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Louisiana-Pacific Corporation (LPX) Q4 2022 Earnings Call Transcript

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Louisiana-Pacific Corporation (NYSE:LPX) Q4 2022 Earnings Conference Call February 21, 2023 11:00 AM ET

Company Participants

Aaron Howald - Vice President, Investor Relations

Brad Southern - Chief Executive Officer

Alan Haughie - Chief Financial Officer

Conference Call Participants

George Staphos - Bank of America

Ketan Mamtora - BMO

Susan Maklari - Goldman Sachs

Mike Roxland - Truist

Mark Weintraub - Seaport

Kurt Yinger - D.A. Davidson

Paul Quinn - RBC

Sean Steuart - TD Securities

Operator

Thank you for opinionated by. Welcome to nan Q4 2022 Louisiana-Pacific Corporation Earnings Conference Call. [Operator Instructions] Please beryllium advised that today’s convention telephone is being recorded. I would for illustration to move nan convention complete coming to Aaron Howald, Vice President, Investor Relations.

Aaron Howald

Thank you, operator. Good morning, everyone and convey you for joining america to talk LP’s results for nan 4th fourth and afloat twelvemonth of 2022 arsenic good arsenic our updated outlook for nan first 4th of 2023. As nan usability said, my sanction is Aaron Howald, and I americium LP’s Vice President of Investor Relations and Business Development. I americium joined this greeting by Brad Southern, LP’s Chief Executive Officer and Alan Haughie, LP’s Chief Financial Officer.

During this morning’s convention telephone and podcast, we will mention to an accompanying position that is disposable connected LP’s IR webpage, which is investor.lpcorp.com. Our 8-K filing is besides disposable location on pinch our net property merchandise and different materials. Today’s chat will incorporate forward-looking statements and non-GAAP financial metrics arsenic described connected Slides 2 and 3 of nan net presentation. Rather than reference these statements, I incorporated them herein by reference. The appendix of nan position besides contains reconciliations that are further supplemented by this morning’s 8-K filing.

And pinch that, I will move nan telephone complete to Brad.

Brad Southern

Thanks, Aaron. Good morning, everyone and convey you for joining LP’s convention telephone to talk our 4th fourth and afloat twelvemonth results. In 2022, LP’s 50th year, we delivered grounds siding measurement and earned $1.4 cardinal successful EBITDA and returned astir $1 cardinal to shareholders, including repurchasing 14 cardinal shares. We besides invested successful our ongoing translator by completing the conversion of our Houlton mill, starting nan conversion of Sagola from OSB to siding and increasing our capacity to nutrient export decorativeness and structural solutions. In Q4, we grew Siding Solutions nett income by 38% and stay EBITDA affirmative successful OSB contempt prices falling to levels not seen since 2019.

Another item of nan twelvemonth was publishing our 2nd sustainability report. LP’s inherently carbon-negative products and businesslike manufacturing processes, meaning that LP is delivering worth to customers, homeowners and shareholders while besides positively impacting communities and nan situation everyday. It was a genuinely singular twelvemonth and I want to convey each LP worker whose contributions thief make that possible. The caller slowdown successful lodging starts is apt apical of mind for astir of nan audience. So fto maine reside that, starting pinch a reminder that LP’s OSB and siding businesses person very different relationships pinch that underlying market. Q4 saw 26% less single-family starts than successful Q4 of 2021 and single-family starts were down 11% for nan afloat year. LP’s OSB conception is intimately correlated pinch caller residential construction. As a result, aft a singular twelvemonth of rate generation, commodity OSB prices fell to adjacent rate costs successful Q4 arsenic request slowed to trim lodging starts.

We responded pinch disciplined guidance of capacity and exceptional execution by our income team, which allowed nan OSB conception to gain $13 cardinal successful EBITDA which is supra our algorithmic guidance fixed really acold prices fell. LP Siding segment, connected nan different hand, is much specialized, has nary relationship to commodity prices and has importantly much divers channels and extremity users, pinch only astir 40% of siding measurement going to caller residential building and we deliberation SmartSide is nan champion siding merchandise available. As a result, siding has consistently outperformed nan underlying lodging marketplace pinch nett income expanding by 38% successful nan 4th fourth and by 26% for nan afloat year.

In nan 4th quarter, our siding distribution customers proceed to order, but immoderate of their customers’ pulls slowed. This resulted successful inventory build successful nan transmission of which we were unaware until precocious December owed to nan clip lag inherent successful a managed bid file. By 4th end, therefore, astir SmartSide products person yet caught up to customer request bringing lead times and inventories backmost to much seasonably normal levels. Alan will talk much astir that successful nan guidance section.

Looking back, single-family starts grew by 14% from 2020 to 2021, past fell by 11% successful 2022, ending fundamentally level complete 2 years. Over that aforesaid 2-year period, we person grown Siding Solutions gross by much than 50%. Siding is not immune to a lodging slowdown, but it has consistently outperformed nan underlying market. We are assured this inclination will proceed arsenic we execute our strategy to turn and return stock by focusing connected repair and remodel markets and driving merchandise innovation.

Let maine talk a spot astir LP’s position of nan existent marketplace and really we are navigating it. Consensus for full U.S. lodging starts for 2023 is astir $1.25 cardinal aliases 20% little than 2022, though information released past week was a spot amended than this. Most observers expect nan lodging marketplace will fortify successful nan backmost half of nan twelvemonth implying that Q1 could spot lodging starts autumn by much than 20% compared to 2022. There is important uncertainty successful lodging and R&R markets astatine nan moment, peculiarly pinch respect to liking rates and affordability.

As a consequence of this near-term uncertainty, we are seeing softer request successful siding and OSB. But I want to reenforce that LP’s strategy is not simply to hold for beardown lodging starts for precocious commodity OSB prices. Our strategy is to turn SmartSide, turn ExpertFinish, turn our vulnerability successful R&R, turn our portfolio of structural solutions and grow our rates geographically. We will proceed to execute connected our strategy, because we person shown that it delivers value. This strategy is nan logic why siding has gained stock and consistently outperformed nan lodging market.

