Louisiana-Pacific (LPX) Q1 Earnings Beat, Outlook Positive

Louisiana-Pacific Corporation LPX reported adjusted earnings per share of 7 cents in the first quarter of 2016, beating the Zacks Consensus Estimate of 2 cents by a whopping 250%. The bottom line improved significantly from the prior year quarter loss of 24 cents per share, as profits made up for softer revenue.  

In fact, the company reported profit for the second quarter in a row after reporting losses for the prior eight quarters.

Net sales of $505 million in the quarter missed the Zacks Consensus Estimate of $528 million by 4.42%. However, net sales increased 7% year over year, as revenue increased across all the segments, except, South America segment.

Adjusted EBITDA from continuing operations was $52 million in the quarter compared with adjusted EBITDA of $6 million in the prior-year quarter.

Segmental Analysis

Oriented Strand Board (OSB): Sales at the OSB segment increased 14.2% year over year to $217 million on the back of 14% growth in pricing, partially offset by flattish volume.

The segment recorded adjusted EBITDA of $30 million as against negative EBITDA of $13 million in the year-ago quarter, owing to an increase in selling price. Adjusted EBITDA in the first quarter of 2016 also benefited from a reduction in the cost of raw materials, higher utilization rate and a favorable Canadian currency.

Siding Segment: The Siding segment manufactures products under two categories: SmartSide siding products and related accessories, and CanExel siding and other related accessories. These products are used for new constructions, repair and remodeling and outdoor structures such as shed. The Siding segment also produces a small amount of OSB.  

Sales at the Siding segment increased 4% year over year to $181 million on the back of an increase in volumes of SmartSide.

SmartSide volume improved 1%, though sales price in SmartSide declined 2%, owing to an unfavorable change in product mix.

CanExcel volume improved 15% on the back of strong demand in Europe. However, sales price in CanExcel declined 11% in U.S dollar. CanExel Canadian dollar sales prices increased 2%.

During the quarter, the Siding segment recorded adjusted EBITDA of $34 million, lower than $38 million reported in the prior year quarter, owing to higher cost of sales.

Engineered Wood Products (EWP): The EWP segment makes I-Joists, laminated veneer lumber (LVL), laminated strand lumber (LSL) and other related products. These products are used in residential and commercial flooring and roofing systems.

Engineered Wood Products sales surged 10.8% year over year to $72 million in the quarter. Volumes of IJ increased 19%, while for both LVL and LSL volumes tanked 18%.

Pricing for LVL was up 3%, while that for IJ grew 2%.  

South America: Segment sales declined 13.9% year over year to $31 million owing to lower volume in Chile and Brazil. Volumes in Chile declined 12% as higher exports hurt local demand. Volumes in Brazil declined 3% due to decreased local sales as Brazil continues to witness an economic recession. However, pricing was up 1% in Chile but declined 11% in Brazil. Nevertheless, in local currency, pricing in Chile and Brazil was up 14% and 25%, respectively.

Outlook

Louisiana-Pacific is optimistic about witnessing improving demand for its products over the near term, which will be driven by an increase in building construction activities, repair/ remodeling activity and formation of new households. OSB prices, which started to increase in March, continue to rise so far in this quarter. The order intake for Siding is strong.  

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

Key Picks from the Sector

Some stocks in the building/construction sector that are worth considering include Boise Cascade Company BCC, Universal Forest Products Inc. UFPI and Masco Corporation MAS. While Boise Cascade Company sports a Zacks Rank #1 (Strong Buy), both Universal Forest Products and Masco carry a Zacks Rank #2 (Buy).

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