Owens Corning - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered durable growth and margins: Net sales from continuing operations rose 25% to $2.53B, driven by the new Doors segment ($540M), with adjusted EBITDA margin of 22%—the 19th consecutive quarter at 20%+; adjusted EPS was $2.97. Versus S&P Global consensus, OC posted small beats on revenue (+$15.6M) and EPS (+$0.10)*.
• Guidance: For Q2 2025, management expects high-single-digit revenue growth YoY and enterprise adjusted EBITDA margin in the low-to-mid 20% range; tariff headwinds are mitigated to a net ~$10M impact in Q2 (mostly Doors).
• Segment mix: Roofing EBITDA margin remained strong at 30% (maintenance/Medina startup costs weigh near term), Insulation expanded to 25% EBITDA margin despite lower volume, and Doors posted 13% EBITDA margin with synergy ramp offset by tariffs.
• FY25 financial outlook maintained: Corporate EBITDA expenses $240–$260M, interest expense $250–$260M, ETR 24–26%, Capex ~$800M, D&A ~$650M—unchanged vs February guidance.
• Potential stock catalysts: demonstrated beat-and-raise credibility (small beats with resilient margins), clear mitigation of tariff risks, and Investor Day updates—raised long-term margin targets (enterprise mid-20% adj. EBITDA; Roofing 30%; Insulation 24%; Doors 18–20% with $200M synergies) plus new 12M-share buyback authorization.

What Went Well and What Went Wrong

• What Went Well

  • Margin durability: 22% adjusted EBITDA margin (19th straight quarter at or above 20%) despite mixed markets and inflation; adjusted EPS of $2.97. CEO: “durability of our earnings… the power of the enterprise to outperform in any operating environment”.
  • Insulation execution: EBITDA margin expanded to 25% on positive price/cost and favorable manufacturing costs, even with revenue down 5% YoY. CFO: “Insulation delivered EBITDA margins of 25%… favorable manufacturing costs”.
  • Doors integration: $68M EBITDA (13% margin) with synergy progress; management on track to exceed the $125M enterprise synergy commitment and sees further network optimization upside.

• What Went Wrong

  • Roofing cost headwinds: Roofing EBITDA margin slipped 100 bps YoY to 30% on higher maintenance and Medina startup costs (Q1 ~$19M manufacturing cost headwind expected to persist near term).
  • Working capital seasonality and Capex: Operating cash outflow ($49M) and FCF outflow ($252M) reflected seasonal working capital and higher capital additions ($203M).
  • Tariffs: While net Q2 impact is mitigated to ~$10M, management still expects a step-up in 2H25 net tariff exposure to ~1%–2% of COGS under current policies (Doors most exposed due to cross-border finished goods).

Transcript

Operator (participant)

Hello everyone, and welcome to Owens Corning's first quarter 2025 earnings call. My name's Lydia, and I'll be your operator today. After the prepared remarks, there'll be an opportunity to ask questions. If you'd like to participate in the Q&A, you can do so by pressing star followed by one on your telephone keypad. We ask that you please limit this to one question to give everyone the opportunity to take part. I'll now hand you over to Amber Wohlfarth, Vice President of Corporate Affairs and Investor Relations, to begin. Please go ahead.

Amber Wohlfarth (VP of Corporate Affairs and Investor Relations)

Good morning. Thank you for taking the time to join us for today's conference call and review of our business results for the first quarter of 2025. Joining us today are Brian Chambers, Owens Corning's Chair and Chief Executive Officer, and Todd Fister, our Chief Financial Officer. Following our presentation this morning, we will open this one-hour call to your questions. In order to accommodate as many call participants as possible, please limit yourselves to one question only. Earlier this morning, we issued a news release and filed a 10-Q that detailed our financial results for the first quarter 2025. For the purposes of our discussion today, we have prepared presentation slides summarizing our performance and results, and we'll refer to these slides during this 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 homepage. A transcript and recording of this call and the supporting slides will be available on our website for future reference. Please reference slide two, where we offer a few reminders. First, today's remarks will include forward-looking statements that 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 more detail. Second, the presentation slides and today's remarks contain non-GAAP financial measures. Explanations and reconciliations of non-GAAP to GAAP measures may be found in our earnings press release and presentation available on the investors' section of our website, owenscorning.com.

Third, financials and metrics for current and historical periods discussed on this call will be for continuing operations, except for capital expenditures and cash flow measures, which include amounts related to glass reinforcements until the closing and the sale of the business. For those of you following along with our slide presentation, we will begin on slide four. Now, opening remarks from our Chair and CEO, Brian Chambers. Brian?

Brian Chambers (Chair and CEO)

Thanks, Amber. Good morning, everyone, and thank you for joining us today. During our call, I will provide an update on our overall performance in the first quarter, including some color on the operating environment we are navigating, as well as the progress we are making on our strategic priorities and the actions being taken to position us for future success. Todd will then provide a more detailed review of our quarterly performance, and then I'll come back and discuss our outlook for Q2. Our team delivered another strong quarter to start the year, demonstrating the durability of our earnings and the power of the enterprise to outperform in any operating environment.

Our results continue to reflect the positive impact of the structural changes we have made to focus Owens Corning in high-value building product categories, where we can build market-leading positions through our unique commercial capabilities and disciplined operational execution. As always, underpinning our performance is our ongoing focus on the safety of our people. Our team's commitment to working safely resulted in a recordable incident rate for the first quarter of 0.54, which is 80% lower than the manufacturing industry average. Our enterprise safety results now include our doors business, which has been on a journey of continuous safety improvement. I'm pleased with how quickly our doors team has integrated the OC Safer Together operating framework to build on a strong safety culture. Turning to other first-quarter performance highlights, we delivered revenue of $2.5 billion, an increase of 25% year-over-year compared to the prior year's revenue of $2 billion.

