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Louisiana-Pacific Corporation’s (LPX - Snapshot Report) third-quarter 2013 adjusted earnings per share from continuing operations of 13 cents missed the Zacks Consensus Estimate of 16 cents by 18.8% and the year-ago quarter’s earnings of 20 cents by 35%. Earnings in the quarter were under pressure due to lower pricing in the Oriental Strand Board (OSB) product and reduced earnings before interest, taxes, depreciation and amortization (EBITDA).  

Net sales in the quarter increased 9.8% year over year to $507.4 million with the rise in volume and prices across all segments, except the OSB segment. Revenues were also below the Zacks Consensus Estimate of $516 million by 1.7%.

Adjusted EBITDA from continuing operations were down 13.3% from the prior-year quarter to $65 million. This was the result of the rise in operating costs and decline in EBITDA at the OSB segment due to lower prices.

Segment Details

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

Sales in the segment increased 8% year over year to $245 million in the quarter, driven by a 15% increase in volume. However, the segment’s pricing was down 5% year over year due to slow housing recovery. The segment recorded adjusted EBITDA of $46 million, down 23.3% from the prior-year quarter, attributable to lower pricing and higher costs.

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 $149 million benefiting from the rise in the pricing as well as volumes at SmartSide category. With continuous penetration in retail, repair and remodel markets and sheds, SmartSide volumes improved 14% year over year. SmartSide average sales prices also increased 3% year over year.

The segment recorded adjusted EBITDA of $27 million in the quarter, up 12.2% from the prior-year quarter, driven by higher sales partially offset by 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 16.1% year over year to $72 million in the quarter. Volumes of IJ increased 5% year over year while the same was up 17% for LVL and LSL, benefitting from higher LSL sales.

Pricing was up 11% in IJ and 3% in LVL and LSL due to price increases across all product lines offsetting the increased raw material costs. The segment reported increase in adjusted EBITDA.

South America: The segment manufactures OSB structural panels and siding products in Chile and Brazil. Segment sales remained flat year over year at $42 million. Including the changes in foreign exchange rates, prices increased 5% in Chile but declined 3% in Brazil. In terms of local currency, however, prices improved 10% in Chile and 8% in Brazil. The segment’s adjusted EBITDA was flat at $8 million.

Outlook

The company stated that although the housing industry is improving, the pace of recovery is much lower than the first half of 2013 due to the increase in interest/mortgage rates. The government shut down in early October also took a toll on the housing market recovery.

However, Louisiana-Pacific continues to be optimistic about the increase in residential construction spending and overall price appreciation of the housing market and believes that it will boost its business in the long term.

Our Take

The company has posted lower-than-expected results during the third quarter. Lower OSB pricing, a slower recovery in the housing market and higher operating costs seems to be responsible for such disappointing performance.

We believe that the overall economic recession will continue to affect the company’s business, going ahead.

Other Stocks to Consider 

Louisiana-Pacific carries a Zacks Rank #4 (Sell). Other stocks in the sector that are performing well and deserve a mention include Universal Forest Products Inc. (UFPI - Analyst Report), M/I Homes, Inc. (MHO - Snapshot Report) and Meritage Homes Corporation (MTH - Snapshot Report). While Universal Forest holds a Zacks Rank #1 (Strong Buy), M/I Homes and Meritage Homes carry a Zacks Rank #2 (Buy).

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