Q4 2023 Louisiana-Pacific Corp Earnings Call
Participants
Aaron Howald; Director of IR; Louisiana-Pacific Corporation
Alan J. M. Haughie; Executive VP & CFO; Louisiana-Pacific Corporation
William Bradley Southern; Chairman & CEO; Louisiana-Pacific Corporation
George Leon Staphos; MD and Co-Sector Head in Equity Research; BofA Securities, Research Division
Ketan Mamtora; VP & Building Products Analyst; BMO Capital Markets Equity Research
Kurt Willem Yinger; VP & Research Analyst; D.A. Davidson & Co., Research Division
Mark Adam Weintraub; MD & Senior Research Analyst; Seaport Research Partners
Matthew McKellar; Assistant VP; RBC Capital Markets, Research Division
Sean Steuart; MD; TD Securities Equity Research
Steven Ramsey; Senior Equity Research Analyst; Thompson Research Group, LLC
Susan Marie Maklari; Analyst; Goldman Sachs Group, Inc., Research Division
Presentation
Operator
Good day, and thank you for standing by. Welcome to Q4 2023 Louisiana-Pacific Corporation Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Aaron Howald, Vice President, President, Investor Relations and Business Development. Please go ahead.
Aaron Howald
Thank you, operator, and good morning, everyone. Thank you for joining us to discuss LP's results for the fourth quarter and full year of 2023. My name is Aaron Howald, and I am LP's Vice President of Investor Relations and Business Development. With me this morning are Brad Southern, LP's Chief Executive Officer; and Alan Haughie, LP's Chief Financial Officer. During this morning's call, we will refer to a presentation that has been posted to LP's IR webpage, which is investor.lpcorp.com. Our 8-K filing, press release and other materials detailing LP's strategy and sustainable business model are also available there.
As usual, today's discussion will contain forward-looking statements and non-GAAP financial metrics, as detailed on Slides 2 and 3 of the earnings presentation. The appendix of the presentation also contains reconciliations that are further supplemented by this morning's 8-K filing. Rather than reading those materials, I incorporate them herein by reference.
And with that, I will turn the call over to Brad.
William Bradley Southern
Thanks, Aaron, and thank you all for joining us to discuss LP's results for the fourth quarter and the full year of 2023. 2023 ended much better than it began for LP in the markets we serve. In the fourth quarter, Siding achieved its highest EBITDA margin of the year. I'm pleased to share that Siding is back on a growth footing having returned to normal inventory and order flows after a destocking cycle in the first half of last year. We are well positioned to gain share in R&R and with homebuilders.
Commodity OSB prices fell early in Q4, but rebounded later in the quarter. These factors, along with strong price realization and efficient operations, contributed to an EBITDA result meaningfully above our guided range.
Page 5 of the presentation summarizes some of our results for the quarter and year. LP generated $658 million in sales and $129 million in EBITDA in Q4, bringing the full year total to $2.6 billion and $478 million, respectively. This translated into $0.71 of earnings per share in Q4 and $3.22 for the full year. The full year comparisons are negative, largely due to normalized OSB prices, but LP's businesses demonstrated exceptional management of elements within our control.
2023 was a year of heavy investment in capacity to enable growth in siding and structural solutions. LP invested $300 million in capital in 2023 with the largest projects being the conversion of our mill in Sagola, Michigan, to SmartSide from OSB and the construction of our newest ExpertFinish facility in Bath, New York. These projects were completed safely and efficiently and both facilities are fully up and running. LP also completed the strategic acquisition of a mill in Wawa, Ontario which expands our portfolio of future Siding conversions.
Alan will offer more details on capital allocation but I will summarize by saying that even after another year of significant investment in SmartSide and ExpertFinish capacity, the Wawa acquisition and $69 million return to shareholders via dividends, LP ended 2023 with $222 million in cash on hand and over $770 million in liquidity. Like LP results, the new residential construction markets we serve saw a meaningful recovery in the second half of 2023 after starting the year notably weaker. Affordability challenges persist, but interest rates have fallen over 100 basis points from their peak in Q4, contributing to improved optimism about single-family housing starts.
