Q4 2022 Louisiana-Pacific Corp Earnings Call
Good day, and thank you for standing by.
Welcome to the Q4 2022, Louisiana Pacific Corporation Earnings Conference call.
At this time all participants in a listen only 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.
We'll then hear an automated message advisory your hat is raised.
Your question. Please press star one again.
Please be advised that today's conference call is being recorded I would like to her Pam excuse me turn the conference over to Aaron Howald.
Vice President Investor Relations.
Thank you operator, good morning, everyone and thank you for joining us to discuss Lp's results for the fourth quarter and full year of 2022.
Well as our updated outlook for the first quarter of 2023.
As the operator said my name is <unk>.
Lp's, Vice President of Investor Relations and business development I'm joined this morning by Brian .
<unk>, Chief Executive Officer and Allen.
Hockey Lp's Chief Financial Officer.
During this morning's conference call and broadcast we will refer to with an accompanying presentation that is available on <unk> IR web page, which is investor Doc LP Corp Dot com.
Our 8-K filings is also available there along with our earnings press release and other materials.
Today's discussion will contain forward looking statements and non-GAAP financial metrics as described on slides two and three of the earnings presentation.
Rather than reading these statements I incorporate them herein by reference.
The presentation also contains reconciliations that are further supplemented by this morning's 8-K filing.
I will turn the call over to Brad.
Thanks, Sara good morning, everyone and thank you for joining today's conference call to discuss our fourth.
Fourth quarter and full year results.
In 2020.
Here, we saw a progressive siding volume.
One 4 billion EBITDA and returned nearly $1 billion to shareholders, including repurchasing 14 million shares.
We also invested in our ongoing transformation by completing the conversion of our Houlton mill, starting the conversion of Chicago from OSB to siding and growing our capacity to produce export finish and structural solutions.
In Q4, we grew Sodding solutions net sales by 38% and remain EBITDA positive in the west fee. Despite price has fallen to levels not seen since 2019.
Another highlight of the year was publishing our second sustainability report El Pais inherently carbon negative products and efficient manufacturing processes.
The bill pay is delivering value to customers homeowners and shareholders are also positively impacting communities and the environment every day.
It was truly a remarkable year.
Every LP employees, whose contributions helped make this possible.
The recent slowdown in housing starts is likely top of mind for most of the audience. So let me address that starting with a reminder, that lp's OSB and siding businesses.
Different relationships with that underlying market.
Q4 saw a 26% fewer single family starts that in Q4 of 2021 and single family starts were down 11% for the full year.
Lp's OSB segment is closely correlated with new residential construction.
As a result after a remarkable year of cash generation commodity OSB prices fell to near cash cost in Q4 as demand slowed with reduced housing starts.
We responded with disciplined management of capacity and exceptional execution by our sales team, which allow me to OSP segment to earned $13 million in EBITDA, which is above our algorithmic guidance given how far prices fell.
Yeah.
Bill pay siding segment on the other hand is more specialized has no connection to commodity prices and has significantly more diverse channels and end users with only about 40% of signing volume going to new residential construction and.
And we think smart side as the best signing product available.
As a result, Saudi has consistently outperformed the underlying housing market with net sales increasing about 38% in the fourth quarter and about 26% for the full year.
In the fourth quarter, our siding distribution customers continue to order, but some of their customers polls slopes. This resulted in inventory build in the channel of which we were unaware until late December .
Time lag inherent in our managed waterfall.
At quarter end, therefore, most smart side product has finally caught up to customer demand, bringing lead times and inventories back to more seasonally normal levels.
Allan will talk more about that in the guidance section.
Looking back single family starts grew by 14% from 2020 to 2021, Vince fell by 11% in 2022 and then.
Essentially flat over two years over that same two year period, we have grown <unk> solutions revenue by more than 50%.
<unk> is not immune to a housing slowdown, but it has consistently outperformed the underlying market. We are confident this trend will continue as we execute our strategy to grow and take share by focusing on repair and remodel markets and driving product innovation.
Let me talk a bit about <unk> view of the current market and how we are navigating it.
Consensus for total U S housing starts for 2023 is around $1 million to $5 million or 20% lower than 2020, Although data released last week was a bit better than this.
Observers expect the housing market will strengthen in the back half of the year, implying that Q1 could see housing starts fall by more than 20% compared to 2022.
There is significant uncertainty in housing and R&R markets at the moment, particularly with regard to interest rates and affordability.
As a result of this near term uncertainty, we are seeing softer demand in siding and OSB.
But I want to reinforce that outpaced strategy is not simply to wait for strong housing starts for high commodity OSB prices.
Our strategy is to grow smart side experts finish grow our exposure in R&R grow our portfolio of structural solutions and expand our reach geographically.
