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Louisiana-Pacific (LPX) Q3 Earnings: What's in the Cards?

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Louisiana-Pacific Corporation LPX is slated to report third-quarter 2018 results on Nov 6. In the last reported quarter, the company’s earnings and revenues surpassed the Zacks Consensus Estimate by 11.3% and 2.8%, respectively.

Also, both its top and bottom lines improved considerably from the year-ago quarter. The upside was backed by strong operational execution across the business, higher oriented strand board (“OSB”) pricing as well as ongoing growth in its value-added products.

Let us delve into the factors that might influence Louisiana-Pacific’s third-quarter 2018 results.

Louisiana-Pacific Corporation Price and EPS Surprise

Louisiana-Pacific Corporation Price and EPS Surprise | Louisiana-Pacific Corporation Quote

Factors at Play

Louisiana-Pacific, which share space in Building Products - Wood industry with Armstrong Flooring, Inc. AFI, has been consistently reporting solid top-line numbers across the segments. The trend is expected to continue in the third quarter as well, owing to robust pricing and demand across the company’s Siding and LP South America. Also, the Lean Six Sigma efforts continue to generate excellent returns from cost-saving and efficiency projects. Moreover, strength in the housing markets is likely to drive its revenues.

In the first six months of 2018, total revenues grew 15% from the prior-year figure on account of improvements in OSB pricing in all North American operations. Specifically, revenues from OSB, comprising 45.3% of its total sales, increased 18% on the back of higher sales prices.

Meanwhile, the company is on track to deliver 12-14% revenue growth for Smart Side Strand within the Siding business in 2018. In the last reported quarter, Smart Side strand average sales prices grew 4% on 15% higher volume, as a result of product mix. We expect the trend to continue in the to-be-reported quarter as well. Notably, in the first six months of 2018, Siding segment sales increased 10% year-over-year.

Additionally, the company undertook some initiatives to drive growth, improve operations and increase return on invested capital in the Engineered Wood Products segment (“EWP”). During the first half of 2018, the segment’s adjusted EBITDA surged 47% and adjusted EBITDA margins grew 200 basis points.

Also, Louisiana-Pacific has been consistently enhancing shareholders’ return through share repurchases and dividends., On Aug 7, it announced a fresh $150-million share repurchase program.

However, rising raw material costs as well as higher manufacturing expenses due to interrupted logistics in Western Canadian operations are offsetting the positives of the company. Wood fiber is the primary raw material used by the company, while the primary source of the same is timber. The cost of different varieties of wood fiber is subject to volatility owing to governmental, economic or industry conditions. The recent imposition of tariff on imported lumber raises a concern.

Also, a significant quantity of various resins is used in the manufacturing processes. Resin product costs are influenced by changes in the prices or availability of raw materials used to produce resins, primarily petroleum products, as well as the demand for and availability of resin products.

Earnings & Revenue Expectation

The Zacks Consensus Estimate calls for Louisiana-Pacific’s third-quarter revenues to increase 4.2% to $748.3 million. However, the consensus estimate for earnings is pegged at 66 cents, implying a decline of 5.7% on a year-over-year basis.

What Does the Zacks Model Say?

Our proven model does not conclusively show that Louisiana-Pacific is likely to beat estimates in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -7.58%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Louisiana-Pacific currently carries a Zacks Rank #3.

Meanwhile, we caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

Here are some construction stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming releases:

AECOM ACM has an Earnings ESP of +3.45% and a Zacks Rank #3. The company is slated to report quarterly results on Nov 12.

Toll Brothers Inc. TOL has an Earnings ESP of +3.68% and a Zacks Rank #3. The company is expected to report quarterly results on Dec 4.

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Louisiana-Pacific Corporation (LPX) : Free Stock Analysis Report
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