Louisiana-Pacific Corp (LPX) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Louisiana-Pacific Corporation Q1 2009 results conference call. My name is Mary and I will be your coordinator for today. At this time all participants are in listen only mode. We will be facilitating a question-and-answer session toward the end of this conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call Mr. Curt Stevens, CFO, please proceed.

Thank you very much, and thanks to all of you for joining us on this conference call to discuss LP's financial results for Q1 2009. As the moderator said, I'm Curt Stevens, CFO and with me today are Rick Frost, LP's Chief Executive Officer, as well as Mike Kinney, one of our Investor Relations contacts.

I will begin the discussion with a review of the overall financial results for the quarter, followed by comments on the performance of individual segments and some comments on the balance sheet. Rick will then take over to discuss his perspective on the operating results, and thoughts on the near term outlook for housing. As we've done in the past, we have opened up this call to the public and are doing a web cast. This can be accessed on our website at www.lpcorp.com.

Additionally to help with the discussion, we have provided a presentation with supplemental information that should be reviewed in conjunction with the earnings release. As I go through my comments, I will reference these slides. I want to remind the participants as I usually do about the forward looking statements comment is included on slide two of the presentation. Please also be aware of our discussion of the use of non GAAP financial information included in slide three of the presentation. We have moved the reconciliation out of the presentation to a separate posting on a Form 8K that will be on LP's website, in the not too distant future here. And the reason we've done that is we have included the reconciliation to EBITDA from continuing operations, as we think that's a relevant discussion to have during these times.

I'm not going to reread these statements, but I will incorporate them by this reference. Before I get into our performance for the quarter, I do want to put this into the context of housing activity during this last quarter. The actual number of housing starts and this is just single and multifamily in Q1 2009 was 113,300 units, that's 50% below the same quarter last year. From the peak in the summer of 2005, the annualized housing start rate is off about 80%. Other construction activity, office construction was off 6% Q1 to Q1, and commercial building was off 22% compared to the same quarter last year.

Clearly as one economist has tagged this, we are in the midst of the great recession, not a depression, but certainly much more difficult than past recessions. In Rick's comments, he will provide some insight on the key variables that will lead to recovery in housing and his thoughts on some of the timing.

Then we refer to the presentation of slide four as the discussion of our Q1 2009 results, we are reporting today a net loss for the first quarter of $30 million or $0.30 per diluted share. Net sales from continuing operations was $205 million for the quarter. For the same period last year, we reported a net loss of $46 million, or $0.45 per diluted share on sales from continuing operations of $349 million.

For this quarter, we have opted not to include a slide on the special items, given the immateriality of the amounts. However, I'll briefly discuss these, and they are also summarized on page four of our earnings release.

In this last quarter, Q1 of 2009, we did record an additional, other than temporary investment impairment tied to our AS portfolio of about $900,000, that compares to an $800,000 impairment in Q1 of 2008. We also, this last quarter, did have a small gain on the early retirement of the debt as part of our financing, and we had a net gain of about $4 million related to an insurance recovery and legal fees. In Q1 of last year, we also had a recovery of legal fees from insurance of about $4 million they had a small gain on the sale of long line assets.

With that let me turn to our segments. In OSB, which is slide five of the presentation, we had an operating loss of $24 million in the quarter. This was a substantial improvement compared to the $62 million operating loss in Q1 of 2008. This improvement is directly attributable to the actions that we have taken and discussed with you over the last several quarters to adjust our operations to focus on cash. These action included the indefinite closure now of four steel mills, significant curtailment to the remaining mills to match production to demand, implementation of floor pricing strategies, and reductions of our operating costs.

In the quarter, EBITDA for OSB was a loss of $17 million. On the pricing side, compared to the same quarter last year, pricing was up 14%. On the flip side of that, though, volumes were down nearly 60% due to the mill curtailments, the other market curtailments that we took during the quarter, and this all combined to reduce sales by over $80 million, a 55% decline.

