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Owens Corning Inc (NYSE:OC)
Q4 2019 Earnings Call
Feb 19, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Owens Corning Q4 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded.

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

Scott Cripps -- Vice President, Investor Relations

Thank you, and good morning, everyone. Thank you for taking the time to join us for today's conference call in review of our business results for the fourth quarter and full year 2019. Joining us today are Brian Chambers, Owens Corning's Chief Executive Officer; and Prith Gandhi, our Interim 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 yourself to one question only.

Earlier this morning, we issued a news release and filed a 10-K that detailed our financial results for the fourth quarter and full year 2019. For the purposes of our discussion today, we have prepared presentation slides that summarize our performance and results, and we'll refer to these slides during the call. You can access the earnings release, Form 10-K and the presentation slides at our website, owenscorning.com. Refer to the Investors link under the Corporate section of our home page. A transcript and recording of this call and the supporting slides will be available on our website for future reference.

Please reference Slide 2 before we begin, where we offer a couple of reminders. First, today's remarks will include forward-looking statements based on our current forecasts and estimates of future events. These statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. We undertake no obligation to update these statements beyond what is required under applicable securities laws. Please refer to the cautionary statements and the risk factors identified in our SEC filings for a more detailed explanation of the inherent risks and uncertainties affecting such forward-looking statements. Second, the presentation slides and today's remarks contain non-GAAP financial measures. Explanations and reconciliations of non-GAAP to GAAP measures may be found in the text and financial tables of our earnings press release and presentation, both of which are available on owenscorning.com.

Adjusted EBIT is our primary measure of period-over-period comparisons, and we believe it's a meaningful measure for investors to compare our results. Consistent with our historical practice, we've excluded certain items that we believe are not representative of our ongoing operations when calculating adjusted EBIT and adjusted earnings.

We adjust our effective tax rate to remove the effect of quarter-to-quarter fluctuations, which have the potential to be significant in arriving at adjusted earnings and adjusted earnings per share. We also use free cash flow and free cash flow conversion of adjusted earnings as measures helpful to investors to evaluate the company's ability to generate cash and utilize that cash to pursue opportunities that enhance shareholder value.

For those of you following along with our slide presentation, we will begin on Slide 4. And now, opening remarks from our CEO, Brian Chambers, who will be followed by Interim CFO, Prith Gandhi, then Brian will cover our outlook before our Q&A session. Brian?

Brian Chambers -- Chief Executive Officer

Thanks, Scott. Good morning, everyone, and thank you for joining us. I know many of you have had the opportunity to speak with Scott, our new Vice President of Investor Relations. I want to thank Thierry Denis for his many contributions during his time leading Investor Relations and wish him well in his retirement and welcome Scott to his first earnings call.

I'd also like to welcome Prith Gandhi, our interim CFO, to our call this morning. We're fortunate to have someone with his extensive financial experience serving in this role. I'll start my review today with safety, where we continue to perform at a high level. Our recordable incident rate for the fourth quarter was 0.61, consistent with the same quarter in 2018, bringing the full year rate to 0.65, finishing slightly higher than the prior year. As you know, safety is a top priority for our company, and we continuously strive for an injury-free workplace. I'm proud that 50% of our sites worked injury-free in 2019.

And now, on to our financial results. I'll share some of my perspectives and then turn it over to Prith to provide more detail on our fourth quarter and full year results. I will then come back to talk about our 2020 outlook.

For the quarter, we delivered revenue of $1.7 billion and generated adjusted EBIT of $204 million. Our team executed well delivering results in line with our expectations. Overall, our volumes continue to outpace the market in our businesses with revenues being impacted by some price declines and negative foreign currency.

Adjusted EBIT in the quarter was down $24 million versus prior year, driven by lower earnings and inflation. Within Insulation, our focus in 2019 was to make progress restoring our historical share position in our North American residential business, leveraging productivity and process improvements to reduce our operating costs and growing our technical insulation businesses. Through this work, we believe we are well positioned for stronger performance in 2020.

For the full year, we delivered record revenue of $7.2 billion and generated adjusted EBIT of $828 million. Our performance was driven by great commercial execution, strong manufacturing performance and good cost management across the company, which was more than offset by negative foreign currency, inflation and curtailment actions taken in our Insulation business. In addition, we generated record operating cash flow of just over $1 billion and improved our free cash flow by $324 million. Throughout the year, we remained focused on three operating priorities: accelerating organic growth, driving improved operating efficiencies and generating strong free cash flow.

I'd like to update you on the progress we have made in each of these key areas. In 2019, revenues for the company grew 1%, 3% growth on a constant currency basis. In Roofing, we increased revenue 6% and delivered EBIT margins of 17% for the year on shingle shipments that outpaced the market. Our commercial focus to help contractors and distributors grow their businesses with our differentiated products and recognized brand generated market share results consistent with our expectations for the year.

Our revenues in Composites increased 1%, 3% growth on a constant currency basis. While we experienced slowing industrial production growth rates throughout the year, our volume grew 4% by focusing on higher-value applications such as specialty glass, non-wovens and wind energy. Demand for our roofing mats also increased during the year, in line with higher shingle shipments.

Insulation revenues for the year were down 2%, flat on a constant currency basis. Our technical and other building insulation businesses continued to perform well. But as expected, we experienced a more challenging market environment in the fourth quarter. This was primarily due to the timing of global projects and slowing European markets. In our North American residential fiberglass business, we made good progress in restoring our historical share position. Although lagged housing starts were down for the year, we've seen housing starts improve in the fourth quarter and are encouraged by continued strong builder confidence.

