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Louisiana-Pacific (LPX) Down 3.6% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
North American Construction (NOA) closed the most recent trading day at $10.17, moving -1.93% from the previous trading session.

A month has gone by since the last earnings report for Louisiana-Pacific (LPX). Shares have lost about 3.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Louisiana-Pacific due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Louisiana-Pacific (LPX) Q1 Earnings & Revenues Lag, Down Y/Y

Louisiana-Pacific Corporation reported first-quarter 2019 results, wherein earnings and revenues missed the Zacks Consensus Estimate. Also, both the top and bottom lines deceased on a year-over-year basis due to increased macro environment headwinds.

The company reported adjusted earnings of 13 cents per share, missing the consensus mark of 16 cents by 18.8%. The reported earnings declined 79.4% from the year-ago figure of 63 cents. The downside can be attributed to macro environment headwinds, and higher cost and expenses.

Louisiana-Pacific’s net sales came in at $582 million, which lagged analysts’ expectation of $593.6 million by 2%. The said figure decreased 15.8% from $691.3 million on a year-over-year basis. Lower OSB prices and softness in EWP sales negatively impacted the company’s top-line performance.

Operating Highlights

Gross profit during the quarter was $81 million, declining 54.2% year over year. Selling, general and administrative expenses, as a percentage of revenues, increased 241 basis points (bps) to 9.79% from a year ago.

Adjusted EBITDA from continuing operations totaled $58 million in the quarter, down 63.5% from $159 million recorded in the prior-year period. Adjusted EBITDA margin also contracted 1300 bps to 10% from 23% in the year-ago quarter.

Segmental Analysis

Siding: The segment’s sales came in at $236 million, 4% higher than the prior-year figure of $227 million. However, adjusted EBITDA of $42 million decreased 6.7% from the year-ago period. Particularly in the LP SmartSide Trim & Siding business, revenues improved 13% from the prior-year level during the quarter.

Oriented Strand Board or OSB: Sales at the OSB segment deteriorated 33.5% year over year to $208 million. Moreover, adjusted EBITDA during the reported quarter fell significantly to $8 million from $105 million in the year-ago period due to reduced selling prices. Notably, volume of Structural Solutions (value-added OSB) increased to 40% of total OSB sold. However, overall OSB price realization dropped 29% year over year.

Engineered Wood Products (EWP): EWP sales declined 14.2% year over year to $90 million in the quarter. However, adjusted EBITDA improved 40% from the prior-year quarter to $7 million.

South America: The segment’s sales grew 7.1% year over year to $45 million. However, adjusted EBITDA of $10 million fell 9.1% from the year-ago quarter.

Financials

As of Mar 31, 2019, Louisiana-Pacific had cash and cash equivalents of $361 million compared with $878 million at the end of 2018. Long-term debt (excluding current portion) was in line with the 2018-end level of $347 million.

Net cash used for operations totaled $54 million at the end of the first quarter compared with net cash provided by operations of $31 million in the comparable period of 2018.

During the reported quarter, the company initiated $400-million accelerated share repurchase program and repurchased the remaining $38 million from its earlier $250-million stock repurchase authorization.

2019 View

Based on current plans and expectations, as well as certain costs that are likely to impact results, Louisiana-Pacific reiterated its full-year 2019 guidance. The company expects capital expenditure for 2019 in the range of $150-$180 million. It expects long-term SmartSide Strand revenue growth at the lower end of the guided range of 12-14%, owing to flat housing starts.

The company expects EBITDA to grow $75 million within 2021, aided by operational improvement initiatives, supply-chain optimization and transition of management structure. Of the EBITDA growth, $40 million is anticipated from sustainable development in overall equipment effectiveness (OEE) in Siding and OSB mills, nearly $25 million from supply-chain optimization, and $10 million from its investment in line management and infrastructure optimization.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -26.51% due to these changes.

VGM Scores

At this time, Louisiana-Pacific has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Louisiana-Pacific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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