Louisiana-Pacific Corporation (LPX) — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Amounts are in millions of dollars, except per-share data. LP makes building products for construction, repair and remodeling, operating in Siding, OSB, Engineered Wood Products (EWP), and South America.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $1,017 | $585 |
| Gross profit / gross margin | $479 / 47.1% | $108 / 18.5% |
| Income from operations / operating margin | $431 / 42.4% | $44 / 7.5% |
| Net income attributable to LP | $320 | $33 |
| Diluted EPS | $3.00 | $0.29 |
| Adjusted EBITDA (non-GAAP) | $461 | $83 |
| Operating cash flow | $314 | $(9) |
| Capital expenditures | $34 | $24 |
Revenue rose 74%; net income and diluted EPS increased substantially. The improvement was led by sharply higher OSB pricing and stronger SmartSide sales. SG&A declined to $48 from $55, partly due to reduced travel and overhead. Adjusted EBITDA is a non-GAAP measure and is not a substitute for GAAP results.
Segment results
| Segment | Sales, 2021 / 2020 | Adjusted EBITDA, 2021 / 2020 | Management’s explanation |
|---|---|---|---|
| Siding | $285 / $212 | $90 / $42 | SmartSide sales grew 49%, reflecting 39% higher shipments and 7% higher average selling price. |
| OSB | $539 / $220 | $354 / $35 | Commodity OSB average price rose 190%; Structural Solutions price rose 139%. Lower volume and higher freight partially offset pricing gains. |
| EWP | $123 / $99 | $7 / $9 | Higher pricing and I-Joist/LVL sales were offset by input-cost pressure and lower LSL shipments. |
| South America | $53 / $36 | $21 / $7 | Higher OSB and siding pricing drove improvement, partly offset by lower OSB volume. |
Cash, debt and liquidity
- At March 31, cash and cash equivalents were $645; restricted cash was $13. Total current assets were $1,226 and current liabilities were $360.
- Long-term debt was $346 carrying value, including $350 principal of 3.625% Senior Notes due 2029, net of debt costs. The $350 of 2024 Senior Notes were redeemed in March; the redemption generated an $11 early-extinguishment charge.
- No amounts were drawn on the $550 revolving credit facility; LP reported compliance with its financial covenants. The filing also reports $12 of standby letters of credit outstanding and $13 of cash collateral for letters of credit.
- Operating cash flow improved to $314, primarily reflecting stronger OSB pricing and SmartSide volume. Cash used in investing was $32, including $34 of capital expenditures. Cash used in financing was $158, including $122 of share repurchases and $17 of dividends.
- Cash, cash equivalents and restricted cash ended the quarter at $658, up $122 from year-end 2020.
Material developments, outlook and risks
- LP announced that it would cease LSL production during 2021 as it converts its Houlton, Maine facility to Siding production. It is also exploring strategic alternatives for the remaining EWP segment, including a possible sale in whole or in part.
- Management reported strong housing and repair-and-remodeling demand. U.S. single-family housing starts were 21% higher year over year in Q1. The filing provides no quantified earnings or sales guidance and cautions that recent results may not indicate future performance.
- OSB is a commodity business with prices that fluctuate daily; LP stated it cannot predict whether prices will remain at current levels. OSB sales volume was lower year over year amid supply disruptions and weather-related shutdowns, while freight costs increased.
- Management said COVID-19 did not materially affect Q1 results, but the pandemic’s duration and future operational and economic effects remained uncertain. Other cited risks include housing-market cyclicality, raw-material and energy costs, transportation, manufacturing interruptions, foreign exchange, environmental obligations, warranty claims and litigation.
- Environmental reserves totaled $14. Management cautioned that ultimate payments could materially exceed accrued amounts; it could not estimate the range of potential changes. Management believed existing warranty reserves were adequate. No long-lived asset impairment indicators were identified at quarter-end.
- LP repurchased $122 of shares during Q1. After quarter-end through May 5, it paid $146 to repurchase 2.3 million shares. The quarterly dividend was $0.16 per share.
Most important facts for investors to verify
- How much of Q1’s earnings surge reflects unusually high OSB prices, and how results respond if commodity prices normalize.
- Progress, costs and timing of the Houlton conversion and LSL production cessation, and the outcome of the EWP strategic review.
- Cash generation and liquidity after substantial share repurchases, including the post-quarter repurchases and remaining authorization.
- Potential changes in environmental and other contingency exposures, and the effects of demand, supply, freight and COVID-related disruptions.
- Reconciliation and comparability of non-GAAP Adjusted EBITDA and Adjusted Income to GAAP results.