Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2019, Louisiana Pacific Corporation Earnings Conference call.
At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need a press star one on your telephone if you require any further assistance. Please press star zero. Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your speaker today Mr. Aaron whole Walt.
Director of Investor Relations. Please go ahead Sir.
Thank you Sydney Good morning, everyone and thank you for joining us today to discuss Oh piece financial results for the third quarter of 29 team.
Hi, My name is there and hold them no piece director of Investor Relations I'm joined today by Brad Southern Oh piece, Chief Executive Officer, and Alan Hockey, Our Chief Financial Officer.
As we have done in the past we're hosting a simultaneous webcast. In addition to this public conference call. The webcast can be accessed at our website www dot they'll be corp. dot com.
We've also provided a presentation with supplemental materials to which we will refer during this morning's comments.
Finally, we filed our 10-Q and 8-K this morning with some supplemental information.
I want to remind all participants on the call about forward looking statements and our uses non-GAAP financial information during our discussion I will refer you to slides two and three of the accompanying presentation for more detail.
Our next attached to the presentation has some necessary reconciliations that had been supplemented by the form 8-K filing we made this morning, rather than reading those statements I incorporate them here in my reference now let me turn the call over to Brett Thanks, Aaron and thank you all for joining us this morning.
I'll begin today's call with a few highlights from the third quarter and an update on transformation, particularly with regard to our growth and efficiency initiatives in the context with current market environment.
Then turn the call over to Alan for more detailed look at our financial results.
First I want to acknowledge and welcome the Cold Daniel who recently joined LP as our senior Vice President General Counsel and corporate Secretary.
No call on her jurist doctor it from the from Indiana University and as both an impressive legal background and a wealth of senior leadership experience welcome to LP Nicole we're glad to have you on team.
I'm pleased to discuss our performance relative to a market that remains challenging.
Sluggish housing starts and stagnant over speed pricing.
Specifically I will talk about four highlights for the quarter first we are ahead of pace to achieve our long term targets for growth and efficiency.
Second we hit our growth targets for Smartside Strand, setting records this quarter for sales and for safe operations.
Third we significantly rationalized our wispy production.
Selling peace Valley, and curtailing LSB production in our siding mills.
Finally, we generated excellent operating cash flow.
The difficult housing and price climate I discussed during Q2 s earnings call continued into the third quarter single family starts were a little over 3% compared to Q3 of last year. However on both a year to date and trailing 12 month basis starts were lower than last year.
Despite these headwinds we continued to make progress towards our transformation goals, which I will discuss in more detail shortly.
As shown on slide five we grew Smartside strand revenue, 13% to $213 million, which is another quarterly record. We continue to grow Smartside strand revenue and volume at rates meaningfully above that of the underlying market.
For our Spi prices were down 35% and volume was down 14%.
Our business responded delivering the lowest always speed cash cost of production and more than two years, while also increasing our value add structural solutions mix.
All businesses continued to improve operating efficiency measured as OE and gain ground on sourcing savings achieving $28 million and year to date efficiency improvements for LP as a whole I'll put that in context relative to our longer term targets in a moment.
Finally, we reduced finished goods inventory about $29 million, which made a significant contribution to the $59 million of cash we generated from operations in the quarter.
Alan will walk you through the impacts for this on our on our EBITDA and the other elements of our capital allocation strategy in more detail. So I won't steal his thunder other than to point out that we completed the accelerated share repurchase in Q3 bought back further $42 million worth of shares on the open market and.
Declared a quarterly dividend of 13.5 cents per share.
Now I'll discuss our transfer nation in more detail and review our progress towards our long term goals.
The chart at the let the slide six shows US single family housing starts and Smartside strand revenue on a trailing 12 month basis compared to last year.
Quite an up tick in Q3 starts were down 3% over the past 12 months from 890000 to 863000 over the same timeframe. We grew smartside strand revenue by 10% demonstrating continued progress on a central theme of our transformation.