On a quarterly comparison, pricing accounted for about $8 million in improved sales and decreased loss. From a cost perspective, resin and wax per unit were lower by 16% from the fourth quarter of 2008.

Slide six, the presentation is our citing segment. As you recall, this includes SmartSide and Canexel and the small amount of OSB produced in our Hayward mill. For the quarter, siding had an operating income of $2 million, an improvement to the slight loss in Q1of 2008. EBITDA from continuing operations in this segment was $7 million.

For the quarter, sales were down 31% with unit volumes down about the same, in both SmartSide and Canexel. Sales prices were slightly higher in SmartSide 2% up, and down 18% in Canexel, primarily due to the decline in the value of the Canadian dollar as most of our Canexel sales are priced in Canadian dollars.

Slide seven of the presentation is our engineered wood. This segment includes our I-Joists, our laminated veneer lumber and our laminated strand lumber. This segment includes I-Joists and LVL products produced by Abitibi JV under a sales agreement with Murphy Plywood.

For Q1, EWP reported a loss of $9 million. Slightly worse than the loss of $8 million in the same quarter last year. EBITDA was a negative $6 million for the quarter.

Volumes above I-Joists and LVL/LSL were down significantly compared to the same quarter last year, 50% and 30% respectively. This is a direct reflection of the reduced housing activity. Pricing continued to decline due to reduced activity in the imbalance of supply and demand. In LVL/LSL was lower by 14%, and I-Joist pricing was lower by 5%.

Our other building products, while there's no slide, let me make a few comments. Overall, we had a profit of $1.6 million in the quarter, compared to a loss of $2.3 million in the same quarter of 2008. EBITDA was at nearly $5 million for the quarter.

For the quarter, sales were at $29 million, a 25% increase from the same quarter last year. That was largely due to the inclusion of the Brazilian OSB mill in our South American operations. In the quarter, our molding business, US green fiber joint venture, and our South American operations all had positive operating income. This was also the area where we report nonoperating facilities, and we did have about $1 million of cost associated with the maintenance these properties.

A few other things in the quarter, we had a $2.6 million foreign exchange gain in the quarter, compared to a $9.4 million gain in the same quarter last year. Investment income for the quarter was about $5.2 million, compared to $12.8 million in the same quarter last year, a direct result of both the lower average invested cash and lower interest rates in Q1 of 2009.

Interest expense was $11.8 million for the quarter, compared to $11.2 million in Q1 of 2008. This was due to a number of factors, we had no capitalized interest in Q1 of 2009, while we did have $2.6 million in Q1 of 2008, this was offset by the paydown of the Canadian debt in Q4, and the reduction of $2 million in previously accrued interest based upon the closure of several tax years. As a note, we did complete the refinancing on March 10th, and so only had 20 days of interest on the revised amounts. Going-forward, this comparison will not be nearly as positive.

On the Selling General Administrative side. Our total SG&A costs were at $27.3 million, a 32% decrease from the $40 million in the same quarter last year.

On the unallocated side, costs were down over 20%, a $19.1 million compared to $24.2 million.

On income taxes, the effective income tax rate for Q1 was 39%, compare to 44% in Q1 of 2008. The primary differences between the US statutory rate of 35% and the effective rate applicable to our continuing operations, relate to our foreign debt structures, state income taxes and deductible foreign taxes. The difference between Q1 of this year, and Q1 of last year, is primarily due to the lowering of the statutory rates in Canada. LP has utilized all of our be available net operating loss carry back under current law in both the US and Canada. Therefore the 2009 tax losses will be utilized as a deductible net operating loss carryovers in future tax periods.

Slide eight of the presentation is some balance sheet and cash flow information. Cash, cash equivalents investments, and restricted cash was at about $350 million. This is reflective of the financing activities completed in early March and discussed in our SEC filings on a conference call.

Working capital was about $465 million. Net debt of $42 million. Q1 capital expenditures and investments in JVs was about $8 million. The investment in JVs was about half of that, and that was largely for working capital purposes. And book value per earnings share was at $11.27.

