Apr 25, 2012
Executives
Thierry Denis - Michael H. Thaman - Chairman, Chief Executive Officer, President and Chairman of Executive Committee Duncan J.
Palmer - Chief Financial Officer and Senior Vice President
Analysts
Michael Rehaut - JP Morgan Chase & Co, Research Division Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division Zoran Miling Joshua Pollard - Goldman Sachs Group Inc., Research Division Mike Wood - Macquarie Research Dennis McGill - Zelman & Associates, Research Division Unknown Analyst
Operator
Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Owens Corning Earnings Conference Call. My name is Keisha, and I will be your operator for today.
[Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to hand the conference over to Thierry Denis, Director of Investor Relations.
Please proceed.
Thierry Denis
Thank you, Keisha. Good morning, everyone.
Thank you for taking the time today to join us for today's conference call in review of our business results for the first quarter 2012. Joining us today are Mike Thaman, Owens Corning's Chairman and Chief Executive Officer; and Duncan Palmer, Chief Financial Officer.
Following our presentation this morning, we will open this one-hour call to your questions. [Operator Instructions] Earlier this morning, we issued a news release and filed the 10-Q that detailed our results for the quarter.
For the purposes of our discussion today, we've prepared presentation slides that summarize our performance and results for the first quarter 2012. We will refer to those slides during this call.
You can access the slides at owenscorning.com. We have a link on our homepage and a link on the Investors section of our website.
This call and the supporting slides will be recorded and available on our website for future reference. Please reference Slide 2 before we begin.
We offer a couple of reminders. First, today's presentation will include forward-looking statements based on our current forecasts and estimates of future events.
Second, these statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. Please refer to the cautionary statements and the risk factors identified in our SEC filings for a more detailed explanation of the inherent limitations of such forward-looking statements.
This presentation and today's prepared remarks contain non-GAAP financial measures. Reconciliations of GAAP to non-GAAP are found within the financial tables of our earnings release.
Consistent with our historical practice, we have excluded items that we believe are unrepresentative of our ongoing operations to arrive at adjusted EBIT, our primary measure to look at period-over-period comparisons. We typically exclude significant nonrecurring items such as the impact of the restructuring actions announced in our last earnings call.
We believe that adjusted EBIT is helpful to investors for comparing our results from period to period. It was mentioned on our last earnings call, we will continue to 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.
In the first quarter, we have adjusted our effective tax rate to 25%, in line with our anticipated annual effective tax rate on adjusted earnings for 2012. 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, Duncan Palmer. Mike will then provide comments on our outlook prior to the Q&A session.
Mike?
Michael H. Thaman
Thanks, Thierry, and good morning, everyone. We appreciate you joining us today to discuss our first quarter 2012 results.
Owens Corning's first quarter performance was consistent with our expectations coming into the year. Improvements in the U.S.
housing market and growth in global industrial production contributed to volume gains in all of our businesses and support our outlook for delivering adjusted EBIT growth and strong cash generation in 2012. First quarter revenue was $1.3 billion, up 9% compared to the same period last year on higher sales revenue in our Roofing and Insulation businesses.
First quarter adjusted EBIT was $43 million compared to $61 million in the same period last year. As I do each quarter, let me review our performance against the outlook I have previously provided.
We continue to make progress towards our goal of creating an injury-free workplace. During the quarter, our rate of injuries improved by 23% over our full year 2011 performance.
We said we expected another great year for our Roofing business in 2012, reflecting some carryover of 2011 storm demand, improvement in the reroof market and modest improvement in the new construction market. We are on track for another strong financial performance in this business.
We saw Roofing volumes grow in the quarter due to the storm demand carryover, stronger market conditions and prebuying by our customers ahead of our announced price increase in April. We said our Insulation business would significantly narrow losses in 2012.
Insulation volumes grew over the same period in 2011 and we narrowed the losses in the quarter from $47 million last year to $34 million in the current quarter. We said we would transform our Composites operation into a global network of low-delivered-cost assets with a commitment to achieving significant progress in 2012.
We have previously announced the restructuring of our European assets and are on track with the execution of this plan, as well as the startup of low-delivered-cost assets in Mexico and Russia later this year, supporting our outlook of returning to double-digit margins for this business in 2013. We said we would grow adjusted EBIT this year.
While our adjusted EBIT for the quarter was lower than the comparable period last year, it was in line with our expectations. We will see acceleration of our performance across all of our businesses as the year progresses.
We said 2012 would be a year of strong cash generation. Based on this outlook, the Board of Directors has authorized of the repurchase of up to 10 million additional shares of Owens Corning common stock.
While we continue to face macro market uncertainty, as a result of our first quarter performance, we remain confident that we will achieve our 2012 outlook of adjusted EBIT growth and strong cash generation based on an improving U.S. housing market and continued growth in global industrial production.
Before discussing our business segments, I'd like to start with some comments on the macro environment in which we're operating and how we see it impacting the year. Lagged U.S.
housing starts in the first quarter were up approximately 25%. As noted on our previous call, seasonally adjusted housing starts during the fourth quarter of 2011 reached the highest level in 3 years.
The Insulation business has begun to capitalize on this improvement. We expect to benefit from the improving U.S.
housing market and the seasonal nature of construction through the balance of 2012. Roofing volumes grew during the first quarter as a result of improving market conditions, carryover storm demand from 2011 and customers buying in advance of our April price increase.
As we previously said, full year 2012 market volumes are expected to decline in mid-single digits versus 2011 assuming a normal level of new storm demand. Finally, global industrial production, which has historically served as a good driver of glass reinforcements market demand is expected to grow at about the same rate as last year with a stronger performance in the U.S., offset by weakness of industrial production in Europe and slower growth in some developing markets.
These factors create an environment for growing market demand across our portfolio of businesses and improving results as the year unfolds. Now let's turn to a review of our business segments and our outlook, beginning with the Building Materials business.
Roofing delivered $83 million of EBIT, up from $77 million one year ago on the strength of 19% year-on-year revenue growth. Roofing margins declined slightly from last year for the quarter due to a combination of flat year-over-year pricing and higher asphalt input cost.
