Q3 2022 Louisiana-Pacific Corp Earnings Call
Good day, and thank you for standing by welcome to the third quarter.
Louisiana Pacific Corporation Earnings Conference call at this time, we ask all participants are in learning.
Listening only mode. After the speaker's presentation there'll be a question and answer session.
You ask a question during the session you will need to press star one one.
On your telephone you will then hear an automated message advising you that your hand is raised please be advised today's conference is being recorded I would now like to hand, the conference over to your speaker today, Aaron <unk>, Vice President Investor Relations and business development. Please.
Please go ahead.
Thank you operator, good morning, everyone and thank you for joining us to discuss Lp's results for the third quarter of 2022 as well as our updated outlook for the fourth quarter and full year as the operator said my name is Erin.
Hi, I'm Lp's, Vice President of Investor Relations and business development.
Joining this morning by Brad Southern Lp's, Chief Executive Officer, and Allen Hockey Lp's, Chief Financial Officer.
During this morning's conference call and webcast, we will refer to an accompanying presentation that is available on <unk> IR webpage, which is Investor LP Corp Dot com.
Our 8-K filing is also available there along with our earnings press release and various other materials.
Statements regarding non-GAAP financial metrics and forward looking statements are available on slides two and three of the earnings presentation and the appendix also contains reconciliations that are further supplemented by this morning's 8-K filing rather than reading those statements I incorporate them herein by reference and with that I will turn the call over to Brad. Thanks.
Aaron Good morning, everyone and thank you for joining us to discuss Lp's results for the third quarter and our full year outlook.
You all know the third quarter saw a significant slowdown in single family housing starts, which no doubt contributed to the normalization of OSB prices.
This is a challenge for commodity OSB results, but also provides an opportunity to demonstrate the value of lp's transformation against the backdrop of a slowdown in new residential construction.
LP strategic focus on the repair and remodel market segment and higher value added specialty products drove continued growth in fact, the siding segment generated more revenue than the aerospace segment in Q3.
Dan OSP the majority of the revenue came from the more specialized structural solutions portfolio.
Our disciplined capital allocation strategy continues to prioritize and support investment in the capacity necessary to enable future growth.
Pages, five and six of the presentation shows some high level results for the quarter.
LP earned $200 million in EBITDA in the quarter and received about another $200 billion in net proceeds from the AWP sales in.
In Q3, we invested $86 million in capital projects to drive future growth and returned $341 million to shareholders. The bulk of which was spent to repurchase five 6 million shares.
<unk> ended the quarter with a very strong balance sheet, including $482 million in cash and over $1 billion in available liquidity.
Page seven shows more detail on siding solutions growth.
Recall only about 40% of starting volume goes into the single family New construction with a growing majority dedicated to R&R sheds and other DIY applications.
Through Q3 single family starts fell by about 5% on a trailing 12 month basis.
In contrast siding solutions volume grew by 6% and price increased by 13% over the past 12 months.
Comparing only the third quarter single family starts were down 18% compared to last year.
<unk> sales grew by 27% with smart side, an expert finished both setting new records for volume and price in the quarter.
And both siding and structural solutions product innovation continues to drive growth.
<unk>, new products made up 11% of volume and generated 15% of sidings revenue in the quarter.
Export finish and builder series are the fastest growing product categories within siding for expert finished volume grew by 48%.
Structural solutions volume grew about 10% compared to prior year quarter. The newest addition to the structural solutions portfolio Novacor insulate achieving officially launched last week.
<unk> launched the price was product not connected that random lengths.
LP is committed to making the investments necessary to continue this growth and innovation.
Eight shows an update on our strategic capacity planning Holton.
Holton remains ahead of schedule and should finish the year running near full rate of capacity.
So golar, Michigan, which is the next citing press capacity addition, after hulton, who will cease OSB production. This week to start the final phases of the conversion process.
This will remove roughly 420 million square feet of OSB capacity and once fully up and running at about 320 million feet of siding capacity annually, bringing total siding capacity to about $2 3 billion square feet.
<unk> is expected to produce smart side in Q1 of next year. It should wrap up at about the same rate that Hilton has progressing from panel Soffit, then ultimately to lap and trim with roughly linear ramp up from start to full production run rate over three to four quarters.
For export finished the expansion of El Pais, finishing facility in Green Bay is nearly complete.
The latest project in bathroom, you'll work will add export finished capacity in the strategically important northeastern market.