In addition to organic revenue growth, we also made good progress in driving improved operating efficiencies, delivering improved manufacturing performance across the company as we realize the benefits of standardized work practices, process improvements and automation. Last quarter, we discussed actions taken within the Insulation business to improve our cost position in our North American residential fiberglass business. We've completed most of these actions and are beginning to see the benefits of our work. I'm pleased that our ongoing productivity and process improvements have enabled us to further optimize our production capacity while maintaining our ability to service our customers and meet future demand. We also maintained good cost controls and identified ways to leverage our scale and enterprise capabilities, which resulted in total operating expenses for the company finishing 2019 slightly below 2018.

On our third operating priority, generating free cash flow, we delivered strong performance in 2019. Free cash flow increased $324 million versus the prior year to $590 million, which resulted in free cash flow conversion of 118%. We accomplished this through good working capital management, balancing our production with end-market demand and actively managing our capital investments. Total capital expenditures in 2019 were $451 million, in line with our depreciation and amortization.

Moving forward, we remain focused on extending the operating life of our existing assets through advanced manufacturing and other initiatives and prioritizing investments that best support our enterprisewide productivity and organic growth initiatives. In 2019, we reduced the Paroc term loan by $300 million and returned $143 million to shareholders through dividends and share repurchases.

In 2020, we plan to prioritize free cash flow to dividends and paying off the remaining $200 million balance of the Paroc term loan. Additional free cash flow could be deployed for share repurchases. With our focus on operating and capital efficiency and strong cash flow generation, we continue to see the opportunity to return at least 50% of free cash flow to shareholders over the next few years.

Before turning it over to Prith to discuss our financial performance in more detail, there are a few other items I would like to comment on. First, I'm proud to report that for the seventh consecutive year we were named an industry leader in sustainability for the Building Products category in the 2020 edition of the Sustainability Yearbook published by S&P Global in collaboration with RobecoSAM, ad we obtained a perfect score on the 2020 Corporate Equality Index for the 16th consecutive year.

We appreciate being recognized for the sustainable way we run our company and for the great work our people do every day to make an impact in our communities and in the world. In April, we'll release our 14th Annual Sustainability Report, which will detail our progress toward our long-term sustainability goals. Sustainability is central to our purpose. We are very proud that our products address energy efficiency, product safety, renewable energy, durable infrastructure and labor productivity. These are areas where our customers need more innovation, and we are well positioned to provide solutions to these global challenges.

Finally, I'd like to recognize all of our employees and their families based in China who are coping with the coronavirus epidemic. We will continue to be proactive in supporting the safety and well-being of our people and stay actively engaged with our team in China to assess the potential impact on our business.

With that, I will turn it over to Prith, and then I'll return to talk about our outlook. Prith?

Prith Gandhi -- Vice President, Interim Chief Financial Officer

Thank you, Brian, and good morning, everyone. As Brian mentioned, Owens Corning delivered record revenue of $7.2 billion and adjusted EBIT of $828 million in 2019. Through focused working capital management and disciplined capital spending, we produced record operating cash flow and almost $600 million of free cash flow for the year.

Please turn to Slide 5, which summarizes key financial data for the fourth quarter and fiscal year 2019. The tables in today's news release and the Form 10-K include more detailed financial information. For the fourth quarter, we reported consolidated net sales of $1.7 billion, down about 2% versus 2018. Each of our businesses faced into some pricing headwinds and we faced modest market declines in technical insulation in Europe and in the US shingle market.

Adjusted EBIT for the fourth quarter of 2019 was $204 million, down $24 million compared to Q4 2018. The lower EBIT performance in the quarter was driven by insulation, which was down $26 million. Net earnings attributable to Owens Corning for the fourth quarter were $73 million compared to $171 million in Q4 2018. Adjusted earnings for the fourth quarter of 2019 were $125 million or $1.13 per diluted share compared to $152 million or $1.38 per diluted share in Q4 2018.

For 2019, net earnings were $405 million compared to $545 million in 2018. Adjusted earnings for 2019 were $500 million or $4.54 per diluted share compared to $550 million or $4.94 per diluted share in 2018.

The full year EPS comparison was affected by two below-the-line adjusting items in 2019. First, in Q1, we adjusted out a $12 million non-cash income tax charge related to 2017 US corporate tax reform compared to a $23 million non-cash income tax benefit that was recognized in 2018. Second, in Q3, we issued a green bond and tendered portions of our 2022 and 2036 bonds. We incurred $32 million loss on extinguishment of debt that was adjusted out.

Moving on, depreciation and amortization expense for the quarter was $120 million, up $10 million as compared to Q4 2018. The growth in the fourth quarter of 2019 was due to accelerated depreciation from the insulation and restructuring actions announced in October. For 2019, depreciation and amortization expense was $457 million. Our capital additions for the year were $451 million, down about $90 million versus 2018. During 2019, we focused capital spending on investments that will improve throughput, drive cost reductions and support organic growth.

On Slide 6, you will see our adjusting items, reconciling full year 2019 reported EBIT of $753 million to adjusted EBIT of $828 million. For the year, adjusting items to EBIT totaled $75 million. As discussed in October, we took actions to reduce future pension obligations by transferring about $90 million of pension obligations through the purchase of an annuity contract with plan assets. In the fourth quarter, we recorded a $43 million non-cash settlement charge. We also recorded $28 million of restructuring costs primarily associated with insulation network optimization actions announced in October.

Please turn to Slide 7, which provides a high-level review of full year adjusted EBIT comparing 2019 to 2018. Adjusted EBIT decreased $33 million. Roofing EBIT increased by $21 million as compared to the prior year. Composites EBIT decreased by $4 million and Insulation EBIT decreased by $60 million. General corporate expenses were $104 million, down $10 million from 2018.

