U.S. Markets close in 3 hrs 45 mins

Edited Transcript of LPX earnings conference call or presentation 6-Aug-19 3:00pm GMT

Q2 2019 Louisiana-Pacific Corp Earnings Call

NASHVILLE Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Louisiana-Pacific Corp earnings conference call or presentation Tuesday, August 6, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Alan J. M. Haughie

Louisiana-Pacific Corporation - Executive VP & CFO

* Michael Emory Kinney

Louisiana-Pacific Corporation - Director of IR & Treasurer

* William Bradley Southern

Louisiana-Pacific Corporation - CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Clyde Alvin Dillon

Vertical Research Partners, LLC - Partner

* John Rider

Stephens Inc., Research Division - Associate

* John Plimpton Babcock

BofA Merrill Lynch, Research Division - Associate

* Ketan Mamtora

BMO Capital Markets Equity Research - Analyst

* Mark Adam Weintraub

Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst

* Paul C. Quinn

RBC Capital Markets, LLC, Research Division - Analyst

* Steven Pierre Chercover

D.A. Davidson & Co., Research Division - MD & Senior Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and welcome to the Second Quarter 2019 Louisiana-Pacific Corporation Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Mike Kinney, Treasurer, Director, Investor Relations. Mr. Kinney, you may begin.

--------------------------------------------------------------------------------

Michael Emory Kinney, Louisiana-Pacific Corporation - Director of IR & Treasurer [2]

--------------------------------------------------------------------------------

Thank you, Sarah, and good morning, everybody. Thank you for joining our conference call today to discuss LP's financial results for the second quarter of 2019. I'm Mike Kinney, Director and LP Investor Relations and Treasurer. I'm joined today by Brad Southern, LP's Chief Executive Officer; and Alan Haughie, LP's Chief Financial Officer.

As we've done in the past, we've opened up this call to the public and are doing a webcast. The webcast can be accessed at www.lpcorp.com. Additionally, to help with the discussion, we have provided a presentation with supplemental information that should be reviewed in conjunction with the earnings release. I will be referencing these slides in my comments this morning. Also, we have filed our 10-Q and an 8-K this morning with some supplemental information.

I do want to remind all participants on the call about the forward-looking statements comment on Slide 2 of the presentation. Please also be aware the discussion of our use of non-GAAP financial information included on Slide 3 of the presentation. The appendix attached to the presentation has some of the necessary reconciliations that have been supplemented by the Form 8-K filing we made this morning. Rather than reading these 2 statements, I incorporated them with this as reference.

Now let me turn the call over to Brad.

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [3]

--------------------------------------------------------------------------------

Thanks, Mike, and thank you all for joining us this morning. I'll begin today's call with a few highlights on the second quarter, an update on our growth and efficiency initiatives all in the context of the current market environment, and then turn the call over to Alan for a more detailed look at our results.

But before I do any of that, I want to take a moment to recognize Mike Kinney. Mike has decided to retire from LP effective the end of September. Mike joined us in 1985. He was a key member in the move of the financial function from Portland to Nashville. For the past 10 years, Mike led business development and investor relations. He has played a key role in multiple acquisitions and divestitures, and participated in countless analyst and investor meetings. He had a responsibility for treasury last year and, most recently, effectively served as the interim CFO during the search period. We appreciate Mike's service and many contributions to LP's success over the years and wish him much future happiness.

I would also like to acknowledge, in addition to the LP team, in June, Nick Grasberger, joined our Board of Directors. He's the Chairman and CEO of Harsco Corporation, a global market leader providing environmental solutions for industrial waste streams and innovative technologies for the rail and energy sectors. Nick's financial expertise and executive leadership experience make him a valuable addition to our Board. He brings a compelling record as a successful CEO and CFO. We look forward to his strategic insight as we continue to execute our transformation to a leading building solutions company. We welcome Nick to the LP team.

Now I'll move to our second quarter performance, highlights of which are shown on Slide 5. This is the most difficult economic climate we've encountered in the 2 years since I became LP's CEO. Compared to 2018, total housing starts were down 3% in the second quarter with single-family starts down 6%. Record-setting rainfall for the first half of the year, especially in the South, were cited as a constraint across our builder and supply chain customers. The continued shortage of skilled labor has exacerbated this situation for many builders are making up for the delay. In this market, even growing SmartSide Strand proved to be a challenge, which I'll address in a moment.

This challenging market environment makes the transformation underway at LP all the more important. I want to take this opportunity to highlight 3 areas where our focus on shareholder value is driving improved results. We are creating value through our operating discipline, our growth agenda and our people.

I'll start with the operating discipline within our OSB business. Today, we run our mills to meet customer demand, producing only for active orders. As a result, our North American OSB sales volumes were down 13% year-over-year even though for the APA, overall OSB industry productions fell by just 2%.

During the first 6 months of the year, we took sporadic downtime across our entire OSB network in order to match OSB output to customer demand. We did this while maintaining excellent cost control and positive OSB EBITDA through the first 6 months, but I would not describe this operating scenario as optimal. Therefore in June and following a thorough review by the OSB team, we decided to remove all commodity OSB production from our Siding mills for the remainder of the year, and we decided to [then] only curtail production at our Peace Valley facility in British Columbia.

While regrettable for the dedicated Peace Valley workforce, this decision allows a more systematic management of downtime and improves the efficiency of our remaining network of mills while reducing fixed operating cost by roughly $2 million per month from September onward. All things considered, this was a rapid and agile response to market conditions and a new approach for LP. As the year progresses, we will continue managing commodity OSB production to demand at our mills, taking downtime even curtailments as needed.

Which brings me to the second highlight, our growth agenda. During our last call, I discussed the organization of our branded, value-added OSB products into a family of structural solutions designed to solve common construction problems by improving the strength and integrity of a home. In the second quarter, Structural Solutions accounted for 42% of total OSB volumes sold compared with 38% a year ago, leading us closer to our long-term goal of 50%.

