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Louisiana-Pacific Corp (NYSE:LPX)
Q1 2019 Earnings Call
May. 7, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Louisiana-Pacific Corporation First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference Mr. Mike Kinney, Director of Investor Relations and Treasurer. Sir, you may begin.

Michael Kinney -- Director of Investor Relations & Treasurer

Thank you, Ashley, and good morning everybody. Thank you for joining our conference call today to discuss LP's financial results for the first quarter of 2019. I'm Mike Kinney, Director of Investor Relations and Treasurer. And I am joined today by Brad Southern, LP's Chief Executive Officer; and Alan Haughie, LP's Chief Financial Officer.

As we've done in the past, we've opened up this call to the public and are doing a webcast. The webcast can be accessed at www.lpcorp.com. Additionally, to help with the discussion, we've provided a presentation with supplemental information that should be reviewed in conjunction with the earnings release. We will be referencing these slides in our comments this morning. Also, we have filed our 10-K and 8-K this morning with some supplemental information.

With that, I will turn the call over to Brad.

Bradley Southern -- Chief Executive Officer

Thanks, Mike and thank you all for joining us this morning. I'll begin today's call with a few highlights on the first quarter and update on our growth and efficiency initiatives, provide our current view of the market environment and then turn the call over to Alan for a more detailed look at our results. But before I do any of that, it gives me a great pleasure to acknowledge in addition to our team here in Nashville.

Robin Everhart joined us in mid-April, as our new Senior Vice President, Chief Human Resources and Transformation Officer. Robin is filling the vacancy created with -- when Tim Harnett accepted the role as Senior Vice President of Operations at Entekra, our joint venture that provides fully integrated off-site framing solutions.

Robert is now responsible for all HR functions and will play a key role in ensuring a strong linkage between our transformational goals and our HR programs. Throughout her career, she has bolstered strong business relationships, helped create significant economic value and build-high performance business cultures. I'm excited to have Robin on the team, and I'm confident she will help drive our strategic transformation into a leading building solutions provider.

Speaking of transformation, let's turn to Slide 5, for a summary of our recent accomplishments. In the first quarter, we grew Smart Side Strand revenue by 13%, expanded Siding capacity, introduced a popular new Siding products and a new weather-resistant sheathing product, improve plant efficiencies and return cash to our investors. On the February call, we announced the imminent launch of our smooth SmartSide Strand products scheduled for the international builders show. This range of products, which combines a clean look with the rugged durability and long-lasting beauty of our LP SmartSide offering, fulfills a long-standing needs for a solution that offers a smooth aesthetic. Before the Smooth product was launched, we were encouraged by the opening order volumes, and I can report the demand for Smooth SmartSide is currently exceeding our expectations. In addition to launching Smooth, we brought new Siding capacity online in Q1.

In February, we successfully completed the conversion of our Dawson Creek mill, which produced and shipped its first commercial signing product in March. I am proud and appreciative to our Siding leadership team into the -- into each of the nearly 400 employees on Dawson Creek to make this happen. Another milestone was the launch of LP WeatherLogic, our water-resistant barrier OSB solution. This engineered with panel features an integrated water resistant overlay and a distinctive blue color. Builders welcome a solution that eliminates the need for house wrap, can speed the construction process and promotes a clean job side. It also provides a tighter home to meet energy code requirements, improving long-term energy efficiency.

Since its launch the enthusiasm around WeatherLogic from our sales team has been contagious, and it has captured the attention of builders. We're excited to see blue house pumping up on construction site. The progress we've made executing our strategy comes amid a challenging economic environment, with solid second consecutive quarter of declining housing starts, and our OSB prices falling by almost 30% year-over-year. Many builders as well suppliers to the trades have attributed the Q1 lag in activity to cold wet weather. There is no doubt constrained to OSB demand along with initial caution from builders as they waited for things to pick up, from a weak fourth quarter.

Throughout this period of uncertainty, we continue to adjust OSB production planning to match demand, taking downtime is necessary, while promoting our more margin resilient value add portfolio.

Let me take a moment to point out that with our focus on providing complete building solutions, we have organized our branded value added OSB into a family of Structural Solutions. These products are designed to solve common construction problems by improving the structural strength and integrity of the home, and by providing defenses against the destructive effects of the extreme climate and environmental conditions. Benefits include more time and cost efficient installation process for the builder and a more resilient energy efficient and valuable home for the home owner. Products other than LP WeatherLogic included in this product family.

Our LP FlameBlock which helps meet today's most rigorous fire codes, LPTechShield radiant barrier which prevents up to 97% of the sun's heat from entering the attic. And LP Legacy which is engineered to be one of the strongest, stiffest sub-flooring solutions in the industry. Together our Structural Solutions OSB products complement each other to deliver whole house bag. This quarter we moved closer to our long-term goal of having 50% of our OSB volume generated by our Structural Solutions portfolio reaching 40%.

We also improved overall equipment effectiveness or OEE by almost five points over the first quarter of 2018. OEE is our measure of manufacturing efficiency and its improvement was the largest single contributor to the $8 million of operational efficiencies generated this quarter. Finally, as part of our drive to create shareholder value, we spent $438 million buying back shares over the last three months, including $400 million being accelerated share repurchase.

We paid first quarter dividend of $17 million, and then today declared a second quarter dividend of $0.135 per share. Another key focus area that will drive value, it's growth of SmartSide Strand. The chart on the left hand side of Slide 6 shows the last 12 months of SmartSide Strand revenue up to an including March of 2019, compared to the corresponding 12-month period one year ago. On this basis SmartSide Strand revenue is from 14%, about 10 points of which is from volume growth.

