utilization. I understand that you control roughly half of the industries code lines. What's your appetite for the staring capacity given increased demand particularly to those storms? Thank you..

Our view of the Insulation capacity situation is relatively unchanged from where we would have been six months ago. We continue to believe that the overall industry is operating somewhere in the low 90s.

We've said that our utilization rates are somewhat below what we think the industry in average is, so I think by influence you could [indiscernible] believe our competitors are operating somewhere above that average. So, from our perspective fairly healthy utilization levels and continued growth.

So even as we talked about our September which was a little bit choppier, we still saw growth in the month of September, it was just a little bit slower growth that we've seen through the first eight months of the year. So, we have seen kind of month-on-month growth in the business which is very constructive for us.

So as a result, we think that we've entered the stage of kind of the recovery where, our focus on trying to get improved pricing to restore our margins back to healthy levels, something that justifies reinvestment in the business that maybe our success in doing that, we accelerate a bit.

And also, I think you would expect to hear us announce that we would bring capacity we needed to bring the bearer in the market to support our position in the market. So, at our current utilization levels we think we're going to run our network a bit harder.

So, we probably have a lot of productivity we can get out of the business and a lot of operating leverage we can get out of the business at least over the next twelve months in terms of the amount of volume and volume growth we’d expect to see in our network.

And so, I think we're well positioned to get a lot of operating leverage in our business based on our current utilization levels..

The next question comes from Stephen East with Wells Fargo. Please go ahead..

Hi, guys. This is actually, Truman Patterson on for Stephen East. Jumping over to composites I think that you guys have done a good job explaining the insulation and the roofing margin side of the business, but on composites as we look forward, as we turn the calendar year, half of your business is on year-end contracts.

Last year I believe there was a little bit of supply that came on in Europe that kind of disrupted some of your pricing efforts.

But as we turn the calendar year, what are your expectations for this year, and maybe just give a general overview of where you see kind of the supply demand balance?.

Thanks for the question. And I’m going to give a little bit of history as well. So just as a reminder of the period 2014 to 2016, we delivered roughly $120 million in mix and price improvements.

You highlighted I think that in the second half of 2016, we did see a little bit of weakness, primarily in Europe and we would highlighted this on our Q3 earnings call if my memory serves me correctly, and we were making some adjustments, basically to maintain our market position with some of the product flow that was coming from the Middle East.

I mean we did see a little bit of erosion in some proprietary product positions as well. As we sit here today, I tell you that the overall market is stable. So, 2017 price has been slightly negative as the adjustments in the second half of 2016 have annualized.

The good news is that that's eased in the third quarter of this year, and actually in the third quarter we made some minor sequential progress. As we sit here today and think about the annual negotiations and moving into 2018, overall the market fundamentals are actually pretty good, capacity utilization remains relatively high at about 90%.

There’s a bit of inflation, demand is pretty good. So, we think the catalyst for price for the fourth quarter and as we move into 2018 is pretty good..

The next question comes from Phillip Ng with Jefferies. Please go ahead..

Hey, guys. Did you see a lift in roofing volumes during the quarter from hurricane demand and can you provide a little color how the sell through is kind of progress in the fourth quarter and if you’re able to parse out storm demand versus roofing, that would be helpful? Thanks..

Sure, Phil. This is Mike. I think in terms of hurricane demand in roofing, we would say it was probably about a wash in the quarter.

We saw some disruption in terms of our ability to ship into places like Houston and Florida during the periods of the storm and in the immediate aftermath, where really the first priority is clearing out the breed and trying to get power and other thing back to affecting the neighborhood.

We then saw weight in the quarter some of the customers in those regions we're starting to be able to bring product in and this is really tough just trying to figure out exactly and where you stand but our extent would be that in the quarter we probably saw about a net zero impact on volumes associated with the big Hurricane events in Florida and Texas.

Obviously, we expect we're going to see a little bit of lift in the fourth quarter associated with those storms.

We're camping against a very strong fourth quarter of last year and also generally across the industry from there is some tightness in supply chain I mean we have detailed some of the things we are doing to try to be able to service other market and some of the additional logistic cost we put into our business just try to service the market so I think there are some speed limits on how much volume will get shipped in the fourth quarter just related to on how much capacity is out there and people wanted to get their inventories in a good position at year-end heading it in next year so we're expecting a fairly stable market through the fourth quarter with decent volumes pretty much flat to last years as I said in my comments we think we are headed into next year with most of our customers in a good inventory position and will head into next year with the decent demand profile.