In June, we acquired Prefinished Staining Products, Inc. or PSPI located in Green Bay, Wisconsin. PSPI has been offering prefinished LP SmartSide trim and siding for several years. We believe the prefinished siding market will continue to grow significantly and acquiring PSPI provides us with the facilities, capability and expertise to enter this market. PSPI will operate as part of LP Siding business and has been renamed LP Green Bay. The PSPI acquisition is a significant step toward our goal of launching a national LP SmartSide-branded prefinished siding solution at next year's International Builders' Show.

You will recall at the beginning of this year, we added 2 new products for our growing portfolio, Smooth SmartSide Strand and LP WeatherLogic air and water barrier sheathing. In June, we started production of our third launch of the year, LP Elements Performance Fencing, a significant innovation in the fencing industry. Using SmartSide Strand technology, we now offer the first and only engineered wood fencing product. Commercial shipments began in July, and we are committed to making LP Elements Fencing a game-changer for the installers and homeowners.

Which brings me to perhaps the most important aspect of our growth strategy, SmartSide Strand. It is rare to achieve a consistent double-digit growth in the building industry. Since it was launch in 1997, LP SmartSide trim and siding has been one of the industry's biggest success stories for both homebuilding and repair/remodel. I was therefore disappointed by the 3% revenue growth we posted this quarter. Having been in this business for most of my career, I know all too well that a growth curve can be lumpy.

At the outset of the year, we projected annual growth of 12% to 14% for SmartSide Strand, guiding to the lower end of the range on the expectation of flat housing. But housing hasn't been flat. Single-family housing starts to fell by 3% in the first quarter and we posted a healthy 13% growth helped by our customer's pre-buy ahead of our March price increase. This was followed by a 6% drop in single-family housing in the second quarter, which softened pull-through demand from builders and contractors and ultimately slowed our growth.

We believe that about 40% of SmartSide revenue is tied to single-family housing. While imperfect as a market indicator for SmartSide, single-family starts provides a useful guide for underlying demand over the long term. The chart comparing our growth in single-family housing starts on a trailing 12-month basis is shown on Slide 6. By this measure, single-family housing starts have fallen by 3% while SmartSide has grown by 10%. In other words, over the last 12 months, we have grown 13 points faster than the closest underlying market indicator, which is quite remarkable.

However, with permits also falling off recently, we are expecting year-over-year housing activity to be only marginally better in the second half. We are seeing some resilience in the repair/remodel markets, which are outperforming new construction. And we remain more bullish on that sector as increasing home values and overall home equity continue to drive investment in remodeling, which will continue to benefit our Siding business.

Our growth expectations for the second half of the year therefore remain unchanged, namely 12% revenue growth on the assumption of flat housing. So with 8% growth in the first 6 months, we are lowering our full year growth expectations for SmartSide Strand to 10%. With the likelihood of a slower housing market for the foreseeable future, we are also lowering our long-term growth target from 12% to 14% to 10% to 12%.

Our Siding growth strategy remains unchanged and includes strategically targeting key customers and channels with an expanded product portfolio, such as prefinished and smooth siding, and accelerating growth in the less cyclical Repair and Remodel segment. We have a talented high-performing team executing our Siding sales and marketing strategy, and I have every confidence they will continue to outperform the market.

Which brings me to the third highlight, our people. I am immensely proud of the dedication and commitment shown by everyone at LP to drive our strategic agenda forward. Thanks to their efforts, this quarter we have added a further $9 million in overall equipment effectiveness and supply chain improvements, bringing our total for the first 6 months to $17 million.

In the first quarter, we reported an OEE improvement of almost 5 points over 2018 and have achieved similar improvement through the second quarter. OEE is our measure of manufacturing efficiency, and its improvement was again the largest-single contributor for the $9 million of operational efficiencies generated this quarter. This leaves me more confident than ever that we will meet our [4Q] -- our 2021 efficiency improvement goal of $75 million.

Our teams achieved this by having the courage to challenge previously accepted norms by striving to make LP a better company, a better performer and a better place to work. And perhaps most important of all, we are acting like owners by doing everything in our power to execute in a challenging market. Given the downtime we took at both OSB and Siding mills during the second quarter, costs were universally well contained not only in operations but also in our corporate functions.

When combined with the growth of SmartSide Strand and Structural Solutions, we are ahead of target, delivering $44 million for our 2021 goal of a $165 million EBITDA improvement. This progress comes amid a challenging economic environment which saw a third consecutive quarter of declining housing starts and OSB prices falling by almost 50% year-over-year. But despite the market, here at LP we will remain focused on executing our strategy and driving shareholder value through our operating discipline, our growth agenda and our people.

And on that note, I'll turn the call over to Alan for a detailed review of our second quarter results. Alan?

--------------------------------------------------------------------------------

Alan J. M. Haughie, Louisiana-Pacific Corporation - Executive VP & CFO [4]

--------------------------------------------------------------------------------

Thanks, Brad. In addition to reviewing the consolidated results for the quarter, I'll be providing high-level revenue and the EBITDA bridges between this year and last year for the Siding and OSB segments and briefly updating you on the progress of our capital allocation plan. Throughout my prepared remarks, I'll be referencing specific pages of our earnings presentation, which has been posted on our Investor Relations website.

Moving to Slide 8 for a review of the second quarter, starting with the consolidated income statement. Net sales fell year-over-year by $223 million. A drop in North American OSB prices of 44% from the second quarter of 2018 was the cause of a $166 million of the decline. North American OSB volume reductions of 30% account for most of the remainder.

The primary reasons for the volume decline are market-related downtime and the conversion of our Dawson Creek mill from OSB to Siding production. However, the generally soft market impacted the entirety of our portfolio, even SmartSide Strand volumes were flat year-over-year. Therefore, our growth of 3% for SmartSide Strand all came from pricing. Yet despite its slow growth, $200 million of SmartSide Strand revenue set a new quarterly record.

