Louisiana-Pacific Corporation (LPX) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts are in millions, except per-share data. LP manufactures building products, including siding, OSB, engineered wood products (EWP), and products in South America.
Financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $1,325 | $548 | $2,342 | $1,133 |
| Gross profit | $707 | $117 | $1,185 | $225 |
| Income from operations | $653 | $53 | $1,083 | $97 |
| Net income attributable to LP | $498 | $33 | $818 | $66 |
| Diluted EPS | $4.90 | $0.29 | $7.85 | $0.58 |
| Adjusted EBITDA (non-GAAP) | $684 | $97 | $1,145 | $180 |
| Adjusted diluted EPS (non-GAAP) | $4.74 | $0.43 | $7.70 | $0.77 |
Q2 gross margin was approximately 53% versus 21% a year earlier; net margin was approximately 38% versus 6%. The substantial improvement was principally driven by higher OSB prices. Q2 net sales increased 142% year over year, and adjusted EBITDA increased to $684 million.
Segments and material changes
- OSB: Q2 sales were $778 million, up 281%; adjusted EBITDA was $565 million versus $46 million. Commodity OSB prices rose 301% year over year, while commodity volume was roughly flat. Structural Solutions volume increased.
- Siding: Q2 sales were $291 million, up 32%; adjusted EBITDA was $77 million versus $51 million. Siding Solutions revenue growth reflected both higher shipments and pricing.
- EWP: Q2 sales were $158 million, up 99%; adjusted EBITDA was $18 million versus $3 million, primarily reflecting higher pricing.
- South America: Q2 sales were $74 million, up 94%; adjusted EBITDA was $34 million versus $11 million, mainly due to higher pricing.
Management said U.S. housing starts and repair-and-remodel activity were stronger than in the comparable 2020 period. The filing attributes much of the year-over-year growth to pricing, especially in OSB; prior-year COVID-related downtime also affected the volume comparison.
Cash flow, liquidity, and capital
- Operating cash flow was $457 million in Q2 and $772 million for the first half, versus $129 million and $120 million, respectively, in 2020. First-half capital expenditures were $65 million, compared with $39 million.
- Cash and cash equivalents were $590 million at June 30, 2021; restricted cash was $13 million. Current assets were $1,230 million and current liabilities $353 million.
- Long-term debt was $346 million, net of debt costs. LP issued $350 million of 3.625% notes due 2029 and redeemed its $350 million notes due 2024, recording an $11 million early-extinguishment charge in the first half.
- The amended revolving credit facility provides up to $550 million and matures in June 2027; no borrowings were outstanding at quarter-end. LP reported compliance with its financial covenants.
- Financing cash use included $465 million of share repurchases in Q2 and $588 million in the first half; dividends paid were $16 million and $33 million, respectively. After quarter-end, LP repurchased $151 million of shares through August 4.
Outlook, risks, and unusual items
- The filing provides no quantified revenue, earnings, or pricing guidance. Management cautioned that strong housing demand may not persist and that OSB commodity prices fluctuate with market supply and demand and are not predictable.
- Management cited higher material prices, supply disruptions, and labor shortages as operational challenges. COVID-19 did not materially affect reported first-half results, but its future effects and those of new variants were uncertain.
- LP announced that it would cease LSL production during 2021 as it converts its Houlton, Maine facility to siding production. It is exploring strategic alternatives for the remaining EWP business, including a possible sale.
- Other notable first-half items included a $11 million debt-extinguishment loss and a $9 million net discrete tax benefit. No long-lived-asset impairment indicators were identified at June 30, 2021.
- Environmental contingency reserves totaled $14 million. Management said ultimate payments could materially exceed accrued amounts, although it could not estimate the range of potential changes. LP stated that existing legal proceedings were not expected to have a material adverse effect based on information currently available.
- Key risks include OSB price and demand volatility, construction-market cyclicality, raw-material and freight costs, operational interruptions, foreign-exchange exposure, environmental and warranty liabilities, and the effects of COVID-19. The company reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- How sustainable OSB pricing and the resulting unusually high segment earnings are across a full commodity cycle.
- Progress and costs associated with the Houlton conversion, LSL shutdown, and strategic review of EWP.
- Share-repurchase pace, remaining authorization, and the resulting effect on cash, share count, and capital allocation.
- Cash generation, working-capital needs, capital spending, and covenant headroom as input costs and market conditions change.
- Potential changes to environmental, warranty, or other contingency reserves and any material developments in legal proceedings.