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Why Is Louisiana-Pacific (LPX) Up 9.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for Louisiana-Pacific (LPX - Free Report) . Shares have added about 9.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Louisiana-Pacific due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Louisiana-Pacific Q2 Earnings Beat Estimates

Louisiana-Pacific Corporation reported impressive results for second-quarter 2020, wherein both the top and bottom lines surpassed the Zacks Consensus Estimate. Its adjusted earnings surged nearly 300% year over year despite lower revenues. The upside was backed by strong SmartSide strand revenues, increase in OSB pricing, and favorable wood fiber as well as resin costs. Operational efficiency and cost-containment efforts also supported the growth.

The company continues to suspend SmartSide Strand revenue growth projection for 2020 but expects high single-digit improvement for the third quarter. Also, it still expects 2020 capital expenditure to be $70 million.

Notably, the company announced the CanExel sale completion for $14 million in cash.

Detailed Discussion

Louisiana-Pacific reported second-quarter adjusted earnings of 43 cents per share, which beat the Zacks Consensus Estimate of 18 cents by 138.9%. The metric also increased a whopping 290.9% from the year-ago reported figure of 11 cents per share.

Net sales of $548 million topped the consensus estimate of $543 million by 0.9% but decreased 6.8% from the year-ago period. Softness across the segments, barring OSB, impacted the results.

Single-family housing starts declined 12.8% year over year. Multi-family starts also fell 28.8% from the prior year.

Segmental Analysis

Siding: The segment’s sales of $220 million were down 5% from the prior-year period. The decline was due to a decrease in SmartSide fiber sales, partially offset by a 3% increase in SmartSide strand volume.

Adjusted EBITDA improved 13% and margin rose 400 basis points (bps) from the prior-year quarter to $51 million and 23%, respectively. The upside was backed by a rise in SmartSide strand revenues, increased production at the Dawson Creek facility, and sourcing and operational efficiency savings. This was partially offset by a decrease in SmartSide fiber sales.

OSB: Sales in the segment increased 3% year over year to $204 million. The company’s adjusted EBITDA margin also jumped significantly to 23% from negative 2% reported a year ago. Increased OSB prices, lower raw material costs and cost-containment efforts helped it gain during the quarter.

EWP: Segment’s sales declined 26% year over year to $79 million. Adjusted EBITDA margin also contracted 500 bps year over year to 4%. Difficult year-over-year comparison, temporary shutdown of the I-Joist manufacturing unit in Quebec, and reduced demand for EWP products hurt the segment.

South America: Sales of $38 million decreased 5% but adjusted EBITDA margin of 29% expanded 600 bps from the year-ago quarter due to unfavorable foreign currency fluctuations.

Operating Highlights

Gross margin expanded 810 bps year over year to 21.4%. Selling, general and administrative expenses — as a percentage of revenues — contracted 80 bps.

Adjusted EBITDA of $97 million was up 83% from the prior-year figure of $53 million. Adjusted EBITDA margin also rose a whopping 670 bps to 17.7%, driven by higher OSB prices.

Financials

As of Jun 30, 2020, Louisiana-Pacific had cash and cash equivalents of $259 million compared with $181 million at 2019-end. The company repaid the $350 million of revolving credit drawn in March. Also, it expanded the existing $350-million credit facility to $550 million.

Long-term debt was $348 million, flat with 2019-end. For the second quarter, net cash provided by operations was $129 million, significantly up from $54 million reported in the year-ago period.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 148% due to these changes.

VGM Scores

Currently, Louisiana-Pacific has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Louisiana-Pacific has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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