We are confident that we've taken sufficient pricing actions to recover inflation and improve margins and that Roofing will deliver another year of strong financial performance. Insulation narrowed its losses to $34 million from $47 million in the first quarter of 2011, performance that positions us firmly on path to achieving our goal of significantly narrowing our losses for the year.
With insulation fundamentals continuing to improve, we remain focused on taking full advantage of this growth with strong execution in manufacturing, pricing and commercial initiatives. In the first quarter, we reduced manufacturing cost in the business and expect to see continued manufacturing improvements over the course of the year.
In addition, the increasingly favorable market conditions underpin our confidence in making progress in our pricing this year, beginning in the second quarter. The repositioning of our Composites business is on track and we expect financial performance to build throughout 2012.
First quarter sales for the business were down 3% from last year. We're encouraged by the acceleration of sales volume that we saw in March, which should force a stronger volume outlook for the remainder of the year.
Composites margins were negatively impacted by inflation, higher production cost and slightly lower selling prices compared with the first quarter of 2011. We believe that prices and raw material cost inflation have stabilized.
With growing volumes, stable prices and stable input costs and the shutdown of high cost assets and a stronger base of low-delivered-cost assets, that financial performance will build through 2012 returning this business to double-digit margins in 2013. We are pleased with how all of our businesses have responded to markets that have yet to realize their full potential.
All of our businesses have an intense focus on pricing, productivity and customer responsiveness that will drive improved financial performance. Before I turn the call over to Duncan, I'd like to make some comments regarding share repurchase.
We did not buy any shares in the quarter. We continue to believe that we will complete the purchase this year of the 3.7 million shares of stock that remain under our previous authorization.
In addition, today we announced that the Owens Corning board has authorized the repurchase up to 10 million additional shares of our common stock based on our multiyear outlook to cash flow. Confidence in our business strategies, our demonstrated capacity to deliver earnings growth and our strong cash generation provide the opportunity to return capital to our shareholders.
Duncan will walk you through the details of our segment performance and other key financial developments in the quarter. After which, I will return with some closing comments prior to the Q&A session.
Duncan?
Duncan J. Palmer
Thanks, Mike, and good morning, everyone. As Mike noted earlier, our first quarter performance is consistent with our expectations and we have made progress against our objectives for the year.
We've seen some improvements in economic conditions, particularly in the United States, although our end markets continue to perform well below their full potential. Our first quarter performance reinforces our outlook that we will deliver adjusted EBIT growth in 2012 and deliver a strong cash flow year.
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 news release and the Form 10-Q.
Today, we reported first quarter 2012 consolidated net sales of $1.3 billion, a 9% increase over the same period in 2011. Our Roofing business grew 19%, our Insulation business grew 14% and in our Composites business, net sales were down 3% compared with the same period a year ago.
In a moment, I will review our reconciliation of items to get to adjusted EBIT. As Thierry noted at the beginning of the call, this is our primary measure to look at period-over-period comparisons.
Adjusted EBIT for the first quarter of 2012 was $43 million as compared to $61 million in the first quarter of 2011. Adjusted earnings for the first quarter of 2012 were $11 million or $0.09 per diluted share compared to $27 million or $0.22 per diluted share in 2011.
Depreciation and amortization expense for the quarter was $89 million, including $18 million in accelerated depreciation related to the asset restructuring in Europe. We expect our full year 2012 depreciation and amortization expense to be up to $320 million excluding the impact of our actions in Europe, a little less than we had guided previously.
Our capital expenditures for the quarter was $72 million. We expect that full year capital spending will be approximately $350 million.
Next, let me reconcile our first quarter adjusted EBIT of $43 million to our reported loss before interest and taxes of $12 million. Our European restructuring actions resulted in $55 million of charges in the first quarter.
These actions will contribute to the transformation of our global Composites network to low-delivered-cost assets. We are well positioned to return our Composites business to double-digit EBIT margins in 2013.
As previously disclosed, we anticipate incurring charges of approximately $130 million related to these actions in 2012 and 2013. Now please turn to Slide 6, and I will review our adjusted EBIT performance comparing first quarter 2012 with the same period a year ago.
Adjusted EBIT declined $18 million. Our Roofing business continued to deliver strong results and grew EBIT by $6 million on higher volumes.
Our Insulation business narrowed losses by $13 million on improved volumes, good commercial execution and cost improvement. These improvements were offset by our Composites segment where margins were negatively impacted by inflation and slightly lower selling prices year-over-year.
Finally, corporate expenses and other increased $12 million compared to the same period in 2011, driven by higher incentive compensation expense and nonservice pension costs, as well as certain gains that benefited the first quarter of 2011. With that review of the key financial highlights, I ask you to turn to Slide 7 where we provide a more detailed review of our businesses starting with Building Materials.
In the first quarter, Building Materials net sales were $919 million, a 17% increase over the prior year, reflecting higher sales in both Roofing and Insulation. Building Materials delivered $49 million in EBIT in the first quarter of 2012, an increase of over 60% compared with the same period in 2011.
The following 2 slides present the results in more detail by highlighting the 2 businesses within our Building Materials segment. Slide 8 provides an overview of our Roofing business.
Roofing net sales for the quarter were $588 million, a 19% increase compared with the same period a year ago. Strong sales volumes were supported by improved market conditions, carryover of 2011 storm demand and customers buying ahead of our announced price increase.
EBIT in the quarter was $83 million, up $6 million over the same period in 2011. We continue to expect that the underlying reroof and new construction markets will grow in 2012, driven by increased U.S.
housing activity. On this basis and with the return to normal storm activity, the U.S.
market as a whole will decline in the mid-single digits from 2011 levels. Storm activity in the first quarter has likely been above average, and if this trend continues throughout the year, it would provide upside to our market outlook.
EBIT margins were down year-over-year, driven primarily by asphalt inflation. Typically in the first quarter, we experience some level of competitive seasonal buy activity ahead of the spring and summer demand.