The table to the right shows the EBITDA generated by our transformation initiatives on a year to date basis.
Smartside growth has generated $14 million of EBITDA, so far a 2019, even including a significant increase in sales and marketing expenditures.
Improvements in OE and savings from strategic sourcing and logistics optimization have additive further $11 million for a total transformation EBITDA impact in siding of $25 million.
Alan will share more details in a few minutes, but the net result of this is a 19% EBITDA margin for siding four quarter of which we removed wispy production from its mills and significantly reduce finished goods inventory.
In addition to sales growth the siding business set another record by ending Q3 without a single Osha recordable injury.
Safety as a core value at LP, It's about making sure every employee returns home safely to their families at the end of the workday I want to commend the siding business for an overall good quarter.
The let's be market did continue to deteriorate in Q3, our average selling price for our with Spi in Q3 was down 35% compared to Q3 of last year Wispy sales volume was down 14% with our decision to idle peace valley being the largest single contributor.
DSP business responded to these market headwinds with focus operating discipline and outstanding cost control.
Resulting in the lowest cash cost of production in two years and the lowest cash conversion cost in five years.
As a result, despite the lowest oest big market prices in four years, the business essentially broke even for the quarter.
It really rarely feels like a wind to breakeven. So let me briefly put that in context by comparing the results for the last quarter during which we experienced similar I will speak pricing.
In Q3, 2015, LSB prices were essentially identical to Q3 of this year.
We made about 100 million square feet last August be this quarter than in 2015, but remember that in 2015, we were still operating Dawson Creek as an hour female and we were still running peace Valley.
These two males represent a bit over 200 million square feet less capacity available in Q3 2019.
So while capacity was down by 200 million square feet production only fell by about half that amount.
We have said in the past at OE improvements would be like finding a mill hidden within our existing network. We are seeing that impact in this quarter.
In terms of product mix, we produce more of our higher higher value add structural solutions products in 2019 than in 2015.
You would expect this to increase both our average sales price and our cost of production.
Prices were in fact higher this year, but costs were actually lower in other words compared to 2015, we produce less total volume with a richer mix that earned us a higher price and with efficiency improvements that resulted in lower actual production cost.
This comparison to 2015 demonstrates the transformation of the LSB business through growth the structural solutions.
We improvements operating discipline and relentless cost control.
Wispy team is executing on our strategy and it shows in their results.
So far in 2019, the LSB business has contributed $7 million of EBITDA from growth in $14 million from efficiency for a total of $21 million towards our transformation goal.
When added to the 25 million from siding in the 3 million from ADW pay in South America, we have achieved $49 million of transformation EBITDA impact year to date.
Our target for 2021 is a cumulative 165 million.
We are a quarter underway through the three year period than we have achieved 30% of our goal. We still have work to do but I'm proud to report that we are ahead of pace.
I've talked about our business results at a high level now I'll talk about our products and link them for strategic transformation.
Our products provide a range of solution.
The challenges faced by homebuilders in homeowners are Smartside family the strand siding products are extremely durable and attractive.
Our available across a broad product offering including lab panel tram and softened.
Our structural solutions portfolio of products are key components to structurally sound and durable home.
Techshield radiant barrier can increase the energy efficiency up a home where the logic helps protect against water intrusion.
Legacy flooring provides industry, leading strengthened stiffness flameblock helped slow spread of a fire should want to occur.
Homebuilder site labor scarcity as a major impediment to housing growth.
Our value added products address this ongoing labor shortage by combining multiple stetson two of the single product system. For example, whether logic eliminates the time cost in mass associated with Housewrap.
Smartside is easy to work with that install refinish side incomes and extremely durable fact, refinish saving the homebuilder or remodel the step of painting after installation.
Our strategy is focused on growing these type of products organically and through M&A.
Last quarter, we announced the acquisition of PSPI now known as LP Green Bay, our entry into pre finished strand siding.
So it had no impact on Q3 results last month, we acquired a second pre finishing facility now dub LP Saint Louis.