As we person said before, we person much than capable elasticity successful our accumulation plans and superior projects to respond efficaciously to short-term weakness and much than capable liquidity to proceed investing for semipermanent maturation successful siding and structural solutions. In nan agelong run, fundamentals stay very beardown pinch demographics and structural undersupply arsenic tailwinds for caller building and aging lodging banal supporting R&R growth. LP will span nan short-term spread protecting against marketplace downside while preserving our expertise to use erstwhile nan lodging marketplace regains its footing. And we will do it by executing our strategy pinch disciplined operations and superior allocation.

And pinch that, I will move it complete to Alan to talk our financial results for nan 4th and an update connected our superior allocation strategy.

Alan Haughie

Thanks Brad. I will walk a fewer minutes reviewing LP’s capacity for nan 4th fourth and afloat twelvemonth and past I will talk nan existent marketplace situation and its effect connected our near-term outlook. Slide 7 shows siding maturation compared to lodging starts connected a trailing 12-month basis. As Brad mentioned, nan disconnect was moreover much pronounced successful nan 4th quarter. The pastry charts to nan correct show nan operation of nan astir specialized siding products, chiefly pinch ExpertFinish and Shapes. Although nan percent of full measurement shrunk by 1 percent point, this is an artifact of nan exceptional 20% maturation of wide volume, which was admittedly magnified by nan soft comp. Resulting from a property rebuild successful nan 4th fourth of 2021, ExpertFinish gross grew by 65% year-over-year.

Slide 8 shows nan 4th for siding successful much detail. The communicative is simply a reasonably elemental one. List value increases and favorable operation drove nett prices 15% higher, while measurement grew by 20%. These 2 factors added $70 cardinal to EBITDA. The ostentation of earthy materials and freight costs for conversions and accrued trading and trading produced a $32 cardinal headwind. In different words, nan EBITDA summation from maturation was double nan antagonistic effect of ostentation and investments successful early growth. The resulting EBITDA separator accrued by 6 points to 23%, again, successful nan 4th from single-family lodging starts fell by 26%.

Slide 9 tells a akin communicative for nan afloat year. 14% higher prices and 11% measurement maturation added $212 cardinal of EBITDA, partially offset by $31 cardinal of discretionary investments, meaning nary conversion costs successful trading and marketing. And aft $122 cardinal of inflation, EBITDA was $50 cardinal higher than nan anterior twelvemonth for a afloat twelvemonth EBITDA separator of 23%. By netting present pinch 2 property rebuilds, important ostentation and 11% little single-family starts.

The OSB charts connected Pages 10 and 11 are dominated by nan effect of falling OSB prices and rising earthy worldly costs. The measurement simplification is caused by marketplace curtailment precocious successful nan 4th resulted successful $61 cardinal of little EBITDA successful nan 4th fourth of 2021, $11 cardinal from commodity OSB and $50 cardinal from higher-priced structural solutions. There was a $14 cardinal deed from inflation, mostly earthy materials and a $10 cardinal effect from inventory devaluation. Despite this, high-price realization resulted successful nan OSB conception outperforming our algorithmic guidance, generating $30 cardinal of EBITDA.

While nan afloat twelvemonth waterfall connected Page 11 is again dominated by value inflation, I do want to item that nan $65 cardinal of accrued EBITDA from Structural Solutions maturation much than offset nan $41 cardinal effect from little commodity volume. This shows nan incremental separator impacts of nan higher value-add Structural Solutions products. And truthful these 4 slides are LP’s translator strategy successful a nutshell. OSB prices ebb and travel extracurricular our control, we make important amounts of rate erstwhile request and prices are precocious and we negociate our accumulation capacity pinch subject and attraction connected demand. Siding connected nan different manus is our maturation and worth creation engine, specialized products, dependable prices and our agelong runway for continued maturation good supra nan underlying market.

Slide 12 shows a very precocious level rotation guardant for nan gross and EBITDA for nan quarter. OSB value drops reduced gross by $120 million. This was almost wholly offset by $105 cardinal aliases 38% of siding growth, a singular accomplishment for nan Siding team. OSB marketplace curtailment and nan losses for Sagola’s OSB capacity further reduced gross by $37 cardinal and $19 cardinal respectively partially offset by $13 cardinal from accrued commodity OSB volume, mostly owed to Peace Valley’s ramp up. LPSA [indiscernible] and everything other saw revenues autumn by a mixed $22 million. The EBITDA communicative successful nan right-hand file is akin different than nan callout successful North America, immoderate of what we tin power specifically siding growth, Structural Solutions maturation and OSB measurement netted a $37 cardinal affirmative EBITDA contribution. It was not capable nevertheless to offset falling OSB prices and inflationary pressures pinch nan consequence that LP delivered $100 cardinal successful EBITDA successful nan 4th little than nan anterior twelvemonth 4th by $178 million.

Slide 13 provides nan aforesaid study for nan afloat twelvemonth for gross of $456 cardinal of maturation much than offset nan effect of falling OSB prices. For EBITDA, nan maturation of Siding and Structural Solutions produced $294 cardinal of EBITDA compared to 2021. Other than OSB prices, this $294 cardinal was almost capable to offset nan mixed effect of inflation, nan costs of mill conversions, Sagola’s position for outage for conversion to signing, LPSA’s EBITDA driblet and everything other presides.

Page 14 of nan position shows rate flows for nan 4th and afloat year. We began nan 4th pinch $482 cardinal successful cash. Operating rate travel of $41 cardinal is nan nett consequence of $100 cardinal of EBITDA positive $29 cardinal of moving superior decreases, little $78 cardinal successful taxes. The 4th fourth saw dense CapEx spending of $133 cardinal mostly connected nan Sagola siding conversion and Green Bay ExpertFinish description . And aft $16 cardinal of dividends and a fewer different things, our rate equilibrium fell by $99 million, ending nan twelvemonth astatine $393 million.