Over that same time period, single-family housing starts also measured on a trailing 12-month basis have remained flat. We estimate that 40% of our SmartSide Strand revenue is tied to single-family housing, so we should not expect the close correlation. But by any measure, and I think this is a conservative (inaudible), our growth in SmartSide Strand significantly outperforming the market.

On our fourth quarter call, we outlined our plans to generate an additional $100 million of cash flow by 2021, at a range of potential OSB prices. This $100 million comprises $90 million from growth, $75 million from efficiency improvements, offset by labor and benefits inflation of $30 million, and all net of taxes of 25%.

The table on the right hand side of Page 6, summarizes our progress on the growth and efficiency targets. Alan will cover the details by segment in a moment. And although one quarter does not make a trend, we are at present ahead of our internal targets on all three, growth, OED improvement and sourcing savings. In the first quarter alone, we have generated $20 million through our combined growth and efficiency targets for 2021 of $165 million. From sales to operations our folks were embracing our high performance culture, and thinking and acting like owners. And we are focusing on value creation now, more than ever before. This gives me great confidence that we can continue to grow Siding and Structural Solutions, improve efficiency and return capital to our shareholders, even in the flat housing market. Having said that, many of the large national builders are reporting the consumer traffic for housing, continued to accelerate in March, with mortgage rates coming off from last year's heights.

Despite high traffic, the actual housing starts data continues to disappoint in comparison to last year. The U.S. Census Bureau reported March 2019 housing starts down 13% versus March 2018, the single-family down 10% and multifamily down 19%. Looking forward, U.S. builder confidence for new single-family homes rose 1% in March, up to 63% on the National Association of Home Builders, Wells Fargo Housing Index. In addition, the home mortgage index gauging current sales conditions increased one point to 69, with any score over 50, translating to a positive outlook.

While the housing data has been disappointed over the last two quarters, the near-term outlook is positive as we move into the spring season. However, the year plays out in housing, here at LP we will remain focused on executing our strategy and driving shareholder value.

And on that note, I'll turn the call over to Alan for a detailed review of our first quarter results.

Alan J.M. Haughie -- Executive Vice President and Chief Financial Officer

Thanks, Brad. In addition to reviewing the consolidated results for the quarter, I'll be providing high level revenue in EBITDA bridges between this year and last year for the Siding and OSB segments, and updating you on the progress of our capital allocation plan. Throughout my prepared remarks, I will be referencing specific pages of our earnings presentation which was posted on our Investor Relations website this morning.

So moving to Slide 8 for a review of the first quarter, starting with the consolidated income statement. Net sales fell year-over-year by $109 million, $105 million of which was in the OSB segment, with realized prices for OSB, almost 30% lower than the first quarter of last year. This was partly offset by a 13% year-over-year increase in SmartSide Strand revenue comprising 8 points of volume growth and 5 points of pricing. And along the way generating $22 million of incremental revenue. This growth in SmartSide Strand was offset by softer EWP sales by much tighter overall market conditions and lower OSB revenue from our Dawson Creek mill.

As a reminder, during the first quarter of 2018, Dawson which rolls up into our Siding segment was producing OSB, whereas for much of this year's first quarter, it was in the latter stages of being converted to produce Siding and was therefore out of commission. Gross profit fell by $96 million, the negative impacts from lower volumes in EWP and the Dawson conversion were offset by a combination of cost reduction actions and the improvement in product mix, inherent in replacing low margin EWP with higher margin SmartSide Strand plus neutralizing everything with the OSB price reduction.

Selling and administrative costs increased by $6 million in the prior year, with the largest single driver being investments in sales and marketing, consistent with our growth strategy. Non-operating income of $12 million includes a gain of $14 million on the consolidation of Entekra into our results. Entekra was treated as an equity investment when acquired in 2018, meaning that our accounts reflected our share of the profits, largely as a one line entry.

However, at the beginning of this year, we gained the right to control this business and are obliged to fully consolidated in all line items of the accounts. As a result, we're now recognizing, some of the other things, Entekra's intellectual properties and asset in our balance sheet. The flip side is that we recognized a corresponding gain of $14 million. The effective tax rate for the quarter was 21% resulting in a tax provision of $7 million and net income of $27 million. And we executed the $400 million accelerated share repurchase program on February 21, at which point our bank has delivered to us 80% of the number of shares that this $400 million would have bought us at the previous Friday's closing price, that's about 12 million shares.

The remaining shares will be delivered subject to an adjustment for the final number actually purchased, no later than the end of the third quarter. So the 132 million diluted shares applicable for calculating the first quarter EPS is therefore the time-weighted average of 137 million diluted shares outstanding at the end of 2018, and the 125 million diluted shares outstanding at March 31, 2019. Therefore, we are reporting $0.20 per diluted share on the net income of $27 million, compared to net income of $91 million or $0.62 per diluted share in the first quarter of 2018. Adjusted earnings per share, which excludes the $14 million gain on Entekra post-tax was $0.13 per diluted share.

Before we discuss the sales and EBITDA waterfalls for the Siding and OSB segments, it is worth looking at the segments in the summary table on Slide 9. Much of the change in year-over-year performance has either been covered in my discussion of the income statement and will be covered in further depth in a moment. But jumping to EWP, the $15 million of revenue decline reflects $3 million of favorable pricing more than offset by $18 million of lower volume. The volume reduction had minimal impact on EBITDA, given the EWP's low margins whereas the price increase flow directly through, thereby resulting in an EBITDA increase of $2 million.