This project remains on schedule with production expected to begin in Q2 of 2023.
And today, we can announce two more capacity additions in the siding business.
<unk> final approvals from state and local regulators and other stakeholders.
We will build on the success of the Hilton conversion project by expanding that mill.
This project will add a new forming line and press with Halton, joining Hayward as our second two lines siding facility.
New siding production there should begin in mid to late 2024 and will more than double halston's capacity, improving the utilization of shared bringing in and finishing processes holding.
<unk> second line will bring total side impressed capacity to roughly $2 6 billion square feet.
To accelerate export finished growth we plan to add a new facility in Washington State to better serve the growing pre finished siding markets in the Pacific Northwest.
Compared to the 2021 capacity baseline for expert finish expansion over our existing pre finished facilities plus new capacity at the New York and Washington sides puts LP on a path to more than double pre finishing capacity by the end of 2023.
And we are on pace to double export finished capacity again by 2025.
These projects will add scale efficiency and geographic range, while simultaneously driving down cost.
We believe that the long term fundamentals for housing in R&R remained very favorable despite near term turbulence and we are investing to meet that demand.
Given our current visibility into order files inventory levels and the capacity expansions that I just outlined we anticipate remaining on managed order file for prime products at least until so golar provides meaningful volume in Q2 of next year and potentially throughout 2023 for export finish.
In order to ensure that we can generate value over the long term, we remain focused on enhancing our sustainable business model. This includes long term access to responsibly manage fiber resources efficient production processes that minimize waste and emissions.
Carbon negative products that sequester more C. O two that is embedded in their manufacturing distribution and building a team that is welcoming and inclusive for all we have the talent and desire to contribute to lp's growth.
We plan to publish our second sustainability report tomorrow, so stay tuned for more detail about our sustainability performance and strategy.
As we look towards Q4 and next year inflationary pressures continue to provide headwinds.
Al will provide more detail on this in a moment, but so far lp's growth continues to more than offset the cost impact of raw material and wage inflation.
Mortgage rates of 7% or more of a worse and affordability, especially for first time homebuyers and this is likely a contributing factor for softening housing starts.
But as we head into a potentially weaker housing market I remain optimistic about two factors first.
I remain bullish about the long term fundamentals for housing and repair and remodeling.
And second I am more convinced than ever that lp's strategy of growing siding and structural solutions and managing our capital and capacity with discipline is the right approach in any market.
And with that I will turn the call over to Alan for a more detailed review of the quarter before we take your questions.
Thanks, Brad.
As we've said the third quarter of 2020 to set new records for siding.
Despite general economic headwinds and slowing single family housing starts LP continues to grow siding and structural solutions and that growth continues to offset the impacts of raw material and wage inflation.
The waterfall on slide nine provides a summary of revenue and EBITDA compared to the third quarter of last year for siding.
Revenue grew year over year by $82 million or 27% to $394 million.
Prices were 16% higher due to the combined effect of two list price increases in the past three quarters. In addition to the mix uplift from expert finished.
These higher prices added $51 million of revenue and EBITDA.
Volumes were 9% higher as a result of the Houlton mill is ongoing ramp up as well as continued improvement in overall equipment effectiveness or <unk>.
<unk>, which was two points over last year.
Volume growth contributed $31 million of revenue and $12 million of EBITDA.
Inflation produced $32 million of direct cost headwinds of which $23 million was enrolled materials and $7 million in freight under <unk>.
Final $14 million of cost increases largely relates to sustaining maintenance of the mills together with increased prices for MRO materials, but in summary growth in price.
We believe our permanent more than offset inflation, which we hope is not the result was a rather healthy $90 million and EBITDA at 23% margin.
Slide 10 shows the waterfall for the OSB business.
The growth story is broadly consistent with that of siding with increases in structural solutions volume offsetting raw material and wage inflation.
But as similarity is overshadowed by the drop in commodity OSB prices, which reduced year over year revenue and EBITDA by $252 million.
The final $20 million EBITDA headwind on the waterfall reflects increased maintenance costs and the impact of somewhat reduced OE.
The resulting $113 million in EBITDA slightly outperformed algorithmic guidance in part due to favorable price realization without which the impact of falling commodity prices would have been more severe.
But in both businesses inflationary pressures were driven primarily by natural gas and benzene, which are key inputs for residents overlays paints and waxes and by crude oil, which increases the cost of freight both inbound and outbound.
Page 11 aggregates these impacts to show a high level summary for LP as a whole.
