Q1 2023 Louisiana-Pacific Corporation Earnings Call
Speaker 1: And.
Speaker 2: first quarter 2023 Louisiana Pacific Corporation's earnings conference call. At this time all participants are 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'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker 2: To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Erin Hoelwald.
Speaker 3: Thank you, operator. Good morning, everyone, and thank you for joining us to discuss LPs results for the first quarter of 2023 and our outlook for the second quarter. As the operator said, my name is Aaron Hoewald, and I am LPs Vice President of Investor Relations and Business Development. I'm joined this morning by Brad Southern, LPs Chief Executive Officer and Allen Hockey, LPs Chief.
Speaker 3: Today's discussion will contain forward-looking statements and non-GAAP financial metrics, as described on slide 2 and 3 of the earnings presentation.
Speaker 3: Rather than reading those statements, I incorporate them herein by reference. The appendix of the presentation also contains reconciliations that are further supplemented by this morning's AK filing. And with that, I'll turn the call over to Brad.
Speaker 3: Thanks Aaron, and thank you all for joining us to discuss LPs results for the first quarter of 2023.
Speaker 3: few have demonstrated the value of our strategy in a challenging operating environment and in a certain housing market.
Speaker 3: Compared to the first quarter of last year, single-family housing starts fell by almost 30% and commodity OSB prices fell by more than 75%.
Speaker 3: Despite this decline, we maintain flat siding sales and generate positive EBITDA in our OSPH segment, Outperforming Underlying Markets.
Speaker 3: We are currently seeing encouraging signs of strength in housing, including improving commodity prices, and I am confident that LP's businesses will continue to outperform the market.
Speaker 3: Stage five of the presentation shows highlights for the quarter. In sum, a much softer housing market drove OSB prices far below last year's levels.
Speaker 4: With the August impact on sales, EBITDA, and cash flow.
Speaker 4: Inflation appears to be easing somewhat, but costs for resins, lollips, and freight remain elevated, pressuring margins.
Speaker 4: LPs businesses responded by outperforming the market and we continue to invest in our growth.
Speaker 4: $584 million in sales was about half of the amount from Q1 of last year, with a vast majority of this difference the result of lower OSF prices.
Speaker 4: much lower than last year, again due to the difficult cost from last year's very high OSB prices.
Speaker 4: However, our results were above our previous guidance due to disciplined and efficient operations in OSB and flat siding revenue.
Speaker 4: LP invested $114 million in CapEx and Q1.
Speaker 4: ago with society. Alan will discuss cash flow in more detail in a moment, but LP ended the quarter with $126 million in cash and just under $700 million in liquidity. CICI and OEE were key highlights for the quarter.
Speaker 4: Safety and efficiency can never be taken for granted, especially in the difficult operating climate of a soft market.
Speaker 4: This makes our safety and OEE performance in the quarter truly remarkable. Both businesses saw a 2% point increase in OEE and both businesses had a single recordable injury in the quarter. Our goal of course is zero injuries and two injuries in the quarter is too too many.
Speaker 4: But while we work to continuously improve mill safety, it is nice to pause and recognize exceptional performance.
Speaker 4: In the siding business, our Dawson Creek and Tomahawk mills each achieved 1 million injury-free work hours.
Speaker 4: And in OSD, the first quarter was the best quarterly sexual results for the segment in more than four years.
Speaker 4: We obviously preferred the cash flow that higher OSB prices generated in the first quarter of last year, but it is gratifying to see the value generated by our OSB strategy even in a weaker market.
Speaker 4: Structural solutions average 46% of OSP volume in Q1.
Speaker 4: but exited the corridor well above 50% where it has remained.
Speaker 4: Thruple Solutions contributes incremental margin regardless of commodity prices.
Speaker 4: In terms of capacity, rather than oversupply, soft market, we took market downtime, managing our capacity flexibly.
Speaker 4: And despite the market-related downtime, as previously mentioned, we improved operational efficiency performance in OSD.