Gross profit fell by a $183 million, a $166 million of which is, of course, the OSB price. The remainder of the drop reflects the impact of generally lower volumes, offset by productivity and efficiency improvements. Selling and administrative costs of $58 million increased by $8 million over the prior year. The largest-single driver of the increase is our continuing investment in sales and marketing, consistent with our growth strategy. There is also some temporary cost duplication due to our infrastructure alignment.

Other charges and credits of $3 million includes $4 million of income due to a reduction in warranty reserves and $1 million of insurance recoveries. These were partly offset by $2 million of severance charges, including $1 million due to the indefinite curtailment of production at our Peace Valley mill in British Columbia. Nonoperating income and expense of $4 million includes net interest charges of $2 million plus various other nonoperating items. So with a tax provision of $3 million, we produced $15 million of income from continuing operations.

As a reminder, when we executed the $400 million accelerated share repurchase on February 21, our bankers delivered 80% of the number of shares this $400 million would have bought at that time, that is about 12 million shares. The remaining shares will be delivered subject to an adjustment for the final number we purchased no later than the end of the third quarter.

So the 124 million of a weighted average shares used to calculate the second quarter earnings per share on a diluted basis fully reflects the 12 million shares delivered so far. Therefore, we are reporting $0.14 per diluted share compared to $1.11 per diluted share in the second quarter of 2018. After removing the warranty income and the severance charges and then normalizing the tax rate, our non-GAAP earnings per share is $0.11.

I won't discuss the year-to-date numbers in any great depth other than to observe that our second quarter result is almost a replica of our first quarter result. And when we remove the first quarter gain on the consolidation of Entekra, our non-GAAP earnings per share for the first 6 months is $0.23, basically twice that of the first quarter. In other words, the fundamentals of the business have been stable over the last 2 quarters. Naturally, the year-over-year comparison for the second quarter is worse but then it is being compared with the period in 2018, during which OSB prices hit their most recent peak.

Which brings me to a key theme we explored when announcing our capital allocation plan back in February, that is the financial strength of our portfolio. The tables on Slide 9 show revenue and EBITDA by segment for the quarter and year-to-date. I have already mentioned that non-GAAP income and earnings per share are basically the same in the first and second quarters. This is hardly surprising given that EBITDA is almost the same, $53 million in the second quarter compared to $58 million in the first, thereby producing a $111 million for the first 6 months as shown on the slide.

But there is a significant difference between the quarters that I wish to highlight. Our revenue and EBITDA for OSB have fallen sequentially from the first to the second quarter, the opposite is true for Siding and for EWP, as it happens. SmartSide Strand sales in particular was 7% higher in the second quarter than in the first. Now this includes the benefit of the March price increase and normal seasonal demand pattern. But the fact remains that quarter-over-quarter, both volume and price increased for SmartSide Strand while the opposite is true for OSB. As a result, Siding accounted for 80% -- 87%, sorry, of total company EBITDA in the second quarter compared to 73% in the first quarter.

In other words, over a period of falling OSB volumes and prices, we [bode] a temporary inefficiency of increasing our Siding capacity at Dawson, increasing our investment in selling and marketing and carrying [duplicate corporate] cost as we realign our infrastructure, all of which is discretionary. And because our portfolio demonstrably produces healthy EBITDA, earnings and operating cash flow even in periods of low OSB prices and slow housing, we can afford to relentlessly pursue our transformation agenda and in turn seed further growth. That is the strength of our portfolio.

Now before discussing Siding and OSB further, I'll briefly cover the performance of EWP in South America. EWP's second quarter revenue of $107 million is $7 million lower than last year due to $3 million of adverse pricing and $3 million of lower volumes on OSB and plywood. However, increased joint venture income and OEE improvements largely offset the price impact, resulting in a second quarter EBITDA of $10 million being just $1 million lower than 2018.

In South America, revenue was impacted by the weakening of the Chilean peso against the dollar, which largely offset local volume increases. The economic climate also drove prices and, hence, EBITDA lower. As a reminder, we now allocate a significant portion, about 75% into the bank, of our hitherto unallocated SG&A costs to the businesses to further drive line management accountability. We reconciled the quarterly detail for 2018 in an 8-K filed with the SEC in February.

Slide 10 shows the second quarter revenue and EBITDA for Siding. The bars on the waterfall represent the year-over-year EBITDA impacts and, where relevant, the corresponding revenue changes are shown in orange text below the EBITDA bars. We have grouped the growth in SmartSide Strand, the marketing investment that supports future growth and the efficiency savings together under the heading Transformation Impact in order to monitor and report our progress in this in future quarters. It is these same numbers that were summarized earlier on Slide 6.

As a reminder, during the second quarter of 2018, our Dawson Creek mill in British Columbia was producing OSB, whereas this year it's ramping up production as a newly converted Siding mill. Although the costs of the ramp-up are actually on budget this quarter, we are nonetheless bearing $6 million of unrecovered labor and overhead costs compared to 2018, which is an improvement on the $9 million incurred in the first quarter.

In addition to the volume lost as a result of the Dawson conversion, Siding revenue and EBITDA both suffered due to lower OSB prices and the decision to take some OSB-related downtime. Together, these factors cost Sidings $6 million of EBITDA year-over-year.

Despite these headwinds and weaker CanExel and fiber performance, the Siding EBITDA margin is actually a respectable 19%, close to our long-term target 20%. If we exclude the cost of the Dawson ramp-up, which is by definition temporary, the EBITDA margin would have been closer to 22%. That is $52 million of EBITDA divided by $238 million of revenue.

Slide 11 shows the year-to-date sales and EBITDA waterfall for Siding. The highlights are the $18 million of year-to-date transformation impact and the $16 million headwind from OSB price and volume, and the heavy but temporary $15 million burden of the Dawson ramp-up.

Looking forward, the removal of commodity OSB production from our Siding mills will lower Siding segment revenue and EBITDA in the second half by about $16 million and $4 million, respectively. The majority of the impact will be felt in the third quarter given that Dawson Creek was undergoing conversion and therefore out of commission during the fourth quarter of 2018.