The largest single factor is of course commodity OSB prices.
The $18 million in revenue and $12 million in EBITDA from increased commodity OSB volume is largely the difference in peace valley the output as it has ramped up over the past year.
Siding growth net of selling and marketing investments added $60 million in EBITDA and <unk>.
Solutions growth added $24 million.
Which for the purposes of this analysis I will deduct $7 million, representing a lost opportunity to sell commodity volume instead of higher margin structural solutions.
North American inflationary costs, including the inflationary components of the of our mill costs listed in the waterfalls results in a $65 million headwind.
The net positive $12 million of EBITDA that is $77 million from growth against $65 million of inflation shows that once again lp's growth has offset inflation and when raw material and freight prices normalize then all else equal the potential for margin enhancement is substantial.
South America referred to on the slide as LTE assay, so similar raw material inflation and demand appears to be slowing more meaningfully than in North America. Our constant dollar exchange rates revenue fell year over year by $12 million or 16% and EBITDA fell by $17 million.
Slide 12 shows cash flow for the quarter and it tells a story a very consistent capital allocation.
We generated $200 million in EBITDA from continuing operations plus another $14 million from AWP in July .
Taxes.
Working capital movements, this produced $195 million in cash and cash flow.
The divestiture of the AWP segment produced another $206 million in proceeds and as Brad said, we essentially took this inflow of around 400 million.
Invested what we needed in the business and we tend to balance to shareholders' cash.
Cash at quarter end was almost flat hovering just under $500 million.
So when combined with our Undrawn revolver, we ended the quarter with over $1 billion of liquidity.
I also want to point out that third quarter share buybacks have lowered lp's share count to $71 7 million a reduction of 50% from the end of 2018 when repurchase activity began in earnest.
Furthermore, the $1 72, and adjusted diluted earnings per share would have been 37 cents per share or 22% lower had it not been for share repurchases over the past 12 months.
And one of the lower OSB prices, we are experiencing right now may have reduced the magnitude of cash flows with the result that share repurchases will slow proportionately.
Allocation strategy remains unchanged, we will continue to earn cash invest in growth and we tend to balance to shareholders specifically in that order.
Slide 13 shows guidance for the fourth quarter and full year.
With luck accelerating on converting the singular OSB mill to siding production the fourth quarter will be the highest for capex. This year, bringing us to somewhere between 400 $420 million in total spending for 2022.
Just under $200 million of that spend was for the months ago, the mill conversions and.
And what ultimately spend just under $100 million on other growth projects to expand capacity and expert, finishing structural solutions and between 120 $130 million and sustaining maintenance.
And as Brad said earlier, we continue to outside and capacity with the planned expansion of Fulton.
I think the new forming line and presses holter will be substantially more expensive than converting an existing mill is such an early preview of capex of 2023 would seem to be in order.
The expansion of Houlton is expected to cost in the order of $400 million.
With the rates of return of about 30%.
Spending on that project will significantly ramp up in the latter part of 2023 with the result that total Capex next year will likely be closer to $500 million than this year's 410 ish million.
And there is substantial flexibility in our system to delay these capital outlays should circumstances warrant.
Demand for siding remains strong and we expect year over year sales growth in the fourth quarter of at least 30%.
And taking demand is it given this growth is enabled by the additional capacity from Halton continuing ramp up as well as the non recurrence of a press rebuild in the fourth quarter of last year, which provided an admittedly soft comparison, but this would bring full year, citing revenue growth to about 24%.
I always be prices have been essentially flat for the past several weeks and if we assume that they maintain their current levels. We expect OSP revenue to fall by about 30% sequentially quarter over quarter.
In addition to price reductions revenue in the fourth quarter will be impacted by lower output due to <unk> conversion deciding the interruption caused by a fire at Clark County in October and typical year end maintenance outages the.
The result of all this would be a fourth quarter EBITDA for LP as a whole of around $100 million.
And within that $100 million, we expect exciting EBITDA of at least $85 million for fourth quarter, citing margin of around 23%.
And with that I'll turn the call back over to the operator for Q&A.
Thank you.
Yes.
At this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced please standby, while we compile the Q&A roster.
Okay.
Okay.
And our first question.
It comes from.
Susan Mcclary from Goldman Sachs. Your line is open. Please go ahead.
Thank you good morning, everyone.
My question is looking at the siding business can you talk a little bit about channel inventories, there and whats youre seeing just in terms of overall order rates, we've heard from a lot of building product companies. This.
