Q4 2020 Louisiana-Pacific Corp Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the Louisiana Pacific Corporation fourth quarter and full year 2020 earnings results Conference call. At this time all participant lines are in a listen on.

And the mode. After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speakers a day, Erin <unk> director of Investor.

Relations. Thank you. Please go ahead Sir.

Thank you operator, and good morning, everyone. Thank you for joining us today to discuss Lp's results for the fourth quarter and full year of 2020 as well as our Q1 outlook. My name is there and how well.

And I'm Lp's director of Investor Relations I'm joined today by Brad Southern Lp's, Chief Executive Officer, and Allen Hockey Lp's, Chief Financial Officer.

We are hosting a simultaneous webcast. In addition to this conference call and we have uploaded a presentation to which we will refer during this morning's discussion. We also filed our 10-K. This morning with some additional information all of these materials are available on <unk> Investor Relations website, Www Dot Investor Dot LP Corp, Dot com slides.

Slides, two and three of the accompanying presentation provide notices and detail about forward looking statements and the use of non-GAAP financial metrics.

The appendix of the presentation also contains some necessary reconciliations that are further supplemented by this morning's 10-K filings.

Rather than reading these statements I will refer you to the supplemental materials and now I will turn the call over to Brad.

Thanks, Erin and thank you all for joining US this morning to discuss Lp's result for the fourth quarter and full year 2020.

As you all know the housing and repair and remodel markets that LP serves.

We need to show remarkable resiliency, despite the ongoing COVID-19 pandemic and demand for our products has remained very strong.

Q4 was another record for <unk>.

<unk> increased by 30% to $259 million and siding EBITDA nearly doubled year over year to $77 million.

OSB prices remain exceptionally high and throughout the quarter, resulting in $250 million and EBITDA for the OSB segment.

All business segments continue to demonstrate outstanding cost control as a result LP into $2022 8 billion and sales.

$981 million and EBITDA of $660 million and operating cash flow and $4 31 and earnings per share.

It was a very strong ending to a uniquely challenging year at least LP well positioned for continued growth.

Two years ago, we introduced our strategic transformation plan for LP.

That plan included a three year target of $165 million and cumulative EBITDA improvements from growth operating efficiency and strategic sourcing.

Today I am proud to announce that we have exceeded this target a year ahead of schedule with $177 million and cumulative impact of Liberty and only two years on.

I want to stress that we measure these results using normalized OSB and raw material prices. So this achievement is not merely an artifact of unusually high OSB prices or favorable movements and the cost of logs for resins.

Rather it is the result of the incredible dedication creativity and greater of our sales operations logistics and sourcing teams.

And having achieved significantly greater efficiency and will not only on hold those gains and raise the bar, we continued to drive our growth and value creation strategy.

Good day to build on our progress and to accelerate Lp's transformation and I'm pleased to announce a series of interconnected strategic initiatives.

First in order to supply growing demand, we are announcing a two phased capacity expansion strategy for smart side.

Phase one will be the conversion of our mill and Houlton, Maine from the production of laminated strand lumber and OSB. This morning.

Holton is ideally located for smart side production because of its access to and ample and sustainable Aspen Wood basket and its proximity to the large and underpenetrated repair and remodel market along the east coast of the United States.

And we will add roughly 220 million square feet of smart side capacity with production beginning early in 2022.

We hope to convert into smart side, we will cease MSL manufacturing day or sometime this year.

A change that has contributed to our broader reevaluation of our product portfolio.

Due to the loss of Ela sales from our DWP portfolio, coupled with our inability to consistently earn the cost of capital and DWP, we have decided to evaluate strategic options for our remaining engineered wood products business.

Phase two of the smart side capacity expansion strategy will be the conversion of our OSB mill and scold, Michigan.

<unk> is currently producing OSB and we'll continue to do so until it is converted the smart side and manufacturing.

Although the precise timing is yet to be determined.

And for Smart side continues to grow at historic rates, we will need to begin to work on the <unk> conversion soon after siding production begins and hold.

This will require OSB production its ago went to see sometime in mid to late 2023.

These two new facilities will add roughly 520 million square feet of additional smart side capacity and remove roughly 670 million and state of OSB capacity. There is still a long runway for further signing growth. After these conversions with several potential expansions of existing facilities as well as other.

Conversion opportunities and addition to serving our growing customer demand. These conversions will also position the mills for years of growth and improved stability, which will benefit <unk> and <unk> employees their families and our broader communities.

We're thrilled to welcome LP hold into the smart sized family meals and look forward and converting to Golar soon after.

And finally, since we idled, our peace Valley, and OSB Mill and Fort St John and British Columbia, We have kept the mill ready with the intention to reopen it when we were confident that sustainable market demand would be sufficient to absorb its capacity.

The consensus for 2021 housing starts has climbed from the past several months and is now on the year, one 5 million.

On a seasonally adjusted basis December starts were $1 6 million permits for $1 7 million suggests and continued strength in new residential construction.

At these levels of storms with channel inventories extraordinarily thing it is clear there on customers need additional volume.

Looking further into the future long term demographic data and a structural under supply of housing suggest continued tailwind for demand.

