Louisiana-Pacific Corporation — Q2 2022 Form 10-Q
Business context and reporting period. This filing covers the quarter and six months ended June 30, 2022. LP supplies building products through its Siding, OSB, and South America segments. Engineered Wood Products (EWP) is presented as discontinued operations following an agreement to sell the business; the sale closed August 1, 2022.
Financial performance
- Q2 revenue: Continuing-operations net sales were $1.130 billion, down 3% from $1.168 billion. Six-month sales were $2.297 billion, up 11% from $2.062 billion.
- Profit: Q2 income from continuing operations was $348 million ($4.28 diluted EPS), versus $486 million ($4.79) a year earlier. Six-month continuing income was $769 million ($9.19 diluted EPS), versus $802 million ($7.71). Net income attributable to LP, including discontinued operations, was $384 million for Q2 and $868 million for six months.
- Margins: Q2 gross profit was $518 million, or approximately 45.8% of sales, compared with $684 million, or 58.6%. Six-month gross profit was $1.139 billion, approximately 49.6% of sales, compared with $1.152 billion, or 55.9%.
- Adjusted EBITDA: Continuing-operations Adjusted EBITDA, a non-GAAP measure, was $491 million in Q2, down from $665 million; six-month EBITDA was $1.089 billion, down from $1.119 billion. Q2 OSB EBITDA fell to $403 million from $565 million.
- Cash flow and investment: Six-month operating cash flow was $908 million, versus $772 million. Capital expenditures were $196 million, versus $65 million. Cash used in investing activities was $135 million; financing activities used $626 million, including $575 million of share repurchases and $37 million of dividends.
- Liquidity and debt: June 30 cash and cash equivalents were $503 million (plus $13 million restricted cash). Long-term debt was $346 million, consisting principally of 3.625% senior notes due 2029. No amounts were drawn on the $550 million revolving facility; LP reported covenant compliance.
Material changes and drivers
- Q2 OSB sales fell 14% year over year: average selling prices declined 22%, partly offset by 10% higher volume. Lower OSB prices reduced Q2 Adjusted EBITDA by $195 million, partly offset by higher volume.
- Q2 Siding sales increased 23%, reflecting 12% higher average selling prices and 10% higher shipments. Price and volume gains were largely offset by $29 million of raw-material and freight inflation and $7 million of discretionary growth investment.
- South America Q2 sales fell 5% and Adjusted EBITDA fell 23%, primarily reflecting lower volume and higher raw-material costs.
- Q2 SG&A rose to $67 million from $53 million, attributed to higher travel, sales and marketing, corporate overhead, stock compensation, and performance incentives. Other operating credits included $13 million of insurance recoveries in Q2 2022.
- EWP generated $37 million of Q2 discontinued-operations income after tax. LP sold its 50% interests in two EWP joint ventures in March for $59 million and recorded a $39 million gain. The subsequent EWP asset sale was for $210 million, subject to adjustments; LP expected a pre-tax sale gain of $120–$125 million in Q3.
Outlook, risks, and contingencies
- The filing provides no specific forward earnings or revenue guidance. Management noted uncertainty around inflation, interest rates, employment, consumer confidence, housing demand, material costs, supply disruptions, and labor availability. U.S. single-family housing starts were 3% lower in Q2 year over year; management said repair-and-remodel indicators suggested continued growth.
- OSB is a commodity business with prices driven by supply and demand; management said future prices could not be predicted. Inflation may increase raw-material, labor, and other costs beyond price recovery.
- The EWP sale includes a transition-services arrangement of up to eight months. The company also initiated termination of its frozen U.S. and Canadian defined-benefit plans; settlement was expected by year-end 2022, but timing and cost were not yet reasonably estimable. Expected pre-tax settlement charges include recognition of $98 million of accumulated actuarial losses and a possible cash contribution against an $8 million projected benefit obligation.
- Environmental and other contingency reserves totaled $27 million, predominantly environmental. Management cautioned that ultimate payments could materially exceed accrued amounts. No long-lived-asset impairment indicators were reported at June 30.
Important facts for investors to verify
- Whether OSB pricing and margins stabilize, and how inflation in materials and freight affects Siding and other segments.
- Final EWP sale adjustments and the gain recognized after the August 1 closing.
- The eventual timing and charge or cash contribution from pension-plan termination.
- Future cash deployment: LP repurchased $575 million of stock in the first half and a further $197 million through August 8 under the repurchase program.
- Potential changes in housing demand, commodity prices, supply availability, and environmental or product-warranty liabilities.