With that let me turn it over to Rick for his comments.

Well good morning, everyone, and thanks for joining us on our call today to discuss Q1. In keeping with tradition of my weather report in Nashville, it's a rainy week here this week.

To begin my prepared remarks, I want to start with one of our core values which is safety. I'm happy to report that LP had another excellent quarter from a safety perspective. We have a year-to-date TIR of 0.58 and a rolling 12 month average of 0.68. I'm particularly pleased with these results given the amount of distractions that we were forced to throw at our folks due to the difficult market conditions, with mills running, mills not running, shifting schedules, downsizing crews, and much more. We are continuing to make progress towards our belief that no one should have to get hurt while working at LP.

Shifting now to a business perspective, Q1 was truly, what I would call a nuclear winter, as reflected in our sales volumes. Curt shared the housing statistics with you, as I'm sure others have that you've listened to, so I won't replow that ground. Our operations spent the quarter rebalancing productive capability with the market demand. This included everything from extended outages to indefinite closures to reduced shifts for longer term manning schedules. And these were again another iteration to adjust to a business level below what we expected for the first quarter.

Taking the capacity of what we currently have available to run in OSB this excludes Clarke County, Chambord, and Athens, which are indefinitely shut. We ran OSB at 36% of available capacity in Q1. Our flight based SmartSide mills have now migrated to an indefinite 5-2 running schedule across all of those mills and have reduced manning accordingly.

On a brighter note. Our Roaring River Fine Fiber mill has been the winner of the majority of the Temple Inland business as they exited hard board siding in December of last year. And the additional volume really helped that mill gain stability during the quarter.

In engineered wood products, Wilmington LVL was indefinitely shut early in the quarter, our I-joist plants are running one shift and golden has been right sized to market takeaways. Our LSL mill in Houlton, Maine has only needed to run about one week per quarter under this current demand schedule. And was down 72 days during Q1.

In our South American operations, our new mill Lautaro, is still shut down, but I'm glad to report that Panguipulli is back to running completely full. We have had to throttle back our Brazilian mill and right size our operations there, removing about 38% of the workforce.

Now granted, sales activity was very slow in Q1, but our sales force continues to penetrate the market with new wins. As you know, I define a win as gaining a new customer or an additional product placement with an existing customer. In Q1 we had 695 product wins. Interestingly enough, 20% of those were in our SmartSide trim category.

Some sales highlights for us in Q1 were getting our 12 foot reversible trim into 100 Lowes stores. We also secured the placement of a new fine fiber panel called Redwood at 500 Home Depot stores. We landed several new distributors during the quarter, and we also completed the introduction of a new OSB product called super struck to several furniture manufacturers and this has the potential of 20 million to 40 million square feet for us this year.

It's clear that LP got no help from the market, yet our operating results were quite a bit better than Q1 of '08, so I'd like to give you a bit of a report card on how we did against our priorities, and the operating changes that we made that we discussed in our last call. In terms of the refinancing, as you know, that this is done, and it is now in place, as I said, it certainly cost us more than we would have liked and it took a lot longer, but I'm glad to say that that is now behind us.

In terms of our organizational right sizing on the SG&A side, we are feeling the positive impacts of this very difficult work. Curt mentioned that our total SG&A was down 32% from the same quarter last year. And without the $1 million that we spent on the consent fee as part of the refinancing, this reduction would have been 34%.

Mill operations in OSB, we have four mills indefinitely curtailed at Chambord, Athens, Silsbee and Clarke county, and we reduced the production at most of the others. We did get some benefit from higher pricing Q1 to Q1 about $8 million. But that was only $8 million based upon the low volume. The change in our operations reduced the losses by about another $30 million.

In raw materials costs, we clearly saw a reduction in oil-based resins and other raw materials using Q1 2009 volumes, raw material costs were down $4 million compared to Q1 in 2008 and they were down $10 million compared to Q4 2008. We do expect additional favorable impact in Q2 as these continue to flush through our system.

