Louisiana-Pacific Posts Loss in Q2, Revenues Beat Estimates

Share prices of Louisiana-Pacific Corporation LPX dropped 6% in the trading session on Aug 5 after the company reported loss in the second quarter 2014. However, the company gained 4% the following day.

Louisiana-Pacific Corporation posted second-quarter 2014 adjusted loss per share of 3 cents against the Zacks Consensus Estimate of earnings 2 cents. The quarterly loss of this premier supplier of building materials was a massive drop from the year-ago quarter earnings of 41 cents per share.

The weak bottom line was due to lower pricing in Oriental Strand Board (OSB) and lower earnings before interest, taxes, depreciation and amortization (EBITDA).
 
Net sales in the quarter decreased 9% year over year to $519 million owing to a decline in pricing in the Oriental Strand Board segment. Revenues however surpassed the Zacks Consensus Estimate of $497 million by 4.4%.

Adjusted EBITDA from continuing operations of $26 million declined from $122 million in the prior-year quarter owing to a rise in operating costs and 93% decline in OSB segment EBITDA due to lower prices.

The company recorded $3.8 million in foreign exchange gain during second quarter 2014, compared to huge losses incurred in the prior quarter and the prior year quarter.

Segmental Analysis

Oriental Strand Board (OSB): The OSB segment manufactures and distributes OSB structural panel products.

Sales in the OSB segment decreased 26.8% year over year to $224 million in the second quarter of 2014 due to a 36% decline in pricing partially offset by a 11% increase in volume. Volumes increased since the company resumed production at the Dawson Creek, British Columbia mill and the Clarke County, AL mill.

This segment reported an operating loss of $6.0 million in the second quarter of 2014 that compared unfavorably with operating earnings of $95.0 million in the year-earlier quarter, owing to a decline in pricing. The segment recorded adjusted EBITDA of $8 million, down from $108 million in the year-ago quarter due to lower pricing.

Composite Wood Products/Siding: The Composite Wood Products/Siding segment is engaged in the production and marketing of siding products and related accessories, hardboard siding and accessory products, and vinyl siding products and accessories. These products are used for new constructions as well as for repair and remodeling. It has three categories: SmartSide and CanExel siding products and commodity OSB.

Sales in the Siding segment improved 11% year over year to $170 million, gaining from the rise in pricing as well as volumes in the SmartSide category. With continuous penetration in retail, repair and remodel markets and sheds, SmartSide volumes improved 15% year over year. SmartSide average sales prices also increased 9% year over year.

On the other hand, CanExel siding prices declined 6% year over year, owing to unfavorable foreign translations. CanExel volumes were down 10%, owing to a decline in Canadian and international demand.
 
The segment recorded adjusted EBITDA of $30 million in the quarter, down 6% year over year, due to lower OSB pricing.

Engineered Wood Products EWP: The EWP segment produces goods used in new constructions like I-Joist (IJ), Laminated Veneer Lumber LVL and Laminated Strand Lumber (LSL).

Engineered Wood Products sales increased almost 33% year over year to $81 million in the quarter, driven mostly by higher volume growth in IJ, LVL and LSL. Volumes of IJ increased 27% year over year and 26% for both LVL and LSL, benefiting from higher market demand.

Pricing was up 8% in IJ and 4% in both LVL and LSL due to price increases implemented across all product lines.

The segment's adjusted EBITDA of $2 million was an improvement, up by $1 million from the prior-year quarter, due to increased pricing.

Operating loss of $5 million remained flat in the quarter.

South America Segment

Segment sales reduced about 5% year over year to $42 million, owing to a decline in volume and prices in Chile. Volumes in Chile and Brazil decreased 9%. Volume declined in Chile due to slowing housing demand, fueled by unfavorable political trends. Including the changes in foreign exchange rates, prices decreased 16% in Chile and 2% in Brazil. In terms of local currency, prices declined 4% in Chile and improved 1% in Brazil.

South America segment's operating income of $4 million in second quarter 2014 declined from the year-ago figure of $6 million. The segment's adjusted EBITDA of $7 million declined from $9 million in the prior-year quarter. The decline in operating income and adjusted EBITDA was due to weaker volume and pricing in Chile.

Outlook

Louisiana-Pacific is cautiously optimistic about the improving macroeconomic parameters.  The company intends to maintain debt to capital ratio in the range of 25% to 30% in 2014.

Louisiana-Pacific carries a Zacks Rank #5 (Strong Sell).

Key Picks from the Sector

Better-ranked stocks in the building/construction sector include PGT, Inc. PGTI, Quanex Building Products Corporation NX and Boise Cascade Company BCC. All these companies carry a Zacks Rank #2 (Buy).




 

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