Louisiana-Pacific Corporation (LPX) reported adjusted earnings per share (EPS) from continuing operations of 20 cents in the third quarter of 2012, missing the Zacks Consensus Estimate of 25 cents. Earnings, however, turned around from the prior-year quarter loss of 19 cents, owing to improved pricing in the OSB segment.
Net sales in the quarter improved 33% to $468 million, owing to higher volumes at Oriental Strand Board (OSB) and Siding segments and price increases at the OSB segment. Revenues, however, lagged the Zacks Consensus Estimate of $475 million.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations were $75 million versus a loss of $3 million in the prior-year quarter.
Segment Details
Oriental Strand Board (OSB): Louisiana-Pacific’s OSB segment manufactures and distributes OSB structural panel products. Sales in the segment grew 63% to $227 million in the quarter owing to an increase in housing activity.
The segment witnessed volume growth of 11% attributable to an improved housing market and a pricing gain of 50% owing to strong performance of OSB. The segment recorded operating income of $49 million, attributable to pricing benefits in the quarter, compared to a loss of $16 million in the prior-year quarter.
Composite Wood Products/Siding: The Siding segment manufactures wood-based siding (SmartSide and CanExel siding) and related accessories that are used for new constructions as well as for repair and remodeling. Sales in the Siding segment improved 20% to $134 million benefiting from increased new housing activity in the quarter.
The average sales price of SmartSide was up 2% year over year while that of CanExel was up 2%. SmartSide volumes improved 15% year over year driven by continuous penetration in the retail, repair and remodel markets. CanExel siding volume was up 26%. The segment recorded operating income of $20 million in the quarter, up 67% from the prior-year quarter.
Engineered Wood Products (EWP): The EWP segment makes I-Joists, laminated veneer lumber and laminated strand lumber, which is primarily used in new construction activities. Engineered Wood Products sales increased 12.7% year over year to $62 million in the quarter. Volumes of I-Joists were up 20% owing to improving housing demand while volumes of LVL and LSL were flat year over year. Pricing was down 1% in I-Joists, and flat in LVL and LSL, due to changes in product mix. The segment’s operating loss was flat on a year-over-year basis.
South America: The segment manufactures OSB structural panels and siding products in Chile and Brazil. Segment sales surged 16.7% to $42 million. Volumes in Chile were up 18% on the back of strong demand for wooden housing while volumes in Brazil were up 15% attributable to increased exports to China and greater penetration of the local market. Driven by changes in foreign exchange rates, prices grew 1% in Chile and declined 10% in Brazil. In terms of local currency, pricing improved 4% in Chile and 10% in Brazil. The segment’s operating income of $5 million grew twofold on a year-over-year basis.
2012 Outlook
A peer of Potlatch Corporation (PCH), Louisiana-Pacific is optimistic about increase in housing construction activity and overall price appreciation of the housing market. However, the company is cautious about the slow global macroeconomic conditions, uncertainty of the US economic recovery, sluggishness of remodeling industry, European crisis and slowing Chinese market.
Our Recommendation
We appreciate the growth in price and volume, exhibited by the OSB segment and expect segment volumes to grow further in 2012 and 2013.
We currently have an Outperform recommendation on Louisiana-Pacific. The stock carries a Zacks #2 Rank (short-term ‘Buy’ rating).
LOUISIANA PAC (LPX): Free Stock Analysis Report
POTLATCH CORP (PCH): Free Stock Analysis Report
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