Adjusted EBITDA in the first quarter totaled $565 million, for an adjusted EBITDA margin of 22%. This marks our 19th consecutive quarter of delivering adjusted EBITDA margins above 20%, as we continue our track record of sustaining strong and resilient margins in any operating environment. We also remain focused on our operating cash flow, delivering results in the quarter consistent with the seasonality we historically see to start the year. Given the cash-generative power of each of our businesses through the year, we continue to fund high-return organic investments. These phased investments in our roofing and insulation businesses, coming online over the next three years, will add needed capacity to support our long-term growth, as well as provide network flexibility with improved cost positions. In addition to these strategic investments, we return significant cash to shareholders through our dividend and share repurchases.

Looking to the broader building products market in North America and Europe, we entered 2025 with a mixed environment. Overall demand for repair and remodel has remained challenged, with the exception of non-discretionary re-roof activity, which has remained solid. New residential construction, which accounts for about a quarter of our enterprise revenue, started the year slower as interest rates remained elevated. Finally, our non-residential markets, which account for about 20% of our business, remained fairly stable overall. Like all companies, we continue to evaluate and adjust to the impact of tariffs on our business. Given the localized nature of our production to meet demand, and the fact that our products are USMCA compliant, we would expect to see modest direct impact from current tariffs. The impact of future tariffs, however, and the potential impact on North America and European economies remains uncertain.

Todd will provide additional information on potential impacts on our financial results and the mitigation actions we are implementing. Against this backdrop, our first quarter results once again demonstrated the strength of our businesses and resiliency of our earnings. As we move through the year, we will remain focused on the areas we can control: our customer share positions, our operating costs, and our capital allocation. Regarding our longer-term organic investments to strengthen our market-leading positions, we continue to make good progress on all fronts. In roofing, we are on track to start up our laminate shingle production line in Medina, Ohio, at the end of the second quarter to provide needed capacity to service our contractors and distributors. We are narrowing our site selection for our new shingle manufacturing plant in the southeastern U.S.

Both of these investments complement our broader effort to enhance needed roofing capacity with a winning cost position as we further modernize our U.S. roofing manufacturing network. In insulation, we also made good progress on our major investments to meet residential and commercial customer needs, as we look to strengthen our flexible, cost-effective fiberglass network with a new line in Kansas City, expand our Formular XBS capabilities with our new facility in Arkansas, and improve our mineral wool manufacturing efficiency and capability by converting our plant in Sweden from coal-fired furnaces to electric melting. Indoors, we are actively driving margin improvement in the near term through our integration efforts, which are on track to exceed $125 million in cost synergies, as we position the business for future growth by applying the broad Owens Corning playbook.

In addition to these growth investments, progress on our two strategic divestitures continues to track in line with our expectation to close both transactions later this year. The sale of glass reinforcements and our building materials business in China and Korea allow us to streamline our operations and focus on geographies and applications where we can build market-leading positions. The combination of these growth investments and strategic divestitures shows how we're reshaping the company into a branded building products leader and operating as a new Owens Corning, driving higher, more consistent returns and long-term value creation. Overall, our company is well-positioned for future growth and performance, supported by key secular trends, including the age of existing U.S. housing stock and the significant amount of homeowner equity, the need for heightened investment in new housing capacity, and the continued strength in U.S. commercial construction applications and market opportunities emerging in Europe.

In summary, our strategic investments and decisions, combined with our disciplined operational execution, create multiple paths to drive organic growth, deliver 20% or more adjusted EBITDA margins, and generate significant cash flow and strong returns. Before I close, I'd like to highlight a few other important recognitions. Last week, we announced the promotion of Rochelle Marcon to President of our doors business. Most recently, she led our glass nonwovens business, which has delivered significant revenue and earnings growth for the company. We are excited to bring Rochelle's leadership capabilities and operational experiences to our doors business. In addition, this quarter, we published our 19th annual sustainability report that highlights our efforts to keep employees safe, reduce greenhouse gas emissions and waste to landfill, and advance our portfolio of products that help customers save energy and lower emissions.

I'm also proud to share that Owens Corning was once again recognized by Barron's as one of the 100 most sustainable companies in the U.S., ranking fourth on the annual list and showcasing the strength of our iconic brand and commitment to sustainable growth. Finally, I would like to remind everyone that we will host our 2025 Investor Day on May 14th at our world headquarters in Toledo, Ohio. Todd, myself, and other senior leaders look forward to sharing more about our vision, strategy, and longer-term financial goals for the new Owens Corning. With that, I'll turn it over to Todd.

Todd Fister (CFO)

Thank you, Brian, and good morning, everyone. As Brian mentioned, we had a strong start to the year. Our performance in the quarter demonstrates the strength of the enterprise as we sustain higher and more resilient earnings in mixed markets. I'd now like to turn to slide five to discuss the results for the quarter. As a reminder, these results are for continuing operations. We started the year with revenue growth of 25% driven by the addition of our doors business. Adjusted EBITDA was $565 million, up 10% from prior year, and adjusted EBITDA margin was 22%. Adjusted earnings per diluted share for the first quarter were $2.97. In the quarter, adjusting items did not materially impact EBITDA.

Turning to slide six and moving on to our cash generation and capital deployment during Q1, free cash flow for the quarter was a net outflow of $252 million, driven by the timing of working capital from seasonality in the business and by capital additions. Capital additions for the quarter were $203 million, up $51 million from the same quarter prior year. At quarter end, the company had liquidity of $1.9 billion, consisting of approximately $400 million of cash and $1.5 billion of availability at our bank debt facility. In Q1, we established a commercial paper program and completed issuance of $500 million of short-term notes. During the first quarter, we returned $159 million to shareholders through share repurchases and dividends. We repurchased common stock for $100 million and paid a cash dividend totaling $59 million. In February, the board declared a cash dividend of $0.69 per share.

