Louisiana Pacific Corp (LPX) Q4 2020 Earnings Call Transcript

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Louisiana Pacific Corp (LPX -1.00%)
Q4 2020 Earnings Call
Feb 16, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Louisiana-Pacific Corporation Fourth Quarter and Full Year 2020 Earnings Results Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Aaron Howald, Director, Investor Relations. Thank you. Please go ahead, sir.

Aaron Howald -- Director of Investor Relations

Thank you, operator and good morning everyone. Thank you for joining us today to discuss LP's results for the fourth quarter and full year of 2020, as well as our Q1 outlook. My name is Aaron Howald and I'm LP's Director of Investor Relations. I'm joined today by Brad Southern, LP's Chief Executive Officer and Alan Haughie, LP's Chief Financial Officer.

We are hosting a simultaneous webcast in addition to this conference call, and we have uploaded a presentation to which we will refer during this morning's discussion. We also filed our 10-K this morning with some additional information. All of these materials are available on LP's Investor Relations website www.investor.lpcorp.com.

Slides 2 and 3 of the accompanying presentation provide notices and detail about forward-looking statements and the use of non-GAAP financial metrics. The appendix of the presentation also contains some necessary reconciliations that are further supplemented by this morning's 10-K filing. Rather than reading these statements, I will refer you to these supplemental materials.

And now, I'll turn the call over to Brad.

Brad Southern -- Chairman and Chief Executive Officer

Thanks, Aaron, and thank you all for joining us this morning to discuss LP's result for the fourth quarter and full year 2020. As you all know, the housing and repair and remodel markets that LP serves continue to show remarkable resiliency despite the ongoing COVID-19 pandemic and demand for our products has remained very strong.

Q4 was another record for SmartSide as sales increased by 30% to $259 million and Siding EBITDA nearly doubled over -- year-over-year to $77 million. OSB prices remained exceptionally high throughout the quarter, resulting in $250 million in EBITDA for the OSB segment. All business segments continue to demonstrate outstanding cost control. As a result, LP ended 2020 with $2.8 billion in sales, $781 million in EBITDA, $660 million in operating cash flow and $4.31 in earnings per share. It was a very strong ending to a uniquely challenging year that leaves LP well-positioned for continued growth.

Two years ago, we introduced a strategic transformation plan for LP. That plan included a three-year target of $165 million in cumulative EBITDA improvements from growth, operating efficiency and strategic sourcing. Today, I am proud to announce that we have exceeded this target a year ahead of schedule with $177 million in cumulative impact delivered in only two years. I want to stress that we measure these results choosing normalized OSB and raw material prices. So this achievement is not merely an artifact of unusually high OSB prices or favorable movements in the cost of logs or resins. Rather, it is a result of the incredible dedication, creativity and grit of our sales, operations, logistics and sourcing teams. Having to chase significantly greater efficiency, we will not only hold those gains but raise the bar as we continue to drive our growth and value-creation strategy.

Today, to build real progress and to accelerate LP's transformation, I am pleased to announce a series of interconnected strategic initiatives. First, in order to supply growing demand, we are announcing a two-phase capacity expansion strategy for SmartSide. Phase 1 will be the conversion of our mill in Houlton, Maine from production of Laminated Strand Lumber and OSB to SmartSide. Houlton is ideally located for SmartSide production because of its access to an ample and sustainable Aspen wood basket and its proximity to the large and under-penetrated repair and remodel market along the East Coast of the United States. Houlton will add roughly 220 million square feet of SmartSide capacity with production beginning early in 2022.

With LP converting to SmartSide, we will cease LSL manufacturing there sometime this year; the change that has contributed to a broader reevaluation of our product portfolio. Due to the loss of LSL from our EWP portfolio, coupled with our inability to consistently earn the cost of capital in EWP, we have decided to evaluate strategic options for our remaining Engineered Wood Products business.

Phase 2 of the SmartSide capacity expansion strategy will be the conversion of our OSB mill in Sagola, Michigan. Sagola is currently producing OSB and will continue to do so until it is converted to SmartSide manufacturing. Although the precise timing is yet to be determined, if demand for SmartSide continues to grow at historic rates, we will need to begin to work on the Sagola conversion soon after Siding production begins at Houlton. This will require OSB production at Sagola to cease sometime in mid-to-late 2023.

These two new facilities will add roughly 520 million square feet of additional SmartSide capacity and remove roughly 670 million feet of OSB capacity. There is still a long runway for further Siding growth after these conversions with several potential expansions of existing facilities, as well as other conversion opportunities. In addition to serving our growing customer demand, these conversions will also position the mills for years of growth and improved stability, which will benefit Houlton's and Sagola's employees, their families and the broader communities. We're thrilled to welcome LP Houlton to the SmartSide [Indecipherable] mills and look forward to converting Sagola soon after.

Finally, since we idled our Peace Valley OSB mill in Fort St. John, British Columbia, we have kept the mill ready with the intention to reopen it when we were confident that sustainable market demand would be sufficient to absorb its capacity. The consensus for 2021 housing starts has climbed for the past several months and is now, in the year, 1.5 million. On a seasonally adjusted basis, December starts were at 1.6 million and permits were 1.7 million suggesting continued strength in new residential construction. At these levels of starts, with channel inventories extraordinarily has been, it is clear that our customers need additional volume.

