Louisiana-Pacific Corporation Price & Performance (LPX)

Thank you, operator, and good morning, everyone. Thank you for joining us to discuss LP's results for the fourth quarter of twenty twenty four as well as our full year results and our outlook for Q1 and 2025. Hosting the call with me this morning are Brad Southern, LP's Chief Executive Officer and Alan Hocky, LP's Chief Financial Officer. After prepared remarks, we will take a round of questions. During this morning's call, we will refer to a presentation that has been posted to LP's IR webpage, which is investor.lpcorp.com. Our eight ks filing, earnings press release and other materials are also available there. Today's discussion contains forward looking statements and non GAAP financial metrics as described on Slides two and three of the earnings presentation. The appendix also contains reconciliations that are further supplemented by this morning's ks filing. Rather than reading those materials, I will incorporate them by reference. And with that, over to Brad. Thanks, Aaron, and thank you again for joining us today. Q4 was a strong finish to a record year for Siding that featured growth, share gains and margin expansion. In 2024, Sightings set records for net sales and EBITDA overall as well as multiple records for Expert Finish.

In OSB, we saw slightly higher market prices than in 2020 but more importantly, the business executed our strategy effectively grew structural solutions increased operating efficiency and managed capacity with agility and discipline. Page five of the presentation shows financial highlights for the fourth quarter and In Q4, we saw the expected seasonal slowdown as winter weather brought the building season to a close. Compared to the prior year, siding sales grew by 9% in the quarter For LP as a whole, the net effect of Siding growth a decline in OSB prices and an increase in OSB sales volumes resulted in $681,000,000 in sales dollars 125,000,000 in EBITDA and $105,000,000 in operating cash flow. After investing $61,000,000 in sustaining maintenance and growth cash LP returned $42,000,000 to shareholders through dividends and share repurchases. For the full year, Siding sales grew by 17% to $1,560,000,000 Thanks to Siding growth, slightly higher OSB prices, and the margin expansion driven by increased capacity utilization and operating efficiency we achieved $2,900,000,000 in sales and $688,000,000 in EBITDA. These represent increases of 1444% respectively This nearly doubled earnings per share to $5.88 LPUs of $6.00 $5,000,000 in operating cash flow To continue executing our capital allocation strategy, by investing $183,000,000 in CapEx and returning $286,000,000 to shareholders, via dividends and share repurchases.

Most importantly, we accomplished this safely. Ending the year with 0.67 total incident rate this is considered a world class TIR but it's not good enough for LP. We will never stop working to improve our safety performance to ensure no one gets injured while working at LP. As we look forward to 2025, the market is not radically different to what it was a year ago. On our call this time last year, we said that we expected 2024 to be a flat year for housing and a soft year for R and R. But we expected both businesses to outperform both markets. This is exactly what happened. In 2024, total U. S. Housing starts were down 4% for the year and 6% in the fourth quarter. LP is over indexed to single family housing, which fared better, especially in the first half of the year. Single family starts were up 7% for the full year down 5% in the fourth quarter. It's hard to be precise about the repair and remodeling market but we estimate that total U. S. R and R expenditures were down low to mid single digits.

Against this backdrop, Siding revenue grew by 9% in Q4 and 17% for the full year. We saw the resumption of normal seasonal demand patterns in Siding, as well as broad based growth in all product categories and in all geographies we serve. This growth is driven by new product innovation, our demand creation efforts LP superior product offerings, and by our amazing teams that make it all happen. Volume growth enabled margin expansion per siding as we more utilize our new capacity at L. P. Holton Segola and Bass facilities. As a result of this growth, Siding achieved our long term EBITDA margin target of 25% for the full year despite a soft market. In OSB, despite housing starts below long term average demand, the business achieved EBITDA above our long term cycle average thanks to efficient cost control The consensus expectation for housing starts in 2025 is looking like another flat year with perhaps a modest rebound in R and R spending. Accordingly, in OSB, LP is planning for another year of operational cost control and strategic execution.

In Siding, the focus is on share gains and volume growth. We are seeing encouraging evidence of that growth so far in 2025 with a healthy siding order file that we will detail in our guidance discussion. Accordingly, we are increasing our investments in new product innovation, demand creation and capacity expansion to meet our customers' needs. 2024 was a relatively light year for capital investments. The recent conversions of our Segola and Holton mills and the opening of our pre finishing facility in Bath gave us room to grow in siding. As demand continues to increase, we want to ensure that we do not outgrow our siding That means that 2025 and 2026 will see significant in capacity expansion starting later this year. The next projects will include a second manufacturing line at L. P. Holton, starting the next siding expansion project after that, and increasing capacity at our existing expert finish prefinishing facilities, with a significant portion of this work happening in parallel. At our historic volume growth rate of about 7% per year, our much higher growth rate for expert finish pre finish siding, these projects should be completed in time to keep siding capacity utilization within efficient balance.