Our investment in Integra, and all site prefabricated construction solution was motivated by the labor scarcity constraints impacting housing growth.
In tech or has begun operations at the new automated facility in Modesto, California.
We're early in the startup curve, but happy to report that market interest and acceptance of this product and solution is being validated as more product becomes available.
As we transform ourselves into a provider of value added in depreciate differentiated solutions, we're positioning ourselves to grow and thrive. Despite the ebbs and flows for the housing cycle.
That is why we rebranded Ourself LP building solutions, our transformation is all about pushing ourselves and our products to solve more problems and add more value.
Of course, our improvements in efficiency and growth above underlying market growth does not happened in the back.
We are transforming our ability to deliver top tier returns to our shareholders and value added solutions to homebuilders and homeowners because of the commitment and dedication of all 4800 LP employees.
We have talented and high performing teams driving every aspect of our strategic transformation and I'm immensely proud of their dedication and commitment.
The current market may be sluggish our transformation has anything but.
With that ill turn the call over to Alan for a detailed review of our third quarter results.
Thanks, Brad in addition to reviewing the consolidated results for the quarter I'll be providing high level revenue and EBITDA bridges between this year last year, but the siding and LSB segments and briefly updating you on the progress of our capital allocation plan.
Throughout my prepared remarks, I'll be referencing specific pages of our earnings presentation, which has been posted on our Investor Relations website.
So first let's move to slide seven for review of the third quarter, starting with the consolidated income statement.
Net sales fell year over year by $134 million.
The combination of low SB prices, which are down and average of 35% and commodity LSB volumes, which were down 14% account for $164 million of the revenue decline.
However, this was at least partly offset by the 15% growth of Smartside, which added $25 million to the top line.
Gross profit fell by $138 million.
Principally due to the flow through of the LSB price decline.
The benefits from productivity and efficiency improvements were partly offset by lower fixed overhead absorption.
As a result to downtime and a quite significant reduction in finished goods inventory more of which in a moment.
Selling and administrative costs to $58 million increased by $7 million over the prior year.
And as with the first and second quarters. The principal driver the increases are continuing investment in sales and marketing consistent with our growth strategy.
Other charges and credits of $9 million comprised of $5 million impairment charge and $4 million of severance charges $2 million of which relate to the curtailment of LSB amount in peace Valley British Columbia.
And $2 million for reorganizations within our corporate offices.
Non operating income and expense of $5 million includes net interest charges of $4 million.
Another sundry items and net interest expense is a higher than last year due to lower interest income as a result of significantly lower cash balances given almost $600 million of share buyback activity over the last 12 months.
So after a tax provision of $5 million, we generated $2 million of net income.
Removing the impairment and severance charges and normalizing the tax rate results in non-GAAP net income of $10 million for the quarter, a non-GAAP earnings per share of eight cents.
The accelerated share repurchase initiated in the first quarter was completed early in the third resulting in the delivery of a for the full point 4 million shares. In addition to the 12 million shares delivered at inception.
On this results in a diluted weighted average share count of $122 million for the third quarter earnings per share calculation.
Now the capital allocation plan established in February of this year was in part made possible due to LP, having a coal business capable of generating healthy EBITDA irrespective of LSB prices.
And for the most part irrespective of housing growth I'm of course, referring to the siding business and smart site in particular.
The tables on slide eight sharing revenue and EBITDA by segment help illustrate this point.
The first three columns show the sequential quarterly results. So far in 2019 with the final call them comparing the third quarter of 2019 to the third quarter 2018.
So over the first three quarters of this year, citing revenue has grown from $236 million in the first quarter to tune to the $58 million in the second $1 million to $259 million in the third.
In particular smart site side strand that revenue was 7% higher in the second quarter than in the first.
And then 7% higher again in the third quarter than in the second.
Im admittedly. This includes some benefit from the much price increase and seasonal demand patterns.
The quarterly EBITDA Society has also risen sequentially, even after a growing investments in marketing and a diminishing EBITDA contribution from the LSB produced at the siding Mills.