In South America, increased volumes were insufficient to offset a challenging pricing environment, with $2 million of increased revenue translating into a $1 million reduction in EBITDA. And starting this quarter, we have allocated a significant portion of our hitherto unallocated SG&A costs to the businesses to further drive line management accountability. We've reconciled the quarterly detail for 2018 and an 8-K filed with the SEC in February, and have provided high level reconciliations to the segment EBITDA numbers, reported in last year's 10-Q in a footnote on Slide 9.

Now let's turn to Slide 10, for a more detailed discussion of the first quarter performance of Siding. The bars on the waterfall represent the year-over-year EBITDA impacts and are relevant, the corresponding revenue changes are shown in orange text below the EBITDA bars. I'll discuss each key driver in turn. As Brad has already mentioned, the declining housing market had no discernible impact on the trajectory of SmartSide Strand revenue which grew $22 million or 13% comprising $13 million of volume and $9 million of pricing.

From an EBITDA perspective, the $9 million of increased pricing fell entirely to the bottom line, while we earned $5 million of incremental EBITDA on the $13 million of incremental volume, a healthy conversion of 38%. As mentioned on the fourth quarter call, we are continuing to invest in selling and marketing to drive SmartSide Strand growth with the principal focus on the repair and remodel market. Consistent with that objective, we spent $2 million more than the same period last year. And this marketing investment was offset by $2 million of efficiencies through a combination of OEE improvement and sourcing savings. And we grouped the SmartSide Strand growth, the marketing investments that support future growth and the efficiency savings together under the heading, transformation, in order to monitor our progress in this and in future quarters.

And while we are delighted to report that Dawson Creek is up and running as a Siding mill, it was to all intents and purposes out of commission for the entirety of the quarter and generating no revenue. The $9 million highlighted on this slide reflects both the one-off costs of the conversion and the unrecovered labor and overhead costs in the period. So of the $50 million lost to OSB revenue, about two-thirds relates specifically to Dawson being down, and $3 million was due to lower OSB prices.

Arguably, we may have elected to take downtime anyway under the current OSB climate had we not already been in the throes of the conversion. Added to which Dawson was one of the mills negatively impacted by the transportation problems in the first quarter of 2018. So in summary, EBITDA fell by $3 million to $42 million and the EBITDA margin fell from 20% to 18%. Now, while this is below our long-term target of 20%, if we adjust for the $9 million of Dawson conversion costs, which by definition we expect to be temporary. The normalized first quarter 2019 EBITDA margin preceding will be around 21%, even at current OSB prices.

Looking forward, we will be ramping up production at Dawson Creek during 2019 and plan to continue investing and selling and marketing, as we had to introduce new products and penetrate new markets in Siding. So we remain confident in our long-term SmartSide Strand growth rate of 12% to 14% and an EBITDA margin of at least 20% to the segment as a whole.

Slide 11 shows the first-quarter revenue and EBITDA waterfall for the OSB segment. Revenue for OSB fell by $105 million year-over-year, $93 million of which was strictly price. And although regional benchmark OSB prices were down 40% to 50%, our average realized price on commodity OSB for the quarter fell by 35%. Commodity OSB volumes fell by 7%, including the impact of about 70 downtime days, roughly half of which was due to the press we built at our Carthage mill, which was down 35 days as a result.

And we are happy to say the project was executed on time and on budget and the mill is running great. We estimate this cost is about $4 million in the quarter though. Pricing on our Structural Solutions fell by 25%, testament to the resilience of this portfolio to downward pressure. And included as part of our transformation call-out for OSB is the EBITDA impact of a $2 million increase in the volume of Structural Solutions, as well as improvements in OEE and sourcing of a combined $5 million.

Now, although these might seem like modest gains to highlight, they demonstrate both the operating discipline with which around the quarter and the importance of the Structural Solutions portfolio to our growth.

Now before walking through our cash flow for the quarter, summarized on Slide 12, I'll take a moment to revisit the capital allocation plan we outlined on our fourth quarter call in February. On that call, we described the impact, our ongoing transformation was expected to have on our ability to produce healthy cash from operations across a range OSB pricing scenarios, together with at least $100 million of sustainable incremental annual cash flow by 2021. The first quarter is traditionally one of heavy cash usage with the buildup of working capital and the payment of accrued bonuses. And this year, our first quarter cash tax payment of $21 million.

Although, we are experiencing OSB prices toward the low-end of the range of sensitivities we presented, our cash flow for this quarter is entirely consistent with and even a little ahead of, both our modeling and the long-term improvements we outlined. For example, should the Random Lengths 716's OSB price ultimately average 200,000 square feet for 2019, we believe that our cash from operations will comfortably exceed the $140 million we modeled at that price.

With regard to share repurchases, we began 2019 by utilizing the last $38 million of the previous $150 million repurchase authority and funded a $400 million accelerated share repurchase program. The first stage of our planned 62 (ph) million of share repurchases in 2019. The accelerated share repurchase will be completed no later than the end of the third quarter, during which time LP will not be concurrently buying shares. I should add that with the consolidation of Entekra into our results, $40 million of the $45 million we invested in 2018, has landed back on our balance sheet.

As a result, Entekra's future capital spending will be reflected as part of LPs capital spending. Although technically, it will be drawn from the fund of $40 million. So, including this, we ended the quarter with $375 million of cash.

Before I turn the call over for Q&A, Slide 13 provides some limited guidance for 2019 and beyond. This is exactly the same guidance we provided on the fourth quarter call. So even though we will be counting Entekra's CapEx as part of LP's, we still expect to spend in total between $150 million and $180 million this year. And of course, as already stated, we expect to grow SmartSide Strand revenue 12% to 14% long-term, but continue to guide to the low end of that range in 2019.

With that, I'll open up the call for Q&A. Operator?

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question comes from the line of George Staphos with Bank of America. Your line is now open.