And on the subject of the Dawson ramp-up, having spent the first few months producing soffit, we have progressed the lap and more recently panel production. The third quarter will therefore show a further reduction in uncovered costs, while the fourth quarter is actually expected to show year-over-year benefit.

Slide 12 shows the second quarter revenue and EBITDA waterfall for the OSB segment. Commodity OSB volumes fell by 17%, including the impact of 105 downtime days, 73 of them market-related. For reference, this is 32 more down days resulting in 6%. Let me say that again. This is 32 more down days resulting in 6% less production than in the first quarter and 72 more than in the second quarter last year. As a result, this year's second quarter utilization rate was 84% compared with 91% last year.

Structural Solutions pricing fell 38% compared to a 49% drop for commodity OSB prices. The transformation impact call-out for OSB includes $3 million of EBITDA due to an increased volumes of Structural Solutions as well as improvements in OEE and sourcing and the combined $4 million. Cost reductions and mill efficiency have been paramount given the widespread downtime taken in the quarter, the result of which was an accumulation of operating and logistics efficiencies across the segment, totaling $8 million net of inflation. All of which leads to an EBITDA loss of $3 million.

Slide 12 (sic) [Slide 13] shows the year-to-date revenue and EBITDA waterfall for OSB. Highlights are OSB's $13 million of transformation impact and Structural Solutions volumes rising to 42% of total OSB volume compared to 38% for the first 6 months of 2018. And of course, EBITDA for the first 6 months is small but positive.

Looking forward, on June 13, we announced the indefinite curtailment of OSB production at our mill in Peace Valley, British Colombia, with a stated capacity of 800 million square feet. We estimate the associated severance costs will be $4 million and other closure costs to be about $2 million. As previously noted, $1 million of this severance was charged in the second quarter. And as Brad has already mentioned, this action will reduce monthly operating costs by at least $2 million per month from September onwards.

Our second quarter year-to-date cash and year-to-date cash flows are summarized on Slide 14. With minimal net working capital movements in the quarter, we converted our EBITDA of $53 million into operating cash flow of $54 million. The year-to-date operating cash flow, however, is flat. Normal seasonal working capital build from the first quarter will continue to be released through the remainder of the year though.

When we introduced our capital plan in February, we guided to a range of operating cash flows for 2019 that was dependent on a variety of OSB prices. We are comfortably operating ahead of this guidance. We have our stated goal of generating a $165 million of additional EBITDA from growth and efficiency in 2021. After adjusting for labor inflation and taxes, this $165 million should produce a $100 million of incremental annual cash flow over 3 years.

Our progress on this transformation in 2019 is and will continue to be reflected in improved cash flow. For example, should the Random Lengths 7/16 OSB price ultimately average $190 per thousand square feet for 2019, we believe that our cash from operations will comfortably exceed the $110 million we would have modeled for that price.

We had a quiet quarter with respect to share buybacks, at least from the company's perspective. The $400 million accelerated share repurchase we executed in the first quarter is still active and would be contractually completed no later than the end of the third quarter.

So we ended the second quarter with $362 million in cash resulting in net debt of 0. And when including our recently upsized and redated $350 million revolver, we have over $700 million of liquidity. Although we've not determined the precise mechanism yet, we remain committed to paying the final $200 million of the $638 million of share repurchases outlined in our capital plan in 2019.

Before I turn the call over for Q&A, Slide 15 provides some limited guidance for 2019 and beyond. The changes from prior guidance are the reduction in our SmartSide Strand growth rates for 2019 and beyond. We still expect double-digit growth closer to 10% in 2019 and then the 10% to 12% range beyond that, both predicated on slower housing. We're also tightening our capital spending to a range of a $160 million to a $170 million for the year. And lastly, I'd like to personally thank Mike for his assistance over the last 6 months.

And with that, I'll open the call for Q&A. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of George Staphos with Bank of America Merrill Lynch.

--------------------------------------------------------------------------------

John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [2]

--------------------------------------------------------------------------------

Actually, John Babcock on for George. I guess just want to start out congratulating Mike on his retirement, and wish you the best. And then...

--------------------------------------------------------------------------------

Michael Emory Kinney, Louisiana-Pacific Corporation - Director of IR & Treasurer [3]

--------------------------------------------------------------------------------

Thanks, John.

--------------------------------------------------------------------------------

John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [4]

--------------------------------------------------------------------------------

With regards to my first question, I really want to start out on Siding. I mean you kind of already talked a little bit about what kind of drove the revision in 2019 and also the long-term outlook. But I was wondering if you could give a little bit more color on kind of the longer-term outlook and why you think that 10% to 12% makes more sense versus the 12% to 14%.

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [5]

--------------------------------------------------------------------------------

Yes. So John, the main driver for that lowering guidance long term for Siding is our expectation that the housing recovery has slowed and will continue to be rather flat to slightly increases versus a little more aggressive housing recovery that we had forecasted over the past couple of years. So we're adjusting down primarily as a result of what we're seeing with the overall economy and specifically as it relates to the housing recovery.

--------------------------------------------------------------------------------

John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [6]

--------------------------------------------------------------------------------

Okay. And then also with regards to SmartSide volumes, so it looks like there were relatively flat in the second quarter. Was that primarily driven by the overall weaker building season? Or were there inventory or other factors that might been impacting growth there?

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [7]

--------------------------------------------------------------------------------

Two things. Definitely, there was an inventory build that we talked about on the last call associated with the pre-buy in front of our March 1 price increase. So we did have a really good shipment quarter in Q1 and built some inventory in the channel. And then as we guided into Q2 and we saw the weakening in housing -- but also I do want to stress, again, as I had in my comments, a very wet early half of the quarter, we just had not seen the pull-through out of our distributor base that would result in reordering in Q2. And so just 2 points to conclude that answer. One is the pre-buy or the inventory build that did happen in Q1 and then the insufficient pull-through in Q2 to result in reordering from our distribution customers back into LP.