Our commitment to our capital allocation strategy remains focused on generating strong free cash flow, returning approximately 50% to investors over time, and maintaining an investment-grade balance sheet, all while executing on our business strategies to grow the company. Now, turning to slide seven, I'll provide additional details in our segment results. As a reminder, the roofing segment now includes our vertically integrated glass nonwovens business and our structural lumber business. Additionally, the two glass fiber plants that supply nonwovens and external customers now operate in the insulation segment. The roofing business started the year delivering a great first quarter as demand for our shingles remained strong. Sales in the quarter were $1.1 billion, up 2% from prior year on a like-for-like basis. Positive price realization from previous announcements and strong demand for our nonwovens products more than offset the impact of lower components volumes due to normalized attachment rates.

We expect Q1 to be the last quarter of a negative year-over-year comp from attachment rates. The U.S. asphalt shingle market, on a volume basis, was down slightly compared to the prior year. Lower demand in areas of the country impacted by winter weather was largely offset by growth in the southeast. Our U.S. shingle volume was in line with the market. EBITDA was $332 million for the quarter, down slightly versus prior year. We saw higher manufacturing costs as we continued to invest in our assets to meet the high level of demand for our products and absorb the cost of maintenance. We also saw modest cost inflation. Overall, for the quarter, we delivered EBITDA margins of 30%. Now, please turn to slide eight for a summary of our insulation business.

The insulation business started the year strong, expanding margins and delivering its 16th consecutive quarter of 20+% EBITDA margins. Q1 revenues were $909 million, a 5% decrease from Q1 last year. In North America residential, volume was down due to market uncertainty tied to the broader U.S. macro environment. During the quarter, we continued to realize positive price from our mid-2024 increase. In North America nonresidential, volume was down, in line with the market. In Europe, volume was relatively in line with prior year as we have continued to see market stabilization. These businesses both recognized positive price in the quarter. Insulation EBITDA for the first quarter was $225 million, up slightly compared to prior year. Strong operational performance in the quarter resulted in favorable manufacturing cost. As expected, we incurred input cost inflation but maintained a positive price cost for the business overall.

Insulation delivered EBITDA margins of 25% in the first quarter. Moving to slide nine, I'll provide an overview of the doors business. Overall, the business performed well in a challenging market. In the quarter, the business generated revenue of $540 million, in line with the outlook we provided on our last call. Revenue was down modestly from Q4, primarily on lower volume in North America and Europe. EBITDA for the quarter was $68 million, with EBITDA margins of 13%. The integration is progressing very well. When we closed on the acquisition, we had line of sight to delivering $125 million of enterprise synergies by the end of year two, with about half hitting the doors business. We are on track to exceed the enterprise commitment and will share more at our upcoming Investor Day. Overall, for the company, there was minimal impact from tariffs on our financial results in Q1.

Our sourcing and supply chain teams responded immediately to the tariff announcements and focused on negotiating with our suppliers, shifting sources of supply, and purchasing additional inventory ahead of tariffs. As a result, we expect to reduce the approximately $50 million gross tariff exposure in the second quarter to a net impact of around $10 million, primarily in the doors business. This impact is included in the outlook Brian will share in a moment. Owens Corning is well-positioned to address rising tariffs with our primarily local-for-local manufacturing and U.S. MCA-compliant product portfolio, but we would expect a step-up in net tariff exposure in the second half of 2025. The net impact of tariffs in the second half of the year could be in the range of 1%-2% of cost of goods sold, assuming current tariff policies.

Moving on to slide ten, I will discuss our full-year 2025 outlook for key financial items. General corporate EBITDA expenses are expected to range from $240 million-$260 million. This year-over-year increase includes our best view of expenses for the glass reinforcements business that will not be included in discontinued operations. As a reminder, our corporate eliminations changed with the resegmentation. The $39 million in revenue eliminations we saw in Q1 should serve as a good proxy for the remainder of the year. Capital additions are expected to be approximately $800 million. This level of capital investment reflects the strategic investments Brian mentioned in his opening. We have several multi-year organic investments to bring on new manufacturing capacity and drive long-term growth. This CapEx continues to include glass reinforcements.

We expect CapEx to remain elevated in the near term as we work towards completing the high-return, capital-efficient projects we've discussed on this call. Now, please turn to slide 11, and I'll turn the call back to Brian to further discuss our outlook. Brian?

Brian Chambers (Chair and CEO)

Thank you, Todd. Our first quarter results highlight the impact of the structural changes and strategic choices we have made to generate higher, more resilient earnings within very dynamic markets. As we move through Q2, we expect our building products and markets in North America and Europe to provide solid but mixed opportunities. In North America, we expect near-term demand for non-discretionary re-roof activity to remain solid, while residential new construction and other remodeling activity is expected to remain weaker through the first half of the year as interest rates remain elevated and consumers remain cautious. With non-residential construction in North America, we are starting to see some market headwinds emerge, but in Europe, we expect market conditions to gradually improve throughout the year. Given this near-term outlook, we anticipate second quarter revenue for continuing operations to grow high single digits compared to prior year's revenue of $2.5 billion.

For adjusted EBITDA, we expect to deliver another strong quarter with margins in the low to mid-20% range for the enterprise. Now, consistent with prior calls, I'll provide a more detailed business-specific outlook for the second quarter. Earlier this week, we provided updated historical financials that reflect the resegmentation by quarter for 2024, which serves as the baseline for the year-over-year changes I will discuss. Starting with our roofing business, we anticipate revenue growth of low single digits. While demand for shingles remains solid as we enter peak roofing season, we expect armor market shipments to decline by low to mid-single digits compared to prior year due primarily to more normalized storm demand. We expect our shingle volumes to track largely in line with the market. We anticipate normalized attachment rates and components, with growth in nonwovens to partially offset lower shingle volumes.

Compared to Q2 of last year, we expect higher manufacturing costs as we invest in our assets to continue to meet the high level of demand for our products and absorb the necessary maintenance costs. We also anticipate moderate cost inflation during the quarter. For the business, we expect positive price from our previous announcements to drive year-over-year top-line growth and positive price cost. Overall, for roofing, we expect to generate an EBITDA margin slightly below prior year. Moving on to our insulation business, we anticipate revenue to decline mid-single digits compared to the prior year, with ongoing price realization slightly offsetting lower volumes and currency headwinds. In our North American residential insulation business, we expect revenue to be down low to mid-teens versus prior year due to lower demand as we work through a step-down in light housing starts and customers adjust to ongoing market uncertainty.