John Babcock -- Bank of America Merrill Lynch -- Analyst

Good morning. This was actually John Babcock on the line for George. Just wanted to start out, it looks like on the Siding side of things, our average price realizations were up around 4% to 6% across different product lines. And wanted to get a sense for how you're thinking about that going forward? And then also just wanted to get an update from you on how the Siding market as always looking to you right now?

Bradley Southern -- Chief Executive Officer

So first on the pricing, you're right about the number, frankly 4% to 6%. George, we went out this year with a similar pricing -- price increase strategy as we implemented last year, same timing March 1, and we are looking into this year as having similar results around the price improvement that we saw last year. So I would just kind of guide to last year's improvement carrying over into this year, as well as far as percentages go.

And then the second part of your question was about the market outlook for Siding. So as you know, we mentioned on the last call, we did allow customers to pre-buy before the March 1 price increase that was very successful. We'll allow them to buy 110% of last year's volume, they pretty much did that across the board. We also had some early or being around the smooth product launch, that would build a bit of inventory. But like we carried some inventory into Q2, a little higher than normal and Siding, as we -- because the price increasing -- price increase we implemented in Q1. And so, but with any kind of good pull-through to the second half of the quarter, we should be back to a reasonable inventory levels or normal inventory levels by the end of the quarter in the channel and certainly at our mills.

John Babcock -- Bank of America Merrill Lynch -- Analyst

Okay, thanks for that. And then just one quick follow-up, just on OSB, you talked about the downtime, I just want to clarify, I guess, so that 35 days was included in that 70 downtime -- total downtime days, and then I was also wondering if you could talk about the cost of that downtime, I think you might provided some color, but just wanted some clarification there.

Alan J.M. Haughie -- Executive Vice President and Chief Financial Officer

Yes, you're right. The 35 days of Carthage downtime was included in the 70. And in essence, the cost of that downtime, if you look at the OSB waterfall, it's largely embedded in the volume -- volume base, you see there $14 million of revenue down and $9 million of EBITDA impact essentially includes the impact of that downtime.

John Babcock -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you.

Operator

Thank you. And our next question comes from the line of Mark Connelly with Stephens. Your line is now open.

Mark Connelly -- Stephens -- Analyst

Thank you. When I look at products like WeatherLogic and think about the success you've had with our Radiant Barriers, that looks like a good market for you, and I'm just curious how you think about what percent of your U.S. panel business might be receptive to that kind of value added product versus the overall market?

Bradley Southern -- Chief Executive Officer

So, Mark, I would talk about it this way. First of all, it's a sheathing product, so it's used vertically on the home and we see a very, very good possibility over time for the industry convert, almost 100% to that, that value added product, because of the cleanliness on the job site and the characteristics of the overlay. So that will be a long pull, that's not going to happen immediately, and a lot of that has to do with this product availability right now, but we are very excited about a deep penetration and significant market share being gained against commodity products to go on to the side of a home.

We're just getting started in it, but we have great distribution in place. We have distribution obviously that knows how to sell into that market though. We could see that being as successful as our Radiant Barrier product is today and as we move into the future.

Mark Connelly -- Stephens -- Analyst

So there is no geographic placing -- the Radiant Barrier, obviously was a lot more geographically limited. So that's why I was asking the question why it did. So you think this product can work nationally as configured?

Bradley Southern -- Chief Executive Officer

Yeah, sorry, Mark, I didn't understand. Absolutely there is no climate restrictions on selling the product for the sheathing.

Mark Connelly -- Stephens -- Analyst

Fantastic. And just one more question, we're starting to see builders make changes to the size of the homes, something they really didn't do that much in the 2009 to 2011 area. Are those changes big enough or do you think they're going to be big enough that they would actually start to change the assumptions you make when you're doing your own forecasting?

Bradley Southern -- Chief Executive Officer

Great question, Mark, we have been hearing that as a trend and there are some data out there, currently they're showing that is maybe beginning to happen. And that's all in the context of affordability in making a home or constructing a home that millennials can afford to occupy as their first or second home. But I do think smaller homes and more cost-efficient homes are on the horizon for the industry, but we really have not seen that playing out in the ratio of housing starts to OSB demand. So we are not baking any of that into our long-term demand projections for OSB, so I think it's something we need -- we need to keep an eye on it.

Mark Connelly -- Stephens -- Analyst

That's super helpful. Thank you.

Operator

Thank you. And our next question comes from the line of Ketan Mamtora with BMO Capital Markets. Your line is now open.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Good morning, Brad, Alan and Mike.

Bradley Southern -- Chief Executive Officer

Good morning, Ketan.

Ketan Mamtora -- BMO Capital Markets -- Analyst

First question, can you talk a little more about competitive dynamics in the Siding business? I mean from a demand standpoint, housing starts are kind of pretty much flat. There is also supply that's getting added in the industry. So kind of what are you seeing in the market? And your volumes kind of grew pretty nicely in Q1. So just talk about kind of where you are seeing growth as well whether it's in -- in particular geographies or in end markets if you can comment on that?

Bradley Southern -- Chief Executive Officer

So Ketan from a percentage standpoint, the growth that we're seeing is national. Now we work off a larger or smaller basis, depending on our current market penetration by geography, but we're seeing growth really across all geographic areas that we're national. So it's everywhere, but so we're seeing good percentage growth across nationally and into Canada. We do benefit from the breadth of product that we offer, so our growth is not just coming from our lap portfolio, which we compete against, can be one-on-one against fiber cement (ph). We're seeing good growth in our panel offering that goes to the retail. And then our trim product is really grown well for us.

