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080205 Deutsche Bank Report - LP's 4Q in 100 Words

Deutsche Bank - Equity Research

 

Louisiana-Pacific {Ticker: LPX.N, Closing Price: USD 13.41, Target Price: USD 16.00, Recommendation: Hold}.

 

Slightly below expectations. GAAP EPS loss was $(0.37). Pointing to EPS of $(0.29) from continuing operations, net of special items. However, a high 56% tax rate helped. At a normalized 35% tax rate, the headline number would look more like $(0.46). DB was at $(0.39) and consensus at $(0.33). Comps: 3Q07 = $(0.24); 4Q06 = $(0.20). OSB being hit by familiar issues: low prices, weak vol's, strong C$. Erosion in non-OSB businesses appears to be accelerating.

 

OSB. EBIT: $(53MM), 3Q07 = $(32MM), 4Q06 = $(55MM). Vols -11% q/q & -5% y/y. Price -9% q/q and +2% y/y. OSB D&A was $15MM, suggesting that EBITDA loss in 4Q was $38MM, or about $37/msf. With 35% of LPX capacity in CN, the 5% q/q rise in C$ was the other big issue beyond price/vol.

 

Siding. EBIT: $(4MM), 3Q07 = $11MM, 4Q06 = $7MM. SmartSide: vol's - 24% q/q & +17% y/y, price -2% q/q & +2% y/y. Hardboard: vol's -27% q/q & -0% y/y, price -6% q/q & -2% y/y.

 

Eng'd Wood. EBIT: $(3MM), 3Q07 = $3MM, 4Q06 = $5MM. LVL: vol's -24% q/q & +1% y/y, prices +1% q/q & -7% y/y. I-Joist: vol's -34% q/q & -13% y/y, price +4% q/q and -5% y/y.

 

Other items . (1) Clark County, AL mill to start in March, but only at 50% op rate in '08. (2) Net cash = $391MM, -$132MM q/q ($114MM in capex and $36MM in working capital build hurt). (3) Capex = $336MM for '07, but just $65-70MM for '08. (4) Is $2MM valuation allowance on $150MM of auction rate securities enough?

 

View? Disappointed. Despite weak outlook for '08, and perhaps also for '09, management is staying "on the attack" to create preference for LP products, rather than cutting production and preserving capital. Trimming estimates: '08 goes from $(1.25) to $(1.50) [1Q = $(0.50)] and '09 goes from $(0.75) to $(1.25).

 
 

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