Now, please turn to Slide 8, which provides a more detailed review of business results beginning with Insulation. Sales for the fourth quarter were $723 million, down 1% from Q4 2018. The decrease was driven by lower sales volumes in the technical and other building insulation business in Europe and the negative impact of foreign currency.

EBIT for the fourth quarter was $89 million, down $26 million compared to 2018. The EBIT results were largely consistent with the expectations we shared in October. The year-over-year decline was largely driven by continued curtailment costs and lower volumes. For the full year, sales were $2.7 billion, down 2% versus 2018 with growth in technical and other building insulation more than offset by lower volumes in the North American residential fiberglass insulation business. Higher selling prices were partially offset by negative foreign currency translation.

In 2019, Insulation EBIT declined by $60 million to $230 million as progress in technical and other building insulation was more than offset by lower volumes and curtailment costs in North American residential fiberglass insulation. For the year, improved performance in technical and other insulation was driven by volume growth, improved pricing and strong commercial and operational execution.

Now, please turn to Slide 9 for a review of our Composites business. Sales in Composites for the fourth quarter were $480 million, flat to the same period in 2018 and up 1% on a constant currency basis. Despite slower global growth, Composites volumes continue to moderately outpace the broader market. EBIT for the quarter was $56 million, flat to Q4 2018. Continued strong commercial and operational performance offset input cost inflation, unfavorable currency and a competitive price environment. For the quarter, Composites delivered 12% EBIT margins.

Full year sales were $2.1 billion, up 1% as compared to 2018. Revenue grew 3% on a constant currency basis, driven by 4% volume growth. Our volumes outpaced the broader market on strength in wind and glass non-wovens. In 2019 EBIT declined by $4 million to $247 million. The benefit of favorable manufacturing performance and volume growth were more than offset by higher input cost inflation, lower selling prices and negative foreign currency.

Slide 10 provides an overview of our Roofing business. Roofing sales for the quarter were $529 million, down 3% compared with Q4 2018 on slightly lower shingle volumes and moderately lower selling prices. In the fourth quarter, US asphalt shingle industry shipments were down 5% versus Q4 2018. As expected, our shingle volumes outperformed the market in the fourth quarter. EBIT for the quarter was $87 million, a $4 million increase from the prior year as a seasonal decline in asphalt costs and lower transportation costs offset moderately lower prices. Roofing sales for 2019 were $2.6 billion, up 6% versus 2018.

US asphalt shingle industry shipments grew 2% over 2018. OC's volumes outpaced the market through solid commercial execution. In 2019, Roofing EBIT improved by $21 million to $455 million, an above-market volume growth. Our full year price improvement and tailwinds from transportation costs more than offset the impact of asphalt inflation. Our cash contribution margins continue to be healthy and the business is well positioned for a strong 2020.

Please turn to Slide 11 where I will discuss significant financial highlights for 2019. As Brian mentioned, free cash flow improved by $324 million from 2018, and we delivered strong free cash flow conversion of 118%. Over the last five years, we have delivered free cash flow conversion in excess of 100% on strong earnings, good working capital performance and our advantaged tax position. During 2019, we returned $95 million to shareholders in dividends and $48 million in share repurchases. At the end of 2019, 3.6 million shares were available for repurchase. Also in 2019, Owens Corning became the first US industrial company to issue a green bond extending our weighted average bond maturity by one year to 16 years. We continue to maintain an investment-grade balance sheet. And in December, we received an upgrade from Moody's. Owens Corning is now rated investment-grade by all three major rating agencies.

Please turn to Slide 12 for a discussion of select financial guidance for the year. In February, the company's Board of Directors declared a quarterly cash dividend of $0.24 per share payable on April 3rd to shareholders of record as of March 6. Since inception in 2014, the dividend has grown an average of 7% per year. In 2020, we expect the combination of higher earnings, working capital improvement and focused capital spending to drive another year of strong free cash flow conversion. The company plans to prioritize free cash flow in 2020 to ongoing dividends and to pay off the term loan associated with Paroc. Additionally, free cash flow could be available for share repurchases. As we look forward, we are targeting over time to return at least 50% of free cash flow to investors through dividends and share repurchases.

Moving on, we expect corporate expenses between $125 million and $135 million. The expected year-over-year growth is primarily due to the reset of performance-based compensation to more normalized levels. We anticipate first quarter total corporate expenses to be up modestly versus Q1 2019. We expect capital additions to be in line with expected depreciation and amortization expense of approximately $460 million.

Interest expense is expected to be about $115 million, down from $131 million in 2019 on reduced total debt and lower interest rates. Our 2020 effective tax rate is expected to be 26% to 28% of adjusted pre-tax earnings. As a result of our foreign tax credits and other planning, we expect our 2020 cash tax rate to be 10% to 12% of adjusted pre-tax earnings.

Now, please turn to Slide 13 as I return the call over to Brian to discuss the outlook for our company. Brian?

Brian Chambers -- Chief Executive Officer

Thank you, Prith. I'm pleased with our execution and performance in 2019 delivering revenue growth, improved operating efficiencies and strong cash flow. Given our market-leading positions, customer focus and innovative product and process technologies, I believe we are well positioned to capitalize on the market opportunities we see in 2020.

Consistent with prior years, our outlook for the company is based on consensus global industrial production, US housing starts and global commercial and industrial construction indices. In Insulation, we expect a stronger US new residential construction market and modest growth in global construction and industrial markets. Builder sentiment continues to be optimistic, and recent US housing trends remain positive with significant growth expected in the first half of the year.

