October 28, 2021

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Louisiana-Pacific Amends Guidance in Response to Coronavirus

Louisiana-Pacific Corporation or LP LPX provided an update on its operations, capital expenditures and balance sheet. Also, the company updated its guidance for long-term and 2020, due to uncertainties surrounding the impact of Coronavirus or COVID-19, governmental responses as well as subsequent economic recovery.

Tweaks Long-Term and 2020 Guidance

For 2020, LP reduced capital expenditures by 50% to $70 million, suspends SmartSide strand revenue growth guidance and expects no share repurchases.

For long-term (through 2021), it reaffirms SmartSide strand revenue growth rate of 10-12%; adjusted EBITDA margins for Siding business of at least 20%; $165 million target for growth and efficiency gains; 50% target of OSB volume from Structural Solutions; and capital allocation strategy.

LP chief financial officer Alan Haughie said, “We have a strong balance sheet. We have taken steps to maximize liquidity by drawing on our revolving credit line early, cutting capital spending, and minimizing working capital through inventory reduction and reduced production.”

Updates on Operations Due to Economic Slowdown

Due to lower short-term demand for oriented strand board (OSB), LP reduced production by at least 100 million square feet (MMSF) in April. This reduction of almost a third of total OSB capacity is done through a combination of curtailments and reduced schedules.

In siding segment, the company has sufficient finished goods inventory on hand (built for second-quarter 2020). For April, it intends to reduce production by roughly 50 MMSF with minimal disruption to customers.

Apart from production curtailments, LP reduced 2020 capital expenditure plans by 50% to roughly $70 million for 2020, coming to an average of $15 million per quarter (from second to fourth quarter). Also, it is closely examining all discretionary spending to deal with the future expenses.

As of Mar 27, LP had a global cash balance of more than $480 million, a net-debt to book-capital ratio of 18% and no debt maturities before 2024. Moreover, the company believes that it is well-positioned to manage through a variety of down-side scenarios, including substantially lower revenue throughout 2020 and beyond.

Our Take

The corornavirus outbreak has forced many shutdowns that will negatively impact the economy as a whole. Industry players like Universal Forest Products, Inc. UFPI, Weyerhaeuser Company WY and Trex Company, Inc. TREX are also expecting the negative economic impacts of this pandemic to persist in near term.

Share of this Zacks Rank #3 (Hold) company fell 40.2% compared with the industry’s 36.8% decline. The downside reflects rapidly evolving market conditions due to pandemic outbreak. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

That said, long-term housing prospects remain strong. Also, market pundits are in favor of improvement in the second half of the year. Strong balance sheet and operational agility will help LP address the rapidly changing market conditions.

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