Louisiana-Pacific Earnings: Weak OSB Pricing and Demand Elevates Near-Term Uncertainty

No-moat Louisiana-Pacific LPX reported first-quarter results that were largely in line with our expectations. Lower wood product prices and moderating demand weighed on the firm, with revenue decreasing 50% year over year. Despite relative strength from the siding business, oriented strand board, or OSB, continued to underperform as prices pushed lower. Louisiana-Pacific reported a $30 million operating profit in the quarter, down significantly from over $550 million a year ago amid lower prices and moderating demand. We’ve decreased our fair value estimate to $51 from $52 due to our expectation of lower OSB prices through 2023 than we had previously anticipated.

The siding business continued to perform well despite unfavorable housing dynamics, with segment sales roughly flat year over year as higher selling prices (10%) offset lower volumes (negative 9%). Volume remains constrained amid a slowdown in new residential housing, which will likely face additional pressure through the year. Even with selling price gains, the segment reported a roughly 500 basis point decrease year over year in adjusted EBITDA margins, to 20%, due to higher input and operating costs. While the segment has proved resilient, we expect a mid-single-digit decline in revenue in 2023 as moderating new residential construction weighs on volumes.

Louisiana-Pacific’s OSB segment saw a steep decline in results in the first quarter. Revenue tumbled almost 75% year over year as a significant decrease in prices was met with a double-digit decline in shipments. While near-term headwinds will likely constrain the OSB business, we expect sequential improvements in revenue and adjusted EBITDA. Lumber and wood product prices remained low during the quarter and have shown no signs of improvement through the first weeks of April. Barring significant curtailments, we expect prices to remain at lower levels through the end of the year as demand remains constrained amid reduced new residential construction.