Louisiana-Pacific Corporation (NYSE: LPX) — Q3 2021 Form 10-Q
Quarter ended September 30, 2021; unaudited. Unless noted otherwise, dollar amounts are in millions. Comparisons are with the same period in 2020.
Business context and reporting period
LP manufactures building products for new home construction, repair and remodeling, and outdoor structures, operating in Siding, Oriented Strand Board (OSB), Engineered Wood Products (EWP), and South America. Management said COVID-19 did not materially affect results in the quarter or first nine months of 2021. U.S. housing starts were up 4% for the quarter and 20% year to date.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $1,219 | $795 | $3,561 | $1,928 |
| Gross profit | $549 | $292 | $1,734 | $517 |
| Income from operations | $488 | $242 | $1,571 | $339 |
| Net income attributed to LP | $365 | $177 | $1,183 | $243 |
| Diluted EPS | $3.87 | $1.57 | $11.73 | $2.15 |
| Adjusted EBITDA (non-GAAP) | $522 | $273 | $1,667 | $453 |
| Cash provided by operations | $511 | $218 | $1,283 | $338 |
Q3 sales rose 53%; LP-attributed net income more than doubled. Gross margin was approximately 45.0% versus 36.7%, and operating margin was 40.0% versus 30.4%. Adjusted EBITDA margin was approximately 42.8% versus 34.3%. For the first nine months, sales increased 85% and LP-attributed net income nearly quintupled; adjusted EBITDA margin was approximately 46.8% versus 23.5%. These results chiefly reflect much higher OSB pricing, alongside growth in other businesses.
Segments, Q3: OSB sales were $600 and Adjusted EBITDA $381, versus $368 and $189 a year earlier. Siding sales were $312 and EBITDA $73, versus $268 and $76. EWP sales were $201 and EBITDA $42, versus $103 and $9. South America sales were $76 and EBITDA $37, versus $45 and $11. OSB’s pricing drove the largest earnings increase; Siding EBITDA declined as raw-material, freight, marketing, and maintenance costs rose.
Liquidity, debt, and capital allocation
At September 30, cash and cash equivalents were $607, restricted cash was $13, and long-term debt carrying value was $346. Current assets were $1,197 and current liabilities $427, implying working capital of $770. LP had no borrowings under its $550 revolving credit facility, available through June 2027, and reported compliance with debt covenants. The $346 debt balance was principally $350 principal of 3.625% senior notes due 2029, net of debt costs.
Year-to-date capital expenditures were $133, mainly for siding conversions and growth and maintenance projects. Financing cash outflows included $987 of share repurchases and $50 of dividends. LP issued $350 of 2029 notes and redeemed its $350 of 2024 notes, recording an $11 early-extinguishment loss. The board’s 2021 repurchase authorization was up to $1 billion; $687 had been used by September 30. After quarter-end through November 2, LP repurchased 2.3 million shares for $150.
Outlook, commentary, risks, and unusual items
The filing provides no specific numerical earnings or revenue guidance. Management described housing demand as strong but future conditions as uncertain. It cited rising material prices, supply disruptions, and labor shortages as challenges, and cautioned that OSB commodity prices fluctuate and may rise or fall. Demand is exposed to housing and repair-and-remodel cycles.
LP announced it was exploring strategic alternatives for its remaining EWP business, including a possible sale. In September it ceased LSL production as the Houlton, Maine facility converted from LSL and OSB production to Siding. Q3 included $1 of severance and other reorganization charges, offset in part by $1 of insurance recoveries; year-to-date insurance recoveries were $3. A $7 net discrete tax benefit was recognized year to date. Management reported no impairment indicators at quarter-end.
Environmental reserves totaled $14, including $13 classified as long term. Management cautioned that contingency estimates are uncertain and ultimate payments could materially exceed accrued amounts; it could not estimate a range of possible changes. Management believed other pending proceedings would not materially adversely affect the company. Key risks include OSB price and supply changes, raw-material and freight costs, manufacturing disruptions, foreign exchange, environmental and product-warranty exposures, and pandemic-related uncertainty. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- How much of the exceptional earnings and cash generation is sustainable if OSB prices normalize?
- Whether input-cost, freight, labor, and supply pressures affect margins and production, particularly in Siding and OSB.
- Progress and potential financial consequences of the EWP strategic review and Houlton facility conversion.
- Future share repurchase and dividend levels, and their effect on cash, share count, and liquidity; include the post-quarter $150 repurchase.
- Developments in environmental and other contingencies, warranty claims, and any changes to reserves or impairment assessments.