In a bid to solidify the prefinish Siding business, Louisiana-Pacific Corporation (LPX - Free Report) acquired BlueLinx’s prefinishing assets at a Granite City, Ill. facility located in St. Louis. This buyout strengthens its goal of launching a national LP SmartSide Trim & Siding branded prefinished siding solution.
In addition to this acquisition, the company is investing in the Roaring River, NC-based siding facility to boost LP SmartSide strand prefinishing capabilities.
The prefinish Siding market is growing continuously and Louisiana-Pacific intends to capture a significant part of that growth. In this context, on Jun 3, the company added a prefinished siding company — Prefinished Staining Product Incorporated (“PSPI”) — in Green Bay, WI. Notably, these buyouts are expected to boost facilities, capabilities and expertise in the Siding business.
Business Transformation & Growth Strategy
Louisiana-Pacific is gradually transforming itself from a commodity producer to a more stable cash-generative company by increasing revenues and EBITDA mix. It remains focused on improving performance by growing the Siding segment and simultaneously reducing cost across businesses.
The company is increasing the penetration of Siding products in repair/remodel and roll out SmartSide products. Notably, it remains committed to grow strand Siding revenues in 2019 and beyond, and expects EBITDA margin to be at least 20% in the long term.
In the first six months of 2019, SmartSide strand siding revenues grew 8% year over year on nearly 4% increase in volumes and price realizations.
Will These Initiatives Drive Growth?
Material costs, and expenses associated with repair/remodel channel penetration and product introduction have been concerns for Louisiana-Pacific, and other industry players like Universal Forest Products, Inc. (UFPI - Free Report) Weyerhaeuser Company (WY - Free Report) and Trex Company, Inc. (TREX - Free Report) .
In first-half 2019, the company’s gross margin declined significantly to 13.6% from 29.1% reported in the comparable year-ago period. Also, adjusted EBITDA margin contracted significantly to 9.5% from 26.7% reported in the corresponding period of 2018.
Given the above-mentioned headwinds and uncertainty in the housing industry, it has reduced SmartSide Strand revenue growth target to 10% in 2019 and 10-12% in the long term compared with 12-14% expected earlier.
The current Zacks Consensus Estimate for its earnings and revenues indicates 74.5% and 15.1% year-over-year decline, respectively. Notably, shares of this Zacks Rank #5 (Strong Sell) company have underperformed its industry so far this year.
Although the above-mentioned moves are encouraging, we cannot ignore the headwinds that are impacting results and may bother the stock’s growth.
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