Louisiana-Pacific Exec Insights: Housing Surprises, Customer Order Flows

On Monday, Louisiana-Pacific Corp. (NYSE:LPX) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Housing Surprises

Michael Hoffman – Bank of America Merrill Lynch: Curt, congrats on the new role. Any reason surprise you this quarter? It seems like the West has seen some relative pricing strength early. So, what’s going on in the West versus other regions and what really caught you by surprise during the quarter?

Curtis M. Stevens – CEO: I’m not sure I’d say that anything caught me by surprise other than the housing – the absolute level of housing starts as we, as I said, had budgeted a lower number than that. We were optimistic it was going to be higher but actually it was better than I thought. As far as OSB pricing in the West, we’re not really sure why it went down last year. If you look at the Q1 differential between Western Canadian print and the other print, it’s pretty much back at its historic average. So, it’s been a recovery of what was kind of unexplained in Q2, Q3 and Q4 of last year.

A Closer Look: Louisiana-Pacific Earnings Cheat Sheet>>

Michael Hoffman – Bank of America Merrill Lynch: Anything specific to your ops in the core things like the overall enterprise remained a lot better this quarter than in prior quarters?

Curtis M. Stevens – CEO: I think that with our – as I mentioned, our Lean Six Sigma, we continue to be more efficient and effective in how we run those facilities. We did have a little more incremental demand in all businesses which will allow those mills to run to run better. Any time we can get closer to a 24/7 operation, we’re going to have more efficient operations than we are with different shifting patterns.

Michael Hoffman – Bank of America Merrill Lynch: In terms of level of downtime that you took, how does that compare 1Q versus 4Q?

Curtis M. Stevens – CEO: I think the number in OSB we ran effective capacity about 76%.

Mike Kinney – IR: 77% in Q1 of this year and Q4 was…

Curtis M. Stevens – CEO: You’ve heard Mike, but I think we ran 76%, 77% effective capacity in OSB in Q1 it was about 68% in Q4. Now that’s of what’s running that doesn’t the $1.6 billion of curtailed capacity.

Customer Order Flows

Gail Glazerman – UBS: Do you feel that your customer order flows are matching the improvement that you’re seeing on housing starts and permits or do you feel that they are still maybe not believing it’s true and there could be a pickup or rush later in the quarter?

Curtis M. Stevens – CEO: We were concerned about that because last year we had a very good Q1 from an order standpoint that would fell off in Q2. Also I gave you a little color on April our order files in April were better than we had expected and it continue to show some strength. So, again, we’re cautiously optimistic Q2 is going to be a good quarter.

Gail Glazerman – UBS: Did you feel that any of your businesses, in particular, might have benefited more from the warm weather and pull forward of projects completed that would have normally happened later in the year or do you feel the shift to your ongoing demand?

Curtis M. Stevens – CEO: I wouldn’t say any product line benefited more than another. I think there was probably a little bit more of repair and remodel, so the business went through the boxes in the northern part of the U.S. probably did a little bit better than we expected. But overall I wouldn’t say there was one stood out

Gail Glazerman – UBS: Last question, the reference about increased imports into Chile, was that from Brazil or from the U.S., is they are both or…

Curtis M. Stevens – CEO: It was actually both. We imported some product from Brazil into Chile and we also imported some product from our Canadian operations into Chile. We’ll see more demand in Chile than we can satisfy. So opportunistically we’re looking at bringing that product in from other of our facilities.

Gail Glazerman – UBS: I just have one last quick follow-up on that, in Brazil, are you still thinking to kind of starting the second line there or at this point would you see just filling the gap for North America is a better option?

Curtis M. Stevens – CEO: Well, let me be clear starting the second line means we have a thermal oil system that we need to bring up. It’s still the same line, but you could run it a bit little faster if you bring up the second thermal oil. We’re currently running between 60% and 65% of capacity in Brazil. As it turns out because of the transportation cost, it isn’t a lot cheaper to move product from Brazil to Chile than it is from North America to Chile. It’s crazy as that sounds.