In 2020, we expect to generate strong earnings growth primarily through increased volumes and improved operating leverage in our North American residential fiberglass insulation business. This is partially due to the impact of our network optimization actions, which are estimated to generate annual savings of $25 million by 2021 with about $20 million this year. We also anticipate continued earnings growth in our technical and other building insulation businesses. We expect a strong start to the year in Insulation with good earnings growth in the first quarter.

In Composites, we anticipate a weaker glass fiber market in the first half of the year, which should strengthen in the second half consistent with global industrial production growth expectations. We continue to focus on growing higher-value downstream applications, namely specialty glass non-wovens and wind energy, as well as driving strong manufacturing performance with our low-cost assets. Given weaker market conditions to start the year, we expect to face a difficult comp in the first quarter driven by lower volumes and a competitive pricing environment.

And in Roofing, we expect relatively flat US shingle industry shipments for the year assuming average storm demand with the lack of a significant storm carryover possibly impacting first quarter demand. While there has been a lot of speculation regarding the potential impact of IMO 2020, currently this new regulation is not expected to have a significant impact on our asphalt cost. Our cash contribution margins in the business entering 2020 position us for continued strong performance.

And in the first quarter, we expect EBIT margins to track prior year as we realize limited price/cost gains relative to asphalt deflation on slightly lower revenues. Overall for the first quarter, we expect adjusted EBIT for the company to be relatively flat to prior year as earnings growth in Insulation is expected to offset a weaker Composites market, while Roofing EBIT margins track similar to last year on slightly lower revenues.

With regards to the potential impact of the coronavirus on our outlook, we continue to stay very close to the changing conditions and are working through the various operational and commercial implications as we prioritize the safety and well-being of our people. At this point, we could see a modest first quarter impact in our Insulation and Composites businesses based on delayed plant start-ups and limited sales, which we have incorporated into our first quarter outlook.

With that, I'll turn the call back over to Scott to open it up for questions. Scott?

Scott Cripps -- Vice President, Investor Relations

Thank you, Brian. We're now ready to begin the Q&A session.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator instructions] The first question will come from Matthew Bouley of Barclays.

Christina Chiu -- Barclays -- Analyst

Hi. This is actually Christina Chiu on for Matt this morning. My first question is actually just on the ARMA data that came out for the month, which that came out for the quarter which showed a drop in industry volumes. And so I'm wondering how can you kind of reconcile the different shingle volumes in the quarter and what does that kind of imply from a market share perspective?

Brian Chambers -- Chief Executive Officer

Well, good morning, Christina. Thanks for the question. So, when ARMA data came out, the quarter was down about 5%, the full year was actually up. And as we kind of go back and walk through the progression of volumes last year, we were expecting as the year progressed that when we came into the fourth quarter, we might see some lower manufacturing shipments into distribution really on a comp basis versus the prior year.

In 2018, we were seeing some asphalt inflation. We were seeing some distributors, I think, build up some inventory in the fourth quarter of '18. We didn't expect that to repeat in '19, and that did not occur. I think we were -- we indicated on our last quarter call that actually volumes might be down a little bit more, but we actually saw some seasonally good fourth quarter weather that extended the roofing season. So, we actually saw a little bit more volume come through the fourth quarter and had some good out-the-door sales. So, I think, in context, the quarter played out pretty much as anticipated with the exception that there was a little bit stronger out-the-door sales on some better weather, and then the overall market was up.

So, as we roll forward now into 2020, we expect to see another good year of roofing volumes. We're seeing solid repair and remodeling activity, good contractor backlog. We're seeing some new construction growth that will drive demand. And then we always anticipate and expect and plan for kind of average storm volume. So the one caveat is the back half of last year, we did not see as much kind of large storm demand. So we're probably coming into this year with a little bit weaker carryover that might impact volumes for the market and for us in the first quarter a little bit. But overall, we feel that 2020 is going to be another very strong constructive roofing market.

Operator

The next question will come from Michael Wood of Nomura Instinet.

Ryan Coyne -- Nomura Instinet -- Analyst

This is Ryan on for Mike. Just curious on Composites, are you able to quantify for us the first half weakness that you're calling out? And then, will second half strength be enough to keep Composites segment EBIT flat for the full year?

Brian Chambers -- Chief Executive Officer

Thanks, Ryan. Yeah, when we look at glass fiber demand in our Composites business, I think the first thing I'd say is, look, I think our Composites business performed very well in 2019. We delivered 12% EBIT margins in a market where we were continually seeing industrial production growth slowing kind of throughout the year. But our strategy in Composites has been very much to focus on kind of key market growth and key higher value end-market applications namely our glass, especially non-wovens wind energy.

So those two market segments for us stayed pretty strong through the back half of the year, while we saw weakened industrial production and weakened automotive demand in some other parts that impact the Composites business. So, generally we've guided that glass fiber demand tracks with industrial production. And so, we are expecting in the first half now that we've come in we saw global industrial production growth slow through the back half of the year. We hope we've seen that stabilize, but certainly we expect weaker demand volumes in the first part of the year that we expect to kind of grow sequentially and as we get into the back half of the year improve. But that's based on consensus industrial production growth. So that's something we're going to continue to watch and monitor as we go through the year. But as we look at year-over-year glass fiber demand kind of in the first quarter versus last year, we think it's a little weaker demand environment that's going to impact our volumes and impact our earnings.

And then, also with that weaker demand environment in the back half of the year, we saw some pricing declines. We had to meet some competitive situations there. And we think that's creating a bit of a negative comp coming into the first quarter. So, I think we're guiding to being down in the first quarter year-on-year. And I think on the back half, I think a lot of that's going to depend on how industrial production grows through the year because we would expect volumes then to track that going forward.