Signing is the only segment to exhibit this trend of consistent sequential quarterly revenue and EBITDA growth. This year, which is why its share of total company EBITDA has risen from 74% in the first quarter.
To 87% in the second and to 96% in the third.
In short the siding business is the reason LP has remained profitable join us down cycling LSB prices.
But before discussing siding and that must be segment's performance in more detail I'll briefly cover MWP in South America.
80 bps third quarter revenue of $105 million is $4 million lower than last year, due primarily to address pricing, which flow directly through to EBITDA, which is consequently $5 million lower than prior year.
Revenue in our South American business was impacted by the weakening of the Chilean peso against the dollar which dampened the benefit of local volume increases.
And the Okay economic climate also drove prices and hence EBITDA slightly lower by $1 million.
And as a reminder, we now allocate a significant portion about 75% of our hit the two unallocated SGN eight costs to the businesses to further drive line management accountability.
We reconcile the quarterly detail for 2018, and an 8-K filed with the FCC in February and it is against these recasts 2018 numbers that all EBITDA comparisons of base.
Slide nine shows the third quarter revenue and EBITDA for citing.
The Bosnia multiple represent the year over year, EBITDA impacts where applicable the corresponding revenue changes as shown in Orange, Texas delivered EBITDA Abbas.
And Weve group the growth in smart sites trends, the marketing investments in the efficiency savings together under the heading transformation impact in order to demonstrate our progress and it's the same numbers that was similar rights on the at today basis earlier on slide six.
There are quite a few items to cover on this water for but I'll start with the overwhelming highlight which is of course smartside strategy area growth of 13%.
I mean, Brad has already said it but I'm going to say it again, we had another quarterly record for Smartside revenue.
However, as disclosed in the append to cease to this earnings deck volume grew by 14% and gross prices by 1% rebates of around 2%, including some catch up from the first half of the growth net pricing to a negative 1% compared to the third quarter of last year.
This is in Stark contrast to the second quarter this year in which volumes reflects the prior year with prices 3% higher.
On a year to date basis.
Smartside revenue is growing 10%, comprising 7% volume growth 3% from pricing.
This small side growth generated $7 million of incremental EBITDA, which was almost offset by $5 million of incremental year over year marketing spend and I must emphasize that our investments in marketing is a long term enabler for growth and should not be expected to correlate with growth in the period in which it is spent.
Having said that.
The marketing costs or at least offset by efficiency savings of $5 million generated through a combination of OE improvements and strategic sourcing gains.
As a reminder, joined the third quarter was 29 team our Dawson Creek mill in British Columbia was producing MSP, whereas this year. It is ramping up production has a newly converted siding mill and not producing any LSB.
As a result of this conversion, we bought $3 million of Unrecovered labor and overhead this quarter compared to 2018, which is an improvement on the $9 million in could in the first quarter and the $6 million incurred in the second.
The curtailment of LSB production in siding reduced segment revenue by $12 million and EBITDA by $4 million.
Although the EBITDA loss was much the price.
Im now going to address the bar labeled.
Okay.
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Thanks, everyone. Good morning, Thanks for the details and congratulations on the progress.
Brad Alan if you could talk a little bit quickly on siding pricing and realization and you'd mentioned that there was a swing in rebates from Twoq to Threeq, you, which explains a lot of the.
Change in price realizations could you comment at all as to whether there was any change within mix with whether you responding to any competitive activity wouldnt appear to be at least from your formal remarks on volume but.
For what it's worth realization or a little bit lower than we were modeling and just want to see if there's anything else beyond rebates in that and that had a quick follow on.
Yes.
George mix was an issue in the quarter.
We did.
Higher portion of our sales go into our retail retail channel, which tends to be more skewed to our panel products, which is a little lower pricing or Latin premium. So there was definitely a mix component Alan talked about the rebate catch up and then.
I would say from a.
Other discounting.
