Louisiana-Pacific Corp (LPX) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter Louisiana-Pacific Corporation earnings conference call. My name is Brittany, and I will be the operator for today.

(Operator Instructions)

At this time, I would now like to turn the presentation over to your host for today, Executive Vice President and Chief Financial Officer, Sallie Bailey. Please proceed, ma'am

Great, thank you very much, Brittany, and good morning. Thank you for joining our conference call to discuss LP's financial results for the fourth quarter of 2013, and year-end results. I am Sallie Bailey, LP's Chief Financial Officer, and with me today are Curt Stevens, LP's Chief Executive Officer; as well as Mike Kinney and Becky Barckley, our primary Investor Relations contacts.

I'll begin the discussion with a review of the financial results for the fourth quarter of 2013, and the full year of 2013. It will be followed by some comments on the performances of individual segments, and selected balance sheet items. After I finish my comments, Curt will discuss the general market environment in which LP has been operating, provide his perspective on our operating results, give some thoughts on the outlook for 2014, and provide an update on the status of the acquisition of Ainsworth, and the 8-K which was filed this morning.

As we have done in the past we've opened up this call to the public and are doing a webcast. That webcast can be accessed 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. I will be referencing these slides in my comments this morning. We filed an 8-K this morning with some supplemental information, and anticipate filing our 10-K at the end of the month.

I want to remind all the participants about the forward-looking statements comment on slide 2 of the presentation. Please also be aware of the discussion of our use of non-GAAP financial information included on slide 3 of the presentation.

The appendix to the attached presentation has some of the necessary reconciliations that have been supplemented by the Form 8-K filing we made this morning. Rather than reading these two statements, I incorporate them with this reference.

2013 was a year of strong performance for LP. The housing market continued to show improvement, single-family and multi-family housing starts were 923,400 in 2013, an 18% improvement over 2012. LP's net sales increased 23% in the same time period, and adjusted EBITDA increased to $330 million, a 65% improvement.

With the improving market as a backdrop, let's review LP's performance in greater detail. Please turn to slide 4 of the presentation for a review of the fourth-quarter 2013 and full-year results.

We reported net sales of $480 million for the fourth quarter of 2013, a 6% increase from the net sales reported for the fourth quarter of 2012. In the fourth quarter of 2013, we reported a net loss from continuing operations of $19 million or $0.14 per diluted share, compared to income of $59 million or $0.34 per diluted share for the fourth quarter of 2012.

We recorded a tax benefit for the fourth quarter of $10.5 million. The main driver of our tax benefit was the release of valuation allowances during the quarter, primarily related to our Canadian operation. The adjusted loss from continuing operations for the quarter was $7 million or a loss of $0.05 per share, based on common normalized tax rate of 35%, compared to income of $26 million or $0.18 per share in the fourth quarter of 2012.

Adjusted EBITDA from continuing operations was $24 million in the quarter, compared to adjusted EBITDA of $71 million in the fourth quarter of 2012. On a year-to-date basis, we recorded $2.1 billion in net sales, $177 million in net income, and earnings-per-share of $1.23, as compared to net sales of $1.7 billion, net income of $30 million, and earnings-per-share of $0.20 for 2012.

The GAAP tax rate for 2013 was 20%. The lower tax rate is primarily due to the release of the valuation allowances. On a non-GAAP basis, we recorded adjusted income from continuing operations of $129 million, earnings-per-share of $0.90, based on a normalized tax rate of 35%, and adjusted EBITDA of $330 million, an increase of $130 million over 2012.

I will now move to slide 5 and a review of our segment results, starting with OSB. OSB recorded operating profit of $7 million on $230 million of sales in the quarter, compared to operating profit of $58 million on $243 million of sales in the fourth quarter of 2012. For the quarter, we recorded an adjusted EBITDA of $23 million, compared to adjusted EBITDA of $68 million in the fourth quarter of 2012.

Our volumes were higher by 17%, as we bought back production at both the Dawson Creek, British Columbia mill and the Clark County, Alabama mill. Pricing for OSB was down 20% over the fourth quarter of 2012. Random lengths North Central 716 pricing was down 26% over the fourth quarter of 2012.

The decline in pricing was the most significant intruder to the lower OSB performance, almost $55 million. As we've indicated in the past, our pricing percent change tends to stay above random lengths in the market with falling prices, and our pricing percent changes tend to lag in markets with improving prices. Higher volumes help to offset the negative impact of the lower price.

For 2013, OSB had an operating income of $230 million, compared to $124 million in 2012. Adjusted EBITDA for the comparable period was $285 million, compared to $166 million in 2012.

The impact of pricing between the years was $170 million, and accounted for the majority of the change. The remaining difference is due to higher raw material cost and costs associated with starting up our Clark County and Dawson Creek mills.

Moving to slide 6, which reports the results of our siding business. This segment includes our SmartSide and CanExel siding products, and commodity OSB produced in our Hayward mill.

The siding segment reported sales of $138 million in the fourth quarter of 2013, an increase of 19% from $117 million reported in the fourth quarter of 2012. The siding segment reported operating income of $16 million compared to $11 million in the fourth quarter of 2012, and adjusted EBITDA of $20 million, an increase of $5 million compared to the fourth quarter of 2012. Reductions in OSB pricing lowered our results by $6 million in this segment, compared to the fourth quarter of 2012.