As a result, we have begun the process to restart production of OSB and Peace Valley.

Our balance for peace valley to become a low cost later in the industry.

Our flexible and disciplined operating strategy remains unchanged.

Starting peace valley and increases our ability to meet and enhance customer demand and will add to our strategic and for balancing OSA supply and demand with discipline agility and efficiency.

With this production and tax shield and long lengths Peace Valley will also help us reach our goals from structural solutions as a percentage of total volume.

We have been keeping the mill ready for an eventual restart cost resumed production and shall not exceed $12 million we've.

We've begun the necessary engineering capital and rehiring planning to support the right start.

Earliest expectation for first press load is sometime in Q3 full production capacity and about a year later.

We will continue to monitor the housing outlook.

<unk> demand and channel inventories to gauge and proper timing from the restore.

As I said previously continued side and growth will acquire more frequently on conversions as result, this pace valeant resumed full production and the low cost later it enables our phased capacity expansion plans for smart side, while maintaining our current OSB market share.

Slide seven of the accompanying presentation shows more detail on our phased and integrated capacity strategy.

Blue and Orange lines show Lp's expected, OSB, and smart site capacity over time and millions of square feet.

Holton shutdown this conversion to smart side and its ramp up to full capacity are shown as a C and E on the graph.

Hey, Stanley will begin production and point be sometime after holton ceases, making both <unk> and OSP and preparation for conversion.

Hey, stylish and then reached full production on a year later at point B.

So golar, Michigan will be the next siding mill after Holt.

Skull and conversion will add roughly 300 million square feet of smart side capacity and remove roughly 420 million square feet of OSB capacity.

While the exact timing of seagulls conversion to smart side is still to be determined the graph illustrates initial smart sock production in the second half of 2023, which is consistent with an annual demand growth rate of 11%.

And for all of these steps is based on the assumption and I will stay demand and smart side growth continue debt capital projects are complete and on schedule.

Should demand slow, which we do not currently anticipate and.

All of these steps could be delayed with minimal cost.

There is little room to significantly accelerate the conversion or the pace valor restart as both of these projects are already underway.

The <unk> conversion on the other hand could be brought forward somewhat should demand growth accelerate.

The plan once fully implemented will increase total smart side capacity by roughly 520 million square feet or a little over 30% and.

And net effect of Houghton and <unk> conversion and of Peace Valley restart will increase Lp's OSB capacity, Alaska and 100 million fee.

More importantly, each of these initiatives will accelerate lp's ongoing transformation.

Our portfolio and small size and structural solutions and improve our operational agility as we meet increasing customer demand.

2020 was a year of incredible hurdles that uniquely tested our ability to adapt and work together.

However, I am incredibly proud of how LP employees came together to not only survive and thrive as a company.

On the face of adversity LP delivered strong results.

Turn our attention to a new year, we are focused on meeting customer demand royalty products.

We're excited to share on plans to execute on multiple year swaps on capacity expansion project and restart pace valleys and part of our discipline and agile approach and OSB operations. This acceleration of our growth and value creation strategy, we will build on lp's growing momentum as we transform into a building solutions later.

And with that I will turn the call over and to our hockey for more details.

Financial results and an update on on capital allocation strategy.

Thanks, Brad.

Eight shows summarized results for the quarter, which on a very clean and straightforward net.

Net sales increased by 60% to $860 million, primarily due to 30% growth of smart side and $246 million of high and OSB prices.

The resulting EBIT of $328 million.

Seven times last year's results.

And translated nearly dollar for dollar to operating cash flow of $321 million.

With the benefit of $45 million and tax ratios.

We further low and our year and share count to 106 million shares after spending on <unk> $71 million and the quarter to buy back a little over 5 million shares.

And with Texas is the only meaningful adjustment to net income adjusted earnings per share was $2.01 compared to U S. GAAP earnings per share of $2 34.

Slide nine is the same data for the full year and is much the same story.

Just with bigger numbers.

Net sales increased by 21% to $2 8 billion and EBITDA increased to $781 million, which is four times last year's results.

We grew small side revenue by 15%.

And $481 million of revenue and EBITDA from high and OSB prices.

And generated $659 million and operating cash flow.

Capital spending of $77 million ended up being about half our original pre COVID-19 guidance for 2020.

The vast majority of the $77 million spent on sustaining maintenance, which typically runs and the $80 million to $100 million range per year.

As a result, we ended the year with $535 million and cash after paying $65 million dividends and $200 million to repurchase shares.

Slide 10, and as detailed on to the EBITDA impact from growth and efficiency through Lp's ongoing strategic transformation.

As Brad said, we exceeded on three year target of $165 million and cumulative EBITDA impact early with $107 million growth $71 million from efficiency.

And this is a result of a truly remarkable performance by our sales operations and sourcing teams, especially given the challenges of 2020.

But this is a race with no finish line. So we intend to hold these gains and add to them and 2021 and beyond.

Slide 11 shows and ultra high level roll forward of revenue and EBITDA for the fourth quarter compared with 2019.

