Note: All new or revised material since the last report is highlighted.
Reason for Report: News Update & 2Q17 Update
Prev. Ed.: 1Q17 Earnings Update, Jul 31, 2017
Brokers’ Recommendations: Neutral: 40% (2 firms); Negative: 40% (2); Positive: 20% (1) Prev. Ed.: 3; 1; 1
Brokers’ Target Price: $26.60 (↑ $0.1 from the prev. ed., 5 firms) Brokers’ Avg. Expected Return: 3.7%
*Note: Though dated Oct 24, 2017, share price and brokers’ material are as of Sep 5, 2017.
Note: The tables below for Revenue, Margins, and Earnings per Share contain fewer brokers’ material than the brokers’ material used in the Valuation table. The extra figures in the Valuation table come from reports that did not have accompanying spreadsheet models.
Portfolio Manager Executive Summary
Louisiana-Pacific Corporation engages in the manufacture and distribution of building products for new home construction, repair and remodeling, and manufactured housing.
Of the five firms covering the stock, two rendered a neutral rating, two rated the stock negatively, while one provided a positive rating.
Neutral or equivalent outlook (2/5 firms): Although the firms neutral on the stock find the long-term prospects of the company bright, they prefer to remain on the sidelines, given concerns related to labor.
Negative or equivalent outlook (2/5 firms): These firms believe that any recession in the housing market might dent pricing and demand for many of the company’s building products. This can in turn affect revenues and operating results.
These firms are concerned about the adverse currency translations that could result in unforeseen losses from foreign operations.
Positive or equivalent outlook (1/5 firms): The bullish firms are highly encouraged by the company’s strong and improving fundamentals. They also appreciate its strong cost control initiatives.
Oct 24, 2017
Overview
Based in Nashville, TN, Louisiana-Pacific Corporation is a leading manufacturer of building products. The company owns 21 facilities across the U.S. and Canada. The company also owns two facilities in Chile and one in Brazil. These products are used in new home construction, repair and remodeling and outdoor structures.
The company operates through the following four segments:
North America Oriented Strand Board (OSB): Louisiana-Pacific’s OSB segment manufactures and distributes OSB structural panel products.
Siding: 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.
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.
South America: The South America segment produces OSB structural panel and siding products in Chile and Brazil.
Analysts identified the following key factors for evaluating the investment merits of Louisiana-Pacific:
Key Positive Arguments / Key Negative ArgumentsLouisiana-Pacific is a premier supplier of building materials, delivering innovative, high-quality commodity and specialty products to retail, wholesale, homebuilding and industrial customers. / Its financial performance is susceptible to changes in OSB and wood fiber prices, resin and wax costs, and energy and other raw material costs. Unforeseen energy and freight cost increases could negatively impact earnings.
The company believes in product innovation using wood and wood composites and focuses on higher-margin and value-added products.
Further information on the company can be found at its website: http://www.lpcorp.com/.
NOTE: The Company’s fiscal references coincide with the calendar year.
Oct 24, 2017
Long-Term Growth
Louisiana-Pacific’s businesses are heavily dependent on the housing market. The company believes that it will be able to reap the benefits of growing demand as the housing market is recovering at a steady pace.
The company intends to drive growth through product innovation by utilizing technological expertise in wood and wood composites. The company also intends to increase its production capacity of higher-margin and value-added products over the long term.
With the growing concern for climate change, there is an increasing demand for environment-friendly building materials. The demand for wood products is likely to increase significantly as construction of environment-friendly wooden homes gain traction. Louisiana-Pacific is expected to benefit from this potential market opportunity in the upcoming years.
Jul 31, 2017
Target Price/Valuation
Provided below is a summary of valuations and ratings as compiled by Zacks Research Digest:
Rating DistributionPositive / 20.0%
Neutral / 40.0%↓
Negative / 40.0%↑
Digest High Price Target / $29.00
Digest Low Price Target / $24.00
Avg. Target Price / $26.60↑
No. of Analysts with Target Price/Total / 5/5
The primary risk that may impede the achievement of the target price is uncertain housing recovery in the coming quarters leading to weak demand. In addition, input cost inflation may also jeopardize profitability.
Recent Events
On Aug 1, 2017, Louisiana-Pacific came up with mixed second-quarter 2017 results buoyed by higher pricing at its Oriented Strand Board or “OSB” division. The company reported adjusted earnings per share of 58 cents in the quarter, missing the Zacks Consensus Estimate of 61 cents by 4.9%. Net sales of $694.1 million in the quarter surpassed the Zacks Consensus Estimate of $684.1 million by 1.5%.
Revenues
Net sales of $694.1 million in the second quarter surpassed the Zacks Consensus Estimate of $684.1 million by 1.5%. Also, net sales increased 19.2% year over year.