Looking further into the future, long-term demographic data and a structural under-supply of housing suggest continued tailwinds for demand. As a result, we have begun the process to restart production of OSB at Peace Valley. Our goal is for Peace Valley to become a low cost leader in the industry. Our flexible and disciplined operating strategy remains unchanged. Restarting Peace Valley increases our ability to meet intense customer demand and will add to our strategic options for balancing OSB supply and demand with discipline, agility and efficiency. With its production of TechShield and long lengths, Peace Valley will also help us reach our goals for Structural Solutions as a percentage of total volume.

As we have been keeping the mill ready for an eventual restart, the cost to resume production shall not exceed $12 million. We've begun the necessary engineering, capital and rehiring planning to support the restart. Our least expectation for first press load is sometime in Q3, full production capacity about a year later. We will continue to monitor the housing outlook, OSB demand and channel inventories to gauge proper timing for the restarts.

As I said previously, continued Siding growth will require more frequent mill conversions. As a result, as Peace Valley resumes full production as a low-cost leader, it enables our phased capacity expansion plans for SmartSide, while maintaining our current OSB market share.

Slide 7 of the company presentation shows more detail on our phased and integrated capacity strategy. The blue and orange line show LP's expected OSB in SmartSide capacity over time in millions of square feet. Houlton's shutdown, its conversion to SmartSide and its ramp up to full capacity are shown as A, C and E on the graph. Peace Valley will begin production at point B sometime after Houlton ceases making both LSL and OSB in preparation for conversion. Peace Valley should then reach full production a year later at point D.

Sagola, Michigan will be the next Siding mill after Houlton. Sagola's conversion will add roughly 300 million square feet to SmartSide capacity and remove roughly 420 million square feet of OSB capacity. While the exact timing of Sagola's conversion to SmartSide is still to be determined, the graph illustrates initial SmartSide production in the second half of 2023, which is consistent with an annual demand growth rate of 11%.

Timing for all these steps is based on the assumption that OSB demand and SmartSide growth continue and that the capital projects are completed on schedule. Should demand slow, which we do not currently anticipate, any or all of these steps can be delayed with minimal costs. There is little room to significantly accelerate the Houlton conversion or the Peace Valley restart as both of these projects are already under way. The Sagola conversion, on the other hand, could be brought forward somewhat, should demand growth accelerate.

The plan, once fully implemented, will increase total SmartSide capacity by roughly 520 million square feet or a little over 30%. The net effect of Houlton and Sagola's conversion and the Peace Valley restart will increase LP's OSB capacity by less than 100 million feet. More importantly, each of these initiatives will accelerate LP's ongoing transformation, grow our portfolio of SmartSide and Structural Solutions and improve our operational agility as we meet increasing customer demand.

2020 was a year of incredible hurdles that uniquely tested our ability to adapt and work together. However, I'm incredibly proud of how LP employees came together to not only survive but thrive as a company. In the face of adversity, LP delivered strong results. As we turn our attention to a new year, we are focused on meeting customer demand for LP products. We are excited to share our plans to execute a multiple years' SmartSide capacity expansion project and restart Peace Valley as part of our discipline and agile approach to OSB operations. This acceleration of our growth and value-creation strategy will build on LP's growing momentum as we transform into a Building Solutions later.

And with that, I will turn the call over to Alan Haughie for more details on our financial results and an update on our capital allocation strategy.

Alan Haughie -- Executive Vice President and Chief Financial Officer

Thanks, Brad. Slide 8 shows summarized results for the quarter, which are very clean and straightforward. Net sales increased by 60% to $860 million, primarily due to 30% growth of SmartSide and $246 million of higher OSB prices. The resulting EBITDA of $328 million is 7 times last year's result and translated nearly dollar for dollar to operating cash flow of $321 million with the benefit of $45 million in tax refunds. We further lowered our year-end share count to 106 million shares after spending $171 million in the quarter to buy back a little over 5 million shares, and with taxes as the only meaningful adjustment to net income, adjusted earnings per share was $2.01 compared to U.S. GAAP earnings per share of $2.34.

Slide 9 is the same data for the full year and is much of the same story, just with bigger numbers. Net sales increased by 21% to $2.8 billion and EBITDA increased to $781 million, which is 4 times last year's result. We grew SmartSide revenue by 15% and $481 million of revenue and EBITDA from higher OSB prices and generated $659 million in operating cash flow. Capital spending of $77 million ended up being about half our original pre-COVID guidance for 2020. The vast majority of this $77 million was spent on sustaining maintenance, which typically runs in the $80 million to $100 million range per year. As a result, we ended the year with $535 million in cash after paying $65 million in dividends and $200 million to repurchase shares.

Slide 10 adds detail to the EBITDA impact from growth and efficiency through LP's ongoing strategic transformation. As Brad said, we exceeded our three-year target of $165 million in cumulative EBITDA impact a year early with $107 million from growth and $71 million from efficiency. And this is a result of truly remarkable performance by our sales, operations and sourcing teams, especially given the challenges of 2020. But this is a race with no finish line. So, we intend to hold these gains and add to them in 2021 and beyond.

Slide 11 shows an ultra-high level roll forward of revenue and EBITDA for the fourth quarter compared with 2019. The main takeaway here is that higher OSB prices and 30% SmartSide growth tell us all we need to know about the quarter. Everything else basically nets to zero. Having said that, and while not shown here, our South America segment had a record quarter with $50 million of sales and $13 million of EBITDA, representing increases of 32% and 62%, respectively even after adverse currency movements.