The main takeaway here is that higher OSB prices and 30% smart side growth tell us all we need to know about the quarter everything else basically nets to zero.

Having said that and while not shown here.

Americas segment had a record quarter with $50 million of sales and $13 million of EBITDA, representing increases of 32% and 62% respectively, even if the adverse currency movements.

The waterfalls on slides 12, and 13 detailed day year over year revenue and EBITDA growth and the siding and OSB segments for the quarter slide.

Slide 12 Curtis siding.

And broad strokes, the 30% revenue growth for the quarter, it looks likes and 95% increase and retail revenue, a 20% increase and distribution revenue.

And with an incremental margin of 51 on each additional dollar of revenue is $59 million, a small site growth could use $30 million of additional EBITDA.

With low SG&A and higher OE and more than offsetting the discontinuation of fiber.

And segment EBITDA margin increased by 12 percentage points to 30%.

I should mention here that 2021 will be a year of increased investment in selling and marketing and preventative maintenance to support future growth. So this margin is probably something of a high watermark. However, given the operating leverage and pricing power inherent in the business. We are raising our long term targets of siding.

EBITDA margin by five percentage points to 25%.

On slide 13, very high market demand for OSB pushed prices to record levels, and a $246 million of revenue and EBITDA on the quarter.

What drove that overshadows, both the continued excellence of our cost control and the growth of structural solutions, which rose to 49% of total OSB volume.

We are therefore, raising our long term target from structural solutions volume as a percentage of total OSP volume by five percentage points to 55%.

However joined the fourth quarter, we experienced interruptions and the supply chain from MDI.

I'm Mary resin used and the manufacturer of smart side OSB and lso.

These issues were triggered by the impact of severe weather on MDI and manufacturers and the U S Gulf Coast area.

While MDI supply remains constrained, we are prioritizing MDI and smart side substitute and alternate phenolic resins for OSB and curtailing production until availability improves day.

Use of phenolic resins, and OSB low wind speeds, which we estimate lost is $8 million of potential revenue and $3 million potential EBITDA and the fourth quarter.

Turning to slide 14, and some commentary on 2021.

And you might expect given on capacity and growth plans and this will be a year of investment.

And the Houlton conversion will cost about the same as the dose and conversion in 2018 and that is about $130 million.

Roughly 80% to $85 million of that $130 million will be spent in 2021 with the remainder in 2022.

We have other strategic growth projects totaling $30 million to $35 million that will enable us to accelerate our rollout of new products.

And we have on typical base level of about $100 million and sustaining maintenance.

And as Brent mentioned, the capital required for peace Valley restart should be around $10 million and most.

As a result, we expect capital expenditures for the year to be and the range $220 million to $230 million.

I wasn't that about capital allocation.

Our strategy remains unchanged, we will continue to return to shareholders at least 50% of cash from operations and excess of capital expenditures required to execute our strategy once that cash has been generated.

So given that we ended the year with $575 million and cash with a $300 million share buyback authorization from our board we will be re entering the market to continue buying back shares and a matter of days.

And I concluded my comments last quarter by saying that absent unexpected reversals and demand all the general housing outlook.

Fourth quarter will look a lot like the third.

Given accelerating smart side growth and rebounding OSB prices.

And out to be a bit conservative.

But we have similar visibility into a holder filed today, so I can share the following.

Halfway through this first quarter of 2021, OSB prices are at least 15% higher and the fourth quarter of 2020 on similar volumes.

Smart side revenue is trending seasonally higher than the fourth quarter on pace for at least 35% growth compared to the first quarter of 2020.

And should these trends continue and absent COVID-19 outbreaks or sudden reversals and logistics raw material availability on OSB prices were.

Expect EBITDA for the first quarter of 2021.

At least $318 million.

And with that we.

We will be happy to take your questions.

Do you have to check.

Okay.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of John Babcock from Bank of America. Your line is now open.

Hi, good morning, and thanks for taking my questions sorry.

So right now and I was just wondering if you could talk a little bit about say shared some information on the Houlton mill.

Just what's attractive about the Cola, Michigan mill.

That's the wood basket or other factors and also I was wondering if you might be able to provide some sense as to what that conversion might cost.

Okay.

John did you ask the first part of that question with some of the specifics about why Holton and then <unk> was that the.

Yes, sorry, sorry, I didn't ask that well I mean, basically I was just wondering with regards to go and what makes that attractive for a sign and conversion.

And just because I don't remember that being mentioned in the past and then.

Also if you could just kind of talk about the capital cost for that.

Okay. So from a from our Houlton standpoint.

Probably the primary.

Attractive part of our number one on the list is the fact that it's located in the northeast as we've mentioned early on our earlier calls.

We are targeted prepared remodel is a key focus area for growth and siding and debt nor.

<unk> earned and mid Atlantic region of the U S is a really strong repair and remodel for siding very strong repair and remodel market.

So that is what really got us focusing on Holton and then also we do.

We do net present values of these conversions and.

To a certain extent holton was was more optimal for us because of the MSL capacity, they're not producing the kind of returns that we see and are and are on.

And our OSB mills.

From a <unk> standpoint.

