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Louisiana-Pacific (LPX) Q1 Earnings Beat, Margins Up Y/Y

Louisiana-Pacific Corporation LPX reported impressive results in first-quarter 2020, with earnings beating the Zacks Consensus Estimate and increasing significantly from the prior year on the back of higher EBITDA margin and lower cash taxes.

Notably, the company has suspended SmartSide Strand revenue projection for 2020. Also, it does not plan any share repurchase in 2020. Moreover, the company has reduced mill operating schedules to balance production and demand.

Detailed Discussion

The company reported adjusted earnings of 34 cents per share, which surpassed the Zacks Consensus Estimate of 30 cents by 13.3%. The metric increased a whopping 161.5% from the year-ago reported figure of 13 cents per share.

Louisiana-Pacific Corporation Price, Consensus and EPS Surprise

Net sales totaled $585 million, missing the consensus estimate of $607 million by 3.6% but increasing 0.5% from the year-ago period. Strong growth of Oriented Strand Board (OSB) and Engineered Wood Products (EWP) businesses supported the growth. However, decline in Siding and South America sales partially offset the growth.

Single family housing starts grew 12.2% year over year. Multi-family starts also surged an impressive 46.8% from the prior year.

Segmental Analysis

Siding: The segment’s sales of $212 million were down 3.2% from the prior-year period. The decline was due to a $7-MILLION decrease in SmartSide Fiber sales and $4-MILLION decline in OSB and other sales, partially offset by a 3% increase in SmartSide Strand volume. However, adjusted EBITDA improved 7.7% from the prior-year quarter to $42 million. The upside was backed by increased production at its Dawson Creek facility, post conversion into SmartSide Strand in 2019.

Notably, LP CanExel prefinished siding was reclassified from Siding to Other in first-quarter 2020.

OSB: Sales in the segment increased 5.8% year over year to $220 million. The company’s adjusted EBITDA also jumped significantly to $35 million from $8 million reported a year ago. Increase in selling price and reduction in raw material costs, including wood and resin, supported the growth.

EWP: Segment’s sales grew 10% year over year to $99 million. Adjusted EBITDA also improved 28.6% year over year to $9 million, primarily backed by increased shipments of I-Joist and LVL, as well as reduction in customer program costs.

South America: Sales of $36 million decreased 20% and adjusted EBITDA of $7 million fell 30% from the year-ago quarter. Reduction in export sales, unscheduled downtime at a Chilean mill and unfavorable foreign currency fluctuations impacted the results.

Operating Highlights

Gross margin expanded 460 basis points (bps) year over year to 18.5%. Selling, general and administrative expenses — as a percentage of revenues — contracted 20 bps.

Adjusted EBITDA of $83 million was up 43.1% from the prior-year figure of $58 million. Adjusted EBITDA margin also rose 420 bps to 14.2%, driven by higher OSB prices.

Financials

As of Mar 31, 2020, Louisiana-Pacific had cash and cash equivalents of $488 million compared with $181 million at the end of 2019. In March, the company borrowed $350 million under the revolving credit facility to deal with future uncertainties.

Again on May 1, it amended the credit facility to provide for an additional $200 million revolver, which matures in May 2023. Meanwhile, it did not withdraw any amount under the credit facility.

The company does not have any future obligations under the $350-million revolving credit facility and 4.875% Senior Notes until 2024.

Long-term debt was $698 million, which nearly doubled from 2019-end.

At the first quarter, net cash used in operations was $9 million, significantly down from $54 million reported in the comparable year-ago period.

2020 View

Based on current plans, Louisiana-Pacific expects capital expenditure to be less than $70 million.

Zacks Rank & Peer Releases

Louisiana-Pacific, which shares space with Norbord Inc. OSB in the Zacks Building Products - Wood industry, currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Weyerhaeuser Company WY reported first-quarter 2020 results, wherein earnings and revenues surpassed the respective the Zacks Consensus Estimate. The company reported adjusted earnings of 18 cents per share, which beat the consensus mark of 14 cents by 28.6% and increased 63.6% from the year-ago figure of 11 cents. Net sales amounted to $1,728 million, which topped the consensus mark of $1,670 million by 3.5% and grew 5.2% from prior-year quarter on the back of growth of the Wood Products segment.

UFP Industries, Inc. UFPI reported first-quarter 2020 results, wherein earnings met the Zacks Consensus Estimate, while revenues missed the same. The company reported earnings of 65 cents per share, up 12% from 58 cents reported in the year-ago period. Net sales of $1.03 billion missed the consensus mark of $1.05 million by 1.7% but grew 2% on a year-over-year basis. Lower lumber prices resulted in a 3% year-over-year decline of gross sales.

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