Louisiana-Pacific(LPX) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements Q1 2023 financial performance declined significantly, with net sales down 50% to $584 million, net income at $22 million, and operating cash flow negative Condensed Consolidated Statements of Income (Q1 2023 vs Q1 2022) | Metric | Three Months Ended March 31, 2023 (millions) | Three Months Ended March 31, 2022 (millions) | | :--- | :--- | :--- | | Net sales | $584 | $1,167 | | Gross profit | $101 | $620 | | Income from operations | $30 | $556 | | Net income | $22 | $483 | | Net income attributed to LP | $21 | $484 | | Diluted EPS | $0.29 | $5.60 | Condensed Consolidated Balance Sheet Highlights (As of March 31, 2023) | Metric | March 31, 2023 (millions) | December 31, 2022 (millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $126 | $369 | | Total current assets | $713 | $854 | | Total assets | $2,259 | $2,350 | | Total liabilities | $808 | $916 | | Total stockholders' equity | $1,450 | $1,433 | Condensed Consolidated Statements of Cash Flows (Q1 2023 vs Q1 2022) | Metric | Three Months Ended March 31, 2023 (millions) | Three Months Ended March 31, 2022 (millions) | | :--- | :--- | :--- | | Net cash (used) provided by operating activities | ($119) | $425 | | Net cash used in investing activities | ($113) | ($33) | | Net cash used in financing activities | ($27) | ($137) | | Net (decrease) increase in cash | ($257) | $266 | - The company completed the termination of its frozen U.S. and Canadian defined benefit pension plans in Q1 2023, resulting in a non-cash, pre-tax charge of $6 million[62] - Subsequent to the quarter end, the company announced the shutdown of its Entekra off-site framing operation, expecting a pre-tax, non-cash charge of $25-$30 million in Q2 2023. Additionally, in May 2023, it acquired the assets of Wawa OSB Inc. for $80 million[70][71] Note 2. Revenue Total revenue for Q1 2023 decreased sharply to $584 million, primarily due to a significant decline in the OSB segment, while Siding revenue remained stable Revenue by Reportable Segment (Q1 2023 vs Q1 2022) | Segment | Q1 2023 Revenue (millions) | Q1 2022 Revenue (millions) | | :--- | :--- | :--- | | Siding | $331 | $332 | | OSB | $189 | $744 | | South America | $55 | $67 | | Other | $8 | $26 | | Total | $584 | $1,167 | Note 7. Discontinued Operations The EWP segment, sold in 2022, is now discontinued operations, generating $170 million net sales and $62 million income in Q1 2022, with no Q1 2023 activity - In 2022, the company sold its 50% equity interest in two I-joist joint ventures and the remaining assets of the EWP segment[46][47] EWP Segment Financial Results (Q1 2022) | Metric | Three Months Ended March 31, 2022 | | :--- | :--- | | Net sales | $170 million | | Income from discontinued operations, net of taxes | $62 million | Note 16. Selected Segment Data Adjusted EBITDA for Q1 2023 plummeted to $66 million from $598 million, primarily driven by a drastic decline in the OSB segment's Adjusted EBITDA Segment Adjusted EBITDA (Q1 2023 vs Q1 2022) | Segment | Q1 2023 Adjusted EBITDA (millions) | Q1 2022 Adjusted EBITDA (millions) | | :--- | :--- | :--- | | Siding | $67 | $83 | | OSB | $5 | $505 | | South America | $12 | $25 | | Other | ($9) | ($6) | | Corporate | ($9) | ($9) | | Total Adjusted EBITDA | $66 | $598 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the downturn to a challenging housing market and sharp OSB price declines, resulting in a 75% drop in OSB net sales and negative operating cash flow, while Siding sales remained flat - Demand for building products was negatively impacted by a 29% year-over-year decline in single-family housing starts for the three months ended March 31, 2023[76] - OSB commodity prices fell significantly during Q1 2023 due to a decline in market demand[79] Reconciliation of Net Income to Adjusted EBITDA | Metric | Three Months Ended March 31, 2023 (millions) | Three Months Ended March 31, 2022 (millions) | | :--- | :--- | :--- | | Net income | $22 | $483 | | Adjusted EBITDA | $66 | $598 | Results of Operations - Siding Siding segment net sales remained flat at $331 million in Q1 2023, as a 10% price increase offset a 9% decrease in unit shipments, while Adjusted EBITDA declined 18% to $67 million Siding Segment Performance (Q1 2023 vs Q1 2022) | Metric | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $331M | $332M | 0% | | Adjusted EBITDA | $67M | $83M | (18)% | Siding Solutions Price and Volume Changes (YoY) | Metric | Change vs Q1 2022 | | :--- | :--- | | Average Net Selling Price | +10% | | Unit Shipments | -9% | Results of Operations - OSB The OSB segment's net sales plummeted 75% to $189 million due to dramatic price declines and reduced shipment volumes, causing Adjusted EBITDA to collapse by 99% to $5 million OSB Segment Performance (Q1 2023 vs Q1 2022) | Metric | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $189M | $744M | (75)% | | Adjusted EBITDA | $5M | $505M | (99)% | OSB Price and Volume Changes (YoY) | Product Line | Average Net Selling Price Change | Unit Shipments Change | | :--- | :--- | :--- | | OSB - Structural Solutions | (56)% | (38)% | | OSB - commodity | (74)% | (13)% | - The $555 million decrease in net sales was attributed to a $470 million decrease in OSB prices and a combined $78 million decrease in sales volume from production curtailments and a mill conversion[97] Results of Operations - South America South America net sales decreased 17% to $55 million due to lower OSB volumes and pricing, leading to a 53% Adjusted EBITDA decline to $12 million, despite strong Siding volume growth South America Segment Performance (Q1 2023 vs Q1 2022) | Metric | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $55M | $67M | (17)% | | Adjusted EBITDA | $12M | $25M | (53)% | Liquidity and Capital Resources Q1 2023 liquidity weakened, with operating cash flow turning negative at $119 million used, capital expenditures increasing to $114 million, and no outstanding revolving credit facility borrowings - Cash used by operating activities was $119 million in Q1 2023, compared to cash provided by operating activities of $425 million in Q1 2022, mainly due to lower income[109] - Capital expenditures were $114 million for the quarter, primarily for siding conversion projects and maintenance[110] - As of March 31, 2023, there were no outstanding amounts under the $550 million Amended Credit Facility, and the company was in compliance with all financial covenants[113][114] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency, commodity price volatility (OSB), and interest rate changes, with no outstanding variable-rate debt as of March 31, 2023 - Key market risks include foreign currency rate fluctuations, commodity price volatility (especially for OSB), and interest rate changes[121][122][123] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective[125] PART II - OTHER INFORMATION Item 1A. Risk Factors A new risk factor addresses potential adverse effects on cash and investments from financial institution failures, prompted by recent banking system events, despite no direct exposure - A new risk factor was disclosed regarding the potential impact of financial institution failures on the company's ability to access its cash, which is often held in balances exceeding FDIC insurance limits[130][131] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased in Q1 2023; $400 million of the $600 million 2022 Share Repurchase Program was utilized as of March 31, 2023, with $200 million remaining - No shares were repurchased during Q1 2023. As of March 31, 2023, $400 million of the $600 million authorized under the 2022 Share Repurchase Program had been utilized[134]