The Repair and Remodel sector remains softer than new construction, but lower rates and better affordability may encourage more sales of existing homes or offer homeowners the interest rate clarity needed to take on larger home improvement projects. The current consensus for total housing starts is about flat to last year at a bit below $1.4 million, but many forecasters expect a higher single-family mix. Compared to the consensus a year ago, we are cautiously optimistic that this improving outlook will translate into a stronger market for LP in 2024.
Regardless of the near-term market, I'm very confident LP's strategy positions us well with a strong portfolio of products and a long runway for profitable growth. The durability, beauty and performance of LP's products solve problems for builders, contractors and homeowners. We are investing in new capacity and new process technologies. This improves our productivity, accelerates product innovation and enhances our margins. We operate our capacity with discipline and utility whatever the market brings, and we are prudent stewards of our capital investing strategically in growth and innovation while returning cash to shareholders.
None of this happens without the dedication of LP's people. Our operations teams delivered significantly better efficiency in sector performance in 2023, ending the year with a world-class total incident rate of 0.5. The single injury is too many, but I'm incredibly proud of our operations team for this performance. We will never stop working to ensure a safe work environment for everyone at LP. I also want to acknowledge and thank LP les and marketing teams for navigating the difficult process of transitioning off a managed order file.
As a result of our highly talented teams and the great culture we've built LP was recognized in 2023 by Newsweek nationally and in Nashville by our local paper, The Tennessean as a great place to work. Thank you to every LP team member for your contributions in 2023.
And with that, Alan will share more details about LP's financial performance in the quarter as well as our outlook for Q1 and 2024.
Alan J. M. Haughie
Thanks, Brad. I'll briefly review the results for the Siding and the OSB businesses for the fourth quarter and full year and then offer guidance for EBITDA and capital expenditures.
Slide 6 shows Siding's quarterly results. Jumping 12 months back in time, the fourth quarter of 2022 was the last quarter in which Siding was on a managed order file. And as such, it represents rather a difficult comp. The biggest difference in the year-over-year waterfall is, therefore, the 15% drop in volume, a corresponding $55 million drop in revenue and a $26 million drop in EBITDA. On the plus side, Bath and Sagola are now fully up and running, resulting in lower conversion and ramp-up costs. This, combined with continued improvements in raw material costs, produced a $13 million EBITDA tailwind.
Net of $6 million in inventory absorption and other stuff, the Siding business finished the quarter with $72 million of EBITDA. The EBITDA margin of 22% was the highest of the year, which reinforces our confidence in Siding's long-term 25% EBITDA margin target. Now I won't belabor the full year waterfall on Slide 7, given that we've discussed the most important elements in prior quarters. However, it is perhaps useful to recap that the transition from a managed order file made for a difficult year with respect to volume, particularly in the first 6 months, while inventories normalized. Nonetheless, the full year EBITDA of $269 million represents a robust EBITDA margin of 20%, particularly so in light of the carrying cost of new capacity. Capacity, which I would like to stress, provides a long runway for growth with meaningfully lower future CapEx, at least until customer demand necessitates further investments.
Slide 8 covers the fourth quarter for OSB. While our prices fell steeply during the shoulders of the third and fourth quarters, they subsequently recovered and ended the year higher than the prior year, adding about $17 million to year-over-year EBITDA. Volumes were lower in part because of the Sagola conversion, but this was partially offset by a significant improvement in operating efficiency. Structural Solutions accounted for 52% of OSB volume in the quarter with value-added products producing $20 million of incremental EBITDA on $39 million of incremental revenue. Lower raw material, Mill and SG&A costs added a $30 million tailwind, resulting in a very respectable $59 million of EBITDA in the quarter.
OSB's full year results on Slide 9 are dominated by price normalization, but other than that, the year can be summarized as one of lower volume, partially offset by higher OEE lower raw material costs and lower overhead costs given the transfer of Sagola to the Siding business. Taken as a whole, despite volatility quarter-to-quarter, 2023 was slightly better than the historical cycle average for the OSB business, which shows the power of LP's OSB strategy: Improved efficiency in operations, disciplined capacity management and the value generated by the consistent incremental uplift from the Structural Solutions portfolio.
Other than the acquisition of Wawa, cash flows for the quarter and year was straightforward, as shown on Slide 10. For the year, LP earned $478 million of EBITDA, paid $65 million in cash taxes and built $93 million of working capital, resulting in $316 million of operating cash flow. After investing $300 million in CapEx, paying $80 million to acquire the Wawa mill and returning $69 million to shareholders via dividends, the net outflow of $161 million left us with $222 million in cash.