And on sales incentives that were pretty normal for what we're we're doing this time of year, but mix definitely played a component in it along with the rebates.
So it would be fair to say that the one in your head a little bit more in a way of retail because of just what was happening in terms of starts versus.
I guess DIY and repair remodel activity would that be what was driving that and it sounds like you weren't you didnt need to respond.
Significantly if at all.
Measurably to any increase in competitor capacity in the in deciding market, which obviously has been an ongoing question. This year for your business.
Georgia, I would say as far as competitive situations as it relates to Latin trio, those usually isn't something that is.
You know priced at point of sale. So it's not like you we feel that in a quarter. It's more reflective of what we have to do on the rebate side. So.
We address the competitive situation to you rebates and incentives that show up kind of.
Now they show up in our net pricing that we report, but but more of a sub subtracting from our gross price that immediate type of responses to commit commit competitive situations.
And just the original part of your comments I, it's true that.
Well first of all we've had really good growth the retail this year.
In relative to what we're seeing an overall housing growth.
There is a little bit of us.
Skewed towards selling more into retail relative to what we've done in the past from a growth standpoint.
Alright, Thank you Brad I'll turn it over.
Thank you and our next question comes from Chip Dillon with vertical research. Please proceed with your question.
Yes, Thank you very much and appreciate all the details.
This can be I guess for either Brad or Alan.
You mentioned I think if I heard you right that.
If we assumed a 190 north central price that you cash from operations might actually exceed the 80 million you originally modeled which which obviously attests to the efficiencies you've gained the question I had though as we've seen in recent months, a pretty big divergence between southeast and.
Western Canadian LSB prices from that benchmark. So I didn't know if you could add some color to how maybe that might make it more of a challenge or maybe won't.
As the case might be.
Well I would say from a guidance standpoint, we havent got we're sticking with Alan that said, we Havent got to the point, where we're differentiating between the regions, but no question chip there has been that divergence, especially prior to this last couple of weeks of price movement.
And if you think about.
The capacity, especially that we took out of our siding mills that are.
Usually selling into that north central region.
There has been.
It's been less competitive than in the regions that that were had lower pricing.
I'll now so I think some of these recent moves around capacity.
Coming out of the market is is going to have pricing across the regions, even out a little bit more than what we've seen in the prior three or four months.
But from from us being refined enough to make that distinction on the on the guidance based on regional differences were okay stick with what we've said before.
Okay. That's super helpful. And then just one quick follow up.
You now I guess are not making or at least in the third quarter always spi in the siding segment, which I assume is.
Reflective largely of Dawson.
Making it up its learning curve, but if you could talk a little bit about how we could see.
The.
Oh, a speed production in that segment evolve as you do your next conversion, obviously I would imagine that you would continue to make oh must be at your siding mills.
As you until you fill that mill up with citing demand.
Yes, its proportionally backup and just this gives us all grounded on our capabilities for always pay production in siding. So we can currently mico us be.
Pre locations Hayward.
On in Dawson.
Okay, that's where we can might go as big competitive I guess technically we could make it at all the other mills, but in reality those are the three places that we put it must be capacity, but with that said.
Especially on the delivered basis when you look at our current network.
I was females in are always be business those would be the three highest cost places to make wispy in our current system overall, so as we looked at rationalizing production this year.
As you know as an absolute need for what we needed to do we ran a network optimization and that's what led us to the decision to remove the lowest be from those operations. So that we could put the volume there into lower cost I must be assets like so go up.
So so.
That is the removal of always be volume from our siding is is in response to our current market conditions.
Obviously, we would rather be running whispering in those facilities.
When we speak pricing allows us to do so so when we when we convert the next mill is a little bit depending on.
That mill is but we would certainly.
Aspire to having always be flexibility at the converted mill and if not retaining and in the rest of the smartside system. So that we could balanced production across the whole system.
Thank you and our next question comes from Mark Connelly with Stephens. Please proceed with your question.
Thank you Brad Brad recent stories are our blending old people for not moving out of their houses and.