--------------------------------------------------------------------------------

John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [8]

--------------------------------------------------------------------------------

Okay. And then just kind of 2 other quick questions. First of all, just on Siding again. With the sort of growth that you're seeing now, I mean, are you having any challenges in pushing through the price increases from earlier this year? Or is that still progressing as planned?

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [9]

--------------------------------------------------------------------------------

No. The price increases have been progressing as planned. I would just kind of guide you to kind of how we ended up over the last couple of -- or last year, particularly with pricing. We usually have been over the long term averaging 2% to 4% recovery in pricing as we get to the end of the year. And I would guide within that range for this year as well.

--------------------------------------------------------------------------------

John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [10]

--------------------------------------------------------------------------------

Okay. And then just last question before I turn it over. You talked about taking some market-related downtime in OSB, I was wondering if you could quantify that. And also, did you take any equivalent downtime in Siding?

--------------------------------------------------------------------------------

Michael Emory Kinney, Louisiana-Pacific Corporation - Director of IR & Treasurer [11]

--------------------------------------------------------------------------------

John, I think Alan said that we took -- in Q2, we had 105 days and then compared to 70 in Q1. And that compared to last year, Q2 was 34 days. And the way we -- we don't really look at it from a Siding perspective in terms of down days because we're making up the difference in OSB. Although we did take some in OSB, I don't think we've really quantified that externally.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

Our next question comes from the line of Ketan Mamtora with BMO Capital Markets.

--------------------------------------------------------------------------------

Ketan Mamtora, BMO Capital Markets Equity Research - Analyst [13]

--------------------------------------------------------------------------------

First of all, Mike, it's been a real pleasure working with you. And good luck whatever comes next.

--------------------------------------------------------------------------------

Michael Emory Kinney, Louisiana-Pacific Corporation - Director of IR & Treasurer [14]

--------------------------------------------------------------------------------

Thanks, Ketan.

--------------------------------------------------------------------------------

Ketan Mamtora, BMO Capital Markets Equity Research - Analyst [15]

--------------------------------------------------------------------------------

Probably just coming back to Siding, do you think in your view the competitive dynamics in Siding has changed at all? And I'm more focused on medium term rather than just what's happening in 2019. I guess 2019, we appreciate the housing headwinds. But outside of that, do you think competitive dynamics have changed?

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [16]

--------------------------------------------------------------------------------

Keith, I don't think competitive dynamics has changed significantly. I mean obviously, on the fiber cement side of our competition, we're aggressively pursuing the same end markets, so that kind of fight has been going on for several years. And I'd -- and while tactics and strategies changed a little bit, I haven't -- I don't see the dynamic changing a whole lot over the last 6 months especially. And then I would say from a hard Siding perspective, so fiber cement and composite wood, we're both really focused on converting vinyl -- the market share of vinyl siding over to more hard sidings. And that continues to be a focus for us and I don't really think the dynamics has changed there too much either.

So we're out there fighting every day for increased market share. We're doing that by upgrading distribution, by offering new products, by creating end user demand through our marketing programs. And that's been a fairly successful strategy for us in the past, and we're continuing on that -- continuing to execute that strategy with a really nicely evolving product portfolio with the addition of Smooth and with our foray into prefinished sidings. So I would say I wouldn't characterize this quarter as being a significant competitive issue, it's just really more of a market-related slowdown.

--------------------------------------------------------------------------------

Ketan Mamtora, BMO Capital Markets Equity Research - Analyst [17]

--------------------------------------------------------------------------------

Okay. That's helpful color. And then just as my follow-up, I mean if I look at the slide that you have on transformation and under this growth bucket, can you just help me understand sort of at a high level without getting into specifics, obviously, at this stage. But when you talk about this $90 million target in just growth, what are the key sort of buckets that you guys are thinking about? So is it something like PSPI included in that? Is that how I should be thinking?

--------------------------------------------------------------------------------

Alan J. M. Haughie, Louisiana-Pacific Corporation - Executive VP & CFO [18]

--------------------------------------------------------------------------------

Good question. The -- you should include something like PSPI in that, yes. The major growth engine within this 2021 target is the growth of SmartSide Strand and associated products, things like fencing, things like our foray into prefinishing. The second 2 components are growth in South America and then the growth, of course, in Structural Solutions, what was formerly referred to as value-added OSB. So think of these as the significant on value-added components of our portfolio growing over the next 3 years.

--------------------------------------------------------------------------------

Ketan Mamtora, BMO Capital Markets Equity Research - Analyst [19]

--------------------------------------------------------------------------------

Understood. That's very helpful. I'll turn it over.

--------------------------------------------------------------------------------

Michael Emory Kinney, Louisiana-Pacific Corporation - Director of IR & Treasurer [20]

--------------------------------------------------------------------------------

So Ketan, if you looked at -- go back to the bridges, that kind of builds into the -- how you're looking at the growth and the efficiency.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

Our next question comes from the line of Mark Connelly with Stephens Inc.

--------------------------------------------------------------------------------

John Rider, Stephens Inc., Research Division - Associate [22]

--------------------------------------------------------------------------------

This is actually John Rider on for Mark. So our first question is we're currently not hearing a lot about input cost inflation right now. We were just hoping you could give us an idea of what you're thinking about inflation for inputs in the second half.

--------------------------------------------------------------------------------

Alan J. M. Haughie, Louisiana-Pacific Corporation - Executive VP & CFO [23]

--------------------------------------------------------------------------------

Yes. This is Alan here. Yes, we did see, similar to our competitors, a reduction in resin costs in the first half of the year. And we are anticipating actually a modest increase in resin costs through the remainder of the year. But that was the principal input cost change year-over-year [with the mill].

--------------------------------------------------------------------------------

John Rider, Stephens Inc., Research Division - Associate [24]

--------------------------------------------------------------------------------

Okay. That's helpful.