Now before I transition to guidance, let me anticipate and answer one question. LP's capital allocation strategy is unchanged. We will earn cash, invest in growth and return cash to shareholders via dividends and share repurchases in that order. LP did not repurchase any shares in 2023, but our motivation to do so is undiminished, and we retain a $200 million authorization from the Board. We will resume share repurchases when our cash flows and cash balances warrant.
2024 should be a year of growth and meaningfully lower CapEx in Siding. So [all else equal], share repurchases are very much back on the table, which brings us to guidance on Slide 11. With the inventory destocking behind us and Siding back on our growth footing, as well as more historically normal OSB prices. We have improved visibility to offer a full year outlook for both businesses if you'll forgive some very obvious caveats.
In Siding, we expect a year of resumed growth in a more normal seasonal order pattern consistent with what we saw in the fourth quarter and have seen so far in 2024. Revenue growth is expected to outpace both the current flat consensus for total U.S. housing starts and the forecast for single-digit declines in Repair and Remodel. We, therefore, expect revenue growth of about 8% to 10% for the full year from a combination of volume and price. And this would result in Siding revenue of, let's say, $1.45 billion, approaching 2022's record level. An EBITDA margin of around 20% and would result in full year EBITDA for Siding of between $280 million and $300 million, with reduced investments in capacity, partially offset by discretionary increases in selling and marketing.
So what does this mean for the first quarter? Well, the expected return to more normal seasonal demand pattern means somewhat higher demand in the second and third quarters compared to the first and the fourth. Accordingly, first quarter sales for Siding are expected to be in the range of $340 million to $350 million, with EBITDA between $65 million and $70 million, assuming an EBITDA margin of about 20%.
For OSB, full year revenue guidance is impossible without a price reduction, which we won't even pretend to offer. Instead, we're going to introduce the concept of cycle average EBITDA spread. This is the EBITDA that the OSB business earns per 1,000 square feet of volume on average over the cycle. This spread accounts for variations in both selling prices and the cost of production. As demand and therefore, commodity prices fluctuate, in response, we adjust our capacity utilization, our product mix, our maintenance costs and other factors. And to illustrate how this distinction can be useful, recall that in the third quarter of 2019, the OSB business achieved breakeven EBITDA. And in the first quarter of 2023, we reported a small positive EBITDA. These were very similar outcomes, but at very different nominal selling prices and cost of manufacture.
Now historically, LP cycle average OSB spreads have been around $60 per thousand square feet of sales volume. This is actually the trailing 10-year average for LP's OSB business, excluding the outlier years of 2021 and 2022, when the spread was actually much higher. Actual commodity price fluctuations resulted in an EBITDA range with a floor that we've demonstrated can be held above 0 when prices are low, such as in the 2 examples I just cited. And then actually, with a very high ceiling when prices rise. So if we take this concept and apply it to current conditions. I would estimate that LP's 4 billion square feet of capacity, running at about 85% average utilization at $60 per 1,000 square feet should generate about $200 million in EBITDA on a cycle average basis. And this is actually very close to the EBITDA we just generated in 2023.
To use this concept to construct the outlook for OSB, we'll start with the first quarter and build from there. For the first quarter, we expect shipment volumes to be similar to fourth quarter levels at around 770 million to 790 million square feet. So far, random length prices have averaged about $25 higher than the fourth quarter we've just reported. So under that volume assumption, if the OSB price holds, EBITDA in the first quarter should be around $65 million to $75 million. We're making no attempt to predict future OSB prices. So our full year outlook for OSB is the sum of the first quarter outlook I just gave, followed by 3 quarters of cycle average EBITDA. Adding the 2 businesses together and assuming for simplicity that LP South America's EBITDA covers corporate costs, we expect full year EBITDA of about $495 million to $525 million. with the first quarter and the $130 million to $145 million range.
A quick word on Sensitivities. As we are already realizing the January price increase in Siding, the most significant sensitivity in that business is volume. Each increase or decrease in volume of 10 million square feet from this baseline would add or subtract about $4 million in EBITDA at typical incremental EBITDA margins. For OSB, Sensitivities for incremental volume and price shown in the table are based on the same utilization and EBITDA assumptions used to construct our outlook and would, of course, compound.