It seems to me that if that's the new trend than it simply means that the market needs more low priced homes than high priced homes and not enough is getting built so if that is the new trend how does that affect your profitability interwest be inciting I assume you take a modest hit on square footage, but but would there also be a material shift in your side.
Demand if houses got smaller.
Well, certainly if a house a smaller it's going to use less so SP inciting them, but this but by definition.
Is your average house materially bigger.
Right now I mean is it going to be a material hit to you. If the average house in America gets bigger where do you sit on that curve now.
Okay.
Maybe just to clarify the question a little bit.
Well I'm just trying I'm just I'm really just trying to get a sense of how big your average.
Siding start is now is it materially bigger than than the starter home or.
I'm just trying to get a sense of is just going to big issue.
Gotcha, Okay. So I would say are the average home that Smartside goes on today is bigger than the starter home.
Typically start or I mean, I am I going to real generalization, but typically starter homes were vinyl and so the as you know as you move up the value equation on home size.
Where we tend to play you more competitively from a hard siding standpoint, so yes, so yes I agree that.
This is just my experience, but I would agree that the average smartside home is larger than.
Well, maybe not above average, but it's certainly not starter home typically a starter home.
So as if the market was to swing to a heavy a lot bigger proportion of smarter starter homes been the size of the home would be smaller and we would need to be more competitive there against vinyl.
In the way you get competitive against vinyl not necessarily has always been price by offering a product offering that can be can be beneficial to a homeowner in a starter home and thus the move into pre finish in some of the other specialty skews that we're working on in our Smartside business.
That makes sense just two related question in general are the siding margins that you experience and repair and remodel significantly different you talked about Rebating I'm, just wondering do spend materially more marketing in the our and our channel than you do in the new home channel.
We we definitely spend more in the Oren our channel than in the new construction Chen or the retail channel.
Without a doubt that it's more of a consumer sale than what we've seen in new home construction.
But I will say also there's probably a little richer mix because there is theres going to be much more lap and premium compared to panels. So we do benefit on a margin in pricing standpoint because of mix.
And as we move into pre finished and get.
And able to retain the incremental margin associated with a pretty finish solution was going to play really well and repair and remodel the opportunity we look at repair remodel as a.
Higher cost to serve but also higher margin at the end of the day because of the.
The the pre finished opportunities.
That exist there.
Thank you and our next question comes from Keaton Mamtora with BMO capital markets. Please proceed with your question.
Thank you first question right. Our island can you talk a little bit about.
Well, if you are always be order books and.
What you'll see in terms of inventory in the China for at this time of the year.
Yes, sure. We're we're out of two to three weeks, which is normal for us keeps in right now.
As everybody on this call on notice we had had a really nice rally the couple of the last couple of weeks and I'll just be pricing.
The reason one of the the up from a demand standpoint. The reason for that rally was inventories were very low two or three weeks ago.
And I think there was a scramble to rebuild those as some of the production came offline.
And so there has been.
Some return to normalcy in and inventory at the in the channel, but I would say, it's currently still below normal for this time of year, but because the distributors and dealers are just play in it so close to the best.
Up to two or three weeks ago that theres been a little bit of scrambling in an attempt to rebuild inventory levels.
Got it Thats very helpful. And then just one other question on the engineered wood business.
Talk about how you're thinking of that business loans.
In Europe EBITDA.
Through the first nine months instead of down there is new capacity, that's coming into the market in the U.S. out.
Just talk about.
Is this business really corp will be.
Well its core to LP as I've mentioned before the.
The the distributor base that we sell our E.W.P. into or the same distributors the same customers for structural solutions and for our siding business and so and it does make the portfolio offering that we have to the channel more relevant by being in DWP business.
But as I've also said in the past that's no excuse for not earning the cost of capital and so we continue to work on that within the business you know keeping that we've done a lot around history and I reduction we've done a lot around pricing in that in that business and we continue to work within our mills with our OE initiative.