Finally, if you look astatine nan P&L relationship connected Page 17 of nan presentation, you will spot an $82 cardinal non-operating complaint successful nan quarter. This includes nan $78 cardinal non-cash complaint resulting from nan colony of our defined publication pension plan. This complaint is omitted from nan EBITDA and adjusted net per share.

And pinch that, fto maine move connected to nan existent marketplace dynamics and really LP’s strategy helps america respond earlier transitioning to guidance. As Brad described, and arsenic you each know, location is important uncertainty successful nan lodging marketplace LP is investing successful maturation for SmartSide, ExpertFinish, Structural Solutions to meet customer demand. As we said before, we person important elasticity to hold nan timing of capacity description projects should we expect that existent marketplace softness is apt to continue. However, we besides person much than capable liquidity to withstand to nan impermanent simplification successful rate travel that reduced customer request would imply. LP will proceed to negociate its mills and subject to meet customer demand.

In siding, we are moving done nan inventory digestion that arsenic a institution that transitioned from a managed bid record and each indications are that inventory is now slowing naturally. In OSB, conscionable arsenic we took marketplace downtime astatine nan extremity of nan quarter, we are perpetually assessing customer demand, mill inventories and OSB prices to equilibrium proviso and demand. I americium assured that this strategy will let america to negociate this play of decreased request which I dream and expect is impermanent pinch nan agility to respond up aliases down arsenic nan marketplace evolves.

Our superior allocation strategy remains unchanged though nan timing is somewhat rate travel dependent. As a reminder, that strategy is to first ain nan rate past to put successful maturation and only past to return nan remainder to stockholders via dividends and stock repurchases. In nan 4th quarter, arsenic OSB prices and rate travel fell, we did not repurchase immoderate shares, leaving our stock count astatine astir $72 million. We person a remaining Board authorization for $200 cardinal of repurchases and accordant pinch our belief that our shares are undervalued, rate travel allows will beryllium backmost successful nan market.

In position of liquidity, we retained a $550 cardinal undrawn revolver. We person $350 cardinal of semipermanent indebtedness astatine 3.625% during 6 years. We intend to protect this very beardown equilibrium sheet, but usage it to execute our strategy. While 2023 is shaping up to beryllium a twelvemonth of antagonistic rate flow, astatine slightest successful nan existent lodging statement successful OSB prices, we will negociate our CapEx and equilibrium expanse pinch due discipline. In nan first quarter, arsenic Brad mentioned, we expect inventory digestion pursuing our modulation from a managed aliases last siding pinch nan consequence that gross for Siding Solutions is expected to beryllium level to 5% little than nan first 4th of 2022, pinch value increases astir offsetting little volumes.

In OSB, assuming prices stay changeless astatine nan level published by [indiscernible], OSB gross would beryllium down by astir 20% sequentially from 4th fourth levels. With OSB prices astatine these levels, please carnivore successful mind that LP is offering nan guidance for OSB gross reflects full capacity reductions taken to lucifer accumulation to customer demand. And each of these factors would consequence successful a first 4th EBITDA of astatine slightest $35 million. Now fixed nan existent uncertainty successful nan marketplace pinch respect to afloat twelvemonth lodging and repair and remodel demand, it’s difficult to connection meticulous afloat twelvemonth guidance for Siding gross growth. However, we are assured that nan Siding conception will outperform nan underlying marketplace by a important margin. But since nan underlying marketplace itself is difficult to predict, we are going to clasp disconnected connected offering meaningful guidance until our adjacent net telephone by which constituent we expect to person greater clarity.

Similarly, for afloat twelvemonth CapEx guidance, we will make nan investments basal to turn and outperform nan underlying market. As I said, we person important elasticity successful our CapEx plans and much than capable liquidity to set up aliases down arsenic we summation much information astir customer demand.

And now I’d for illustration to manus it backmost to Brad for immoderate closing comments.

Brad Southern

Thanks, Alan. As Alan detailed, we are moving done nan effects of catching up nan Siding bid record and we are managing OSB capacity to lucifer existent marketplace demand. I don’t want to minimize near-term challenges these factors coming arsenic we participate a play of softer lodging starts. The marketplace is still rather uncertain successful lodging starts and R&R activity person ne'er been easy to predict. However, location are a fewer things we are very assured about.

First, location is structural undersupply of homes successful nan U.S. This undersupply must yet beryllium resolved. Second, nan property of nan mean location successful nan U.S. suggests a very agelong runway for maturation successful R&R. And third, we cognize that we person nan champion products and squad successful nan industry. The LP Siding conception has a agelong history of outperforming nan underlying marketplace and gaining stock and that will continue. And we will negociate our OSB capacity, our CapEx plans and our equilibrium expanse pinch subject truthful that we tin proceed to outperform nan marketplace and present results for our shareholders.

2022 was an unthinkable year. 2023 has started pinch marketplace conditions different than what we person knowledgeable nan past 2.5 years. However, we are not resting connected nan laurels arsenic we bring our first 50 years to a close, I person ne'er been much assured that LP will build connected our grounds of growth, invention and sustainability to present shareholder worth successful our adjacent 50 years.

And pinch that, we will beryllium happy to return your questions

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first mobility coming will beryllium coming from George Staphos of Bank of America. Your statement is open.

George Staphos

Hi, everyone. Good morning. Thanks for taking my questions and acknowledgment for nan details. Brad, Alan, I cognize it’s difficult, but is location a measurement to measure for america what your accumulation stance is correct now successful siding comparative to takeaway. Are you still – I’m assuming producing astatine a little complaint comparative to request conscionable to clear inventories? Or are you now – person you mostly gone done that and you’re producing arsenic acold arsenic you tin tell, beautiful overmuch successful statement pinch takeaway. And successful position of first quarter, convey you for nan guidance points, recognizing it’s very difficult fixed each nan moving parts and nan volatility related to pricing pinch OSB. Is location a measurement for you to springiness america a spot much colour successful position of really you spot OSB and siding stacking up successful that much than $35 cardinal guidance? Thank you.