With respect to capital spending, LP invested heavily in SmartSide and ExpertFinish capacity in 2022 and 2023. As a result, we have a healthy runway of capacity ahead of us. We will continue to invest in growth this year, albeit on a smaller and more targeted scale compared to recent years. Accordingly, 2024 should see capital investments roughly $100 million lower than 2023, with sustaining maintenance comprising roughly 75% of the total.
So in many ways, 2024 is a return to normal. Siding is growing again after something of a destocking hangover. OSB prices are currently in a historically normal range, albeit on the high side of that range. And LP's capital investment in 2024 will be nearly $100 million lower than last year, because the Sagola, Houlton and Bath projects are complete.
And with that, we'll be happy to take your questions.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from the line of Ketan Mamtora from BMO.
Ketan Mamtora
Alan, perhaps to start with, when I think about the 2024 Siding EBITDA guidance, can you talk about sort of at a high level, what are the sort of the key elements as we think from 2023 to 2024, given that in 2023, volume was a big drag, there was probably inefficiencies as you were working through the inventory destocking phase? And then you also have a price increase for this year. So can you talk about just sort of 3 or 4 key elements as we think about the bridge?
Alan J. M. Haughie
Sure, Ketan, thanks for the question. I do want to stress that this is the most comprehensive guidance to my knowledge that the company has ever given. And one of the objectives, particularly around the 20% EBITDA margin for Siding was to actually convey a sense of comfort. If you think about the volume sensitivities, the margin is obviously heavily impacted or would -- can be heavily impacted by fluctuations in volume. And so we're confident that we're going to see a volume increase in 2024. And hence, that our EBITDA margin will benefit from that -- the presence of that volume uplift.
On the question of volume, though, we are expecting and anticipating increases in our ExpertFinish production, which is itself right now as we grow that business, not necessarily margin accretive. It's profitable, but not to the same degree as the rest of the business, a situation which I have absolutely no doubt, we will improve as the years progress. We are also investing rather heavily in selling and marketing, certainly more heavily in 2024 than we did in 2023. And that's largely offsetting the benefits that we get from removal of the ramp-up costs that you saw in 2023.
And secondly, or thirdly, rather, we are actually carrying still, as you will note, in essence, one extra mill in our network. Again, this is a decision that we're making in order to make sure that we have all of our mills, let's say, agile at a depth of producing Siding product as we move ourselves from 2024 into 2025 continued future growth. And there is, of course, some labor inflation and freight inflation that we're anticipating that's by no means certain yet.
So they're the factors -- basically throwing those all in the pot -- in this guidance that we're giving you. And so I was tempted to say at least 20% EBITDA margin. But occasionally, when I've said at least, we've literally blown the number out of the water, and I don't want to send any signal that I think blowing this number out of the water is on the cart. But I think 20%, given all of these investments we're making, and our confidence in the volume uplift is a very safe number.
Ketan Mamtora
Understood. No, that's very helpful context. And one more on Siding. Can you talk maybe perhaps Brad, in terms of how the Sheds business is performing? I know in the middle of the year, we went through this pretty big destocking phase there. What are you seeing in Sheds demand?
William Bradley Southern
Yes. So Ketan, we had a good recovery in Shed demand second half of last year. So certainly, Q4 was okay to good. Right now in our order file, it's probably the weakest sector that we have. I think there was a little bit of inventory build in that shed serving channel but it's okay, but right now, it's the weakest part of our order file. But we do not anticipate that carrying out throughout the year. It's just kind of what's happening right now.
As you are referencing, I'm sure we'd certainly experience kind of an overhang post-COVID of Shed demand being very like first half of this year. We're seeing this year being more of a normal demand pool for that sector. Again, but we did carry a little inventory -- well, the channel carried a little inventory across the year that we're working through right now. No worries there, just kind of the current situation in the market.
Operator
Our next question comes from the line of Steven Ramsey from Thompson Research Group.
Steven Ramsey
Maybe to continue the Siding sales and marketing spend topic curious where that spend is focused by product set or customer type? And can you talk to how you're judging the success there, the ROI, the timing between spend to sales?