Now in terms of overall storm demand we're camping about flat this year to a very strong storm year-end '16 and the strong storm year-end in '16 was coming up to very weak strong years in '14 and '15.

So, I give a bit of the history what's not so want to remind people that the volumes we saw this year we actually came into the year thinking was going to be tough to comp at the '16 level related to storms and in fact between the minus storms some of the hail and wind events I talked about and now this hurricane we actually think we will comp about flat to 2016 storm activity.

Even with an industry estimate of maybe 4 million or 5 million squares of demand coming out of the Texas and Florida our hurricane events with the most of that carrying over into next year our expectation going in to next year is it's likely storms would comp negative to this year just because it is another elevated year and that likely we will not see enough growth in new construction and will move to offset the negative comps so we're going into next year thinking that we will probably see slight down tick in overall demand and most of that will come from storm related demand.

Having said that we're now operating in a market that best estimate is probably going to be around 140 of squares this year up from kind of the low 130s in 2015 but up from numbers that were closer to 110 million in the prior three to four years before that.

So, we are operating in a market that's at very high levels of activity is a very healthy market and even if we comp a little bit negative next year I think it will be a healthy market of us..

The next question comes from Scott Rednor with Thalman and Associates. Please go ahead..

Mike, I just want to come back Insulation again obviously it's a topic of today, so apologize for being redundant.

But even if we add the point back in the quarter for lost demand you'd be running like 3% volume growth, I think commercial is the tailwind from the new facility and just is nothing running that slow and you are implying that you have to see very steep sharp move in 4Q.

So, do you guys have a better sense of, is that the right analysis or what are we missing and I guess that's kind of where we want to hear a little bit more?.

Well, let me talk a little bit about kind of how we see the fourth quarter ramp in the business I mean given our guidance it's not hard to get to numbers for the fourth quarter that would suggest we think we are going to do EBIT that's roughly double where we were last year.

We showed nice progression in the third quarter so the overall business was up about 26 million about 65% versus where it was in the third quarter 2013 at the EBIT line. So, we've shown that kind of progression.

I think if you then look at the fact that we think the third quarter was impacted by about 5 million of hurricane related costs we did lose one of our facilities for almost a month in Florida related to flooding and then loss of power. We have another facility in the Houston area in our insulation business that had some disruption.

We’ve seen a pretty big push in polystyrene costs that came out of the Gulf Coast and some of the inputs that go into polystyrene. We had some freight and logistics cost, because the one thing about insulation plant is, you have to keep getting raw materials to the plant, because the plant runs 24/7.

So even in some of the affected areas, we have to pay up significantly in order to keep raw materials coming into the facilities in order to keep our furnaces running.

So, the third quarter could have been quite a bit better with that additional five, and I think that also would have shown sequential numbers that made the fourth quarter look like a little bit easier target.

But we look at all the pieces and then we think volume will be between now and year-end, we think that we'll see enough volume here between now and the end of the year that we will be able to get to the guidance we've given.

Obviously, it’s going to help a bit that we're going to get some of the September price now for the full quarter and the fourth, and I said earlier, given, the pricing action for next year is very early, in January, we would expect business to be pretty good always through the holidays..

The next question comes from Garik Shmois with Longbow Research. Please go ahead..

Thank you. I just wanted to drill in on the implied outlook on roofing in the fourth quarter. Correct me, if I’m wrong, if we look at the assumptions in insulation composites, back into what it looks like somewhere around the $25 million to $30 million reduction in EBIT in roofing in somewhere around mid-teens margin. So just wondering a).

Is that analysis correct and b) If we’re looking at flat volumes, pricing offsetting [indiscernible] inflation, is the entire delta driven by the higher logistics. I just want to be clear on this..

Garik, if I’m following your analysis correctly, I think you're kind of putting to our overall corporate guidance, and then working it back each of the division, then I think it's fair that the company certainly in our guidance philosophy has always believed that the glass business is, both in terms of the timing of demand and the nature of the operating leverage and the nature of pricing, makes it a little bit easier for us to give specific guidance in those businesses.

And then I think in roofing, we tend to give a little bit broader guidance because you can see from quarter-to-quarter and from year-to-year, we see fairly large shifts in the demand of the business, while overall business performance continues to be very, very good.

So, if you look at our overall corporate guidance, we’ve said $825 million or more for the full year. So, I wouldn't take a literal peg to the $825 and try to push all that back onto the roofing division..

The next question comes from Mike Rehaut with JPMorgan. Please go ahead..

