Louisiana-Pacific Corporation (NYSE: LPX) — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual report; fourth-quarter figures are noted separately. LP produces engineered wood siding, OSB, engineered wood products and building materials in North and South America.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $2.310 billion | $2.828 billion |
| Gross profit and margin | $303 million; 13.1% | $744 million; 26.3% |
| Income (loss) from continuing operations | $(10) million | $399 million |
| Net income (loss) attributed to LP | $(5) million; $(0.04) diluted EPS | $395 million; $2.73 diluted EPS |
| Adjusted EBITDA | $209 million | $660 million |
| Cash from operations | $159 million | $511 million |
| Capital expenditures | $163 million | $214 million |
| Cash and cash equivalents at year-end | $181 million | $878 million |
| Long-term debt, excluding current portion | $348 million | $347 million |
Current assets were $619 million and current liabilities $244 million at year-end; working capital excluding cash was $194 million. LP had no revolving borrowings under its $350 million credit facility, which matures in June 2024, and reported compliance with its covenants. The $350 million 4.875% senior notes mature in September 2024.
Material changes versus 2018
- Sales declined 18%, primarily due to lower OSB prices and shipments. Management attributed $416 million of the decline to lower OSB prices; OSB segment sales fell 40% to $777 million.
- Average OSB selling prices fell 38% for commodity OSB and 29% for Structural Solutions. OSB segment Adjusted EBITDA dropped to $10 million from $425 million.
- Siding sales grew 2% to $963 million, supported by 10% SmartSide Strand revenue growth, but segment Adjusted EBITDA fell 12% to $177 million. EWP sales were down 3% to $396 million; South America sales were down 1% to $159 million.
- LP recorded $92 million in pre-tax long-lived asset impairments, versus $11 million in 2018. Cash from operations decreased by $352 million.
- LP spent $638 million on stock repurchases and $65 million on dividends in 2019. It completed its $600 million repurchase authorization; 5.57 million shares were repurchased in the fourth quarter.
Fourth quarter: Net sales were $537 million versus $589 million in fourth-quarter 2018. Net loss attributed to LP was $51 million versus net income of $17 million; Adjusted EBITDA was $49 million versus $65 million. Fourth-quarter 2019 included $86 million of impairment charges.
Outlook, commentary and risks
- LP expected 2020 capital expenditures of approximately $130 million to $140 million, mainly for Siding expansion and maintenance. No quantified earnings or sales guidance was provided in the filing.
- Management described long-term housing fundamentals as positive but noted near-term U.S. residential construction constraints, including labor availability. U.S. housing starts were about 3% higher in 2019 than in 2018.
- LP’s strategy includes growing higher-margin Siding and value-added Structural Solutions, improving operating efficiency and matching capacity to demand. Structural Solutions represented 43% of OSB shipments, up from 38% in 2018.
- Key risks include housing-market cyclicality; OSB commodity-price and supply-demand volatility; wood-fiber, resin, energy and freight costs and availability; competition; foreign exchange; manufacturing interruptions; environmental compliance; product warranty and litigation exposure; and pension funding and debt covenant requirements.
- Peace Valley OSB production was indefinitely curtailed in 2019. LP classified the facility as temporarily idled, not abandoned, and recorded no impairment for that asset group. The auditor identified this judgment, including the prospect of restarting the facility, as a critical audit matter.
- Environmental and other contingency reserves totaled $10 million; management cautioned actual costs could materially exceed recorded reserves. Warranty reserves were $8 million. LP also continued to review certain mills and investments for potential impairment.
- The financial-statement auditor issued an unqualified opinion and reported effective internal control over financial reporting. Results remain subject to management estimates, including impairment, tax, pension and contingency assumptions.
Important facts for investors to verify
- Whether OSB prices, shipments and segment profitability recover, and how much earnings remain exposed to commodity pricing.
- Whether Siding growth and the shift toward Structural Solutions can offset weakness in commodity OSB, including the effects of facility conversions and capacity decisions.
- Cash generation and liquidity after the substantial 2019 repurchases, dividends and decline in cash balances; confirm planned capital spending against operating cash flow.
- Whether the Peace Valley facility can restart under management’s assumptions and whether further asset impairments or facility actions are needed.
- Potential changes to environmental, warranty, litigation and uncertain-tax-position exposures; disclosed reserves are estimates and may not cap ultimate costs.