Louisiana-Pacific Is Outperforming the Housing Recovery
Although I didn't give the home-building giant a glowing endorsement due to management's downbeat outlook following LPX's fourth-quarter report, I'm nonetheless surprised by the Street's reaction to what was actually a better-than-expected quarter.
Revenue surged 49% year over year to $538 million, while also advancing 17% sequentially. It's hard to be disappointed by these numbers. In fact, in my earnings-preview article where I discussed LPX's performance expectations when compared to Weyerhaeuser
Weyerhaeuser just posted strong first-quarter results, which included revenue growth of 31%, following 25% revenue growth in the fourth quarter. Louisiana-Pacific should (at least) post revenue growth in the mid-to-high 40% area. Relative to Weyerhaeuser, anything less than 40% sales growth would be a disappointment.
Clearly, management deserves credit here, while at the same time this affirms my prior belief that perhaps management underestimated the strength of the housing recovery or, for that matter, their own talent.
In that regard, Louisiana-Pacific's CEO, Curt Stevens said:
"LP's strong financial results were driven by a broad recovery of building activity across all regions of the U.S., which led to improved demand for our products and increased
Profitability was also solid. The company earned $65 million, or 45 cents per share, which reverses a year-ago loss of $11 million. What's more, the $65 million represents a sequential improvement of 32%.
Still, the Street didn't seem impressed by these results. But when digging further, it underscores what a strong performance this was. For instance, in the prior article, when comparing LP to Weyerhaeuser's first-quarter profitability, I said the following:
Profitability, however, is a different animal, given that companies don't often share the same focus in terms of margins and expenses. That said, both LP and Weyerhaeuser have posted identical fourth-quarter margins of 21%, which arrived flat for Weyerhaeuser in the first quarter. Essentially, if LP's margins arrive below 21%, the stock will likely get hammered...
Management exceeded these expectation and more, as gross margin surged to 27%. Remarkably, this is despite the 9% sequential climb in expenses. Likewise, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations arrived strong to $121 million, up from $21 million posted last year.