Louisiana-Pacific Earnings: Housing Market Weakness Constrains Wood Product Demand

No-moat-rated Louisiana Pacific LPX reported third-quarter results that were largely in line with our expectations as the company continues to navigate a challenging operating environment. Net sales fell over 14% year over year as all segments reported double-digit declines. LP’s end markets remained constrained as higher interest rates and weak new residential housing construction weighed on demand for wood products. While the company has made sequential progress, housing markets have shown few signs of improvement in the second half of the year. We’ve increased our fair value estimate to $52 per share from $51 due to the time value of money.

Louisiana-Pacific’s siding business continued to struggle in the third quarter amid an unfavorable demand environment. Net sales declined 12% year over year as a slight increase in selling prices was more than offset by a 16% decline in volumes. While the segment’s adjusted EBITDA improved sequentially, it fell roughly 200 basis points from a year ago to 20.5%. Higher interest rates continue to constrain LP’s siding business as new residential construction remains tepid while existing home sales are largely stagnant. That said, management noted that siding was affected by inventory destocking in the first half of the year but that has largely dissipated through the third quarter. While we expect near-term headwinds will persist into the new year, we think LP will be the beneficiary of the subsequent rebound in demand.

The OSB business reported somewhat surprising results following an abysmal second quarter. Net sales fell roughly 14% year over year but were up almost 45% sequentially due to higher selling prices. Volumes fell 26% year over year as demand for OSB remains pressured given the current state of the housing market. The segment benefitted from curtailments during the quarter, but given the weakness in housing markets, we expect the OSB business will face persistent demand challenges through next year.