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Louisiana-Pacific Corporation LPX has been reaping the benefits of a solid U.S. residential market and robust repair and remodeling (R&R) activities. Also, the company’s SmartSide strand performance, increase in Oriented Strand Board or OSB pricing, operational efficiency and cost-containment efforts bode well. A solid liquidity position and the capacity to reward shareholders are added positives.
So far this year, shares of Louisiana-Pacific have gained 81.8% compared with the Zacks Building Products – Wood industry’s 21.2% rally. Notably, earnings estimates for the second quarter, third quarter and full-year 2021 have moved up 68%, 127.7% and 52.7%, respectively, over the past 30 days. This trend signifies bullish analyst sentiments and justifies the company’s Zacks Rank #1 (Strong Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company also has a solid earnings surprise history. Louisiana-Pacific’s earnings surpassed the Zacks Consensus Estimate in five of the trailing seven quarters.
Major Growth Drivers
Cost-Reduction Initiatives: Louisiana-Pacific is rebuilding itself from a commodity producer to a more stable cash-generative business with the help of increasing revenues and EBITDA mix. During the first quarter of 2021, adjusted EBITDA increased by $378 million to $461 million.
The company has been focused on three major areas – increasing the efficiency of mills by improving overall productivity, implementation of best practices to its supply chain, and enhancing infrastructure costs.
Even during the challenging pandemic times, the company is in a position to control costs through diligent efforts. Louisiana-Pacific reduced the cost structure of its facilities through Lean Six Sigma efforts, the sale or shutdown of underperforming mills and manufacturing facilities as well as investments in technology. Notably, during the first quarter of 2021, SG&A expanses, as a percentage of net sales, contracted 470 basis points on a year-over-year basis, attributable to continued cost-effective techniques implemented by the company.
Focus on Siding Business: Louisiana-Pacific is focused on improving its siding unit to increase penetration of siding products in repair/remodel activities. Over the past few quarters, the company has been witnessing higher-than-expected demand for Smooth SmartSide and ExpertFinish. Also, the company recently announced the expansion of siding capacity with the production restart at Peace Valley. During the first quarter of 2021, SmartSide revenues grew 49% year over year. For the three months ended March 2021, overall siding unit and siding business revenues improved 23.7% and 35%, respectively, year over year.
Prudent Investments: Louisiana-Pacific largely depends on acquisitions or business combinations and divestures as part of its growth strategy. Consequently, during the first quarter of 2021, the company confirmed capacity expansion projects at Houlton and restarting of the Peace Valley mill. Louisiana-Pacific expects to start SmartSide production at Houlton within a year. In June 2020, the company completed the divesture of the Nova Scotia, Canada-based East River facility to Maibec, Inc. for $16 million. Maibec also took charge of the assets and brand rights of CanExel — the fiber-based siding product manufactured in the East River facility. Moreover, LP’s Siding business will now focus exclusively on meeting higher customer demand for its strand-based siding products.
Improved Housing Market and R&R Activities: Declining mortgage rates have been driving the U.S. residential market of late. With the opening of the economy, the demand for housing and wood products has been improving since late May 2020. Along with recovery in single-family housing construction, demand for repair/remodel activity has been robust. Greater-than-expected demand for home improvement products has been benefiting the company. This demand has been a boon for Louisiana-Pacific and companies like UFP Industries, Inc. UFPI, Weyerhaeuser Company WY and Trex Company, Inc. TREX in the same industry. While UFP Industries and Weyerhaeuser sport a Zacks Rank #1, Trex has a Zacks Rank #2 (Buy).
During the first quarter of 2021, Louisiana-Pacific witnessed strong demand for all of LP's products, including SmartSide and OSB, primarily driven by the ongoing momentum in homebuilding, repair and remodeling activity. Reflective of this, during the first quarter of 2021, the company’s net sales grew more than 50% year over year.
Returns to Shareholder: Louisiana-Pacific significantly rewards shareholders on a timely basis through share repurchases and dividends. During the first quarter of 2021, the company paid $17 million worth of dividends and $122 million to repurchase stocks. Also, in the first quarter of 2021, the company declared a quarterly cash dividend of 16 cents per share. As of now, the company is committed to enhance shareholders’ value through dividend payments. This approach has worked in favor of the company in gaining investors’ trust.
Image Source: Zacks Investment Research
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Weyerhaeuser Company (WY) : Free Stock Analysis Report
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