We will continue to execute on our strategy because we have shown that it delivers back. This strategy. Just a reason fast siding has gained share and consistently outperformed the housing market as.
As we have said before we have more than enough flexibility in our production plans and capital projects to respond effectively to short term weakness and more than sufficient liquidity to continue investing for long term growth in siding and structural solutions.
In the long run fundamentals remain very strong with demographics and structural undersupplies tailwind for new construction and aging housing stock supporting R&R growth.
<unk> the short term GAAP protecting against market downside, while preserving our ability to benefit when the housing market regains its footing.
We will do it by executing our strategy with disciplined operations and capital allocation.
And with that I'll turn it over to Alan to discuss our financial results for the quarter and an update on our capital allocation strategy.
Thanks, Brad I'll spend a few minutes reviewing lp's performance for the fourth quarter and full year, and then I will discuss the current market environment and its impact on our near term outlook.
Slide seven shows siding growth compared to housing starts on a trailing 12 month basis.
As Brent mentioned the disconnect was even more pronounced in the fourth quarter.
The Pie chart to the right show the mix of the more specialized siding products, primarily expert clinician shakes, although the percentage of total volume shrank by one percentage point.
This is an artifact of the exceptional 20% growth.
Yes.
Which was admittedly magnified by the soft comp.
Building from a press rebuild in the fourth quarter of 2021.
Experts face revenue grew by 65% year over year.
Slide eight shows the course for siding in more detail.
Always a fairly simple one list price increases and favorable mix drove net prices, 15% higher.
Volume grew by 20%. These two factors added $70 million to EBITDA inflation.
Inflation of raw materials, and freight costs for conversions and increased selling and marketing produced a $32 million headwind.
And otherwise the EBITDA gains from growth was double the negative impact of inflation and investments in future growth.
Resulting EBITDA margin increased by six points to 23% again in a quarter of single family housing starts fell by 26%.
Slide nine tells a similar story for the full year.
14% higher prices in the 11% volume growth added $212 million of EBITDA, partially offset by $31 million of discretionary investments, meaning mill conversion costs inside of the basket.
And after $122 million of inflation EBITDA was $50 million higher than the prior year for a full year EBITDA margin of 23%.
With two press rebuilds significant inflation and the lessons of sunflower single family starts.
The OSB charts on pages 10, and 11 are dominated by the impact of falling OSB prices and rising raw material costs. The volume reductions caused by market curtailment late in the quarter resulted in $61 million lower EBITDA in the fourth quarter of 2000 21 million.
From commodity OSB and $50 million from higher priced structural solutions.
There was a $14 million excellent question, especially raw materials at the $10 million impact from eventually devaluation.
This high price realization resulted in the OSB segment, outperforming olive garden rhythmic guidance and generating $13 million of EBITDA.
For the full year awards to fallen patient lesson is again dominated by price inflation I do want to highlight that the $65 million of increase to EBITDA to structural solutions growth more than offset the $41 million impact from lower commodity volume.
This shows the incremental margin impacts of the higher cellulite structural solutions products.
And so these four slides on Lp's transformation strategy in a nutshell.
OSB prices ebb and flow outside our control, we generate significant amounts of cash when demand and prices are high and we manage our production capacity with discipline and focus on demand.
Signing on the other hand, as our growth and value creation engine specialized products steady prices and a long runway for continued growth well above the underlying market.
Slide 12 shows a very high level going forward for the revenue and EBITDA for the quarter.
The price drops reduced revenue by $120 million.
This was almost completely offset by a $105 million or 38% of siding growth a remarkable accomplishment for the size of the team.
OSB market curtailment of the losses for Gulbis OSB capacity further reduced revenue by $37 million and $19 million respectively.
Offset by $13 million from increased commodity OSB volume.
Did you sell this ramp up.
The SA et cetera, and anything else you saw revenues fall by a combined $22 million.
The EBITDA story on the right hand column is similar other than the collapse in North America. Some of what we can control specifically, citing gross structural solutions growth in OSB volume netted $37 million positive EBITDA contribution.
It was not enough, however to offset falling OSB prices and inflationary pressures.
As a result, but I will tell you delivered 100 million jobs in EBITDA in the quarter.
Flows in the prior year quarter by $178 million.
Slide 13 provides the same analysis for the full year, so revenue $456 million of growth more than offset the impact of falling OSB prices.
EBITDA the gross deciding of structural solutions produced $294 million of EBITDA compared to 2021.
Other than OSB prices is $294 million was almost enough to offset the combined impact of inflation and cost of milk conversions <unk> Phi outage for conversion to siding LTM EBITDA drop.
Anything else besides.
Page 14 of the presentation shows cash flows for the quarter and full year.
We began the quarter with $482 million in cash operating cash flow of $44 million is the net result of $100 million of EBITDA plus $29 billion of working capital decreases less seven.
