Louisiana-Pacific Corp

Bull points

• LP's net sales in the quarter reached $814 million, up 33% compared to prior year.
• Siding sales grew by 30% in the quarter, the result of 22% higher sales volume and 6% higher prices, both of which were helped by another record quarter for expert finish.
• LP more than doubled adjusted EBITDA, operating cash flow, and adjusted earnings per share compared to the second quarter of 2023.

Bear points

• The repair remodeling market is more difficult to track, but the general consensus is that R&R spending overall is down by mid-single digits compared to last year.
• Yeah, so we did see meaningful growth, year-over-year growth in our retail business. We expect that momentum to continue in Q3. Some of that has been just strength and panel that has been historic skew there. But as you have mentioned, the trim placement and particularly in the Home Depot, has been all incremental volume for us. And that has been a meaningful part of the growth that we saw in Q2 and expect to see in Q3. So we're continuing to grow with the Home Center, particularly Home Depot, by being a good partner as far as adding SKUs there, particularly around trim, some lap in certain places. And that has gotten us in a position where We have the ability to grow with Home Depot beyond just the traditional panel play that has been a historic basis of the relationship. And I guess you were asking a little bit, are we seeing cannibalization as a result of that? And the answer is not of any, not seeing, the tram order file is so strong right now across the board that I don't think there has been any significant loss of cannibalization. It's giving us the ability to have the product presented to a customer base that we probably didn't have access to the product. contribution in lumber yards. you know, the growth we got, I would put about, I mean, in general terms, George, about half of that growth. Hey, Brad, your phone is cutting out on our side. I don't know if you... I'll answer to the speaker and see if that helps. Let me know if it does. So if you take the growth that we reported, about half of that I would attribute to single-family new construction. Look, let me just back up. There's a little growth in there at shed and in retail. But the meaningful growth is about half and half between single-family new construction. And I would say about half of that is driven by the initiatives around the big builder focus that we have. And then the other for that would be repair and remodel, which is just you know, converting contractors and getting the siding installed on homes. That's a regional initiative there. But certainly, you know, we would not have had as good a quarter before casting as good a Q3 if it wasn't for the success we're seeing in single-family new construction or a primary model. The shed in retail has just been a nice little bump to have year over year. Where is it coming from? I would say it's coming from across the board. You know, there is still opportunities, particularly in repair and remodel, but certainly also in new construction as we compete against vinyl. And I would think most of the success in repair and remodel is probably against vinyl. On the single family new construction side, then you get into some competitive hard sidings as well as vinyl as the competition. And so, you know, as we gain share there, you know, it's coming from someone. If it's not coming from growth with an existing big builder customer, but obviously what we would be replacing would be either vinyl or competitive hard side. But there's still, you know, a lot of opportunity to go head to head against vinyl with, you know, with our product being certainly an upgrade. grade perceived upgrade to vinyl or being not perceived actually a upgrade to vinyl and so we have competitive there because that's where the big market share is so there's a lot of focus on you know on us you know making sure we have and can't explain our in in a good way the value proposition you know against vinyl but also against other hard sidings just closing the loop and i think i know the answer but if if basically you're getting half of the progress from I'll answer the yes on the revised Q3. It is predicated on the strength we're seeing in the repair and remodeling, single family construction order filed, and there is still upside on OEE, and I'll challenge Alan to articulate that. George, I'll just add to that, you know, what's been remarkable about our OEE journey to me is as we, you know, we're way ahead of where we thought we would be five years ago, but we still see opportunity for improvement as, you know, and so it's kind of probably will be a never-ending journey of finding ways to be more efficient and more productive. And of course, CapEx helps that. It could actually increase the baseline. And then when we launch a new product, like brush, smooth, and siding, there's all kind of OEE opportunity there because we learn to make the product more efficiently. So we're on a never-ending continuous journey on OEE. And I feel like we'll be talking about that 10 years from now and still see plenty of opportunity. That's kind of the beauty of the industry and the way that our machines work at the facilities. To some degree, it's the beauty of growth. Well, I think the channel is adequately stocked for the second half for any reasonable demand expectation on repair and remodel. So I have no concerns about ability to serve, and I don't have concerns about there being any kind of overstocking in repair and remodel. One-step distributors are experts in managing inventory in that channel. Look, I do believe demand is dampened for siting. A sided remodel is a big-ticket expense, many times financed. And so, you know, with interest rates where there are, with the economic uncertainty that's out there, there is, I think, R&R spend for a reside is constrained. So I'm really proud of the fact that we're seeing the growth that we are seeing because that has to mean, and that hypothesis is true, that that's market share gain. But, you know, with interest rate reductions, if that happens, if we get through, you know, as Erin and I were talking about this morning, a soft landing or a quasi-soft landing, the pent-up demand around potential residing projects could be pretty significant. So I think we're in a really good position to have our product commercialized, building credibility around the offering, expanding geographically our access to market through picking up some really high-quality distribution to where when we see repair and remodel spend come back and financing loosen up a little bit so that a homeowner can afford to do a big-ticket remodel on siding, we're going to be in a really good position. And that's why we're so encouraged about the future for our siding businesses.
• The repair remodeling market is more difficult to track, but the general consensus is that R&R spending overall is down by mid-single digits compared to last year.