Last couple of weeks, if things are obviously starting to moderate on the ground. So can you just help us understand better what youre seeing there and contracting your growth relative to what's happening in the broader industry.
Susan we're still up managed order file.
I mentioned in the prepared remarks expect to stay on managed order file at least through Q1 of next year.
So right now our demand pulls are still strong.
Channel inventories in siding, we're buying on the land side.
We would like the black and the biggest news for this time of year.
And so.
From that standpoint, and look at its hard when we're oversold are all managed order file.
Im not sure how much more you can sell it you had it.
But currently the strength of the order file remains pretty stable.
These additions to capacity, particularly the holton.
This incremental volume to sell over the next several quarters.
So the madness order file situation could change, but as of today still a very healthy quarter file.
Okay.
Helpful. And then following up can we talk a little bit more about it.
Inflation and the supply chain and how youre thinking about those costs coming through over the next couple of quarters and the ability to sustain price as the macro and as housing does moderate to hold the margins that you've been seeing especially in the siding segment.
Okay.
Yes, Susan.
I feel good as Alan mentioned in his remarks, we saw.
Our siding pricing historically for the last 20 years or so it's been very sticky once we get it.
We've essentially never given it up especially on the price list sometimes.
So responding to competitive situations we can.
Walk around with rebates to specific customers.
I feel good about the pricing that we've gotten this year. We are planning to go out January with another 3% to 5% list price increase announcements.
And.
To help offset some of the late this year later inflation that we're experiencing now so I don't I don't anticipate us using price to generate demand next year. That's typically not how this product goes to market and.
I feel like our price to cost ratio is going to stay kind of where it's at.
As a matter of timing.
You can get ahead of our ability to get the price increase through the channel etcetera, but.
So far we've been able to keep up with it and I anticipate being able to do that.
In the first part of next year as well.
Okay. Thanks for the color and good luck with everything.
Thank you.
Thank you for your question.
And we are queuing up the next question right now.
And the next question is from Sean Stewart with TD Securities. Your line is open. Please go ahead.
Hi, Good morning, everyone, it's actually cash on the line filling in for Shaun.
Sticking with the price.
Just to follow up on the realizations this quarter for siding I think they were up 5% relative to Q2.
I know you implemented the price hikes that 2% to 3% on July 1st Doug can you comment on what factors played out this quarter.
Actually you broke up right at the last part of the last sentence of your question.
Oh, no problem, sorry about that Brad I'm, just wondering if you'd comment on to what extent mix played a role this quarter.
But mix can play a role, but most of that price increase was.
Attributed to.
The major price increase some maybe 1% mix, but the rest was all fronts.
<unk> pricing.
Okay, and I know you commented on.
Buybacks or return activity slowing down a bit just in Canada with commodity markets going down but can you.
Just remind us how much you have left on your current program I think it was 600 million authorization, how much you blast right now if anything and any share buyback activity.
For two days.
We have $200 million.
Remaining on the.
Authorization and.
There has not been no share buybacks to date this quarter.
Okay wonderful thanks for the context I appreciate it I'll turn it over.
Thank you very much for your question.
And our next question comes from.
George Staphos with Bank of America Securities.
Please go ahead your line is open thanks.
Very much Alan Erin Brad good morning.
Congratulations on the progress I.
I wanted to ask first question on the supply chain and cost are you seeing any kind of.
If you will green shoot and recovery and improvement, especially on labor, especially on freight.
And then related and there are no guarantees in life, we won't hold you to this but is your expectation that.
If things go as planned.
Don't see a material drop off in demand in siding. So golar comes up the curve as you would expect that.
That you can maintain your current level of margin or maybe get to the 25% next year. How would you have us think about this too.
Questions.
And where all the supply chain, yes, we are seeing.
Freight trucking free up more than we've experienced all year.
So that has a <unk>.
Certainly really improve the availability of <unk>.
Right.
And also somewhat impacted cost.
On the labor side, I mean were still fighting to maintain staffing at our in our operations group and to certain extent in sales, but I would say, it's not certainly not gotten any worse in the second half of the year.
And then as far as overall cost because of the way.
Most of our big supply contracts are indexed.
Two base material.
And most of those are in some way associated with oil and saying directly.
We're currently havent seen any.
Any green shoots on cost reductions, but obviously, we're watching oil closely and in fact, it was to trend downward there could be some opportunities for some cost relief next year, though.
