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Louisiana-Pacific (LPX) to Divest EWP Business for $210M

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Louisiana-Pacific Corporation LPX — commonly known as LP Building Solutions (LP) — inked a deal with Pacific Woodtech to divest its Engineered Wood Products (EWP) business for $210 million.

Per the deal, LP will divest its laminated veneer lumber and I-joist manufacturing facilities in Wilmington, NC, Red Bluff, CA, and Golden, British Columbia, Canada, associated timber license assets and the SolidStart brand. The transaction is expected to close in third-quarter 2022 and is subject to customary closing conditions and regulatory reviews.

LP’s chair and chief executive officer, Brad Southern, stated, "We believe that Pacific Woodtech is well positioned to invest in and grow the SolidStart brand, and its acquisition of LP's EWP business marks another important step in LP's ongoing strategic transformation. We will work with Pacific Woodtech to ensure a smooth transition for our EWP employees, customers, and suppliers."

Inorganic Moves & Transformation Strategy to Drive Growth

LP’s business banks on acquisitions, business combinations and divestitures of low-profitable businesses. In June 2020, the company divested 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.

LP is gradually transforming from a commodity producer into a more stable cash-generative business by increasing revenues and the EBITDA mix. From January 2019 to 2020, Louisiana-Pacific achieved $178 million of cumulative EBITDA from growth and efficiency. It exceeded its three-year target of $165 million for cumulative EBITDA in fourth-quarter 2020. During first-quarter 2022, adjusted EBITDA increased 37.7%, primarily backed by higher OSB prices, strong volume (primarily in the Structural Solutions unit) and increased raw material costs.

LP continues focusing on three areas: increasing the efficiency of mills by improving productivity, run time and quality through overall equipment effectiveness or OEE initiatives, applying best practices to its supply chain and optimizing infrastructure costs.

To reduce costs, LP lowered the cost structure of its facilities through Lean Six Sigma efforts, the sale or shutdown of underperforming mills and manufacturing facilities and investments in technology. Louisiana-Pacific resorts to a strategy of curtailing production at selected facilities to meet customer demand and optimize its portfolio as well as margins.

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Shares of LP have declined 7.6% in the past year compared with the Zacks Building Products – Wood industry’s 14.9% fall. Earnings estimates for 2022 have moved up 14.2% in the past 60 days. Louisiana-Pacific has a solid surprise history, with its earnings surpass the Zacks Consensus Estimate in the trailing nine quarters. This trend reflects bullish analyst sentiments. Its impressive VGM Score of A is a testimony to that.

Zacks Rank & Other Stocks to Consider

LP currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Based in Seattle, WA, Weyerhaeuser Company WY — currently sports a Zacks Rank 1 —focus on operational excellence is expected to drive growth. More home improvement and R&R market activities are raising hopes. Focus on operational excellence and efforts to boost financial flexibility enabled it to generate solid cash flow and strengthen the balance sheet. Weyerhaeuser remains optimistic about its performance despite persistent supply-chain issues, the recent uptick in mortgage rates and ongoing affordability concerns in the housing market, given favorable demographics and a decade of underbuilding and historically low inventory for new and existing homes.

Weyerhaeuser has dropped 1.4% in the past year. WY has seen an 18.5% upward estimate revision for 2022 earnings in the past 60 days. The positive estimate revisions depict analysts' optimism over the company’s prospects.

Headquartered in Grand Rapids, MI, UFP Industries, Inc. UFPI — currently holds a Zacks Rank 2 — supplies wood, wood composite and other products in retail, industrial, and construction markets. Increased home improvement activity resulting from stay-at-home orders benefited UFP Industries’ Retail segment. Expansion of the product portfolio through acquisitions and product innovations is also noteworthy.

UFP Industries has dropped 9.2% in the past year. UFP Industries’ 2022 earnings are expected to grow 11.8%.

Boise, ID-based Boise Cascade Company BCC — currently carries a Zacks Rank 2— makes wood products and distributes building materials in the United States as well as Canada. Higher commodity wood products pricing and robust construction activity are consistently aiding it in delivering strong results. Building Materials Distribution and Wood Products segments are gaining strength from strong end-product demand (particularly for EWP) as well as higher commodity product prices. BCC has also been increasing its commodity offerings for a while to instill growth in the existing markets, underserved markets and across its entire national footprint.

BCC has gained 13.4% in the past year. Earnings estimates for 2022 moved up to $18.43 from $15.07 per share in the past 60 days.


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