So it's -- the percentage growth is across the board geographically and really across all product categories. Now with that said, our opportunity and our focus area right now is around the opportunity in repair and remodel. We are not as penetrated nationally as we would like to be in that segment, we have good market share in the North Central region and not as good market share the rest of the country. So our focus and the reason we talked about in incremental marketing spend, in our Siding business is really the opportunity, we'd say to accelerate our growth in repair and remodel, across all regions other than the North Central and that's only because we're already pretty well penetrated in the North Central region.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. That's helpful. So just on that R&R, how big is your penetration right now in that end market?

Bradley Southern -- Chief Executive Officer

Yeah, we're in middle single digit percentages on market share penetration of R&R. So a lot of room, Ketan, for growth there.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. That's very helpful. And then just turning to kind of Dawson Creek for a minute. So there was about $9 million of expenses, Alan. So as we think about going from Q1 to Q2 and then the back half of the year, sort of any rough estimate on how those costs kind of wind down? Any ramp-up production there?

Alan J.M. Haughie -- Executive Vice President and Chief Financial Officer

A little. We will see, as Dawson ramps up, we will see a -- let's say a headwind on this at least through Q2 and Q3, simply because -- as it ramps up. It will be smaller with each progressive quarter and all things considered. But we will see this impact for a couple of quarters as it ramps up.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. And then can you also touch on kind of any debottlenecking that you maybe doing either at your OSB mills or Siding mills?

Bradley Southern -- Chief Executive Officer

Yeah. So Ketan, when we talk about our improvements in OEE, that is our focus on -- we can call it debottlenecking, we can call it speeding up, we can call it getting improved a great yield, but it's a combination of all the parameters that go into proof of production at our mills on a per unit of time. And so we are -- and that is -- that usually has a unique issue in each mill and what were the current constraint or the current opportunity lies for productivity improvement can be unique to each mill. So we have teams that are focused on mill-specific opportunities to improve throughput in both the Siding and the OSP business.

We do tend to have a little bit further ahead on that project in our OSB, business that's been a key focus area of our own Siding, we've been more focused on growth. But we have -- we did start our OEE initiative in Siding last year and are also seeing really good improvement there. So debottlenecking and speeding up our equipment, improving our A grade yield are focus areas across the entire business. And I'm really proud of the improvement that we've seen in OEEs. As Alan talked about in his remarks, that single-digit EBIT improvements can be overshadowed by the huge movements in OSB pricing, but one of the reasons we were able to be EBITDA positive in that segment in the quarter is because of what we did around the productivity improvements while we were running.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Okay. Got it. And then is there any way to quantify even if it's on a percentage basis what kind of the impact be -- maybe on capacity at the mills from those initiatives?

Bradley Southern -- Chief Executive Officer

Well, Ketan, I said, we certainly -- we have that, because as I mentioned last quarter, we are targeting 90% across our system, as our first key benchmark we work toward. I don't have exactly the volume in front of me, but I said I think two calls ago, that would quite -- that would equate to a mills worth of production in our system. So when we -- when we kicked off this initiative really aggressively at the beginning of last year, what we told our operations group is, let's go find that hidden mill, that we have in our system that will require very little capital in order to unleash. And so, it's significant, the volume that we could pick up there, and that's really efficient capacity to go and harvest since it's basically only your variable cost associated with producing that extra volume.

So as we've converted mills like Swan and Dawson over to Siding, the way that we get productivity improvement in or I should say production improvement in our OSB businesses through our OEE initiative, and then some modest capital projects that we implement, that can also give us incremental capacity. And I know you probably -- maybe wanted a more specific answer to that, but I'll just say we've got a lot of headroom and as we look at it across our whole system compared to where we started the year, last year, we're talking about our mills worth of production.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. That's very helpful color. I'll turn it over. Good luck for the rest of 2019.

Bradley Southern -- Chief Executive Officer

Thank you, Ketan.

Michael Kinney -- Director of Investor Relations & Treasurer

Thanks, Ketan.

Operator

Thank you. And our next question comes from the line of John Tumazos, with John Tumazos Independent Research. Your line is now open.

Bradley Southern -- Chief Executive Officer

Good morning, John.

John Tumazos -- John Tumazos Independent Research -- Analyst

Hello?

Alan J.M. Haughie -- Executive Vice President and Chief Financial Officer

Hello. Hey, John.

Bradley Southern -- Chief Executive Officer

Hi, John.

John Tumazos -- John Tumazos Independent Research -- Analyst

This is John. I am sorry. Hello.

Bradley Southern -- Chief Executive Officer

Hello.

John Tumazos -- John Tumazos Independent Research -- Analyst

So in terms of the OSB industry, other companies have not been quick to cut production. In the container board industry, for example, the operating rate fell to 86.4% in the March month where they had lots of reasons to be optimistic hearing that volume growth for containerboard or peak June and September seasonal quarters. Why do OSB companies, do you think not cut production as much as -- say the containerboard sector. Is there structural reasons why the plants are harder to phase down or take or pay contracts for chips or other factors that might cause companies to produce too much?

Bradley Southern -- Chief Executive Officer

So John, let me -- I'll just speak to how we approach by taking market-related downtime. And because -- so I can only speak to our experience. We run to meet our customer demand, so we want to sell volume into active orders versus pushing volume into the market where our customers are really looking for the volume. So we're very focused on gauging the underlying demand in our customer base and supplying that demand. But we would not put any incremental volume beyond and what's needed in the marketplace.

As far as the cost part of it, is I would say going into the big downturn in 2007, 2008, we did have a view that it was extremely inefficient to run OSB mills anything other than 24x7. We learned how to do that pretty effectively during the downturn and we've carried that learning into our system today. So -- while it's not optimal we feel confident that we can run mills other than on 24/7 operations and that's what the market need is. So our personal experience is, we can't be relatively efficient, we did see some cost escalation associated with the downtime. As Alan pointed out, and that's going to happen when you can't cover all your cost with volume. But we want to do it pretty efficiently and we want to remain disciplined around making sure our customers have adequate supply, but not overreaching as far as building a lot of inventory at our mills or in the channel.