Much of the increase in price that we achieved during 2011 was offset by buy activity in the first quarter of 2012, but prices have now returned to pre-buy levels. In addition, we have responded to asphalt inflation with price increases, which we are confident will improve margins over the rest of the year.
2012 will be another year of strong financial performance in Roofing. Now Slide 9 provides a summary of our Insulation business.
Net sales in Insulation of $331 million, up 14% from the same period a year ago, reflecting higher sales volumes as a result of an increase of about 25% in lagged U.S. housing starts and strong commercial execution in the marketplace.
The business narrowed losses from $47 million last year to $34 million in the first quarter of 2012. Incremental sales provided additional contribution margin across our Insulation business.
Manufacturing costs were lower on improved productivity and the completion of our EcoTouch launch in 2011. Pricing was broadly stable compared to the same period in 2011, and we have taken pricing actions across several of our markets.
On the basis of improved volumes, continued cost reduction and pricing execution, we expect to significantly narrow losses in 2012. As I remind you on each of our quarterly calls, this is a great business in a well-structured industry.
Owens Corning's PINK insulation is a powerful and enduring brand. We are the clear market leader, well positioned to return to historical performance levels when demand improves as we know it will.
Now I will ask you to turn your attention to Slide 10 for a review of our Composites business. Our Composites business delivered results consistent with our expectations for the quarter.
Net sales for the first quarter of 2012 were $476 million, a 3% decrease compared to the same period in 2011. First quarter sales were impacted by foreign currency translation and the second quarter 2011 divestiture of our facility in Capivari, Brazil.
Excluding the impact of these items, sales grew over the same period in 2011 as stronger sales volumes in the quarter more than offset the impact of slightly lower sales prices. Regionally, the U.S.
market was strong. The European market was down year-over-year, but volumes were stable and consistent with our expectations, and we saw tempered growth in some developing markets.
Overall, March sales volumes were particularly strong, providing momentum going into the rest of the year. EBIT for the quarter was $23 million compared to $48 million in the same period last year, largely due to inflation, selling prices which declined in the low single digits, as well as certain onetime benefits in the first quarter of 2011.
In addition, we experienced some cost headwinds in the first quarter of 2012 from plant startups and asset curtailments. We believe prices have stabilized across our markets during the first quarter.
Year-over-year inflation was driven by higher oil prices. In the U.S., natural gas prices continue to provide a cost benefit to our operations.
We continue to monitor closely the energy price environment around the world. We expect the global glass reinforcements market to continue to grow in 2012 at a rate broadly in line with the historical average of 5%, with strength in the U.S.
offset by weakness in Europe and slower growth in some developing markets. In this environment, our sales volumes will continue -- will grow over the remainder of the year, and in addition, we are continuing to drive manufacturing productivity across our network.
On this basis, financial performance is expected to build in Composites through the remainder of 2012. We are taking actions to reduce finished goods inventory across our global network in 2012 as we balance supply and demand with European plant closures, additional plant curtailments and the timing of new facility startups.
By year end, we will have positioned our European business to be more competitive. We will have significantly increased the percentage of our assets with our low-delivered cost and we will benefit from improved manufacturing economics across our network.
We will have reduced inventories to target levels in a market that is continuing to grow, and we do not foresee significant further price erosion. We are confident that our Composites business will return to double-digit margins in 2013 on a growing revenue basis.
Let me now turn your attention to Slide 11. Mike mentioned earlier in the call we announced today that our Board of Directors has authorized the company to repurchase up to an additional 10 million shares.
As I commented at our recent Investor Day, we continue to expect significant growth in earnings over the coming years as the U.S. housing market recovers and growth continues in global industrial production.
We also foresee high levels of free cash flow conversion of as much as 100% of adjusted earnings on average over the next 5 years. On this basis, we will continue to balance our priorities for the deployment of free cash flow as we operate as an investment grade company.
Stock repurchases will continue to be an important mechanism to return capital to shareholders both in 2012 and beyond. Our $2.3 billion U.S.
tax NOL will significantly offset cash taxes for at least the next 5 years. In 2012, our advantage tax position is expected to deliver cash tax savings of about $70 million for the fourth consecutive year, and our cash taxes paid in 2012 will be about $30 million.
Based on the anticipated mix of earnings across our operations, we continue to expect our effective tax rate to be about 25% for the full year. Our long-term effective tax rate is still expected to be the range of 25% to 28%.
Our first quarter performance and the economic outlook underpin our guidance that we will deliver adjusted EBIT growth and a strong cash flow year in 2012. Thank you, and I would now turn the call back over to Mike.
Michael H. Thaman
Thank you, Duncan. As we look to the balance of the year, we are poised to benefit from improving market conditions, pricing actions, our European restructuring program and demand growth in all of our businesses.
These elements position us favorably to deliver value in the near term with adjusted EBIT growth and strong cash flow. We also remain confident in our ability to achieve our midterm goal of $1 billion in adjusted EBITDA in an environment of 1 million housing starts and continued global economic growth.
With that, I will now turn it back to Thierry who will lead us into the Q&A session. Thierry?
Thierry Denis
Thank you, Mike. Keisha, we are now ready to begin the Q&A session.
Operator
[Operator Instructions] Your first question comes from the line of Michael Rehaut with JPMorgan.
Michael Rehaut - JP Morgan Chase & Co, Research Division
First question on the Insulation, good to see the year-over-year improvement, but a little bit of a lesser delta in absolute dollars when you look at 4Q '11 over 4Q '10, and so I was just wondering is this -- are these results kind of in line with your expectations? Were there certain easy comps or extra charges in 4Q '10 that made that delta greater when you look at the last quarter?
And perhaps, any additional granularity in terms of the drivers of the improvement and what you could see, perhaps, even accelerating going forward?
Michael H. Thaman
Sure, Mike, happy to talk about that. First, let me just talk a little bit about the seasonality of the business.
In our prepared comments, we said that housing starts in the first quarter of -- lagged housing starts in the first quarter of 2012 were up about 25% versus lagged housing starts in the first quarter of 2011. I think it's really important to remember the seasonality of new construction that, in fact, sequentially, we probably saw housing starts that were 13% higher in the fourth quarter of 2011 than what we would've had in the first quarter of 2012 just because in the fourth quarter we would have been working off of late summer construction last year and in the first quarter, we're working off a winter construction this year.