To drive efficiency so.
Where we do definitely have a target returns that business getting to where it's returning the cost of capital.
And we've made good progress against that goal, but there's still work to do.
Thank you and our next question comes from Mark Weintraub with Seaport Global. Please proceed with your question.
Thank you.
Couple of real quick ones.
First if you could just let us know since you're not making LSB in siding segment anymore.
For now in the fourth quarter and I'm. The first half of this year what would it the transfer to let's be segment have been.
And in those periods.
It was 4 million in periods of standard give it as being.
Looking backwards through time a million dollars less each quarter. So about 3 million in the second is 2 million of something lineup.
Okay, and the fourth quarter of last year.
Hi, Alex I'll get back to you on that Okay sure and then.
Second our debt finished goods inventory now at levels, where you want them to be in the fighting business.
Yes, yes, great third.
Can you update us on the rebates are we still seeing is it fair place to expect we're still at like those 2% type rebates or have had market dynamics changed at all since the.
In the last few weeks months.
Well I mean.
Market dynamics Havent significantly changed I mean, the rebate the majority the rebate in the third quarter was actually had sort of a catch up a year to date basis. So the pricing and the rebate impact if you take Q3 as a discrete quarter was a little better than it looks.
Thank you and our next question comes from Sean Stewart with TD Securities. Please proceed with your question. Thanks, a couple of questions are you at a point where are you can provide any guidance on 2020, Capex plans and maybe some detail on specific discretionary initiatives.
Yeah, I mean, it will be lower then.
Projected.
Maximum of Onesixty in 2019 at the moment I would say a very safe number to work on for 2020 is about $140 million.
And would there be any next citing conversion capital and that number that nothing significant in that now.
Okay. Second question there was referencing the notes to a 5 million dollar impairment to a Canadian facility that you expect to sell within the next year.
Any context, you can provide there.
No not yet for confidentiality reasons.
I would say, it's a it's a small facility that we're looking at that when most likely against disposal.
Okay. Thank you very much.
Thank you and our next question comes from Steve Chercover with D.A. Davidson. Please proceed with your question Yep. Thanks, Good morning, everyone.
So I think maybe keaton touched on why prices are down in engineered wood, but on a percentage basis profits are down more than revenues.
Which I think it's surprising since presumably the cost for us be used for web stock is down a lot can you help reconcile that.
Well.
Huh.
I think I would say that the.
Oh total raw material cost DWP represented by when stock small enough that that that impact is not surprising to us.
There's a significant amount of raw material other than that wed stock and so that while the.
The cost reduction of the would be helpful to our two or I joist manufacturer has less of an impact on on the other components of the either BT business.
Okay. So is it fair to say that really didnt run that well in the quarter.
I'm, sorry, I Didnt catch that can you repeat the question I'm just I I just operationally I mean, clearly you've made some good progress.
Annualized fee with the lowest production costs in two years, but you couldn't say the same thing for E.W.P. is that accurate.
That ran well it is accurate we cannot say we might as much progress in a WP as we have an hour space and I will say.
Just to kind of debt dive another level of detail, we still the LSL production in and.
DWP is a very.
Volume sensitive.
Well, it's a big mill has a lot of fixed cost and so as we the mix component of that product into our WP business can have a have a pretty big impact on a on overall profitability for the quarter. Our E. W are I joist and ill LDL business remains okay, but we do have.
Quarter to quarter swings and LSL production that can really impact earnings.
So I am saying when it looks funky.
Sure, Steve it's usually a mix change that's associated with LSL.
Okay, and then just one on the transformation.
You know SB I mean, you've basically founded.
Afraid you.
But mills worth of capacity.
Thus far.
And you know we still had another two years to go do you think theres another mill to be found.
There's a lot opportunity there is a lot opportunity in their Stephen we you know as we've talked about in the past.
Theres minimal capital associated with finding that mill them into some some capital is associated with it.