Brad Southern

So George, fto maine commencement pinch nan accumulation mobility astir siding. So conscionable support successful mind that Houlton has – been Houlton statement 1 ramped up each done past twelvemonth and is correct astatine aliases adjacent to accumulation – person nan capacity to nutrient astatine afloat production. We had a governed that measurement backmost a small spot successful Houlton arsenic we went into Q4 and nan opening of Q1 good much truthful really successful Q1. And truthful we are – nan reply to nan mobility is we’re moving a siding plants astatine afloat accumulation different than Houlton, were we going to person decided to return immoderate capacity retired location conscionable to effort to lucifer nan bid propulsion done a small spot better.

Alan Haughie

And past nan 2nd question, George, was could we springiness colour astir nan $35 million. Yes. I really work together pinch you connected that. Bear successful mind, please, that nan number I americium astir to quote for OSB is based predicated retired algorithmically connected OSB prices of past Friday holding flat. So nan $35 cardinal astir breaks arsenic follows, unsmooth astir $50 cardinal from siding, astir antagonistic $10 cardinal from OSB. And past everything else, including a spot of conservatism, perhaps, LPSA offsetting firm of minus $5 million, truthful positive $50 for siding, minus $10 cardinal for OSB, minus $5 cardinal for everything else. $35 million.

George Staphos

Thanks. Alan. And nan past one, I’ll move it over. You mentioned you person nan elasticity to push up aliases hold arsenic needed successful position of your capacity ramp successful siding. What will beryllium nan cardinal mile markers for you comparative to really quickly you spell up aliases determine to propulsion back? One of your adjacent companies talked astir immoderate weakness that we’re seeing successful repair remodel activity, is that going to beryllium – whether it’s dollars of gross aliases commentary retired of nan large container retailers? What will you beryllium looking to? And what should we beryllium looking astatine arsenic analysts engaging that? Thank you. I will move it over.

Brad Southern

So George, connected nan – fto maine conscionable opportunity for property production, we’re afloat steam up connected bringing Sagola up nan afloat twelvemonth by nan extremity of nan year. We spot nary logic to backmost disconnected astatine each and nan way guardant for Sagola start-up, which added a important magnitude of property capacity. Similarly, successful Bath, New York, we’re afloat staying up connected that accumulation for ExpertFinish. And past arsenic we get to nan adjacent tier of measurement from a property capacity standpoint, that would beryllium clasp connected statement 2 and past various options connected ExpertFinish, we will conscionable beryllium looking astatine nan marketplace arsenic we spell done nan year, looking astatine yet what we consciousness for illustration maturation will beryllium for this twelvemonth and use that good and besides look complete what we expect for lodging nan adjacent mates of years. And those will pass our determination connected whether to – aliases what benignant of gait to proceed that capacity description . We’re still actively progressive successful engineering and creation for ExpertFinish capacity beyond that. And arsenic we’ve talked astir connected nan telephone previously, we person begun procurement for different superior components for Houlton Line 2. But we haven’t – we’re not – we haven’t delayed anything. We haven’t had galore decisions connected opening to really put still connected nan crushed aliases for foundations. And arsenic we get to nan outpouring and summer, we will person a amended consciousness for what nan marketplace is looking for illustration successful nan near-term, and past we will govern our capacity walk astir nan reality of what we’re seeing successful nan bid file.

George Staphos

Thank you.

Brad Southern

Welcome.

Operator

Thank you. [Operator Instructions] And our adjacent mobility will beryllium coming from Ketan Mamtora of BMO. Your statement is open.

Ketan Mamtora

Thank you. Good morning, Brad, Alan, Aaron. First question, coming backmost to Siding, Alan, successful your prepared remarks, you talked astir meaningfully outperforming nan wide market. Is that a measurement to deliberation astir either successful position of sensitivity aliases if location is simply a amended measurement to deliberation astir benignant of nan grade of outperformance aliases benignant of measurement maturation astatine different lodging starts level? I’m conscionable trying to understand what is nan benignant of – what is nan champion measurement to deliberation astir measurement successful nan Siding business, recognizing that location is still a batch of uncertainty?

Alan Haughie

Yes, it’s a awesome question, and it’s a very difficult mobility to answer, peculiarly fixed that our acquisition complete nan past mates of years, we put connected a managed to bid file. But very precocious level of sufficiently for periods of time, we judge that we outperform connected a gross basis, nan underlying marketplace by let’s say, 8 to 10 percent points of growth. And truthful a elemental measurement of articulating that. And I opportunity nan underlying market, we’ve only really sewage 1 clear marker of nan market, and that’s single-family housing. And truthful single-family lodging will, let’s say, to beryllium down 10%. And I would reason that we should beryllium capable to turn our gross supra that. And that model, you mightiness expect level gross year-over-year. Of course, it depends connected what and to what grade that’s impacted by nan lodging – single- family lodging starts. And I would argue, and I’d for illustration to deliberation that a 10% lodging decline, we mightiness really spot immoderate spot successful repairment model, and possibly that will beryllium better. So it’s flexible, nan lodging don’t needfully move successful tandem, but we usage it arsenic a elemental moving exemplary 8 to 10 points amended than nan market. However, immoderate that marketplace ends up being – and we judge we person a agelong history of each capable to do that done marketplace stock gains, partially driven by our innovations.

Ketan Mamtora

Got it. No, that’s adjuvant perspective. And Alan, possibly I missed it. Did you talk astir benignant of 2023 CapEx guidance?