Texas.
The fourth quarter saw heavy capex spending of $132 million most helmets to go a site and conversion in Green Bay export finished expansion.
$16 million of dividends and a few other things cash balance fell by $99 million ending the year $293 million.
Finally, if you look at the P&L account on page 17 of the presentation, you will see an $82 million nonoperating charge in the quarter. This includes a $78 million noncash charge, resulting from the settlement of our defined contribution pension plan is challenged with that message from EBITDA and adjusted earnings per share.
And with that let me move on to the current market dynamics and how Lp's strategy helps us respond before transitioning to guidance.
As practice scribed, because as you all know.
There is significant uncertainty in the housing market.
<unk> is investing in growth for swap side export finished structural solutions to meet customer demand.
As we said before we have significant flexibility to delay the timing of capacity expansion projects should we anticipate the current market softness is likely to continue.
However, we also have more than enough liquidity to withstand the temporary reduction in cash flow that reduced customer demand would imply.
L. P will continue to manage it smells a discipline to meet customer demand.
<unk>, we are working through the inventory digestion that as a company the transition from our managed portfolio and all indications are that inventory is now flowing naturally.
OSB just as we took market downtime at the end of the quarter, we are constantly assessing customer demand mill inventories and OSB prices to balance supply and demand.
Confident that this strategy will allow us to manage this period has decreased demand.
I hope and expect this temporary with the agility to respond up or down as the market evolves.
Our capital allocation strategy remains unchanged that the timing is somewhat cash flow dependent as a reminder, that strategy is to firsthand in our cash than to invest in growth and that will be then to return the remainder to stockholders via dividends and share repurchases.
In the fourth quarter as OSB prices and cash flow fell we did not repurchase any shares, leaving our share count at about $72 million.
We have a remaining board authorization for $200 million of repurchases and consistent with our belief that our shares are undervalued cash flow allow us we'll be back in the market.
In terms of liquidity we.
A $550 million Undrawn revolver.
$350 million of long term debt at 365% due in six years.
Phanteks protect us very strong balance sheet, but use it to execute our strategy.
Turning to 2023 is shaping up to be a year of negative cash flow.
The current housing consensus in OSB prices, we will manage our capex and balance sheets, but appropriate discipline.
The first quarter as Brad mentioned, we.
We expect inventory digestion following our transition from a managed towards a final siding with the result that revenue for <unk> solutions is expected to be flat to 5% lower than the first quarter of 2022 price increases roughly offsetting lower volumes.
I know it must be assuming prices remain constant at the level of published last Friday by random lengths OSP revenue would be down by about 20% sequentially from fourth quarter levels.
With OSB prices at least levels. Please bear in mind that Lp's algorithmic guidance for OSP revenue reflects currently planned capacity reductions taken to match production to customer demand.
And all of these factors would result in a first quarter EBITDA of at least $35 million.
Now given the current uncertainty in the market with regard to full year housing and repair and remodel demand it's difficult to offer accurate full year guidance for revenue growth.
We are confident that the siding segment will outperform the underlying market by a substantial margin.
Since the underlying market itself is difficult to predict we're going to hold off on offering meaningful guidance until our next earnings call by which point, we expect to have greater clarity.
Similarly for full year Capex guidance, we will make the investments necessary to grow it outperformed the underlying market as I said, we have significant flexibility in our capex climates and more than enough liquidity to adjust up or down as we gain more data about customer demand.
I'd like to hand back to Brett for some closing comments. Thanks.
Thanks Alan.
All in detail, we are working through the effects of catching up to the siding order file and we're managing OSB capacity to match current market demand I don't want to minimize the near term challenges. These factors present as we enter a period of softer housing starts.
Market is still quite uncertain in housing starts and R&R activity has never been easy to predict. However, there are few things. We are very confident about first there is a structural oversupply of homes in the U S. This honor supply must eventually be resolved.
The age of the average house in the U S suggest a very long runway for growth in R&R and third we know that we have the best products and team in the industry.
<unk> segment has a long history of outperforming the underlying market.
Gaining share and that will continue.
And we will manage our OSB capacity, our capex plans and our balance sheet with discipline. So that we can continue to outperform the market and deliver results for our shareholders.
<unk> 22 was an incredible year 2023 has started with market conditions different than what we have experienced past two and a half years power.
However, we are not resting on our loans as we bring our first 50 years to a close I have never been more confident that <unk> will build on our record of growth innovation and sustainability to deliver shareholder value and our next 50 years.
With that we will be happy to take your questions.
Okay.
Thank you.
As a reminder, if you would like to ask a question. Please press star one.
One moment, while we compile the Q&A roster.
Our first question today will be coming from George Staphos.
Bank of America. Your line is open.