Capital expenditures in the quarter, we spent about $4 million in capital on small jobs. These were targeted at safety compliance and need to operate projects and obviously required no capital outages to execute them.

On the tax refund side we did collect about $70 million in tax refunds including the federal refund for 2008.

And on asset sales we didn't come up very strong, we didn't complete anything of significance in Q1 while we do have buyers identified and committed for various surplus assets, we did not close any transactions. I am cautiously optimistic that some of these will close in Q2.

Now, I'd like to spend just a few minutes discussing what I think will -- it will take for housing to rebound. I focus on five items. First is the reduction in excess inventory of both new and existing homes for sale. Second is looking for an ebb in the mortgage foreclosure rates. Third is looking for a stabilization of home prices. Fourth is a favorable mortgage rate environment and access to credit. And finally, leveling out of unemployment, and I'd like to make a few comments about each one of those.

In terms of a reduction in inventory of new and existing homes for sale, in March, new homes it for sale fell down to the 311,000 unit level from a peak of 475,000 units in early 2007. This inventory is now less than what we would call historically normal markets. Existing home inventory in March was at 3.7 million units, which is down about 900,000 from its peak. But it's still quite a bit higher than where it ought to run in a normal environment of about 2 million to 2.2 million.

The potential sales rate has been increasing pending US home sales rose slightly for the second month in a row and the excess of new homes yet to be occupied has worked its way down considerably. I think my conclusion there is that we're in a pretty good condition now for new homes yet unoccupied, but we have a ways to go in terms of the sale of existing homes.

In terms of an ebb in mortgage foreclosure rates in Q1 2009, foreclosure filings were 24% higher than the same quarter last year. The recession job losses and consumer confidence aren't helping to state the obvious.

The administration has introduced help for homeowners which is a foreclosure prevention program. The banks appear to be increasingly more willing to modify mortgages to avoid foreclosures as an economic decision. I think my conclusion here is, although some forces are being brought to bear, it's still too early to measure the progress against foreclosures.

In terms of the stabilization of home prices, the latest data suggests that the majority of the plunge is over. I think that there is a little bit more to go, but the slope is certainly less steep.

One thing we do have going for us is favorable mortgage rates, mortgage rates are at a very attractive level with 30-year fixed mortgages at less than 5%. And as a result, refinancings are at very high levels. I think the fed actions that we're observing, will likely keep rates low the rest of this year, anyway.

The banks insist that they are open for business, however problematic appraisals have become more realistic and they are asking for higher down payments and higher credit scores which have limited qualification. The stimulus bill did provide an $8,000 credit for first time home buyers, which I think will help. My conclusion here is, is that mortgage rates are very attractive and they should act as a stimulus to demand, slightly offset by access to credit.

Leveling out of unemployment which perhaps is the most important variable at this time in my opinion, we had 663,000 jobs were lost in March compared to 551,000 in February. I think we've lost about 5.1 million jobs in the last 15 months in this country.

Manufacturing and construction occupations accounted for 44% of the lost jobs in Q1. Unemployment rate increased to about 8.5% in March. I think the forecast calls for that to level out in Q4 to Q1 at about 9.2 to 9.5%. An average workweek has reached a new recent low of only 33.2 hours. That's not my current workweek, but it sounds pretty good. In conclusion there, is that I'm thinking Q1 of '10 before we actually see unemployment stabilize and begin to change directions.

So with that as a backdrop it does beg the question, when will it get better? It feels to me like we hit the bottom in February, and that's the consensus of my LP management team as well. Of course, to be somewhat candid, that's what I said before the banking crisis in September of last year, so we'll see how that works out.

