Kathryn Thompson: Great. Thank you very much.
Operator: Thank you. The next question goes to Susan Maklari of Goldman Sachs. Susan, please go ahead. Your line is open.
Susan Maklari: Thank you. Good morning, everyone. I wanted to switch to Insulation for a minute and talk about the margins there. They’ve been running in a much narrower range relative to the historical patterns that we’ve usually seen on a seasonal basis. And when you think about the 1Q guide and the outlook for housing, it would imply that there’s a similar trend for this year as well. And so when you think about that segment long-term and the operations and the work that you’ve done on the cost, do you think that you can sustainably run those margins perhaps a bit higher than that 15% long-term guide that you gave at the last Investor Day? And I guess, what are you waiting to see to have more confidence perhaps to revise that?
Todd Fister: Sue, why don’t I take that one? I appreciate the question. And I’ll cover a bit about why we are seeing this narrower range and what that could imply for the future. The narrow range really is intentional. We’ve rebuilt this business in order to have higher and more stable margins through the actions that we’ve taken. And those actions include really significant actions on the network of the business, including the sale of a pretty high cost — high fixed cost asset in Santa Clara, but also actions we’ve taken in other plants to debottleneck and drive more capacity out of our existing network. But it’s also commercial choices that we’ve made around the channels that we focus on, the customers that we focus on, how we structurally engineer a business that can have more stable margins over time.
We shared at Investor Day a few years ago, as you alluded to, the thought that we did have structural margin improvement embedded in the business. We have not updated that yet, but that is something we talk through around margin expectations for the business. And when the time is right, you could anticipate us talking more about what we see long-term as the new margins for Insulation. I think your guide for the first quarter, your read is correct. I mean it is more margin stability, in part, because as Brian said, we are — we continue to run our assets fairly full across our network. We continue to see stable market conditions. We are still in markets where volume is down in Europe and in Asia and in some pockets in North America. So we feel pretty confident as we go forward.
If we see that volume return in Europe and in Asia and North America, we’ve got some ability to drive earnings upside even versus what we achieved in 2023 on the business. So we have to see the macro conditions improve, but we think we’ve engineered the segment to deliver more consistent and higher margins over longer periods of time.
Operator: Thank you. And the next question goes to Truman Patterson of Wolfe Research. Truman, please go ahead. Your line is open.
Trevor Allinson: Hi. This is Trevor Allinson on for Truman. Thank you for taking my question. I wanted to touch first on input costs in Composites and Insulation, specifically around energy. It didn’t seem like input costs had a significant impact on operating profit in the quarter for those two segments. You’ve taken on a lot of energy inflation in the last couple of years. I think you had mentioned previously that peak energy for you guys was around mid 2022. So even with your hedges, we would have thought you’d be seeing some more of that here coming through in the form of deflation. So are you seeing other input costs offset that? Or why are you not seeing more of those energy benefits coming through? Thanks.
Todd Fister: Let me tackle that one on our hedging policy, and then we could talk a bit about the pockets of inflation. So you’re right, I mean, we hedge on a five quarter rolling basis. The last of our higher cost hedges really roll off in the first quarter of this year in ’24. So we still had some of those hedges in place even in Q3, Q4 last year. We are seeing some input cost inflation. Some of the later cycle input materials that we use in different parts of our process, that are tempering some of the benefits that we would otherwise see from energy. Energy, certainly structurally, is a good news story for us as we get into ’24. But there are pockets of inflation on some chemicals, on some input materials that we continue to see on our businesses, and we continue to work through those. So it’s a bit of a combination of those two that drove the results in the quarter.
Operator: Thank you. The next question goes to Philip Ng of Jefferies. Philip, please go ahead. Your line is open.
Philip Ng: Hey, guys. For 1Q, I believe you’re guiding the low to mid teen declines in your Composite business. Can you help us unpack the components for volume/mix versus price? And then appreciating margins in Composite tends to be a little lumpier, and there’s a fair amount of seasonality. Do you see 1Q as trough margins and you kind of build off that for the full year for Composites?
Brian Chambers: Yes. Thanks, Phil. So let’s talk a little bit about price and mix. So — and maybe I’ll talk pricing. I mentioned this a little bit in our Q1 guide. So overall, for our glass reinforcements business, just as a reminder, it’s about two-thirds contract, about one-third is spot. And we have largely completed our contract pricing, and that is going to result with pricing stepping down. Overall, our — with that completion, we would expect probably mid-single-digit price declines that would roll through in the quarter and continue as we go forward as a result of those contract negotiations. From a price — from a spot pricing standpoint, we are actually seeing some stability Q4 into Q1. And so Q1 spot pricing on a year-over-year basis, down probably closer to high single digits.
So a big part of that step down versus price on mix is going to be price-related. But we are seeing some headwinds on overall product mix just depending on the geographic makeup of the business overall. In terms of the mid-single-digit margins for Composites, how that moves up from here, I do think it’s generally a low point in terms of volume in the business. And that’s something that we would expect as we go through over the next few quarters to see volumes increase, and that will improve our operating leverage quite a bit. We also have taken a number of cost reduction actions in the business, and that should start coming through. And lastly, we’ve seen really good manufacturing productivity start to come through, and we think that’s going to be additive as we go through from here.
So as we step up over the next few quarters, we would expect to see some volume growth, improving our operating leverage. We would expect to see some of the benefits from our cost reduction actions, and we continue to expect to see productivity being an uplift to margins as we go through the rest of the year.
Operator: Thank you. The next question goes to Mike Dahl of RBC. Mike, please go ahead. Your line is open.
Mike Dahl: Hi. Thanks for taking my questions. Back on Roofing, just given the moving pieces between your comp differential and the business you exited, can you be more specific about what your volume expectation is for your shingle performance in 1Q? And then when we think about the full year, there — in addition to inventory dynamics last year, there were some regional differentials that may kind of reverse out this year. So when you think about the moving pieces around your comps kind of beating the industry in 1Q then trailing the industry the last few quarters going into this year, kind of how — I think Steve kind of asked around this, but how you would expect to perform versus ARMA for the full year?
Brian Chambers: Thanks, Mike. So in terms of volumes in Roofing and components, we expect those to be up modestly, I think, in the quarter. So we do see the ability to produce more shingles and more than first quarter of last year. We also are seeing higher attachment rates on our Roofing component materials that we think continues. But again, against last year’s comp, that growth rate is going to be much more moderate than we expect the overall industry to show because we were outperforming in Q4 of last year, but we are going to see some increases. And then again, we see a little bit of a headwind on the packaging exit. In terms of performance as we go through the year, I’d say we expect that we’re going to have another good year in Roofing.
The demand trends for Q1, the storm carryover, the underlying contractor demand and remodeling and reroof activity we are seeing in our contractor base would lead us to believe we’re on path for another strong year. We expect, as Todd talked about, new construction housing to step up through the year, a smaller part of the Roofing business, but again, another positive demand driver. So we would expect that to continue. It may not be operating at the same levels as last year, which was a historically high storm year off a 10-year average. We would estimate probably incremental 40% both in storm demand last year versus the historic average. So if that steps back a little bit, I think that gives us opportunities in the market to continue to grow our business.