Hi, everyone. Good morning, Thanks for taking my questions and thanks for the details.
Brad Allen I know, it's difficult, but is there a way to assess for us.
What your production stance is right now in siding relative to takeaway.
You still.
I'm, assuming producing at a lower rate relative to demand just to clear inventories, where you now have you largely gone through that and you are producing as far as you can tell pretty much in line with takeaway.
And in terms of first quarter. Thank you for the guidance points recognizing it is very difficult given all the moving parts in the volatility related to pricing with OSB.
Is there a way for you to give us a bit more color in terms of how you see OSB and siding stacking up and that more than $35 million guidance. Thank you.
So George let me start with the.
Our production question around siding, so just keep in mind that holton.
<unk> ramped up all through last year and is right at or close to production.
Capability to produce at full production.
Govern that volume back a little bit and hope to as we went into it.
Q4, and beginning of Q well more so actually in Q1.
And so so we are the answer the.
Question for running a siding plants at full production.
With Anne Hulton, or we have decided to.
It takes some capacity out there just to try to match.
The order pull through a little bit better.
Yeah.
The second question, Joe, which was could we give color around the $35 million, yes, I think we have any of that.
Bear in mind. Please that the number of about Corp. For OSB is based is predicated algorithmically OSB prices of last fight a holding flat. So the 75 roughly breaks those photos plays.
Ladies rough about $50 million from siding about negative 10.
OSB, and then everything else, including a bit of conservatism, perhaps lts offsetting Copa down minus 5% plus 50, deciding minus 10 for OSB minus five so everything else 35 million.
Thanks, Hal and the last one I'll turn it over you mentioned.
You have the flexibility to.
Push ahead or delay as needed in terms of your capacity ramp in and siding what will be the key mile markers for you relative to how quickly you go ahead or decide to pull back.
One of your peer companies talked about some weakness they were seeing in repair remodel activity.
We're going to be whether it's dollars of revenue or commentary out of the big box retailer what will you be looking to and what should we be looking at as analysts engaging that thank you I'll turn it over.
So George the owned.
Just safer, but press production, we're full steam ahead, while bringing <unk> up to full year by the end of the year, we see no no.
No reason to back off at all.
The path forward for <unk> startup, which added a significant amount of press capacity.
Similarly in vast New York, we're full steam ahead on that.
Production for export finish and then as we get to the next tier of volume from our press capacity standpoint that would be Holton line too and then.
<unk> got various options on export finish.
We'll just be looking at the market as we go through the year looking at ultimately what we feel like growth will be for this year and you can apply that.
Also look over what we expect for housing. The next couple of years and those will inform our decision on whether to what kind of pace to continue that capacity expansion.
We're still we're still actively involved in engineering and design for export finished capacity beyond that and as we've talked about on the call previously.
We have begun procurement for.
Different capital components for <unk>.
But we haven't we're.
Were not we havent delayed any time, we havent had makes us make decisions on beginning to actually put still in the ground or poor foundations and as we get to the spring and summer we will have a better feel for what the market's looking like in the near term and that will govern our capacity expand around the reality of what we're seeing in the order.
File.
Thank you.
Welcome.
Thank you one moment, while we prepare for the next question.
Sure.
And our next question will be coming from Houston mature.
Your line is open.
Thank you good morning, Bryan Allen Aaron.
A question now coming back to siding.
Ill prepared remarks, he talked about meaningfully outperforming the broad market is not a bad thing about either in terms of sensitivity or audit. There is a better way to think about sort of the degree of outperformance are sort of.
Volume growth.
Different housing stock flat I'm, just trying to understand what is the.
What are the best way to think about volume in the siding business.
Recognizing that there is still a lot of uncertainty.
Yes, so great question and it's a very hard question to answer, particularly given that extreme.
And so for the last couple of years, we bought we put on a Monday still at a slow but <unk>.
High level.
Sufficiently for some periods of time, we believe that we outperform on a revenue basis, the underlying market, let's say eight to 10 percentage points of growth.
I am.
So a simple way of articulating and I say the underlying market. We've only really got one bulk of the market and that single family housing.
And so single family housing, where let's say to be down, 10% and I would argue that we should be able to grow our revenue above that.
And that model you might expect flat.
Of course, it depends on what happens in R&R and to what extent nuts.
Impacted by by.
By the housing the housing.
On the housing starts and I would argue and I would like to say that at 10% housing decline, we might actually see some strength in.
And prepayment model and maybe that will be better. So so it's flexible.
Ron on housing don't necessarily move in tandem, but we used as a simple working model eight to 10 points better than the market, however, whatever that market market.
And as a bank.
And we believe we have.
All of the history of <unk>.
<unk> been able to do that through market share gains partly driven by innovations.
Got it no that's helpful perspective, and perhaps I missed it.