Alan Haughie

No, I didn’t rather specifically. And it’s very difficult to springiness guidance successful – without being capable to talk it successful a benignant of unfastened shape for illustration this. So past – I deliberation past mates of quarters, I’ve guided to – I said nan 2023 will beryllium a fig person to $500 million. I’m evidently going to little that guidance a bit. But fto maine show you what our moving exemplary is arsenic of today, and I’m happy to do that because it indicates that nan range. I would opportunity our moving exemplary for CapEx. This is not a projection. This is fundamentally describing what we spot and nan level of elasticity we deliberation would beryllium wise. Our moving exemplary is successful nan scope of $350 cardinal to $450 cardinal of CapEx successful 2023. It’s difficult to say, arsenic Brad said, wherever that will onshore because we will usage nan elasticity that we have. Q1 CapEx will beryllium beautiful heavy. I’m consenting to quote a number of thing for illustration $120 cardinal to $125 cardinal of Q1 CapEx nan but that will beryllium reasonably heavy. And we person a number of commitments for agelong lead clip items that we intend to play up with. And of course, we’re creating spilled up. So location is nary – perfectly nary slowdown there.

Ketan Mamtora

Understood. No, that’s very helpful. I’ll jump backmost successful nan queue. Good luck.

Operator

Thank you. [Operator Instructions] Our adjacent mobility is coming from Susan Maklari of Goldman Sachs. Your statement is open.

Susan Maklari

Thank you. Good morning, everyone. My first mobility is talking a spot astir nan pricing situation for Siding. First of all, I guess, tin you springiness america immoderate update connected nan occurrence that you’ve seen pinch that summation that you announced successful – I judge it was precocious past year, effective successful early January. And past successful this environment, pinch volumes moving lower, really do you deliberation astir value versus volume? What’s nan expertise to proceed to clasp nan pricing that you’ve realized? And would you beryllium consenting to deliberation astir nan measurement versus value a small otherwise fixed wherever we are from a macro and a lodging perspective.

Brad Southern

Susan, for nan first question, we were capable to instrumentality our value summation January 1. I would opportunity conscionable arsenic accordant pinch nan measurement we’ve done it successful nan past, location could beryllium a small lingering effect done Q1 of realization, but predominantly each of it was accepted successful nan marketplace. So we person minimal concerns there. And past for nan value measurement trade-off, generally, siding doesn’t activity that way. I mean, location is – we’re pricing successful nan distribution. I don’t deliberation astir citing jobs are a costs play to commencement with. And truthful we consciousness for illustration we’re pricing nan merchandise balanced to nan value-add warrants successful nan marketplace and our distribution partners person done a bully occupation of getting that value done nan channel. Now I do want to opportunity location is an objection to that and that is astir of ample nationalist builder deals, which typically do require immoderate back-end rebates. And obviously, we’re portion of that crippled and we are progressive successful and continuing to process those benignant of opportunities now. And that tin consequence successful a rebate shape that ships distant astatine that database value summation for circumstantial customers and for ample measurement type of deals. But I’ve sewage – I would conscionable say, for nan year, we should expect to spot by nan clip we get to nan 2nd 4th that January value summation has worked its measurement into our P&L.

Susan Maklari

Okay. That’s very helpful. And past turning to nan OSB segment, you talked a spot astir immoderate accumulation curtailments there. Can you springiness america much colour connected immoderate of those locations and really you’re reasoning astir holding accumulation arsenic we deliberation astir wherever pricing whitethorn move for OSB done nan year?

Brad Southern

Yes, Susan, I’m not going to spell done mill by mill and talk astir what we did. I would opportunity – I would picture it this measurement and Q4 was beautiful wide crossed our full system. With downtime that is somewhat easier to do during nan vacation season. And truthful we – it was a wide distribution of downtime precocious successful Q4 to effort to lucifer demand. And past arsenic we travel into nan Q1 and everybody comes backmost from nan holidays, it is much targeted astir mill costs and including nan proscription and truthful successful Q1, nan downtime will beryllium a small spot much concentrated, but we will beryllium taking arsenic needed successful bid to lucifer demand. Thank you,

Susan Maklari

Okay, convey you and bully luck.

Brad Southern

Thank you, Susan.

Operator

Thank you. [Operator Instructions] Our adjacent mobility is coming from Mike Roxland of Truist. Your statement is open.

Mike Roxland

Thank you. Good morning, Brad, Alan and Aaron. Thank you for taking my questions. Just connected Siding, realizing [indiscernible] springiness an excess inventory and arsenic you’ve mentioned, you’ve transitioned distant from a managed bid record I’m conscionable trying to get a consciousness of what gives you nan assurance that Siding will proceed to turn arsenic nan system softens, location equity worth declines, unemployment increases? And nan premise of nan mobility is this, you grew nan Siding business during an economical and lodging up cycle, and it really has yet to beryllium accent tested during a down cycle. In addition, R&R apt grew much than normal successful nan past fewer years, fixed activity from location people, obviously, during acold building retired building sheds, different things during nan luncheon break. So location is simply a consequence that R&R could really slow much fixed nan backdrop and arsenic consumers take to attraction on, let’s say, connected much mini summons items. I’m conscionable trying to get a consciousness of really you’re framing Siding successful nan existent environment.

Brad Southern

Yes. So Michael, truthful you nan consequence that you described astir conscionable immoderate benignant of macro R&R walk is real. And past we – arsenic we talked astir successful our prepared remarks, nan outlook for caller building is uncertain to opportunity nan slightest correct now benignant of each complete nan committee depending connected nan analysts that you look at. And truthful nan underlying marketplace surely will effect nan results for Siding measurement maturation arsenic we spell done this year. No mobility astir it. But wherever I disagree pinch you is nan constituent astir nan business not being accent tested during different periods of downtime of a lodging slowing aliases lodging going down. We’ve consistently outpace nan marketplace connected measurement maturation and surely connected gross growth. And truthful I deliberation – and nan logic we’ve been capable to do that is, first of all, our portfolio is beautiful highly diversified fixed nan vulnerability to non-housing and moreover non-repair and remodel segments for illustration shed and successful positions successful unit and past besides complete nan past 5 to 7 years. We’ve done a really bully occupation astir merchandise invention that has opened up caller opportunities for us, and that’s why we show that descent successful our platform astir nan percent of nan gross that is caller products.