William Bradley Southern
So the 2 areas of focus, first of all, from a sales resource standpoint, is around new construction and the sales assets that are focused on that segment along with the technical support that goes into ensuring a smooth transition of the incumbent siding product on to SmartSide. So we're adding sales resources in support of that, that push in new construction. And then on the marketing side, the focus there is primarily in Repair and Remodel. That is a different sales process where contractors are actually convincing a homeowner to reside their house and then to use our product, and that requires a good bit of personalized or more consumer-oriented marketing support. And so not all of the increases is there, but certainly, the majority of the marketing spend increase is focused on our growth of Repair and Remodel.
Steven Ramsey
Okay. That's perfect. And then on the Siding margin outlook you have a consistent 20% on Slide 11 for both Q1 and the full year. But just going midpoint to midpoint, it looks like about 100 bps of improvement. Just curious how you think about the cadence through the year? How seasonality plays into that and volume uptake off of the higher base of production?
Alan J. M. Haughie
Yes. Well, the second and third quarters are obviously going to see if this plays out, higher high volumes year-over-year than first and fourth quarters, most likely. So my anticipation is that the -- if the margin peaks, it will -- well, I'm not sure. But certainly, I think third and -- second and third quarters will be healthy EBITDA margins given the extra volume.
Operator
Our next question comes from the line of George Staphos from Bank of America Securities, Inc.
George Leon Staphos
Aaron, Alan, Brad, I had a question on Siding margin as well and sort of the investment that you're making this year on marketing and selling. Is there much of a lag between when you ultimately expect to get the volume and the investment that you need to support the volume growth that you're expecting? I said differently, should we expect the selling, general and administration, the marketing to move more or less in tandem with the incremental volume and incremental margin? That's question number one.
Question number 2, I'll jump back in queue. Can you talk to us -- I reckon -- I think it's very difficult to project anything in OSB? What would you be looking to in terms of structural solutions as a percentage of the overall mix when we're all said and done with '24?
William Bradley Southern
George, let me on these additional sales and marketing spend -- the impact by spend is not instantaneous. It's always an investment in support of our CapEx investment we've made over the last 3 or 4 years. We did consciously cut back on sales and marketing spend as we were in managed order file. Obviously, there wasn't an immediate need for demand creation and any demand that would have been created, we would have had trouble satisfying. And so we're seeing this year really is a return to the -- more in line with our prior-COVID rate plus added emphasis around the 2 segments that I mentioned before, where we have historically been underpenetrated and not had to have either the sales assets or the level of marketing spend that we anticipate to support our Repair and Remodel.
But I would -- from a marketing standpoint, you create -- I mean, just at a high level, you create an impression, you create some brand equity, in anticipation of that creating the demand that you feel later on. And then on the sales side, yes, some of these technical support staff that we add can have an immediate impact, but really, that's more or less helping us with volume we've already converted the more strategic sales investments, it takes a few months to hire them, a few months to train them and then a few months for them to start being effective out in the field. So I would say most of this incremental sales and marketing spend maybe other than the technical sales support is going into demand creation that we'll feel at the best case late this year, probably more into next year.
George Leon Staphos
But bottom line, there will be a bias in terms of incremental and overall EBITDA margin. Attention to the upside as the year progresses, would be my takeaway, both because of the seasonal pickup in volume -- and then even as we get into fourth quarter, some of that investment you've already made and so you should be getting the benefit of that later in the year. Not trying to be too precise, but just conceptually, is that right? Or would you disagree with any of that?
William Bradley Southern
No, I agree with that, conceptually, yes. And then the question -- I'll -- most of the OSB question. If you want to come back to the Siding question, we certainly can. But on the Structural Solutions, mid-55% -- I mean between 50% and 60%, I think, is a realistic goal for this year. I'd love to see 55%. We do manage that for margin more so than for volume. But certainly, our strategy is to get volume growth as well. And so have it fixed -- our ability to push that volume is somewhat dependent on the current price level and our enthusiasm about margin management, but a realistic goal will probably be 53%, 54% and then upside goal maybe 55%, 56%.
Operator
Our next question comes from the line of Susan Maklari from Goldman Sachs.
Susan Marie Maklari
My first question is on Siding. You had mentioned on the last quarter call that you were limiting the amount of pre-buy ahead of the January price increase. I guess, one, was that a success? And two, given that, how are you thinking about the order files as we are coming into this year and the channel inventories and what that could suggest for the volumes in that segment as we think about the next couple of quarters?