Did you talk about 2020 Capex guidance.
No I didn't quite specifically.
Hi.
It's very hard to give guidance.
Without being able to discuss it in a sort of confirmed by this.
So.
Last I think last couple of quarters I've guided to as I said, the 2020, so it'll be a figure closer to $500 million.
I'm, obviously going to lower that guidance a bit but let me tell you what our working model is as of today.
I'm happy to do that because it indicates that the range I would say our working model for Capex and this is not a projection. This is basically describing what we see in the level of flexibility. We think would be wise. Our working model is in the range of $350 million to $450 million of Capex in 2023, it's hard to say.
Brad said, where that will land because we.
We will use the flexibility.
That we have.
Q1, Capex will be pretty heavy I'm willing to quote a number of something like $120 million to $125 million of Q1 capex level.
It will be fairly happy and we have a number of commitments.
The long lead time items that we would that we intend to plough ahead with of course with bringing scaled up.
So there is no absolutely no slowdown there.
Understood that's very helpful I'll jump back into the queue. Good luck.
Thank you while we prepare for the next question.
Our next question is coming from Susan Mcclary of Goldman Sachs. Your line is open.
Thank you good morning, everyone.
My first question is talking a bit about the pricing environment for siding.
First of all I guess can you give us any update on the success that you've seen with that increase that you announced.
I believe it was late last year effective in early January and then in this environment with volumes moving lower how do you think about price versus volume, what's the ability to continue to hold the pricing that you realized in would you be willing to think about the volume versus price a little differently.
Given where we are from a macro and housing perspective.
So for the first question, we were able to implement our price increase January one.
I would say just as consistent with the way we've done it in the past there could be a little late.
Lingering effects through Q1 of realization, but predominantly all of it was accepted in the marketplace. So we have minimal concerns there.
And for the price volume trade off.
Generally signing doesn't work that way.
Where we're pricing in the distribution.
I don't think most most siding jobs or a cost play to start with.
So we feel like we're pricing the product.
Equivalent to the value that it.
Our warrants in the market.
<unk>.
And our distribution partners have done a good job of getting that price through the channel I'll do want to say there is there is an exception to that and that is around.
Large large national builder deals, which typically do require some backend rebates and obviously we are.
Part of that game and we are active in and to all.
And continuing to process those kind of opportunities now and that can result in a rebate pattern that chips away at that list price increase.
For specific customers and for large volume type type of deals but.
I would just say for the year, we should expect to see by the time, we get to the second quarter that January price increase has worked its way into our P&L.
Okay.
Very helpful and then turning to the OSB segment, you talked a bit about some production curtailments. There can you give us more color on some of those locations and how youre thinking about holding production as we think about where pricing may move for OSB through the year.
Okay. Thank you.
Yes sure.
Im not going to go through mill by mill and talk about what we did I would say.
I would describe it this way in general in Q4 was pretty general across our entire system.
With.
Downtime that is somewhat easier to do during the holiday season.
So we.
Widespread.
Distribution of downtime.
In Q4 to try to match demand and then as we come into the Q1 and get everybody comes back from the holidays. It is more targeted around mill cost and including.
Transportation and so in Q1.
Downtime will be a little bit more concentrated but.
We'll be taking.
As needed in order to match demand.
Yeah.
Okay. Thank you and good luck.
Thank you Susan.
Thank you one moment, while we pause now for the next question.
Yeah.
Our next question is coming from Mike <unk>.
Your line is open.
Okay.
Thank you good morning, Brad Alan and Aaron Thank you for taking my questions just.
On siding I realized you guys as we can given the excess inventory and as you've mentioned you transitioned away from managed order file.
I'm just trying to get a sense that what gives you the confidence that <unk> will continue to grow as the economy softens home equity value declines unemployment increases and maybe the premise of the question is this you grew the siding business during an economic and housing up cycle and it really has yet to be stress tested during a down cycle.
R&R likely grew more than normal the last few years given the work from home people, obviously during Colby building out <unk>.
<unk> shed other things during the lunch break so there is a risk that could actually slow more given the backdrop and as consumers choose to focus on more small ticket item. So I'm just trying to get a sense of how you're framing sliding in the current environment.
Yes, so Michael so.
The risk that you described around kind of macro R&R spend is real.
And then when you guys talk about in our prepared remarks.
Outlook for new construction is uncertain to say the police right now kind of all over the board depending on the analyst that you look at and so you get the underlying market certainly will impact.
The results for our siding volume growth as it goes through this year no question about it but I disagree with you.
Point about us.
Business stop being stress tested.
Other periods of downtime.
Housing slow winter housing going down we've consistently outpace the market on <unk>.
Volume growth and certainly on revenue growth.
So I think.