I can't say that it was a lot better in March, but it was certainly less worse than February and March. Anecdotally we did have an internal sales council meeting last week, and for the first time in a long time, all of LP's channel managers which look after the big builder, the home centers, the distribution and pro dealers, did have a few more positive comments around what was going on. It feels to me like Q2 will only be slightly better than Q1. And I think that most of that will be felt in the month of June, the last month of the quarter. But I do think we will see a modest seasonal lift in Q3

Our focus for the next quarter will be on those things that we can control and impact with more certainty. Obviously, safety, quality of product, and service, and compliance. We will have to continue to adjust production to demand levels, we will be driving manufacturing and operational costs down further and we will keep driving for new business and new wins. And, of course, continue to manage LP for cash.

So, in conclusion of my prepared remarks, I will remind you that LP will hold its annual meeting of shareholders on Thursday, May 7th, here in Nashville. For those of you who are shareholders you are welcome to attend. Also, I would like to remind any shareholders that listen to this call, that we do have four proposals that will be voted on at that meeting, and I would personally like to ask for your support on all four of those. They are important to help me complete the task of sheepherding LP through this downturn. So please vote "for" on all four of the proposals that are up this year.

With that, let me turn it back to Curt and open up the call for questions.

Thanks, Rick. Mary if you could give instructions and start the questions.

(Operator Instructions) Our first question comes from the line of Gail Glazerman UBS.

Hi, good morning.

Good morning.

You're obviously doing a great job, given the environment, with the operating improvements, I'm just wondering is the first quarter, given the actions you've taken about as good as it can get in terms of taking costs out of the system? Or would there be carry over that would effect moving into the rest of the year?

I think we've got a little bit more to flush through in Q2, based upon the actions that we've taken recently in Q1 in terms of our operating costs. And then I wouldn't look for tremendously significant differences in SG&A. We continue to look for what we call the onesies and twosies, taking advantage of attrition, continued pairing of programs or activities that don't appear to be working, but that would be my analysis of that, Gail.

Okay, and in terms of the future improvement, would that be focused in any particular segment or across the board?

Well, we're going to see raw materials continue to flush through. We got some impact of that in Q1, but obviously, with the volumes down so low, when we replenish, inventories at these new prices that we had some carryover from last year, that will be the majority of it, and then the changes, recent changes that we've made across the businesses and some of our manning schedules, I think we'll see a full quarter's implementation of that as well.

Okay. I'm just curious, have you done any analysis of the risk, I guess, to how much material would be used in each housing start moving forward? It seems like builders are talking about kind of shrinking to the market environment, do you think that would be material impact on OSB consumption for start moving forward?

I think it will have some effect which will offset some of the increased usage of some of the products. I think we're having a big debate here on whether this is a short-term phenomenon or whether we really see the square footage of housing go down. So, I don't have any numbers to share with you, because we're in the process of debating the different forecasters opinions about that and coming up with our own conclusion. What I will do is jot that down, and in a subsequent call try to give you an opinion on that.

Okay. Thank you very much.

Gail, the only thing I would add to that, is the resell forecast is for a very slight decline. So they don't have a major decline in the use of building materials.

Thank you.

Your next question comes from the line of Richard Skidmore from Goldman Sachs.

Good morning, Curt and Rick. Just a couple quick questions for you. The amount of indefinite capacity that's off at those four facilities and what's your current capacity in OSB?

What we've got down indefinitely are Athens, Chambord, and Clarke County, and then of course Silsbee was taken down a couple years ago, Clarke County we rated at 750, Chambord we rated at 440, Athens at 375, and I think Silsbee was a 280 mill. So that would leave us, what I'm saying is, our current capacity that's available to run is 4.6 billion including Peace Valley.

Okay. And then secondly, Rick, could you just comment on the asset sales, you mentioned that you didn't do -- close anything in the first quarter, can you just comment on what's in the asset sales in terms of the assets themselves? And did you provide any guidance before on what you thought that could be in terms of total proceeds?

I think when we did our bond deal and we talked to -- everybody kind of came out there, we thought we'd do somewhere over 30 million in asset sales this year, and then on the last call, I was asked, is there any more, and I said, there's an opportunity for that again. So that gives you a ballpark number there, we have not talked specifically about which assets they are, they are nonoperating assets. Things we no long he have a need for.