For North American nonresidential, we expect revenue to remain relatively in line with prior year, driven by steady demand for our products. In Europe, we anticipate revenue to be similar to prior year. Overall, for the insulation business this quarter, we expect cost inflation to be offset by positive pricing. Given all this, we expect EBITDA margin for insulation near the mid-20% range. Turning to our doors business, we continue to perform well relative to market conditions and expect Q2 revenue to increase low single digits sequentially, driven by slightly stronger seasonal demand. Additionally, we anticipate ongoing synergies and cost controls to largely offset the impact of announced tariffs. In the near term, doors faces the most tariff exposure due to cross-border product moves into Canada, which we are actively working to mitigate.

Overall, for doors, we expect EBITDA margin in the low double digits to low teens for the quarter, similar to Q1. As Todd mentioned, another factor that could impact our enterprise results in Q2 is the implementation of additional tariffs. While most of our products are made with local materials and sold in local markets, our integrated supply chain spans Canada, Mexico, and the U.S., which could result in additional cost. We will continue to look for opportunities to mitigate the impact of tariffs as they unfold. In summary, our team continued to deliver strong results in the first quarter within a very dynamic market environment. As we progress through the year, we will remain focused on delivering value to our customers and shareholders as we invest to further strengthen Owens Corning as a building products leader.

We are well-positioned to capitalize on key secular trends that provide significant long-term growth opportunities for our company. Although we anticipate mixed near-term market conditions, we are confident in our ability to continue outperforming the market. With that, we would like to open the call up for questions.

Operator (participant)

Thank you. Please press star followed by the number one if you'd like to ask a question, and ensure your devices are muted locally when it's your turn to speak. A kind reminder to please limit yourself to one question only. Our first question today comes from Michael Rehaut with JPMorgan. Please go ahead. Your line is open.

Michael Rehaut (Analyst)

Thanks. Good morning, everyone. Thanks for taking my questions. I wanted to start off, I think there's some concern in the marketplace with some of the scheduled capacity additions in the insulation sector over the next year to two years. I was hoping if you could kind of review not just your plans, but maybe more broadly the industry as you see it today, particularly as, at least for the last few years, single-family starts have been relatively steady, not showing too much growth, and the near term, you could argue, is still somewhat uncertain from a macro standpoint.

Todd Fister (CFO)

Good morning, Mike. This is Todd. I appreciate the question. Let me start with a little bit of context about where we're at overall with capacity. We clearly have seen the Knauf line in McGregor, Texas, come online, and we're seeing that capacity even now in the market. We have seen other competitors announce capacity that will come online in future years. It is important in insulation to differentiate between capacity that produces batts and rolls and capacity that produces loose fill. Batt and roll capacity is what analysts typically think of when they think of insulation capacity. These tend to be larger assets. They tend to be assets that you run consistently. You can't turn them on and off frequently. Loose fill assets are very different. Loose fill assets, you can turn on and off as needed to meet market demand.

We've said historically we thought the insulation industry could support a market between 1.4 million and 1.5 million starts, depending on single-family mix, depending on codes growth, depending on other factors. We also know that over time, consistently, codes growth has driven greater volume per unit for residential housing, increasing demand. The third thing we know is that housing in the U.S. has been underbuilt now for well over a decade. Long term, we do see a rising need for insulation materials. In the short run, the market will bounce around. We do know this is an industry that has a wide range of cost structures. Some assets are very cost-effective. Other assets are less cost-effective. We, and presumably other manufacturers, continue to work through how they balance capacity to supply in any market condition that we're in.

Long term, we continue to see North America housing as being underbuilt and the secular demand for insulation to be good and provide support for incremental capacity additions. Thank you, Mike.

Operator (participant)

Our next question comes from John Lovallo with UBS. Please go ahead.

John Lovallo (Analyst)

Good morning, guys. Thanks for taking my question. Sticking on the insulation side, if North American residential insulation revenue is expected to be down low to mid-teens in the second quarter, I mean, how are you thinking about fiberglass insulation pricing? Is that going to be down year over year?

Todd Fister (CFO)

Thank you, John. This is Todd. I'll take that one as well. When you look at the shape of pricing last year and this year, we did have a mid-year increase in 2024 that got good traction for residential insulation. That drove pricing in the back half of last year, but then also into the first half of this year as we have a good year-on-year comp. We're certainly watching market dynamics very closely in res to make sure we're staying on top of share positions and where we're placed. Certainly, in the second half, we still benefit from that favorable year-on-year comp. When we got the price increase last year, you have certainly seen analyst reports that suggest limited uptake on the 2025 increase. That's certainly consistent with what we're seeing in the market.

As you saw in the first quarter, we did have positive price. Even in the second quarter, we are guiding overall for positive price in the insulation segment. Thank you, John.

Operator (participant)

Next, thank you. We have Stephen Kim with Evercore ISI. Please go ahead.

Atif Shan (Analyst)

Hi, this is Atif Shan for Steve. Thanks for taking the question. I just want to touch on some of the tariff exposures that you spoke to, specifically what mitigation efforts will be used to kind of offset the impact in Q2 and in the back half. That's mostly pricing. I don't know if you could expand on that a little bit. That would be helpful.

Todd Fister (CFO)

Thanks, Atif. I'll take that one as well. Let me go back to what we shared on the last call on tariffs and then bring it forward to the guidance and then the mitigation actions. In the last call, we shared that we thought less than 5% of our total cost could be impacted by tariffs. We also said it would disproportionately impact our doors business with about two-thirds of the impact and then insulation with about one-third of the impact with little net impact on roofing. Since then, we've seen a couple of things move around, as Brian shared in his prepared comments. We've got a lot of goods movement that occurs between the U.S., Canada, and Mexico. The good news is our products are largely USMCA compliant, so those tariffs are no longer impacting us.