Operator

The next question will come from John Lovallo of Bank of America.

John Lovallo -- Bank of America Merrill Lynch -- Analyst

Hey, guys. Thank you for taking my question. On the insulation side, can you just help us quantify the fourth quarter curtailment charge? And then, what your expectations are for potential additional charges in 2020, please.

Brian Chambers -- Chief Executive Officer

Yeah. Thanks for the question, John. So, I think, we would have reported that fourth quarter curtailment charges in Insulation were about another $10 million linked for the quarter. So that would have put the total year in terms of curtailment cost up a little over $60 million.

So, again, as we think about the curtailment actions we took last year, we said a part of that was tied to just capacity curtailments we were taking to adjust our inventory. So, again, in 2018, we were expecting a bigger market in 2019 for volume, so we build up inventories. So we had to correct that as we're very focused on working capital and inventory management. So we took those curtailment actions to address that kind of one-time inventory correction. And then the balance of the curtailments were really tied to fixed cost absorption. So we had lower volumes, and we were just absorbing those fixed operating costs to the P&L as we incurred them through the course of the year. So part of that, we addressed by reducing our full operating costs.

So these were actions we took that we talked about on the last quarter call to reduce our total operating expenses in the network with actions we took in Kansas City to consolidate that facility to a loosefill-only production plant. And we think that's going to realize about $20 million of improvement here in 2020.

So, part of the curtailment costs coming back is just through lower operating costs that would come through that action. And then, the balance of the curtailment cost is going to depend really on the volume growth. So, we've had good starts here in the fourth quarter and another good print here this morning.

So we're optimistic that we're going to see good volume growth kind of consistent with current housing expectations as we see that continue to grow through the year that's going to improve our volume and our manufacturing leverage and that would minimize any additional curtailment costs as we move through the year.

Operator

The next question will come from Mike Dahl of RBC.

Mike Dahl -- RBC Capital Markets -- Analyst

Good morning. Thanks for taking my question. I wanted to ask about the comments around strong cash contribution margins to end '19 and setting up for good performance in '20 in Roofing. And just hoping to reconcile that within your comments around being flat year-on-year in margin performance in 1Q and kind of a flatter market demand environment. Just a little more color on what you actually mean by that comment around strong cash contribution margins continuing.

Brian Chambers -- Chief Executive Officer

Yeah. Mike, thanks for the question. I think we referenced strong as kind of just historically our cash contribution margins are very consistent and we tend to operate in our Roofing business with very, very strong and high cash contribution margins. So, I mean, that's a reference to that. If I just look at kind of where we finished the year in terms of cash contribution margins, so we started to see a little bit of deflation come through the P&L in the fourth quarter in both asphalt and a little bit of transportation. We did see some pricing adjustments we made early in the quarter that also flowed through. So, those pretty much balanced out in terms of that.

And as we manage the business, and we really manage this around cash contribution margin. So we try to manage price relative to inflation and deflation to maintain good strong contribution margins in the business, and that's what we're always balancing. So -- and that's what we did in the fourth quarter. So, I think the reference was, we finished the year with very good cash contribution margins that positions us for continued strong performance in our Roofing business for the year. And again, I think we finished -- we're very pleased with our Roofing performance for the full year delivering 17% EBIT margins and good market conditions.

So, we expect that we're on -- we're starting out in a good rate as well coming into Q4 -- or coming into Q1. I think the comments around the margin rate in Q1 were really tied to, because we're balancing kind of a very flat price/cost mix so we're bringing in a little bit of pricing headwinds into Q1 relative to year-over-year performance. So, again, back to 2018 was kind of a rising asphalt inflationary environment and we had rising prices. This year, we've seen a little bit of deflation and we had some pricing moves that we made. So, we're kind of coming into the year when we look at potential deflation here in the first quarter that we think that price/cost mix is going to be pretty flat.

We're not going to be able to expand margins in the quarter. And then we potentially could have a little bit less volume with some weaker carryover storm demand. So that would just put some pressure in the quarter around some of our operating leverage. But for the full year, we feel very good coming in with good cash contribution margins. We see a good outlook in terms of volumes in the market. But we just think there's going to be little bit of timing here in Q1 as we start out.

Operator

The next question will come from Kathryn Thompson of Thompson Research Group.

Kathryn Thompson -- Thompson Research Group -- Analyst

Hi. Thank you for taking my question today. Appreciated your color earlier on Composites kind of the broad outlook and how it flows from first half to second half. But I wanted to see if you could dig a little bit more for outlook by region and even by product. Essentially I want to better understand if some of the more muted expectations is the carryover of a softer outlook for Europe, which certainly played through last year. And then, thoughts on how domestic Roofing segment results also impact the Composite results. Thank you.

Brian Chambers -- Chief Executive Officer

Yeah. Thanks, Kathryn. Good morning. If we kind of look regionally, I think as the year played out for us in the back half of last year and kind of how we're seeing now, we're really kind of tracking to industrial production growth. So, we saw declines in North America, which is a key market for us through the back half of the year. First quarter projections are that to be down year-over-year. So that's a big market for us in terms of glass fiber demand overall. We did see Europe weakening as well through the back half of the year and again starting off weaker and then expected to grow. And when we look at our kind of geographic footprint, I mean, we're very strong in North America. We're very strong in Europe. And we're also very strong in India.

India, we saw a little bit better performance than -- it weakened the back half, but it's gotten a little better. And we think that's going to be a bit of a tailwind for us in India. So, China, we play but it's about 10% of our business. So we're not as impacted by the slowdown in China right now. From an end-market application, in '19, we saw very good wind growth in China, in Europe, in North America. We continue to see the install of wind energy moving up in 2020. So we expect to see some gains there really in North America, primarily there a little bit Europe and then in China again. So I think that gives us some tailwinds in terms of overall demand.

