Q2 2022 Louisiana-Pacific Corp Earnings Call
Yes.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yeah.
Okay.
Okay.
Okay.
Okay.
Yeah.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
And other materials.
Slides two and three of the earnings presentation to provide notices and detail regarding non-GAAP financial metrics and forward looking statements.
The appendix of the presentation also contains reconciliations that are further supplemented by this morning vacate filings.
Rather than reading those statements I incorporate them herein by reference and with that I'll turn the call over to Brett.
Thanks, Sarah and good morning, and welcome to <unk> earnings call for the second quarter of 2022.
<unk> ongoing transformation continues to deliver results with another very strong quarter of growth and value creation.
We face ongoing inflationary pressures for raw materials and freight.
But as Alan will discuss later lp's growth more than offset these cost headwinds in the quarter.
While we were watching inflation mortgage Reits the housing market.
<unk> economy very closely so far we have seen signs of reduced demand for LPG products.
This is especially true demand for our more specialized and higher value added offerings.
So adding solutions grew at 24% year over year to hit $356 million in sales, which is another quarterly record.
OSB prices fell steeply through the quarter, but lp's portfolio of specialty structural solutions products significantly improved price realization and margin for the OSB segment.
As a result somewhat outperformed our algorithmic guidance for OSP revenue.
Structural solutions volume increased by 28% to reach 53% of total volume in the second quarter.
Through the first half of 2022, they'll prehensile labored over 1 billion square feet of structural solutions products.
Logistics challenges, we faced earlier this year, especially in British Columbia.
Somewhat helping our operations team minimize logistics related downtime.
Al will give a more detailed capital allocation update in a moment, but it'll pay remains committed to returning cash to shareholders via dividends and share repurchases.
That LP returned almost $500 million to shareholders in Q2.
And we have spent a little under $200 million so far in Q3 on buybacks.
And Lp's Board of directors approved another quarterly dividend of <unk> 22 cents per share.
You may have seen in Friday's press release.
Slide six of the presentation shows what they tell us outside in growth.
Our charter last shows that so adding solutions revenue has grown 17% through Q2 on a trailing 12 month basis compared to the prior period.
By contrast single family housing starts were flat over the same period.
Multifamily starts rebounded from covered loans.
Comparing only the second quarter of 2022 to 2021.
Single family starts were down about 3% starting.
Starting volume and price both hit records pushing revenue growth to 24%.
This is hardly surprising given the diversity of products applications and customer served by Saudi.
Only about 40% of siding volume goes to single family New construction.
<unk> tend to go into repair and remodel and applications are more specialized and generally have a higher price point.
The fastest growing component of our siding portfolio continues to be innovative products like shakes.
<unk> expert finished pre finished siding and builder series and the <unk>.
Second quarter those products combined for 12% of total siding volume up three points from last year.
About 12% of volume contributed 16% of sidings Q2 revenue.
LP is committed to investing in this growth.
Louis, citing the on health and my aim is ramping up ahead of schedule earlier. This summer we broke ground in Lp's, new expert finished pre finishing facility in Bath, New your work and work continues at Lp's OSB Mill answer Golar, Michigan.
The Golar remains on schedule to produce more upsides starting late in Q1 of next year when fully operational will bring siting manufacturing capacity to just under $2 3 billion square feet.
Let me also add a brief word about the engineered wood products segment.
The AWP business closed last Monday, the first of August <unk>.
Including <unk> equity in the I joists joint venture with resolute and before taxes and other adjustments.
Proceeds from the AWP divestiture was $260 million.
Throughout the process, we've sold a buyer that was committed to investing in the AWP business and who could ensure a smooth transition for its customers and employees.
We believe we have found that rightful owner and Pacific would tag I want to thank all the people who have shepherded this process to a successful conclusion.
Also I want to thank the nearly 700 AWP employees for their many years of service and unwavering focus on safety value creation and customer service.
I wish the AWP team at Pacific with.
Nothing but success.
Looking forward with this divestiture complete L. P. As more focused more specialized less dependent on new construction and exceptionally well positioned for ongoing growth and innovation.