Greg Wood basket as well.

Do like make and siding and the central part of the country.

Pretty.

Most of our mills are there, but that central location and allows us to access the west coast.

Part of the U S and the east pretty efficiently and also the press size for that mill is a good press size for upside and conversion.

I would say from a capital standpoint.

Just look back at what we spent on dolphin and Swan. So very similar mill configuration to what we have and so golar.

And.

While we haven't made the decision on the finishing capability.

We want to put into that plant, because and that can impact capital cost.

If you plan around the range of what it cost us to convert Swan and Dawson that would be.

That would be good guidance from where we are right now.

Okay. Thanks for that and then with regards to the Peace Valley always female I was just wondering if you might be able to provide some sense as to.

First of all why this was one of the mills that was curtailed a little while ago.

Just so we have a little bit of kind of just a remember surround that and then also did channel and how we should think about the economics of that and.

On our part based on how youre going to consider whether or not to keep that running it and it sounds like that's something that you have any longer term plan, but just on some more corp on that.

John and that's a great question. So at the time to two factors on the shutdown decision that are worth mentioning first of all at the time of the shutdown the western Canadian OSB pricing zone was one of the worst zones are if not the worst zone and.

And for selling and OSP and there was a.

A good bit of capacity added to that region over the over the last decade, or so and so we were looking at really low pricing there and then candidly we had struggled from a cost.

Management standpoint at that mill and the past.

And so when we look at those two together it was a rather I mean it wasn't it.

Slam dunk decision when we looked at our network on which mill to shut down but certainly.

Rather obvious over and over.

Through the analysis and Thats, where we wanted to.

<unk> tried to shutdown and also.

Being one of our larger mills with the capacity by 100 million square feet.

Significant production and volume.

Now why why are we confident for starting it up well the pricing dynamics has changed.

On.

Across the various OSB regions, but also.

The $10 million and capital and the $12 million overall, we're planning to spend to restart the mill is focused on some of the bottlenecks that we've experienced and that facility.

Limited our ability to hit the cost position and we want to do.

The scale of that mill and it should be and it was it was originally designed debate on one of the low cost mills.

And the and the OSB industry, certainly within our network and we're confident given our experience with OE across our other facilities and all.

And we will bid on the detail, but also our experience over the last couple of years and.

Reducing the costs.

And at Peace Valley sister Mill, which is our Clarke County, Alabama Mill and we're in a position to get that mill to be a very low cost producer and our network and overall speed network. So.

We're starting this mill up and with the expectation that we would run it for a long time and as we as we.

We look forward into the next downturn and we would look overall at our at our entire network and optimize accordingly.

Our expectations, we can get peace valley to a really good cost position.

And just adding to that will you have any.

Notable change and the product mix that comes out of that facility.

Not not from not from the time, when we shut it down we.

And it's been a really good tax shield mill for us and we basically.

Lost a good bit of that volume on the west coast, because it was inefficient for us to replace it all from the east and Dan.

That's also alone press, so we make long linked panels there.

That is unique for us and we can only do that and Clark and Peace Valley.

So on we are excited about bringing those structural solutions products back into the portfolio on the west coast and with our Peace Valley operation.

Alright, Thanks for that and then just last question before I turn it over I was just wondering.

Done really well with the transformation targets on achieving.

And you know about your growth and efficiency goals, there might you be able to provide some color on how you're thinking about that for the year ahead.

I think you've touched already on up on the growth side of things, but on the efficiency side.

And it might be useful to have some more color there.

Well did.

The combined target for this year.

This includes the side and growth the.

The combined targeted $75 million of improvement for this year and and.

And we certainly have plans to extend that beyond this year wants you to know.

We still have and OSB and siding.

This is from memory, a little bit with two to three.

<unk> percentage points improvements and OE out there just to get us into the across the board and the.

The 90, 90% OE, which was our original target for both businesses.

And then we're also always working on sourcing savings. So I wanted to be clear that we're reporting that we hit that.

<unk>, three targeted and you're too but and.

What kind of pace that we're on as far as improvement we are extending fully into the future and we will continue to discuss that on these calls but.

And when we talk about our SAR side and growth structural solutions growth improvements and OE and sourcing savings and so those are the four key areas is a little bit of SG&A management and there as well, but those are the four key drivers.

And that have that have guidance, where we are today and we continue to focus.

As we move into the future.

All right very helpful. Thanks.

And welcome John.

Thank you. Our next question comes from the line of Keeton Montara from BMO capital markets. Your line is now open.

Thank you Bryan Allen Congrats on a very strong finish to the year.

Right.

Our first question.

Can you talk about.

The growth of that.

You saw in Q4 and maybe.

Full year 2020, and export finished I know you wanted to get it.

Over the next few years.

And maybe a quarter part of your poker and stands can you just remind us and it is in terms of your poker sales right now and fighting.

Well, Keith and it's a.

About 5% of our total sales and siding it was our fastest growing.

Yes.

Product line and siding and obviously, it's from a small base so.

But.

Growth from basically from zero to 5% and it is a clear focus area for us.

For this year and onward as we continue to.

Grow and the repair and remodel segment.

Got it and how much headroom do you have in terms of capacity.

The facilities that you currently have.

And for Refinish sighting.

Yes, it's a good question. So certainly we have enough headroom.

For this year's budget to hit it but.

Keith and the thing about that is those.

Additional pipelines either at our existing free existing facilities or <unk>.

Greenfield.

Relatively inexpensive and quick.

Hi.

On.

Capital projects and <unk>.

And so.

And I don't see ever see any issue with us being constrained prefinished capacity.

As we move forward.

Just add on to that question that given the fact that we will have holton, making lap siding next year.

We will have a decision to make on where to.

That northeast production or pre finish we haven't decided on that yet.

And as that solution could include continuing.

Continuing to do it and our North Carolina facility.

But really focusing in on that as we go through the year and understanding optimal place to produce that will be important to us but.

And I don't think of Prefinished capacity as being from a certainly a financial constraint for us.

It's pretty easy to add on lines at our existing facilities and.

And.

And they all have all have the space, where we could do that pretty efficiently.

Got it and then last question.

And you have 30% to 35 million Capex on.

Strategic growth projects and I thought I heard island also talk about some from new products. So maybe if you can just highlight those two things.

And what Youre looking at in 'twenty, and 'twenty, one and beyond and comes off some of the new product launches.

One of the larger consumers of this strategic capital other than Holton conversion as we.

We make a shape product.

On a strand siding that we've currently been making that product and our North Carolina.

And remember North Carolina facility.

Make the panels for that product a substrate for that product and Swan.

River, Manitoba and so we're.

And we're going to put a shape machine and swine to help too.

Kris the capacity significantly increase the capacity.

Of our shake product and also obviously that puts it on a little more central location as far as reaching the west coast and the upper Midwest and that is a really it's a beautiful product and a really high margin product for us and.

And so that would be a really good example of how we're using capital this year to grow the product portfolio.

Got it that's very helpful. I'll turn it over good luck in 'twenty and 'twenty one and.

And Keith.

Thank you. Our next question comes from the line of Mark Connelly from Stephens. Your line is now open.

Thanks, just two things are you whether logic and flame block products available in all of the markets, where you sell OSB I assume that tax shield isn't because the value would vary by region, but I'm just curious about the rest of your structural solutions.

Flying block Es is available and all regions and.

And whether logic has been a little bit constrained more from a capacity standpoint than any kind of geographic limitations, but we're going into this year.

With full capability to supply the market for whether logic.

Was some constraints last year, though.

Okay. Okay. That's helpful. And then just quickly on the business as you're exiting the cyber starting and Kenneth sale, how much of that business, where you're able to convert over to smart site strength I'm just trying to understand how much of your <unk> business was able to capture existing.

Customers or is it all had to come from Neil.

Mark that's a good question.

So for mechanics sales standpoint.

While pre finish as a.

Obviously, a focus area for us.

You may recall that back that product line is and kind of and eastern Canadian and Europe European focused and we haven't.

And really focused on that or made it made a hard push to convert that business I'm not saying, we're not picking up some around the edges, but thats not been a focus area for us.

Conversely for the fiber production, especially the fiber production that was and retail that has been a focus area force. We did not want to lose shelf space that we have earned over the years for the fiber panel that we had in there and so we have been actively converting.

That that volume.

When we can over to strength.

Understood very helpful. Thank you.

Mhm.

Thank you. Our next question comes from the line of Paul Quinn from RBC Capital markets. Your line is now open.

Yes, thanks, very much great results and maybe just spend a couple minutes on siding here.

Taking a look at slide seven.

With the capacity additions it looks like you.

Your graph is based off that 11% volume CAGR, you did the 26% and Q4 and 13% and in 2020. So are we being conservative on the 11% is and accelerating decelerating.

Well, Paul obviously, it's accelerating over the last little while and as we look into next quarter.

No.

I don't think 35% is sustainable year over year.

And but the changes that we've made and.

And distribution and the new products that we have.

We've offered from a from a volume standpoint, I mean, I think 11 is a good number we are watching from.

From a timing standpoint that very closely and we will and adjusted so golar timing accordingly.

If we if we feel like that we're up to the more 15% annual volume growth right now I'm talking not just revenue obviously volume is what support from capacity.

I feel good about where we are.

From the timing of the holding conversion.

Wish that was a little bit bigger mill.

And to convert.

But that's the best the reason for going ahead and getting started on.

So <unk> I feel good about it but as you point out there's not a lot of headroom from a capacity standpoint, if we're continuing to grow volume.

And at a 15% rate or so over the next couple of years, and we would stay pretty tight until we could get to.

<unk> and conversion.

Okay, Great and then maybe Brad and you could give us some color just on where you're seeing that regional volume growth and then also what's the anticipated for the finishing and at Holton.

Yes so.

Holton, well be a lap and trim, primarily primarily length and try and play for us.

<unk> 16 foot product.

And then where we're seeing the growth.

And distribution across the board net.

And all geographies.

And then.

And what's been really really helpful for us and we've talked about this paul but over the last couple of quarters.