We are currently not seeing that.
And then as far as margin for next year at the 25% rate.
With the <unk> ramp up it will certainly be inefficiencies associated with that.
We have not finalized our or back to the cost or raw material input costs for next year as far as our budget process.
We have decided to initiate a beginning of the year price increase so I think we can.
Depending on the ramp up of <unk> and <unk>.
Depending on.
No incremental cost increases around raw material, we might get back some more around the 25% rate, but there's a lot of unknowns around that number.
Given the uncertainty about the citgo a ramp up in raw material inflation.
Sure Yes.
I am.
Good about what we're doing on the stuff, we can control specifically around pricing.
We've been demonstrating good price discipline in siding.
Getting it getting it.
<unk> when we can so.
And we will continue to focus on that as far as protecting our margins.
Thanks, Brad.
Two other questions on siding and I'll turn it over so first of all can you talk about the ability of the fiber basket around holton to take on that second line, maybe it's a non event, but if you could just give us a bit of parameters there and then when youre done with.
Holden I want to say in your prepared remarks, you said youre going to have along with the other pre finishing.
Investments that youre, making you're going to have additional offerings scale.
Kind of go back through what the additional capabilities youll have in siding when youre done with Halton.
Online too.
And what are the other pre finishing operations that would be great. Thank you guys.
Yes, Sean first of all one of the primary reasons.
We're expanding until 10 years because of the availability of the wood basket. They are very good.
Over the years, there has been some wood related manufacturing loss in the main area in the state of Maine. So the pulp wood basket up there is good Aspen wood basket.
<unk> is very good as well.
So that was.
One of the drivers to deciding to expand the production in holdings.
And then as far as the.
As a reminder of the expansions that we're doing in the siding business, so, particularly as it relates to pre finish.
We have.
Manufacturing facilities were pre finish in Green Bay, which we are currently adding coating lines and we have a facility in St. Louis facility in North Carolina, We're building a large facility in Bath to New York, which will be expandable by adding pipelines. It then we mentioned that facility that were just.
Beginning to do engineering on is in the state of Washington.
For us the opportunity for.
Further growth past, Washington, as far as capacity is in the central part of the country.
West of the West of St. Louis.
And then I feel like with our facility in North Carolina and then the addition of <unk> will have a base.
East Coast, starting with will cover.
So.
Certainly as we continue to grow siding, a press capacity additions or expansions will be critical to the growth beyond Holston Blythe <unk> and then the prefinished growth is a little easier because.
Once we get a basis of basic infrastructure in place and we'll be able to just add paint lines into existing facilities in order to increase capacity and.
Big picture those are relatively low capital items sell additional pipelines.
So that that capacity can be added pretty efficiently.
Thank you Brian .
Okay.
Okay well thank.
Thank you.
Thank you for your questions.
And just one moment, we are setting up our.
Next question.
And our next question comes from Kurt Yinger with.
D. A Davidson your line is open. Please go ahead.
Great. Thanks, and good morning, everyone.
Just wanted to start off on the outlook for OSB to be down 30% sequentially on sales.
Some of the noise around the goal.
The Clark County, now could you I guess help us think about how much of that is price versus volume embedded in that.
Okay.
<unk>.
So that's the goal of capacity purpose Darrin, let's call. It capacity is about a little over 400 annually. We shut it down now that's going to be call. It 100 per quarter, but less than that because were made quarter. So.
So.
Prices likely to be a larger component of that in volume, but there is some volume coming out of the combination of the golar and typical quarter and maintenance outages.
Our.
Is that a comment this time here.
Got it okay. Thanks for that Eric and then.
I guess, a two parter on on Holton.
As you think about getting the facility positioned for production in mid to late 2024.
How much of the pacing of that work will kind of be dependent on the macro and if you get to the point.
And everything is ready to go but the demand isn't there to justify its startup how would you think about additional fixed costs.
Associated with that now and just expanding the capacity, but not necessarily running yet.
That's a good question.
So.
Obviously, where we are today it would be easy to delay.
The pulp demand too.
Capacity expansion, if we had some outlook that was dire a rail siding demand, which we currently don't have.
As we get closer to.
Beginning construction and all that stuff it gets harder to push those back, especially when it comes to the purchases will be made early.
Backup a little bit from that answer.
Explain that.
The cost.
Machinery Empresas Ballston place are so tight.
We are actively engaged in doing as much procurement as we can early in order to secure those those that material.