The waterfalls on Slides 12 and 13 detail the year-over-year revenue and EBITDA growth in the Siding and OSB segments for the quarter. Slide 12 covers Siding. In broad strokes, the 30% revenue growth for the quarter reflects a 95% increase in retail revenue and a 20% increase in distribution revenue. And with an incremental margin of $0.51 on each additional dollar of revenue, this $59 million of SmartSide growth produced $30 million of additional EBITDA. With low SG&A and higher OEE more than offsetting the discontinuation of Fiber, the Siding segment EBITDA margin increased by 12 percentage points to 30%.

I should mention here that 2021 will be a year of increased investment in both selling and marketing and preventative maintenance to support future growth. So this margin is probably something of a high watermark. However, given the operating leverage and pricing power inherent in the business, we are raising our long-term target for the Siding EBITDA margin by 5 percentage points to 25%.

On Slide 13, very high market demand for OSB pushed prices to record levels adding $246 million of revenue and EBITDA in the quarter which rather overshadows both the continued excellence of our cost control and the growth of Structural Solutions, which rose to 49% of total OSB volume. We are, therefore, raising our long-term target of Structural Solutions volume as a percentage of total OSB volume by 5 percentage points to 55%.

However, during the fourth quarter, we experienced interruptions in the supply chain for MDI, the primary resin used in the manufacture of SmartSide, OSB and LSL. These issues were triggered by the impact of severe weather on MDI manufacturers in the U.S. Gulf Coast area. While MDI supply remains constrained, we are prioritizing MDI to SmartSide, substituting alternate phenolic resins for OSB and curtailing LSL production until availability improves. The use of phenolic resins in OSB lowers line speeds which we estimate lost us $8 million of potential revenue and $3 million of potential EBITDA in the fourth quarter.

Turning to Slide 14 and some commentary on 2021. As you might expect, given our capacity and growth plans, this will be a year of investments. The Houlton conversion will cost about the same as the Dawson conversion in 2018, that is about $130 million. Roughly $80 million to $85 million of that $130 million will be spent in 2021, with the remainder in 2022. We have other strategic growth projects totaling $30 million to $35 million that will enable us to accelerate our rollout of new products and we have our typical base level of about $100 million in sustaining maintenance. And as Brad mentioned, the capital required for Peace Valley restart should be around $10 million at most. As a result, we expect capital expenditures for the year to be in the range $220 million to $230 million.

A word now about capital allocation. Our strategy remains unchanged. We will continue to return to shareholders, which is 50% of cash from operations in excess of capital expenditures required to execute our strategy once that cash has been generated. So, given that we ended the year with $535 million in cash with a $300 million share buyback authorization from our Board, we will be reentering the market to continue buying back shares in a matter of days.

Now I concluded my comments last quarter by saying that absent unexpected reversals in demand or the general housing outlook, the fourth quarter would look a lot like the third. Given accelerating SmartSide growth and rebounding OSB prices, that turned out to be a bit conservative. But we have similar visibility into our order file today, so I can share the following.

Halfway through this first quarter of 2021, OSB prices are at least 15% higher than the fourth quarter of 2020 on similar volumes. SmartSide revenue is trending seasonally higher than the fourth quarter, on pace for at least 35% growth compared to the first quarter of 2020. Should these trends continue and absent COVID outbreaks or sudden reversals in logistics, raw material availability or OSB prices, we expect EBITDA for the first quarter of 2021 to be at least $380 million.

And with, we will be happy to take your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of John Babcock from Bank of America. Your line is now open.

John Babcock -- Bank of America -- Analyst

Hey, good morning and thanks for taking my questions. Starting out, I was just wondering if you could talk a little bit about -- so you shared some information on the Houlton mill, just what's attractive about the Sagola, Michigan mill, whether that's the wood basket or other factors. And also I was wondering if you might be able to provide some sense as to what that conversion might cost.

Brad Southern -- Chairman and Chief Executive Officer

Okay. John, did you ask the first part of that question with some of the specifics about why Houlton and then why Sagola? Was that the...

John Babcock -- Bank of America -- Analyst

Yeah. Sorry, sorry, I didn't ask that well. I mean, basically, I was just wondering with regards to Sagola; what makes that mill attractive for a Siding conversion just because I don't remember that being mentioned in the past. And then, also, if you could just kind of talk about the capital cost for that.

Brad Southern -- Chairman and Chief Executive Officer

Okay. So from a Houlton standpoint, probably the primary attractive part of or number one on the list is the fact that it's located in the Northeast. So we've mentioned on earlier calls, we are -- targeted prepared remodel is a key focus area for growth in Siding in that northern and Mid-Atlantic region of the U.S. is a really strong repair and remodel for Siding, very strong repair and remodel market. So that is what really got us focusing in on Houlton. And then, also, we do net present values of these conversions and, to a certain extent, Houlton was more optimal for us because of the LSL capacity there not producing the kind of returns that we see in our OSB mills.

From a Sagola standpoint, great wood basket, as well, we do like making Siding in the central part of the country. It's pretty -- most of our mills are there but that central location allows us to access the West Coast, the central part of the U.S. and the East pretty efficiently and also the press size for that mill is a good press size for Siding conversion. I would say, from a capital standpoint, just look back at what we spent on Dawson and Swan, it's a very similar mill configuration to what we have in Sagola. And while we haven't made the decision on the finishing capability, we want to put into that plant because -- and that can impact capital cost, if you plan around the range of what it cost us to convert Swan and Dawson, that would be a good guidance for where we are right now.

John Babcock -- Bank of America -- Analyst

Okay, thanks for that. And then with regards to the Peace Valley OSB mill, I was just wondering if you might be able to provide some sense as to first of all, why this was one of the mills that was curtailed a little while ago, just so we have a little bit of, kind of, just to remind me[Phonetic] it's around that. And then also just generally, how we should think about the economics there and on an export [Phonetic] base, how you're going to consider whether or not to keep that running, and it sounds like it is something that you haven't any longer-term plan, I just want some more color on that.