So we always know, coming into the first part of the year, that we're out of the retail reinsulation season, but we're also coming into the portion of the year where seasonality of construction is going to cause us to have some headwind in terms of overall demand. As you comp to last year though, we did have a very nice revenue boost looking at our performance versus last year, and we did produce good solid operating leverage.
The operating leverage wasn't all the way to the long-term operating leverage we've given or the midterm leverage we've previously said, but on the path to 1 million housing starts we thought the business could produce about $100 million of EBIT at one million housing starts on about 50% operating leverage. I think we're in kind of the mid-30s this quarter if you compare to prior year first quarter.
The biggest single determinant of that operating leverage is likely that we underproduced sales in the first quarter. Just the way our production plan works, we produced less than we sold in the first.
Likely in the second and the third, we will get back to producing at or above the levels of sales, so that will become a bit of a help. And then our hope in terms of the roll forward will be we see a positive new construction environment and start to get into a more positive pricing environment, both of which obviously will contribute dramatically to picking up our operating leverage a bit.
So we were pretty much where we expected to be in Insulation in the first quarter. We do see some good things on the horizon in terms of the market improving a bit, maybe a bit of an improving pricing environment and our ability to take our production levels back up to sales levels to improve our operating leverage a bit.
Michael Rehaut - JP Morgan Chase & Co, Research Division
Okay, appreciate that. I guess the second question, maybe just staying on Insulation for a bit.
Can you review the price increases that you have set to take effect, the timing of those and the magnitude and also on the Roofing side?
Michael H. Thaman
Sure. Let me first start with Insulation.
We had a price increase that was announced for the beginning of this year, which was kind of mid-single digits depending on the product, et cetera. We didn't candidly produce a lot of progress against that price increase in the first quarter.
I think we saw, across Building Materials, some of the categories were maybe more aggressive, price increases we're having a bit more success. So we announced a price increase of low double digits depending on the product, kind of a 12% price increase for the early part of the second quarter.
That -- certainly, the price increase today that our salesforce is working on in the market to try to help our customers find a way to pass that through into new construction and help them improve their margin rates also. So I think we expressed some optimism on the call today that we should expect to see some help from Insulation pricing as the year goes on.
On the Roofing side, I think we had 2 phenomena. We had some buy activity in the first quarter, which caused Roofing prices to be basically flat over first quarter of 2011 with some increase in asphalt input cost, so that put some margin pressure or margin compression on.
Coming into the second quarter, it's our expectation in Roofing that we will have a good amount of success with the early April price increase, which will help us move market pricing and then also some of the buy-related pricing that was in the first quarter will also come out of the business. So we're pretty happy right now in terms of the outlook for having price leverage in the second quarter that will give us some ability to get Roofing margins back to historical levels and deliver another strong performance in that business.
Operator
Your next question comes from the line of Ken Zener with KeyBanc.
Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division
I just want to stick on Insulation. So why did you guys underproduce sales in the first quarter, if you could just kind of walk us through that as that was one of the things that kept under -- you under 50% operating leverage.
Could you also discuss that operating leverage? It seems as though you would have had some benefit year-over-year related to the absence of EcoTouch, which has about kind of boosted operating leverage in our view.
Michael H. Thaman
Yes. I mean the first question regarding production levels and underproducing revenue, we tend to do our production planning annually, and I think what you'd see is because of the seasonality of the business and because we know we typically sell a lot more products in the second half of the year than the first half of the year, we take advantage of the first part of the year or late fourth quarter to do some maintenance, to do some turnarounds, to potentially get assets making other product lines.
Our goal is to head into the middle of the year with exactly the asset base we want running for the second half of the year. So the first half of the year tends to be a time for repositioning of inventories and repositioning of assets, getting ourselves positioned into the middle of the year to have the right assets running, to meet increased market demand in the second half of the year and that's, I think, pretty consistent with how we would describe our production plan for 2012.
So I don't think there was any big news there besides just how we work our production plant to try to optimize our inventories and our assets. I think you are right in terms of EcoTouch and the conversion there being complete.
We did have some EcoTouch conversion costs that were in our first quarter 2011 results. So the absence of those costs would have given us some positive operating leverage in 2012.
I think those costs were offset by some other factors. We had pretty good energy cost, but we had a little bit of inflation in the business associated with packaging, chemicals and transportation, which would have been driven through oil prices.
So there are a fair number of puts and takes when you do the recon. I feel pretty comfortable telling you that had we produced at the levels of revenue that, that would have given us better operating leverage for the quarter than what we showed.
Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division
Okay. And I guess for my second question I’d like just to kind of continue on the Insulation, I think that's capturing a lot of people's attention today, warranted or not.
But when you talk about 50% operating leverage through the cycle, your $100 million loss going to $100 million, gain. I think that kind of mask what are, really, 4 distinct businesses in Insulation, namely the new side, lots of focus, however, you're making money is my understanding on the international, I believe the R&R as well as the commercial foam, which is more material conversion.
Can you talk about the operating ranges you see, not necessarily explicit but how that varies versus the 50% general segment, and if in fact you're still looking for 50% operating leverage in 2012 in Insulation?
Michael H. Thaman
Okay. I think if you go back to some of the material we shared with investors on our Investor Day during the first quarter, we broke out the segments of the business between new construction and repair and remodel, what we call engineered insulation or commercial and industrial type solutions, and then also some of our geographic mix and actually put out some growth rates on where we thought each of those business segments would grow.
I think, Ken, correctly -- you correctly pointed out that the most dramatic growth we'd expect to see would be the recovery of housing to one million housing starts in that U.S. new construction segment.
That's certainly the business that has suffered the most in terms of profitability and pricing as we've come off of and gone through this very difficult trough in housing. As a result, that would be the place we would expect to see the most leverage and the most impact in terms of improvement of results.