The reason we've been able to do that is first of all our portfolio is pretty highly diversified given the exposure to non housing and even non rate repair and remodel segments like shed.
And positions in retail.
And then also over the past five to seven years, we've done a really good job around product innovation that has opened up new opportunities for us and Thats why we show that slide in our deck about the percentage of.
The revenue that is new products.
The fact that we have an expert finish kind of just coming into.
<unk>.
Any kind of significant market position now.
R&R could be down.
Cost with our market share being pretty low in R&R and the fact that we're essentially in the last phases of introducing our export finished to the market.
We see that <unk>, a lot of upside to that from a market share standpoint, again, we can't overcome if R&R astound, citing R&R is down 10%. This year, we're going to fill that but we are confident that they are still we still have the ability given how well our product performs giving to innovate.
<unk> that we've been able to bring to market in the last five years or so and given.
Depending on the geography, and the segment relative.
Lower penetration rates in certain parts of the country in certain segments.
We're confident that we're going to fill up the <unk>.
Facility up from a credit standpoint, we're confident we're going to have to continue to build export finished capacity and we're confident we're going to grow but that growth can be gauged somewhat by the underlying R&R and single family start Mark but.
Yes.
We're all in on gaining market share and I'll just make one final remark. Historically this is a general statement, but historically.
We've actually picked up more market share in a down market.
In an up market and <unk> been able to hold that market share. So I'm, not saying I'm excited about a down market at all but I do believe that it brings opportunity for customers to shop around a little bit and given how well our product forms and once we get a trial.
That can bode pretty well for us and over the long term.
Got it. Thank you for the color just one quick follow up on that just you mentioned lower penetration rates in certain parts of the country and segments can you provide a little more color about what parts of the country and what segments have lower penetration rates that you are trying to increase your share.
Yes, So let me just in general so geographically in the center of the country North to South So, Texas up to Minnesota, and we've got good market share there, but sports should go east, Texas and the south up built up.
My next seaboard lot of opportunity there for both new construction and repair and remodel. That's the reason we've converted helps it in maintenance rates were building export finished capacity.
You work in expanding the capacity that we have in North Carolina for export finished so the opportunity there and then I would say that in.
Pockets of the Pacific Northwest there are some good markets for us there historically, but there's still opportunity for growth, particularly with export finish.
Yeah.
Got it and then just one last question before turning it over.
Obviously, you have a large shareholder.
Which slightly increased its stake last quarter to slightly under 10%, obviously, you've been doing a good job.
In terms of Reorienting, the portfolio to higher growth higher value add products.
Do you see more shareholder value being created through the involvement of the shareholders.
Well.
Maybe reputation Ali it helps a little bit, but I don't think theres any direct maybe we haven't noticed any direct.
Improved shareholder value as a result of that but I mean, we're proud to have it I'll tell you that.
But.
Thank you Annie.
So not directly but I would assume that the credibility that that brings to our strategy.
Cannot hurt.
Got you good luck in 2023.
Thank you thanks, Mike.
Thank you one moment, while we prepare for our next question.
Our next question is coming from Mark Weintraub.
Seaport Your line is open.
Thanks, guys.
So for first quarter, if I'm doing my math right you seem to be pointing to order of magnitude, 16% EBITDA margins to the siding business.
So I was hoping to get a little bit of color on some of the variables at play obviously below that the types of ranges you've been.
<unk> beforehand in particular.
In the way of like startup or conversion costs related to the golar might be included in there.
How much of it is kind of just fixed absorption higher cost.
And what what other variables might be want to contemplate beside.
What other variables might be want to contemplate.
Yeah. Good question Mark Allen, let me.
Let me, let me articulate this in the context of a year over year.
So Q1 year over year, we basically said that we think more or less.
Pricing and volume offset.
And that that fundamentally.
Leaf zero EBITDA impact.
Two its high level basis last year's EBITDA of 83 dropping to the figure I quoted a 50.
So $600 million drop about 20 and change of that as raw material costs. The carryover crop material inflation now as we all know normally that would be offset with pricing and technically it is except for the fact that.
In Q1 volumes are down some so to meet Tor so rapidly it differently, yes with volumes being down one of the problems of having.
<unk> product is.
Is that what your volumes are down you make less money.
As I've said most of the marks on calls like this we enjoy a high variable margin on siding products. So yes, when when when volumes are down year over year.
Thanks.
Does that does the heavy.
EBITDA and <unk>, 45% to 50% offset of the revenue drop caused by volume.
So the way I look at it as pricing and volume EBITDA impact basically net off we're left with 20 and change of raw material, and then $5 million to $10 million of yes, continuing investments.
So that's really how it compares to <unk>.
Plowing on.
With with the.
The conjunction of solar and other projects and those two things. It does do put less strain on the EBITDA. It's the right strength in my opinion.