Thanks. Good morning, everyone. I just wanted to circle back for a moment to roofing and kind of understand -- kind of working off an earlier question, when you think about the increase in transportation costs which you expect to persist into 4Q. Should – and on top of that flattish industry demand against the tougher comp.

Should we be expecting a similar type of year-over-year margin decline as we've seen in 2Q and 3Q, particularly given that it doesn't appear that you're modeling in or expecting any type of additional price to offset the logistics?.

Yeah, I mean, certainly, we don't want to get into the business of giving quarterly margin guidance. So, I'll talk broadly about some of the questions you asked, but I'm going to be reluctant to answer your question directly. We think with flat volumes; the business is continuing to produce very good cash margins.

So, the way we think about the business is, the kind of the overall cash margin we earn on a shingle and the amount of volume we ship in a quarter minus our fixed cost it's how you get to the operating margin number.

So, if our inflation and our pricing are pretty much offsetting one another you should expect this sequentially we will continue to be pretty confident in our margin performance. I think in terms of overall business performance I wouldn’t want you to overlook we are excited to see fairly significant contribution from our components business.

So even in a flat roofing market our shingle volumes we would expect we would track the market but certainly our components business has been tracking well above market demand as we continue to pursue the conversion of tar paper to the coded [Ovens] product line which we call a synthetic under agreement.

So, I think we have a growth story in side roofing that goes just beyond market demand in the shingles category..

The next question comes from Kenneth Zener with KeyBanc. Please go ahead..

So, one question. Volume leverage on starts is less 2% volume some FX storm related demand there. But the price flow through which just reading the queue you talked about the 9 million benefits of higher prices offset by equally input cost, sounds like start-up cost stop wind ending 11 million in the first half and slightly negative customer mix.

So, to the extent those prices are flowing through I think [indiscernible] and that's going to be over here you talked about breakeven it sounds like you lost 5 million in the quarter on that so it's half of the first half drag. 5 million hit in Florida.

I think people are really just trying to struggle with why it's not following through and can you try to help us there? If you can just try it again, I think with 5 million in Florida whatever 4 million startup cost some of this cost inflation and negative customer mix that's the one piece I don’t understand I guess.

But people are focused on as you can try it again? Thank you..

Sure, Ken. So, I think you've got the pieces well thought through and I think we've detailed a lot of those pieces, so let me see if I can put it back together again. The higher pricing is primarily related to our late density fiber glass products the marquee product there would be the residential new construction product.

We also have some products to go into some OEM type applications like light commercial building some denting and HPEC type product so those assets bases produce a product line that can go across additional markets beyond just residential new construction.

So, we talked about the focus of our pricing activities really have been that light density fiber glass business with the main focus being the portion of that business that faces residential new construction. We think we made good progress on price specific to that business.

When you talk about how we are [starting] prices you are correct about that in terms of as a cost input that would be unrelated issues though as it relates to our ability to drive margins in residential new construction.

So, there is a different industry dynamic there is a different industry structure and actually the polystyrene business and sometimes the pace or the timing of polystyrene I mean prices relative to our ability to get price in our FOAM business sometime we get a mismatch there but I don’t think that's a long-term investment theme for the business.

I think the investment theme for the business if we like to talk to you is when we will see the margin rate in the residential new construction business and the pricing of residential new construction on the lock this significant shareholder value that we expected out there.

And I think for the quarter we would say we showed really good price progress and that's a really important part of supporting that theme.

The customer mix piece is especially related to the storms and hurricanes a lot of the products that go into some of the more fabricated or engineered parts of the business or some of the HVAC products some of the products that go into the industrial segment where prices have done a little bit better where margins have been better margins have been more consistent that was the part of the business that was more effected by the hurricane.

So, what we see in Florida is obviously we have the large business related to duct and duct insulations done there, it's very important your ducts in Florida because of all the humidity. The gulf coast in Houston there is a lot of industrial business down there and a couple of OEMs that manufacture duct related products in the Houston area.

So, we saw a pause in demand from a number of those segments during the hurricanes and those were really the customers that are the part of the $5 million revenue miss which is a contribution to the negative customer mix that we detailed in the queue..

The next question comes from Keith Hughes with SunTrust. Please go ahead..

Just turning back to pricing and briefing, you have made some comments on tightness in the market and given some of your volume growth I can understand why you would say that.

Do you expect to see more realization of residential roofing price increase over the next several quarters because of that?.

Our philosophy is certainly in the roofing business now I guess over the last 8 or 10 quarters has been to try to do a good job of making sure that we manage cost inflation in the business and that we sustain margins.