And most of these things kind of got hung up in this banking crisis, where people were ready to go, and then either they had a backer that slowed down a little bit, or some money fell through, and so we've been nursing some of these things along until people could adjust.

Okay. And then maybe just coming back --

That gives me the optimism that we may get some of them done in this quarter, as we've been nursing these along a while. And people are starting to adjust to the environment that they're in, and I think they're going to come up with the capability of moving ahead.

Okay, and then maybe just one other question, coming back to the OSB capacity, you mentioned the relatively low operating rate in the quarter, does it make sense to do the rolling downtime that you've been doing? Does it make more sense to take another facility or two out indefinitely and further consolidate, or is the transportation savings or the transportation costs too high?

We're arguing about that every week. And I'm anticipating more volume of OSB being sold in Q2 and Q3 than what we ran in Q1. So, regionally with the manning schedules that we've got put together right now, we're relatively balanced, and if we take something out of a particular region right now, it doesn't appear to save us a lot of money when you throw the severance costs in there.

Okay.

So what we've got to do is -- and, of course, we also have some mills with full wood piles, so if you think about the notion of managing for cash, when you've already got your wood inventory bought, that is a factor that plays into managing for cash as well.

So I think probably over the next 4 or 5 months, we will be looking and trying to come up with a conclusion of what's actually needed next year in terms of -- in North America for OSB consumption, and probably the state like it is today, we would have to do some additional work.

Thank you.

Your next question comes from the line of Chip Dillon of Credit Suisse.

Yes, good morning.

Good morning, Chip.

If you could, first of all, review with us, I think the two big products in the last cycle were Houlton and Clarke county. I believe the costs were, if I have this right about 160 for Houlton and about 200, 220 for Clarke County, is that right?

Well, you're close. It was about 240 for Clarke County and about 140 for the improvements at Houlton.

Okay, and in terms of the Clarke County mill that's not running, I'm just curious, obviously it's the newest equipment. Why would you not run that, since it's new, and instead run -- instead take downtime somewhere else, are there other factors like the wood costs there, or the experience of the workforce?

The decision we made there is, we did start that mill up last year in the April/May time frame, and then we had the fire there, and had to make improvements, had to repair that. The decision we made when the repairs were done, because we were ready to start that up, is we looked at the cash that would be required to start that mill up, because when you do start a new mill, it does have a learning curve to that mill, where you've got less than the appropriate level of A-grade products, you have down grade products you have to sell for a lower price. You have the learning curve of the workforce, and then you have the modifications that you need to make to the equipment as you get the running experience.

So the decision we made, is we looked at the amount of cash that it would, and this is just cash, we look at the cash it would take to get through 2009. So starting it up in September 2008, getting through 2009 and compared that to the cash that would be created by shifting that production to our existing mills, and made the determination that we weren't going to bring that mill up.

Okay. And when you look at the Houlton facility, now, you mention -- are you -- is the same sort of principle there, is that why you're running that just one week a quarter?

Well, the principle there is, we retooled Houlton and made the improvements to run laminated strand lumber, what we have certainly discovered is introducing a new product into a declining market as a tough thing to do.

So we sold very little volume out of that mill last year, we had seen a pickup in Q1, in fact part of the reason why our average sales price and the combination of LVL and LSL is down is because we sold the lower price LSL which is the expectation all the way along. So we are getting some acceptance in the market, but we found that to be very difficult to get our dealer network to put new inventory on the ground of a new product.

Okay. And one quick follow-up on Clarke County. Are you under any obligation to either start that up by a certain date or pay back some incentive money to Alabama or the County?

We actually disclosed that last call, we have worked with the county and the state. And we have an agreement with them where we are providing a small amount of cash compensation to extend the employment requirements that we had in that agreement.

And how long was that extended by?

We extended it for up to 8 quarters.

