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Louisiana-Pacific Down on Wider-than-Expected Q3 Loss

Zacks Equity Research
Updated

Louisiana-Pacific Corporation LPX reported a disappointing third-quarter 2015, wherein loss was wider than expected and revenues missed the Zacks Consensus Estimate. In response, shares of the company went down 6.6% on Nov 3.

Adjusted loss per share of 12 cents was wider than the Zacks Consensus Estimate of a loss of 4 cents. However, the figure was in line with the year-ago quarter loss.
 

Net sales of $465 million in the quarter missed the Zacks Consensus Estimate of $496 million by 6.3% and decreased 10% year over year due to weak pricing of Oriented Strand Board.

Adjusted EBITDA from continuing operations was $11 million in the quarter, down 8.3% year over year. Selling and administrative expenses increased 20% year over year to $38.3 million in the third quarter of 2015 due to higher expenses related to corporate initiatives and compensation expense, and higher sales and marketing-related expenses.

Quarterly results also include a loss of $4 million due to foreign currency translations compared to $1 million in the prior-year quarter.

Segmental Analysis

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

Sales in the segment decreased 14% year over year to $200 million owing to a 7% decline in pricing and a 9% decrease in volume. The decrease in sales volume was due to the transfer of the Swan Valley facility to the Siding segment.

Siding Segment: The 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 construction as well as for repair and remodeling. The division has three categories: SmartSide, CanExel siding products, and commodity OSB.

Sales at the segment declined 3% year over year to $158 million due to softer volumes of SmartSide and CanExel. SmartSide volumes decreased 14% year over year owing to the continued impact of humid weather in second-quarter 2015. SmartSide volume also declined as customers, particularly the refinishers, rebalanced their inventories as the company came off allocation. However, SmartSide average sales price climbed 6% year over year.

Meanwhile, CanExel siding prices decreased 12% in U.S. dollars and increased 11% in Canadian dollars. CanExel volumes were down 14% owing to lower demand, particularly in Europe, as the company discontinued some of its prefinished color siding products.

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

Engineered Wood Products sales decreased 4% year over year to $74.0 million in the quarter. On a year-over-year basis, volumes of IJ increased 5%. On the other hand, volumes decreased 3% for both LVL and LSL.

Pricing was down 1% for IJ, LVL and LSL.

South America: Segment sales declined 26% year over year to $27 million owing to softer volumes in Brazil, and lower prices in Chile and Brazil. Volumes in Chile increased 13% driven by higher demand in the housing market. Volumes in Brazil declined 4% owing to lower industrial demand resulting from economic recession. Pricing declined 15% in Chile and 23% in Brazil. In local currency, however, pricing Chile was flat year over year, while that in Brazil increased 21% on the back of increased exports.

Outlook

The company is optimistic about the improving demand for its products in the near term, which should be driven by an increase in building construction activities, and formation of new households. However, the company expects labor shortages and a possibility of higher interest rate to act as headwinds in the upcoming quarters.

Louisiana-Pacific carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Stocks in the building/construction sector that are worth considering include The Home Depot, Inc. HD, Tile Shop Holdings, Inc. TTS and Universal Forest Products Inc. UFPI. While Universal Forest Products and Tile Shop Holdings sport a Zacks Rank #1, The Home Depot carries a Zacks Rank #2 (Buy).

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HOME DEPOT (HD): Free Stock Analysis Report
 
UNIVL FST PRODS (UFPI): Free Stock Analysis Report
 
LOUISIANA PAC (LPX): Free Stock Analysis Report
 
TILE SHOP HLDGS (TTS): Free Stock Analysis Report
 
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