Speaker 4: As a result of this relentless focus on execution, the OSB segment stayed EBITDA positive despite the lowest price as we have seen since before COVID.
Speaker 4: I am very proud of the OSB team for the resolve and teamwork demonstrated by their Q1 performance.
Speaker 4: On slide 6, you can see an update on sliding product mix and growth relative to the market.
Speaker 4: On a trailing 12-month basis, single-family starts in the U.S. were down 18%, but siding volume grew by 7% and prices were higher by 13%, driven by list price increases and improving mix. The pie charts on the right reinforce the improvements in mix within the quarter. While smart side volume failed by 9%, expert finish...
Speaker 4: The reason for this is clear. LP SmartSight is the best siding product available. It looks great, has the durability to support a 50 year warranty, is easy to install, is carbon negative, and is available primed or prefinished at a price point that delivers value to installers and homeowners. As a result, we believe we have a long runway for growth ahead of us in siding. To meet this demand, LP will continue to invest in capacity. The presentation provides an update for our capacity plan for siding. I am happy to announce that LP's former OSB mill in Seville, Michigan, pressed its first forward smartsight.
Speaker 4: our conversion options in increasing our runway for future growth.
Speaker 4: Wawa is ideally located with access to labor, logistics, and ample sustainable acid fiber.
Speaker 4: And we are thrilled to engage with our new employees, the local community, and First Nations there as we begin planning for the project to convert Wawa to manufacture smartsizing. When converted, Wawa will become LP's largest single line siding mill, adding roughly 400 million square feet of capacity to the site.
Speaker 4: bringing total siding capacity to about 2.7 billion square feet.
Speaker 4: We will provide more details as the project evolves and with a purchase price of $80 million, our estimates of conversion costs and the lower execution risk associated with the existing facility, we believe this project will generate a higher return than the previously announced expansion of our Holton Mine Facility.
Speaker 4: which is why Wawa will jump the line ahead of Holton Line 2.
Speaker 4: We still plan to expand Holton after the Wawa conversion as customer demand continues to grow.
Speaker 4: Converting Wawa and expanding Holston would bring total siding press capacity to 3 billion square feet. The remaining conversion and expansion options we have already discussed could eventually bring total siding capacity to about 5 billion square feet, more than double our current size.
Speaker 4: And this is just press capacity. We continue to invest and grow the expert finish or pre-finish siding with our newest facility in Bath and New York coming online in Q3 of this year.
Speaker 4: We are investing in our strategy for siding and structural solutions, and we are confident that both have a long runway for future growth.
Speaker 4: What we are seeing encouraging signs as housing starts so far this year have been above full-year consensus.
Speaker 4: The housing market is not out of the woods quite yet.
Speaker 4: Signal family stocks were down nearly 30% in Q1 with inflation and mortgage rates impacting affordability. And Q2 is looking roughly the same.
Speaker 4: However, the encouraging signs in housing are beginning to be reflected in our order votes.
Speaker 4: While channeling inventory and siding remain elevated, as is typical in the months following the end of a managed order file, we are past the Q1 pick and inventory.
Speaker 4: The siding order file has seen a notable uptick in recent weeks. And OSB inventories are leaner as demand and prices have recently improved.
Speaker 4: The macroeconomic environment remains challenging and near-term uncertainties remain in the housing or markets we serve.
Speaker 4: We will remain very confident in our strategy, our execution, our high performance carbon negative products, and most importantly all of LPs people will help us continue to outperform the underlying housing market.
Speaker 4: We will remain very confident in our strategy, our execution, our high performance carbon negative products, and most importantly all of LPs people will help us continue to outperform the underlying housing market, gain share, and expand the markets we serve.
Speaker 4: And with that, I'll turn the call over to Alan to discuss LP's results in more detail.
Speaker 5: Thanks Brad. As outlined already, the US housing and the broader macroeconomic environment are significantly more challenging than at this time last year.
Speaker 5: But I'm happy to report that LP responded by focusing on the factors within our control. We exceeded all components of our first quarter guidance while the market numbers dominating the quarter are the 29% drop in single family housing starts and a nearly 80% drop in North Central Random Labs prices for commodity OSB.