Finally LP celebrated its 50th anniversary of incorporation on the 20th of July .
That is a milestone few companies reach and one that is impossible without the creativity determination and dedication of countless employees past and present.
So all of the MLP has endured and transformed.
L P as an innovative ethical safe and sustainable force in our industry delivering high quality specialty building solutions to our customers and exceptional value for our shareholders.
I am confident that <unk> will continue to build on our history and that we have a bright future ahead of us.
And with that I will turn the call over to Alan for a more detailed review of Lp's financial results in the quarter and our updated guidance for Q3 and the full year.
Thanks, Brad and thank you all for joining us this morning.
Before we proceed to the quarterly results I'd like to Echo Brad's comments and add my own personal thanks to both the AWP employees and to everyone else, who helped bring this process to a <unk>.
Successful conclusion.
Let me also say that the completion of this divestiture means that the financial results of the AWP segment have been classified as part of discontinued operations.
For the avoidance of doubt there was nothing else in discontinued operations in the second quarter other than AWP.
Aside from the AWP divestiture.
<unk> story of the second quarter as the demand for <unk> products remain healthy with the grocers, but exciting, especially LTE OSB structural solutions more than offsetting inflationary headwinds and.
And of course, we continued to invest in growth and returned significant cash to shareholders via share repurchases.
Slide seven of the presentation shows the highlights for the quarter.
As a comparison, we are showing EBITDA and earnings per share, both with and without AWP.
Net sales from continuing operations of $1 1 billion was down 3% from the prior year.
However, largely due to lower OSB prices EBITDA from continuing operations of $491 million was 26% lower.
Awp's final full quarter with LP was another strong one adding $44 million of EBITDA on top of the $491 million.
From continuing operations.
Capital expenditures in the quarter of $103 million are on pace to hit our full year investment targets of $400 million, plus which I will describe further in a moment.
Slide eight shows the waterfall for siding.
Sales growth of 24% was the compounded effect of a 10% increase in volume and a 12% increase in price about 10 points of which was from less price increases with two points from favorable mix.
Please note that the midyear price increase announced on our last earnings call took effect on July 1st and will be reflected in the third quarter results.
Siding sales volume of 448 million square feet was another record made possible by the ongoing ramp up of Fulton had a two percentage point increase in operating efficiency.
Compared to the same quarter of last year price and volume growth combined to deliver a $47 million of EBITDA.
Investments in future growth totaled $7 million, the largest component being the $4 million spent and ongoing commissioning of the houlton facility.
Raw material and freight inflation reduced year over year EBITDA by $13 million in all of our costs of $10 million covers regular maintenance as well as SG&A increases and wage inflation and incentive compensation.
This performance from siding stands as a clear demonstration of our strategy in action to grow now to invest in our future and to drive product innovation.
As a result, if and when raw material prices fall.
We should see margins would tend to or even exceed pre and fighting inflationary levels.
Slide nine shows the waterfall for OSB prices for which fell steeply throughout the quarter and a 24% lower year over year.
However growth in structural solutions, both moderated the impact of price volatility and significantly improved price realization.
In fact structural solutions prices fell by 16% at half the rate of the commodity price fall of 32%.
Combined with increased structural solutions mix. This dampen the EBITDA margin dropped to a respectable 13%.
73% last year to 60% this year.
And while the random lengths prices may have ended the quarter significantly below the level assumed in our algorithmic guidance the higher mix of structural solutions helped OSB to deliver nonetheless impressive results.
Commodity volumes were 4% lower year over year. This is the net effect of increases in volume from Peace Valley, which had not yet resumed operating in the second quarter of last year.
All set by shifts to structural solutions logistics constraints and lower operating efficiency.
Structural solutions volume increased by 28% year over year to 53% of total volume in the second quarter, a full seven percentage points higher than last year.
This was again, partly due to peace valley, which makes especially LTE products, such as <unk> radiant barrier and premium flooring and partly due to the ongoing system wide transition from commodity to structural solutions.