We would much rather be a little early than late with new capacity and so we are starting now to preserve our ability to grow. Rather than risking an extended period of allocation like we saw during COVID. As Alan will detail in a few minutes, we expect the Siding business to generate over $400,000,000 in EBITDA this year reinforcing our confidence that Siding can comfortably fund its own growth. The LP team is fully committed to executing our growth strategy. And I'm confident that we will continue to innovate new products gain market share operate safely and increase the scale and efficiency of our manufacturing network. With that, I will turn the call over to Alan to detail these investments the financial results and our 2025 outlook. After which we will take your questions. Thanks Brad.

As Brad said, the fourth quarter brought the year to a strong finish. And as I'll explore in a few minutes, the first quarter of twenty twenty five also seems to be shaping up well. Page seven shows the fourth quarter waterfall for Siding. Twenty twenty four largely exhibited normal seasonal demand patterns. With a sequential drop in volumes in the fourth quarter as building activity faded. Single family starts were down not just seasonally, but also by five points year over year Despite this, 3% beating single family starts by eight points. Higher selling prices added another six points of revenue growth with roughly half coming from list price increases and half from mix. And we largely reinvested these earnings in selling and marketing [indiscernible] with the expectation that 2025 demand will require higher production. For the full year on Page eight, Siding revenue grew by 17 points outgrowing the underlying markets as Brad said. This growth added $230,000,000 in revenue $79,000,000 of it from prices and $151,000,000 from volume. And it added $143,000,000 in EBITDA.

Being the flow through of $79,000,000 in price, with $64,000,000 coming from volume. Increased investments in demand creation and mill staffing partially offset offset by a $60,000,000 benefit from raw material price deflation brought 2024 to a close with a 25% EBITDA margin. 500 basis points higher than last year, 2023. We sold just over 1,700,000,000 square feet of siding in 2024, which is about 75% of our nameplate capacity. So we have a healthy runway of capacity to grow into while we execute new expansion projects. For OSB on Page nine, lower prices in the fourth quarter cost the segment about $18,000,000 in both revenue and EBITDA. However, by effectively managing what we can control, the business recovered most of the revenue impact and half of the EBITDA impact of these lower prices through the combined effects of higher volumes, improved OEE and efficient raw material utilization. Page 10 shows the full year for OSB. On average, prices were slightly higher year over year with the $35,000,000 in pricing benefit was overshadowed somewhat by the $106,000,000 in revenue and $55,000,000 in EBITDA from higher commodity and structural solutions volumes. Helped of course a three percentage point improvement in OEE, which in essence means that when we ran we did so more efficiently.

Raw material deflation, labor inflation and a hodge of other small items left the year at just under $1,200,000,000 in net sales and $298,000,000 in EBITDA. So the fourth quarter was a bit below our declared cycle average quarterly EBITDA of $60,000,000 for the year ended well above that level. Page 11 shows cash flows for the quarter and full year. Both are pretty straightforward with EBITDA translating cleanly to operating cash flow helped by a slight decrease in working capital and a normal cash tax rate. We invested to maintain and expand our manufacturing capabilities and returned most of the excess to shareholders paying $74,000,000 in dividends and $212,000,000 in the year to repurchase shares at a volume weighted average price below $90 LP ended 2024 with $340,000,000 in cash, zero net debt and almost $900,000,000 in total liquidity. As of February 14, LP has paid an additional $51,000,000 to repurchase roughly 500,000.0 more shares And this leaves 69,700,000.0 shares outstanding and $187,000,000 remaining under the pre existing share repurchase authorization. [indiscernible] Now, LP's guidance for the first quarter and full year of 2025 is on Page 12. Besiding, the order file continues to be healthy. And to be clear, consistent with a typical seasonal rebound early in the year, And while there was minimal price lag in January, price realization now fully reflects the annual list price increases.

Accordingly, we expect sales growth in the first quarter between 911% for revenue in the $390,000,000 to $400,000,000 range. EBITDA should land between $95,000,000 and $105,000,000 for an EBITDA margin of about 25%. For the full year, although we currently expect flat housing starts, we nonetheless anticipate revenue growth of seven to nine points.

