Louisiana-Pacific (LPX) Down 34.9% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Louisiana-Pacific (LPX). Shares have lost about 34.9% 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 catalysts.

Louisiana-Pacific Q4 Earnings Lag, SmartSide Revenues Up

Louisiana-Pacific Corporation reported lower-than-expected results in fourth-quarter 2019. Also, the company’s announcement of a 7% increase in quarterly cash dividend to 14.5 cents per share and authorization of a new $200-million share repurchase program are expected to have added to the positives.

The company reported adjusted earnings of 5 cents per share, which lagged the Zacks Consensus Estimate of 10 cents by 50% and declined a whopping 73.4% from the year-ago period. The downside can be attributed to lower sales, and higher costs and expenses.

Net sales totaled $537 million, missing the consensus estimate of $552 million by 2.7% and declining from the year-ago figure of $589 million by 8.8%. Lower Oriented Strand Board (“OSB”) prices and reduced commodity OSB shipments across all North America segments (down 29%) negatively impacted its performance. However, these headwinds were partially offset by SmartSide Strand revenue growth of 11%.

Segmental Analysis

Siding: The segment’s sales of $230 million during the quarter were up 8% from the prior-year figure of $213 million. Adjusted EBITDA also increased 23.5% from the prior-year quarter to $42 million. The upside was backed by strong SmartSide Strand.

OSB: Sales in the segment declined 32.5% year over year to $172 million. The company’s adjusted EBITDA also deteriorated significantly to $6 million from $34 million reported a year ago. Increase in the Structural Solutions mix was more than offset by lower OSB pricing and shipments.

Engineered Wood Products or EWP: Segment’s sales grew 16.3% year over year to $93 million. The upside was backed by the temporary shutdown of its North Carolina facility in 2018 owing to damage caused by hurricane. Adjusted EBITDA also increased year over year to $3 million, primarily due to an increase in joint venture earnings and operational efficiency.

South America: Sales of $38 million decreased 2.6% year over year due to pricing pressure from increased competition in export markets in South America and Asia, partially offset by higher Chilean shipments. Adjusted EBITDA of $8 million was on par with the year-ago quarter.

Operating Highlights

Gross margin declined nearly 300 basis points (bps) year over year to 13%. Selling, general and administrative expenses — as a percentage of revenues — increased 110 bps.

Adjusted EBITDA from continuing operations was $49 million in the quarter, down 25% from the prior-year figure of $65 million. Adjusted EBITDA margin also contracted nearly 200 bps to 9.1%.

Financials

As of Dec 31, 2019, Louisiana-Pacific had cash and cash equivalents of $181 million compared with $878 million at the end of 2018. Long-term debt (excluding current portion) of $348 million slightly increased from the 2018-end level of $347 million.

At the end of 2019, net cash provided by operations was $159 million compared with $511 million in the comparable year-ago period.

2019 Highlights

In 2019, Louisiana-Pacific reported adjusted earnings of 37 cents per share, missing the consensus mark of 42 cents and declining 86.5% from the 2018 level of $2.75. Net sales of $2.31 billion also declined 18.3% year over year and slightly missed analysts’ expectation of $2.33 billion. Adjusted EBITDA also declined 68.3% from a year ago.

2020 View & Strategic Update

Based on current plans and expectations, Louisiana-Pacific expects capital expenditure in the range of $130-$140 million. SmartSide Strand revenue growth is targeted within 10-12% for 2020.

Notably, the company remains optimistic to fulfill its long-term adjusted EBITDA growth (through 2021) expectation of $165 million and expects EBITDA margins to be at least 20% in the Siding segment.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions. The consensus estimate has shifted -28.21% due to these changes.

VGM Scores

At this time, Louisiana-Pacific has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Louisiana-Pacific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.