Okay. And then last question. Curt, you mentioned in the beginning that something wouldn't be as favorable going forward, was that the capitalized interest going down? Is that what you were referring to or some other financial item this?

No, I was referring to the expensive debt that we put in place.

Oh, interest expense, got you. And can you give us a rough estimate? I think that was issued I think right as the quarter was ending if I'm not mistaken.

It was March 10th, we had 20 days that we accrued interest.

Okay, so what would be sort of a good guess as to what interest expense might be in the subsequent quarters?

I think what you can look at is about $45 million to $46 million per year.

Okay. All in? And that includes, that's just on the expense side?

Right, that's on the expense side.

Okay, great. Thank you.

Your next question comes from the line of Claudia Hueston JPMorgan.

Hi, thanks very much. Good morning.

Good morning.

I was hoping you could just provide a little bit more color on the input cost side, what you're -- are you seeing much relief in wood fiber costs? I don't think you talked too much about that, so if you could just put a little bit more color on that, that would be be helpful. And then secondly if you could just maybe comment on how lower costs might play into expectations for working capital for the rest of the year? Thanks.

On the wood side, if we compare to Q1 of 2008 it was slightly positive, about $1million positive. But, if you compare it to Q4, it was actually about $3 million positive on the wood. And then the remainder of that improvement, $3 million improvement from Q1 of '08 to Q1 '09 was on anything that had to do with oil, so that was our MBI our PF and our wax, principally.

We did see an increase in electricity costs, because electricity hasn't come down in any of the areas we operate. So that was about $1 million increase. From the sequential quarter, looking back to Q4, again, $3 million in wood, and about $7 million in the resin based materials.

And as Rick said, it would have been more than that in Q1 had we run more volume. But what we had is, we had the inventory -- we had inventory coming into the quarter of resins that would set the higher pricing. So when we go into Q2, we should see an improvement in that.

We also expect to see an improvement in wood given the decline on the pulp and paper side. And we are seeing that in some of the activities that we're running in our forestry group right now.

Thank you. Our next question comes from the line of Peter Ruschmeier of Barclays Capital.

Thanks and good morning.

Good morning, Pete.

Couple questions. Your siding results in a difficult environment I thought were better than I was expecting. Anything unusual there? I would think that going forward, at least seasonally, I would think that pricing volume cost trends would be at worst flat and might be better, which would imply even better results at a siding over the near term. Is that reasonable or is there something else going on there that helped 1Q?

Well the biggest improvement was, as you remember, Temple got out of the business in December, and we were able to take significant volume into Roaring River which lost a lot of money in the first half of last year. And that's our biggest peace, of course, you know that the pricing is flat to slightly up. So we haven't taken a hit in pricing there. Volumes are down, and we're reasonably optimistic about that right now. We've had -- after a very very slow first quarter, a reasonable up tick here in the last month, and so, yes, I think you've come to the right conclusion there.

The new panel at Home Depot.

Yes, and then some of the impact, potential impacts of the new panel, we think we have a winner on this Redwood panel that we're putting into depot. 500 stores is pretty significant.

Okay. And any help can you offer on end market breakdown there, and I mean I presume it's mostly residential, but I would think there's some non-res commercial stuff in there as well. Anything you can offer up on that side?

Not too much commercial. It's basically res and then you get a lot of that in out buildings, like sheds, barns, et cetera.

Okay. That's helpful.

Multifamily as well. That's a reasonably good success for us as well. That's where we're making quite a bit of penetration.

And we also have quite a bit of success in manufactured housing. Now the manufactured housing volume was way down, but the advantage of using the SmartSide panel there, is you don't have to use a substrate behind it. You use that as the panel.

Okay, good. Shifting gears if I could to OSB, if we exclude the mills that are down, I'm curious if your US and Canadian assets are running at similar operating rates, and given the decline in the Canadian dollar, is your profitability starting to give back to parody between the US and Canadian mills?