Maybe I'll ask business too continues to experience raw material inflation with a $22 million hit to EBITDA.
But again the performance of OSB. This quarter describes our strategy better than any words could.
So not only did the structural solutions portfolio of products help moderate the impact of price volatility is the EBITDA from the specialty growth was nearly double the combined impact of lower commodity volume and raw material prices.
Much of our exciting alright, I mean, OSB is to drive structural solutions growth to make these benefits sustainable.
Slide 10 summarizes all of us for continuing operations.
Even though lower OSB prices reduced EBITDA by $195 million.
The things, we can control, namely siding growth from the shift from commodity to specialty OSB.
$99 million.
Just enough to offset raw material inflation costs for the homeless ago the conversions.
And everything else besides.
Slide 11 summarizes cash flow for the second quarter.
<unk> began the quarter with $637 million in cash and $535 million in total EBITDA.
Working capital reductions brought in $94 million, mostly.
Mostly the impact on receivables of lower OSB prices.
LP paid $158 million in cash taxes and $12 million of our.
From an operating cash flow of $483 million.
<unk> cash balance at June 30th was $516 million after spending $103 million in Capex, and returning $499 million to shareholders, mostly by repurchasing shares.
Proceeds from the AWP divestiture of $210 million less taxes or fees will be recorded in our third quarter results.
Those funds are not earmarked for any particular purpose other than supporting our capital allocation strategy, but they obviously contribute to an already strong balance sheet.
Speaking of which let me update you on Lp's capital allocation.
Having purchased seven 3 million shares for $471 million in the second quarter.
<unk> share count was $77 3 million as of June 30th.
Since then we spent an additional $197 million to repurchase a further $3 4 million shares, bringing our share count as of August eight to 73 9 million shares.
We have $529 million remaining in the prior board authorization.
On our capital allocation strategy and the motivation driving it remains unchanged.
We will return cash to shareholders after necessary investments in growth and we will continue to do so by law share price remains meaningfully below our assessment of Lp's intrinsic value.
But of course, we must earn the cash first given that we plan to maintain a very strong balance sheet.
Which brings me to guidance for the third quarter and full year.
The major drivers of third quarter performance are expected to be similar to those of the second quarter with growth in siding of specialty products in OSB expected to more than offset inflation.
And I should stress that we see no signs that any of these growth trends are decelerating despite growing macroeconomic uncertainty.
In order to meet that long term demand LP continues to invest in capacity for smart side and structural solutions.
We still expect full year capex to be in the $400 million to $450 million range.
And have a $210 million earmarked for siding mill conversions.
The $50 million.
<unk>.
Vast majority of which has already been spent at about $130 million is for <unk> with the bulk of that occurring in the second half of this year.
Spending for so Golar will continue into 2023 and it remains on schedule for startup in the first quarter of 2023.
The remainder of the mill conversion spend is for long lead time items for the as yet unnamed exciting line that will follow similar.
We expect citing growth in the third quarter of about 20% and we are affirming our previous guidance of full year siding revenue growth of at least 20%.
Also while raw material inflation impacted sightings EBITDA margin in the second quarter, we reiterate our long term EBITDA margin target for siding of at least 25%.
Commodity OSB prices are down both sequentially and year over year, but have stabilized in July .
As a result, we will use the same algorithm for OSB revenue guidance as we did for the second quarter, but with an updated price assumption.
Assuming random lengths prices are flat for the remainder of the third quarter of last Fridays published levels.
We would expect to see a sequential reduction in OSB revenue of about 40%.
This would bring third quarter EBITDA from continuing operations to about $200 million.
And with that we'll be happy to take your questions.
Thank you, ladies and gentlemen, if you'd like to ask a question at this time, you will need to press star one one.
Again Nustar one wanted to ask a question. Please dunbar will be compile the Q&A roster.
Now first question coming from the line of kitchen mantra from BMO. Your line is now open.
Thank you and good morning, Brad Allen.
First question.
Can you talk a little bit about the channel.
Channel inventories that you are seeing.
The siding business.