Bringing revenue to between $1,650,000,000 and $1,700,000,000 EBITDA should be between $450,000,000 and $425,000,000 for an EBITDA margin again of around 25%. For OSB, assuming random length prices are flat to last Friday's published levels, we would expect first quarter EBITDA to land between $35,000,000 and $45,000,000 And for future quarters, we offer no estimate of OSB prices merely revert to cycle average as a reasonable approach to modeling the longer term EBITDA potential of the OSB business. I should note that while we're using the same algorithm to estimate cycle average EBITDA, inclusion of twenty twenty four data $60 to $65 per thousand square feet which is reflected in the outlook for the second through the fourth quarters. And finally, for the avoidance of doubt, we have insufficient clarity about them to incorporate any tariff impacts in our guidance.

The first quarter and full year guidance therefore assumes the current state continues. Now if Siding Growth proceeds on this trajectory, we will need new press capacity sometime in the next to three years. And will need additional pre finishing capacity somewhat sooner. The chart on Page 13 shows this schedule of capacity additions that will be As a result, 2025 will be a year of significant investment We expect to spend about $200,000,000 in growth capital largely in the second half of twenty twenty five. 2026 will also most likely be a year of heavy investment, with two expansion projects in parallel, as Brad mentioned. We'll have more specifics on timing, total project costs and expected returns in coming quarters. Sustaining maintenance is also increasing in 2025 with some green end modernization projects in OSB designed to improve efficiency yield and most importantly safety.

So in conclusion, 2024 was a strong year.

We executed our growth strategies. And that execution generated over $600,000,000 in operating cash flow which we invested to maintain and enhance our manufacturing capabilities generate more demand for our products and to develop and reward our people. And we return the rest to shareholders consistent with our capital allocation strategy. We believe we have a strategy that works. Record solid execution and a robust balance sheet all of which gives us confidence that we're very well positioned to make the most of what the housing and repair remodel markets have to offer and to invest further in more product innovation capacity expansion, and shareholder returns. And with that, I'll open the call for Q and A. Operator? [indiscernible] Our first question will be coming from Michael Rock of Truist Securities. Your line is open, Michael.

Yes.

Thank you, Brad, Allen and for taking my questions. Congrats on a strong finish to the year.

Thank you, Mike. I'm wondering if you could comment obviously, signed demand is, as you've noted, continuing to be strong.

Could you comment on the Lennar pull through and help us think about the cadence of that growth this year? Yes. So I would say we have ramped into like full contract execution with Lennar, there was a ramp up period after the deal was signed. We didn't get all the homes immediately obviously. So we're running at full scale with them. We're in the second year of that agreement. And I would say it's at or exceeded at or have exceeded our expectations as far as volume pull through. [indiscernible] when you would say it's more of the latter than the app, meaning that it's [indiscernible] Yes, it's performed as expected. Yes, sorry for any confusion. I mean, are contracted for a certain amount of homes and we've gotten those those homes. And I mean, a little extra here and there, but materially, it's within the bounds of the agreement.

Got it. Okay. And just second question, I have this. Given the weakness or what had been weakness in commodity OSB, have you shifted any more of the production to struck [indiscernible] which are more margin accretive?

And are you handicapped in any way for making a large shift to structured solutions from commodity OSB particularly as you look to build out, build a series given the tie in cell opportunities? Yes.

We do have to invest to continue to grow Structural Solutions from a a manufacturing standpoint, those investments tend to be small, especially relative to the siding conversion. And fairly quick to execute So there are times that we run into some constraints around product availability in Structural Solutions, but that's very rare. So yes, you're right. As commodity pricing flattens out or is below trend lines, we really enjoy incremental margin we get from Structural Solutions and our strategy is to continue to to sell have a a strategy that pull those SKUs through distribution and capture that margin. And that's been That's been a key part of our strategy. I'm proud of where we were in 2024 and we have plans to grow on that in 2025. Thanks very much.

Welcome. And one moment for our next question. Our next question comes from Petan Mamtora of BMO Capital Markets. Your line is open.

Good morning and thanks for taking my question.

Perhaps to start with on Siding, can you talk about sort of the the EBITDA and the margin level in Siding for 2025, clearly the export finished business is growing quite nicely. We know that is there is a higher price point product should be margin enhancing. Can you talk about a couple of offsetting factors that may be keeping margins at the same level? Is Is it SG and A? Is it anything else Yes. Thanks Keaton for the question. Sure that's a bit of a burning question. I do want to say, so I'm going to be sort of trying to be a little thoughtful and careful in my response. This is the first time we've guided to a 25% EBITDA margin for the Siding business. I do want to to answer the question in reverse. The volume leverage and the price flow through that you're used to seeing on our waterfalls let you see Q4 and the twenty twenty four full year waterfall. They're expected to continue. Let's say the pure volume conversion of revenue to EBITDA to about 40% and of course price flows to 100%. So we get that kind of blended volume and price flow through of about 65% But so thank you for the question, but we're not harvesting It's way too early in LP's growth trajectory for us to even consider that.