Provided below is a summary of revenue as compiled by Zacks Digest:
Total Revenue ($ inmillion) / 2Q16A / 1Q17A / 2Q17A / 3Q17E / 2016A / 2017E / 2018E / 2019E
Digest High / $582.4 / $610.9 / $694.1 / $763.1 / $2,233.4 / $2,709.2 / $2,659.4 / --
Digest Low / $582.4 / $610.9 / $694.1 / $763.1 / $2,233.4 / $2,709.2 / $2,659.4 / --
Digest Average / $582.4 / $610.9 / $694.1 / $763.1 / $2,233.4 / $2,709.2 / $2,659.4 / --
Y/Y Growth / 18.1% / 21.1% / 19.2% / 28.0% / 18.0% / 21.3% / -1.8% / --
Q/Q Growth / 15.4% / 11.1% / 13.6% / 9.9% / --
*Note: Blank Cells indicate none of the brokers provided any figures
Segmental Analysis
Oriented Strand Board (OSB): Sales at the OSB segment increased 28.6% year over year to $325 million. Sales volumes remained flat year over year, while sales prices increased 26%, driving favorable growth in operating results and lifting adjusted EBITDA by $68 million. The Zacks Digest average segment revenues were in line with the company’s results.
Siding Segment: Siding segment manufactures products under two categories: SmartSide siding products and related accessories, LP’s prefinished CanExel siding line and limited amount of OSB. These products are used for new construction, repair and remodeling, and outdoor structures such as shed. This segment’s sales were up 11.6% to $231 million on a 5% increase in SmartSide average sales prices and 3% rise in volumes. The Zacks Digest average segment revenues were in line with the company’s results.
Engineered Wood Products (EWP): The segment produces and distributes goods like I-Joists (IJ), laminated veneer lumber (LVL), laminated strand lumber (LSL) and other related products.
Engineered Wood Products sales grew 21% year over year to $94 million in the quarter. Volumes of I-Joist LSL and LVL increased 11% from the prior-year quarter. The Zacks Digest average segment revenues were in line with the company’s results.
South America: This segment comprises facilities in Chile and Brazil. Segment sales declined 2.4% year over year to $39 million. The Zacks Digest average segment revenues were in line with the company’s results.
Volumes decreased 17% in Chile owing to lower demand in the local market, while it increased 24% in Brazil on higher export sales.
2017 Guidance
The company expects to continue with sustainable improvement projects including consistent siding growth and instigation of new specialty products in the second half of 2017. The year-over-year increase in single-family starts raises hopes of a profitable second half for the company despite the constraints of labor shortage and lot availability.
Please refer to the Zacks Research Digest spreadsheet on LPX for specific revenue estimates.
Margins
Adjusted EBITDA from continuing operations was $164 million in the quarter, up 65.6% from $99 million in the prior-year quarter. Adjusted EBITDA and operating results improved by $71.0 million on higher OSB pricing in North America.
Provided below is a summary of margins as compiled by Zacks Digest:
Margins(Adjusted) / 2Q16A / 1Q17A / 2Q17A / 3Q17E / 2016A / 2017E / 2018E / 2019EEBITDA / 17.0% / 18.2% / 23.5% / 25.5% / 15.5% / 21.4% / 17.7%
Operating / 11.5% / 12.4% / 19.1% / 10.0%
Pre-tax Income / $60.8 / $70.5 / $129.4 / $199.3
Net / $40.0 / $48.4 / $84.1 / $129.3
*Note: Blank Cells indicate none of the brokers provided any figures
Segment Details
OSB: In the second quarter, adjusted EBITDA was $118 million, up 29% year over year.
Siding: In the second quarter, the Siding segment recorded adjusted EBITDA of $56 million, 14% higher from the prior-year quarter.
Engineered Wood Products (EWP): Adjusted EBITDA in the third quarter was $9 million, compared with $4 million in second-quarter 2016.
South America Segment: Adjusted EBITDA of $8 million reflected marginal deterioration from $9 million in the second quarter of 2016.
Please refer to the Zacks Research Digest spreadsheet on LPX for specific margin estimates.
Earnings per Share
Louisiana-Pacific reported earnings per share of 58 cents in the second quarter of 2017, missing the Zacks Consensus Estimate of 61 cents by 4.9%. Earnings improved considerably from the year-ago quarter level of 28 cents.
Provided below is a summary of EPS as compiled by Zacks Digest:
EPS in US$ / 2Q16A / 1Q17A / 2Q17A / 3Q17E / 2016A / 2017E / 2018E / 2019EDigest High / $0.28 / $0.34 / $0.58 / $0.71 / $0.90 / $1.95 / $1.50
Digest Low / $0.28 / $0.33 / $0.58 / $0.71 / $0.89 / $1.95 / $1.50
Digest Average / $0.28 / $0.33 / $0.58 / $0.71 / $0.90 / $1.95 / $1.50
Y/Y Growth / 441.5% / 382.0% / 108.1% / 120.4% / 380.2% / 117.3% / -23.1%
Q/Q Growth / 302.4% / 45.8% / 73.8% / 22.8%
Outlook
Few firms raised their 2017 EPS estimates due to impressive growth in the siding business. However, few firms showed their apprehension regarding the future of OSB prices and the subsequent risk to reward ratio remains undetermined.
Please refer to the Zacks Research Digest spreadsheet on LPX for specific earnings estimates.17, 2
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Research Analyst / Rajashree BhattacharyyaLead Analyst
QCA
Edited by / Parijat Sen
Content Ed. / Shrabana Mukherjee
Reason for Update / 2Q17 Daily Update
Zacks Investment Research Page 5 www.zackspro.com