Owens Corning warns of muted roofing demand ahead

Owens Corning expects roofing demand to remain pressured in the second quarter, executives said on the company’s first-quarter earnings call last week. 

What’s happening: Owens Corning reported first-quarter net sales of $2.3 billion, down 10 percent from the same period last year. 

• The company’s roofing business, in particular, generated $960 million in revenue in Q1, a 14 percent year-over-year decrease, with CFO Todd Fister attributing the trend primarily to “lower storm-related carryover demand and severe weather in parts of the country.”

Of note: Roofing represents roughly 43 percent of Owens Corning’s business, according to a recent investor presentation. 

Go deeper: CEO Brian Chambers noted that “non-discretionary reroof demand should remain solid” in the second quarter; however, the company expects it to be “slightly down versus [the] prior year.”

• “We anticipate [roofing] revenue will be down low to mid-single digits [year-over-year],” Chambers told analysts on the call. 
• “While current year storm demand is tracking in line with historical averages, we expect ARMA market shipments to be down low to mid-single digits in the second quarter based on limited prior year storm carryover and some pull forward of restocking activity into Q1,” he added, noting that he also expects discretionary remodel activity and residential new construction in the U.S. to “remain under pressure.” 

What they’re saying: Executives said rising oil prices tied to the war in Iran are expected to add roughly $60 million in costs during the second quarter, with roughly half of that impacting the roofing business, while inflated transportation and asphalt costs also remain headwinds.

• “The majority of inflation stemming from the conflict in Iran is expected to impact our results on a lagged basis,” Fister said. “We know what’s happening with asphalt inflation now very directly as oil goes up.” 
• “Historically, we’ve been able to offset asphalt inflation with price [increases] in the roofing business on a bit of a lag,” he continued, adding that “for customer deliveries, we have fuel surcharges that are long established in our roofing [business].”
• Fister noted that fuel surcharges operate on a roughly 60-day lag, so it takes some time to calculate a new fuel index and pass the surcharge onto the market.

What we’re watching: During the call, Owens Corning also disclosed that its second-quarter outlook does not include $25 million of potential tariff refunds that it’s applied for, and didn’t specify which imported materials or categories could qualify for refunds at large, leaving open questions about where the company is seeing the greatest trade-related cost pressures. 

Looking ahead: The company has announced a price increase for its roofing business, effective June 1, citing “increased inflation,” particularly in asphalt.