And then, in terms of Roofing, we would expect that the impact on our Roofing business year-over-year to be pretty flat because we're calling for an outlook for North America Roofing business to be relatively flat at this point.

Operator

The next question comes from Susan Maklari of Goldman Sachs.

Susan Maklari -- Goldman Sachs -- Analyst

Thank you. Good morning. My question is really around, as we look to 2019, the focus was really on volume and restoring your market share, especially in the Insulation part of the business. As you think about 2020, what will be the balance in terms of price versus volumes? And how are you thinking about what those impacts could be as it relates to each of the segments?

Brian Chambers -- Chief Executive Officer

Yeah. Susan, I'm assuming you're talking more in Insulation in the question.

Susan Maklari -- Goldman Sachs -- Analyst

Yeah. Yeah.

Brian Chambers -- Chief Executive Officer

Okay. Yeah, I think -- I'll say, we look at our Insulation business, we have our North American residential business and we have our technical insulation business a little more global. Inside our North American residential business, we always balance pricing share. I think, again, going back a little bit to the first part of '19, we came into the year with price points above our historical gap. So we had to make some adjustments in pricing early part in the year to get our price points more in line with those historical pricing gaps that we have. And as we did that, we did see volume come back to us, and sequentially we've been able to gain share quarter-over-quarter.

And I think that's just a testament of where we have our price points competitive and right -- customers value our products. They value our quality, they value our commercial expertise and our service. So, we were encouraged through the course of the year that with competitive pricing, we were able to regain and restore that share position. And that's a balance we're going to continue as we move into 2020. But we do see the market opportunity has certainly turned and started to grow relative to last year. At this time, we were seeing kind of a weak Q4 and a weak first quarter, and we saw good growth in the fourth quarter.

We saw another good start for January, so we expect to see good growth here in the first part of the year. So we did announce a January increase. It's early days for that increase, but we're seeing positive gains and we think that's going to kind of build through the quarter. So we do see the opportunity for price as we start the year. And certainly we think with the volume growth in our work commercially, we're going to continue to gain some incremental share as we move through the year. So I think we're going to be able to maintain a very good balance of achieving price in and getting our position back to our historical share.

On the technical and other building insulation, it's more of a global platform of product lines and businesses. But again, we've showed positive pricing gains in 2019 within the technical and other insulation business. These tend to be products that are going into commercial and industrial applications, a little less price cyclical in nature. And so that has certainly played out for us in '19. And as we look into 2020, we would expect to be able to achieve some pricing gains as well within that product line as we continue to earn some share and bring some new product innovations in the market that will continue to grow our revenues in that part of the business.

Operator

The next question will come from Truman Patterson of Wells Fargo.

Truman Patterson -- Wells Fargo Securities -- Analyst

Hi. Good morning, guys. Thanks for taking my question. Nice results. First, I wanted to touch on US residential insulation. Can you just give an update on industry capacity utilization where we are today after you all removed a couple of plants or a couple of lines from the industry over the past two years? And if you could just play out a hypothetical situation if starts to grow kind of 10% from here, where would that put industry utilization rates? And also, can you give an update of potential capacity coming online over the next year or two? Do you all have the current footprint to really capture your appropriate market share if starts were to grow kind of at a 10% clip?

Brian Chambers -- Chief Executive Officer

Thanks, Truman. I'll kind of unpack that I think a little bit of time. In terms of industry capacity utilization, I think we talked about on the last quarter call that the move we took in terms of the consolidation in Kansas City and taking some of that capacity out was putting our capacity utilization kind of in line with the industry. So we think we're running a good solid high capacity utilization rates as we finish the year, and we think that's continuing as we go forward. So, I think that's -- I think we're in a good spot there Owens Corning is relative to the industry capacity utilization rates.

In terms of capacity coming on stream, I think we talked about a couple of loosefill plant additions that are scheduled, I think, to come on stream kind of first part of 2021. We continue to believe that that's not going to have a major impact in terms of supply demand balances in terms of the growth of loosefill as we go forward.

And then, in terms of kind of our capacity and our ability to service the market, part of the actions we took within our network to optimize was really based on productivity and process improvements that have allowed us to produce more material through the existing footprint. So, as we continue to make these productivity and process improvement gains, we're getting more throughput. We expect to be able to get more productivity and throughput in 2020. And so, when we did this work in the fall, we were expecting to be -- to see housing starts growth this year kind of mid-single digits. So we believe we're -- we've got good capacity to service that growth as we go forward. If it moves beyond that, I think we've got some upside capacity within our existing network. But also we do have some idle assets that we could potentially bring back online. We could do that relatively quickly and very efficiently if we saw demand growth and starts kind of continue to strengthen through the back half of the year and into 2020. So we think we're well positioned to service our customers as the market grows.

Operator

The next question will come from Seldon Clarke of Deutsche Bank.

Seldon Clarke -- Deutsche Bank -- Analyst

Hey. Thanks for the question. Just sticking with Insulation, in addition to that $20 million of savings you expect to hear from the network optimization efforts, just given your outlook for pricing growth and market share wins and just where you are from a productivity standpoint, how should we think about the core operating leverage or incremental margins in your Insulation business for 2020?

