Louisiana-Pacific Corp. (LP) reported today its loss from continuing operations in the second quarter shrank nearly two-thirds, to $27.3 million from $79.4 million in the year-earlier period, despite a 31% drop in sales to $266.2 million. It also said it plans to file paperwork tomorrow with the Securities and Exchange Commission (SEC) to set itself up to tap the equities market, and that it gets the feeling demand was edging up in June.

By operating segment:

  • The oriented strand board (OSB) unit incurred an operating loss of $18.5 million--46% better than the year before--on a 43% fall in net sales to $97.7 million. A fall in prices cut operating income by $9 million. Cheaper petroleum-based products used in production and a weaker Canadian dollar helped moderate costs. OSB production sank 35.8% to 660 million square feet.
  • The siding segment reported operating income of $6.5 million, down 26% from the second quarter of 2008, as sales slid 17% to $102.7 million. "Sales were off across all regions due to significantly reduced housing starts partially offset by continued strength in the repair and remodel markets," LP said. Production dropped 30% to 159 million square feet.
  • The engineered wood products segment recorded an $8.6 million operating loss, 7% better than a year before, on a 45% drop in sales to $35.9 million. "The lower operating results in the second quarter were driven by lower volumes, softening prices and costs associated with the mill that produces LSL [laminated strand lumber]," LP said. Production of engineed I-joists slipped 27%, while production of LSLs and laminated veneer lumber plummeted 51% to 1.02 million cubit feet.

"Home building and related activity continued at historic low levels during the second quarter of 2009, driven by the ongoing credit crisis, high unemployment and generally poor economic conditions," Rick Frost, LP's CEO, said in a statement. "We are pleased that our businesses were able to improve year over year despite the significant decline in housing starts."
For the entire company, second-quarter EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) shrank to a $3.3 million loss from a $96.7 million loss in April through June 2008. Including discontinued operations, the company reported an operating loss of $32.2 million as compared to a loss in the second quarter of 2008 of $124.1 million.

Today's report means that LP recorded an operating loss of $74.7 million in the first half of this year compared with a $140.7 million loss in the January-June 2008 period, a loss from continuing operations of $57.5 million vs. $125.3 million a year earlier, and an EBITDA loss from continuing operations of $21.8 million vs. $140.7 million. Net sales dropped 36% to $470.8 million.

CFO Curt Stevens said the SEC Universal Shelf Registration will "put in place the ability to take advantage of favorable conditions in the financial markets to strengthen the balance sheet, improve financial flexibility or such other transactions that the board may deem appropriate. ... There have been no decisions made by the board to pursue the issuance of any securities under this shelf registration."

In a conference call with Stock analysts, Frost said LP "felt a slight uptick" in demand toward the end of June. That increased the pressure on the supply channel, which Frost described as "about as lean as we've ever seen out there."

Looking further ahead, Frost noted that many economic forecasts call for roughly 700,000 new-home starts in 2010. He said LP interprets this to mean that business in this year's fourth and next year's first quarter will be "not particularly high" but still better than the year-earlier periods, particularly considering all the cost cuts LP has made.

Frost also said his research indicates the average size of a new home appears to have shrunk by about 70 square feet in the past year. That 70 feet, extrapolated over five years of starts, works out to 500 million square feet worth of OSB that won't be needed by builders, he said. Put another way, that's the equivalent of the output by one second-generation OSB mill.