So the costs that are included in this full year guide $20,000,000 of inflation. Now a third of that's labor, so that's certain The remainder is let's call it raw materials, and I will admit that's largely speculative. There is about $10,000,000 to $15,000,000 closer to the high end of additional selling and marketing expense And so yes, in order to generate future business as well as help secure this year's growth, We are continuing to invest in adding selling and marketing dollars And I've said it before, on sort of broad public calls and on individual discussions we encourage this. We encourage discretionary selling and marketing investments in order to generate future growth. I will say that the push into repair and remodel does require, let's call it, a higher level of marketing dollars per per foot of business gained. Then again, further on the discretionary side, roughly $5,000,000 of call it, engineering costs and staffing associated with the capacity expansions and some additional mill staffing very much in the hope that the market or the market share gains give us Further growth. On top of the amount that we've guided to. So we are certainly as always, building in The necessary discretionary spending that would help us overachieve.

And there's about 1.5% to two percent point margin impact from all of that stuff that I just described. What's not included? We have not assumed any material pricemix favorability. So it's too early to know whether or not and how Expert Finish will progress in the year. We're obviously optimistic but it always feels a bit reckless to just basically take take that as a given. Given the fact that 2025 as a housing market is going to be challenging. It's a flat market in housing and probably down in R and R. So this is definitely a market share gain year. We can't always predict [indiscernible] And quite how and when those market share gains will occur. So that's Samsung.

Thanks, Alan. That's very helpful and laid detailed. So appreciate it. And then switching to kind of sliding capacity expansion On Holton Line 2, can you share with us at this point kind of what kind of capacity expansion you are you are planning and what kind of total investments will be online too? Yes, Keaton. That will add about 300,000,000 feet of volume The Holton expansion would be adding a parallel manufacturing line to the the existing mill. So adding a forming line and a press I don't think we've gotten into the details precisely of how expensive that's going to be. Haven't yet, no. But the returns are consistent with previous [indiscernible] expansion projects that we've had. So as we get closer to that and and have more specifics about timing and things like that, we'll be able to share that. And Keith, I would just say from a manufacturing standpoint, we'd be focusing that line on the lap and trim capacity versus panel. Got it. That's very helpful. I'll jump back in the queue. Good luck in 2025. Thank you, Keith. Thanks, Keaton.

One moment for our next question. Our next question will be coming from Suze Thank you. Good morning. This is Charles Byrne in for Susan today. Your voice has gone down a couple of octaves, Susan. [indiscernible] Maybe first, I want to ask about the Siding Guide and the implication for the volume outperformance versus the market. Where do you see the biggest opportunity for growth and outperformance across new construction, R and R and maybe shed we look into 2025? [indiscernible] We're really expecting volume growth across all product offerings this year. There is when we compare to 2024, probably just some recovery volume or percentage in shed. Shed was a rather weak, especially first half of last year. So unfortunately, that's back to normal. It's not a little strong right now. So that to be if any one sector is kind of leading [indiscernible] the good growth that's shed at the moment but we're expecting above margin growth across all sectors. Retail, builder new construction as well as repair and remodel. And we're also looking at it across all geographies. So we've got a really we're off to a good start and the visibility we have into order file is to [indiscernible] [indiscernible] Got you.

That's good color. And maybe can we talk about also the raw material and freight expectations for 25%? I think on siding you alluded $20,000,000 inflation. What does it imply for price costs? And how would potential tariff impact your siding cut structure as we think about the year ahead? Well, I'll take the easy one first.

And then we'll avoid the second one. The $20,000,000 I referenced does include about $8,000,000 or so of labor inflation. So that's as it were certain, that's already been given and gifted as it were. And the rest is raw material.

And There will be we think we'll see increases in paper overrede costs mostly offset by reductions in MDI costs. So [indiscernible] there is some potential for [indiscernible] raw material inflation, but I will admit that piece is broadly speculative.

That I can't play to anything in particular.

Most of our major role at material other than wood are indexed to various derivative products that go into it.

So We have to do some kind of forecasting around benzene cost oil cost to to do these analysis. So that's the that's the analysis that we did that drove the assumptions around the price increases for raw materials other than wood.

Got it. Thank you, guys.

Yes.

And there's no assumptions in nothing that we've talked about as far as the cost assumes any tariffs are placed on raw material and flows.