On the retail business as Alan reported has really been.

Unbelievably strong.

From a growth standpoint, we've done a really good job of getting shelf space, they are retaining and and adding skus. So that's been very helpful. And then our shed business.

After being really really really slow at the beginning of Covid has really taken off and so we're.

And we're moving a lot of panel through distribution to get it and the shed into the shed manufacturer. So.

And I would say lap and trim.

New construction and R&R spend.

A little stronger than we would expect that and then the panel products through retail and and the share to just been really really strong.

Alright.

Yeah, and and just lastly, just.

Over the last three or four years, you introduce and number of new products that siding segment with a smooth product you've got whether logic and you've got <unk>.

And with benzene.

Wondering what youre seeing what are the big takeaways from that and what's worked what hasn't.

Where do you where do you go with new product launches.

Okay. Let me, let me backup to what's worked and then I will look forward I mean, what's really been really really solid for us on the OSB side has been.

Legacy flooring and and flame block has been really good we've learned from weather from the weather logic experienced you really need to have around and portfolio of that product, which we rounded that out last year. So we feel really good about we've had good growth and where the margin last year.

Walt constrained by not having the full portfolio, we've remedied that and are really ready to rock and roll that product offering as we move into this year on the siding side.

And there's been a lot of good products.

When you're talking about smooth and and pre finishes and from a really small base, but the market acceptance of that and really the need as we push and the R&R is made.

The growth of it really strong and.

And I foresee continued strong percentage growth and those products because the cost of a smaller base, but to go from zero to 5% penetration with expert finish up on Colorado win.

And so.

Yes.

So moving back up and look forward really.

And the kind of double digit growth that we talk about and signing we've got and continue to be really innovative.

Fortunately our product is very adaptive to innovation and so as we continue to build out the portfolio of repair and remodel type products, which by the way shape because one of those that I've mentioned earlier.

And then really focus on and on getting competitive on the big builder side with a product that we're going to be launching this year.

For the kind of really targeted new products that can either fill a niche or provide a real platform for growth and.

And there is no I mean, theres, no and insight to our innovation initiative here because that's how you get doubled.

Volume growth is through a big emphasis on new products.

So I just don't.

And I am communicating is don't don't there's not and in game on new products and smart side.

And we've got to really continue to be innovative to hit these numbers and we intend to be so.

Excellent thanks for the help and best of luck.

Thanks, Paul.

Thank you. Our next question comes from the line of Mark Weintraub from Seaport Global Your line is now open.

Thank you.

In 2020, I think you produced about 354 1 billion square feet of OSB, just under $1 4 billion in siding.

The various actions that you're taking assuming demand is very strong as it certainly seems to be on how much OSB do you think you could be producing and 'twenty, one and similarly for parts side.

Okay. So there was some downtime that we had in OSB and Q2 and anticipating COVID-19 related issues that didn't really materialize.

So from for OSB potential capacity and 2021.

As Eric go ahead.

<unk> and downtime was about 119 and total volume taken out.

And the capacity for 'twenty and 'twenty, one will be similar plus whatever ramp up we see and peace Valley.

And then on the on the siding side, we've got basically the capacity its about 400 million square feet a quarter. We do have a press rebuild at Swan scheduled for Q3, Q3 that could take that mill down for potentially for a month.

Including the ramp up time, but.

But other than that that's the one.

And the schedule of big scheduled downtime, we have other than the ordinary maintenance downtime.

Okay, and just to make sure I'm reading that.

On slide seven.

Peace Valley and does that ramp begin at about mid year, when and when does that ramp schedule to begin so for this chore and really mark.

And the earliest we could see production and pace Valley as Q3 and.

And there wouldn't be a lock and Q3.

So we're really looking at Q4 is the first full ramp up quarter and then as I mentioned.

Some time late Q3 or Q4 of 'twenty 'twenty two.

Would be expecting to hit full capacity there.

Okay, Great and then.

On the capital allocation question. Thanks for all the color et cetera, So last year cash from operations and $660 million.

And I look at what you've laid out the $230 million $222 30 for Capex about $300 million share repurchase authorization.

And then dividends or order of magnitude $70 million, a year that gets to about $600 million.

Right now you are doing even better than last year as per year.

Your first quarter guidance.

If you are.

<unk> generated anywhere close to or even more than what you did last year. What do you think happens with the cash flow above that 600 million and that sort of been.

Allocated already.

Yes.

We still believe that the company is significantly undervalued. So we will continue with our shareholder focused strategy fundamentally and returning excess cash to shareholders and and.

Your rights and your assumption that the current and $300 million share buyback authorization what.

Could well be exhausted rather rapidly.

Thank you so we expect that cash flow and that of your debt.

And not going to hold cash range.

Thanks, a lot.

We will come on.

Thank you. Our next question comes from the line of Kurt Yinger from D. A Davidson your line is now open.

Yes, thanks, and good morning, everyone.

And just starting on the siding business and growth as we look back I guess at the back half and the Q1 guide is there any way to kind of bucket some of the different drivers there between.

And what you would view as underlying market growth.

Distribution wins or benefits from new product introductions.