William Bradley Southern
Susan, we did limit [Repair and Remodel] volume to basically the average purchases over the prior 9 months for our customers. So we had essentially no into minimal prebuy or prebuy into December volume for January. So I feel really good how we carry that across the year, and I feel good about the first 6 weeks activity and our order file. And I feel -- there always is some seasonal inventory build this time of year in Siding as people come back from the holidays in anticipation of the spring build, especially now that we're also in the prefinished business. But I would call a seasonal build right now in the channel normal, pre-COVID normal. And so we feel good about pave for order file, and we feel good about for inventory's level -- inventory levels are now in the channel and our own inventories at the mill level.
Susan Marie Maklari
Okay. That's helpful. And then perhaps a higher level question, as we think about the potential that rates will come down as we move through the year, and that could drive some pickup in existing home sales. How are you thinking about what that could mean for the business? And any thoughts on the timing around that increase in the turnover in housing relative to when it could cut through to the actual results?
William Bradley Southern
Susan, I think interest rate reduction this year would have a -- I think it would have a significant impact on housing. I think that the kind of the short term would be more emotional perhaps than economic, just the movement downward, I think, would provide some homebuyers confidence to move into the market. I do think that over a period of time and could free up some existing homes to go on the market for homeowners that have been kind of hesitant in this interest rate environment to make that move, and that won't necessarily translate into new home construction. I mean wouldn't at all but it's certainly -- the housing that would be on the market.
So I think for this year, on new construction, the impact would be maybe a little more emotional or feel good than it is really the economics changing. But I think over -- for 2025, it could be a very powerful driver of demand. And then secondly, on the Repair and Remodel, the residing project is a high dollar project that is highly likely to be financed instead of paying out of savings. And so I do think that interest rate reduction will have a more immediate impact on repair remodel by just making those projects more affordable for a homeowner. So -- if we get that reduction, I think it would provide new constructions on tailwind but maybe it would be more impactful to '25. I think for Repair and Remodel impact could be immediate for us.
Operator
Our next question comes from the line of Matthew McKellar from RBC Capital Markets.
Matthew McKellar
Maybe first, just setting aside the price increases, are you able to talk to how you would expect mix shift from what you seem to be more ExpertFinish and potentially more BuilderSeries product year-over-year to affect average selling price in Siding in 2024?
William Bradley Southern
Yes. So I think it's -- certainly, our focus this year is around growing our BuilderSeries and our ExpertFinish brands, one for -- ExpertFinish Repair and Remodel BuilderSeries for new construction. The BuilderSeries, it depends on the SKU, but typically, that is a price point item to a certain extent. So that would be a damper on average price as that volume increases, not necessarily on margin, but on price. And then for ExpertFinish that sells for a much higher pricing. And so that would be weighting our revenue up if we get more experts in it. So I'm not -- I think there's probably more opportunity from a net-net for the ExpertFinish to have a bigger impact possibly than BuilderSeries would have negatively, but we'll have to see how that plays out as we go through the year. So maybe mix would be a slight positive upside to the year compared to '23.
Matthew McKellar
Okay. That's helpful. And then next, in new home construction, can you talk about what the tone is like from your customers in that segment. And with that, do you have a view at this point on whether housing starts by regional builders should trend much differently than housing starts across the industry?
William Bradley Southern
Yes. So I would say, just given the exposure that we have at conferences and one-on-one conversations, I think that maybe in the middle of fall last year, I felt like there was some -- I felt more pessimistic about this year from a builder standpoint. I think the move there has strengthened through Q4 and certainly the tone right now is pretty solid. Obviously, the conversations around rate reduction has a positive impact on sentiment there or on the mood -- but the large national builders that are -- that we partner with are certainly optimistic about this year. They've put infrastructure in place to sell through this year and are anticipating growth.
I do -- I was surprised to hear in the conference I was in, in Q4 or maybe it was in January, anticipating some strengthening from the regional builders just because there's such a need for new home construction because the existing homes are on the market. And I mean, at the end of the day, there is only so much the national builders can do in the moment as they continue to grow. And also post-COVID, there has been some capability for the regional builders to get the permitting, get the infrastructure in place where they're maybe not as efficient as that as a big builder, but they have been working on it. So overall, I think we could see some recovery or some growth at the regional level. Honestly, that plays to our existing sweet spot in sign. We've always had a really good presence there. You couple that with continued growth at the national builder level, we could really play out for a good year for us in new construction.