--------------------------------------------------------------------------------

Michael Emory Kinney, Louisiana-Pacific Corporation - Director of IR & Treasurer [25]

--------------------------------------------------------------------------------

And John, yes. So John, if you look -- how we're thinking about it is the -- from the resin -- everything other than wood would be a slight benefit or like as you said, Alan. And then where we're seeing a little bit more is from the wood perspective that, that will be a little bit worse than what it was last year.

--------------------------------------------------------------------------------

John Rider, Stephens Inc., Research Division - Associate [26]

--------------------------------------------------------------------------------

Okay. That's great. And then just our second question just has to do with PSPI. We're just curious how it was running and then if there was any additional plans to expand the business [still].

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [27]

--------------------------------------------------------------------------------

So the integration is going really well in that business. It's -- that plant is located relatively close to our Siding mill in Tomahawk, Wisconsin. So we've been able to use some of our supervisory folks from Tomahawk to assist in the integration. We've had some maintenance and engineering folks into the facility to do some upgrades and optimization of the operations. We have been able to put a lot of volume into that, obviously, from our -- with our current distribution base. And then we are really, really pleased with the quality of the people that came along with that acquisition that are helping us really refine our ongoing strategy around prefinished, especially on the operations side. And so integration is going well. And we do -- we are currently evaluating other expansion options, particularly on the East part of the United States.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

Our next question comes from the line of Mark Weintraub with Seaport Global.

--------------------------------------------------------------------------------

Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [29]

--------------------------------------------------------------------------------

First, Mike, thanks for all the help over the years. Good luck.

--------------------------------------------------------------------------------

Michael Emory Kinney, Louisiana-Pacific Corporation - Director of IR & Treasurer [30]

--------------------------------------------------------------------------------

Thanks, Mark.

--------------------------------------------------------------------------------

Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [31]

--------------------------------------------------------------------------------

And in terms of the second half of the year in Siding, what type of visibility would say you've got on that at this juncture? And can you give us a sense as to what you saw in July and the first part of August?

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [32]

--------------------------------------------------------------------------------

Yes. So yes, we're a good month into the second -- to the third quarter and I would say our order activity has returned to more normal levels. I do think the product has begun to move. It really began moving late in the second quarter through distribution, which resulted in the order costs strengthening somewhat here at LP. So we feel a lot better about what we're seeing in Q3 than how we felt this time 3 months ago as we were looking at Q2.

--------------------------------------------------------------------------------

Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [33]

--------------------------------------------------------------------------------

And can you give us an update on how the new introductions, the Smooth product as well as the push to repair/remodel, how that's been proceeding?

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [34]

--------------------------------------------------------------------------------

Yes. Well, the Smooth product intake was very good. We are working on the -- we're currently shipping the -- I guess the repurchases after the first initial introductory orders were placed. So that product's moving along well. On the Repair and Remodel, that was predicated really on us getting the Smooth going, which we have. And then this foray into prefinished is really integral to that Repair and Remodel strategy. And we feel like it's very important to have -- we have learned that it is very important to have an LP-branded prefinished product rather than just relying on our prefinished partners to supply the product. We want to have obviously a national footprint with our brand so we can service the large one-steppers and our 2-step -- national 2-step distributors.

So our move into prefinished is really intended to accelerate our penetration into Repair and Remodel. So I still -- it's a new channel for us, Mark, as you know, but I feel like the move around the product was really important to us getting position where we could be successful there as we learn how to market and sell into that channel as well.

--------------------------------------------------------------------------------

Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [35]

--------------------------------------------------------------------------------

And one last one, if I could. Given the lower housing outlook and hence the reduced longer-term growth rate you're expecting in SmartStrand (sic) [SmartSide], what implications, if any, does that have on how you think about the timing and the conversion projects that you have under review?

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [36]

--------------------------------------------------------------------------------

Sure. It certainly affects -- the growth rate we assume does impact the timing for the next mill conversion. And I'll just remind the -- on this call that it is also predicated on the mix of that growth. Our mills are -- can either lean towards panel production or lap and trim production, and so we have to watch that closely. And so -- but I mean, obviously, Mark, a slower long-term growth assumption does impact the timing. And so we're looking at probably from where we were a year ago with our higher expectations for housing growth, we've probably bought ourself another 6 months or so of the ability to evaluate what our best options are there. But we are currently -- we are actively evaluating our options around the next expansion, but the timing will be predicated on our assumptions around growth.

--------------------------------------------------------------------------------

Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [37]

--------------------------------------------------------------------------------

Do you still expect -- I think you had, at one point, suggested by the end of this year, you'd tell us what the next move would be. Does that get pushed back potentially 6 months? Or should we expect it for the end of the year?

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [38]

--------------------------------------------------------------------------------

Yes. That -- yes, that's going to be pushed back 6 months. I could expect us maybe solidifying a little bit around our options late this year and then ready to go public with it sometime next year.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

Our next question comes from the line of Steve Chercover with D.A. Davidson.

--------------------------------------------------------------------------------

Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [40]

--------------------------------------------------------------------------------

So first of all, I'm really glad you didn't blame the year-over-year decline in results on weather. But that said, do you think it did have an impact on the uptake for OSB or particularly for Siding?

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [41]

--------------------------------------------------------------------------------

Thank you for saying we didn't blame it on the weather. I'd -- we say the same thing to our salespeople at our QBR. But certainly, it did. Look, there's no or there's minimal excess labor element in the contractor community right now. So when you lose a day to rain it's -- in the past maybe that could made up by adding shifting or adding some personnel. That just isn't available right now. And so I do -- and we had some really, really heavy rains especially in the Southeast that would shut down a job site, wouldn't be possible to work through those rain showers. So it had an impact. And I'll -- some of the evidence we have internally anecdotal is that as those regions of the country have dried out, we're starting to see some really good pulls out of distribution. So I certainly think that had an impact on both OSB and Siding. And EWP to a certain extent, though we were kind of able to get work through those.