John Tumazos -- John Tumazos Independent Research -- Analyst

In your OSB segment, thank you. What fraction of the volume are flooring, furniture, other specialized uses, where the products don't fluctuate with Random Lengths through to the degree, the Random Lengths prices fluctuate?

Bradley Southern -- Chief Executive Officer

John, we -- as I mentioned -- or Alan and I both mentioned, 40% of our volume is in our Structural Solutions, but only a small subset of that is not tied to Random. So we do have some products like LP FlameBlock that is -- that is not tied to Random really at all. And then we have products like our legacy flooring that is tied to Random kind of remotely. So it's less than 10% of our portfolio is -- is not in some way tied Random over quarter-over-quarter period.

John Tumazos -- John Tumazos Independent Research -- Analyst

Thank you.

Bradley Southern -- Chief Executive Officer

You're welcome.

Alan J.M. Haughie -- Executive Vice President and Chief Financial Officer

Thanks John.

Operator

Thank you. And our next question comes from the line of Chip Dillon with Vertical Research. Your line is now open.

Chip Dillon -- Vertical Research Partners -- Analyst

Yes and good morning, Brad, Alan and Mike. So great, you know with details. First question I had is just to make sure I understand the share count. You mentioned the ending count was, I think 125 million diluted. But again, you've already paid for about and we don't know the exact numbers, 3 million more shares. You just don't reflect that until you settle up with Goldman, is that right? So it really is somewhere around $122 million. And I guess just as you clarify that. I think you said you'd be out of the market until that is settled, which will be sometime between now and September 30. If that's true, would you expect to be back in the market before year-end?

Alan J.M. Haughie -- Executive Vice President and Chief Financial Officer

Yeah, I think the answer to all of that is, yes. You're correct, that the remainder -- the remaining let's say 20% of the number of shares of $400 million in theory, has bought us -- will be part of the true-up that occurs when the arrangement, the ASR arrangement ends. It could end before the end of the third quarter, but it has to end by the end of the third quarter. Subsequent to which and all the other things being equal, we'll back in the market, in some way, shape or form. We haven't decided yet whether we do another ASR or whether we -- as it was just buy on the upper market ourselves.

Chip Dillon -- Vertical Research Partners -- Analyst

Okay. And then I think Brad was talking about WeatherLogic before, and you drive around and you see houses built or being repaired and you see that -- the tie back in these other branded wrappings. If you could just tell us why -- I believe you said WeatherLogic would replace that. Although, I think it will would replace that -- and what advantages does it have, is it a price issue or are there other properties that make WeatherLogic? And I'm not asking you to compare with the brand I mentioned, but just with other brands in general that are more established.

Bradley Southern -- Chief Executive Officer

Yeah. So you're right, it replaces the need for secondary weather wrap. The wrap is integrated into the overlay, that's on our products. And then, Chip, you know, I'm sure you've seen the green product installed in places. It brings a really clean look to the site, a lot less waste, a lot more resiliency as between the application of the warp in the Siding that goes on the house. So there is a minimal chance of any kind of wind damage blow when the house wrap off. Those also because of the tape seams, it provides for a much more integrated and closed system, that's how we talk about the energy efficiency aspects of it. So the advantages are clean -- very clean work site, much more confidence that the builder can have about the installation in the sale that goes into the home and then -- the cost, well then it's a one-step operation. So typically, when you're doing a house wrap, you sheath the home with your OSB first, then come back and do the house wrap and with WeatherLogic -- we're installing it all at one time. So there is a labor efficiency and a timing, the time efficiency that comes along with that.

The cost can be -- it's really geographically dependent so it's -- the cost advantage is based on the labor rate in the marketplace, along with the cost of the secondary house wrap. So it's not -- not necessarily providing a huge cost advantage that the value prop is more on the aesthetics, the quality of the job on the home and the confidence that the builder can have, that they got a nice pipe seal on the sheathing part of their home.

Chip Dillon -- Vertical Research Partners -- Analyst

Okay, that's very helpful. Thank you.

Bradley Southern -- Chief Executive Officer

You're welcome.

Operator

Thank you. And our next question comes from the line of Mark Weintraub with Seaport Global. Your line is now open.

Mark Weintraub -- Seaport Global Securities -- Analyst

Thank you. Can you give us an update on or have you received an update from Goldman in terms of how much of the accelerated share repurchase program has been completed by a certain date?

Bradley Southern -- Chief Executive Officer

Great question, Mark. But I'm am not in a position to answer that.

Mark Weintraub -- Seaport Global Securities -- Analyst

Okay. And then second on the Siding business, obviously look to me like a very good start to the year, what I guess I wasn't quite sure about is, given that we had the price increase and that we had buying in front. Are you able to get good visibility on what the actual consumption of the product is? As opposed to just any inventory build given that the price increase was in place, and basically how much visibility do you have on that 12% to 14% revenue growth expectation for this year at this point?

Bradley Southern -- Chief Executive Officer

Mark, it's a good question. Our visibility isn't perfect, because obviously that inventory setting at our distributors and then ultimately, into hundreds of dealers around the country. But we do have a large sales force that are actively working with our distribution partners. So we get a feel for how the products moving through, both by customer and by region. So we have some feel of it, but it's -- but it's not perfectly transparent to us.

Mark Weintraub -- Seaport Global Securities -- Analyst

Okay. And historically have there -- have you generally been if things played out pretty much as you had anticipated or have there been times where there have been pretty big surprises?