So nan truth that we person an ExpertFinish benignant of conscionable coming into immoderate benignant of important marketplace position now. R&R could beryllium down, but because of our marketplace stock being beautiful debased successful R&R and nan truth that we’re fundamentally successful nan past phases of introducing our ExpertFinish to nan market. We spot that – we spot a batch of upside to that from a marketplace stock standpoint. Again, we can’t flooded R&Rs down, of Siding R&R down 10%. This year, we’re going to consciousness that. But we are assured that location is still – we still person nan ability, fixed really good our merchandise performs fixed nan invention that we’ve been capable to bring to marketplace successful nan past 5 years aliases so. And fixed depending connected nan surface science and nan segment, comparative little penetration rates successful definite parts of nan state successful definite segments, we are assured that we’re going to capable up arsenic a spell facility. From a property standpoint, we’re assured we’re going to person to proceed to build ExpertFinish capacity, and we’re assured we’re going to grow. But that maturation tin beryllium gauged somewhat by nan underlying R&R and single-family historical market. But we’re each successful connected gaining marketplace stock and I’ll conscionable make 1 last remark. Historically, this is simply a wide statement, but historically, that we’ve really picked up much marketplace stock successful a down marketplace successful nan upmarket and person been capable to clasp that marketplace share. So I’m not opportunity excited astir a down marketplace astatine all. But I do judge that it brings opportunity for customers to shop astir a small bit. And fixed nan – really good our merchandise performs erstwhile we get a trial, that tin bode beautiful good for america complete nan long-term.

Mike Roxland

Got it. Thank you. Just 1 speedy follow-up connected that, conscionable you mentioned little penetration rates successful definite parts of nan state and segments. Can you supply a small spot much colour astir what parts of nan state and what segments person little penetration rates that you’re trying to summation your share?

Brad Southern

Yes. So fto maine conscionable – successful general, truthful geographically, successful nan halfway of nan country, northbound to south, truthful Texas up to Minnesota, and we’ve sewage bully marketplace stock there. But if you erstwhile you spell eastbound of Texas and nan South of nan Atlantic Sea Board, a batch of opportunity location for some caller building and repair remodel astatine nan logic – we’ve converted Houlton successful Maine and 3 much building ExpertFinish capacity successful New York and expanding nan capacity that we person successful North Carolina for ExpertFinish. So location is an opportunity there. And past I would opportunity that location is been pockets of nan Pacific Northwest, location are immoderate bully markets for america location historically, but location is still opportunity for growth, peculiarly pinch ExpertFinish.

Mike Roxland

Got it. And past conscionable 1 past mobility earlier turning it over. Obviously, you person a ample shareholder which somewhat accrued its liking past 4th to somewhat nether 10%. Obviously, you’ve been doing a bully occupation successful position of reorienting nan portfolio to higher growth, higher value-add products. Do you spot much shareholder worth being created done nan engagement of nan shareholder?

Brad Southern

Well, possibly reputationally, it helps a small bit, but I don’t deliberation location is immoderate nonstop and we haven’t noticed immoderate nonstop amended shareholder worth arsenic a consequence of that. But I mean, we’re proud to person it. I’ll show you that. But I deliberation immoderate – truthful not directly, but I would presume that nan credibility that brings to our strategy cannot hurt.

Mike Roxland

Got it. Good luck successful 2023.

Brad Southern

Thank you.

Alan Haughie

Thanks Mike.

Operator

Thank you. [Operator Instructions] Our adjacent mobility is coming from Mark Weintraub of Seaport. Your statement is open.

Mark Weintraub

Thanks guys. So, for first quarter, if I americium doing my mathematics right, you look to beryllium pointing to bid of magnitude 16% EBITDA margins for nan siding business. So, I was hoping to get a small spot of colour connected immoderate of nan variables astatine play, evidently beneath nan types of ranges you person been achieving beforehand. In particular, really overmuch successful nan measurement of for illustration start-up aliases conversion costs related to Sagola mightiness beryllium included successful there? How overmuch of this is benignant of conscionable fixed absorption higher costs and what different variables mightiness we want to contemplate too that – what different variables mightiness we want to contemplate?

Alan Haughie

Yes. Good question, Mark. Let maine articulate this successful nan discourse of a year-over-year for Q1. Year-over-year, we fundamentally said that we deliberation much aliases little pricing and measurement will offset and that would fundamentally time off zero EBITDA impact. What you are near pinch precocious level is past year’s EBITDA of $83 cardinal dropping to nan fig astatine adjacent to $50 cardinal drop. About $20 cardinal unchanged of that is earthy worldly costs, nan bearer and earthy worldly inflation. Now, arsenic we each know, usually that would beryllium offset pinch pricing. And technically, it is isolated from for nan truth that successful Q1 volumes are down, truthful differently, yes, pinch volumes being down. One of nan problems of having profitable merchandise is that erstwhile your volumes are down, you make little money. And arsenic I person said, much than months connected calls for illustration this, we bask a precocious adaptable separator connected nan outstanding products. So yes, erstwhile volumes are down year-over-year, location is simply a dense EBITDA effect of 45% to 50% of nan gross driblet caused by volume. So, nan measurement I look astatine it is pricing and volume, EBITDA impacts fundamentally nett off, we are near pinch $20 cardinal and alteration of earthy worldly and past $5 cardinal to $10 cardinal of yes, continuing investments. So, that’s really really it compares year-over-year. We are readying connected pinch nan conversion of Sagola and different projects. And those do put a, let’s telephone it, a strain connected nan EBITDA. But it’s nan correct strain, successful my opinion. So, $10 cardinal of investments successful worldly and astir $20 cardinal and alteration of earthy worldly pinch pricing and measurement impacts offsetting successful EBITDA.

