Advertisement
Australia markets closed
  • ALL ORDS

    8,153.70
    +80.10 (+0.99%)
     
  • ASX 200

    7,896.90
    +77.30 (+0.99%)
     
  • AUD/USD

    0.6529
    +0.0011 (+0.16%)
     
  • OIL

    83.11
    -0.06 (-0.07%)
     
  • GOLD

    2,254.80
    +16.40 (+0.73%)
     
  • Bitcoin AUD

    107,340.81
    -559.77 (-0.52%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • AUD/EUR

    0.6045
    +0.0011 (+0.18%)
     
  • AUD/NZD

    1.0904
    +0.0002 (+0.02%)
     
  • NZX 50

    12,105.29
    +94.63 (+0.79%)
     
  • NASDAQ

    18,254.69
    -26.15 (-0.14%)
     
  • FTSE

    7,952.62
    +20.64 (+0.26%)
     
  • Dow Jones

    39,807.37
    +47.29 (+0.12%)
     
  • DAX

    18,492.49
    +15.40 (+0.08%)
     
  • Hang Seng

    16,541.42
    +148.58 (+0.91%)
     
  • NIKKEI 225

    40,369.44
    +201.37 (+0.50%)
     

5 Factors Supporting Louisiana-Pacific's (LPX) Wood Business

Louisiana-Pacific Corporation LPX or LP’s wood business has been gaining from a solid U.S. residential market and stable repair and remodeling (R&R) business. Strategic business transformation, effective cash management and inorganic moves are likely to boost its future performance.

The company’s third-quarter 2021 earnings and revenue growth are reflective of the above-mentioned tailwinds. Both the top and bottom lines increased 53.3% and 148.1%, respectively, on a year-over-year basis. The upside was backed by segmental results. LPX is likely to release fourth-quarter 2021 results in mid-February 2022.

Although higher freight and transport costs owing to supply chain constraints along with rising input costs due to delays are grappling the overall Construction market, its impressive price performance and prospects are commendable.

Shares of LPX have surged 66.7% in the past year compared with the Zacks Building Products – Wood industry’s 18.5% rally. Earnings estimates for 2021 have moved up 0.7% in the past 60 days, indicating 213.2% year-over-year growth. The company has a solid earnings surprise history, having surpassed the Zacks Consensus Estimate in the trailing seven quarters. This trend reflects bullish analyst sentiments. Its impressive VGM Score of A is a testimony to the fact.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Let’s delve deeper into the factors influencing the performance of LP, a Zacks Rank #2 (Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Strategies to Drive Growth

Solid Residential Housing Market: Despite being hurt by several supply and COVID-related issues, the U.S. housing and related industries are benefiting from solid demand backed by lower interest rates, need for new homes among buyers for separate work-from-home space, limited inventory and job gains.

During the first three quarters of 2021, LP witnessed strong demand for all products, including SmartSide and OSB, primarily driven by the ongoing momentum in homebuilding, repair and remodeling activities.

Business Translation: LP is gradually transforming from a commodity producer to a more stable cash-generative business by increasing revenues and EBITDA mix. It has been mainly focusing on three areas — increasing the efficiency of mills by improving productivity, run time and quality through overall equipment effectiveness or OEE initiatives; applying best practices to the supply chain; and optimizing infrastructure costs. From January 2019 till 2020, LP achieved $178 million in cumulative EBITDA from growth and efficiency.

CEO Brad Southern highlighted during fourth-quarter 2020 earnings call that the company exceeded its three-year target of $165 million in cumulative EBITDA and is ahead of its growth and efficiency targets. During the first nine months of 2021, adjusted EBITDA increased $1.2 billion to $1.7 billion, primarily due to growth in Siding Solutions revenues and higher OSB prices.

Cost-Containment Efforts: Louisiana-Pacific is well positioned for segmental growth despite a challenging 2020 performance. In a bid to reduce costs, Louisiana-Pacific lowered the cost structure of its facilities through Lean Six Sigma efforts, the sale or shutdown of underperforming mills and manufacturing facilities as well as investments in technology. It resorts to a strategy of curtailing production at selected facilities to meet customer demand and optimize portfolio as well as margins. During the first nine months of 2021, SG&A expenses — as a percentage of net sales — contracted 340 basis points on a year-over-year basis, attributable to persistent cost-effective techniques implemented by the company.

Bolt-on Buyouts: Louisiana-Pacific’s business banks on acquisitions, business combinations and divestitures of low-profitable businesses. In sync with the strategy, the company confirmed capacity expansion projects at Houlton and the restart of the Peace Valley mill during first-quarter 2021. The company expects to start SmartSide production at Houlton in late first-quarter 2022. Meanwhile, it continues to accelerate the Sagola conversion and intends to start SmartSide production therein in first-quarter 2023.

Strong Liquidity & Return to Shareholders: The company ended third-quarter 2021 with $607 million cash and cash equivalents. The metric was up from $535 million reported at 2020-end. Its total long-term debt (including non-current operating lease liabilities) was $375 million at September-end, slightly down from $380 million at 2020-end.

LP has been consistently enhancing shareholders’ return through share repurchases and dividends. In the first nine months of the year, the company paid $50 million worth of dividends and $300 million to repurchase shares. LPX has committed to return to shareholders at least 50% of cash flow from operations in excess of capital expenditures in order to sustain core business as well as grow Siding and value-added OSB. In 2020, the company completed $200 million in accelerated share repurchase and paid out dividends worth $65 million (unchanged on a year-over-year basis).

Key Picks

Weyerhaeuser Company WY is one of the leading U.S. forest product companies. The company has been benefiting from solid new residential construction activity, which in turn is leading to improved demand. Also, its focus on operational excellence has been advantageous over time.

This Zacks Rank #1 stock has gained 19.2% in the past year. The Zacks Consensus Estimate for 2021 earnings indicates growth of 161.2% from a year ago.

Boise, ID-based Boise Cascade Company BCC — which makes wood products and distributes building materials in the United States as well as Canada — is aided by factors like favorable commodity wood products, pricing, and robust construction activity.

Earnings for BCC — which has gained 38.8% in the past year — are expected to grow 164% in 2021.

PotlatchDeltic Corporation PCH is an American diversified forest products company based in Spokane, WA. The company has been benefiting from the solid performance of Timberlands and Wood Products segments. It also highlighted that strong housing fundamentals and strong R&R activity point to a solid outlook for lumber pricing, given persistent growth in lumber demand. This apart, strong liquidity is expected to be a major tailwind.

This Zacks Rank #1 company’s earnings for 2021 are expected to grow 110.2%. The company has gained 11.2% in the past year.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Weyerhaeuser Company (WY) : Free Stock Analysis Report

LouisianaPacific Corporation (LPX) : Free Stock Analysis Report

Potlatch Corporation (PCH) : Free Stock Analysis Report

Boise Cascade, L.L.C. (BCC) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research