Louisiana-Pacific Siding Business Aids, Low Volume Ails

Louisiana-Pacific Corporation (NYSE:LPX) has been riding high on solid Siding business, strategic investments in acquisitions, and business transformation plan. Also, its long-term siding EBITDA margin growth is commendable.

However, higher expenses associated with repair and remodeling activity, and product introduction to drive siding growth mar prospects. Recently, the company posted lackluster bottom-line numbers for fourth-quarter 2019. The company’s adjusted earnings lagged the Zacks Consensus Estimate 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.

Let’s delve deeper into factors that are influencing the overall performance of the company, which shares space with Weyerhaeuser Company (NYSE:WY) , Universal Forest Products, Inc. (NASDAQ:UFPI) and Norbord Inc. (NYSE:OSB) in the Zacks Building Products - Wood industry.

Key Strategies to Drive Growth

Louisiana-Pacific’s business benefits from strong Siding business, which accounted for 42% of the total revenues in 2019. The company has been making efforts to increase the penetration of Siding products in repair/remodel and roll out SmartSide products.

In 2019, SmartSide strand revenues grew 10%, with volumes up nearly 8% from a year ago. The company expects Siding revenues to grow 10-12% annually in 2020 and beyond. Also, the company targets an EBITDA margin of at least 20% for the overall Siding business in the long run.

Moreover, the company keeps on investing in different businesses in order to leverage large-scale manufacturing capabilities and scale the business. On Oct 8, 2019, the company acquired the pre-finishing assets at a Granite City, Ill., pre-finish facility, which was owned by BlueLinx. Also, in June 2019, it acquired a Green Bay, WI-based prefinished siding company, Prefinished Staining Product Incorporated (“PSPI”).

Apart from acquisitions, the company divested its low-profit business. In a bid to focus exclusively on meeting high customer demand for its strand-based siding products, on Feb 27, 2020, it announced a deal with Maibec to divest LP’s East River facility, located in Nova Scotia, Canada.

Lastly, it is optimizing infrastructure costs. The company also introduced Lean Six Sigma to the facilities under which it is selling or shutting down underperforming mills and manufacturing facilities, and investing in technology.

Factors Denting Profitability

Louisiana-Pacific is witnessing lower Oriented Strand Board (“OSB”) prices and reduced commodity OSB shipments across all North America segments. OSB, which accounted for about 66% of its North American sales in 2019, generated adjusted EBITDA was just $10 million in 2019 compared with $425 million reported a year ago. The decreases are primarily related to $407 million of reduction in OSB prices and a 17% decrease in commodity shipments.

Also, it has been experiencing significantly higher expenses associated with repair and remodel channel penetration and product introduction. Volatile material costs and lower single-family starts are adding to the woes.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple (NASDAQ:AAPL) sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>

Weyerhaeuser Company (WY): Free Stock Analysis Report

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

Universal Forest Products, Inc. (UFPI): Free Stock Analysis Report

Norbord Inc. (OSB): Free Stock Analysis Report

Original post

Zacks Investment Research