The remainder of the pieces are in good shape as you characterize them. We've got some very nice geographic businesses in Latin America, in Asia that are growing nicely and performing well.
Our foam business, which is more of a material conversion business, is performing well. The reinsulation business is performing well.
It shares assets with the new construction business, so it does suffer from some of the same utilization charges and, therefore, production economics that are new construction market would suffer from, although volumes and demand in that business has been relatively stable through this downturn so that has not been the cause of the utilization challenges the new construction market has been. When we look at operating leverage, we gave a point-to-point estimate on that, so when we were at about $100 million loss on about 600,000 lagged housing starts, we said that the business should be able to produce $100 million of EBIT on about one million lagged housing starts.
We continue to think 50% operating leverage for the whole portfolio is a reasonably good estimate across that timeline. We have not given specific operating leverage guidance for any individual year or any individual quarter.
Operator
Your next question comes from the line of Garik Shmois with Longbow Research.
Zoran Miling
This is Zoran Miling in for Garik. Just looking at the Roofing business, industry volumes were up almost 22% on the quarter and yours seemed to have come in slightly below that.
Could you just elaborate on the delta whether it’s share shift or possibly other manufacturers offering more competitive discount programs in the first quarter? And also as the quarter progressed, did you see a slight recovery in your shares, as some of these are more competitive, tendency subsided ahead of the announced price increase?
Michael H. Thaman
This is Mike. Yes, it's a very good question.
I think we're really quite comfortable with our market position across all the different channels. You have to look at kind of the mix of business and how each of the individual roofing manufacturers go to market in terms of looking at relative growth rates.
I think you are aware, or our investors are certainly aware, that we've got a very, very nice relationship with Lowe's on the retail side of the business and they comprise a fairly sizable portion of our business. Typically, you don't see as much quarter-to-quarter swings in volumes in the retail channel as you would see in the distribution channel.
And as a result, I'm not totally sure that I know the source of your overall market numbers for the first quarter. We have not published on what we saw as first quarter roofing numbers, but we look across the mix of channels, that portion of our business which is retail, that portion which goes to distribution, that portion which goes to lumber yards and then we look at how we think each of those individual channels performed in the first quarter.
We're quite comfortable with the position that we have in the market at the end of the first quarter.
Zoran Miling
Great, I really appreciate that. And just as a follow-on, could you discuss just how you see asphalt cost impacting the Roofing business over the next few quarters?
Michael H. Thaman
Yes, I'll make a few comments on this and then I'll see if Duncan maybe wants to add a little bit of color to this. But asphalt prices today are above where they were in the first quarter of 2011, and as we said in the first quarter of 2012, prices were relatively flat so the asphalt cost inflation that we did see year-over-year was a negative comp for the business in the first quarter.
We've always expressed a fair amount of confidence in our ability to recover asphalt cost inflation in the market. I think that's well understood by our customers that input cost inflation is a challenge for the manufacturers, and that if we pass that to the market in the form of price increases, typically, they can achieve also price increases with their customer and that cost can get pass through.
We're feeling fairly comfortable that we are in that position today with some of the price actions that we initiated in the first part of the second quarter. That's largely been on oil, which moved above $100 a barrel kind of in the middle of last year and has stayed there.
I don't know that we've offered any additional outlook on how we think asphalt prices or oil prices will affect roofing going forward. I guess, I'd pass that one to Duncan.
Duncan J. Palmer
Thanks, Mike. It's Duncan.
So generally speaking, asphalt dynamics of a market, we typically see that in an average winter over long periods of time, asphalt tends to be a little weaker in the winter than it is in the summer because of the paving season that kind of drive some asphalt demand in the summer and, therefore, you tend to see some seasonality in asphalt. We did not see much decline in asphalt prices this winter.
Although in a typical winter, you might have expected to see that. As Mike said, generally, asphalt economics are driven over the medium term by crude oil economics.
I don't have any particular insight to offer on crude oil over the rest of the year. If I did that, I guess I'd have a different opportunity for employment if I knew that.
I do think that we will see asphalt broadly track crude oil. Crude oil has been relatively strong through the winter as Mike indicated, and so we would expect that to be a driver of asphalt.
And depending on the outlook for crude and how crude develops, that would probably dictate how the broad trend for asphalt develops with that overlying seasonality that typically speaking, asphalt does tick up a little bit in the summer versus where it was in the winter.
Operator
Your next question comes from the line of Joshua Pollard with Goldman Sachs.
Joshua Pollard - Goldman Sachs Group Inc., Research Division
My first one is actually on the Composites business. I'm trying to understand how much inventory reduction actually occurred in Europe.
How much that impacted margins this quarter? And if you could give us sort of a better quantification and timing around the benefits of restructuring ultimately, I'm trying to understand what the margin outlook is for 2012.
I think that your margin numbers this quarter were worse than I expected, I think worse than the number folks expected. And so I'm just not sure whether I should be thinking 4%, 5%, 6% for this year and a big jump next year for 2013 to get to double digit or if we should see a bigger jump this year.
Michael H. Thaman
We didn't actually reduce inventories a lot in the first quarter, so you asked a little bit about curtailment. We began curtailments, but I think really the headline for the first quarter was we had a lot of work to do with our labor unions in Europe getting to agreements on the ability to permanently close capacity and we made very nice progress on that, which really will be probably the single biggest variable that will impact our ability to reduce inventories.
So by getting to the ability to permanently close some capacity and take that production out of our network, inventories will come out relatively quickly when we do that, and we'll be able to do that without a lot of curtailment or absorption cost because we'll have the assets turned off. We have some other fairly sizable assets this year that need to go through a turnaround or a rebuild.
The timing of those downturn, those turnarounds will also give us the ability to get after some inventory reduction. So all of that was embedded in our plan and embedded in our guidance for the year.
What really affected the first quarter, and I kind of went through 4 variables and I want to go through them again. We saw input cost inflation and we think that's pretty stable at this point.
Most of that was coming off of oil, chemicals, energy-related input cost inflation. We are now at elevated levels of cost on the input side, but we don't think that's going to get worse through the next 3 quarters unless we see a big move in oil.
