Louisiana-Pacific Corporation — Q1 2016 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2016, compared with Q1 2015. LP manufactures building products, primarily for residential construction, repair and remodeling, across OSB, Siding, Engineered Wood Products (EWP), and South America segments.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Net sales | $504.6 million | $471.7 million |
| Operating income (loss) | $18.9 million | $(33.2) million |
| Net income (loss) | $10.3 million | $(34.5) million |
| Diluted EPS | $0.07 | $(0.24) |
| Operating cash flow | $(4.9) million | $(44.0) million |
| Capital expenditures | $26.3 million | $14.9 million |
- Sales grew about 7%. Operating margin was approximately 3.7% of sales, versus an operating loss in the prior-year quarter.
- Adjusted EBITDA from continuing operations, a non-GAAP measure, was $51.8 million, compared with $6.1 million. LP cautions that its EBITDA measures are not substitutes for GAAP measures and may not be comparable across companies.
- Cash and cash equivalents were $404.2 million at March 31, down from $434.7 million at year-end 2015. Current assets were $815.6 million and current liabilities $165.3 million.
- Debt was approximately $753.9 million, including $751.8 million long-term and $2.1 million current. Long-term debt was unchanged from year-end. Senior Notes due 2020 had an estimated fair value of $364.5 million.
- Operating cash use improved year over year, but receivables and inventories increased. Investing cash use was $26.2 million; financing cash use was $1.9 million.
Material changes and segment performance
- LP attributed the overall improvement principally to stronger North American OSB pricing. U.S. housing starts were 15% higher year over year, and the cited North American OSB benchmark price was 16% higher. Management estimated improved OSB pricing added about $27.4 million to operating results and Adjusted EBITDA.
- OSB: Sales rose 14% to $217.0 million; operating income was $15.3 million versus a $28.4 million loss. Average selling prices rose 14%, while unit shipments were flat. Lower raw-material costs, higher utilization and currency effects also helped.
- Siding: Sales increased 4% to $181.3 million, but operating income fell to $26.9 million from $32.9 million. Management cited higher-cost inventory and increased sales and marketing costs; lower input costs partly offset these pressures.
- EWP: Sales grew 11% to $71.8 million; operating loss narrowed to $2.5 million from $4.1 million, supported by stronger demand, sales volumes and lower manufacturing costs.
- South America: Sales declined 15% to $30.5 million, while operating income increased to $5.1 million from $2.4 million. Lower shipment volumes, including weak Brazilian demand, were offset by higher local-currency selling prices.
- Q1 2015 included an $11.6 million write-off of a Quebec forest license. No comparable operating charge was recorded in Q1 2016.
Outlook, risks and other notable items
- LP forecast 2016 capital expenditures of approximately $120–$130 million for productivity, growth, maintenance and South American expansion. It expected 2016 pension contributions of $6–$8 million.
- No quantified revenue or earnings guidance was provided. Management said it expected to meet future cash needs using operating cash flow, existing cash, credit facilities and other capital resources.
- Key exposures include housing-market cyclicality; volatile OSB and other commodity prices; wood-fiber, resin, energy and transportation costs; foreign exchange; environmental requirements; litigation and product warranties; pension funding; and the ability to service or refinance debt. LP noted it cannot estimate the range of potential changes in environmental contingencies.
- Warranty reserves were $18.1 million at quarter-end, down from $27.1 million a year earlier; management considered reserves adequate but said additional charges may be required. Environmental and legal reserves remain subject to estimation uncertainty.
- LP adopted ASU 2016-09 early in Q1, recording a $16.3 million cumulative-effect increase to opening retained earnings and deferred tax assets. The company anticipated greater income-tax expense volatility from the standard’s treatment of share-based award tax effects.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether OSB pricing and housing demand remain strong enough to sustain the earnings recovery, given commodity-market volatility.
- Whether operating cash flow improves as seasonal receivables and inventory increases unwind, and how planned capital spending affects cash balances.
- Debt-service capacity, available credit-facility liquidity and any refinancing needs; the filing does not provide a clear unused-credit amount in the supplied text.
- Progress and returns from the planned $120–$130 million capital program and South American expansion.
- Changes in environmental, product-liability, warranty, pension and tax exposures, including any new reserve requirements.