We are seeing quite a bit up inventory destocking and some building product categories. I was just curious kind of what you are seeing in siding.
Yes, we are still experiencing very lean channel inventories as it relates to our siding product as.
As you know we've been on managed order file for.
Close to two years now.
Certainly the volume we're getting out of Houlton is helping some now, but we're still running very lean inventories at distribution.
So really no change.
<unk>.
Our last call.
Got it that's helpful and then my.
As my follow up.
And then I was just wondering.
If you can talk little bit about.
How you think about share repurchases versus.
Keeping some liquidity cushion and flexibility.
With your balance sheet and balance sheet, if the market were to slow over the next to what seat waters.
Yeah, Great question. Thank you.
I'm going to start by saying that we still have an extremely strong balance sheet today.
We have $350 million very cheap high yield debt, which I intend to keep in place we have.
$550 million of Undrawn revolver, we have borrowing capacity should we need it to fall.
For any sort of investment in future growth and as I want to reiterate that the cash we devote to share buybacks.
Not only has to be earned first.
But <unk>.
<unk> part of our strategy, whereby we basically pass out the cash needs of the business first in terms of investment in.
And almost all of our growth plans and it is the what I'll call a safe remainder at.
At times, a huge safe remainder.
And we returned to shareholders via share buybacks. So there's no question that investment in the business comes first and I also believe that the.
The incredibly strong balance sheet that we have today.
Puts us in a very safe position to handle any any any potential downturn should it occur without compromising.
Our ability to continue to invest in growth.
Got it that's helpful I'll jump back in the queue.
Thank you Kate.
Thank you and our next question coming from the line of Susan Mcclary from Goldman Sachs. Your line is open.
Thank you good morning, everyone.
My first question is just thinking about the demand environment, perhaps especially as it relates to siding. It seems like you didn't see any material slowdown in the quarter, which we've heard from some of your some of your broader building product peers. I guess can you talk about how the quarter trended and how youre thinking about the outlook.
For volumes as we get into the back half of this year and then maybe even into early 2023.
Yes, Susan.
Had very strong order patterns throughout the quarter being managed order file.
We're essentially oversold and we have stayed that way certainly all of this year.
Whenever we've experienced weakness in one of our distribution channels or regions. Other distributors other customers other regions have been able to.
To take up that available.
Inventory pretty much on demand.
So we're not we're not sensing any slowdown in siding.
Order patterns.
At all.
And we expect that to continue certainly for the rest of this year.
It will help as I mentioned to Keith and as we bring up continue to ramp holton up having that extra volume, but frankly as we look into the remainder of this year and this is kind of Alan reiterated in the guidance, we will be selling to capacity.
Certainly for the rest of this year.
Now you also asked looking over into next year and we have been recently.
Beginning the planning process for next year's budget, and we continue to see very strong growth extending into next year.
Once we have to go up and running that would be a sizeable increase in.
Capacity for us about 50% to 75% more than the Houlton line.
But again the ramp up for those or we start from zero when you get to a 100% in about a year. So I feel like we will be running to capacity for certainly the first half of next year.
And then we'll see what happens from there, but we're still very optimistic about siding given the diversity of our end use customers. The diversity of channels that we operate in our geographic diversity and then.
The diversity within the product offering.
So we were running at full steam ahead.
Okay. That's very helpful color and then following up on that you mentioned that you did see some of those logistic challenges in Canada ease a bit in the quarter can you just talk in general about what youre seeing on the supply chain and inflationary side and how youre thinking about that for the back half of this year.
So.
Raw material availability has been mostly unconstrained in Q2, so that we have availability of supply of course pricing as.
There is a different matter and Alan talked about that and we can go in a little more detail. If you would like similarly on the on the logistics side, where we've certainly experienced.
Where we had to take downtime Q1 and early in Q2 as it related just inability to get railcars our trucks in the Canadian some of the Canadian facilities, Susan what we have limitations on how much finished goods inventory, we can put on the ground. There. So once we hit those capacity constraints and we have to take the mill.
Down.
We have been working diligently.
