Louisiana-Pacific (LPX)

Q2 2011 Earnings Call

July 29, 2011 2:00 pm ET

Executives

Curtis Stevens - Chief Financial Officer and Executive Vice President of Administration

Richard Frost - Chief Executive Officer, Director, Member of Executive Committee and Member of Environmental & Compliance Committee

Analysts

Peter Ruschmeier - Barclays Capital

Chip Dillon - Citigroup

Bill Hoffman - RBC Capital Markets, LLC

Mark Connelly - Credit Agricole Securities (USA) Inc.

Mark Wilde - Deutsche Bank AG

Michael Roxland - BofA Merrill Lynch

Steven Chercover - D.A. Davidson & Co.

Gail Glazerman - UBS Investment Bank

Presentation

Operator

Compare to:
Previous Statements by LPX
» Louisiana-Pacific's CEO Discusses Q1 2011 Results - Earnings Call Transcript
» Louisiana-Pacific CEO Discusses Q4 2010 Results - Earnings Call Transcript
» Louisiana-Pacific Corporation Q2 2010 Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Louisiana-Pacific Corp. Earnings Conference Call. My name is Derrick and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Mr. Curt Stevens, Executive Vice President of Administration and Chief Financial Officer. Please proceed.

Curtis Stevens

Thank you very much, and thank all of you, for joining us on this Friday afternoon to discuss our earnings for the second quarter of 2011. I know it's been a busy day for many of you. As the moderator said, I'm Curt Stevens, the CFO; and with me today is Rick Frost, our CEO; as well as Mike Kinney and Becky Barckley, who are primary Investor Relations contacts.

As I usually do, I'll begin the discussion with a review of the financial results for the quarter and then I will follow that with some comments of the individual segments and selected balance sheet items. Then I'll turn it over to Rick, who will discuss the general market environment in which we operated last quarter, his perspective on our operating results and some thoughts on the outlook for the remainder of this year and into 2012. As we have done in the past, we’ve opened up this call to the public and are doing a webcast. And this can be accessed at our public website, www.lpcorp.com. Additionally, to help with the discussion today is a presentation that we sent out with the release, and I will be referencing those pages as I go through my comments. We've also filed an 8-K with supplemental information that will help with the understanding of this material, and we expect to file our Form 10-Q later this afternoon.

And again, before I start, I want to remind you about the forward-looking statement comment that's included on Slide 2 of the presentation, and also, on Slide 3 is a discussion of our use of non-GAAP financial information. I'm not going to read either one of those, but I am going to incorporate it by this reference. One final thing before I get to the numbers, I want to put this in context. I want to put it in a context of what housing has done in the second quarter and also in the backdrop of OSB pricing.

In the first half of 2010, we believe that the government-provided housing incentives did have a positive impact on both the actual and perceived activity in the quarter. As a result, we did see increased product demand in Q2 of last year and enjoyed favorable OSB pricing, particularly in the second quarter. The first half of this year started out with some degree of optimism, in January and February, but this quickly faded with the adverse weather conditions across the country, lackluster housing demand in numbers and slowness in the retail sector. This affected the demand for building products, in both the first quarter and the second quarter, and had an extremely adverse affect on our pricing for OSB. The bottom line, in Q2, housing starts were down 4% year-over-year, and Random Lengths reported that average OSB pricing, based on the benchmark North Central 7/16s, declined by 42% or $123 a thousand. This affected LP's overall sales and operating earnings by $75 million, just due to the change in OSB pricing.

With that as backdrop, let me talk about the earnings. If you go to Slide 4 of the presentation, this is our earnings summary. We are reporting, today, a net loss for the second quarter of $35 million or $0.27 per diluted share. Net sales from continuing operations were $363 million for the quarter. For the same quarter last year, we reported income of $22 million or $0.16 per diluted share on sales from continuing operations of $448 million. Adjusted EBITDA from continuing operations was a loss of $7 million compared to income of $75 million in Q2 of 2010. There was movement in the tax rate on continuing operations between the quarters. The effective tax benefit rate on continuing operations in Q2 2001 was 20%, very similar to Q1. As we discussed last quarter, this is primarily related to the requirement of the valuation allowance against the use of certain of our losses in various jurisdictions above a specific threshold, this is all due to the accounting rules. Compounding this is in the discontinued operations, we were required to use the statutory benefit rate of 38.7% which results in a slightly lower tax benefit rate on continuing operations.

I'll talk about this in a minute, but that affected -- if you used a more normalized rate, that would have improved or lowered the loss by about $0.04 to $0.05. In Q2 of last year, the tax benefit rate was 35%, which was the statutory rate blended for our various foreign pieces.

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