Bradley Southern -- Chief Executive Officer

So let me say -- let me just pick up one way we've addressed the issue of potentially moving our sales volume around Q1 and Q2, and you're not translating into pull throughs at the distributor base at the same time. So we used to have -- we used to allow builders to, I'm sorry, distributors to buy 120% of their prior year orders, and that would even load up the channel more early, before the price increase. So, we lowered that to 110%, I know we did it last year, it might have actually been the year before, a couple of years ago.

Alan J.M. Haughie -- Executive Vice President and Chief Financial Officer

Yeah, Mike can you say in...

Bradley Southern -- Chief Executive Officer

And so that's our -- that was an intent to smooth out the Q1 and Q2 by the inventory build that could happen before the price increase. I would say this year, the thing that I'm concerned about really as we go into the beginning of Q2, has been just the weather across all of the countries are cold or down here in the south, very, very, wet. So we need good weather to install Siding on homes both for repair and remodel and in new construction. So I was little bit concerned coming into the quarter, but we still have a month to go or more, well more than a month to ago, and if the weather gets better, which is doing down here in the South anyway, we could see some really good pull-throughs as we get in the second half of the quarter.

But, so I would say probably at the end of -- at the end of April, a little bit of concern about inventory in the channel, but we'll just have to see how that plays out as we move through the May and June building season.

Mark Weintraub -- Seaport Global Securities -- Analyst

Okay. And then lastly if I could just on Entekra, can you give us an update in terms of when the commercial facility is going to start up and what we could potentially be seeing from Entekra?

Bradley Southern -- Chief Executive Officer

Yeah, so we're -- we have -- the laws are up for the new facility that we're building in Modesto. We have all the equipment on order and are expecting to get first delivery about a month, four to six weeks from now, which would put us into late June, and then we will start -- do the start-up for the automated facility, late July and August. This will be a first for us. Mark as you know, not a first for the management team there, but I'm a little bit hesitant, I'm not as confident to give a projection about start-up as I am on a press rebuild in Carthage, but -- so it probably maybe be best for me to provide an update on start-up curve maybe on the next call. But we're full, more ahead on the construction project right now and are targeting some kind of production in August.

Mark Weintraub -- Seaport Global Securities -- Analyst

Great. Thanks very much.

Bradley Southern -- Chief Executive Officer

You're welcome.

Operator

Thank you. And our next question comes from the line of Kurt Yinger with D.A. Davidson. Your line is now open.

Kurt Yinger -- D.A. Davidson -- Analyst

Yeah. Thank you and good morning everyone.

Bradley Southern -- Chief Executive Officer

Good morning, Kurt.

Michael Kinney -- Director of Investor Relations & Treasurer

Good morning, Kurt.

Kurt Yinger -- D.A. Davidson -- Analyst

I just wanted to start off on the OSB flowing through the Siding segment. I think it was about 18 million square feet this quarter. As Dawson comes up, would you expect that to kind of rise throughout the year? Or I mean is that kind of a good run rate to think about?

Bradley Southern -- Chief Executive Officer

Well, bear in mind that Dawson was manufacturing OSB, this time last year. And it's now ramping up with Siding output. And that -- so, yes there will be a ramp up, but not really disclosing any further guidance around our projections by quarter for how that's going to -- that expected rate of improvement.

Kurt Yinger -- D.A. Davidson -- Analyst

Okay.

Alan J.M. Haughie -- Executive Vice President and Chief Financial Officer

Kurt, let me just -- your thesis is right though, as we start up Dawson and move Siding orders into that, along with our growth rate, there will be OSB run somewhere either soft Swan or Hayward or Dawson as we move some orders around. But I think that should be a rather gradual start-up and I don't see any big movements of our OSB order file going around plant-to-plant, because of what's been going on in Dawson at least in the near term.

Kurt Yinger -- D.A. Davidson -- Analyst

Okay. Thanks, that's helpful. And on the $400 million liquidity target, could you remind us what -- I guess excess borrowing capacity you have now and on that $400 million number, is that something you've kind of layered on to a leverage framework from a debt to EBITDA basis or how should we be thinking about that?

Alan J.M. Haughie -- Executive Vice President and Chief Financial Officer

Yeah. Thank you. The best way to view the $400 million is, it comprises about $200 million of cash and $200 million of undrawn revolver. So quite separate from that, we do have I believe the capability to incur some more, I'll call permanent debt, which we -- we sort of outlined on our fourth quarter call. And we currently, on a trailing five-year EBITDA basis about one times levered in that -- with respect to high yield of fixed debt. And I believe with relative ease we could -- we could increase our leverage to two times. Therefore incur high yield, maybe another $250 (ph) million. But there is no pressing need for that presently, so that hasn't been executed. So the $400 million is cash and undrawn revolver (inaudible).

Kurt Yinger -- D.A. Davidson -- Analyst

Okay, thank you. And then just lastly on the Siding front, I'm wondering how you guys think about stocking positions or shelf space there? And kind of how you view your current position relative to kind of the growth targets you've set out and the different channels you're targeting between repair and remodel?

Bradley Southern -- Chief Executive Officer

Yeah. Kurt, that's a great question, let me say, I will start with normal distribution or two step distribution. We've really upgraded our distribution base over the last year or so. And we feel really good about our national distribution network for SmartSide, especially in the traditional channel of distribution for building products. From a repair and remodel standpoint, that much of that goes through our normal distribution channel, but there is a play with once -- what's called one-step distribution. We are building that network is under, is being built under way. We have some really good partners and parts of the country but there is opportunities for us to improve distribution at the one-step level. And by the -- and let me just say the smooth product offering that we launched was a big part of having a credible presence in repair and remodel. So that we could -- we could improve our distribution network for one-step.