Necessarily necessary manufacturing of that equipment.
And so from a cost standpoint on the equipment that gets harder and harder delay I mean really beginning right now is in place those orders, where we could push us around the construction flavor as far as.
Erecting it so.
It will be.
Something we can talk about as it goes through next year quarter to quarter, but obviously.
Once we get so go up and going over the next couple of quarters. It will be all hands on deck.
Any color on that too.
So we are expecting to need.
That capacity.
Okay, Great two part question.
The second part.
That's all right I mean, I guess the last one is just you talked about the fiber basket, but outside of that were there any other kind of big factors that that chose to go with the houlton expansion versus some of the other kind of.
The alternatives that you've talked about.
The biggest thing was timing.
We felt felt like or know that our ability to get that.
That mill up and running with second line given the infrastructure that is in place there.
Certainly was quicker than any of the OSB conversions, we could've done.
And order of magnitude faster than doing a greenfield.
So that was really the driving factor I'll add two others first is the quality of the workforce at our Houlton facility is very high.
As evidenced.
Evidence of that is how well <unk> one our conversion is going so.
So we really have a lot of confidence about our ability to execute both on the construction and the ramp up phase of that project and then thirdly being in the northeast.
<unk> gives us a little more geographic diversity versus the central part of the country.
Really concentrated as far as manufacturing and <unk>.
Also compliments.
<unk> remodel push.
Northeast mid Atlantic on down the East coast.
Really good repair and remodel market and with us, adding the prefinished capacity and vast New York, and obviously that would be very efficient transportation between health and Bath. So.
All of those bad in a few more criteria really.
In the context of our alternatives made holding flat to kind of a no brainer for us.
Okay, great well, thanks for that Brad and good luck here in Q4 guys.
Thanks, Nick.
Thank you so much for your question.
And we're currently queuing up another person here.
And our next person is Mark Weintraub with Seaport Research partners. Your phone line is now open go ahead.
Two lines of inquiry first on the Houlton expansion.
If I heard right $400 million in capital I think Alan you mentioned, a 30% type return and also.
Suggested that it was about 300.
The million square foot of incremental capacity.
So I guess the question so if I take the $400 million and kind of Simplistically.
Say well three time sharing so am I going to have $120 million plus of EBITDA increment and then if I look at the average pricing you have in your siding right now.
That would be really high margins at 50% type margins now of course it could be this is a sweeter mix and so it has higher average prices or is it really low cost can you just help us out in kind of understanding how the economics work as you see it for the whole can expansion. Thank you.
You kind of got it right.
So youre right about the very high margin and independent siding mill given.
Given the progress we've made on on pricing and mix somewhat.
The mentally high level.
Delivers about a 50% EBITDA margin in isolation of the mill now the business doesn't deliver 50% EBITDA margin.
Now.
Because we obviously have set of fixed costs and selling costs and marketing costs and solid on necessarily.
<unk> and <unk>.
That analysis so.
Yes. The mill Economics, you described right and there is significant operating leverage we get from adding another mill intuitive already effective network.
Okay, great. Thank you and then.
On the fourth quarter guidance, well, maybe what might be can you give us where you are.
OSB prices average quarter to date and currently are relative to the third quarter.
Well Mark this is Darren.
Mrs in the guide.
Rhythm to approach that.
Stuck with the past several quarters imply random lengths prints from last Friday, I think the north Central was about $3 50 on 700 sixteens basis last Friday so.
So the guidance assumes that.
Austin purposes that that remains stable at that level.
And so is that roughly a $50 $60 decline from what you would have averaged in the third quarter.
Is that right.
Again.
Closed block.
Good.
Okay. So so and then from down 30% and Rob I just want to make sure. So basically am I expecting like a 10% or so decline.
From volumes or something else.
Because I'm down it was.
I think it was curt's question earlier volume I'll, just remind you that the Golar comes out this week.
And then we.
We may finally for the first time in about three years out, but a little bit of breathing room at the end of the year to take some some maintenance related downtime around the holidays and the combination of those effects what account for roughly the level of volume that you assumed.
Got it in terms of.
Portland.
We have factors are incorporated.
In our algorithm.
Got it.
Okay. Thank you.
Thanks Mark.
Thank you for your question, Mark and we're setting up for the.
Next person.
And our next person is Mike <unk> from <unk> Securities. Your line is now open go ahead.
Thank you very much for taking the question, yeah, sorry, sorry about that.
