Why Is Louisiana-Pacific (LPX) Up 26.8% Since Last Earnings Report?
It has been about a month since the last earnings report for Louisiana-Pacific (LPX). Shares have added about 26.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Louisiana-Pacific due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Louisiana-Pacific Q1 Earnings Beat, Margins Up Y/Y
Louisiana-Pacific Corporation reported impressive results in first-quarter 2020, with earnings beating the Zacks Consensus Estimate and increasing significantly from the prior year on the back of higher EBITDA margin and lower cash taxes.
Notably, the company has suspended SmartSide Strand revenue projection for 2020. Also, it does not plan any share repurchase in 2020. Moreover, the company has reduced mill operating schedules to balance production and demand.
Detailed Discussion
The company reported adjusted earnings of 34 cents per share, which surpassed the Zacks Consensus Estimate of 30 cents by 13.3%. The metric increased a whopping 161.5% from the year-ago reported figure of 13 cents per share.
Net sales totaled $585 million, missing the consensus estimate of $607 million by 3.6% but increasing 0.5% from the year-ago period. Strong growth of Oriented Strand Board (OSB) and Engineered Wood Products (EWP) businesses supported the growth. However, decline in Siding and South America sales partially offset the growth.
Single family housing starts grew 12.2% year over year. Multi-family starts also surged an impressive 46.8% from the prior year.
Segmental Analysis
Siding: The segment’s sales of $212 million were down 3.2% from the prior-year period. The decline was due to a $7-million decrease in SmartSide Fiber sales and $4-million decline in OSB and other sales, partially offset by a 3% increase in SmartSide Strand volume. However, adjusted EBITDA improved 7.7% from the prior-year quarter to $42 million. The upside was backed by increased production at its Dawson Creek facility, post conversion into SmartSide Strand in 2019.
Notably, LP CanExel prefinished siding was reclassified from Siding to Other in first-quarter 2020.
OSB: Sales in the segment increased 5.8% year over year to $220 million. The company’s adjusted EBITDA also jumped significantly to $35 million from $8 million reported a year ago. Increase in selling price and reduction in raw material costs, including wood and resin, supported the growth.
EWP: Segment’s sales grew 10% year over year to $99 million. Adjusted EBITDA also improved 28.6% year over year to $9 million, primarily backed by increased shipments of I-Joist and LVL, as well as reduction in customer program costs.
South America: Sales of $36 million decreased 20% and adjusted EBITDA of $7 million fell 30% from the year-ago quarter. Reduction in export sales, unscheduled downtime at a Chilean mill and unfavorable foreign currency fluctuations impacted the results.
Operating Highlights
Gross margin expanded 460 basis points (bps) year over year to 18.5%. Selling, general and administrative expenses — as a percentage of revenues — contracted 20 bps.
Adjusted EBITDA of $83 million was up 43.1% from the prior-year figure of $58 million. Adjusted EBITDA margin also rose 420 bps to 14.2%, driven by higher OSB prices.
Financials
As of Mar 31, 2020, Louisiana-Pacific had cash and cash equivalents of $488 million compared with $181 million at the end of 2019. In March, the company borrowed $350 million under the revolving credit facility to deal with future uncertainties.
Again on May 1, it amended the credit facility to provide for an additional $200 million revolver, which matures in May 2023. Meanwhile, it did not withdraw any amount under the credit facility.
The company does not have any future obligations under the $350-million revolving credit facility and 4.875% Senior Notes until 2024.
Long-term debt was $698 million, which nearly doubled from 2019-end.
At the first quarter, net cash used in operations was $9 million, significantly down from $54 million reported in the comparable year-ago period.
2020 View
Based on current plans, Louisiana-Pacific expects capital expenditure to be less than $70 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 193.33% due to these changes.
VGM Scores
At this time, Louisiana-Pacific has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Louisiana-Pacific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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