Speaker 5: I'll refer to slides 9 and 10 in the presentation to describe just how LP's siding and OSB's statements navigated the quarter before moving on to discuss LP's liquidity and capital allocation including a little more on Wawa.
Speaker 5: Slide 9 shows the first quarter year-over-year revenue and EBITDA comparison for siting.
Speaker 5: The volume was down 9%, a spread of 20 points over the drop in single family starts.
Speaker 5: This is due to the combined effects of ongoing share gains, expanded addressable markets, and the fact that the majority, about 60%, of saving products serve the recurring remodel market and shared applications.
Speaker 5: And while overall volumes may have declined, expert finished volumes did not. Rather, they increased by 26% year-over-year, which also helped the mixed components of price.
Speaker 5: The $27 million reduction in volume, at roughly a 50% variable margin, cost the segment $14 million to people.
Speaker 5: Citing's average selling prices were 10% higher than the first quarter of last year. Roughly 6 points of the 10-point increase are from list price increases, namely the combined effect of this January's increase and last year's mid-year increase.
Speaker 5: with the rest coming from favorable mix and lower rebates. So as expected, higher prices helped offset the volume drop and as it turned out, they completely offset it. This was also a quarter of heavy investment in future capacity. Mill conversion costs were up $6 million year over year, but I need to dissect that statement. This year, we actually incurred $10 million converting Sego with the...
Speaker 5: but at the same time last year we incurred $10 million converting Holton to siding. So, one $10 million conversion cost was basically replaced with another. All that shows up on the waterfall, therefore, is $6 million of unobserved operating costs of Holton.
Speaker 5: while we proceed with what is turning out to be a slow ramp up given current market conditions.
Speaker 5: So this means that the business is actually carrying $16 million of embedded cost. That is $10 million of Segoa conversion plus $6 million of uncovered...
Speaker 5: costs are all in the interest of future growth. And this cost is about five percentage points of EBITDA margin in the first quarter.
Speaker 5: A second margin headwind came from raw material inflation. Compared to the first quarter of last year, inflation cost trading $14 million a week speed up.
Speaker 5: Now, inflation ramped up quickly during the second quarter of last year, so while prices remain elevated, we do expect year-over-year comparisons to begin to ease going forward.
Speaker 5: So again, in a quarter of high inflation, much lower housing starts, lower volumes, and the impact of converting and ramping up Segola, the siting segment delivered $67 million in EBITDA for a margin of 20%. And to demonstrate the long-term potential of the segment, even with the conversion, everything can jam in Segola had $ schemes on it, just like an 7500 small- Characterized signal.
Speaker 5: Adding back either the $16 million of mill ramp ups and conversion costs, or the $17 million of inflationary impacts, we feel the need to put our margin above 25%. The OSB waterfall on slide 10 is inevitably dominated by price changes.
Speaker 5: This year the bar is red given that prices have returned to earth and while the largest number on the bar by far is the $470 million drop in revenue in Ibadar due to these low prices it's also one I'll spend the least time.
Speaker 5: Rather than price, the story of the quarter is how well the team responded to this much softer environment by managing with efficiency and discipline and delivering positive either down this very challenging environment. The majority of LPs OSB is consumed in new residential construction and disproportionately by single family home construction. With single family staff down 29% in the quarter, LPs OSB is now in the top 10% in the quarter.
Speaker 5: curtailment which, to minimize the cost and freight impact on the OSB network, we concentrated in our highest cost and less remote mills.
Speaker 5: While commodity volume was essentially flat, structural solutions volume was down 154 million square feet.
Speaker 5: Now this may be a reflection of increased price sensitivity among builders looking for ways to keep homes affordable for their customers. However, our price realisation was very strong, in large part because structural solutions prices held up significantly better than commodity prices.
Speaker 5: So, while commodity prices were down 76% year-over-year, structural solutions prices fell by only 58%. And so in this market, the OSP segment managed both capacity and cost with both discipline and focus to generate this positive $5 million of either dollar.
