Louisiana-Pacific Corporation (LP) — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data. LP manufactures building products, including OSB, siding and engineered wood products, with operations in North America and South America.
Financial performance and liquidity
- Revenue: $444.7, down 16% from $531.1 in Q1 2013.
- Profitability: Operating loss was $10.2 versus operating income of $88.5; net loss was $14.2 versus net income of $65.1. Diluted EPS was $(0.10), compared with $0.45.
- Margins: Gross margin was approximately 12.7% (sales less cost of sales) versus 27.1% a year earlier. Operating margin was approximately (2.3%) versus 16.7%.
- Cash flow: Cash used in operating activities was $73.0, versus $16.8 provided in Q1 2013. Capital expenditures were $24.0. Cash declined $105.1 during the quarter to $551.7.
- Balance sheet: Total assets were $2,494.1. Current assets were $1,039.8 and current liabilities $197.0. Long-term debt was $761.2, plus $2.3 current; cash less reported debt was approximately $211.8 net cash.
- Adjusted EBITDA: Management-reported Adjusted EBITDA from continuing operations was $22.9, down from $120.1 in Q1 2013. This is a non-GAAP measure and is not a substitute for GAAP earnings or cash flow.
Material changes versus Q1 2013
- OSB was the principal source of deterioration: segment sales fell 32% to $194.9, operating result shifted to a $1.9 loss from $98.1 income, and Adjusted EBITDA fell to $11.9 from $108.7. Average OSB selling prices declined 38%; shipments rose 6%. Management estimated lower OSB prices reduced operating results and Adjusted EBITDA by approximately $113.
- Siding sales increased 7% to $143.5, but operating income declined to $19.2 from $20.7. SmartSide sales increased 17%; stronger siding results partly offset weaker commodity OSB pricing.
- Engineered Wood Products sales rose 5% to $66.4; the segment remained loss-making, with a $3.1 operating loss versus $3.5. South America sales fell 19% to $36.6 and operating income declined 33% to $4.2.
- Housing starts were 2% lower year over year, and management cited poor weather and increased OSB capacity as factors pressuring OSB prices.
Outlook, risks and unusual items
- LP forecast approximately $100 of 2014 capital expenditures, primarily for productivity and maintenance projects. It expected 2014 pension contributions of $5–$7 and net periodic pension cost of approximately $5.6. The filing provides no specific earnings or revenue guidance.
- LP’s proposed Ainsworth acquisition remained subject to regulatory approval. U.S. and Canadian antitrust authorities indicated they would not permit completion without divestitures beyond those contemplated in the agreement. The parties were considering alternatives, including divestitures, agreement changes or litigation; completion, timing and terms were uncertain. The outside date had been extended to June 2, 2014. The stated consideration included approximately C$467 cash and 27.5 million LP shares, subject to agreement terms. LP expected to fund the cash portion with cash on hand and revolving-credit borrowings.
- Operating cash flow was affected by a $64.4 increase in receivables and a $51.3 increase in inventories. Management attributed collection delays and higher receivables partly to the ERP system implementation effective January 1, 2014; inventory growth reflected logistics and seasonal factors.
- Acquisition-related expenses were $9.1 in the quarter. Foreign-currency losses were $4.3, compared with $0.7 a year earlier. The 2013 comparison included a $1.6 prior-year inventory charge.
- Key exposures include volatile OSB prices and housing demand, raw-material availability and costs, foreign exchange, environmental and product-related claims, pension funding, and execution and regulatory risks tied to the ERP implementation and proposed acquisition. Environmental contingency reserves totaled $14.8; the warranty reserve was $26.2.
Important facts for investors to verify
- Whether OSB pricing and demand recover, and whether shipment growth can offset commodity-price pressure.
- Whether ERP-related invoice and collection delays are resolved and working capital converts back into cash.
- The status, final terms, financing and any required divestitures or litigation relating to the Ainsworth transaction.
- Availability and terms of revolving-credit capacity; the filing text provided here does not state a clear available borrowing amount.
- Whether environmental, warranty, litigation and pension exposures or asset-disposition decisions result in additional cash costs or charges.