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Solid Siding Business Aid Louisiana-Pacific (LPX), High Costs Ail
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Louisiana-Pacific Corporation (LPX - Free Report) is benefiting from the strong Siding business and strategic investments. Also, focus on business transformation & cost-reduction strategy bodes well.
However, supply chain woes, inflationary pressure and a high degree of product concentration in the Oriented Strand Board (OSB) segment are risk factors to the company’s growth prospects.
Growth Driving Factors of the Stock
Siding Business to Drive Growth: The company has been making efforts to increase penetration of Siding products in repair/remodel and roll out SmartSide products. The company has been witnessing higher-than-expected demand for Smooth SmartSide and ExpertFinish. The company recently announced the expansion of Siding Capacity with the production restart at Peace Valley. The Siding unit contributed 51.5% to sales in 2023. Under the unit, the ExpertFinish product witnessed 8% volume growth in the fourth quarter of 2023, the same as the prior-year quarter.
In 2023, the company undertook strategic moves to enhance the portfolio and market reach of its Siding business. It opened a new ExpertFinish facility in Bath, NY, which shed light on increased automation and improved efficiency in LPX's prefinished siding production. The company remains committed to growing strand Siding revenues in 2024 and beyond. It intends to continue to increase its investment in selling and marketing the said business.
Strategic Investments: The company — which shares space with UFP Industries, Inc. (UFPI - Free Report) , Floor & Decor Holdings, Inc. (FND - Free Report) and Weyerhaeuser Company (WY - Free Report) in the Zacks Building Products – Wood industry — has been focusing on acquisitions, business combinations and divestitures of low-profitable businesses to drive growth.
In May 2023, LPX acquired an idle manufacturing facility in Wawa, Ontario, Canada, from a third party for $80 million. This strategic transaction is expected to make Wawa the largest single-line siding mill of LPX, adding nearly 400 million square feet of capacity. This will bring the total siding capacity to about 2.7 billion square feet. The company also stated that this acquisition will expand its portfolio of future Siding conversions.
Focus on Cost-Reduction Strategy: The company is focused on improving business by growing the Siding unit and simultaneously reducing costs. In a bid to reduce costs, Louisiana-Pacific lowered the cost structure of its facilities through Lean Six Sigma efforts, the sale or shutdown of underperforming mills and manufacturing facilities and investments in technology.
Adjusted EBITDA of the Siding business increased sequentially to $72 million in the fourth quarter of 2023 from $71 million. The adjusted EBITDA margin in the fourth quarter was 22%, implying a record in the year 2023. These improvements induced confidence in the company to achieve the long-term adjusted EBITDA margin target of 25%.
In 2023, SG&A expenses declined 2.7% to $257 million on a year-over-year basis, attributable to persistent cost-effective techniques implemented by the company.
Factors Hurting Growth
Higher Costs: Increased marketing investments associated with accelerating repair and remodel channel penetration, along with new product introductions, have been putting pressure on the company’s performance over the last few quarters. In 2023, adjusted earnings per share plunged 72.6% from the year-ago period’s levels. Adjusted EBITDA of $478 million was down by 34.4% from $1.39 billion reported in the prior year, primarily due to lower OSB selling prices, a decrease in OSB sales volumes of $87 million and a reduction in Siding sales volumes of $95 million.
Supply-Chain Disruption & Intense Inflation: Louisiana-Pacific and other Wood industry players have been witnessing significant supply chain woes and lingering inflationary pressure, primarily for labor and freight. The company expects labor inflation of about $20 million in 2024.
Product Concentrated Around OSB Segment: The company has a high degree of product concentration in OSB, which accounted for about 43%, 57% and 65% of its North American sales in 2023, 2022 and 2021, respectively. In 2023, Structural Solutions sales accounted for 55.1% of OSB segment sales compared with 53.8% in the year-ago period. Increased concentration around one segment makes the company susceptible to commodity pricing and price volatility.
A Brief Review of the Other Players
UFPI: The company has been gaining from accretive acquisitions, investments in product innovation and global footprint expansion, which is strengthening its growth prospects. New product development is an integral part of UFP Industries' strategic plan for its business units. The company's investments in innovation and acceleration are poised to yield greater results in the upcoming periods.
FND: The company is benefiting from strong comparable store sales, strategic investments in expanding its operations and accretive acquisitions. In 2024, the company plans to expand its market share by leveraging everyday low prices, value-driven options, trend-right product assortments, ample in-stock quantities and outstanding customer service delivered by store associates.
WY: The company is benefiting from an improving new-home market, high demand for carbon/ESG-related projects and a focus on operational excellence. The company is well-poised owing to higher capital inflows for carbon/ESG-related projects. It remains bullish for 2024 and the long term as most of the key drivers supporting healthy repair and remodel demand remain intact, including solid home equity levels and an aging housing stock.