We also, though, saw higher tariffs on Chinese imports, which are now around 145%, which is higher than what we knew of on the last call. When we look at the shape of the quarters and the impact in our mitigation efforts, we saw very little impact in the first quarter from tariffs in the results that we just shared. In the second quarter, we expect to see $50 million of gross tariff impact. When we look at all the mitigation steps that we've taken, and I'll explain on that in a minute, the net impact is down to about $10 million. That's mostly in the doors business. Now, what did we do to go from $50 million of gross to $10 million of net exposure? Our sourcing and supply chain teams stepped in immediately on the announcement of the tariffs to do a few things.

Where we could, we positioned inventory in the U.S. in advance of the tariffs taking effect. You do see a bit more cash use in the first quarter than we typically have as a result of us building inventory to make sure we're well-positioned in advance of the tariffs. We also, though, did other things. We worked with our suppliers where possible to reduce the impact of tariffs on us. We're also seeking sources of supply outside of China. Obviously, with China at 145% tariffs, that's a big number on anything we're importing from China. We're doing what we can to offset that. With all of those moves, some of which are longer-term, the work we're doing to move supply out of China, the work that we're doing in negotiation with our suppliers, that tends to be longer-term.

The work to position inventory in advance of tariffs is clearly short-term. When we guided the back half of the year, we talked about the net exposure from tariffs under current policies ranging between 1% and 2% of cost of goods sold. You could think of the high end of that range, the 2% number, as being our current mitigation plans tracking into the back half of the year. You could think of 1% as being we do additional mitigation steps. Everything I described, as well as working in Canada to address some of the reciprocal tariffs that we're still facing in our doors business, and looking very closely at our own supply chain and product portfolio to make sure we mitigate tariff exposure. We're looking at all of that to try to offset as much of the gross tariff exposure as we can in the back half.

Those are plans in progress, which is why we guided that 1%-2% range. Clearly, it is a dynamic environment. Tariffs could move before the next time we connect on our next call. Our teams have proven over the last five years through very dynamic market conditions, whether it is COVID, whether it is supply chain challenges, whether it is inflation, whether it is now the tariff scenario, that we react very quickly to address this. Brian and I are both very proud of what our teams are doing in this environment to deliver the lowest cost we can. Thank you.

Operator (participant)

Our next question, it comes from Brian Biros with Thompson Research. Your line's open. Please go ahead.

Brian Biros (Analyst)

Hey, good morning. Thank you for taking my question. How are you thinking about balancing taking market share versus defending margins in the current environment of rising prices and trying to pass on price increases into the challenging market conditions that are out there? Thank you.

Brian Chambers (Chair and CEO)

Yeah, thanks, Brian. I think we continue to operate with the same playbook in terms of how we always balance price and share. We want to invest in the items that can bring value for our customers and help them win and grow in the market. We make investments in innovation and marketing tools, our brand, our commercial teams, all that helps them grow their businesses that results in a value that then we can charge for our products into the market. We continue to be value-focused in terms of bringing more to our customers that they want to partner with us and do more business with us. When we come into environments that we start to see demand challenges or we start to see pricing pressures, we clearly are going to want to retain and maintain our competitiveness in the market.

Most of our product categories, we are able to maintain some price premiums relative to that value we bring over other manufacturers. We look to maintain that. We are going to be competitive in the market to the market dynamics we're facing. We continue to work the value side with our customers, and we continue to work the cost side internally to make sure we're optimizing our network, we're sourcing in the best way, and we are being the most efficient with a winning cost position that allows us to flex our pricing and still maintain high and sustainably strong margins for each of the businesses we operate in. That's generally been our philosophy in all economic conditions, and that's one we certainly are going to continue in the playbook.

We're going to continue to run in the market conditions we're facing here in the near term.

Operator (participant)

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

Matthew Bouley (Analyst)

Hey, good morning, everyone. Thank you for taking the question. I wanted to follow up on the insulation capacity side in the context that you guys in the past have been really disciplined and, I would say, flexible around capacity. It's not easy to do, but you both opened and closed capacity where it's right to do so over the years. I wanted to kind of press on your thoughts around being flexible with capacity decisions here. I guess not knowing how your competitors may act, but I guess at what point would you make a decision to adjust your capacity investments, or are there other higher-cost facilities in the network today or lines where you could be more flexible? Really what I'm asking is kind of what is the risk of the industry becoming over-capacitized for a period? Thank you.

Todd Fister (CFO)

Thanks, Matt. I appreciate the question. Let me add a bit more color here. Let me step back and say we've made a number of operating choices and strategic choices in the insulation business over the last five years to position our business for exactly market conditions like these. We've created a business that can do well whether housing starts are at 1.5, 1.4, 1.3, 1.2 based on the moves that we've made, which includes the work to build a more flexible network, including the exit of our Santa Clara facility and the addition of a much more flexible facility in Nephi to support the West Coast. We believe we're well-positioned to deal with a market like this. We're also entering this market environment with low inventories. We've been largely in sold-out conditions in our insulation business for an extended period of time.

We're in a position where we would seek to rebuild our inventories to better serve our customers going forward. This market condition allows us actually to do that. That positions us better for both customer service and future growth coming out of this. We're always very disciplined about understanding the market, understanding our inventory levels, understanding how we want to be positioned. As I alluded to earlier, we continue to have high-cost and low-cost assets within our network. In markets like this, there's always opportunities to make sure low-cost assets continue to operate and produce. We mix manage on the cost side to have the most cost-effective network that we can. That's our plan going forward. What I would say is certainly we're in two quarters now of relatively weak leg starts.

This also is a market that can change quickly as we think about the future. We want to make sure we're well-positioned not just for today, but to serve our customers very well in what could be a strengthening market in future quarters. Thank you.

Operator (participant)

Our next question comes from Sam Reid with Wells Fargo. Please go ahead.