You know, it's pretty evenly split on operating rates between Canada and the US Obviously the dollar going the way that it did helped take one of the disadvantages that we had about having so much production out of there, the problem is, is a lot of that Canadian volume is sold into the most distressed OSB market in terms of pricing. Which is the west. So they're kind of offsetting each other.

Okay. And just lastly if I could, I'm curious if you can share any comments on the local demand trends, I'm thinking offshore now, local demand trends and share trends for your OSB business in both Chile and Brazil?

In the first quarter, we sold about 15% of our OSB production that was made in Chile outside of Chile. The majority of that was to adjacent South American countries.

I think in Brazil that number was slightly smaller. In terms of what we're doing down there, we are trying to export in both directions, and then one of the strategic decisions that we'll have to make here in the next three or four months is to decide whether to restart Lautaro which has a wood pile full of wood, we've got about 30,000 cubic meters of wood down there, or to actually run a little bit more production in Brazil and bring that over to feed the Chilean market.

So, exports obviously have slowed because of the global nature of this recession. But we are getting about 15% of our volumes sold outside of the countries that it's manufactured. I think that amounted to about 10,000 cubic meters last quarter.

Okay, and I'm sorry, Rick, just in terms of the local market, though. Is OSB penetrating its share of wood product consumption?

Tremendous success in Chile. And also that economy hasn't been hit quite as hard as Brazil. So, obviously we had a big tank in Q4 in Chile, and then now as I said Panguipulli is running back full, and we're actually needing a little bit more volume. The pricing has come back about 20% for us in Chile as well, which is-- makes all the difference.

Now, in Brazil, our plan there was to try to replicate what we've done in Chile, and we're just in the infancy stages of that. And it's difficult to do that in the economy that they have in Brazil now. We did attend and display at the largest building show in Brazil about six weeks ago now. Something called EICON, I don't know what that stand for, but the idea of the way that we build in Chile with our building products, it was the largest attended booth at a very large builders show, so we're very excited about the introduction of the idea.

There is also a housing stimulus program designed-- or in place in Brazil now, which I think is about $4 billion to try to address some of the socialized housing needs and we're hoping that we can get some of our designs approved for that. It's pretty slow, and particularly with the state of the Brazilian economy it's being affected worse than Chile.

Okay. Very helpful. Thanks very much guys.

Your next question comes from the line of Steve Chercover D.A. Davidson.

Thanks, good morning.

Hi, Steve.

Two quick questions, please. First of all, have you guys been monitoring the log decks at any of the other northern mills, and do you have any sense that some of them just didn't put in a log deck for the year and therefore there's no way they're going to produce this summer?

We have been monitoring it, and I think the question is, that the pricing that we've had over the last several months in Western Canada, when those decks are gone, what's going to have to happen to pricing, because pricing will have to go up.

So put another way. If it was your mill, if prices for the end product don't move up, you would not be replenishing those decks?

That would be a fair conclusion. I think what Rick said, is we're looking at that every single week, where we expect pricing to be compared to what the input costs are.

Okay, and I hope this one doesn't sound silly, but is there any chance you could add a little bit of diesel to your hog fuel and now get some credits?

I've been talking to our engineering -- our VP engineering about that for a long -- isn't that ridiculous?

It's crazy but it's consistent with fiduciary duty to get the money, but.

I think I'll buy some oil back.

All right, so there's just no chance?

All right they call it liquid, so it doesn't work in bark burners. Bark burners produce the energy, but we're not getting credit for it because it is defined as a liquid.

Maybe you could put some coal in there. All right, thank you very much.

You bet, thank you.

Thank you, there are no other questions at this time. And I would like to hand the call to Curt Stevens for closing remarks.

All right. Well, thank you again, and as always, Becky and Mike are available for follow-up questions, I appreciate your participation, and Mary if I could ask you to give the replay information, just so that's available? And with that, thank you.

Thank you for your participation in today's conference, this concludes the presentation and you may now disconnect. Have a great day.