Speaker 5: Which brings me to cash loan capital allocation.
Speaker 5: Referring now to slide 11, LP began the quarter with $383 million in cash and generated $66 million of EBITDA.
Speaker 5: The first quarter of every year is typically one of working capital bills, and the $144 million of outflow due to working capital breaks down roughly as follows.
Speaker 5: $45 million of log inventory was gathered in preparation for spring break-up in Northern Mills, together with $25 million of finished goods built across the network, with a total of $80 million of inventory built.
Speaker 5: We also paid about $60 million a year under CRULES, including $30 million of customer rebates.
Speaker 5: about 60 million dollars a year under cruel including 30 million dollars customer rebates all of this is typical first quarter activity.
Speaker 5: After paying $33 million in taxes, we had an operating cash outflow of $119 million. The first quarter's capital spend of $114 million will most likely be our heaviest in 2023 due to the inclusion of the Segola conversion and the Bath, New York refinishing facilities.
Speaker 5: The resulting drop in cash of $257 million still left LP with $126 million of cash at quartering.
Speaker 5: The second quarter is shaping up to be very different for capital allocation, so perhaps a preview is in order. As is typically the case, in the second quarter, working capital should be a source of cash, largely due to inventory consumption.
Speaker 5: And capex should also be lower than the first quarter by about $20 million.
Speaker 5: And as Brad mentioned, LP recently announced the acquisition of the Wawa OSB facility from Provex for $80 million. This has been financed entirely using existing funds.
Speaker 5: So we're very excited about this acquisition which significantly enhances our siding growth strategy and we're very happy to have the Wawa employees join our team as we prepare it to be our next siding goal.
Speaker 5: We also made the difficult decision to close Integra. We're disappointed that the deteriorating housing environment in Northern California necessitated this action, and we regret the impact that the closure will have on the Integra team. But ultimately, we determined that LPE's capital is better invested in our coal businesses. As a result, in the second quarter, we expect to report a non-cash rate.
Speaker 5: encouraging strength in their order patterns. However, with total staff down, this can only mean that smaller builders are seeing reduced demand.
Speaker 5: Mortgage applications remain quite sensitive to interest rates and stubbornly high prices present a continued challenge to affordability.
Speaker 5: As a result, we still lack sufficient clarity to offer full year guidance.
Speaker 5: Our best read of our current order files suggests that SIDING's second quarter revenue will be similar to that of the first quarter.
Speaker 5: And this would mean volumes being down year over year but substantially outperforming the anticipated drop in single family housing starts. Year over year price increases will again partially offset the volume drop such that second quarter revenue for siding is expected to be no worse than 5% lower year over year.
Speaker 5: For OSB, prices have improved recently, such that if we assume prices hold flat at current levels, the OSB business would expect to see revenues of about 20% sequentially higher than the first quarter. This assumes increased operating rates based on current demand. But there are other differences.
Speaker 5: LP total leave-it-down for the second quarter would be at least 80 million dollars.
Speaker 5: So let me conclude with this. LP's strategy is to grow the specialty components of our business, thereby reducing our dependence on cyclical housing styles and volatile commodity prices.
Speaker 5: With OSB prices where they were over the last two years, almost any strategy would have resulted in tremendous cash flow.
Speaker 5: Perhaps a better test of our strategy is a market more like the one we have now. A 30% drop in single family starts presents a truer test of whether SmartSight can continue to outperform the market by taking share without simply relying on the rising tide of housing.
Speaker 5: It's also an opportunity to demonstrate that LP's OSB segment can break even at recent low prices via the combined effects of disciplined capacity management, efficient operations and maintaining a consistently positive incremental contribution from structural solutions.
Speaker 5: And lastly, it's a test of LP's capital allocation and business development strategies, as well as our resolve to use our strong balance sheet to invest in these strategies when opportunities arise, not simply when we're flush with cash.
Speaker 5: The first quarter of 2023 was the first such test and surely it won't be the last. But LP responded by demonstrating our commitment to our strategy and the value it can deliver.