Our next question will be coming from Sean Stewart of TD Cohen. Sean, your line is open. Thanks.

Good morning, everyone. A couple of questions. I want to revisit tariff exposure. Can you give us a sense of your approach in engaging with customers on OSB and Siding? If and when tariffs materialize, is the intention to try and pass it on in complete or to fully offset the tariff in terms [indiscernible] And Brad, I'm just wondering if you can speak to, I guess, your perspective on demand elasticity and tension in the market the ability to pass those tariffs on and how much of a supply response might be needed for both OSB and siding? Well, for OSB, a traded commodity.

So there's There's not a direct way to pass [indiscernible] onto the customer in OS Bay other than through at the trading floors and that would be I mean you know how that works. So there's the price in OSB will be the price of OSB and the cost structure a cost structure change in the industry that's due to tariffs will reset the cost curve and price will be what price will be. It's hard to know what the the impact will be on siding with the information that we have today. As you know, we do have two siding mills in in Canada. We have the ability to to move volume around in our network. And there's some things we can do on supply chain to optimize the supply chain that if tariffs were to change the dynamics there. And so we would we certainly have done scenario planning around we would do and how we would go about doing it. We haven't gotten to a situation yet where we've really put a number on it because of the the lack of clarity and we've had minimal I mean, obviously, customers are aware that the industry would be significantly impacted across the board by particularly Canadian tariffs but we haven't gotten into any level of discussion around how that would get manifested from a siding perspective.

Thanks for that, Brad. And I wanted to revisit the 2025 siting sales growth targets that you provided, the 7% to 9% sales growth And maybe I'm paraphrasing you, tell me if I'm right and if there's any nuance to it, but 7% to 9% reflects market share gains In still a very difficult housing environment, In a more normalized scenario where we potentially get a bit of an uplift in housing, Is 10% annual sales growth a feasible number for you guys? And when you're thinking about longer term [indiscernible] whether it's Fulton II or expansion beyond that, Is that the premise of the longer term sales growth potential for that segment? Sean, I would yes, so certainly single family housing recovery along with broader, which would I mean get a little more detail, which would probably drive increased R and R spend if we got existing home sales as a part of that. Well, let me back up even more. If interest rates were lower, and the housing market took off across the board. We would see increases in single family construction. We would see increases in R and R spend. And that would provide a really nice tailwind that we haven't had since the COVID tailwind, which was the tailwind of all tailwinds.

And that would certainly push the addressable market real time addressable market for us for us up and allow us to grow at a higher growth rate than what we're seeing in a year where we were kind of expecting the market to be flat. [indiscernible] in siding probably gives you a little more pricing pressure pricing opportunity which means that the revenue you get maybe another point on the revenue of as a result of that. So yes, if your question is would recovering and stronger housing market and R and R market allow us to go above 7% to 9% growth.

Yes, it would. And both helpful volume and pricing, I believe.

And just to point about capacity investments, Our biggest fear in Nashville is that we would is being late. To that party. So we've got to make sure that we have capacity because we are convinced that it is going to happen. And we need to be ready.

Understood. That's all I have for now. Thanks very much. Welcome. Thanks, Sean.

And one moment for our next question.

Our next question will be coming from Stephen Ramsey of Thompson Reiss Hi, good morning. Maybe to start with the order file [indiscernible] If I recall, this is what you guys were seeing a year ago early in 2024. I'm curious what the makeup of the order file now is compared to a year ago, and if it's telling you anything different compared to a year ago when you think about the portfolio between SmartSide, Builder Series and Expert Finish?

I would say the only material difference in the order file strength this quarter versus year ago was this we have seen stronger shed pulls this year than we had last year in the first quarter. Other than that, There were other single family [indiscernible] [indiscernible] and R and R are consistent what we were seeing Q1 of last year. And the same thing is true geographically, if that's of interest.

Okay. That's helpful. And then secondly, Bath margins, this has been on a positive trajectory over the last year or two. Is there an assumption that it stays on that kind of trajectory in 2025? Or maybe another way to ask it, is it less of a margin headwind in 2025 than it was last year even as it's increasing.

We basically assumed in our guide, in our budgeting that we make kind of make slow progress in 2025, still improving, but we're adding capacity It's [indiscernible] that will drag on that a little, but it's improving. Definitely. But not quite by the same amount as in 2024. '4. That's our modeling assumption anyway.

Great. Thank you.

One moment for our next question. Our next question will be coming from Mark Weintraub of Seaport Research Partners.

Your line is open, Mark.

Thank you. First, Alan, just one point of clarification.

