It has been about a month since the last earnings report for Louisiana-Pacific (LPX). Shares have added about 2.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Louisiana-Pacific due for a pullback? 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 catalysts.
Louisiana-Pacific (LPX) Q2 Earnings Miss Estimates, Down Y/Y
Louisiana-Pacific Corporation reported lower-than-expected results in second-quarter 2019. Both the top and bottom lines not only missed the Zacks Consensus Estimate but also deceased on a year-over-year basis due to lower OSB pricing across North American operations and weak macro environment.
Adjusted earnings of 11 cents per share lagged the consensus mark of 25 cents by 56%. The reported earnings declined 52.2% from the year-ago figure of 23 cents. The downside can be attributed to macro environment headwinds, and higher costs and expenses.
The company reported net sales of $588 million, missing the consensus mark of $642 million by 8.4%. The top line also fell 27.5% from $811 million reported a year ago. Lower OSB prices negatively impacted its performance.
Meanwhile, Louisiana-Pacific announced quarterly cash dividend of 13.5 cents per share, which will be paid on Sep 3 to its shareholders of record on Aug 19, 2019.
Siding: Sales in the segment came in at $238 million, down 9.2% from the prior-year figure of $262 million. Adjusted EBITDA also decreased 27% from the year-ago period to $46 million. The decline was mainly due to decrease in sales prices of OSB sold.
Oriented Strand Board or OSB: Sales at the OSB segment deteriorated 48.6% year over year to $199 million. Notably, the company’s adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was negative $3 million versus adjusted EBITDA of $163 million in the year-ago period. Decrease in selling price negatively impacted its overall results.
Engineered Wood Products (EWP): EWP’s sales fell 5.3% year over year to $107 million in the quarter. Meanwhile, adjusted EBITDA declined 9% from the prior-year quarter to $10 million.
South America: The segment’s sales also dropped 11.1% year over year to $40 million. Also, adjusted EBITDA of $9 million fell 25% from the year-ago quarter.
Gross profit during the quarter was $78 million, declining 70.1% year over year. Selling, general and administrative expenses, as a percentage of revenues, increased 370 basis points (bps) from a year ago to 9.9%.
Adjusted EBITDA from continuing operations was $53 million in the quarter, down 78.1% from $242 million recorded in the prior-year period. Adjusted EBITDA margin also contracted 2080 bps to 9% from 29.8% in the year-ago quarter.
As of Jun 30, 2019, Louisiana-Pacific had cash and cash equivalents of $348 million compared with $878 million at the end of 2018. Long-term debt (excluding current portion) of $348 million was slightly above the 2018-end level of $347 million.
At the end of the second quarter, net cash provided by operations was $54 million compared with $237 million in the comparable period of 2018.
2019 View & Strategic Update
Based on current plans and expectations, as well as certain costs that are likely to impact results, Louisiana-Pacific tweaked its full-year 2019 guidance.
The company’s 2019 capital expenditure is projected within $160-$170 million versus $150-$180 million expected earlier.
Given slower housing starts, Louisiana-Pacific reduced SmartSide Strand revenue growth target to 10% in 2019 and 10-12% in the long term compared with 12-14% expected earlier.
The company expects EBITDA to grow $75 million within 2021, aided by overall equipment effectiveness (OEE) and supply chain optimization of $17 million in the first half of 2019. Of the EBITDA growth, $40 million is anticipated to be generated from sustainable development in OEE in Siding and OSB mills, nearly $25 million from supply-chain optimization, and $10 million from investment in line management and infrastructure optimization.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -41.96% due to these changes.
At this time, Louisiana-Pacific has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Louisiana-Pacific has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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