Operator
Our next question comes from the line of Mark Weintraub from Seaport Research Partners.
Mark Adam Weintraub
Alan, I appreciate the qualitative drivers behind the Siding margin changes. I was hoping maybe that we could get a little bit more color on how that translates into the quantitative 20% which, I guess, is a little bit lower than my back of the envelope would come out. But obviously, there's lots of stuff you guys know I don't. And so maybe if you -- maybe open ended, what you can add to the conversation at this point? Otherwise, I have kind of more pointed questions too.
Alan J. M. Haughie
I'm not sure which one I prefer. Let me give you a couple of big numbers that are in this. And I'm going to give you ranges. So high level, the selling and marketing investment is $15 million to $20 million year-over-year. And the mill reversal, the mill investment reversal is $15 million to $20 million of reversing. We are adding other elements of SG&A around development of new products and the rest of the sort of infrastructure and the Siding business of in a region of, say, $10 million and we're anticipating inflation, which can change, of course, except for the labor part of maybe $20 million or so. So there are some big ticket items that are sort of more discrete. They are, in some instances, manageable, such as the Siding and marketing investment. And that's probably about as much detail I'm willing to give.
Mark Adam Weintraub
That's super helpful. Maybe 2, is it that one shouldn't use like the 50% on incremental margins, which is sort of what you pence out on the anything new above and beyond on the sensitivity chart you provide for the increase in volumes that you've you embedded in the guide? Or is it...
Alan J. M. Haughie
Given those big ticket items I'd call that, if you use the incremental margins, it should all work and the risk of going further and giving you a way forward, okay. Based on something we're not going to be particularly forthcoming yet on because there is a relationship between the 2 on how volume and price breakdown within that revenue guide, it's simply too early in the year for us to give a reasonable call on that. But if you make your volume and price assumptions and use the sensitivities accordingly, you should get something in there.
Mark Adam Weintraub
And so I guess that was the last question, which I had and maybe you sort of embedded it in your answers. The first one was -- and then pricing, would that be discrete? And if we're getting 2% additional pricing, that should be incremental to the EBITDA? Or did you just say that sort of embedded in the incremental margin analysis?
Alan J. M. Haughie
That was -- it's not embedded in the incremental margin. The incremental margin discussion is always purely volume, so a pre-existing mix. So yes, the pricing is incremental, revenue and EBITDA.
Operator
Our next question comes from the line of Sean Steuart from TD Securities.
Sean Steuart
Question on the OSB cycle average you're giving, which seems to make sense. But you're talking about an 85% operating rate assumption that underlies that, which isn't great. And I guess what I'm wondering is if you can speak to the shape of the cost curve in your OSB portfolio and thoughts on potential asset closures above and beyond siding conversions over the long run, the possibility on that front for the company.
William Bradley Southern
Well, I'll do the cost shape or the cost curve. It's pretty flat. And Sean, obviously, we have some mills that are our cost and lower cost. But and that's how we rationalize capacity when we do take the downtime. But if it's probably unmeasurable into $4 billion level, we had a shift back at Maniwaki or something like that on (inaudible) from a cost standpoint. So pretty flat cost curve. And then obviously, we've learned how to move that the capacity or the production up and down pretty efficiently. So the cost of downtime isn't great either. So yes, flat cost curve for us and relatively flat for the industry, at least when we do the analysis earlier in my career within the paper business where the cost curves could be pretty steep, and that's certainly not the case in OSB.
Sean Steuart
But you would -- sorry, go ahead.
Alan J. M. Haughie
For utilization, the 85% is the trailing 10-year actual average utilization. So it's very consistent with historical.
Sean Steuart
Second question on the growth CapEx of $50 million to $60 million in 2024, can you give us an idea of where that's being focused? Is it a few specific projects, a broad array of projects across several assets, any detail on that front?
Alan J. M. Haughie
It's everything and everywhere. We are -- the biggest single item is the investment in Structural Solutions enhancements for -- given the value-added OSB. But it's a bunch of small projects. There's no major project that I can really call out. But -- and again, 90% of -- sorry, 80% of that -- the strategic projects are basically inside it.