So when you were talking on the Siding margin bridge, you mentioned pricemix flattish, I Was that just mix? Are you still are we still building like 3% on price from list price adjustments, Yes, yes, yes. What I meant was that this year we enjoyed something closer to six I don't model that additional mix benefit. So yes, the underlying price increases exactly that, yes.

Got you. So we do get that let's say, dollars 45,000,000 or something. From Yes. Okay. Good. And then second, so you spoke on Sidinghouse, you've been driving the market share gains through innovation and demand creation efforts. And last year, we had Lennar, Home Depot, You had the Smoothside introduction, although maybe that fills into this year more. Maybe can you talk a little bit more about more specifically what some of the items that are going to help drive it this year will be that are perhaps new and different.

Well, we would invite anybody to come by our booth and Las Vegas next week and take a look at the new products that we've launched and talked about, but also some new things that we have on board things around coloring for our prefinished some really interesting product expansion there. Obviously, to your point, having the four full portfolio of smooth end market all of this year including January is a nice add compared to last year at this time. So innovation has been a key to all the growth we've gotten particularly after we've gotten come off allocation, Some of that work was done before COVID, but the builder series and expert fin growth, as we've talked about, Mark, has been phenomenal.

So we certainly innovation will continue to play a big part in our growth story because that that increases our addressable market with customers that we have.

The easiest customer to sell And then as far as expanding customers, we are continuing to make inroads around builders both large, medium size and small, And then on the R and R side, that's a contractor play. [indiscernible] The number is how many loyal contractors do you have pushing and installing your product and that's the a big part of the marketing spend increase that Alan talked about is in support of that initiative. That just a steady constant execution play that will never end. I mean, there's a lot of side of contractors in North America and we are selling to a rather small percentage of them. And so the opportunity there is huge and it's just an annual localized execution that we're encouraged by the progress that we've made. I'm encouraged about what we've learned about how to do that. And that's given us a lot of confidence that we'll be able to continue to grow as we gain that expertise round out the portfolio of products, in the case of repair new model continue to strengthen distribution and create a recognizable brand that It's beautiful and works well and customers want and contractors want to install.

Thank you, Brad. And then just lastly, I know you've had efforts underway to to try to get a better sense of where customer inventories are So two parts. One, where are you in that process? Do you feel that you now do have a much better sense of where customer inventories and signings tend to be or are and where are they? [indiscernible] Yes.

So we'll never have perfect visibility, but we have way better visibility we've ever had over the last couple of years has gotten a lot better. And we are normal for where we would expect to be here in the February.

Which is a little on the high side because coming out coming into the year, distributors tend to want to build some inventory in anticipation of the spring selling season.

And so it's It's a it's there's more in the channel now than there was thirty days ago.

But normal given where we are as it relates to the in relationship to the homebuilding season and the busy season for R and R contractors being able to get back outside and and get to work. We're pleased with where inventories are. I'm very pleased with the way we were able to manage that with the cooperation of our distribution base through the price increase and across as well.

Thanks so much.

Yes. And one moment for our next question. Our next question will be coming from Matthew McKeller of RBC Capital Markets. Your line is open, Matthew.

Good morning. Thanks for taking my questions.

Just looking at your siding capacity slide, am I correct in thinking this implies you'll start investing in another siding line essentially as you complete the expansion at Holden? And with that, I recognize there are lots of moving parts here, but how would you think about what the trough for siding margins looks like as you work through this next capacity cycle?

I'll talk a little bit about the execution. Eric can join in. He's part of that team and then Alan can speculate on margin with a double execution. So I've been part of Siding for twenty years or so, twenty five years. It's the first time we've hit [indiscernible] end up doing it, which we certainly believe is going to be required, we'll be running two parallel expansion projects not completely overlapped. We're going to start Holton first, but then move into the second one after that.

And it's going to be pretty intense. We are staffing is Alan talked about, up our engineering group.

In anticipation of that a lot of that work will be executed from a a contract engineers, but we are increasing our in house capability as well. And it's pretty exciting to be in a position now given our scale [indiscernible] 10% growth leads to us being a kind of a continual expansion mode versus more of a batch process that we've had in the past. So that provides good continuity on expertise good continuity with vendors that are a big part of those expansions. So, yes, we'll be starting Holton and talking specifically about that soon. And then shortly after that have a decision made on where the second or the next The next capacity expansion goes is as we mentioned in the prepared comments, we have a lot of options and we're narrowing those options today. And I'll just future tariff situation have an impact on that decision obviously because we have opportunities in both or options in both Canada and in The U. S. All right.

You, Brett. The risk of going out on limb I think we're more likely to be having When we're in the throes of these this sort of parallel expansion, Having a conversation not this similar to this one about margins, but I think it will be closer to why the hell out margins rising as opposed to are they falling?