So $10 million of investments and stuff and about 20 and change of raw material with pricing and volume impacts offsetting.
And EBITDA.
Great. Thank you and I realize this is tough and lots of moving pieces.
But do you have any assessment as to how much.
The volume weakness.
Is either.
You sold a little bit ahead of time or.
Destock, it's kind of really maybe the same thing.
Okay.
So really trying to get a sense is let's just say conditions were to remain similar to what they are.
Would you what type of volume.
Improvement might you expect.
On a go forward basis, I guess, what I'm really sort of just trying to get a sense of is kind of a rate range is for volume expectations. Recognizing you don't want to give a full year.
Given all these uncertainties, but if there's some sort of sensitivity analysis, you can provide to us under the different macro situations of where you might think volume in siding might come out that'd be super helpful.
So mark let me start there and then I'll I can add.
Maybe some color to this but so in the context of gauging, where we are today.
How about Q1 relative to the market condition.
We guided.
30%.
Growth in Q4, <unk> got 38.
We had a price increase January one.
We were all managed order file which means customers are ordering.
Six to eight weeks or longer out in our managed order cost situation.
And so I do believe that there were some order pull forward into Q4.
That.
Uh huh.
Allowed us.
Drove an outstanding Q4 growth relative to what we were guiding to what we when we talked to you guys laid October 1st November .
And so I think that we've got to kind of look at the two.
Quarters combined to understand kind of what what's happened there.
And then as we look into Q2.
There is a bit of that gauging, what Ferrari really don't pull throughs, which have been kind of hard to understand because there was the inventory build at the end of the quarter, but I think we are we are right now it feels like right now in our order files, we are beginning to see.
We're servicing true demand.
And I think as Alan mentioned in his prepared remarks, when we get to.
Health care in the meantime, but when we get to the next call. We'll have a really good feel for that is just the uncertainty.
Pull up what was being pulled out of distribution from say January one until a week or so ago. It has been difficult for us to gauge because there was an inventory build as a result of what I've just spoken to so I don't know Alex let me paint item as I think I should ask.
Great.
Just real quickly could you you did note another big.
Inflation year over year impact.
It seems like some folks are seeing lower wood cost in.
And in other <unk>.
Businesses.
There has been some optimism maybe resin comes down a little bit when might we start are we not seeing that yet in fighting and when might that start showing up.
So on the resin side, and basically say all materials other than wood.
Those those major materials frames or contracted in the contract price which is.
Based on some derivative of oil, but it is a lag and so but if we continue to see oil prices fall and even some that we have some of that.
Fallen it's already happened, we haven't realized yet.
Certainly could be helpful for our margin this year.
We certainly are not seeing any more increases in that area.
And then on the good side.
Same thing that a big driver for us and we're buying pulpwood, so a big driver for us.
So as far as just getting the wood into the facilities.
And but I will say structurally we have experienced some.
Price increases Inc to service, our Canadian Mills due to us having to go further.
Procure wood, giving some of the restrictions on harvesting.
Canada.
And so.
You might not be surprised.
From a network perspective, that's where we are.
It can have some downtime but.
Yes.
But I think calls for moderate markets would go through the year certainly on the resin side and we're having to just really manage part of Woodside to bring those costs down but relief.
With diesel pricing would be certainly helpful. There.
Much appreciate it thanks, Brian .
Okay.
Yeah.
Thank you one moment, while we prepare for the next question.
Yes.
Yes.
Okay.
And our next question coming from Kurt Yinger of D. A Davidson your line is open.
Great. Thank you and good morning, everyone.
Just starting off on the OSB segment any thoughts on the relative weakness in structural solutions versus commodity volumes in Q4, and do you think that reflects maybe timing differences in terms of prices.
Declining or kind of a larger trend we should be aware of in terms of those products, perhaps being lessened demand weaker commodity pricing environment.
Yes, yes.
Certainly saw from an overall volume standpoint, those go down I, just think primarily the market got so competitive in Q4 as folks for kind of rationalizing.
Tori in production, we certainly saw.
Falloff there.
Im totally optimistic on the long term about our ability to grow structure solutions, but I do think.
Both in both directions, and a strong market.
Easier to push structural solutions into the market and our hard down market.
Given given where how pricing could lag around certain flooring skus, we can really become skus can really become disadvantage to guests more commodity products.
So I think we have to be careful about gauging.
Where we are both on the upside and downside structural solutions because of that that kind of value.
The value proposition you can get out of kilter from a pricing standpoint, when the market's moving so.
It's something that we're keeping an eye on it but I do believe the strategy sale, we did grow it obviously from a from an annual standpoint, and just like I had mentioned earlier with siding. We've introduced some really exciting new skus that gives us an opportunity to continue to grow that.
Got it okay that makes sense and then just for my second.