Speaker 2: And with that, we'll be happy to take your questions. Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
Speaker 2: have to take your questions. Thank you. As a reminder to ask a question please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 1 again.
Speaker 2: Our first question comes from Mark Weintraub with Seaport Research Partners. You may proceed.
Speaker 6: Thank you. A couple questions on siting. One is you talked about some positive indications order file-wise, but it doesn't look like you're assuming much in the way of volume improvement from the first quarter to the second quarter. First of all, is that a – Yes.
Speaker 6: Am I right making that assumption? And maybe if you could provide a little bit more color on the thought process there, if that is indeed the case.
Speaker 4: Yes, Mark, you're right. And while we are seeing some strengthening in the order file, we are still working through elevated inventory levels within the channel. And so the revenue that our channel partners are seeing is not yet.
Speaker 4: fully impacting our order file. And we believe it's going to take most of Q2 to work through that elevated inventory level within the channel.
Speaker 6: Okay, and then you mentioned that there was about $10 million in startup costs in the segment in the first quarter. Is something along those lines or what's anticipated for the second quarter? Really where I'm sort of trying to figure out is why …
Speaker 6: the $80 million guide, and I realize it's 80 million plus for the second quarter, given that we're gonna be higher, presumably, in OSB. You talked about the 20% improvement in revenue. And I guess I would have thought that we get some, well, again, maybe specifically, is there...
Speaker 5: Also startup costs in siding in the second quarter? It's a great question mark. There are some startup costs in siding in the second quarter, but there they are they will be lower than the first quarter. And yes to sort of offset the answer to the question. There is inevitably some conservatism built.
Speaker 5: will tend to be 80 million dollars.
Speaker 6: Okay, very good. I'll hand it over for now. Thanks so much.
Speaker 7: Thank you.
Speaker 2: Our next question comes from Kita Memtoura with BMO Capital Markets. You may proceed.
Speaker 4: I would say the Shed Business is probably one of our...
Speaker 4: of the slower performing segments right now. There was, I would say of all the segments that we played in during COVID, I do think there was some pull forward demand in Shedd. We have seen some more recent recovery there, but as a mix of our portfolio, it's certainly underperforming at the moment, the rest of the portfolio.
Speaker 8: Understood. And then switching to the VAMO conversion, Alan, is there any way to think about at a high level, you know, how would you have us think about sort of the additional conversion costs that might be there for the conversion to siding?
Speaker 5: Yeah, we're still working through, obviously we have only just acquired it yesterday.
Speaker 5: Obviously we did some due diligence, so we're still working through what those numbers would be. But if you think about the fact that the return, the IRR of this project, will be similar to the Houghton 2 conversion, and this will be slightly bigger, then there's obviously going to be some sizeable conversion cap.
Speaker 5: The moment we have those numbers nailed down, we'll be happy to share them just as we did with the Holton-Toon number.
Speaker 5: we have those those numbers nailed down we'll be happy to share them just as we did with the whole two numbers but it will be sizeable.
Speaker 8: Got it. Okay. And how are you thinking about the timing of the VAWA mill at this point? Currently thinking that it would be Q4, a current model, just to give you a benchmark, Q4 2026. Let's do it.
Speaker 5: That's right, isn't it? I got a strange, Aaron's pulling a face at me. I might as well share the room. It'll be demand dependent. It will, of course. That's our working model right now.
Speaker 8: I will jump back in the queue. Thank you.
Speaker 2: Thank you. Our next question comes from Paul Quinn with RBC. You may proceed.
Speaker 3: Thanks very much guys. I'm just wondering what the state of Wawa is? I know the company was trying to convert it back to telekinesis. Is it functioning as female at this point or is it closed? How much work is needed to do that?
Speaker 3: entailed just to get it back to back to an OSB mill. Yes, thanks Paul. I'll take that. This is Aaron. It is, uh, it's going to be a substantial amount of work to get it to the point that it's a functioning OSB mill. The advantage for us is that the current state of the construction project is kind of ideal for us to step in and redirect that conversion so that we can convert it efficiently to siding.
