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Louisiana-Pacific's Posts Loss as Expected, Revs Lag

Zacks Equity Research

Louisiana-Pacific Corporation’s (LPX) first-quarter 2014 adjusted loss per share of 5 cents per share was in line with the Zacks Consensus Estimate. The quarterly loss of this premier supplier of building materials was a massive drop from the year-ago quarter’s earnings of 40 cents.

The weak bottom line was due to huge foreign exchange losses of $4.3 million, lower pricing in Oriental Strand Board (:OSB) and lower earnings before interest, taxes, depreciation and amortization (:EBITDA).
Net sales in the quarter decreased 16.0% year over year to $445 million owing to decline in pricing in the Oriental Strand Board segment and unfavorable weather. Revenues lagged the Zacks Consensus Estimate of $487 million by 8.6%.

Adjusted EBITDA from continuing operations of $23 million declined from $120 million in the prior-year quarter owing to a rise in operating costs and a decline in OSB segment EBITDA due to lower prices.

Segmental Analysis

Oriental Strand Board (:OSB): Louisiana-Pacific’s OSB segment manufactures and distributes OSB structural panel products. Sales in the OSB segment decreased 32.1% year over year to $195 million in the first quarter of 2014 due to a 38% decline in pricing, partially offset by a 6% increase in volume. Volumes increased as the company resumed production at the Dawson Creek, British Columbia mill and the Clarke County, AL mill.

This segment reported an operating loss of $2.0 million in the first quarter of 2014 versus operating earnings of $98.0 million in the year-earlier quarter. The segment recorded adjusted EBITDA of $12 million, down from $109 million in the year-ago quarter attributable to lower pricing.

Composite Wood Products/Siding: The Composite Wood Products/Siding segment is engaged in the production and marketing of siding products and related accessories, hardboard siding and accessory products, and vinyl siding products and accessories. These products are used for new constructions as well as for repair and remodeling. It has three categories: SmartSide and CanExel siding products and commodity OSB.

Sales in the Siding segment improved 7% year over year to $144 million gaining from the rise in pricing as well as volumes in the SmartSide category. With continuous penetration in retail, repair and remodel markets and sheds, SmartSide volumes improved 12% year over year. SmartSide average sales prices also increased 6% year over year.

On the other hand, CanExel siding prices declined 8% year over year, owing to unfavorable foreign translations. CanExel volumes were up 13%, owing to higher sales through a promotional winter buy program.

The segment recorded adjusted EBITDA of $24 million in the quarter, down 4.0% year over year, due to lower OSB pricing.

Engineered Wood Products (EWP): The EWP segment produces goods used in new constructions like I-Joist (:IJ), Laminated Veneer Lumber (LVL) and Laminated Strand Lumber (LSL.TO).

Engineered Wood Products sales increased 4.8% year over year to $66 million in the quarter, driven mostly by higher volume growth in IJ, LVL and LSL. Volumes of IJ increased 3% year over year and 2% for both LVL and LSL, benefiting from higher LSL sales. Pricing was up 11% in IJ and 8% in both LVL and LSL due to price increases implemented in 2013.

The segment’s operating loss was $3 million, narrower than the prior-year quarter’s loss of $4 million due to higher sales. The segment’s adjusted EBITDA of $2 million was an improvement, compared to breakeven in the prior-year quarter, due to increased pricing.

South America Segment: The South America segment produces OSB structural panel and siding products in Chile and Brazil.

Segment sales reduced 17.8% year over year to $37 million, owing to a decline in volume and prices in Chile. Volumes in Chile decreased 18% and increased 7% in Brazil. Including the changes in foreign exchange rates, prices decreased 13% year over year in Chile but increased 5% in Brazil. In terms of local currency, prices improved 2% in Chile and 11% in Brazil.

South America segment’s operating income of $4 million in the first quarter 2014 declined from the year-ago figure of $6 million. The segment’s adjusted EBITDA of $7 million declined from $9 million from the prior-year quarter. The decline in operating income and adjusted EBITDA was due to weaker volume and pricing in Chile


Louisiana-Pacific continues to be optimistic about the increase in residential construction spending and believes that it will boost its business in the long term.

Louisiana-Pacific carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Investors interested can also consider stocks like Aegion Corporation (AEGN), Simpson Manufacturing Co., Inc. (SSD) and Toll Brothers Inc. (TOL). While Simpson Manufacturing sports a Zacks Rank #1 (Strong Buy), Aegion Corporation and Toll Brothers carry a Zacks Rank #2 (Buy).

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