Just a quick question on the.
On the broader housing market are you seeing any pockets of strength. So we know the housing market, obviously is rolling over.
There is our cancellation rates are higher.
Is there any are there any markets in terms of you have noted.
That you are signing was held up relatively well are there any markets, particularly showing strength relative to the decline that we're seeing more broadly international market.
Okay.
So.
Within the market for single family, New construction generally speaking south.
Stronger than normal.
And so that and that we're seeing that in our pools in both OSB and siding.
Some of that might be weather related as we get into the fall season, and we will see as it plays through November and December .
How the south is are the softness impacted but.
Relatively speaking stronger in the south and the north.
Got you okay.
Just on the builder series, which tends to be one of the fastest growing components signing them just given the stress that many builders are facing.
How does that product, particularly.
Demand still strong or have you seen some trading given.
Just a slowdown in housing.
Demand is still really strong for that obviously.
I'd be careful about percentages growth percentage growth when last year at zero. So it makes for a very odd percentage growth, but we're very pleased with that launch and I do believe.
Giving some of the costing pressure cost pressure and labor availability issues.
The product was engineered to address both of those and so it's put us in a position, particularly with the larger builders to have a value proposition that's pretty attractive and so.
We have been.
Well pleased with that.
The conversations that.
Led to orders and then the outlook for that product given I mean honestly given this environment.
So I mean, obviously that will be.
Housing is way down next year that will provide a headwind to that product, but I would say from a market share standpoint, I feel like we've got an opportunity to increase significantly our market share with large national and regional builders.
Got it and then just one final question just on an order file I think last quarter you mentioned.
Sorry, you're on allocation I think you reiterated that earlier.
Hey, good line of sight in terms of order files are four to six weeks in siding OSB youre not seeing any order weakness, but you had line of sight that two to four weeks out any swings in terms of your order books.
Order files in both siding and OSB.
Not really but certainly not in OSB I would call the market pretty balanced right now and obviously, that's showing up in the us.
Pricing reported in random lengths and then in <unk>.
<unk> is a similar thing.
We are allocating orders so we're six to six plus weeks out on the order file.
So we're pretty much in the same place that we did we were last quarter.
As far as the outlook for siding and the strength of the waterfall.
Thank you Tom.
Obviously it is.
I'm just going to close I mean, it is it can be.
That's not a simple answer as OSB, because the managed order file situation kind of controls.
Linked to the order file we're controlling that now so.
It shouldn't be surprising that that kind of six weeks. That's why we've been so that's how we're managing the order file for.
Whatever that's worth.
Yes.
No. It makes sense I appreciate the I appreciate all the color good luck on the balance of the year.
Thank you.
Thank you for your question Mike.
And just as a reminder, if you would like to answer ask a question. Please press star one on your telephone and you will be placed into a queue.
And our next question is from Tom.
John Tumazos.
Of John Tumazos, very independent research LLC. Please go ahead John .
Thank you for taking my question.
A few months ago I had the pleasure of putting smart side on my house, which I'm very pleased with.
It cost me installed.
Evan.
<unk> per thousand square feet versus your sales realization in the eight hundreds.
And I.
Hi, Bob pre finish it maybe it cost a few hundred dollars more than that.
And the crew of six people worked about 'twenty two hours and they worked hard they were.
Good.
And.
It struck me that there is other.
Applications like the people that use lasers to measure before they install granite countertops.
Or the TV AD for the floor mats in your car that are laser measured.
The bathtub fixtures things like that.
There's a lot of potential to improve the precision.
Of installation of smart side through the implementation of technology.
And if you improve the productivity of the installers by 10%.
Yes, it might enable you to charge it.
It was more for smart side since what matters to the customers the installed cost.
Could you just talk a little bit about your efforts to train installers and.
Improved productivity in that phase of the value added which would enable you to charge more for the product.
John will first of all thank you for putting smart side on your house.
I used to hear it went well.
That is certainly a testament to the product and to your installer.
Okay.
In the direction that Youre question is focused.
We do actively work with a set of contractors, we have various loyalty programs.
We provide both online and in person training and that followed by install our product.
Because as John has mentioned, we won't fix that experienced.
Well for the homeowner for them to see the siding put up efficiently and it being beautiful and functional once it's installed and so.
Marketing spend that we have as is.
For most purposes directed at making sure that our contractor base is enabled to understand the product and install it efficiently.
There is a lot of opportunity for product enhancement.