So it's not currently producing OSB. It would be a while before it could if we planned to do so, but we've got a fair amount of work to do to kind of complete the project and complete it as a siding mill. Okay, that's helpful. And then just over on the experts, it's great to hear that it's up 26%. Just wondering what percentage of overall siding volume that represents now and what you operate and reach for.
So we're ramping into that and certainly when we have the bat meal on Q3 we're going to have plenty of capacity there.
There has been times in our order file, especially last year, where we were constrained with the expert finish capacity. While those can be tight now, currently, we're okay as far as that balance between capacity and sales at the moment.
But we certainly need to pass New York, like to come on and we need to be running those lines better. And then as far as your question on mix of an expert finish, it's about 9%.
Okay, that's great.
With respect to your builder series line, one of your competitors back in the market with their sun planks, I was wondering if you noticed any drop in order file on that, given also the weak family build. No, Paul would say not. We have not seen a drop in the order file that I would directly attribute to that.
I will say the competitive environment for new deals has certainly stepped up the competitive nature there, given that reintroduction, but not necessarily, as far as I know, translated into a loss of any volume we had secured previously. Okay, great. And the last one for me, just on South America, can we expect any change?
throughout the year, but we're not ready to call that right now.
Great, that's all I had. Thanks guys. Thanks a lot. Thank you. Thanks Paul. Thank you. Our next question comes from Susan McCurry with Goldman Sachs. You may proceed.
Thank you. My first question is on siting. You obviously are realizing some nice pricing there. You did mention that the channel still has some inventory that they'll work through in the second quarter. How are you thinking about the dynamics of price versus volume if those inventories do stay elevated longer?
Are you willing to take some of that down, or what will be the plan there? Yeah, we are not contemplating a price decline from a price list standpoint, Susan. We've never done that in at least 20 years or so I've been associated with the siding business.
I will talk that I meant the way that plays out dynamically in the market is as we negotiate primarily builder or contractor deals, you know, obviously volume can be secured sometimes at back end rebates, especially with the larger builders and the large regional builders. So as we as the environment gets more competitive, the you know, the.
Okay, that's helpful. And then thinking about the CapEx guide that you've put out, suggest that perhaps in the second quarter, you could see your cash from ops higher than your CapEx spend. Can you talk a little bit about how you're thinking about capital allocation, any appetite to bring back?
heavy investment outflows in the second quarter. And so I don't just – if I look at the cash patterns that I think we'll see for the remainder of 2023, I'm more inclined, should there be a modest upside in cash flow, to use that for the operations. I don't – look at what's going on.
Based on trends I'm seeing today, I don't see share buybacks
for the remainder of this year. But I just hope I'm playing wrong. Okay, thank you, Alan, and good luck with everything. Thank you.
Thank you.
Our next question comes from George Staphos with Bank of America. You may proceed.
Thanks for the details. Hey, Alan, Brad, can you talk a bit about lead times on press equipment and what you'd be needing to convert Wawa? I know on kind of traditional press equipment, at one point in time in the last year, I think lead times from what we were hearing.
We're in the 18 month time frame. I'd imagine that has lessened in the last year or so. But if you put the order in today, when would you be able to start bolting the equipment down on the factory floor from what you could share with us?
Well, just let me talk generally, I mean there is a press in Wawa that we're planning to use, so there's not an issue on the press, which is meaningful to the timing of this project. George, to your point. And then one of the things that we're looking at now is we have been...
in the process of securing orders and materials still, fabrication time for the Holton Line 2 conversion. Sure. The work that we'll do this quarter is to understand how much of that can be transferred over to the Wawa mill conversion directly as far as the engineering goes.
I would say that at this moment I'm not really concerned about timing any more than I would have been about Holton Line 2 because of what we're having to do in Wawa. A little bit of color there. But Holton Line 2 was a pretty complex conversion for us because...