Brad Southern -- Chairman and Chief Executive Officer

John, that's a great question. So, at the time -- the two factors on the shutdown decision that are worth mentioning, first of all, at the time of the shutdown the Western Canadian OSB pricing zone was one of the worst zones or if not the worst zone for selling in OSB. And there was a good bit of capacity added to that region over the last decade or so. And so we were looking at really low pricing there and then, candidly, we had struggled from a cost management standpoint at that mill in the past. And so when we look at those two together, it was a rather -- I mean, it wasn't a slam dunk decision when we looked at our network on which mill to shut down but it certainly became rather obvious through the analysis that that's where we wanted to concentrate to shut down and also being one of our larger mills with a capacity 800 million square feet, it was a significant reduction in volume.

Now why are we confident for starting it up? Well, the pricing dynamics has changed across the various OSB regions, but also the $10 million in capital and the $12 million, overall, we're planning to spend to restart the mill, is focused on some of the bottlenecks that we've experienced in that facility that had limited our ability to hit the cost position that we want to. With the scale of that mill, it should be and it was originally designed to be, one of the low cost mills in the OSB industry, certainly, within our network and we're confident, given our experience with OEE across our other facilities and I will -- bit of a detail, but also our experience over the last couple of years in reducing the cost at Peace Valley sister mill, which is our County Alabama mill. We're in a position to get that mill to be a very low-cost producer in our network and overall with the OSB network.

So we are starting this mill up with the expectation that we would run it for a long time and as we look forward into the next downturn, we would look overall at our entire network and optimize accordingly. But our expectation is we can get Peace Valley to a really good cost position.

John Babcock -- Bank of America -- Analyst

And just adding to that, will you have any notable change in the product mix that comes out of that facility?

Brad Southern -- Chairman and Chief Executive Officer

Not from the time when we shut it down. We -- that's a -- it's been a really good TechShield mill for us and we basically lost a good bit of that volume on the West Coast because it was inefficient for us to replace it all from the East and then that's also a long press. So we make long length panels there that is unique for us. We can only do that in Clarke and Peace Valley. So we are excited about bringing those Structural Solutions products back into the portfolio on the West Coast with our Peace Valley operation.

John Babcock -- Bank of America -- Analyst

All right, thanks for that. And then just last question before I turn it over. I was just wondering, you've done really well with the transformation targets on achieving both your growth and efficiency goals there. Might you able to provide some color on how you're thinking about that for the year ahead? I think you've touched already enough on the growth side of things, but on the efficiency side, it might be useful to have some more color there.

Brad Southern -- Chairman and Chief Executive Officer

Well, the combined target for this year, I think, this includes the Siding growth, though. The combined target is $75 million of improvement for this year and we certainly have plans to extend that beyond this year. I want you to know, we still have in OSB and Siding, this is from memory a little bit, but 2 to 3 points of percentage points improvements in OEE out there just to get us into the -- across the board into the 90% OEE, which is our original target for both businesses. And then we're also always working on sourcing savings.

So I want to be clear that we're reporting that we achieved the year three target in year two, but that enviable kind of pace that we're on, as far as improvement, we are extending fully into the future and we'll continue to discuss that on these calls. But -- and when we talk about OSB -- sorry, Siding growth, Structural Solutions growth, improvements in OEE and sourcing savings. So those are the four key areas, there's a little bit of SG&A management in there as well. But those are the four key drivers that have got us where we are today and we continue to focus as we move into the future.

John Babcock -- Bank of America -- Analyst

All right. Very helpful, thanks.

Brad Southern -- Chairman and Chief Executive Officer

You're welcome, John.

Operator

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

Ketan Mamtora -- BMO Capital Markets -- Analyst

Thank you. Brad, Alan, congrats on a very strong finish to the year.

Brad Southern -- Chairman and Chief Executive Officer

Thank you, Ketan.

Ketan Mamtora -- BMO Capital Markets -- Analyst

First question, can you talk about the growth that you saw in Q4 and maybe fiscal year 2020 in ExpertFinish? I know you wanted to get it, over the next few years, maybe a quarter or third of your total sales. Can you just remind us where it is in terms of your total sales right now in Siding?

Brad Southern -- Chairman and Chief Executive Officer

Well, Ketan, it's about 5% of our total sales in Siding. It was our fastest growing product line in Siding, I mean, obviously from a small base. So -- but it's a growth, basically, from 0% to 5% and it is a clear focus area for us for this year and onward as we continue to grow in the repair and remodel segment.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. And how much headroom do you have in terms of capacity with the three facilities that you currently have for pre-finished Siding?

Brad Southern -- Chairman and Chief Executive Officer

Yeah, it's a good question. Certainly we have enough headroom for this year's budget to hit it, but, Ketan, the thing about that is that those additional pipelines, either at our existing -- three existing facilities or greenfield are relatively inexpensive and quick start-up-type capital projects and so I don't see -- ever see any issue with us being constrained on pre-finished capacity as we move forward. Let me just add on to that question that, given the fact that we will have Houlton making Lap Siding next year, we will have a decision to make on where to concentrate that Northeast production for pre-finish. We haven't decided on that yet. And that solution could include discontinuing to do it in our North Carolina facility.

