Louisiana-Pacific(NYSE: LPX): makes wood building materials. The company is the number one seller of Oriented Strand Boards - a wood-based construction material that is similar to, but less expensive than, plywood - in the United States. The company also sells siding, laminated lumber, and wooden panels that are used for the construction and repair of new homes. The company's sales are dependent on the US housing market. Since 2007, the number of housing starts has fallen dramatically as the housing bubble burst, leading to the 2007 Credit Crunch and 2008 Financial Crisis.
For the next 20 years, Louisiana-Pacific has the rights to selectively harvest 42 million acres of timberland, which supplies 39% of its lumber needs. Because of the organic nature of wood, Louisiana-Pacific can slow down the harvest of the timber during periods of economic downturns and allow the trees to grow larger and thus more valuable. Natural disasters can damage the supply of wood and raise prices of the raw materials, but they can also increase the demand for wooden construction materials to rebuild destroyed regions. For example, after Hurricane Katrina, prices for wooden structural panels, which includes OSB, rose approximately 35%.
Since the burst of the housing bubble in the United States in 2006, followed by the onset of the 2007 Credit Crunch and 2008 Financial Crisis, new home sales and remodels have been suppressed. As a result, LPX's revenues have been declining steadily since 2006. In 2009, LPX earned total revenues of $1.05 billion, a decline from the previous year's revenues of $1.38 billion. However, despite this decrease in revenues, LPX was able to decrease its net loss in 2009, reducing it from $579 million in 2008 to $122 million in 2009.
LPX produces wood products through 3 different segments: i) Oriented Strand Board (OSB), ii) Siding, and iii) Engineered Wood Products.
OSB (Oriented Strand Board) is used for decking, sidewall, and floors. The board is made of wood strands arranged in layers and is significantly cheaper and easier to produce than plywood. Since the mid-1990s, the overall sale of OSB has risen to replace plywood, and it now accounts for 62% of all structural panel consumption. LPX's sale of OSB accounts for 23% of the OSB market and 14% of all structural panels in North America. In 2009, this segment earned a total of $406 million in total revenues.
LPX makes standard siding and SmartSide, a product made from a similar process as OSB which is cheaper than normal siding and trim. In 2009, the Siding segment posted revenues of $373.8 million.
The segment makes I-joists and laminated veneer lumber (LVL) used in residential and commercial roofing and flooring. The segment has tried to lower costs by using wood strands instead of solid lumber for I-joists. This segment had total revenues of $157.7 million in revenues in 2009.
The segment produces molding and it is involved in a joint-venture that makes cellulose insulation. Cellulose insulation is used instead of fiberglass insulation in construction and does not release hazardous fibers. The segment is also manages the 42 million acres of timberlands in Canada and the U.S. that the company has the right to harvest.
Louisiana-Pacific's over 42 million acres of timber makes up 39% of the company's yearly need for lumber. The company has the right to harvest the land under long-term contracts with the Canadian government and under private ownership of land. However, the average time remaining on the rights is 20 years. Louisiana-Pacific purchases its remaining needs, 61%, on the open market.
In 2009, LPX earned $117 million in total revenues from its other products segment.
Since 2005, the sale of new homes has fallen dramatically, and housing starts have followed suit and dropped off significantly as well. Louisiana-Pacific's products are used primarily in the construction of new homes, and as such the company's net sales have fallen each year since 2006.
There are over 80 alien pests and insects that destroy over 400,000 hectares of forest in Canada each year. This is nearly half the amount of wood that is harvested each year in Canada. In British Columbia, where much of LP's timberland is located, $4.2 billion worth of timber were destroyed by beetles alone. Other natural disasters often spike demand for the wood products that Louisiana-Pacific supplies. The prices of structural wooden panels rose approximately 35% after Hurricane Katrina.
Louisiana-Pacific competes against a number of logging companies, sawmills, and wooden construction supplies companies. Unlike many of its competitors, LP specializes in particle and strand boards, such as OSB, which are cheaper than solid lumber materials. Louisiana-Pacific competes most closely with the following companies: