Louisiana-Pacific Corporation (LPX) — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; filed November 3, 2022. Dollar amounts are in millions unless noted. LP makes building products for new construction, repair and remodeling, and outdoor structures, with continuing operations in Siding, OSB, and South America.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $852 | $1,018 | $3,149 | $3,080 |
| Gross profit | $232 | $505 | $1,370 | $1,657 |
| Gross margin | 27.2% | 49.6% | 43.5% | 53.8% |
| Income from operations | $172 | $448 | $1,191 | $1,507 |
| Income from continuing operations | $129 | $332 | $898 | $1,134 |
| Net income attributed to LP, including discontinued operations | $226 | $365 | $1,094 | $1,183 |
| Diluted EPS, continuing operations | $1.74 | $3.52 | $11.16 | $11.26 |
| Diluted EPS, total | $3.05 | $3.87 | $13.59 | $11.73 |
| Adjusted EBITDA, continuing operations | $200 | $480 | $1,289 | $1,600 |
Q3 adjusted EBITDA margin was 23.5%, versus 47.2% a year earlier. Nine-month adjusted EBITDA margin was 40.9%, versus 51.9%. Adjusted EBITDA is a non-GAAP measure defined by the company.
Cash flow and liquidity: Nine-month operating cash flow was $1,103, compared with $1,283 in 2021. Capital expenditures were $282, versus $133. Investing cash use was $14, including $265 of asset-sale proceeds; financing cash use was $968. Cash and cash equivalents were $469 at quarter-end, versus $358 at December 31, 2021. Long-term debt was $346, with no borrowings under the $550 revolving credit facility; LP reported compliance with its financial covenants. Current assets were $1,001 and current liabilities $430.
Material changes and business drivers
- OSB: Q3 sales fell 35% to $388 and adjusted EBITDA fell 70% to $113. The company cited a 39% decline in average selling prices, partly offset by higher volume. Lower prices accounted for $252 of the year-over-year EBITDA decline; inflation and maintenance costs also weighed on results.
- Siding: Q3 sales increased 26% to $394 and adjusted EBITDA increased 24% to $90. Higher pricing, product mix, and shipments supported growth, partly offset by $32 of raw-material, freight, and labor inflation and $4 of maintenance costs.
- South America: Q3 sales declined 30% to $53 and adjusted EBITDA declined 62% to $14, reflecting lower volume, higher input costs, and unfavorable currency movements.
- For the nine-month period, total sales rose 2%, but continuing-operations income declined about 21% and adjusted EBITDA declined about 19%. Share repurchases reduced average diluted shares to 80 million from 101 million.
Transactions, outlook, and risks
- LP sold its EWP segment assets on August 1, 2022, for $217 gross proceeds after working-capital adjustments; after $12 of direct transaction costs, net proceeds were $205. The sale generated a pre-tax gain of about $118 in Q3. EWP results are reported as discontinued operations; nine-month discontinued income was $196, including disposal gains from the EWP sale and the earlier sale of two joint-venture interests.
- LP reported no quantitative earnings or sales guidance in the supplied filing text. Management noted that housing demand was uncertain amid inflation and higher interest rates, and cited material-price increases, supply disruptions, and labor shortages. U.S. single-family housing starts were down 18% year over year in Q3.
- OSB pricing is market-sensitive, and management said future prices cannot be predicted. Other stated risks include cyclicality in construction and remodeling, input and transport costs, foreign-exchange movements, operational interruptions, and regulatory or environmental matters.
- LP initiated termination of its frozen U.S. and Canadian defined-benefit plans. It expected substantial completion in Q4 2022 and anticipated pre-tax settlement charges that included approximately $93 of noncash actuarial losses and a potential $9 cash contribution; final amounts were subject to market and plan-election factors.
- Environmental reserves were $27 at quarter-end. Management said contingency estimates are uncertain and ultimate payments could materially exceed accrued amounts; it believed other pending legal proceedings would not materially affect the company.
Key facts for investors to verify
- How OSB pricing and margins evolve as housing activity and supply-demand conditions change.
- Whether Siding growth and production ramp-up can offset continuing raw-material, freight, and labor inflation.
- The final costs and timing of the pension-plan termination and any related cash contribution.
- Post-sale EWP transition-service obligations and the final cash proceeds after working-capital adjustments.
- Capital-allocation priorities and liquidity after $900 of nine-month share repurchases and $53 of dividends.