Morningstar | Louisiana Pacific Reiterates Siding Growth Strategy; Lowering FVE on Margin Headwinds
Louisiana Pacific was confronted with the same poor market conditions facing every wood product company during the first quarter. Consolidated sales declined 16% versus last year, driven primarily by lower oriented strand board volumes and significantly lower market prices. EBITDA suffered an even steeper decline, off by roughly two thirds from the year prior. Although we expect conditions to improve over the remainder of the year, we reduced our near-term forecasts to reflect weaker profitability. As a result, we lower our fair value estimate to $18 per share from $19. Our no-moat rating remains in place.Siding segment sales rose slightly during the first quarter, up 4% year on year. Both higher prices and volumes contributed to the growth. We expect the pace of growth to accelerate as the year unfolds. Management reiterated its 12%-14% revenue growth target, though it guided to the low end this year given soft housing market conditions. Regardless, we were pleased to see prices tick higher in the quarter despite fairly dreary homebuilding news during the quarter. However, margins have started the year below our original expectations, leading us to slightly reduce our near-term EBITDA forecasts for the segment.
The firm's OSB segment sales slumped to just $236 million, driven by an 8% reduction in volumes and a 39% decline in benchmark prices versus the prior year. Although its transition away from OSB capacity in favor of siding will help with near-term industry overcapacity, demand has weakened faster than the pace of capacity curtailment. Over the next few years, we expect the segment to become more profitable as homebuilding increases. As younger adults move out, we believe that more homes will be sorely needed.
For more information on our housing forecast, see our report, "Headship Data Suggests Strong Demand; Inventory and Prices Remain Headwinds," published March 1, 2019.
Louisiana-Pacific is a provider of building solutions serving the new home construction, repair and remodeling and outdoor structures markets. The company has four segments: siding, which includes LP SmartSide? Strand and Fiber trim and siding, as well as LP Outdoor Building Solutions? products for outdoor buildings; oriented strand board (OSB), which manufactures and distributes OSB structural panel products; engineered wood products, which include LP SolidStart? I-Joist, Laminated Veneer Lumber, and other related products; and South America, which manufactures and distributes OSB structural panel and siding products in South America and certain export markets.
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