Swapping trucks for rail rail for trucks, depending on the situation and have been able to keep product flowing certainly through the second half of Q2 and as we speak today, it's a daily grind.
There is.
I'd say risk associated with potential for further downtime, especially given weather conditions as we get later into the year, but right now, we're basically able to get equipment. Andhra every load we can produce.
Okay. That's very helpful color. Thank you and good luck with everything.
Thank you Sir.
Our next question coming from the line of John <unk> with TD Securities. Your line is now open.
Thank you good morning.
Couple of questions.
Can you remind us of the magnitude of the July fighting price hike.
And just trying to gauge.
How much catch up there there could be on margins for that segment if at all this quarter.
Given the contemplation that cut into margins.
In Q2.
Yes, Sean.
Now depending on region, depending on channel the 2% to 3% price increase July one trial, we expect to realize most of that fairly quickly. There's some some agreements we have in place that can delay it by a matter of weeks.
But that price increase.
Not that large but it has sticky so we expect it to pass through certainly by the time, we get to the end of the quarter.
Okay.
Thank you.
I was just going to add on with respect to the second.
Second part of the question with respect to which raw material inflation is impacting the margin.
The siding business is running at a year over year.
Inflationary cost impact of about a quarter of year over year per quarter or about $25 million.
About seven points of margin.
If you just took the raw material increases that we experienced in the second quarter and half.
We enjoyed half of that then the margin would have been back to 25% of our long term guidance. So the business is.
As carrying hefty inflation and still maintaining very healthy margins. So.
We are optimistic.
There is an upside in the siding margins or call it a permanent upside.
Should we see.
Raw material deflation.
Got it thanks for that.
Second question.
Brad I'm wondering if you can comment on your sense of the shape of the OSB cost curve.
And any sense you have the market related downtime might be possible at some of the higher cost mills in the industry.
At some point over the second half of this year.
Our prices getting low enough where that might be necessary at this point or is there still some.
Cushing light.
Well, let me just say from a from a cost curve perspective I think.
Augusta half my career in the paper paper side of forest products, where some of those cost curves can be rather steep when you get to very small paper mills.
OSB bit comparative comparatively I think OSB cost curve is relatively flat.
So.
There is there is not I mean, there are a few smaller high cost OSB mills that are still operating.
And obviously that would be stressed if pricing fell.
As I look into the second half of the year.
I really believe it's a demand capacity issue.
That's that.
As at risk.
We're not sensing that in our OSB order file right now any significant weakness.
And so.
I would now.
Not want to speculate on pricing, but I could see OSB demand staying kind of stable as we get through at least the early fall and then as we as you know once we get to Thanksgiving.
The January a lot can happen depending on if the builders decide to keep building through the holiday season, and also the impact of weather as we get later into the year that could have that could have impact on on demand that could drive that raised the operating ratio down.
So but yes.
We're pretty well.
We feel pretty good about underlying demand right now.
Work through the rest of the fall season inventories for OSP or more balanced and I don't think we can answer that question yet in the channel.
Do think there was some.
There's been some a little bit of inventory build over the summer that have allowed.
Where we are today is we're selling to demand.
Inventories are pretty much in balance.
And so the orders that we get in we feel pretty confident going right out the door into the into the market.
Now, let me just say on downtime.
We are committed to balancing the.
Demand for our OSB product line against our capacity and we are.
<unk> to supplying our customers the OSB that they need.
We're not committed to building inventories at our location.
Offsite locations in order to keep operating our facilities.
So that's how we will behave if we do see <unk>.
Demand falling as we get later into the year and the first part of next year.
That is excellent detail thanks very much.
Okay.
Thank you.
Question.
Our next question coming from the line of Markman jump with Seaport. Your line is now open.
Thank you Jim.
A follow up first on the EBITDA margins in siding.
And so if we were to.
Take the price increase in mid year price increase and what you've seen.
So far.
In terms of incremental change in inflation and any color on that would be great too.
Do you imagine margins climbing towards that 25% or somewhere between where they were in the second quarter and and that sort of 25% longer term.
Expectation.
