Louisiana-Pacific Hits 52-Week Low - Analyst Blog

On May 16, 2014, shares of Louisiana-Pacific Corporation LPX touched a 52-week low of $14.00 following termination of strategic deal with Ainsworth Lumber Co. Ltd. (ANS) on May 14. In fact, the company reported weak first quarter 2014 results on May 8. Shares of Louisiana-Pacific eventually closed at $14.25 on May 16, with a year-to-date return of -21.9%.

What Led to the Drop?

Louisiana-Pacific witnessed downward movement of its shares due to the termination of its deal with ANS on May 14. Louisiana-Pacific terminated its deal with Ainsworth, as the necessary regulatory approvals could not be obtained. The regulatory approvals demanded additional divestitures than those decided in the previous acquisition agreement.   

Louisiana-Pacific had agreed on the deal with Vancouver-based ANS on Sep 4, 2013 for about $1.1 billion. The agreement was expected to be complete by the end of 2013, upon the receipt of all regulatory approvals.

Ainsworth primarily engages in manufacturing and marketing OSB products at facilities throughout North America and Asia. Ainsworth is one of largest producers of OSB in North America and has recently achieved the status of being the biggest supplier of OSB products in Japan.

The acquisition would have increased the production capacity of Louisiana-Pacific's OSB segment due to the addition of Ainsworth's four manufacturing facilities. Louisiana-Pacific would also have gained access to the high-growth Asian markets with significant returns.

However, regulatory approvals could not be obtained under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 and the Canadian Competition Act. As a result, the agreement had to be terminated, despite being an excellent strategic fit.  

In addition, Louisiana-Pacific reported first-quarter 2014 adjusted loss per share of 5 cents on May 8. In line with the Zacks Consensus Estimate, the quarterly loss of this premier supplier of building materials was a massive drop from the year-ago quarter's earnings of 40 cents.

The weak bottom line was due to huge foreign exchange losses of $4.3 million, lower pricing in Oriental Strand Board (OSB) and lower earnings before interest, taxes, depreciation and amortization (EBITDA). This Zacks Rank #3 (Hold) company has been reporting losses for the past two quarters, owing to huge foreign exchange losses and lower pricing in OSB. 

Net sales in the quarter decreased 16.0% year over year to $445 million, owing to a decline in pricing in the Oriental Strand Board segment and unfavorable weather. Revenues lagged the Zacks Consensus Estimate of $487 million by 8.6%.

Most of the estimates for Louisiana-Pacific moved downward in the past 30 days, following the weak first quarter 2014 results and the termination of the deal. The Zacks Consensus Estimate for second quarter 2014 declined 38.5% to 8 cents per share while that for 2014 declined 23.8% to 48 cents per share over the same time frame.  

Other Stocks to Consider

Investors interested in the industry can also consider stocks like Aegion Corp. AEGN, Simpson Manufacturing Co., Inc. SSD and Toll Brothers Inc. TOL. While Simpson Manufacturing and Toll Brothers sport a Zacks Rank #1 (Strong Buy), Aegion carries a Zacks Rank #2 (Buy).

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