--------------------------------------------------------------------------------

Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [42]

--------------------------------------------------------------------------------

Great. And then CapEx, I think, is elevated at $160 million and $170 million and presumably that's because of the Dawson conversion. Can you remind us, I guess, what a baseline maintenance spend would be? And I'm sure that even in these conditions, you've got some pretty high-return projects that are still compelling enough to proceed on.

--------------------------------------------------------------------------------

Alan J. M. Haughie, Louisiana-Pacific Corporation - Executive VP & CFO [43]

--------------------------------------------------------------------------------

Yes. Alan here. I'd say that baseline maintenance is in the region of $80 million or so. But I'd also like to clarify, I feel as though we've kind of a lowered the guidance $150 million to $180 million was the range. Have tightened that to $160 million, $170 million. I think we'll come in at the low end of that tightened range. But you're right, that if -- let's say, if these OSB conditions persist, a further reduction in CapEx is plausible, yes.

--------------------------------------------------------------------------------

Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [44]

--------------------------------------------------------------------------------

Okay. And if I could sneak in one more. Are there any adjacent product lines you'd like to pursue, like albeit -- sorry, cross-laminated timber or laminated beams. And if so, would the Engineered Wood Products division have earned its right to grow?

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [45]

--------------------------------------------------------------------------------

The Engineered Wood Products division has not earned its right to grow, it's earned its right to continue to improve on existing operations and with existing products. When we talk about adjacencies as far as M&A, we're really looking at 2 big categories today. One is adjacencies in Siding, particularly if they would be focused on accelerating our penetration on repair and remodel. And then in OSB, we have been very successful with our acquisition of the FlameBlock technology.

So opportunities to enhance the Structural Solutions with all value-add product offering and OSB through either coating, laminating, cutting, grooving. We're doing something to our commodity substrate that allows us to turn that into a value-add OSB product is something we'd be interested in as well. But in EWP, we're really, really focused on just continuing to turn that business around and having it earn the cost of capital on a consistent basis based on the platform we're operating on right now.

--------------------------------------------------------------------------------

Operator [46]

--------------------------------------------------------------------------------

Our next question comes from the line of Chip Dillon with Vertical Research.

--------------------------------------------------------------------------------

Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [47]

--------------------------------------------------------------------------------

And Mike, all the best to you.

--------------------------------------------------------------------------------

Michael Emory Kinney, Louisiana-Pacific Corporation - Director of IR & Treasurer [48]

--------------------------------------------------------------------------------

Thanks, Chip.

--------------------------------------------------------------------------------

Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [49]

--------------------------------------------------------------------------------

First question is just to make sure I understand this. Since at least March, your cash flow statement shown the -- over $400 million for buybacks. But just to be fair, you've kind of shown the full impact of buying back roughly 15 million shares through the ASR or your cash flow statement, but you haven't been able to capture that in your -- when you show us what your diluted average shares are in the income statement. So somewhere in the next 3 months or so, we're going to see 3 million shares more or less disappear. Is that the way to think about it without any incremental or significantly incremental cash?

--------------------------------------------------------------------------------

Alan J. M. Haughie, Louisiana-Pacific Corporation - Executive VP & CFO [50]

--------------------------------------------------------------------------------

That's correct, Chip, yes. The 3 million shares is, of course, a guess at this point in time. But yes, the principle you just outlined is correct.

--------------------------------------------------------------------------------

Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [51]

--------------------------------------------------------------------------------

Got you. And the lower the stock is, the more shares go away; and the higher, the fewer shares go away if there's no cash to operate?

--------------------------------------------------------------------------------

Alan J. M. Haughie, Louisiana-Pacific Corporation - Executive VP & CFO [52]

--------------------------------------------------------------------------------

Well, yes, there will be no -- the intention is not to have a [cash tour] to make this cash certain and have the additional shares delivered to us, yes.

--------------------------------------------------------------------------------

Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [53]

--------------------------------------------------------------------------------

Okay. And then I think if I just read -- make sure I got this right. You're committed to another $200 million in buyback from the time the ASR ends, which could be as late as the end of September through year-end?

--------------------------------------------------------------------------------

Alan J. M. Haughie, Louisiana-Pacific Corporation - Executive VP & CFO [54]

--------------------------------------------------------------------------------

Correct. Yes, that's right.

--------------------------------------------------------------------------------

Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [55]

--------------------------------------------------------------------------------

Okay. Okay. Great. Okay. And then next question is I know you were talking about tightening up the CapEx range for the year. I don't -- maybe I missed it, but did you address sort of directionally what you see CapEx doing next year? Thinking about all the moving pieces with the EBITDA and efficiency improvement programs and perhaps the conversions, et cetera.

--------------------------------------------------------------------------------

Alan J. M. Haughie, Louisiana-Pacific Corporation - Executive VP & CFO [56]

--------------------------------------------------------------------------------

We haven't addressed that yet, Chip. And that's probably -- I'm going to be cautious in just saying that's probably a subject for the next earnings call right now.

--------------------------------------------------------------------------------

Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [57]

--------------------------------------------------------------------------------

Okay. And then the last one is, and I should have looked at the balance sheet, but do you have any more of these timber sales from years ago that's still on your balance sheet? Or are they all off now?

--------------------------------------------------------------------------------

Alan J. M. Haughie, Louisiana-Pacific Corporation - Executive VP & CFO [58]

--------------------------------------------------------------------------------

They're all done, Chip.

--------------------------------------------------------------------------------

Operator [59]

--------------------------------------------------------------------------------

Our next question comes from the line of Paul Quinn with RBC Capital Markets.

--------------------------------------------------------------------------------

Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [60]

--------------------------------------------------------------------------------

Congratulations, Mike.

--------------------------------------------------------------------------------

Michael Emory Kinney, Louisiana-Pacific Corporation - Director of IR & Treasurer [61]

--------------------------------------------------------------------------------

Paul, thanks.

--------------------------------------------------------------------------------

Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [62]

--------------------------------------------------------------------------------

Maybe I'll just start on you've got a major competitor in the Siding business that does color at plants, and it looks like with the PSPI, that's color offsite. Just wondering what your strategy is with color and the whole prefinishing side? And is that something that'll be a major focus for LP going forward here?