Mark Weintraub

Great. Thank you. And I recognize this is reliable and tons of moving pieces. But did you person immoderate appraisal arsenic to really overmuch of nan measurement weakness is either you sold a small spot up of clip aliases destock is benignant of really possibly nan aforesaid point and truthful really trying to get a consciousness of let’s conscionable opportunity conditions were to stay akin to what they are. Would you – what type of measurement betterment mightiness you expect connected a go-forward basis. I conjecture what I americium really benignant of conscionable trying to get a consciousness of is benignant of ranges for measurement expectations, recognizing you don’t want to springiness a afloat twelvemonth estimate fixed each these uncertainties, but if location is immoderate for illustration benignant of sensitivity study you tin supply to america nether nan different macro situations of wherever you mightiness deliberation measurement and siding mightiness travel out, that would beryllium ace helpful.

Brad Southern

So, Mark, fto maine commencement there, and Alan tin adhd possibly immoderate colour to this. But – truthful successful nan discourse of gauging wherever we are today, and I americium talking astir Q1 comparative to nan marketplace condition. We guided 30% maturation successful Q4 and sewage 38%. We had a value summation January 1. We were each managed bid file, which intends customers are ordering six weeks to 8 weeks aliases longer retired successful our managed bid costs situation. And truthful I do judge that location was immoderate bid propulsion guardant into Q4 that allowed – that drove an outstanding Q4 maturation comparative to what we were guiding to erstwhile we talked to you guys precocious October, first November. And truthful I deliberation that we person sewage to benignant of look astatine nan 2 quarters mixed to understand benignant of what’s happened there. And past arsenic we look into Q2, location is simply a spot of that gauging what are really connected pull-throughs, which person been benignant of difficult to understand because location was nan inventory build astatine nan extremity of nan quarter. But I deliberation we are correct now – it feels for illustration correct now successful our bid file, we are opening to spot wherever we are servicing existent demand. And I think, arsenic Alan, I deliberation mentioned successful his prepared remarks, erstwhile we get to – I cognize this doesn’t thief you successful nan meantime. But erstwhile we get to nan adjacent call, we will person a really bully consciousness for that. It’s conscionable that nan uncertainty astir what was being pulled retired of distribution from, say, January 1, until a week aliases truthful agone has been difficult for america to gauge because location was an inventory build arsenic a consequence of what I person conscionable spoken to. So, I don’t cognize Alan, if you…

Alan Haughie

There’s isn’t thing I should adhd to that.

Mark Weintraub

Great. And conscionable squeezing existent quickly because you did statement different large ostentation year-over-year effect it seems for illustration immoderate folks are seeing little wood costs successful different different businesses. I mean location has been immoderate optimism, possibly resin comes down a small bit. When mightiness we commencement – are we not seeing that yet successful siding? And erstwhile mightiness that commencement showing up?

Brad Southern

So, connected nan resin broadside and basically, conscionable to opportunity each materials different than wood, those awesome worldly streams are contracted and location is simply a statement value which is based connected immoderate derivative of oil, but it is simply a lag. And truthful – but if we proceed to spot lipid prices autumn and moreover immoderate that we person – immoderate of that person fallen arsenic already happened. We haven’t realized yet. Certainly, it could beryllium adjuvant for separator this year. We surely are not seeing immoderate much increases successful that area. And past connected nan wood side, aforesaid thing, a large driver for us, and we are buying pulp wood. So, a large driver for america is based arsenic acold arsenic america getting nan wood into nan facilities. And but I will opportunity structurally, we person knowledgeable immoderate value increases and to work our Canadian mills owed to america having to spell further to procure wood, fixed immoderate of nan restrictions connected harvesting successful Canada. And truthful you whitethorn not beryllium amazed america were from an OSB perspective, that’s wherever we are looking astatine immoderate downtime. But I deliberation costs for mean people arsenic we spell done nan year, surely connected nan resin side, and we are having to conscionable really negociate difficult connected nan wood broadside to bring those costs down. But alleviation pinch diesel pricing would beryllium surely adjuvant there.

Mark Weintraub

Much appreciate. Thanks guys.

Operator

Thank you. [Operator Instructions] And our adjacent mobility is coming from Kurt Yinger of D.A. Davidson. Your statement is open.

Kurt Yinger

Great. Thank you and bully greeting everyone. Just starting disconnected connected nan OSB segment, immoderate thoughts connected nan comparative weakness successful Structural Solutions versus commodity volumes successful Q4? And do you deliberation that reflects possibly timing differences successful position of prices declining aliases benignant of a larger inclination we should beryllium alert of successful position of those products, possibly being little successful demand, weaker commodity pricing environment?

Brad Southern

Yes. We surely saw from an wide measurement standpoint, those spell down. I conscionable deliberation chiefly nan marketplace sewage truthful competitory successful Q4 arsenic folks were benignant of rationalizing inventory and production. We surely saw a falloff there. I americium wholly optimistic connected nan semipermanent astir our expertise to turn Structural Solutions. But I do deliberation –I deliberation successful some directions successful a beardown market, it’s easier to push structural solutions into nan marketplace successful a difficult down market, those – fixed wherever really pricing could lag astir definite merchandise SKUs. We tin really go that those SKUs could really go disadvantaged against much commodity products. And truthful I deliberation we person to beryllium observant of nan astir gauge and wherever we are, some connected nan upside and downside of Structural Solutions because of that benignant of worth nan worth proposition we get retired of kilter from a pricing standpoint erstwhile nan marketplace is moving. So, it’s thing that we are keeping an oculus on, but I do judge nan strategy is sound. We did turn it, obviously, from an yearly standpoint. And conscionable for illustration I had mentioned earlier pinch siding, we person introduced immoderate really breathtaking caller SKUs to springiness america an opportunity to proceed to turn that.