Yeah.

Well this is a bit of a.

And just an estimate on my part, but I would say the underlying growth it's happening right now across.

And.

New construction repair and remodel.

And.

And the range that 20%.

Sure.

<unk>.

A 20% year over year.

And then what's accelerated the growth for us above that has been the strength and retail and the strength and shed.

And does that answer your question Kurt Yeah, Yeah, No that's very helpful and.

Well, yes.

And from a percentage standpoint, the growth and expert finish and our penetration and R&R is from a percentage standpoint also is disproportionate because it's off a smaller base.

Right right, Okay that makes sense and.

I guess, just sticking with expert finish and growing that out is that something where you need.

And the finishing assets and in each geographic market.

And could you just remind us what markets.

I guess, you introduce that and in 2020, and and where you are really looking to expand that here this year.

Great. Great question. So we have we started with our first manufacturing base and Green Bay, Wisconsin, Obviously near our mill net work.

And then we quickly expanded into setup with a facility in St. Louis and then we expanded within our facility Roaring River North Carolina. So thats. The current footprint and you can tell from that footprint. We're very focused on the eastern part of the U S, including the upper limit upper Midwest, but.

All things East and we are we do sell pre finished and the west but we use a independent pre finished network there that we have relationships with.

Right now we've made that decision because of just the geographic expanse of the West Coast has made it.

And.

And that more logical step for us currently.

So our focus and the near term is on the East coast.

Our footprint and and.

And if you think about what I just described Thats fine.

And understanding the best way to access that upper northeast from segment is something we need to.

Working on.

That's the current network and.

We would be and our.

And are looking at options.

<unk>.

And to acquire facilities in place or build our own.

But overall I would say that our other than.

And part of the northeast, we're not really limited and our ability to grow pre finish right now on the east coast or we get pretty good coverage from our network our existing network.

Got it so that would be something that distribution would just have it branded as their product and to the extent you chose to.

I'll add.

Add capabilities and certain markets you could bring that under kind of the LP banners that the right way to think about so expert finish everything we sell out of the facilities. We have the three that I've mentioned is branded expert finish sold as one LP product offering into the into the <unk>.

Distribution network that we have.

On the West Coast.

<unk> tend to be more.

And their brand and.

And like Bill site spark sought their brand.

Coated sparks side. So we are we make it we want to control the brand name and do and and that.

And that's how we've been we've been operating to date.

Okay makes sense, and lastly, and I apologize if I missed this but you talked about fulton's OSB capacity at about 250 million square feet.

Whats the right way to think about what that mill was actually producing is it similar to that.

No it was less than that.

Go ahead.

On Christmas as Darren that mill produced both laminated strand lumber and OSB and the volumes of those ebbs and flows but it has been a while since holton produced its full capacity as as oriented Strand Board.

And we're just describing that capacity and apples to apples terms, so that people really understand the.

And the context of the capacity impacts of that conversion.

Got it alright, I appreciate the color guys and good luck here in Q1.

Thanks.

Thank you. Our next question comes from the line of Sean Stewart from TD Securities. Your line is now open.

Thank you. Good morning, just a couple of follow ups I appreciate all the thoughtful answers so far on.

On the site and conversion front I mean, it doesn't sound like you guys have really seen any cost inflation free.

Conversion projects and.

Net of an apples to oranges comparison, and the lumber industry, we have seen inflation for.

Large scale sawmill rebuilds. So I'm wondering on any context, you can give there and then you touched on your NPV analysis for these types of projects and I'm curious if you can disclose.

Returns on.

On the capital you deploy these conversions have trended I assume that's positive but any context you can give on.

And how those returns have done.

Has moved over time for these types of projects.

Sure well from the cash.

Capital cost inflation, I mean, obviously that is a factor and these rebuilds.

And.

Even though we kind of.

Have found this range of conversion costs its been pretty consistent there's a lot of moving parts within the project between the different facilities and what we have to do from.

Building standpoint are partly on the case of Houlton were part of this is a press rebuild.

And two projects didn't require at time of conversion and so.

And was funding we've kind of hit on this.

$120 million to $140 million, but we've gotten the year on each of the last three conversions from a different.

Wei.

So I would say that in some cases that inflation has been offset by maybe less of a scope.

<unk>.

And the subsequent project, but.

It's not a material.

And I don't want us to know its not a material issue that there is some component and these conversions that are just.

So the escalated from an inflationary standpoint.

From a return standpoint, these conversions have been great.

You know when you.

For two reasons one is.

Our ability to continue to get pricing.

Is it hasnt always been baked into our pro forma aggressive players have been able to get it and then because of the strength of our siding growth. We've really filled these these plants up really quickly.

From a from a utilization standpoint and so.

They've been really good returns and I think those returns.

There is evidence of that if you do Rossi on our on our on our siding segment, it's really strong.

So we'd like these conversions and and typically as is the case with the two we announced today.

And we're converting rather high cost OSB mills and.

And then because of the scale.

Of our mill likes to go but it's going to be a really low cost siding mill. So we get the kind of a double whammy of.

Taking out.

Hi cost OSB mill and turn it into a high return siding mill.