We saw some price decline in the second half of last year related to the weakness in Europe and then some price pressure that, that brought to bear in Asia. We think that's stable.
So as a result, our outlook is really based on today's price levels and potentially through the course of the year maybe having a chance to even improve pricing a bit if the market firms up. The third variable, obviously, was we still had high-cost assets running in the quarter and we made good progress on getting some of those turned off.
And then the fourth action is to get some of these low-cost assets turned on and into our network and we'll start to see the benefit of that from both a volume point of view and a cost point of view in the second half. So I think with volumes building, January is typically -- January and February are typically weaker than March.
A decent March typically points to relatively good volumes in the second and third quarter. What you should expect to see through the next couple of quarters is better volumes and cost beginning to come down, which would be additive to our margins.
You should expect to see in the second half that we then begin to bring on low-cost assets, which start to reduce our overall cost base. And I think if you take all those pieces together, that's where our confidence of double-digit operating margins for next year has come from.
Joshua Pollard - Goldman Sachs Group Inc., Research Division
So I guess what’s in there, and that's all very helpful, I'm trying to understand if we should be thinking about the back half of this year getting towards that -- getting to that double-digit goal and obviously not making your full year double digit. I guess, I'm wondering should we be thinking about your business exiting the year at double-digit margins?
Michael H. Thaman
Yes. I'd be reluctant to give specific guidance in terms of where we think margin rates will be exactly at the end of the year, but I think the narrative -- in the way you've characterized it, if prices are stable and input costs are stable and we see better volumes through the next couple of quarters and we see costs coming down, we would expect that the better volumes and cost reductions would start to improve margins kind of as we go through this year, which would give us some momentum going into next year.
So I don't think we're going to run through the year at low-margin levels and then expect something changes dramatically on January 1 of next year that gets us to double digits. I think it's going to be a progression.
Joshua Pollard - Goldman Sachs Group Inc., Research Division
Okay. And then my second question is actually around your buybacks.
So we can consider you approaching the board for more repurchases as a sign that you'll buy more than the 3.7 million you already had outstanding. If not, I'll really be interested on why you guys approached the board for approval when your results were in line with your expectations.
Michael H. Thaman
It's a good question. When you look at how we dialogue with our board regarding buybacks, I mean, we tend to look at multiyear forecast of investment, multiyear forecast of earnings, multiyear forecast of cash flow and are in constant dialogue with our board about what we may see in terms of opportunities that would be in the acquisition pipeline, what we see in terms of potential other cash generators that would be in our business and maintain flexibility kind of in our toolkit to make sure that we have all the things we need from the board for share repurchase.
When we went through that dialogue with them, I think we shared with our investors in March a fairly bullish outlook when we talked about the business over multiple years. That would be consistent with the bullish outlook we've shared with our board.
We didn't want to put ourselves in a position where if we saw some changes in 2012 that created some opportunity for additional buybacks that we had to go back to the board kind of on an emergency basis or on a reactive basis. We pretty consistently, since emergence, had a buyback program out there that gave us the ability, that visibility to 2 or 3 years worth of share buyback activity.
We felt we had gotten to a point with our guidance for this year, which is we expected to complete the existing buyback program that we were beginning to hear some questions from investors about would you expect to continue to repurchase shares after you complete this buyback program. We thought the simplest way to make it clear to our investors is that buybacks are a part of our ongoing capital planning, was just have the board expand our buyback authorization.
Joshua Pollard - Goldman Sachs Group Inc., Research Division
That makes sense, and if I could just sneak one more last one in. The gypsum industry raised prices significantly by cutting job quotes.
You guys did the same thing in Insulation and you expressed some optimism, but not the sort of loud and proud optimism that the gypsum industry had as a result of this. Are you seeing -- has that really helped prices?
Should we expect closer to 100% conversion on that price increase from April?
Michael H. Thaman
Yes, I think the parallel to the gypsum industry is a good parallel and it can go so far, but it can't fully describe the dynamics of those 2 markets as being the same. Obviously, the gypsum industry went much further down than even what we've seen in our Insulation business.
I mean those businesses have been operating at significantly negative EBITDA, so I think the level of distress potentially on the gypsum side maybe gave them the impetus to be able to go forward with a very strong price increase. And in addition to that, I think there is a lot more job pricing in gypsum than there is on our side of the house.
So I think they had a couple of levers and we're wishing them great success because certainly we think that's a valuable product and they ought to get good prices for their product. We think insulation is a valuable product and we're entitled to get good prices for our product, and it's certainly well below the prices that we've gotten over the course of recent history.
I'd be reluctant to comment on how we think their success would impact our outlook for our price increase.
Operator
Your next question comes from the line of Mike Wood with Macquarie capital.
Mike Wood - Macquarie Research
You'd mentioned that you had difficulty with the mid-single-digit price increase in Insulation. Just curious what's changing and why you're seeing success with the double-digit price increase this quarter.
Michael H. Thaman
What I was referencing to is we had had a January 1 price increase or thereabout that we had announced kind of in the middle of the fourth quarter, which was mid-single digits. And obviously looking at the first quarter results, we didn't, in our disclosure, say that we had achieved an appreciable amount of margin gains or price gains in the quarter.
I think the feedback generally from the market from talking with our customers was that wasn't a large enough level of price increase to give them the ability to pass that price increase through to their customers. And most of our customers are in a fairly difficult financial situation also, so they're not in a position where they can eat a manufacturer's price increase into their margins.
We have to help them take the price increase down channel and give them good justifications so that they have the ability to move pricing in the overall market so that they enjoy some margin gain and we enjoy some margin gain. I think the approach that we had in early January, probably just missed the mark on that, and we came back again therefore earlier in the second quarter with a larger price increase based on some of the thought process that our customers would have shared with us on what they thought might work for them in the market.
We're working very hard to try to help our customers run a successful business and we listen pretty carefully to them.
Mike Wood - Macquarie Research
Got it. And a lot of the building product companies have been getting questions in terms of the impact of weather with the unseasonably warm temperatures in the quarter.