But really focusing in on that as we go through the year, understanding optimal place to produce that will be important to us, but don't think of pre-finished capacity as being from a -- certainly a financial constraint for us because it's pretty easy to add on lines at our existing facilities and they all have it -- all have the space where we could do that pretty efficiently.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. And then last question, you have $30 million to $35 million capex on strategic growth projects. And I thought I'd heard Alan also talk about some new products. So maybe if you can just highlight those two things, what you're looking at in 2021 and beyond in terms of some of the new product launches.

Brad Southern -- Chairman and Chief Executive Officer

Yeah, one of the larger consumers of this strategic capital, other than Houlton conversion, is we make a shaped product at a strand Siding that we've currently been making that product in our North Carolina -- Roaring River, North Carolina facility. We make the panels for that product -- the substrate for that product at Swan River, Manitoba. And so we are -- we're going to put a shape machine in Swan to help to increase the capacity -- significantly increase the capacity of our shaped product and also, obviously, that puts it in a little more central location as far as reaching the West Coast and the upper Midwest and that is a really -- it's a beautiful product and a really high-margin product for us. And so that would be a really good example of how we're using capital this year to grow the product portfolio.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. That's very helpful. I'll turn it over. Good luck in 2021.

Brad Southern -- Chairman and Chief Executive Officer

Thank you, Ketan.

Operator

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

Mark Connelly -- Stephens, Inc. -- Analyst

Thanks. Just two things. Are your WeatherLogic and FlameBlock products available in all of the markets where you sell OSB? I assume that TechShield isn't, because the value would vary by region, but I'm just curious about the rest of your Structural Solutions.

Brad Southern -- Chairman and Chief Executive Officer

Yeah, FlameBlock, yes, is available in all regions and WeatherLogic has been a little bit constrained more from a capacity standpoint than any kind of geographical limitations, but we're going into this year with full capability to supply the market for WeatherLogic. But, there was some constraints last year, though.

Mark Connelly -- Stephens, Inc. -- Analyst

Okay. Okay, that's helpful. And then just quickly on the businesses you're exiting, the Fiber Siding and CanExel, how much of that business were you able to convert over to SmartSide strand? I'm just trying to understand how much of your strand business was able to capture existing customers or if it all had to come from nil?

Brad Southern -- Chairman and Chief Executive Officer

Mark, that's a good question. So from a CanExel standpoint, while pre-finished is a -- obviously, a focus area for us, you may recall that, that product line is in kind of a Eastern Canadian and Europe -- European-focused and we haven't really focused on that or made a hard push to convert that business. I'm not saying we're not picking up some around the edges, but that's not been a focus area for us. Conversely, for the fiber production, especially the fiber production that was in retail, that has been a focus area. We did not want to lose the shelf space that we have earned over the years for the fiber panel that we had in there. And so we have been [Technical Issues] that volume when we can over to strand.

Mark Connelly -- Stephens, Inc. -- Analyst

Understood, very helpful. Thank you.

Operator

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

Paul Quinn -- RBC Capital Markets -- Analyst

Yeah, thanks very much. Great results. Maybe just spend a couple of minutes on Siding here. Just taking a look at Slide 7 with the capacity additions, it looks like your graph is based off that 11% volume CAGR. You did the 26% in Q4 and 13% in 2020. So are we being conservative on the 11%? Is it accelerating? Is it decelerating?

Brad Southern -- Chairman and Chief Executive Officer

Well, Paul, obviously, it's accelerating over the last little while. And as we look into next quarter, I don't think 35% is sustainable year-over-year and -- but the changes that we've made and within distribution and the new products that we've offered from a volume standpoint, I mean, I think 11% is a good number. We are watching, from a timing standpoint, that very closely and we'll -- and adjust to Sagola timing accordingly if we feel like that we're up to the more 15% annual volume growth right now, I'm talking not just revenue and, obviously, volume's what's important for capacity.

So, I mean, I feel good about where we are from the timing of the Houlton conversion. I mean, I wish that was a little bit bigger mill to convert. But that's the reason for going ahead and getting started on Sagola. So I feel good about it. But as you point out, there is not a lot of headroom from a capacity standpoint if we're continuing to grow volume at a 15% rate or so over the next couple of years. We would stay pretty tight until we could get us to the Sagola conversion.

Paul Quinn -- RBC Capital Markets -- Analyst

Okay, great. And then maybe, Brad, you could give us some color just on where you're seeing that regional volume growth. And then also what's anticipated for the finishing end at Houlton.

Brad Southern -- Chairman and Chief Executive Officer

Yeah, so let me -- the Houlton will be a lap and trim primarily -- primarily a lap and trim play for us, so the 16-foot product, and then where we're seeing the growth and distribution across the board and in all geographies, and then what's been really, really helpful for us and we've talked about this, Paul, but over the last couple of quarters, the retail business, as Alan report, has really been -- I mean, just unbelievably strong from a growth standpoint. We've done a really good job of getting shelf space there, retaining it and then adding SKUs. So that's been very helpful. And then our Shed business after being really, really, really slow at the beginning of COVID has really taken off, and so we're moving a lot of panel through distribution to get it in to Shed -- into the Shed manufacturers.

So I would say lap and trim in the new construction and R&R has been a little stronger than we would expect it. And then the panel products through retail and in the Shed has just been really, really strong.

Paul Quinn -- RBC Capital Markets -- Analyst

All right. Yeah. And just lastly, just over the last three or four years, you've introduced a number of new products into that Siding segment with the Smooth product you've got WeatherLogic, you've got trades [Phonetic] in fencing. Just wondering what you're seeing -- what are the big takeaways from that, what's worked, what hasn't, where do you go with new product launches.