Understood and last question.

And for me.

25% EBITDA margin for siding.

Targeting which has crept higher over time.

Is the increment there just that much more market tension and your ability.

Rice's higher over the long run.

And.

Optimization of opera.

Patients and taking unit costs down over time.

Context on what's driving that that gradual improvement to them the margin trend yet Greg.

And both things you know the.

Great parts of that.

And three parks for answer first is our ability to continue to get <unk>.

This improvement every year.

Secondly, Roy initiative around siding has been.

And just outstandingly executed so we're running the mills much more efficiently and then thirdly.

But to the previous answer we are converting.

Adding mills to our network.

Last two that are being relatively low cost built into the network. So once we get a mill like dots and up and running our overall.

Cost profile for the network is lowered by that.

And well and then force copper to that answer does that also.

But at some logistics optimization around being being present on the west coast. So we get a logistics optimization our improvement as well. So it's just it just comes from the investment pays off from a cost standpoint, and then the <unk>.

And our ability to get pricing.

Historically.

Both.

Spread and margin for us very nicely.

The business is phenomenal operating leverage and if you look at day.

Fourth quarter waterfall as well as the full year waterfall, that's in the appendix and look at the ratio of the EBITDA generated we isolate from smart side growth alone. It's about a 50% incremental margin on each additional dollar and again thats, just fundamentally operating leverage price baked into it.

And it's fundamentally that growth at that rate, but using debt to EBITDA.

And another way.

Underlying long term margin.

Okay.

That's useful context, thanks very much.

Welcome.

Thank you. Our next question comes from the line of Keeton Montara from BMO capital markets. Your line is now open.

Thank you again, maybe coming back to the siding can.

Can you and ask a few have announced any price increase on <unk> for 2021, and if yes, how is that progressing.

Yes, we announced a price increase Keaton and that was effective January one.

And we do it by SKU by geography, but just think about it and the 3% to 5% range and.

And we've been overall six that we've been successful getting that price.

Got it and was there any.

Sort of pre buy and the Q4 numbers I know and the posture level I'll allow something like 110% of Q4's allocation how it was at this time.

Well, Keith and we were so tied on outlook.

Had a great Q4, and a great December.

But.

But I wouldn't call that and move up volume I mean, obviously, they're going to see.

Distributors and rightly so we're going to try to get orders and prior and the price increase but our.

And we're so stretched right now from a.

Order management standpoint that.

There was there was not significant volume moved out of January into December as a result of that.

We're just.

We're running so tightly right now that.

Theres not a lot of opportunity for us to free ship or for distributor to preorder.

Net of anything but that certainly didn't happen in December.

Got it.

And then and obviously with what you've announced today and with polar tenants of all on I'm, just curious kind of now.

Sort of any any updated thoughts around Val d'or, and Cook projects that you had talked about in the past and how are you thinking about those options that you might have.

Well, Keith and we plan to continue to grow siding beyond the <unk> conversion and we will continue to look at all available options.

For the next bill after all of that and we do we do own.

Nice plant side and Cook as you know, we own a facility and Val d'or, Quebec.

We also have I'll just remind the audience.

OSB mill and Milwaukee.

Uses Aspen and then we have peace Valley and we also have.

And.

On expansion opportunities within our current net mill network.

And finally, there are other people that on OSB mills, and Aspen Wood baskets that we have periodic conversations with so all of those will be on the table as we as we think about beyond the scola conversion and.

And which we are doing I mean, its getting to a point now with our growth where every every couple of years now we're going to be needing to do one of these and so it's a very active conversation.

And all options will remain available to us as we look beyond the <unk> conversion.

Got it that's helpful. And then just one last question and obviously, you've seen a big rallying and a lot of non sort of.

And what product commodities.

And Thats lumber OSB and plywood are you seeing any signs that this snake valley is starting to have any.

Negative impact on demand.

Keith.

I hear from.

<unk>.

Listening to housing experts and and listening in or reading the transcript from the builders and obviously product inflation has an issue can become an issue around affordability, especially for the first time homebuyer.

That makes sense to me when I hear people talk about that risk.

But we're not seeing that from a demand standpoint, being and any way impacting the business right now and.

And look at the inventories are as lean as they can be.

And it's it's the middle of February so when we get to the spring building season, which is.

Tomorrow basically as soon as we get this fall it out here and the south.

It's on it might be it might be one other constraints.

It is out there for the industry, but I think there's just so much momentum.

Right now.

That we're going to work.

The kind of growth that people are forecasting.

I see on Avenue to that kind of growth over the next couple of years.

So so I hear it and I believe it I believe it can be an issue, but we're certainly not seen evidence of that and our order file.

Got it I appreciate all your thoughts about luck in 'twenty and 'twenty one.

Thank you Keith.

Alright, Thank you everyone.

There appear to be no more questions and the Q and so we will conclude the fourth quarter and year end earnings call for LP building solutions there.

Stay safe, everyone and we'll look forward to speaking with you again soon thank you operator.

Ladies and gentlemen, this concludes today's conference call and thank you for participating you may now disconnect.

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And.