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [63]

--------------------------------------------------------------------------------

Yes. So Paul, let me just -- as you know our major competitor, generally speaking, is producing their product relatively close to market given their manufacturing technology, where we are barely centralized into the central part of the U.S. and Canada. So we tend to be a little further -- or not a little, but playing out further from the market in these markets than they are. So in transporting prefinished siding, long distances can be an issue around the finishing of quality. And so we would prefer to -- we're pursuing a strategy of having our prefinished operations closer to market. So that we're, first of all, can tailor the offering to the local needs but also we're shipping our primed prefinished long ways and then the final mile is a prefinished product shipped closer to market. That's the primary driver of that strategy of not knowing -- not speaking at all about the competitor, but we also feel like, for us, it's a little more capital optimal to do that outside of our infrastructure. But we'll play that out as we continue to make these investments and see the kind of returns that we can generate off of these end market prefinishers.

--------------------------------------------------------------------------------

Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [64]

--------------------------------------------------------------------------------

Okay. So that makes sense given the distance of all. So does that therefore mean that you'll likely have, at some point, 8 to 10 regional prefinishers close to the market?

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [65]

--------------------------------------------------------------------------------

I want something -- I want to divide that into -- the country in half. Go from Eastern U.S., where the population centers are closer together. Also the housing stock is older, where there's a more mature repair and -- prefinished repair and remodel market, which is the Eastern U.S. And I could see us having -- I don't know if it would take that many, Paul, but several prefinishers regionally in the East. On the West side where prefinished repair and remodel isn't quite as popular yet, I see us working with our independent prefinished base to align around that for the foreseeable future.

--------------------------------------------------------------------------------

Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [66]

--------------------------------------------------------------------------------

Okay. And then just on OSB, we've seen weak pricing throughout the year based off the slowdown in housing. When the announcements of curtailments to your mill as well as in Norbord was announced, we saw a blip up in pricing. That's since has come off, but now we're starting to see the shots. Do you expect a sort of mild recovery in OSB prices for the balance of the year?

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [67]

--------------------------------------------------------------------------------

Paul, I'm not very good, as you well know, at forecasting OSB pricing. But I'll say this, we shut our mill down Wednesday of last week, have them have a little bit of TechShield blanks on the ground that we're going to continue to convert. But the -- we're done from a press standpoint producing product at Peace. I think the competitor's mill, they're running a few more weeks if I recall their announcement. But anyway, I do -- I think we'll see a pickup in demand as we move through August, September and October as folks do take advantage of what normally is a dryer fall weather to either finish up some houses or get some housing started.

So I could see demand being stronger in Q3, let's say, than it was in the first half which would favorably impact the demand capacity ratio. But how that plays out in the channel and around pricing is really hard to predict. But I do -- I'll answer your question by saying that I could see the demand capacity ratio getting a little bit better in Q3 as we -- as the shutdowns are concluded and housing picks up a little bit as people try to take advantage of what typically is good weather through October.

--------------------------------------------------------------------------------

Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [68]

--------------------------------------------------------------------------------

That's fair enough. And then maybe just lastly, if you could just remind us where you're at with your Entekra JV. My understanding is the first plant's being built right now. Just wonder what that the progress is and what the order file looks like.

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [69]

--------------------------------------------------------------------------------

Yes. Well, the order file for our current plant, which is the pilot plant, is really strong and so the demand has not been an issue. To date, we are in the process of installing the manufacturing equipment there currently. And we look -- and there's going to end up being -- it's a little bit of a complex facility, but think of it as having 3 lines for external wall -- to manufacture external walls. We'll have the first line up and going as we move into Q4. So late Q3, early Q4. And we'll start that ramp up Q4 to Q1 of next year. And if the past holds or there will be a problem getting orders, it will be more constrained by our ability to ramp that manufacturing up. And we'll keep updating you on that as we get a little closer to reality, but that's how it's looking right now.

--------------------------------------------------------------------------------

Operator [70]

--------------------------------------------------------------------------------

We do have a follow-up question from the line of Ketan Mamtora with BMO Capital Markets.

--------------------------------------------------------------------------------

Ketan Mamtora, BMO Capital Markets Equity Research - Analyst [71]

--------------------------------------------------------------------------------

Brad, just one more on the Sidings side. Can you talk a little bit about how the outdoor shed business is doing? And what kind of market share you have there and what kind of room you have to further grow that business?

--------------------------------------------------------------------------------

William Bradley Southern, Louisiana-Pacific Corporation - CEO & Director [72]

--------------------------------------------------------------------------------

Ketan, I would say that from a market share standpoint, it's probably our highest market share of any of the channels that we play in or end markets that we play in, just our past success there and the product is really perfect for the shed environment. With that said, there's still a lot of opportunity for growth. I would say, our market share -- obviously, there's not a lot of great statistics on shed manufacturing. But I would -- it's less than 50%, certainly well into the double digits, but less than 50%. So it gives us -- so we're really focused on that opportunity.

As I have said, the product is right for it. It tends to be a good margin business for us and so we have a real focus on continuing to grow in that channel. So good progress so far since we initiated that almost 10 years ago now, but there's still a lot of room for improvement. And anybody that drives around at least the part of the country I'm from in the Southeast, we still see a lot of a lot of plywood sheds that need to be converted over to SmartSide, so we're working on that.

--------------------------------------------------------------------------------

Operator [73]

--------------------------------------------------------------------------------

Thank you. And this concludes today's question-and-answer session. I would now like to turn the call back to Mike Kinney for any further remarks.

--------------------------------------------------------------------------------

Michael Emory Kinney, Louisiana-Pacific Corporation - Director of IR & Treasurer [74]

--------------------------------------------------------------------------------

Thank you, Sarah. And I think that was our last question. So if you have any questions, feel free to give Becky or I a call and we'll be available anytime. Thank you.

--------------------------------------------------------------------------------

Operator [75]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.