Primarily just running really well and and as you know so all you really doing is adding variable costs. So we're really focused on our growth in our West Bay being a result, we then there's still a lot of room to answer your question.
Thank you and our next question comes from Paul Quinn with RBC capital markets. Please proceed with your question.
Yes, thanks, very much good morning, guys.
Paul and eight just high level question on on Smartside, if we could break down that end use demand between home and I guess outside the home and then within the home what portion is new home on what portion is our in our.
So.
We said for long time about 40%, we estimate about 40% Smartside volume goes into new home construction and that leaves 60%.
Obviously undermines 40 60 about we've got 20% to 30% of the of the remainder going into a retail into the shed segment, and then 20% to 30% into repair and remodel in some form or another.
And those are you know, we don't have direct visibility into that because it goes into distribution, but that's our our estimate on where the product ends up.
Okay. Thanks, and then.
As Datsun's in start up maybe can you give us an idea of timing for the next the mill conversion does that take us at least through 2021.
Yes.
Paul I think we'll be talking probably more specifically being a position late next year to talk specifically about location and then as Alan mentioned in the Capex guidance. When we would currently thank were will begin spending capital alone on the conversion in 2021 for a lot.
2021 early 2022.
Production.
Thank you and we have a follow up question from Mark Weintraub with Seaport Global. Please proceed with your question.
Thank you.
One quick one on marketing expense.
I think you mentioned that you're kind of at high point seasonally what type of expectations in terms and the trajectory for marketing should we be thinking about in siding.
Just in general continued increases I mean, the marketing is supporting our driving to repair and remodel and pre finishing so as we've said.
We had in continuing to grow siding and continuing to invest in that growth, we have somewhat sufficient confidence in it. We believe the returns on these marketing dollars will be excellent. Okay, and then lastly, I'm in the.
Slide if you can you talk about.
[noise], returning about 50% of cash above and beyond what's needed.
To sustain that core business in growth siding.
Can you give us.
Is there any sense you can give us as to how to think about what that number to sustain.
The business and grow siding.
Yes.
Yes, certainly and I'm, it's somewhere it's bound and 20 $230 million here was a rough estimate the included necessary maintenance and the relevant elements of growth capital.
Super Thanks, so much.
Thanks.
Thank you and we have a follow up question from chip Dillon with vertical research. Please proceed with your question.
Yes, just an update on your plans for for buybacks you would.
Listen I think a year or so ago. When you first started talking about your new at capital allocation that.
You would eventually incur a meaningful amount of net debt, but as long as she had a revolver in place you were good to do that so I just was curious if you're continuing to.
Well you know what you kind of some guidance in terms of how much you might be looking to buy back in the next quarter to next year.
Well.
That's a lit.
Pushing me to say the them all that I'm willing to say at the moment chip. So you know we will be completing the $600 million buyback, obviously and by year end.
Yes, okay.
So I did thereafter.
We have we UBS so when we when we had.
At least our fourth quarter results, that's the point to which I'll give further clarity on how we see.
What I, what we see on next tranche or development being.
It's a little early for me to come out with that right now.
Alright, Thats Super helpful. One just quick follow up.
That means you basically have 120 left for the fourth quarter was there any reason you couldn't have been buying back stock up till now I'd I'm not sure what you're like Lockups, our or require periods or.
No I don't really other them post the last earnings call, but I will say this and.
You know two days ago, the share price was 20 929 change $30 also.
I don't consider the difference between $30 yesterday in $24.
We bought a.
Hi, guys back at let me over the life of the third quarter is being a meaningful difference I still consider this stuff to be significantly undervalued.
And the a our buyback activity is not in any way relates to an assessment of the share price I don't consider the share price to be high.
Understood and your modest congratulations.
[laughter].
Thank you and I'm not showing any further questions. At this time I will now turn the call over to air and hotel direct their of Investor relations for any further remarks.
Okay. Thank you everyone. A this concludes the earnings call for Q3, we will look forward to speaking with you again sometime in February to discuss our fourth quarter results.
Back over to use it.
Ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.