Brad Southern -- Chairman and Chief Executive Officer

Okay, let me back up to the what's worked and then I'll look forward. I mean, what's really been really, really solid for us on the OSB side has been Legacy Flooring and FlameBlock has been really good. We've learned from the WeatherLogic experience we really need to have a rounded portfolio of that product, which we rounded that out last year. So we feel really good about it. I mean, we had good growth in WeatherLogic last year, but somewhat constrained by not having the full portfolio. We've remedied that, now really ready to rock and roll that product offering [Indecipherable] into this year.

On the Siding side, man, there's been a lot of good products. We can talk about that Smooth and pre-finishes from a really small base, but the market acceptance of that and really the need as we push into R&R has made the growth of it really strong. And I can -- and I foresee continued strong percentage growth in those products because of -- again, because of the smaller base. But to go from 0% to 5% penetration with ExpertFinish, I'm calling that a win. And so we -- it's, I mean, it's something to back up and look forward, really to get the kind of double-digit growth that we talk about in Siding, we've got to continue to be really innovative. Fortunately, our product is very adaptive to innovation.

And so as we continue to build out the portfolio of repair and remodel type products, which by the way, shape is one of those that I have mentioned earlier, and then really focusing in on getting competitive on the big builder side with the product that we're going to be launching this year. So those are the kind of really targeted new products that can either fill in there to provide a real platform for growth and there is no -- I mean there is no end in sight to our innovation initiatives here because that's how you get double-digit volume growth is through a big emphasis on new products. So I just -- what I'm communicating is, don't -- there's not an end game on new products in SmartSide. We've got to really continue to be innovative to hit these numbers and we intend to be so.

Paul Quinn -- RBC Capital Markets -- Analyst

Excellent. Thanks for the help and best of luck.

Brad Southern -- Chairman and Chief Executive Officer

Thanks, Paul.

Operator

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

Mark Weintraub -- Seaport Global Holdings -- Analyst

Thank you. Brad, in 2020, I think you produced about 3.54 billion square feet of OSB, just under 1.4 billion in Siding. With the various actions that you're taking, assuming demand is very strong, as it certainly seems to be, I mean, how much OSB do you think you could be producing in '21 and similarly for SmartSide?

Brad Southern -- Chairman and Chief Executive Officer

Okay. So there was some downtime that we had in OSB in Q2 anticipating COVID-related issues that didn't really materialize. So from -- for OSB, potential capacity in 2021 is -- Alan go ahead.

Alan Haughie -- Executive Vice President and Chief Financial Officer

Yeah. The COVID downtime was about 100 million feet of [Indecipherable] volume taken out and the capacity for 2021 will be similar plus whatever ramp up we see in Peace Valley.

Brad Southern -- Chairman and Chief Executive Officer

And then on the Siding side, we've got, basically, the capacity is about 400 million square feet a quarter. We do have a press rebuild. It's slow and scheduled for Q3, that could take that mill down for -- potentially for a month, including the ramp-up time. But other than that, that's the only scheduled -- big scheduled downtime we have other than the ordinary maintenance downtime.

Mark Weintraub -- Seaport Global Holdings -- Analyst

Okay. And just to make sure I'm reading the Slide 7 right. So with this Peace Valley, does that ramp begin at about mid-year? Or when is that ramp scheduled to begin?

Brad Southern -- Chairman and Chief Executive Officer

So for this chart and really, Mark, the earliest we could see production in Peace Valley is Q3 and there wouldn't be a lot in Q3. So we're really looking at Q4 as the first full ramp up quarter. And then, as I mentioned, sometime late Q3 or Q4 of 2022 is when we would be expecting to get full capacity there.

Mark Weintraub -- Seaport Global Holdings -- Analyst

Okay, great. And then on the capital allocation question, thanks for all the color, etc. So last year, cash from operations $660 million. If I look at what you've laid out, the $230 million -- $220 million to $230 million for capex, you have about $300 million share repurchase authorization and then dividends are order of magnitude $70 million a year, that gets to about $600 million. Right now you are doing even better than last year as per your first quarter guidance. If you are generating anywhere close to or even more than what you did last year, what do you think happens with the cash flow above that $600 million that's sort of been allocated already?

Alan Haughie -- Executive Vice President and Chief Financial Officer

Yeah, we still believe that the company is significantly undervalued. So we will continue with our shareholder-focused strategy fundamentally returning excess cash to shareholders. And it's -- you're right in your assumption that the current $300 million share buyback authorization would -- could well be exhausted rather rapidly.

Mark Weintraub -- Seaport Global Holdings -- Analyst

Thank you.

Alan Haughie -- Executive Vice President and Chief Financial Officer

So, yes, that cash flow will be returned. We're not going to hold cash here.

Mark Weintraub -- Seaport Global Holdings -- Analyst

Thanks a lot.

Brad Southern -- Chairman and Chief Executive Officer

Welcome, Mark.

Operator

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

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

Yes, thanks and good morning, everyone. Just starting on the Siding business and growth. As we look back, I guess, at the back half and the Q1 guide, is there any way to kind of bucket some of the different drivers there between what you would view as underlying market growth distribution wins or benefits from new product introductions?

Brad Southern -- Chairman and Chief Executive Officer

Yeah. So, yeah, well, this is a bit of a -- just an estimate on my part, but I would say the underlying growth, it's happening right now across new construction repair and remodel. It could be in the range of that 20% of -- 20% year-over-year. And then what's accelerated the growth for us above that has been the strength in retail and the strength in Shed. So does that answer your question, Kurt?

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

Yeah, yeah, no, that's very helpful. And...