Kurt Yinger

Got it. Okay. That makes sense. And past conscionable for my second, location was a mobility earlier astir pricing and you alluded to benignant of nan measurement discounts and rebate programme pinch builders. But 1 of your competitors, I conjecture had immoderate absorbing comments successful regards to benignant of nan pricing move location and possibly conscionable getting much aggressive. I mean do you person immoderate thoughts astir that move arsenic it relates to SmartSide. And possibly you could besides conscionable touch connected nan occurrence that you person seen pinch nan builder bid introduction.

Brad Southern

Yes. We are excited astir nan advancement we made past twelvemonth pinch nan builder series. We are excited astir immoderate wins that we person had precocious and immoderate ongoing negotiations that are happening now. But it is competitive. I mean location is nary mobility astir it. That’s nan logic we engineered a merchandise specifically for that transmission aliases that extremity use. And truthful arsenic nan marketplace slows – location is surely that’s a competitory scenery correct location wherever large builders person negotiating leverage fixed nan measurement that they will devour and nan marketplace stock that they person gained during COVID. So – but dissimilar successful our history, we now person a merchandise that is very competitory there. That is very esthetically pleasing. It is – erstwhile it is trialed. It seems to – tends to beryllium accepted and location is stickiness to it. So, we are going to proceed to turn that. But you pointed retired correctly that, that is simply a competitory landscape, dissimilar astir apt immoderate different we run in, wherever value tin beryllium a ascendant driver sometimes moreover not needfully what we position arsenic nan full worth proposition. But I consciousness bully astir our – nan measurement we are positioned to triumph there, but we won’t triumph them all.

Kurt Yinger

Right. Okay. Well, admit nan details. I will move it over. Thank you.

Brad Southern

Thank you.

Operator

Thank you. [Operator Instructions] Our adjacent mobility will travel from Paul Quinn of RBC. Your statement is open.

Paul Quinn

Yes. Thanks very much. Good greeting guys. Just 1 of your siding competitors signed contracts pinch 24 to 25 apical U.S. builders to proviso difficult siding. Just wondering really you expect that to impact your builder series. Also, they person besides reintroduced their debased value Cemplank product. Just wondering that’s going to person a worldly headwind connected benignant of nan maturation of builder series?

Alan Haughie

Yes. As I person conscionable mentioned, it’s a very competitory section astir large builder thigh siding. But I really consciousness for illustration nan merchandise that we introduced, Paul, that BuilderSeries is simply a superior merchandise of everything that’s retired location for that application. We are capable to value it competitively, I mean to triumph our stock of nan opportunities. But it’s a negotiated deal. It’s a batch of measurement involved. And we will benignant of person to spot really it plays retired this year, but nan marketplace stock we gained past twelvemonth is sticky. And past – truthful I mean, I deliberation I americium assured that we tin conflict head-to-head pinch anybody astir that type of business now fixed that we person this product. And I americium besides assured that erstwhile a builder tries nan merchandise they are going to really for illustration it because it’s superior to their replacement difficult sidings. But I don’t circle backmost around, it’s a competitory scenery and sometimes you tin triumph disconnected a value – and sometimes nan value gets excessively and fro, we don’t want nan business anymore. And past we person to locomotion distant aliases we suffer it because we bid excessively precocious for it.

Paul Quinn

Got it. Thanks for that. And past conscionable complete connected ExpertFinish, if you could springiness america an thought of what that separator boost is connected that product. I mean it’s awesome to spot nan growth. Just wondering really that affects nan wide separator profile?

Brad Southern

Significant value station associated pinch ExpertFinish, nan margins those coming isn’t that material, Paul. But arsenic we get these newer lines up successful bath and nan description that we person contemplated retired West, nan facility, nan statement we conscionable added astatine Green Bay. There is simply a – nan separator boost from ExpertFinish is up of us. But it’s presently successful our – pinch our reported margin, it’s benignant of immaterial. It’s beautiful overmuch a lavation correct now.

Paul Quinn

Okay. Great. Best of luck guys. Thanks.

Operator

Thank you. [Operator Instructions] Our adjacent mobility is coming from Sean Steuart of TD Securities. Your statement is open.

Sean Steuart

Thank you. Good greeting and acknowledgment for each nan thoughtful answers to nan questions. I conscionable person one, and it’s pinch respect to nan stock buyback program. And Alan, I deliberation your wording was you could stay – you could decorativeness disconnected that programme taxable to rate travel supporting it and pinch perchance a tempered CapEx outlook. Is location an accusation location that you forgo nan stock buyback activity for nan foreseeable future? And presuming your thoughts connected intrinsic worth haven’t really changed, I conjecture your intent to enactment progressive connected that programme successful ray of stock value weakness we person seen of late?

Alan Haughie

I want to reiterate something. It’s a awesome question. Thank you. We don’t bargain opportunistically. So, yes, for illustration this, 1 mightiness imagine, I wish we return nan opportunity to bargain backmost shares. But we put investments successful nan business first arsenic I will repetition my mantra, that we put investments successful nan business first, and we don’t bargain opportunistically. So, we do support that subject that we person to person nan rate already generated to prosecute successful buybacks. And I americium judge that constituent will come, I conscionable can’t foretell well.

Sean Steuart

Understood. And nan remainder of my questions person been answered. Thanks very much.

Alan Haughie

Thank you.

Operator

Thank you. This concludes today’s Q&A session. I would for illustration to move nan telephone backmost complete to Aaron Howald for closing remarks. Please spell ahead.

Aaron Howald

Okay. Thank you, usability and convey you everyone for joining us. We are astatine nan hr and location are nary further questions. So, we will bring nan 4th fourth net telephone for LP Building Solutions to a close. Thank you very overmuch for joining us, and we look guardant to speaking pinch you again soon.

Operator

This concludes today’s convention call. Thank you each for joining, and please bask nan remainder of your day.

Editor: Naga



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