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Solid Siding Business Aid Louisiana-Pacific (LPX), High Costs Ail
Louisiana-Pacific Corporation (LPX - Free Report) is benefiting from the strong Siding business and strategic investments. Also, focus on business transformation & cost-reduction strategy bodes well.
However, supply chain woes, inflationary pressure and a high degree of product concentration in the Oriented Strand Board (OSB) segment are risk factors to the company’s growth prospects.
Growth Driving Factors of the Stock
Siding Business to Drive Growth: The company has been making efforts to increase penetration of Siding products in repair/remodel and roll out SmartSide products. The company has been witnessing higher-than-expected demand for Smooth SmartSide and ExpertFinish. The company recently announced the expansion of Siding Capacity with the production restart at Peace Valley. The Siding unit contributed 51.5% to sales in 2023. Under the unit, the ExpertFinish product witnessed 8% volume growth in the fourth quarter of 2023, the same as the prior-year quarter.
In 2023, the company undertook strategic moves to enhance the portfolio and market reach of its Siding business. It opened a new ExpertFinish facility in Bath, NY, which shed light on increased automation and improved efficiency in LPX's prefinished siding production. The company remains committed to growing strand Siding revenues in 2024 and beyond. It intends to continue to increase its investment in selling and marketing the said business.
Strategic Investments: The company — which shares space with UFP Industries, Inc. (UFPI - Free Report) , Floor & Decor Holdings, Inc. (FND - Free Report) and Weyerhaeuser Company (WY - Free Report) in the Zacks Building Products – Wood industry — has been focusing on acquisitions, business combinations and divestitures of low-profitable businesses to drive growth.
In May 2023, LPX acquired an idle manufacturing facility in Wawa, Ontario, Canada, from a third party for $80 million. This strategic transaction is expected to make Wawa the largest single-line siding mill of LPX, adding nearly 400 million square feet of capacity. This will bring the total siding capacity to about 2.7 billion square feet. The company also stated that this acquisition will expand its portfolio of future Siding conversions.
Focus on Cost-Reduction Strategy: The company is focused on improving business by growing the Siding unit and simultaneously reducing costs. In a bid to reduce costs, Louisiana-Pacific lowered the cost structure of its facilities through Lean Six Sigma efforts, the sale or shutdown of underperforming mills and manufacturing facilities and investments in technology.
Adjusted EBITDA of the Siding business increased sequentially to $72 million in the fourth quarter of 2023 from $71 million. The adjusted EBITDA margin in the fourth quarter was 22%, implying a record in the year 2023. These improvements induced confidence in the company to achieve the long-term adjusted EBITDA margin target of 25%.
In 2023, SG&A expenses declined 2.7% to $257 million on a year-over-year basis, attributable to persistent cost-effective techniques implemented by the company.
Factors Hurting Growth
Higher Costs: Increased marketing investments associated with accelerating repair and remodel channel penetration, along with new product introductions, have been putting pressure on the company’s performance over the last few quarters. In 2023, adjusted earnings per share plunged 72.6% from the year-ago period’s levels. Adjusted EBITDA of $478 million was down by 34.4% from $1.39 billion reported in the prior year, primarily due to lower OSB selling prices, a decrease in OSB sales volumes of $87 million and a reduction in Siding sales volumes of $95 million.
Supply-Chain Disruption & Intense Inflation: Louisiana-Pacific and other Wood industry players have been witnessing significant supply chain woes and lingering inflationary pressure, primarily for labor and freight. The company expects labor inflation of about $20 million in 2024.
Product Concentrated Around OSB Segment: The company has a high degree of product concentration in OSB, which accounted for about 43%, 57% and 65% of its North American sales in 2023, 2022 and 2021, respectively. In 2023, Structural Solutions sales accounted for 55.1% of OSB segment sales compared with 53.8% in the year-ago period. Increased concentration around one segment makes the company susceptible to commodity pricing and price volatility.
A Brief Review of the Other Players
UFPI: The company has been gaining from accretive acquisitions, investments in product innovation and global footprint expansion, which is strengthening its growth prospects. New product development is an integral part of UFP Industries' strategic plan for its business units. The company's investments in innovation and acceleration are poised to yield greater results in the upcoming periods.
FND: The company is benefiting from strong comparable store sales, strategic investments in expanding its operations and accretive acquisitions. In 2024, the company plans to expand its market share by leveraging everyday low prices, value-driven options, trend-right product assortments, ample in-stock quantities and outstanding customer service delivered by store associates.
WY: The company is benefiting from an improving new-home market, high demand for carbon/ESG-related projects and a focus on operational excellence. The company is well-poised owing to higher capital inflows for carbon/ESG-related projects. It remains bullish for 2024 and the long term as most of the key drivers supporting healthy repair and remodel demand remain intact, including solid home equity levels and an aging housing stock.