In the second half of the year and any other color as to the critical variables that might impact where the EBITDA margins in siding would be likely to come out in the second half of the year.
Sure Yes.
Given the price increase if raw material prices I'll give I'll answer the question the way, we sort of OSB.
Please be brief guidance, if raw material costs don't rise from the second quarter levels.
<unk>.
Everything else about our fault our forecast on siding remains robust.
I will say that the pricing and the market is being is being well received and is proving relatively sticky.
You would see margins.
Around about slightly above 25%, if the raw material raw material prices that lesson.
Okay.
Great and and to date as you look at where things are today versus where they were on average in the second quarter on the raw materials side.
How would you characterize that.
I would characterize that as kind of a feast to answer that question.
Right now.
Okay.
I will get back in queue. Thank you.
Our next question coming from the line of Michael Rosslyn with Jos Your line is open.
Thank you good morning, Brad Allen Alright, Thanks for taking my questions.
Welcome to the call.
Good to be here.
One quick question on the.
Your order books, you, obviously mentioned that you're managing to file the last couple of years.
See any weakness in OSB orders right now.
Can you I mean, how far what's your line of sight with respect to your owners how far are they extended it a couple of weeks as the months there.
Any indications that as you get into the back half of this year that you should start to see that could start to see the weakness, particularly given what some of the builders have indicated in terms of slowing demand.
That's a good question Mike so.
So for siding.
Good lenses.
Al four six weeks on siding and so when I speak of strength.
Just kind of a nuance of the way we're managing.
The order file side, and we've got pretty good visibility out on that order.
So, let's just say four to six weeks no no weakness in the forecast at all.
We are all have shorter shorter order window on OSP typically that debt is two to four and I would say right now we're probably sell in two to three weeks out of three weeks more than two.
So if things were to fall off the cliff say.
Here. It is first of August middle of September we do not have visibility that far for OSB.
So we're a little more lots shorter on the order file in our space, So a little bit more vulnerable to a downturn in demand.
Got it I appreciate that Brian .
Brian and then one quick follow up you mentioned your commitment to the capital allocation, obviously, the priority being investing in the business first and then anything that's left over for.
Returns to shareholders.
You think about share repurchases, given the inflation reduction which.
Which is it looks like it's going to pass which is taxes share repurchases of 1%.
Does that impact at all how much capital you intend to return.
No not at all.
That 1%.
I'll call it tax.
Is so small compared to the gap, we believe exists between our intrinsic value and.
Current share price as of even right now now that I've looked in the last half an hour.
Sure.
That 1% is.
As a drop in the ocean.
I have no consequence.
Capital allocation.
Strategy.
Got it good luck in the second half.
Thank you.
Okay.
Thank you and as a reminder to ask a question. Please press star one one and our next question coming from the line of Daniel <unk> with D. A Davidson your line is now open.
Great. Thank you and good morning, everyone.
Just my first one on in terms of OSB cash production cost, what's the best way to think about the difference between.
Commodity and structural solutions from a cost perspective.
Well there is a lot of variation on the structural solution side to the incremental cost depending on how sophisticated the product is relative to commodity.
So I would say, we're looking at adding.
I don't know Erin 30 to $60 oil.
The claim block $100, plus so theres a lot of variation, but just.
Looking at our portfolio say somewhere between 30 to 80 box of additional cost.
Got it Okay. That's helpful and then.
On the second could you just help us think about what annualized.
Production on the OSB side looks like given where peace valley is and what's the goal how does it take for next year.
Yes, Kirk so we would be pretty close to $4 billion total square feet with the net effect of Peace Valley addition, and our singular removal from the from the system.
Got it okay I appreciate all the details thank you.
Yes.
Thank you and our next question coming from the line of Paul Quinn with RBC capital. Your line is open.
Yes, thanks very much morning, guys just following up on a quick question on.
Peace Valley, you started that a year ago are we at full capacity yet at that mill around radar.
We are.
Paul Yes.
Okay, and then just looking at the North American OSB.
Market itself.