Around R&R, citing market related to labor efficiency named if you think about it.
Concept of Prefinished is one of those where you're eliminating the secondary step of painting on its own the wall, but the opportunity for us to do things as far as SaaS rates related to improving that efficiency like the three dimensional corners that we've launched over the last couple of years save a big labor staff.
Those kind of products really can provide the contractor with an efficiency that allows.
Better utilize labor.
Lower the cost of an install.
Ultimately.
Our objective is to increase the profitability of both us and the contractor is part of that sales process. So youre dead on I mean, your observation of watching that <unk> being installed and the ideas around continued improvement in product innovation and service innovation that improves the efficiency of the AD is.
Certainly on the most attractive features of the repair and remodel segment that we're planning it now and we want to get really good at turning those those value propositions into into profit for our sales and the contractor base.
Supports our product.
I could continue to you think it's fair.
For your mill realization.
To be on the order of one tense.
Does the installed cost to the customer or do you think that the distributors and the demand for your product is so high that the distributors are getting <unk>.
<unk>, an inordinate markup.
No I don't believe I think.
Fair.
Complex word.
Business transactions, but I do believe we look we have really good distributor partners that over the years, we have actively.
Hi.
Upgraded to a specialty to more of a specialty focused network.
And we are proud of.
That our business model is centered around providing opportunities for profitability.
Profitability throughout the channel.
And with our contractor base and ultimately to have that product delivered efficiently enough. So that you decided to install it on your home given the price that you were closing so.
But there is no right now we don't feel compelled in any way to try to keep trying to take margin out of the channel as <unk> as a means to improving our profitability, we want to improve our profitability by working on the cost that we can control directly and by managing pricing.
Thank you and let me add the hurricane Ian past 10 miles South of me two months after the job was done.
And everything held upgrade.
Thank you so much for your questions Scott.
Yes.
You guys are safe.
Thank you so much picture.
And we're setting up for our next question here.
And our next question is from Paul Quinn with RBC capital markets go ahead Paul.
Your life.
Okay. Thanks.
Good morning, guys. Just a question on holding when you get line to up.
If the demand is not there for signing you can still run OSB right.
Yes.
Paul we have that will have the ability.
Run OSB online one in houlton historically.
And then we also have the ability to run OSB in various other mills in our system.
And so when it comes.
If there was a need to do that as far as not being able to ramp up into all of that volume immediately and.
OSB market could.
Handle it.
Brickley, we brought in our space.
Our system pretty efficiently not being like that have for the last time, we've done that is probably three years ago.
Certainly havent run any sense.
Since COVID-19, but we do maintain the ability to do that but there was a previous question about fixed.
Fixed cost coverage and Thats why we do that is to be able to maintain machine.
Machine productivity.
As we grow our siding demand to meet the ultimate capacity that we have in place.
Great.
Do you have that flexibility on the expert finishing mentioned Brad Tito Youll.
Double it by the end of 2004.
And then double it again by the end of 2025, what are those two things in terms of the percentage of siding capacity that you'd be able to do on expert finished like doubling by the end of 2004 does that get you to 10% and then again does it get to 20% of your capacity.
Yes that would that would give us about 15%.
The capacity by about <unk> over that period of time.
Okay, and then just lastly, any update on integrity.
Yes so.
Tech or update I'll give is that we continue to look to optimize the facility in Modesto.
Paul given where we are right now with our capacity capacity expansions in siding and our structural solutions. We are no longer viewing that platform is a big opportunity for growth.
That also related to the near term outlook for housing so we're going to continue to.
To work on improving that.
Profitability of the Integra facility, but I feel like our capital allocation.
Is better spent now given the returns Alan just talked about we're able to demonstrate that by further investment into it.
Siding and OSB structural solutions.
OSB OE program so.
We still have work to do to optimize Modesto, but we're not seeing that integra.
The business model is providing the necessary returns for us to be very excited about the long term.
Okay Fair enough. That's all I had thanks, guys best of luck.
Thank you very much Paul for your question.
I will now turn it back over to Erin whole world for closing.
<unk>.
Okay. Thank you operator, and thank you everyone for joining us to discuss Lp's results for the third quarter of 2022 with no further questions. We'll bring the call to a close there stay safe and we'll look forward to speaking with you all again soon.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
The conference will begin shortly.
As Johan during Q&A, you can dial star one one.
[music].
Yes.
Okay.
Yes.
[music].