Are you able to measure or discuss any impact that you may have seen on the Roofing side?
Michael H. Thaman
Yes. I mean, I don't think anybody really has a good answer and we obviously cover the housing industry very carefully.
I don't think anyone has a really good answer on how weather impacted housing starts in the first quarter because those are all seasonally adjusted. But if you go and look at some of the markets that weren't -- that typically don't have a big lag in the winter, some of the more southern markets like Texas, the southeast, et cetera, housing starts in the first quarter in some of those markets were pretty good year-over-year.
So if you stay at the seasonally adjusted numbers, it's kind of hard to know how weather impacted it. If you go into some of the regional numbers, you'd see some pretty good regional performance in some regions where weather doesn't typically impact housing activity a lot through the seasons.
On the roofing side, I think Duncan said in his comments that most of our guidance on Roofing this year has been built on market demand declining mid-single digits. Most of that is a decline from the annualization of very strong storm demand in 2011.
We’ve carried some over. With normal storm demand this year, we think we would still be down kind of in that mid-single-digit range in terms of overall market opportunity.
What we've seen in the first quarter related to storm damage that would affect the roofing market is the first quarter, which is typically not a big quarter for storm damage, was probably a bit above average. And so if that were to continue, an above-average level of new storm demand for roofing would likely be an upside to our outlook for the business.
Operator
Your next question comes from the line of Dennis McGill with Zelman & Associates.
Dennis McGill - Zelman & Associates, Research Division
Just the first question, kind of big picture. You guys have emphasized a couple of times that the results were in line with your expectations, and they were clearly short of sell-side expectations and maybe we're just bad at modeling the business on a short-term basis.
But the way the stocks behaved, it's obviously short of buy-side expectations as well and you've had a lot of opportunity to talk with buy siders through the quarter, including the Analyst Day. So just based on how the stocks reacted and kind of comparing expectations, both buy side and sell side to your own, why do you think that disconnect exists?
Michael H. Thaman
Well, I think it is a hard to forecast the business quarterly. I wouldn't tell you that even with all the information we have it's all that easy.
I mean we tend to look at our overall markets. We look at our macros, we look at the overall market opportunity that creates, we look at our market shares and we look at the timing of our costs and our revenues and build our own expectations internally.
I think if you look at last year, Roofing had a very, very strong first quarter and we beat it, so we thought that was pretty good. We said Insulation would narrow losses for the year and in fact in the first quarter we did that with some improving market conditions even though it's seasonally weak, so we thought that was good.
Overall, our adjusted EBIT was down about $18 million and $12 million of that was explained by corporate. So really, the improvement in Insulation and Roofing almost offset what we knew was going to be quite a weak quarter in Composites, and I think I've been pretty clear on this call that the first quarter in Composites was weaker than what we'd expect to see from Composites throughout the course of the year.
We would expect to see some building of performance there. And I think if you look at our overall theme for the year, when we talked on the fourth quarter call, we thought the path to growing adjusted EBIT was really another great year in Roofing and enough improvement in Insulation to overcome what we thought would be some headwind in Composites and some headwind in corporate costs.
And I think, basically, that's what you see in the quarter. You see improvement in Insulation that almost overcame the headwind we have from Composites that we kind of expected this would be the toughest quarter for that to happen because Composites was probably going to have its toughest quarter as it goes through the year.
And that the corporate costs were ultimately going to be the cost that we had to step up and overcome in order to grow adjusted EBIT. With $12 million of growth in corporate in the first quarter, I think that's a little bit above what we would have as the average through the year.
So we saw the quarter come together about the way we expected and when we look down and say, is roofing on track for another great year, the answer is yes, did Composites do about what we expected, the answer is yes, did Insulation move towards narrowing losses, the answer is yes. And unfortunately, did corporate grow, the answer to that is yes, and when you add it all up, in a low profit quarter, you can get pretty big variances on a cents per share basis versus what analyst estimates might be, but we're comfortable with where we are and continue to believe that if we can grow adjusted EBIT this year with Composites kind of going through a bit of a retrenchment mode that with improving market conditions that we really position ourselves beautifully for 2013.
Dennis McGill - Zelman & Associates, Research Division
Just following up on the Insulation comments. If we kind of simplify the year-over-year comparison because we know EcoTouch was a bit of a favorable variance, the story of this business is that it's very well structured and we certainly agree with that, but we keep being disappointed on the margin side.
And the idea is if we can get volume through the business, it will -- the profitability and the quality of the business will start to show through. But if we look just even 2 years ago, revenue was up $30 million versus 1Q10, but profits have basically been the same.
And yet you've structured and you had some cost saves through that process, you've won some business. So just trying to understand big picture, you mentioned mix as being a negative in the quarter, how concerned should we be that in the short term at least the incremental volumes might not all drop down the way we'd like.
Michael H. Thaman
You said a lot in that question, Dennis. I think if we look at the overall structure of the industry, we think it still continues to be a great industry when we look at the demand for the product.
It's a very useful product that will go into new construction in big quantities and goes into other markets. And in fact, based on building codes, we think we'll go into new construction in increasing volumes as building codes come through, which we detailed a bit on our Investor Day.
I'd love to be in a position today that we knew we could get all the margin improvement we'd like to get on the price side. I don't think we've yet said that we can believe we can do that.
So in the near term, we continue to try to improve the pricing of the product while we work the cost side and we work the operating leverage side. I think the first quarter is largely in line with the way we think about the improvement in the business and the way we think about the margin rate for the business.
Dennis McGill - Zelman & Associates, Research Division
Just to clarify just real quickly. How important is negative mix to the story for the rest of the year?
Michael H. Thaman
Well, I think that the least profitable segment of the Insulation -- so the Insulation business which we report externally, the least profitable segment of that is clearly the portion of it which faces U.S. new construction, and U.S.
new construction in fact is the portion of the business that we expect to grow most quickly. However, when we gave our guidance of 50% operating leverage to $100 million of EBIT on one million housing starts, we knew that.