Operator
Our next question comes from the line of Kurt Yinger from D.A. Davidson.
Kurt Willem Yinger
I was just curious, how important is BuilderSeries itself to your objectives to grow in the new residential construction segment? And I guess, along those lines, what has been kind of the primary feedback from production builders with that product to date? And what do you think is most important in terms of really hitting a tipping point and penetrating that specific customer set going forward?
William Bradley Southern
Yes. So the BuilderSeries is very important to our growth objectives as -- for our segment and for the company. It is -- it provides a competitive alternative for the big builder in new construction, of course. The reception upon use has been very good. It is a very workable product and certainly -- as are installed and the competitive product that we're going up against. So the reception has been good. The key trial and getting the product -- there's an incumbent product that we're having to compete against, and so the -- and that has a long sales process, these aren't something that is tracking -- the decision is not made weekly we're exciting a builders is going to use. And so it's a long sales process.
It I'll tell you, we have a great value proposition with BuilderSeries stand-alone, but as we couple that with Structural Solutions and even our commodity OSB, which is also a valuable part of the homebuilders package, we bring a halt to the sales process around these big builders that incorporates all of the products we make in North America. And we're finding traction with that as we couple Siding with the Structural Solutions portfolio and as I mentioned, even with the commodity OSB. We are a meaningful supplier -- have been a meaningful supplier to the big builder for a long time in our OSB business. And so bringing a Siding solution to that relationship, we're finding to be very helpful. The relationship that we've built through our OSB business is helpful in the sales process for Siding.
So we're getting started. I feel good about the progress we've made since we launched BuilderSeries. I have a tremendous amount of confidence in the product. I have a lot of confidence that once we get the trial, once we get some usage and conversion, conversion, the product is going to be sticky because the installers going to love the product, as we've experienced across our portfolio for 25 years. And we were very under-penetrated at the national builder level. So all that volume is incremental to us and as those builders continue to grow and gain market share, this provides us a real -- a large opportunity to continue this growth story that we've been working on for the past 15 years in Siding.
Kurt Willem Yinger
Understood. I appreciate the color there, Brad. And then just for my second one, I mean, bigger picture on Siding margins, it sounds like the increase in investment in sales and marketing and SG&A this year is kind of getting back to normal as opposed to kind of a one-off step up. There's a pretty large gap still between 20% and call it, the mid-20s target for the segment. I'm just kind of curious if you could talk about the time line for getting back to those targeted siding EBITDA margins and whether that's possible prior to another conversion coming up to the extent that demand warrants it.
Alan J. M. Haughie
Yes. Good question. Yes, it's eminently possible before another mill comes up because the fundamental drag on the EBITDA margin right now is the fact that we're running with one extra mill in the network, which -- and so the margins will become healthier as that -- as we successfully fill that mill with new high-priced product. So yes, I am -- it is possible that we can enjoy a certain good movement towards 25% as we fill them, the capacity we have. As we've said, significant amount of our capacity additions are behind us and now in operation. So we are carrying that fixed costs, and we're carrying it because we're very confident that the volume needed by those mills to run profitably is very much in our future.
Kurt Willem Yinger
And just one quick follow-up. I mean sequentially siting EBITDA margins look kind of down in Q1 versus Q4, it looks like volume could be flat, maybe a little bit better. You'll have the price increase. I mean, is that all just kind of the increase in selling and marketing that's weighing it down Q1 versus Q4? Or anything else to call out there?
Alan J. M. Haughie
Labor inflation -- with January 1 pricing, wage increases and so on and things like that. Nothing other than what you might call normal economics.
Operator
At this time, I would now like to turn the conference back over to Aaron Howald for closing remarks.
Aaron Howald
Okay. Thank you, operator. There's no more questions, we'll end there. But before I do, let me briefly remind everyone that LP will be hosting an Investor Day in Las Vegas at the International Builder Show, 2 weeks from today on the 28th of February, starting at 10:00 in the morning, local time. The event will be in-person only with no simultaneous webcast, but we will record it and post the recording to the IR web page pretty soon thereafter. So if you're interested in attending, check the IR web page for details or reach out, contact me.
And with that, we'll close the call. Thank you, everyone, and we hope to see you in Vegas.
Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.