Sam Reid (Analyst)

Awesome. Thanks so much. I actually wanted to drill down a little bit on insulation just to keep on that topic. Could you disaggregate the pricing that's embedded in your guidance for Q2, specifically between resi insulation and commercial and market insulation? It sounds like overall price is going to be positive based on what you're telling us. Are there any deviations between expected pricing on the resi side versus the non-resi side that we should be contemplating here? Thanks.

Todd Fister (CFO)

Thanks. I appreciate the question Reid. I'll add a bit more color on our Q2 outlook. Let me start with our non-res in Europe piece of the business, which actually now is the majority of our business in insulation. We're seeing good pricing dynamics in both of those markets. We've talked about the improving conditions in Europe. Certainly starting with the Ukraine conflict, Europe has been a relatively weak market overall for insulation. We're seeing green shoots in market for volume growth. Europe has a lot of pent-up demand for both new construction as well as repair and remodel and ultimately reconstruction in Ukraine that all should be constructive in terms of future volume trends for Europe. We're also seeing a good price environment for our products in Europe. The same thing is true in non-res for North America. We're seeing a good backdrop for our products.

It certainly is an inconsistent market in North America. There are pockets of real strength in manufacturing, partially as a result of onshoring, but also in sectors like data centers that continue to be robust. Both of those sectors use a lot of our insulation, not just for the buildings, but also for the process technologies that occur within those structures. There are pockets of weakness also in res around retail and some other areas of commercial and healthcare. Within that backdrop, we're still seeing positive price in non-res for North America in a constructive price environment. Within res, as I shared earlier, we are seeing carryover price from the mid-year increase. Now, some of that is the comp. We do have an easier comp against Q1 and Q2 last year where we don't have a price increase in that number.

The comp gets harder as we get into Q3, Q4 when we start to lap that increase. We did not see a lot of traction on the 2025 price increase that was in market. We are not guiding to Q3, Q4 today. Certainly, we are considering that as we look at the back half of the year. We are following starts and leg starts very closely to understand pricing dynamics in the res market.

Operator (participant)

The next question comes from Philip Ng with Jefferies. Your line's open.

Philip Ng (Managing Director)

Hey, guys. Question for Brian. I mean, a lot of focus on insulation and doors. Give us an update on what you're seeing on the roofing side. It sounds like demand's pretty resilient there. Give us some color on the carryover storm demand and any storm activity this year. You got a price increase out there for roofing for spring. You see any traction on that? Just lastly, on the Medina ramp, how should we think about that impact, whether it's a demand sample or any headwinds from a startup cost standpoint? Sorry, a lot to unpack here for sure.

Brian Chambers (Chair and CEO)

All right, Phil. Thanks. Let me take them kind of one at a time. To start just with the overall roofing market, we continue to see very good demand in the business, started with the first quarter in our guide in Q2, even down a little, but this is down off of very strong market conditions in the first half of last year. Overall, a very good demand environment for our roofing business. I think this really highlights the non-discretionary nature of this business when you look at the repair and re-roof activity that is still being needed out there and the work that's still being done. Overall, good demand. We think that continues into Q2 here.

Around storm volumes, if I kind of break that out, we talked on the last quarter's call that we were coming into the year with a little less carryover than the prior year, but still good carryover from some of the storms that were taking place in the back half of last year. We saw some of that materialize in terms of stronger demand in Florida and North Carolina as they continue to do that storm repair work. We think a lot of that gets done here through the second quarter. A little bit of that carries over into Q3. When we think about Q2 now in terms of overall opportunity and in terms of the market, we think repair work that's ongoing is strong. Contractor backlogs are still pretty strong in most parts of the country. That underlying repair and re-roof business is staying pretty solid.

For storm demand into Q2, we're just kind of coming into the season, but we've seen a pickup in some activity here over the last few weeks. A big part of our guide when we say Q2 could be down low to mid-single digits is really going to depend on how the storm season materializes. Q2, Q3 is where we see the bulk of the storms coming through the U.S. market. We're assuming in our guide a more normalized kind of Q2 storm environment. That could change and fluctuate here over the next four or five weeks, depending on how hail season materializes and any other kind of storm damage we see. I think we're set up relatively well in terms of how we're positioned in the market.

For price realization, given that market demand and given the strength of our contractor engagement model, we announced an April increase. We're seeing good realization of that to start the quarter. We would expect that to continue as we carry on into Q3 and into the back half of the year. Lastly, on Medina, this is one we're really excited to be bringing up this new capacity. The laminate growth we've seen in the market and the laminate growth we've seen inside our business over the last few years has exceeded our ability to even continue to optimize and expand capacity on our existing network. This will be a new laminate line that we're going to be starting up at the end of the second quarter.

We're excited to bring that capacity online here starting kind of Q3 and really ramping up through Q3 and Q4 to service our customers with additional lamp products. Part of the operating cost and some of the manufacturing costs that are a little higher as we came into the year, we talked about this as well on last quarter's call, that we did expect to see a step up in some of the manufacturing costs in the business. Really set up in two buckets. One was ongoing maintenance of existing assets that we just continue to run our assets full out. We've needed to just take some downtime here in the first half of the year to make needed just updates and modernizations and service that equipment. The second part of it is going to be tied to some startup of some new assets.

Medina is one of them. That is going to create a little bit of a manufacturing cost headwind here in Q2, probably spill over into Q3 as we start that lineup. The teams have done great work to bring that asset in line. We are on track to start that up at the end of the quarter. We are excited to bring some needed capacity into the market.

Operator (participant)

Our next question today comes from Mike Dahl with RBC Capital Markets. Your line's open.

Mike Dahl (Analyst)

Morning. Thanks for taking my question. I guess I'll stick with roofing, but maybe broaden that a little bit. Can we talk about non-tariff related costs on the input side? Obviously, it still seems like you're absorbing some higher costs maybe in Q2, but you've seen a big decline in oil. You've seen some pullback in natural gas. Walk us through the timeline and magnitude of how that may impact roofing and then in your insulation business, maybe how the pullback in natural gas would impact you as we look out over the next couple of quarters.