Brian Chambers -- Chief Executive Officer

Yeah. Thanks for the question, Seldon. We've reported before that we saw kind of good operating leverage in this business to be at about 50%. Now, when we made that statement and gave that kind of guidance, we certainly were more focused toward the residential new construction business and our facilities that make fiberglass that didn't account some of the acquisitions that we've made and additions we've made around FOAMGLAS and mineral wool. But I think in general, that continues to be good guidance around our North American residential business. So, as we move forward into 2020 and beyond, we would expect to see that kind of operating leverage potential on any kind of revenue growth we would see inside the residential part of our Insulation business.

Operator

The next question comes from Justin Speer of Zelman & Associates.

Justin Speer -- Zelman & Associates -- Analyst

Hi. Thanks, guys. One of the things I wanted to maybe you can unpack for us is, as we think about starts potentially normalizing toward 1.5 million in the next couple of years, what do you think the midterm margin potential of the business is if you are having to restart up new or idled capacity? What do you think a normalized margin is based on what you've done with your network thus far in Insulation?

Brian Chambers -- Chief Executive Officer

Yeah. Thanks for the question, Justin. If we get to those kind of operating starts or kind of those kind of housing starts and get to that kind of operating level, I mean, clearly we're going to see an improvement and increase in our operating margins. It's kind of difficult to speculate what those could potentially be, because it's going to depend on some other factors beyond just volume leverage.

But I think here I'd look back at kind of our historical performance as a good guide when you look at what we've been able to achieve in kind of past housing starts environment at 1.5 million starts. So, clearly we'd be running our assets full out, and we'll be getting great manufacturing leverage. We would expect additional pricing opportunities operating in that kind of market environment and overall great leverage. So, I would expect to see a pretty nice improvement in terms of our operating margins within the business consistent with that kind of housing start environment. But again, very difficult to kind of paint exactly what that would look like, because it would depend on some other factors but certainly stronger. And I think historically, we've operated at very high operating margins in the business and that would certainly be a potential.

Operator

The next question comes from Keith Hughes of SunTrust.

Keith Hughes -- SunTrust Robinson Humphrey -- Analyst

Thank you. Questions on non-residential installation. You made some positive comments on the 2020 guidance around those businesses. I just want to confirm, I guess, number one, are you talking about everything outside of non-residential both in US and Europe? And you specifically talk about earnings improvement not so much on revenue, so any kind of shape to the year you would expect on those businesses would be helpful.

Brian Chambers -- Chief Executive Officer

Yeah. Thanks, Keith, for the question. I think, we're very pleased with our performance in 2019 in our technical and other insulation businesses both from some revenue growth and EBIT performance. And I think, as you know, growing this part of the business has been a really key part of our overall Insulation strategy to growing global industrial and commercial markets. We've been able to develop and grow and get into some new product platforms that service low- medium- high-temperature ranges. And so, we've been able to get into new applications, and I think that's helped stabilize our overall margins.

And in this business segment, we certainly see more stable margins. There's margin movement within volume leverage, but we don't see the big price cyclicality that we see in our res business. So, you are correct that when we talk about this, this is really everything in our Insulation business outside of our North American res business going forward. So, as we see kind of 2020 progressing out, again, we saw a little bit of headwind in the fourth quarter in our European part of our technical business with some markets slowing through the quarter. We look at consensus estimates for parts of Europe we're strong in. And we think those markets have stabilized. I think we operate our mineral wool business, primarily we're heavily set toward the Nordic countries. So, we saw a little bit more decline in those regions in those markets in 2019 relative to some other parts of Europe. But again, we've seen those markets kind of stabilize and we're expecting to see growth as we go forward.

So, I think, we're -- we've tempered and said we expect some modest revenue and earnings growth through that segment of businesses because I think it's -- we're seeing some -- a little bit of a different market environment, a little bit weaker in Europe, a little bit stronger in North America, but on balance we still expect to see good revenue and earnings growth as we progress through the year.

Operator

The next question comes from Garik Shmois of Loop Capital.

Garik Shmois -- Loop Capital Markets -- Analyst

Well, hi, thanks. I wanted to ask on roofing margins with oil prices staying relatively low. What's your outlook with respect to some of the cost buckets and recognizing you're not expecting much in the way of IMO benefits, if you can talk about that in a little bit more detail on how we should expect some of the raw material cost to flow through on the roofing side in 2020.

Brian Chambers -- Chief Executive Officer

Yeah. Thanks for the question, Garik. So for raw materials in roofing, I mean clearly asphalt costs are the largest bucket. We do have other input costs that are larger in scale around our non-wovens that feed into the roofing mat and in our granules. So, those are the big sources of inflation that we continue to see as well as some labor inflation through our workforce, but primarily it's been around asphalt.

And I think on the IMO 2020 impact, I mean, we've been talking about this for about a year now. It's something we continue to monitor and look at. But I think where we say we're not seeing a significant impact.

We do expect to see some modest asphalt deflation through the year in the space, and that's something we're seeing here in Q1. But I think what we're finding out as we talk and work with refiners is, they are using and reprocessing this through cokers into higher-value fuels instead of pushing this into the asphalt market. So, while we're seeing the high sulfur oil content in the market, we're seeing refiners just reprocess this into higher value products and not pushing it in the asphalt market. And that's where we said, while we do expect to see some modest deflation through the years as this rolls out, we're just not seeing currently any significant deflation as a result of this. And that's really what we're balancing.

So, in terms of overall raw material inputs for the year, we would and are currently seeing some asphalt deflation that we think could play out through the course of the year, some modest deflation there. And then, other raw materials, we are seeing and expect to see some inflation. So that will be some of the balance.

And then we'll also -- we continue to look at transportation costs in the business. We saw transportation costs moderate and deflate a little bit in the back half of last year, and we're seeing that kind of in the current market environment as well. So that will be another input cost that we're going to track and watch closely as we go through the year.