So that's all factored into and included in the way we think about the businesses as it evolves over the next, hopefully, one year if we had any chance to get into one million housing starts by next year. I think, more likely, if you look at consensus forecast, how it evolves over the next kind of 2.5 years, we'd potentially be in, and back to one million housing starts based on NAHB or blue chip by 2014.
Operator
Your final question will come from the line of Stephen Kim with Barclays Capital.
Unknown Analyst
This is John [ph] actually filling in for Steve today. So you took $130 million in unusual charges -- or you guided $130 million in unusual charges and you booked $55 million this quarter.
Do you think that the aggressive restructuring this quarter caused a disruption that we should expect to subside later in the year, just specifically to the adjusted EBIT margin line?
Michael H. Thaman
I'll make a quick comment and then I'll turn it over to Duncan so that he can kind of give more of the forward outlook. It was a difficult quarter for our team over in Europe and I think they did a very, very good job.
Most of those charges and restructuring were associated with Europe. We enjoy generally very good relationships with our work unions and our employees.
But obviously, any time you're working on something like shutting down plants or shutting down assets, it's difficult. We did have some small work stoppages and other things that would have negatively affected our results in the first quarter.
I don't think we called those out because they weren't particularly material. But if you are following Owens Corning kind of at the local market level, you would know that there were some places where we had some disruptions that certainly were in the numbers.
But I wouldn't say that they materially affected the quarter. I think it's more forward looking the actions that we put in place here in the first quarter to try to help improve our outlook for the year.
So Duncan, maybe you can talk a little bit about the forward look on charges.
Duncan J. Palmer
Yes. So just to kind of summarize what we've done, right, we've guided that we expect over the period of 2012 and 2013 that the charges associated with our restructuring actions in Europe will be about $130 million.
I think we said in the fourth quarter call that broadly speaking those would be about half cash, half noncash. We've said in the quarter that we've taken $55 million of charges and we will, therefore, expect that the balance of those charges would show up in the second, third, fourth quarter and into next year.
I think that what we've done in terms of how we present our results, we have taken -- we're taking those charges out of our adjusted EBIT. And therefore, when you look at our adjusted EBIT, those charges taken out, they're not, therefore, affecting the adjusted EBIT margin line.
They will, of course, have an impact as we get benefits from those actions, which we talked about earlier on. That obviously will start falling through to the adjusted EBIT line.
But fundamentally, the charges have been adjusted out and we'd expect to see adjustment therefore in the rest of the year and going into next year relating to those charges. We've also kind of reflected the same thing in terms of adjusted earnings line where pro forma that out to our expected tax rate of 25% to the year on adjusted earnings.
So that's something which the impact of those charges obviously is being factored out through that as well. So that's kind of how they flow through our results.
And as Mike talked about earlier on in terms of the benefit we'll get from those charges that will help us in terms of driving forward towards returning the Composites business to double-digit margins in 2013.
Unknown Analyst
Got it, got it. That's helpful.
Then looking to Roofing, obviously, year-over-year was up pretty strong. Was that all volume or was that a combination of volume and the -- was it 3 pricing actions you took last year?
Michael H. Thaman
Yes. In the first quarter, the performance of the Roofing business was largely driven by volume.
So we saw price through the second half of last year, but we reported today that prices in the first quarter were really flat with about where they were this quarter last year. So some of the buy activities and other things that we saw in the first quarter have caused that price to kind of revert back to about where we were a year ago.
We did not have much in the way of price activity or pricing actions from Owens Corning in the first quarter. Our price actions were early second quarter, so we do expect that the price actions we've taken will have some benefit in terms of improving our margins and overcoming the asphalt inflation we did see in the first quarter.
Unknown Analyst
Got it. Then just on the margin, could you quantify the headwind that was experienced due to asphalt?
Michael H. Thaman
Yes. We don't break that out separately.
I mean, I think if you look at the overall revenue growth in the business and then the EBIT growth in the business, obviously, the EBIT growth in the business was below the average margin rate if you just look at the marginal numbers. So the marginal growth did not produce as many dollars of EBIT as the overall average EBIT of the business.
I think that's largely attributable to asphalt inflation.
Thierry Denis
Okay. Well, very good.
Thank you, everybody, for joining us on today's call. With that, I'd like to turn it over to Mike with a few closing comments.
Michael H. Thaman
Sure. Thank you, Thierry.
First of all, we appreciate everyone for dialing in and their ongoing interest in our company. We spent time on today's call, I think, first talking a bit about our macro environment.
We do think that there's a good market environment for the company this year. It's well below the long-term potential we see for our markets, but we did report today that we feel comfortable that global industrial production, the recovery in the U.S.
housing market where we see reroof demand, where we see storm demand, while a lot of those macros have a lot of uncertainty in them, certainly, what we've seen in the first 100 days of the year has given us some confidence that we are going to have nice opportunity in 2012 to produce great results as a company. Our story for the year when we talked about the year in the fourth quarter was that we thought we would significantly narrow losses in Insulation, Roofing would produce another very strong year financially, that Composites would have a great year from a cash flow perspective, but would have some challenges on the earnings side and that the strength of our portfolio would come together to produce a year of some growth in adjusted EBIT and very strong cash flows.
When we look at the first quarter, we think we're clearly on track with that game plan. Insulation did narrow its losses for the quarter and positioned itself well for an improving market.
Roofing had another outstanding quarter with great top line growth and significant improvements in its EBIT and also we are quite confident, I think, on today's call regarding the pricing outlook and our ability to recover inflation in that business. And we believe Composites executed and got done a lot of very important actions in the first quarter that positioned the business as we work our way through 2012 for ongoing improvement in the business heading into 2013 outlook of double-digit operating margins.
We continue to feel great about the portfolio of businesses that we operate. We think our execution is good.
We obviously have a lot of work to do. We think we can produce great value for our shareholders in the near term and certainly are excited about the prospects for the company as we look to the midterm of improving markets and $1 billion of EBITDA and 1 million housing starts.
We look forward to talking to you again on the second quarter call, and appreciate your interest in our company. Thanks.
Operator
Thank you for your participation in today's conference. This concludes the presentation.
You may now disconnect your lines. Good day.