We kind of used all the easy space and the existing equipment other than the greening on Holton Line 1. So there was a complexity element there that was not there on Holton Line 1 or even in Segola for that matter.
somewhat similar as far as potential timing if we wanted to wrap them up as quickly as possible. And Aaron had mentioned when the question come up and Alan was answering about when you expect it to be starting up and it's going to be...
demand specific, which in turn means you know, you're going to be looking at certain metrics in terms of triggering when you'll go forward. If you were in our seat, what you know, level of housing or repair model would be kind of the go no go or the go signal in terms of starting up the, or you know, accelerating.
the conversion and going forward? Well, I would say just from an acceleration standpoint, I would say the earliest we could do that, if we was kind of all out on it, was having probably board approval later this year, you know, from a design standpoint, and then at least a year from that point to get it converted in.
and then operating from zero, you know, since it's not making anything now unlike all our other milk conversions. So we're looking, you know, to Allen's point, 25, 2025 probably as the earliest, maybe middle of 2025, perhaps get to a 2025.
but more realistically 2026. And so from a market standpoint, if housing
got back to where it was 12 months ago. I could see us in a... The quicker that happens, the more pressure it's going to be on us to convert that mill. But I will say when the Segola mill is a significant conversion for us, that we're just getting started on right now as far as selling it out.
And as Alan mentioned in his remarks, we're still not fully utilizing Bolton Line 1 yet. So we do have significant capacity coming online right now. So I'm not too concerned about us, I mean, other than a spike in new home construction after this kind of uncertain environment we're in today.
I'm not too concerned about our ability to miss a window there in Walla.
Thanks, Brett. One last question from me on siting. So you talked a little bit about, I guess, to some degree some pickup in competitive activity given one of your peers reintroduction of one of their product lines. That's a little bit more, if you will, affordable.
specifically within your product categories, are you seeing more demand for builder series and more momentum there? How would your volumes have shaken out or how did they shake out in the first quarter between builder series and the other you know perhaps you know higher-end products and siding? Thank you.
George, that's a kind of complex question because it's playing in so many different segments. But if I was to say within the lapsed siding category, builder series is outgrowing the non-builder series product. And I really attribute that.
I mean, from a volume standpoint, obviously it's off a smaller base, but also the strength right now in housing is with the bigger national builders and the large regional builders, which tend to be, you know, arcance, not tend to be, which is the target of our builder series.
So as we see that continued strength with the big builder, that's going to tend to put a lap volume more into that category than into our traditional lap siding, 16-foot lap siding product. Thanks for watching, and I'll see you next time.
Whole different story on R&R and expert finish where it's mostly 16 foot, but certainly within that built single family construction, new construction category, lap siding is in the pillars here.
Thank you, Brad.
Thank you, Brad. Thank you.
Our next question comes from Michael Roxen with Truist Securities. You may proceed. Thanks Brad, Alan, Aaron. Congrats on a very good quarter.
Thank you. Thanks Mike. Um, Al, just last quarter you provided some color on the EBITDA bridge by segment. I'm just wondering if you could do the same this quarter as it relates to the you know, the 80 million dollar, at least 80 million dollars in EBITDA that you are forecasting and just help us frame how signing and OSB stack up in that guidance, please.
Yeah, just to sort of revisit Q1 from the principal reason that I broke the EBITDOT down by segment was because the number was fundamentally so low that we got it to $35 million. I didn't want.
anyone to think that that was SIDING's unique performance. So I wanted to call out the expectation at least at that point that we might have negative EBITDA in SIDING. Sorry, slip of the tongue, that we might have negative EBITDA in OSB, which turned out not to be the case. So with the 80 million dollars, I will at least give you this, deciding performance is going to be similar-ish.
If you think about my answer to Mark Weintraub's question that opened the Q&A session, it's going to be similar-ish to Q1. And as is normal, if you look at our Q1 results, you'll see that corporate and South American either don't have a broadly set offset.
Without being drawn further. I think I've given you almost everything you need to know the Analysis of that 18 million without actually saying it's really so I'm trapped again We don't mind being worried about you being very expressive. So Go on again
Thank you. The second question, you know, I just want to get a sense of how you guys are thinking about the Segola ramp, particularly given that you slowed a little bit last quarter.