A question earlier around pricing and you alluded to.
Im kind of volume discounts and rebate program with builders, but.
One of your competitors I guess had some interesting comments in regards to kind of the pricing dynamic there and perhaps just getting more aggressive I mean do you have any thoughts around that dynamic as it relates to smart side and maybe you could also just touch on the success that you've seen.
The builder series introduction.
Yes.
Cited about the progress we made last year with the builder series. We're excited about some wins that we've had recently and some ongoing negotiations that are happening now, but it is competitive I mean, there is no question about it that's the reason we engineered a product.
Specifically for that channel or that end use and so as the market slows.
There's there's a <unk>.
Certainly.
That's a competitive landscape.
Right there were big Big builders have a have a negotiating leverage given the volume that they will consider them in the market share that they have gained.
Drink hosted.
Hum.
But unlike in our history, we now have a product that it's very competitive there.
Various statically, placing it is once it is trial seems to be it tends to be accepted and there is a stickiness to it so we're going to continue to grow that but.
But you pointed out correctly that that is a competitive landscape.
Mike probably any other we operate in where you are.
Price can be a dominant driver, sometimes even not necessarily.
What we view as the entire value proposition.
But I feel I feel good about the way we're positioned to win there, but we wont win them all.
Right, Okay, well I appreciate the details I'll turn it over thank you.
Thank you.
Thank you one moment, while we prepare for the next question.
Yes.
Our next question will come from Paul Quinn of RBC. Your line is open.
Yes, thanks very much good morning, guys, just one of your siding competitors.
Contract signed contract with 24 of the 25 top U S builders.
To supply a hard siding just just wondering.
How do you expect that to affect your builder series also Dave also reintroduced their low priced sampling product I'm wondering if that's going to have a material headwind on sort of.
The growth build their theory.
Jeff as I just mentioned.
A very competitive field around big builder lap siding.
But I really feel like the product that we introduced PA builder sharing is a superior product to everything thats out there for that application.
We were able to price it competitively.
I mean to win our share of the opportunities.
But.
It's a negotiated deal.
A lot of volume involved and.
Well, we kind of have to see how it plays out this year, but the market share we gained last year. So it's sticky.
And then so I think I'm confident that we can battle head to head with anybody around that type of business now that given that we have this product and I'm also confident that once a builder tries the product they really like it because it's superior to go there.
The alternative.
Hard sidings.
But circle back around it's a competitive landscape.
And sometimes you can one off of price and sometimes the price gets to a point, where we don't want the business anymore.
And then we have to walk away or we lose it cost a bit too.
For it.
Got it thanks for that and then just over on expert finished if you could give us an idea of what that margin boost is on that product I mean, it's great to see the growth just wondering how that.
That effect overall.
Overall margin profile.
Yes significant price boost associated with expert finish the Martin.
Bose today isn't that material all of it but as we get these newer lines up and Bath and the expansion that we've contemplated out west.
The line, we just added a green body.
The margin boost from export.
Instead of us.
It's the end, but it currently in our with our reported margin, it's kind of immaterial pretty much a wash right now.
Okay great.
Hi, guys. Thanks.
Sure.
Thanks, Paul.
Our next question.
Yeah.
Our next question comes from Sean Stewart of TD Securities. Your line is open.
Thank you good morning, and thanks for all the thoughtful answers to the questions I just have one.
And it's with respect to the share buyback program.
And Alan I think your wording was.
You could remain you can finish off that program subject to cash.
Cash flow supporting it and with potentially a tempered capex outlook.
Is there an implication there that you forgo the share buyback activity for the foreseeable future.
And presuming your thoughts on intrinsic value haven't really changed.
I guess you intend to stay active on that program.
In light of share price weakness, we've seen of late.
I want to reiterate something its a great question. Thank you.
We don't buy up to Opportunistically. So.
Yes.
Yeah like this one might imagine that we should take the opportunity to buy back shares, but we put investment in the business first.
I'll repeat my mantra.
Debt that we put investments in the business first.
We don't buy Opportunistically. So we do maintain that discipline that we have to have the cash already generated.
Two to engage in buybacks and I'm sure that point will come on I just can't predict when.
Understood.
The rest of my questions have been asked and answered thanks very much.
Okay. Thanks, Sean.
Okay.
Thank you. This concludes today's Q&A session I would like to turn the call back over to Eric <unk> for closing remarks. Please go ahead.
Yeah.
Okay. Thank you operator, and thank you everyone for joining US we are at the hour and there are no further questions. So we will bring the fourth quarter earnings call for LP building solutions to a close. Thank you very much for joining us and look forward to speaking with you again soon.
Okay.
This concludes today's conference call. Thank you all for Joey and please enjoy the rest of your day.
The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.
[music] okay.
Good.
Okay.