Brian Chambers (Chair and CEO)

Yeah, thanks. When we look overall at the inflation we're seeing inside roofing business, big buckets are one large material input cost. Big bucket has always been asphalt. I'd say we historically see asphalt costs rise through the first and second quarter as we get into the heart of paving season. We expect to see that today. We expect to realize that as we come into Q2 with asphalt costs kind of rising seasonally. Right now, we've not seen any dramatic decreases coming through related to WTI oil cost reductions. I think when we look inside of that, we've seen some of the asphalt market pricing disconnect from WTI over the last couple of years. Part of that is because with lighter crudes being processed, there's less asphalt being done. It's less sensitive.

Asphalt inventory levels have actually been running pretty low over the last 12 months. We have not seen any of that WTI cost really impact the asphalt cost in a significant way. Now, having said that, as we come through the year, if oil costs stay low, that is going to keep our asphalt costs running at similar levels. We would probably see a little bit of seasonal inflation as we work through the year, but not as high as we have seen in some historical years. I think that could be a net positive in terms of moderating asphalt inflation as we move through the year, depending on what WTI does. In terms of natural gas, maybe I will ask Todd to talk a little bit about that in terms of impact on insulation.

Todd Fister (CFO)

Sure, Brian. Happy to. Mike, when we look at natural gas, clearly we're seeing a volatile market right now as liquefied natural gas exports and the impact of tariffs on that starts to make its way through the market. We do hedge on a go-forward basis. Some of any benefit we would see in a decline in natural gas would benefit us in the back part of this year, but then also would roll into next year as we think about those hedge positions just changing over time. There could be some impact. We don't think it's a really big impact based on where the markets are today, but we are following the cost closely.

Operator (participant)

Our next question is from Trevor Allinson with Wolfe Research. Your line's open. Please go ahead.

Trevor Allinson (Analyst)

Good morning. Thank you for taking my question. Todd, I want to follow up on your comments on tariff mitigation. You mentioned several strategies, but I did not hear you mention price. Last year in doors, you guys took some price adjustments and channels. Is it your expectation that you do not use price as a primary offset? Perhaps can you talk about the current demand environment in doors and how that may be playing a role in that decision? Thanks.

Brian Chambers (Chair and CEO)

Yeah, maybe I'll jump in on this one, Trevor. I think overall, we look at a lot of mitigation strategies when it comes to offsetting the impact of tariffs. We lean hard on optimizing our supply chains in terms of where we're sourcing, what types of materials suppliers we're working with. That's going to be always our primary focus in terms of how we just optimize the cost of production for our company. That's going to be always a key driver. Price is also a lever that we can use and potentially may need to use in certain product categories or in certain situations if we can't find offsets in terms of the material cost supply choices and changes that we can make inside our supply chain.

It is certainly not an option that is off the table, but it is one that we try to utilize several other levers in that space to mitigate the operating cost. We have used that and looked at that in the past. When I look at the doors business overall, again, part of this is also determining the long-term nature of these cost increases. In the near term, if these are near-term impacts, we want to offset them through the mitigation factors and efforts that Todd talked about. If we see long-term costs rising because of more permanent tariffs being put in place or changing how we can produce our products, then price is always an option. In doors, the biggest impact right now is coming through with some of the retaliatory tariffs on interior doors we are shipping into Canada to service our customers there. Some of that has been rolled off.

Canada put those in place when the U.S. announced the initial 25% tariffs on all products. They've since rolled back many of those products that are being impacted by that. We're in active discussions with Canadian officials, and we hope to get doors included and interior doors included in the next round of rolloffs. That would not require us to make any pricing moves around that. We would return back to just USMCA compliant materials flowing across borders. We would stabilize our cost position. That is our hope that we get that resolved in a constructive way that we do not require price to have to offset any of the impact going forward.

Operator (participant)

Our next question comes from Susan McAllister with Goldman Sachs. Please go ahead.

Susan McAllister (Associate)

Thank you. Good morning, everyone.

I want to focus a bit on the synergies in doors. In your comments, you mentioned that you were on track to exceed those targets in there. Can you talk a bit more about the sources of some of those, how we should think about the ramp, and any implications of the weaker macro and some of the implications of the tariffs that you're seeing relative to achieving some of those targets?

Brian Chambers (Chair and CEO)

Yeah, thanks, Sue. TM's continued to do great work on the integration front and integrating and bringing the two businesses together. As I talked about in my proposed comments, we're tracking to exceed $125 million. If we step back, when we came into the year, we talked about a pretty even split on OPEX synergies that we saw the opportunities for, particularly non-customer-facing operations that we could integrate, we could consolidate within the company. A big part, the rest of that, really tied to sourcing supply chain synergies that we've seen come through. As we continue to make progress on those fronts, we're finding a little more opportunities on the sourcing side. That gives us confidence that we can exceed the $125 million, and we'll talk more about that at our investor day next week.

We're also in early innings looking at the network overall, the network optimization. We've got a very good track record inside our company of looking at manufacturing networks and really looking at how best to optimize those to still meet customer demands around service and quality and capabilities to meet their needs, but doing that in a very cost-effective and efficient way. We're just getting started really with that work, but we see additional opportunities around the network optimization side to drive even more on the cost synergy front. I think we're set up well there. Now, unfortunately, a lot of this work, while it's generating a positive impact to our P&L, is getting offset in the near term by some of these tariff impacts.

That is certainly playing out here in Q2, where the incremental work, we would continue to see gains in our cost structure and improvements in our cost structure benefiting the P&L. They are getting really offset by now some of these tariffs. We think as we work through the year, we are going to continue to be able to deliver more to the bottom line. As a reminder, just when we set up that $125 million and some of the increases we are seeing, that is roughly split about half and half between what is going to materialize inside the doors P&L and then what gets materialized across the enterprise. We do expect that it is going to continue to generate a positive impact on our cost structure in the doors business going forward. We see some more opportunities that we can work in the near term to drive the margin improvement.

