LPX

Strategic Transformation & Leadership Transition

• Alan (current CFO) will retire on September 1 after nearly 7 years in the role; he led the development of LP's disciplined capital allocation strategy and oversaw LP's transformation from a commodity forest products firm to a specialty building products company. Aaron, the CFO-designate, will succeed him, with a fully prepared finance organization in place.

Siding Business Growth & Market Share

• SmartSide siding has outperformed broader single-family housing market trends: it delivered a 10% compound annual volume growth rate and 14% compound annual revenue growth rate, compared to a ~6% compound annual growth rate for single-family housing starts. Compared to the mid-COVID 2021 Q2 peak, single-family starts are down 18%, while SmartSide volume is up 10% and revenue is up over 50%, confirming ongoing strong share gains.

Capacity Expansion Progress

• A new expert finish line at the Green Bay facility is ramping up per the typical startup schedule. Another 20 million feet of expert finish capacity will be added at the Bath, New York facility later this year. Ground broke on the largest and most efficient expert finish painting facility in North Branch, Minnesota at the end of June.

Operational Disruptions

• Two unanticipated late Q2 disruptions impacted results: unplanned equipment failure downtime at the Dawson Creek, BC mill, and severe flooding in western Manitoba that damaged transportation infrastructure and impacted the Swan Valley mill team. These events pulled forward planned inventory drawdowns from Q3 to Q2, creating a timing shift for EBITDA absorption impacts with no change to full-year magnitude.

Balance Sheet & Liquidity

• Q2 operating cash flow was $140 million, supported by seasonal log inventory reductions and unplanned Q2 siding inventory reductions. Capital expenditures totaled $59 million in the quarter, and $21 million was returned to shareholders via dividends. Ending cash was $228 million, with total liquidity of just under $1 billion including the undrawn $750 million revolver.

• Siding segment is expected to return to year-over-year volume and revenue growth in Q3, with modest volume increases and higher selling prices driving the majority of growth. Q3 siding revenue is guided between $460 million and $470 million, where the low end matches LP's previous all-time revenue record. Q3 siding EBITDA is guided between $110 million and $120 million, for a margin of approximately 25%.
• Full-year 2023 siding revenue, EBITDA, and margin guidance is reaffirmed, with modest conservatism built into the guidance despite strong recent order intake.
• OSB segment guidance is sharply downgraded: weak demand and falling prices are projected to drive Q3 OSB EBITDA to approximately negative $45 million, and full-year 2023 OSB EBITDA to negative $120 million (assuming current flat prices hold through year-end).
• Full-year capital expenditure guidance is lowered by $70 million to $320 million, with all cuts coming from non-essential, delayed sustaining maintenance projects predominantly in the OSB segment; no growth capex for siding was reduced. Siding accounts for ~75% of the revised full-year capex total and all growth capex.
• Expert finish full-year 2026 volume growth projection of mid-single digits remains unchanged.

1. Siding Segment: Year-over-year Q2 sales volumes declined 11% against an all-time prior year record. Prime volumes fell 12%, while expert finish volumes grew 1% year-over-year. Average selling prices were 7% higher than the prior year, contributing $27 million in incremental revenue. Two unanticipated late-quarter events (unplanned downtime at Dawson Creek, BC and flooding-related disruptions at Swan Valley, Manitoba) reduced Q2 EBITDA by a net $18 million; without these disruptions, LP would have hit or exceeded the top end of its prior guided EBITDA range. For the full year, segment revenue and EBITDA guidance remains affirmed. Siding represents approximately three-quarters of LP's full-year 2023 capital expenditure, and all of LP's growth capex.

2. OSB Segment: Commodity OSB prices ended Q2 approximately $15 lower than prior guidance, with prices and commodity demand falling further than projected. Q2 revenue fell $67 million year-over-year, and EBITDA fell $46 million year-over-year. A $9 million year-over-year EBITDA benefit came from the non-recurrence of the prior year's lower of cost or market inventory correction. OSB operated at a mid-to-high 70% utilization rate in Q2, which management plans to maintain in Q3 to balance supply with weak current demand.

• Ongoing volatility in raw material costs, particularly crude oil-derived resin and feedstocks, creates ongoing margin pressure for the siding business. Crude oil price increases in Q2 drove more than half of the $14 million Q2 EBITDA inflation drag, with constrained freight capacity and flood-related routing changes adding additional unanticipated freight cost pressure.
• OSB market prices are currently near historical inflation-adjusted lows, with weak demand driving negative full-year projected EBITDA for the segment, creating overall earnings drag despite the strong performance of the siding business.
• Recent WUI (wildfire urban interface) building code changes in some regions (notably Colorado) restrict use of wood-based cladding in some markets, though this currently impacts only a small portion of LP's addressable market.
• Distribution channel partner transitions (notably related to Boise Cascade) carry a small risk of temporary service disruption, though management has pre-planned for this transition.
• Unexpected operational disruptions (equipment failure, extreme weather flooding) can create material near-term quarterly EBITDA misses, even when impacts are limited to timing shifts.

Q: Analyst asks for end market breakdown of Q2 siding volumes, and exposure/impacts of the Boise Cascade distribution change. / A: Offsite/shed segment rebounded over 30% quarter-over-quarter in Q2 after Q1 destocking, but is still projected down 10-15% for the full year. Repair & remodeling is projected flat to slightly up, with expert finish serving as a strong proxy for this segment's performance. Other segments are flat to slightly down in line with overall housing start trends. Management notes the Boise Cascade change was not a surprise, and LP has multiple distributors per market, so no coverage lapse is expected. A transition is underway to add new committed partners by October 1 at the latest, and LP handled a larger 2017 transition successfully, so it expects a similar smooth outcome here.

Q: Analyst asks how LP is approaching pricing amid ongoing raw material inflation, as competitors implement additional mid-year price increases. / A: LP's pricing strategy remains unchanged. Raw material inflation is volatile, and LP views its current pricing stance as a potential opportunity to gain volume. With the year already advanced, mid-year 2026 price increases do not make strategic sense, and any raw material cost offsets will be rolled into the upcoming 2027 full-year price increase. LP has seen some signals that its current pricing stance is supporting higher back-half volume.

Q: Analyst asks what capex projects are being cut to hit the $70 million lower full-year guidance, and if this reflects a changed medium-term market outlook. / A: All capex cuts are lower-priority sustaining maintenance projects (predominantly in OSB), which are only delayed rather than canceled, and are balanced against current weak demand. No changes were made to growth capex for siding: the North Branch expert finish facility broke ground as planned earlier this summer, and no siding growth projects were delayed. The guidance revision does not reflect a changed medium-term outlook for the core siding business.

Q: Analyst asks if there is consideration to pulling forward a new siding capacity project (likely at Maniwaki) to help offset OSB supply/demand imbalances. / A: Management stated it will not make long-term siding capacity decisions based on short-term OSB market conditions. Long-term decisions are based on expected return for the siding business, not short-term OSB volatility. Even if LP were inclined to move the project forward, the large capital cost of a new siding mill would far outweigh any potential benefit from easing OSB supply pressure, so the strategy remains unchanged.