Brad Southern -- Chairman and Chief Executive Officer

Well, in the -- yeah, and from a percentage standpoint, the growth in ExpertFinish and our penetration in R&R is -- from a percentage standpoint, also, is disproportionate because it's off a smaller base.

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

Right, right. Okay, that makes sense. And, I guess, just sticking with ExpertFinish and growing that out, is that something where you need the finishing assets in each geographic market? And could you just remind us what markets, I guess, you introduced that in, in 2020 and where you're really looking to expand that here this year?

Brad Southern -- Chairman and Chief Executive Officer

Yeah. Great question. So we have -- we started with our first manufacturing base in Green Bay, Wisconsin, obviously, near our mill network. Then we quickly expanded into the facility in St. Louis. And then we expanded within our facility at Roaring River, North Carolina. So that's the current footprint. And you can tell from that footprint, we're very focused on the Eastern part of the U.S., including the upper Midwest, but all things East. But we are -- we do sell pre-finished in the West, but we use an independent pre-finished network there that we have relationships with. Right now, we've made that decision because of just the geographic expanse of the West Coast just made it -- that is the more logical step for us currently.

So our focus in the near term is on the East Coast with our footprint and if you think about what I just described, that's why us understanding the best way to access that upper -- that Northeastern segment is something we need to -- we're working on. But that's the current network, and we would be and are looking at options to acquire facilities in place or build our own. But, overall, I would say that other than upper part of the Northeast, we're not really limited in our ability to grow pre-finished right now in the East, because our -- we get pretty good coverage from our network -- our existing network.

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

Got it. So that would be something that distribution would just have it branded as their product and to the extent you chose to add capabilities in certain markets, you could bring that under kind of the LP banner. Is that the right way to think about it?

Brad Southern -- Chairman and Chief Executive Officer

Yeah. So ExpertFinish is -- everything we sell out of the facilities we have, the three that I mentioned, is branded ExpertFinish sold as one LP product offering into the distribution network that we have. On the West Coast, those tend to be more their brands and, like, they'll say SmartSide -- their brand, call it SmartSide. So the -- where we make it, we want to control the brand name and do, and that's how we've been operating to date.

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

Okay, makes sense. And lastly, and I apologize if I missed this, but you talked about Houlton's OSB capacity at about 250 million square feet. What's the right way to think about what that mill was actually producing? Is it similar to that?

Alan Haughie -- Executive Vice President and Chief Financial Officer

No, it was less than that.

Brad Southern -- Chairman and Chief Executive Officer

Go ahead.

Alan Haughie -- Executive Vice President and Chief Financial Officer

Yes. Kurt, this is Alan. That mill produced both Laminated Strand Lumber and OSB, and the volumes of those ebbed and flowed but it has been a while since Houlton produced its full capacity as Oriented Strand Board. We're just describing that capacity in apples-to-apples terms so that people really understand the context of the capacity impacts of that conversion.

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

Got it. All right. Appreciate the color, guys, and good luck here in Q1.

Brad Southern -- Chairman and Chief Executive Officer

Thank you.

Alan Haughie -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

Thank you. Our next question comes from the line of Sean Steuart from TD Securities. Your line is now open.

Sean Steuart -- TD Securities -- Analyst

Thank you. Good morning. Just a couple of follow-ups. I appreciate all the thoughtful answers so far. On the Siding conversion front, I mean, it doesn't sound like you guys have really seen any cost inflation for these conversion projects and bit of an apples-to-oranges comparison. But in the lumber industry, we have seen inflation for large-scale sawmill rebuilds. So I'm wondering on any context you can give there. And then you touched on your NPV analysis for these types of projects and I'm curious if you can disclose how returns on the capital you're deploying to these conversions have trended. I assume it's positive, but any context you can give on how those returns have moved over time for the types of projects.

Brad Southern -- Chairman and Chief Executive Officer

Sure. Well, from the capital cost inflation, I mean, obviously that is a factor in these rebuilds. But even though we kind of have felt this range of conversion cost has been pretty consistent, there is a lot of moving parts within the project between the different facilities, what we have to do from a building standpoint or in the case of Houlton, we're part of this press rebuild that the two projects didn't require at the time of conversion. And so we've finally kind of hit on this $120 million to $140 million that we've gotten here on each of the last three conversions from a different way. So I would say that in some cases that inflation has been offset by maybe less of a scope in the subsequent project, but it's not a material -- I do want to say no, it's not a material issue that there is some component in these conversions that have just fully escalated from an inflationary standpoint.

From a return standpoint, these conversions have been great and for two reasons. One is our ability to continue to get pricing hasn't always been baked into our pro forma as aggressively as we've been able to get it. And then because of the strength of our Siding growth, we've really filled these plants up really quickly from a utilization standpoint. And so they've been really good returns. And I think those returns -- there is evidence of that if you do ROIC on our Siding segment. It's really strong. So we like these conversions. And typically as is the case with the two we announced today, we are converting rather high cost OSB mills and then because of the scale of the -- of a mill like Sagola, it's going to be a really low cost Siding mill. So we get that kind of double whammy of taking out a high cost OSB mill and turn it into a high-return Siding mill.

Sean Steuart -- TD Securities -- Analyst

Understood. And last question for me. The 0.5% EBITDA margin for Siding that you're targeting, which has crept higher over time, is the increment there just that much more market tension than your ability to move prices higher over the long run? Or is it optimization of operations and taking unit costs down over time? Any context on what's driving that gradual improvement to the margin trend?

