What happened
A sluggish housing market ate into results at Louisiana-Pacific (LPX -0.33%), and investors weren't in any mood to wait out the downturn. Shares of Louisiana-Pacific tumbled in the days following its early August earnings report and never recovered as the month went on, finishing August down 17.9%, according to data provided by S&P Global Market Intelligence.
So what
Wood products and building-supply manufacturer Louisiana-Pacific saw net sales fall 46% year over year in the second quarter, driven by lower volumes and declining prices for the company's oriented strand board (OSB). Overall, the company earned $0.55 per share on sales of $611 million in the quarter, missing Wall Street's expectations for $0.66 per share in earnings on sales of $665 million.
It was a choppy quarter, including charges related to Louisiana-Pacific's decision to exit an off-site framing operation. But net sales of OSB decreased by 66%, and siding sales were down 11%, a reflection of weak demand from the housing and renovation markets due to higher interest rates.
Management indicated they believe the outlook for housing has potentially bottomed out and expect better results in the quarters to come as inventory channels clear out. The company forecasted OSB revenue to be up by at least 50% in the current quarter compared to the recently completed three months.
But for investors staring at an uncertain economic environment and with significant questions about housing, there wasn't much desire to jump in even at the lower share price.
Now what
Louisiana-Pacific is in a cyclical business, and timing market cycles can be dangerous. But for investors interested in finding ways to buy into a potential recovery in housing, Louisiana-Pacific shares look attractive following the sell-off.
The company's SmartSide product is well liked among home builders, providing long-term opportunities for Louisiana-Pacific to gain share. And with a factory upgrade cycle now complete, there is room for Louisiana-Pacific to gain pricing power up ahead. Louisiana-Pacific also pays a dividend yielding about 1.53% at current prices, providing some reason to wait for a recovery.
Shares of Louisiana-Pacific have doubled in value over the last five years and are up more than 200% from their pandemic-era lows. Given the uncertainty about housing and rising rates, investors should not be surprised the stock is finding it hard to gain ground in the near term, but the long-term case for this buildings material stock remains in place.