It's more likely that you might see us absorbing again additional benefits of additional growth with the headwind that comes from margin expansion. So I would like to believe that our scale has reached a point where that sort of rising sine wave has a higher minimum than before. Great.

Very much for all that color. Next one for me, just sticking with your capacity plans. And thinking through the investment in Green Bay, aside from the incremental capacity shown on the slide should we think about other improvements you hope to drive through your investments, in particular thinking about potential automation opportunities and with them cost savings?

Let me start on the pre finished, as you mentioned. It's just remarkable how fast that technology is is advancing And look, we started out basically doing prefinished gunk work. So there was a lot of opportunity for us to increase investment and get better throughput and automation. And we're certainly doing that in expert finishing. Little bit for us is it's been Somewhat the delay maybe has been good because the technology has advanced so much that we've really been able to see significant efficiency gains as we've added capacity. So I think there's way more to come on the the expert finish side as we continue to scale that business. We are still relatively small in the big picture. Of prefinished manufacturing and in every increment of capacity that we add will be significantly more efficient than our average efficiency [indiscernible] That's a little bit there's not quite that opportunity. On the press side of the business. Though we do have active projects around automation of our finishing operation, which tends to be high labor and more highly labor intensive and in cases from a safety standpoint, more hands on. That technology is advancing as well, particularly in the packaging area.

And so we see opportunities there. I think those margins will be more Maybe less obvious to see at any one period of time, just part of the overall continuous improvement effort. And then I'll just close that by saying one of the most exciting things though is This second line after after Holton could give us an opportunity to really the first time for us to be designing almost an entire mill footprint for siding production. Versus an OSB production line that gets converted And we've I mean, Holt in line two will have some of that element in it. But the one after that will most probably be almost like a grainfield, even if it's at a low current location of an existing siding mill And so the opportunity for us to design specifically the entire footprint of the mill for siding production versus forcing it in on an existing OSB mill is want to be more capital intensive, but the opportunity and the efficiencies that we could design in will be pretty interesting. So more to come. We learn about that, but I do see that as an opportunity for another step change in margin at least to that that facility when it comes online is full production.

Thanks very much. I'll turn it back. And one moment for our next question. Our next question will be coming from Kurt Yinger of D. A. Davidson. Your line is open, Kurt.

Great. Thanks and good morning everyone.

Just wanted to circle back on Lennar and I'm curious as that business has ramped and you've executed against the agreement, if there are any there's been any surprises or big learnings that you can kind of take and look to leverage as you continue to pursue other larger builders in the space?

Well, not really any surprises. It's been executed as planned more or less in normal course of business. I mean, I guess the learning, I mean, this is not a learning that surprised us, but what we've been good at with Lennar is making sure that their contractor base is trained up technically able to install our siding the first time they do it in a very efficient beautiful way And so with the technical support that's gone in, to this [indiscernible] This conversion let's call it that for them. Has been significant on our part And we understand now that a key part of the selling process [indiscernible] the procurement battle for that business, but then it could quickly becomes an execution play around educating the installer base and making sure that we have local distribution in place to serve every one of their developments. And there's been there were cases where that was not true. With some of the business that we garnered from Lennar and other builders that we've won in. [indiscernible] an execution game once you get the agreement. [indiscernible] was a big one for us. So the learnings there certainly will translate well in into how we approach future opportunities in that area.

Is it fair to think that I mean, given how important kind of that the contractor training or technical details of installation would be that As you grow in scale, you convert some of these bigger bigger builders like the next conversion is a little bit easier because that contractor base is just naturally more aware of installation and whatnot?

Yes, no doubt.

The wider we cast our net in both R and R and new construction. And by the way, there's installers that do both depending on where the strength of the market is locally.

Every contractor we get we have the opportunity to train up as a contractor to announce now knows how to install our product. And we believe and have evidence that they become advocates for our product because of the ease of installation. And there's a stickiness there. And then that also translate into this has been historic for us, but as we grow the business, both R and R and new construction and open up new distribution. The channel makes money off our product. And so that creates some loyalty, I mean, they're going So what the contractor wants, but it does strengthen our overall effort beyond just the framework work of that one deal in the case of the builder or that one contractor that you convert on R and R side. So I mean I mentioned building scale for expert finish, but we're also building scale in the distribution in the contractor base is probably more valuable than the scale you build we build on the operation side.

Okay. Welcome.

And our next question will be coming from George Daphos of Bank of America Securities. Your line is open, George.