So I think related to your question is also going to be what happens as fall prices, what happens to other input cost inflations if some of the cost that we are seeing in logistics going to continue to persist I think that would have an impact on how we think about pricing but certainly I always said on this call a number of times it was really constructive for our roofing business is good and steady demand and not either letting the market get away ahead of us in terms of inventories or us getting way behind in terms of our ability to serve the market.

When the market is in good balanced we tend to produce good stable margins and predictable volume growth and we think that's the market we've been in now for '16 and '17 and we certainly think that with the strength that were seen in the market right now we should under '18 in the similar conditions.

We have quite a bit of confidence today in the margin performance to the roofing business and certainly feel like the kinds of margins we've seen in '16 and '17 should be our target in terms of sustaining that into '18..

Okay, the final question will come from Matt McCall with Seaport Global Securities. Please go ahead..

So this is actually I guess my follow-up to that last question make sure I understood it, so you talked about the cost to service the storm it sounds like they were outside out of the hurricane area as you look out to servicing those hurricane markets do expect the same cost to continue it sounds like the majority of that might move into '18 and really how does that impact the overall margin view when you take into account the price cost and you take into account logistics versus overall volume? How do you want us to think about all of this kind of puts and takes for roofing margins in '18?.

Yes, I think one of the things we did today and I think it was hopefully helpful to the investors is we broke that cost out because we didn’t want anyone to have an impression that somehow the underlying margins structure of our roofing business had gone back within the third quarter so we are breaking out to the $10 million of incremental freight cost we are hoping it gives the visibility to the fact.

The underlying margins structure the business is very, very strong and in fact even including the 10 million the underlying margins structure of the business is very, very strong. So, there is no way to describe the last quarter for roofing into size it was a great quarter.

It is true that because of the nature of where our capacity is relative where we've seen demand over the last six months we've had to move product around. I can't comment whether that's industry wide. I know that that's most corning phenomena.

Obviously, we want to make sure that we keep our customers in stock and we do a great job of servicing their business and so we are going to incur that additional cost to make sure that we service their business and as producing top line growth for us and that's producing a great EBIT performance for us.

As I said earlier it would be our expectation that things will slow down a little bit at the end of the year particularly in the northern part of the country where the cold weather will set in. Most of our congestion right now is in the northern part of the country so we've been spending money to try to service that part of the market.

My expectation would be that as we get through the winter if we have a winter and things in fact do slowdown which is pretty normal that we would rebuild a bit of inventories in some of those facilities because they are reversing a few of our freight lines and then going into the next year we start to see this cost go away.

We just don’t think we can make that cost away in the fourth quarter so we wanted to help you understand that we do have some expectations that there will be some margin headwind in the fourth quarter freight and logistics, however we’re going to produce nothing but a great year in the roofing business and it's going to be a great margin performance heading into next year..

This concludes our question-and-answer session. I would like to turn the conference back over to Thierry Denis for any closing remarks..

Thank you, Rachelle. I think Mike will make some closing comments..

Well, thank you everyone for joining the call.

Obviously we are very proud of the quarter that the business produced, it was not without a few challenges I think some of them very clearly isolated like the bad debt issue in the composites business and then some of them related to the evolution of the business and the evolution of our business through the year but in all accords, and I hope you heard that from our commentary both in our prepared remarks and also the question and answer what we're seeing right now is all three businesses making significant progress against the very key drivers of shareholder value.

So, our ability to drive margins, our ability to drive volumes, our ability to drive top line growth. I think we also feel very proud of the progress we have made with a couple of the acquisitions we've done over the last 18 months we said today in the call the InterWrap integration is largely complete.

The Pittsburgh Corning integration is off to a very fast start and that business shows a very nice contribution just in its first month first quarter as a part of our Corning. So, we do think that the combination of dividends shares repurchase and accretive that value accretive M&A is working in our company today.

And we are really happy with where we are from a balance sheet and debt position I think Michael details that in his comments. So, what have really good pieces in terms of our postures we face the market.

We certainly feel like we will be able to finish the year out strong and certainly all the indications we would see based on the comments we made all of the progress we are making in the business positions us for another very strong year as we head into 2018. So, a part of the team and part of the execution of the Corning people.

I will make one last plug for our Investor Day on November 16th in our World Headquarter here in Toledo.

We think there is a lot to be excited about our Company, we will have broad exposure of our management team and give them the chance to talk about our businesses and where we've done the strengthen the earnings potential to company and we think it will be a good day for all the investor who attend to learn more about this Corning.

So, we appreciate your interest and hope to see many of you into later in the next month. Thanks..

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