Louisiana-Pacific Corporation (LPX) — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unless noted, amounts are in millions. LP manufactures building products and reports Siding, OSB, South America, and Other. Results from its sold Engineered Wood Products (EWP) business are presented as discontinued operations; the 2022 comparison includes EWP earnings, so continuing-operations comparisons are more informative.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $584 | $1,167 |
| Gross profit / gross margin | $101 / 17.3% | $620 / 53.1% |
| Income from operations / operating margin | $30 / 5.1% | $556 / 47.6% |
| Income from continuing operations | $22 | $421 |
| Net income attributed to LP | $21 | $484, including $62 from discontinued operations |
| Diluted continuing-operations EPS | $0.29 | $4.89 |
| Adjusted EBITDA | $66 | $598 |
| Cash from operating activities | $(119) | $425 |
| Capital expenditures | $114 | $92 |
Revenue fell 50% year over year. Lower OSB prices and volumes were the principal drivers: OSB segment sales declined 75% to $189 and Adjusted EBITDA declined to $5 from $505. Siding sales were essentially flat at $331, while segment Adjusted EBITDA fell 18% to $67. South America sales declined 17% to $55 and Adjusted EBITDA fell 53% to $12. Other sales were $8, and Adjusted EBITDA was $(9).
Gross and operating margins above are calculated from reported figures. The filing reports that OSB average selling prices fell 56% for Structural Solutions and 74% for commodity OSB; shipment volumes fell 38% and 13%, respectively. Siding price rose 10% while unit shipments declined 9%. South America OSB Structural Solutions price and volume fell 6% and 15%, respectively.
Balance sheet, liquidity and capital allocation
- Cash and cash equivalents were $126 at March 31, 2023, versus $369 at December 31, 2022. Current assets were $713 and current liabilities $229.
- Long-term debt was $347. No borrowings were outstanding under the $550 revolving credit facility at quarter-end; $45 was outstanding as of May 3, 2023. The facility matures November 29, 2028. LP reported compliance with its financial covenants.
- Operating cash outflow was $119, primarily reflecting lower operating income and the timing of income tax payments, alongside working-capital uses. Investing cash outflow was $113, including $114 of capital expenditures. Financing cash outflow was $27, including $17 in dividends.
- The quarterly dividend was $0.24 per share. No purchases were made under the 2022 share repurchase program during the quarter; $400 of the authorized $600 had been repurchased as of March 31, 2023. Employee tax-withholding share repurchases were $10.
Material changes, outlook and notable items
- Management cited lower OSB prices and sales volumes, production curtailments, and inflation in raw materials, freight, and labor. OSB commodity prices had declined with weaker market demand, and LP said future OSB pricing was uncertain.
- U.S. single-family housing starts were 29% lower year over year in Q1; multifamily starts were about 5% higher. Management described repair-and-remodel activity as resilient but noted uncertainty from inflation, interest rates, employment, consumer confidence, and financial markets. No specific earnings or revenue guidance is provided in the supplied filing text.
- In April 2023, LP announced the shutdown of Entekra, expected to result in a $25–$30 non-cash, pre-tax charge in Q2 2023. In May 2023, LP acquired substantially all assets of Wawa OSB for $80, funded with cash and credit-facility borrowings.
- LP recorded a $6 non-cash pre-tax pension settlement charge in Q1 as it completed termination of its frozen defined-benefit plans. The continuing-operations effective tax rate was 5%, including $5 of net discrete tax benefits; the estimated annual rate excluding discrete items was 28%.
- Environmental reserves totaled $27. Management cautioned that contingency estimates are uncertain and ultimate payments could materially exceed accrued amounts. It stated that other legal proceedings were not expected to materially affect financial position, results, cash flows, or liquidity.
- Disclosed risks include cyclicality in housing and building products, OSB commodity-price volatility, raw-material and energy costs, supply and labor disruptions, foreign-currency exposure, environmental and product-warranty liabilities, cybersecurity, and possible impairment. LP reported no direct exposure to Silicon Valley Bank or Signature Bank but noted the risk of impaired access to deposits if financial institutions fail.
Important facts for investors to verify
- How much of the sharp OSB earnings decline reflects market pricing versus lower volumes, and whether pricing and demand stabilize.
- Cash use, working-capital movements, planned capital spending, and liquidity after the Wawa OSB acquisition and the $45 facility borrowing reported on May 3.
- The timing and final cost of the Entekra shutdown, including the expected Q2 charge.
- Whether the $27 environmental reserve and $8 warranty reserve remain adequate as claims and remediation estimates evolve.
- How to interpret year-over-year earnings given the EWP divestiture and the prior-period discontinued-operation gain and income.