The last thing I'd say is we really are getting more and more confident too that we're setting up now with a more optimized cost structure in the business where we start to see volumes come back with a stronger market. The accretive margins that we can generate off of these gains are going to be much better than historically been done in the business. We think that's the upside ramp up where we get a little bit of volume leverage that generates additional margins for the business.

Operator (participant)

Our next question comes from Joe Nolan with Longbow Research. Please go ahead.

Joseph Nolan (Analyst)

Hi, good morning. This is Joe Nolan on for David. Thanks for taking my question. You guys are guiding the positive price cost in the second quarter. I was just hoping you could talk through on a higher level about some of the puts and takes of how you're thinking about price costs into the second half of the year. Thanks.

Brian Chambers (Chair and CEO)

Yeah, it may come back a little bit to my comments earlier. I think when we, again, always look to balance the price points in the market relative to demand, relative to the value we're getting, but across our product categories, we've purposely chosen high-value product categories where we can build out a premium through our commercial activities around brand, growing with our customers, around an innovation strategy. We really look at how we can continue to invest and drive value that translates into price and get that price recognition into the market. That's kind of our natural operating philosophy. The high-value product categories we're in, where we can bring that value, we're able to see price. Now, we're always going to be reacting to market dynamics, but we feel that we've got a great long-term strategy to maintain a price premium in the market.

When it comes to cost, we take an equal view around making sure we're getting up every day focused on how we can optimize our operations. We look at this across our OPEX. We look at this across our manufacturing network. We look at this across our sourcing and supply chain teams. We are continually looking at how we can balance our production network and how we can drive cost efficiencies across the company. It is that kind of one-two punch around how we look at premiums that we can gain through value creation by helping our customers win and grow with a more optimized cost structure. That is always our balance. We take a long-term approach to our market positions. We take a long-term approach to our customer partnerships. We are going to always navigate through some of the quarterly choppiness between price and cost.

Over time, we feel that we are helping our customers. We're bringing them innovative products. We're bringing them quality products that we're going to get a price premium. We're always going to work on the cost efficiency side to make sure we can maintain that winning cost position moving forward.

Operator (participant)

The next question comes from Rafe Jajilvand with Bank of America. Your line's open. Please go ahead.

Rafe Jalilvand (Analyst)

Hi, good morning. Thanks for taking my question. I just wanted to follow up just on the roofing margins in the second quarter. You're guiding for it to be down a little bit year over year, but it sounds like volume's pretty consistent and you have positive price cost. I'm just wondering, can you quantify the startup cost or maintenance that we should expect kind of in the first half and kind of into the third quarter? Then excluding those, would you have expected margins to grow year over year?

Brian Chambers (Chair and CEO)

Yeah, I think if you look inside the MDA, we quantify out some of the manufacturing costs that we were impacted in the roofing business in Q1, and that was about $19 million that we saw come through the P&L. We think that's a kind of a cost run rate that probably moves into Q2. If you look at it from a margin perspective, the delta between first quarter last year, first quarter this year was a little over a point. You could see that primarily in the manufacturing cost. When we think about Q2, there's probably going to be a similar impact that we're guiding to in manufacturing cost. It probably gives you a pretty good view of what we're expecting here in Q2.

You're right, it's really kind of a temporary step up we're seeing in some of these costs as we take needed maintenance and downtime on the manufacturing lines to service them. We're going to continue that into Q2 on a couple of factories. We've got some of the startup costs coming at us, as I talked about. We started to see in Q1. We expect to see in Q2, Q3 as we ramp up Medina. That's probably going to be a good guide in terms of what we would expect carrying on in Q2. That's really the delta between the margin performance year on year. It's not in price, volume, mix. The strength of the business is still performing at that same level, but we're just seeing a little bit more manufacturing headwinds hitting us here in the first half.

Operator (participant)

Our final question comes from Colin Laurent with Deutsche Bank. Please go ahead. Your line's open. Hi, Colin. Your line's open.

Colin Laurent (Analyst)

Sorry about that. Thank you for taking my questions. In the doors outlook, you noted that you're performing well relative to the market. Can you just give a little bit more color on what the market's doing, either sequentially or year over year, and sort of the drivers of that performance? Why do you expect sort of a better than normal seasonal step up in demand, which you called out in the outlook as well?

Brian Chambers (Chair and CEO)

Yeah, thanks. We are seeing some demand headwinds coming into business that we've talked about. Overall, yeah, the business continues to perform well. We're seeing declines tied to, as we talked about in our residential insulation business, some weaker light housing starts coming through and some pretty sluggish remodel sales coming at it. On a net-net basis, I think we're getting hit by both slower housing starts and less investments in the remodel markets. Overall, though, I'd say our wholesale distribution business, probably which is tied a little bit more towards new construction, is being a little more impacted than our retail business, where it's a little bit more tied into repair and remodeling.

While we're still seeing some volume headwinds, we've seen those kind of start to stabilize a little bit here as we start the year at lower levels, but at least we're seeing kind of a trough emerge, we think, in some of the volumes that we're seeing on both the new construction and the remodel side of the business. That gives us some confidence now as we look at Q2 that if we see that stability starting to emerge, we normally start to see some seasonal pickup just with more new construction going on, more remodeling activity as we get into the warmer weather and we get into the remodel market season. We're expecting that to play out this year similar, but at a lower pace. I would say we are expecting year-over-year volumes to be down, but we're seeing that order book kind of steady out.

We would normally expect to see a modest pickup here as we get into more construction activity in the second and third quarter. That is really driving our outlook for a slight seasonal uptick.

Operator (participant)

Thank you. We have no further questions in queue. So I'd like to turn the call back over to Brian Chambers for any closing comments.

Brian Chambers (Chair and CEO)

All right, thanks, Lydia. I would like to thank everyone for making time to join us on today's call and for your ongoing interest in Owens Corning. We hope to see many of you at our investor day next week in Toledo. Thanks and have a great day.

Operator (participant)

This concludes today's call. Thank you very much for joining. You may now disconnect your line.