On paper, there seems to be quite a few capacity adds in 'twenty three and then another couple of in 'twenty four or have you heard anything in that in the channel from customers about some of the delays that might be affecting some of those mills that are expected to start up.
Okay.
I don't want to be specific because it would be hearsay, but I would just say generally we're hearing more delays.
Then expediting of those of those capacity additions in OSB.
But for a variety of reasons, depending on the project.
Okay and then just on housing starts in general it seems like there is slowing.
With a jump up in rates here.
It seems to be slowing here, but.
Uh huh.
On your siding side, it's really more.
Leverage to the repair and remodel market I know you can only see.
<unk> sort of that four to six weeks out, but how are you thinking about that market for 'twenty three and beyond.
We feel good about repair and remodel we're adding capacity right now in Green Bay, Wisconsin at one of our pre finished facilities, we've talked about on the call in the prepared remarks the.
The facility in Bath, New York that will be operational middle of next year, we're pretty much running.
While we are running our prefinished capacity also on managed order file.
So those that additional capacity at Green Bay and Bath will.
Having an immediate impact our ability to grow in repair and remodel. We do believe it is more that we are capacity constrained on growing that part of the business today not market constrained market acceptance constrained.
And so as we as we ramp up these pre finished facilities we're expecting.
That to be a significant contributor to our growth next year.
Okay, and then to turn out.
Sorry, I was just to say it could turn out for once we could get the timing right that if housing does weaken we will have some momentum in repair and remodel to to continue.
This good growth story that we have.
Sorry to interrupt.
Yes, no worries.
That works out right just add lastly, just on Integra, if you could give us an update there.
Yes, we continue to make slow progress at Integra.
Pretty much similar to what I said last quarter, we're very pleased by the market acceptance.
Repeat customers customers coming back in for <unk>.
Second time with more volume.
We are working through operational issues at the facility we are pretty much.
<unk> pretty much taken the operational side of that business into our.
Into our system now.
We're seeing improvements we need to see continued improvements there on the cost side.
Just as you can imagine it's been volatile with lumber prices and AWP pricing running through there and capturing that we certainly also have some operational improvement opportunities that we're beginning to implement and Ernest.
We're wanting to see improvement on the cost side. The rest of this year and are crossing over into next into next year.
We'll probably have we will have more to say on the next.
Paul.
Going through a pretty intensive.
Strategic evaluation of that business.
I mean that positively I'm not talking DWP language on strategic through the strategic review, but.
But we are.
We will have been operating the facility full time for about two and a half years, when we get to November and.
We're going to really take a step back over the next three months and see what we have and try to understand its place in our portfolio of businesses and we're still bullish about the business in general.
Just want to make sure that from an operating perspective, we feel that we can continue to make the progress we need to make that a viable business for us.
Great. Thanks best of luck.
Thanks, Paul.
Our next question.
And our next question.
From the line of Martin <unk> from Seaport. Your line is open.
Thank you two quick follow ups on cash generation. So on the AWP I think you mentioned $2 60 in growth and then theyre going to be some fees and taxes et cetera can you give us a sense what the net proceeds.
That's likely to be.
Well, yes sure the net proceeds for the 210.
The taxes are going to be.
Around about.
170 is roughly I mean, I'm being very conservative at let's say $10 million of fees and such and then there'll be a little less of that and other adjustments and about $30 million of taxes on the $2 10 on the.
The $60 million and we're already seeing for the JV.
Net taxes payable so thats free and clear okay. So this is kind of really the 60 40 showed up in the first half of the year.
And Thats right, yes, yes, Okay and then.
Can you give us a preliminary assessment on where capex is likely to be next year.
Certainly.
Of the same order of magnitude as this year, all things considered maybe a little bit lower but not not meaningfully.
So I would say at this point early read somewhere between 312.
Thanks, very much all of the things being equal.
Let me I just wanted to go back in and.
As if I forget if you allow me to improve on my answer to the question sure.
Sorry for being so as abrupt as I was obviously.
The guidance, we gave of $200 million.
About $200 million for third quarter that includes about the same level.