Operator

The next question comes from Stephen Kim of Evercore.

Stephen Kim -- Evercore ISI -- Analyst

Yeah. Thanks very much, guys. A couple of questions on Insulation. You -- I think, following up on Justin's question about where margins could be, maybe another way of asking that would be, historically you've talked about the volume-only incremental, I think, somewhere around 50% or so, but your mix of businesses is different now. And I was curious as to how we should be thinking about exclusive of -- excluding price, excluding moves in commodity costs, just what your volume-related incremental across the segment looks like today? Is that -- should we be thinking that's like 30% or 40% something like that? If you could give us some color on that.

And then, sort of part of that as you go through 2020, what is the likelihood that your Insulation EBIT more than recovers what you lost in 2019? It exceeds 2018's EBIT level. Is that -- in your eyes, is that something that is a realistic expectation given the improvements you're seeing?

Brian Chambers -- Chief Executive Officer

Thanks, Stephen. Appreciate the questions. I'll take the second one first. I think, we've purposely decided not to guide kind of on full year outlooks when we get into the business. And we're trying to give really good color in terms of the quarter-by-quarter, which we've given in terms of guidance overall for the company and for the business here in Q1. So, I mean, clearly -- I'll go back to my comments. I think we -- the changes in the work we've done in our Insulation business last year, we've seen good progression in our historical share growth and volume growth. We've adjusted our operating cost position and improved that quite a bit. We're seeing good growth in technical and other insulation that we expect to continue in 2020.

So, from a full year perspective outlook in our Insulation business, we're expecting to see strong earnings growth in residential, which we talked about in our outlook and some solid growth in our technical and other. So we think we can grow the segment overall.

When it comes back in terms of operating margins again, historically we've been able to get good operating leverage off of our assets as we've grown volumes. And there's nothing in our operating network that would change historically what we've been able to achieve as we've seen good volume growth, in fact we're operating I think even a little more efficiently. So, I would expect to get good operating leverage as volume grows, but I really don't want to speculate in terms of what that upside margin potential could be, but it certainly is stronger than what we're offering today, and we think historical operating margins are certainly potential in the business with good volume leverage and pricing.

Scott Cripps -- Vice President, Investor Relations

Carrie, this is Scott. It looks like we have time for one more question.

Operator

Our last question will come from Ken Zener of KeyBanc.

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

Good morning, everybody.

Brian Chambers -- Chief Executive Officer

Good morning, Ken.

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

Good. Just checking. Thank you. Right. I wonder, with Composites, I understand industrial production being weaker right now as it looks in the first half, first or second half. But if you look at the 12% margin thereabouts that we were at in 2018 and '19, could you talk to some of the factors that would be necessary to get back to the 14% range we saw in '17? Is that really a function of mix? Is that a function of input costs debating? If you could just expand on that a little bit. Thank you very much.

Brian Chambers -- Chief Executive Officer

Yeah. Thanks for the question, Ken. Again, yeah, we've had pretty stable margin performance in the business for the last several quarters. And again, I think, our team has executed well. I think where we're focusing our commercial activities to grow in higher value applications in key markets has been a big part of the earnings driver. The other big part of our earnings driver has been our manufacturing performance. So we've invested to make sure we're operating low cost scalable assets, and we're getting great manufacturing efficiencies through those assets. So, I think, the factors that would kind of continue to build out our operating margins and composites. I think one would be just continued strong performance in our manufacturing, great operating efficiencies which we've been able to demonstrate, and we see opportunities to continue to improve and grow and gain on our manufacturing productivity. I think mix does play into this as we kind of shift our mix to more kind of higher value downstream segments and products, where we can earn a little bit better margin on those.

And then the third would just be pricing. Overall pricing in the market for us and allowing us to get some, some incremental pricing on our products. So, those would be probably the three big factors, continued strong manufacturing performance, continued growth in product mix and higher margin products for us, and then some pricing improvements that could walk us back up to that 14% level.

Operator

And this concludes our question-and-answer session. I would now like to turn the conference back over to Scott Cripps for any closing remarks.

Scott Cripps -- Vice President, Investor Relations

Very good. Thank you, everyone, for joining today's call. With that, I'll actually turn it back over to Brian.

Brian Chambers -- Chief Executive Officer

Okay. Thanks, Scott, and thanks, everyone, for your questions. In closing, we've made substantial progress with our operating priorities, all in creating value for our shareholders. We have market-leading businesses and attractive markets, innovative product and process technologies and an enterprise model that creates differentiated value. And we have the right team in place dedicated to the success of our customers and our shareholders. Our teams are executing well, our businesses are favorably positioned within the respective industries and markets, and we are well positioned for a strong 2020. So, I want to thank you for your time this morning, and we look forward to speaking with you again during our first quarter call.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Scott Cripps -- Vice President, Investor Relations

Brian Chambers -- Chief Executive Officer

Prith Gandhi -- Vice President, Interim Chief Financial Officer

Christina Chiu -- Barclays -- Analyst

Ryan Coyne -- Nomura Instinet -- Analyst

John Lovallo -- Bank of America Merrill Lynch -- Analyst

Mike Dahl -- RBC Capital Markets -- Analyst

Kathryn Thompson -- Thompson Research Group -- Analyst

Susan Maklari -- Goldman Sachs -- Analyst

Truman Patterson -- Wells Fargo Securities -- Analyst

Seldon Clarke -- Deutsche Bank -- Analyst

Justin Speer -- Zelman & Associates -- Analyst

Keith Hughes -- SunTrust Robinson Humphrey -- Analyst

Garik Shmois -- Loop Capital Markets -- Analyst

Stephen Kim -- Evercore ISI -- Analyst

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

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