You mentioned you still want to work down inventories through the balance of the year. So how are you thinking about ramping given those conditions?
Just generally speaking, when we're in the process of ramping a mill like Segola or like Holton last year, we do like to push the volume there to give the machinery and the crews the opportunity to learn how to make siding. So we'll be, as we go through this year, the tendency for us is going to be, is going to want to match.
their capability of putting borders in there. And then, you know, which is what we're doing now, as the goal is coming up, we're backing off a little bit on Holton as a priority, you know, given the need to balance production. But also,ora
With that as a color on how we think about segola, I will say other than that, we would probably spread, if we have to take production-related downtime, we spread that across the system, generally speaking. Some of that is due to the fact that these mills have special type of askew capability. Some plants can or cannot make certain askews.
So that will tend to spread the downtime around a little bit. But directly to your question, we will prioritize volume in the cibella this year to graph that millet.
Thanks very much and good luck in Tukeu. Thank you.
Thanks very much and good luck into you. Thank you. Thanks Mike. Thank you.
Our next question comes from Sean Stewart with TD Securities. He may proceed. Thank you. Good morning everyone. Just one question and appreciating you've just rolled out your 2023 CapEx budget but that number is a little bit more conservative than we were forecasting which I guess makes sense given the re-sequencing.
stage after that, is that a fair assumption as we look ahead to 2024?
Let me take a hint from Aaron. It's obviously market dependent. But see, an old dog can learn new tricks. But it is.
One of the things we tried to convey with the broad range of capital guidance that I gave last quarter, which was broader and larger than the numbers that are in our press release right now, yeah, there's a huge amount of capital flexibility.
And I hope, quite frankly, that yes, we see increased capital spending in 2024 compared to our current projection for 2023.
and timely political. Understood. Rest of my questions have been answered. Thanks very much guys. Thank you. Thanks Sean.
Thank you. Our next question comes from Mark Weintraub with Seaport Research Partners. You may proceed.
Thank you. Not wanting to get too much into the weeds, but sort of interesting, I would have thought that Wawa might have serviced similar markets to Holton, and maybe just some color, kind of geographic product mix of how you imagine the Wawa project proceeding relative to what you were thinking about Holton.
we had for Holton II. One is the size of the press, the capability of the project will be a lot greater as I think was in the prepared comment, to be one of our larger, will be our largest one line siding now. So that.
Volume really helps make the decision about that as the next mill over Holton. But then also the central location and the wood basket for Wawa is also provides a second advantage. And so when we…
So, and that, I want to say that, but more so than anything, it was just the assumed financial return on the two projects swayed us to putting Wawa in front of Holton. I certainly believe Holton will be the next conversion after Wawa is up and running. The advantage for Holton is that access to the eastern sea.
of the wood basket there in the central location helps on the front. Got it. From an overall freight standpoint. Fair point. So basically it can serve as a broader geography than Halton is one point. And then also I guess, so in terms of the panel or lap focus, is there a bias for the Wawa facility like there was for Halton.
No, Walla Walla will be very flexible across both, potentially, for both panel and lab. And so we haven't made the decision on which of those products to emphasize as far as the finishing capability of the facility, but it provides flexibility there.
No, a wall wall would be very flexible across both potentially for both panel and lab. So we haven't made the decision on which of those products to emphasize as far as the finishing capability of the facility, but it provides flexibility there. Super. Thanks so much.
Thank you. And this concludes the Q&A session. I'd now like to turn the call back over to Aaron Howald for any closing remarks.
OK, thanks, Josh. With no further questions, we'll bring the first quarter earnings call for Healthy Building Solutions to a close. We'll look forward to catching up with you all soon. Thank you very much.
OK, thanks, Josh. With no further questions, we'll bring the first quarter earnings call for Healthy Building Solutions to a close. We'll look forward to catching up with you all soon. Thank you very much. Thank you. Thank you.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.