Half year over year raw material inflation that the business experienced in Q2, a very very very modest uptick from Q2 to Q3.
We see no signs as of right now.
That's under threat, let's say.
Okay can I assume that it's running at about the same level as of today.
Thank you.
Thank you our next question.
And our next question coming from the line of George Staphos with Bank of America. Your line is now open.
Thanks, Hi, everyone. Good morning, Thanks for all the details.
Allen, Brad could you give us a bit of color in terms of what youre seeing on lead times for the next presses and equipment that Youll see where the next siding mill relative to what you saw.
With Halton and Skoal, and what Youre seeing with the Golar and any change there and if you had to put a number on it or are we talking about 18 months 24 months any thoughts on that.
Georgia is a great question and Fortunately with our board.
Did support early lead time procurement.
For the next.
The conversion after should go so we feel good that we've gotten in the queue for all the critical equipment.
Delivering on our schedule not having to wait on that.
There is some risk there so.
So I don't want to say there is not but we were proactive about getting.
The components that we have.
Order no matter, where we cite sided the next mill those are pretty much locked in with delivery schedules. So so.
Not expecting that to be a delay it will be our timing.
Not not.
Venter related timing issue I mean, certainly there could be delays that push it a quarter, but right now we feel good about that.
Is there any way to say, let's say somebody else wanted to order a press for siding or for OSB or for anything else with that might look like.
Assuming obviously, they werent as proactive as you in the queue as well if I wanted to get into the siding business, assuming I, even knew what I was doing would I be looking at two years plus in terms of equipment.
And I don't know what I'm doing on that front so.
Just in case just in case you're worried.
Well.
Most well if you're going to do it exactly like we do it you've got to use to probably have to use the vendors, we use and you would be after us into Q.
At a minimum.
So a lot of it depends though the nature of your question is it a is it a <unk>.
Conversion of our new mill or whatever so.
Thank you two year sales would be reasonable.
Annabelle, but.
I'm just that's just right off the top of my head no I appreciate the patience with the question Brett. Thank you.
You've talked to this in the past but.
Structured.
Solution versus structural solutions versus base level OSB is the target still 75% at some point.
And in turn perhaps you've talked about this in the past is there just a general base level of OSB that you think you need to be.
To run relative to what you ultimately expect to grow in terms of the siding business.
Great question, 75% as our next target.
In 2017.
Locks are structural solution strategy, we've said that at 50%, which we've now exceeded so now it's all under 75 and I do believe that when we get to 75 there'll be a new goal thats greater than 75, and I don't believe George there is some kind of underlying optimal commodity volume that we would we would want to hold onto.
Two there is always going to be some commodity volume as you change change skus or start up a mill after maintenance downtime.
Yes.
I think that number will ever be zero, but we're looking at converting.
Very high percentage of structural solutions over overtime.
Okay.
Perhaps you mentioned and I missed it but any quick thoughts on how South America is progressing any things that you've seen early in the quarter relative to demand and for that matter more broadly just the macro in your key markets, Thanks, and I'll turn it over.
Yes. So so demand has held up fairly well in South America through some of the political and economic chaos thats going on down there might be a little bit too strong of a word but.
So we've really been brought to production.
In our South American operations.
There is some pessimism persimmon.
Pessimism about the economy down there.
But we're pretty diverse across countries very diverse product offering and then we do have a fairly healthy export business out of there that we use as a relief valve for that extra capacity. So I feel good about us being able to produce to basically around capacity volumes and then what we end up doing is balancing.
The internal demand to the continent of South America, with our export volume and that does have a margin.
I'm not sure if a patient is better our margin to keep it domestic.
And so I would say the second half.
Probably not as optimistic as what we saw in the first half, but so far to your question and so far in the quarter, it's been holding up okay.
I appreciate it I'll turn it over thank you very much.
Thank you I will now turn the call back to Aaron <unk> for any closing remarks.
Okay. Thank you everybody with no more questions, we'll bring the second quarter earnings call for Louisiana Pacific to close have a great rest of your day and we will look forward to speaking again soon thank you very much.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect good day.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
[music].