Thanks very much. Hi, everyone. Good morning. Thanks for the details. Given the success with SmartSide, it doesn't sound like you need to make any changes, but does it come a time in the horizon where marketing advertising maybe needs to change or change it because of the scale and the acceptance of the product recognizing it's right now much more of a technical sale you're working on the installer and that's been working just fine. But does national advertising or something like that ever come play at this in the next two to three years?

Yes. I wouldn't say, George, for the next two to three years, What's been working for us and what we are increasing our investment in is having boots on the ground on our sales force, so being having folks selling actively selling our product every day, and supporting that the technical sales discussion, which I won't repeat, And then from an R and R standpoint where we've had success is really more on focused local markets.

Where we've gone into areas and where we do [indiscernible] advertising, but at a local level and a local base, it's using local media. And create and then we're doing that in places where we have distribution, we have contractors that are on board.

And then we follow that groundwork, let's say, that foundation with focused local marketing, we're seeing really, really good results. [indiscernible] Over the years, my opinions have changed. But I do think that this is more of a local selling that there's more value, more return on local selling local brand awareness than there is on national programs. That's my personal view. But and it can be changed with evidence otherwise that it could we could accelerate growth with more of a national branding opportunity, but I like what we're doing locally and it's really been something that we've seen the results of. As we executed that.

And it's working and at the same time you have to stage it with your ability to to produce and meet the demand. So I mean that all makes sense. Exactly. [indiscernible] And I'm sorry, Alan, was that did you have a comment there?

No, Brad, I'll bring with you.

Yes, sounds good. In terms of the next line, What are the lead times such that if you're going to be producing around 2029, need to actually start to have the orders in place to the equipment dealers? And what kind of inflation maybe or maybe not are you seeing in terms of press capacity versus what we've seen in the past per per thousand square feet.

Yes. So let me just kind of give a comment on where we're at and then Aaron can comment kind of what we're seeing as far as down the road. But we've started securing Pieces and parts of what we need to do for both Holzmann one and actually [indiscernible] equipment or orders that we could that we could place that are Location agnostic, that has begun. We've gotten preliminary approval We've got approval from the Board for Holton but preliminary approval from the Board to start the pre buys, let's call it.

Securing factory time and fabrication time or steel and in some cases beginning the fabrication of the equipment. So that has started The inflationary impact has been significant over the past Couple Of Mill Conversions, Holton, Segovia and now this one. We're not seeing increases in inflationary issues there other than, I would say, more normal But compared to what it costs to do these projects, pre COVID, is significantly more expensive. And then I think Aaron can speak more to the specifics of where we are on the two projects and what we're [indiscernible] Inflation is certainly a factor, but the nature of the projects are also changing. So Segovia and Holton were conversions of existing plants. The Holton line two is an expansion, so we're not converting a press, we're actually adding a press. So the nature of the products also the nature of the projects themselves can drive some changes in the total cost. Fortunately, the other thing that's inflating is siding price. So the cost of the projects go up, but the returns stay very healthy because we've got pricing power for the specialized product that we're producing at those mills. In terms of timing, as Brad said, some of the items are longer lead time and site agnostic.

And so it makes sense to secure that capacity now because there's not a huge amount of production capacity for some of these specialized pieces of equipment. And we're pretty confident that if we continue to grow at the historical volume CAGR that we've seen over the past several years that we'll have capacity ready In time, minimize the risk of another extended period of a managed order file. Understood. My two last questions and I'll turn it over.

I wouldn't expect it would be a factor since you didn't really call it out, but with shed growing a little bit more quickly this year, is that any kind of impact on the margin trend? Is it would it maybe take a few basis points off of margin because of mix? And then in terms of maintenance, can you remind me, are there any specific cadence factors we should be considering as we're modeling out the quarters?

Yes. On the shed, it would be tends to be lower than average price, but not lower than average margin. So it's not a margin hit, but we would see a pricing hit.

As always, Q4 will be the heaviest in terms of maintenance projects and spending, George.

Yes.

And we've got a few projects this year that are maybe a little larger than normal, but they're in the OSB business, not the Siding business. So you won't see large maintenance projects being a source of perturbation in the Siding margin this year. Yes, knock on wood. Knock on wood. Yes. Thanks very much. Good luck on the quarter. Thanks, guys.

Thanks, guys.

Thank you. And I'm showing no further questions. I would now like turn the conference back to Aaron for closing remarks.

Okay. Thank you everyone for joining us. With no further questions, we'll end the call there. Stay safe and come and see us next week in Vegas and see some of the new products that that we were talking about driving our growth in 2025.

And this concludes today's conference call. Thank you for participating. You may now disconnect.