Brad Southern -- Chairman and Chief Executive Officer

Yeah, it's great. Yeah, both things, the -- let me -- there's three parts to that -- three parts to the answer. First is our ability to continue to get price improvement every year. Secondly, our OEE initiatives around Siding has been just outstandingly executed. So we're running the mills much more efficiently. And then thirdly, it's back to the previous answer, we are converting -- we're adding mills to our network over the -- the last two that have been relatively low cost mills into the network. So once we get a mill like Dawson up and running, our overall cost profile for the network is lowered by that. And, well, and then a fourth part of that answer is that it also has provided some logistics optimization around being present on the West Coast. So we get a logistics optimization or improvement as well. So it's just -- it just comes from -- the investment pays off from a cost standpoint and then the -- our ability to get pricing historically has both spread the margin for us very nicely.

Alan Haughie -- Executive Vice President and Chief Financial Officer

I would add that the business has phenomenal operating leverage. If you look at the fourth quarter waterfall, as well as the full year waterfall that's in the appendix and look at the ratio of the EBITDA generated we isolate from SmartSide growth alone, it's about a 50% incremental margin on each additional dollar. And again that's just fundamentally operating leverage with price baked into it. And it's, fundamentally, that growth at that rate producing that EBITDA that is, in another way, pushing the underlying long-term margin high.

Sean Steuart -- TD Securities -- Analyst

Yeah. That's useful context. Thanks very much.

Brad Southern -- Chairman and Chief Executive Officer

Welcome.

Operator

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

Ketan Mamtora -- BMO Capital Markets -- Analyst

Thank you again. Maybe coming back to Siding, can you tell us if you've announced any price increase on Siding for 2021? And, if yes, how is that progressing?

Alan Haughie -- Executive Vice President and Chief Financial Officer

Yeah. We announced a price increase, Ketan, that was effective January 1. And we do it by SKU, by geography. But just think about it in the 3% to 5% range and we've been overall -- we've been successful getting that pricing, yeah.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. And was there any sort of pre-buy in the Q4 numbers? I know in the past you all have allowed something like 110% of Q4's allocation. How was it this time?

Brad Southern -- Chairman and Chief Executive Officer

Well, Ketan, we were so tight. Look, we had a great Q4 and a great December. But I wouldn't call that move up volume. I mean, obviously, they're going to --distributors are rightly so are going to try to get orders in prior to the price increase, but our -- we're so stretched right now from a order management standpoint that there was not significant volume moved out of January into December as a result of that. We're just -- we're running so tightly right now that there's not a lot of opportunity for us to pre-ship or for a distributor to pre-order ahead of anything. But that certainly didn't happen in December.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. And then, obviously, with what you've announced today with Houlton and Sagola, I'm just curious kind of, sort of, any updated parts around Val-d'Or and core projects that you had talked about in the past and how are you thinking about those options that you all have.

Alan Haughie -- Executive Vice President and Chief Financial Officer

Well, Ketan, we plan to continue to grow Siding beyond the Sagola conversion and we will continue to look at all available options for the next mill after all that. I mean, we do own a nice plant site in Clarke. As you know, we own a facility in Val-d'Or, Quebec. We also have, I'll just remind the audience, a OSB mill in Maniwaki, Quebec that uses aspen and then we have Peace Valley and we also have expansion opportunities within our current mill network. And finally, there are other people that own OSB mills and aspen wood baskets that we have periodic conversations with. So all of those will be on the table as we think about beyond the Sagola conversion and which we are doing. I mean, it's good to a point now with our growth where every couple of years now, we want to be needing to do one of these. And so it's a very active conversation and all options will remain available to us as we look beyond the Sagola conversion.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. That's helpful and then just one last question. Obviously, we've seen a big rally in a lot of, sort of, wood product commodities, whether it's lumber, it's OSB, it's plywood, are you seeing any signs that this big rally is starting to have any negative impact on demand?

Brad Southern -- Chairman and Chief Executive Officer

Ketan, I hear from listening to housing experts and listening in or either reading the transcript from the builders and obviously product inflation is an issue -- can become an issue around affordability, especially for the first time homebuyer. That makes sense to me when I hear people talk about that risk. But we're not seeing that from a demand standpoint being in any way impacting the business right now. And, look, inventories are as lean as they can be and it's the middle of February.

So when we get to the spring building season, which is tomorrow, basically, but as soon as we get this fall out here in the south, it's -- it might be one of the constraints that is out there for the industry, but I think there's just so much momentum right now that we're going to -- the kind of growth that people are forecasting -- I see an avenue to that kind of growth over the next couple of years. So I hear it and I believe it. I believe it can be an issue. But we're certainly not seeing evidence of that in our order file.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. I appreciate all your thoughts. Good luck in 2021.

Brad Southern -- Chairman and Chief Executive Officer

Thank you, Ketan.

Aaron Howald -- Director of Investor Relations

All right, thank you everyone. There appear to be no more questions in the queue. And so we will conclude the fourth quarter and year-end earnings call for LP Building Solutions there. Stay safe everyone and we'll look forward to speaking with you again soon. Thank you, operator.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Aaron Howald -- Director of Investor Relations

Brad Southern -- Chairman and Chief Executive Officer

Alan Haughie -- Executive Vice President and Chief Financial Officer

John Babcock -- Bank of America -- Analyst

Ketan Mamtora -- BMO Capital Markets -- Analyst

Mark Connelly -- Stephens, Inc. -- Analyst

Paul Quinn -- RBC Capital Markets -- Analyst

Mark Weintraub -- Seaport Global Holdings -- Analyst

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

Sean Steuart -- TD Securities -- Analyst

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