And then finally, I'll speak to retail. We have really good positions to SmartSide of both -- with all three major retailers, the Home Depot, Lowe's and Menards. They all have a little different take on the skews that they like the carry and how -- how they -- how they measure success as far as our product line. We do work actively with all three of those partners getting -- getting our product in front of more of the consumer environment there. That's primarily the day of panel play, so we do -- we are running test and have opportunities to expose through that retail, both our lap and trim products as well. So, I feel good, just kind of backup for my answer for second. I feel really good about our access to market in SmartSide, really like our two-step distribution partners that are carrying the product line right now nationally. A little bit of work to do yet, and to shore up that the kind of distribution we'll need to be successful in the future, in repair and remodel. But we certainly have plans to get that done and continue this growth (inaudible).

Kurt Yinger -- D.A. Davidson -- Analyst

Excellent. That's super helpful. Thanks, Brad, I'll turn it over.

Bradley Southern -- Chief Executive Officer

Thanks, Kurt.

Operator

Thank you. And our next question comes from the line of Paul Quinn with RBC Capital Markets. Your line is now open.

Paul Quinn -- RBC Capital Markets -- Analyst

Yeah, thanks very much. Good morning, guys.

Bradley Southern -- Chief Executive Officer

Good morning, Paul.

Alan J.M. Haughie -- Executive Vice President and Chief Financial Officer

Good morning, Paul.

Paul Quinn -- RBC Capital Markets -- Analyst

I really like that slide number 6, the LP's transformation, the breakdown. And I'm just wondering if you could give us a 2021 EBITDA target breakdowns by segment and by growth and efficiency?

Alan J.M. Haughie -- Executive Vice President and Chief Financial Officer

No. I'm sorry. We haven't gone public with those yet and this wouldn't be the time to disclose that. However, the majority of the growth is coming from Siding, it's SmartSide Strand, without question. The majority of the OEE improvement is coming from OSB, and that was 40% of the 75%. The sourcing savings are spread across the whole of the Company. So in lose color, growth primarily is coming from SmartSide Strand, with some from value-added, OEE improving almost totally from OSB, sourcing everywhere.

Paul Quinn -- RBC Capital Markets -- Analyst

Okay. And I look forward to that detail coming forward. And then I guess just on Siding, you guys are growing strong, you've got a couple of other competitors, that are -- that are also growing strong, maybe if you could just give us trying to get information on the overall Siding market is -- it seems to be very difficult, maybe you guys are in it, so you've got a lot more feelers out there. Just maybe if you could give us an -- overall idea that market size and how that's growing and it really how you feel about the sustainability of your 12% to 14% revenue growth going forward?

Bradley Southern -- Chief Executive Officer

So Paul, -- I think from a market size standpoint, single family's growing with starts. Obviously that's an easy one. It is hard to get -- it's hard even for us to get good numbers on expected growth for Siding, repair and remodel. There is all kind of forecast around the general repair and remodel market, but getting that granular of just on cladding or exterior is not that easy. The numbers that we kind of (inaudible) are the numbers is looking at a long-term trend of 5%, growth there. Some forecasters have it 7%, some forecasters have 3%, some forecaster have it ranging year-to-year between those two. So -- it feels like 5% is a pretty good solid number to use as far as repair and remodel. But what we have done this year is do a really good job of understanding size of market in repair and remodel and growth by region. So that obviously the older housing stock in the Northeast, North Central makes for more repair and remodel. And there is more single family starts in the southern tier of the country. So now -- where is the growth coming from? Where we see the biggest opportunity right now is really against continued penetration against vinyl. Hard sidings are enough sell to vinyl. We believe it's a lot higher quality siding to have on your home at the end of the day. And contractors and homeowners are looking for an opportunity to upsell and get the aesthetic they want to on the exterior with the home and we want to be a solid alternative to that homeowner who wants to upgrade off a vinyl siding or wood or whatever else is on there right there today.

So the market share opportunity, clearly, it's mostly from what is probably houses that are currently or thought to be converted over to vinyl siding, there is some wood out there still. There are some hardboard out there -- still that, that SmartSide would be a perfect replacement siding for. So there is a little bit of a myriad of opportunities, but the big one is to continue market share gains against vinyl.

Paul Quinn -- RBC Capital Markets -- Analyst

All right. That's all I had. That's all I guess.

Bradley Southern -- Chief Executive Officer

Thanks, Paul.

Michael Kinney -- Director of Investor Relations & Treasurer

Thanks you.

Alan J.M. Haughie -- Executive Vice President and Chief Financial Officer

Thanks, Paul.

Michael Kinney -- Director of Investor Relations & Treasurer

Ashley, thanks. I think that was our last question and thank you everybody for the call today. And Becky and I'll be available, if there are any questions. Thank you.

Operator

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone have a wonderful day.

Duration: 59 minutes

Call participants:

Michael Kinney -- Director of Investor Relations & Treasurer

Bradley Southern -- Chief Executive Officer

Alan J.M. Haughie -- Executive Vice President and Chief Financial Officer

John Babcock -- Bank of America Merrill Lynch -- Analyst

Mark Connelly -- Stephens -- Analyst

Ketan Mamtora -- BMO Capital Markets -- Analyst

John Tumazos -- John Tumazos Independent Research -- Analyst

Chip Dillon -- Vertical Research Partners -- Analyst

Mark Weintraub -- Seaport Global Securities -- Analyst

Kurt Yinger -- D.A. Davidson -- Analyst

Paul Quinn -- RBC Capital Markets -- Analyst

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