For the quarter, SmartSide average sales prices were up 4%, and volumes increased 20%. Volume increased in our SmartSide siding line due to continued penetration in several key focus markets, including retail, repair and remodel markets, and sheds.

Improvements due to higher volumes in prices were somewhat offset by higher raw material cost, resins and overlays, as well as additional sales and marketing expenses. CanExel prices were flat in US dollars, were up 3% in Canadian dollars, mostly related to mix, and CanExel volumes were down 9% in the quarter.

On a year-to-date basis, the siding segment reported $574 million in sales, $86 million in profit and $103 million in adjusted EBITDA. For 2012, the siding segment reported sales of $501 million, profit of $67 million, and adjusted EBITDA of $83 million. The improvement from 2012 was driven by increased volume of 15% in SmartSide and higher sales price, and about $6 million related to improved OSB pricing.

Please turn to slide 7 of the presentation, which shows the results of our engineered wood products segment. This segment includes I-Joists, laminated strand lumber, laminated veneer lumber, plus other related products. This segment also includes the sale of I-Joists and LVL products produced by the Abitibi joint venture, under our sales arrangement with Murphy Plywood.

The engineered wood products segment recorded sales of $72 million in the fourth quarter of 2013, up from $52 million in the fourth quarter of 2012. This segment's operating loss in the fourth quarter of 2013 was $4 million, as compared to a loss of $5 million in the fourth quarter of 2012. For the fourth quarter of 2013, adjusted EBITDA from continuing operations was breakeven, as compared to negative adjusted EBITDA of $2 million in the fourth quarter of 2012.

Volumes in I-Joists were up 36%, while volumes of LVL and LSL were up 24%, compared the same quarter last year. Pricing was up 8% in I-Joists and 3% in LVL and LSL, reflecting price increases in all product lines, introduced to offset rising raw material costs.

On a year-to-date basis, engineered wood products reported net sales of $268 million, a loss of $14 million, and negative adjusted EBITDA of $1 million. In 2012, engineered wood products segment reported net sales of $213 million, a loss of $14 million, and negative EBITDA of $2 million. Sales volumes in I-Joists were up 17%, and volume for LVL and LSL was also up 17%.

Moving to slide 8 of the presentation. For the quarter, our South American segment reported sales of $41 million, compared to $42 million in the fourth quarter of 2012. Operating income declined to $2 million in the fourth quarter of 2013, compared to $7 million in the fourth quarter of 2012.

South America's adjusted EBITDA from continuing operations was $5 million for the fourth quarter of 2013, compared to $10 million reported in the fourth quarter of 2012. Volumes in Chile were down 7%, while volumes in Brazil were up 16%, compared to the same quarter last year.

The sales volume decrease in Chile was primarily due to increased availability of imported products, which compete with our locally manufactured products. In Brazil, the higher volume was due to increased export sales, as well as continued penetration of local markets, as compared to the fourth quarter of 2012.

Pricing was down 6% in Chile, and up 2% in Brazil. In local currency, Chile recorded an increase of 6%, and Brazil recorded a 12% improvement in pricing.

For 2013, South America recorded net sales of $172 million, profit of $20 million, and adjusted EBITDA of $31 million. In 2012, South America recorded net sales of $169 million, profit of $18 million, and adjusted EBITDA of $30 million.

Our other building product segment includes other non-operating facilities. Overall, we are about breakeven in the fourth quarter of 2013, which is slightly better than the fourth quarter of 2012.

Operating results for 2013 were a loss of $6 million, as compared to a loss of $9 million in 2012. This improvement in operations reflects the sale of our interest in US GreenFiber, which occurred during the fourth quarter of 2013.

Total SG&A costs were $47 million in the fourth quarter of 2013, compared to $36 million in the same quarter of 2012. In 2013, SG&A costs were $150 million, compared to $128 million for 2012. The increase in SG&A costs is primarily due to higher costs associated with our systems upgrade project, sales and marketing expenses, as well as costs associated with the proposed acquisition of Ainsworth.

We recorded a $2 million foreign exchange loss in the quarter compared to a $400,000 loss in the same quarter last year. For 2013, we recorded a loss of $5.3 million, compared to $2.7 million loss in 2012.

Included in our operating income for the fourth quarter of 2013 were other operating charges and credits totaling $12.9 million. The biggest driver of these charges related to an increase in our CanExel warranty reserve, related to continuing claims for product sold during the 2003 through 2009 time period.

Net interest expense was $6 million in the quarter, compared to $10 million in the fourth quarter of 2012. This reduction was primarily related to the lower interest expense recorded due to the refinancing, as well as lower amortization related to our deferred debt expense. For 2013, net interest expense was $26 million, as compared to $35 million in 2012.

During the fourth quarter of 2013, we realized a non-cash loss of $1.5 million related to the early debt extinguishment charge, associated with the refinancing of our credit facility. In the fourth quarter of 2012, we realized a $20 million gain on auction rate securities settlement.

Please turn to slide 9 of the presentation. As of December 31, 2013, we had cash, and cash equivalents in investments, and restricted cash of $672 million.

We had working capital of $868 million, and net cash of $297 million. We generated $20 million of operating cash flow in the quarter, and $243 million of operating cash flow in 2013.

We are planning to spend approximately $100 million for capital expenditures in 2014. Approximately $50 million relates to capital maintenance and productivity improvement projects.

The remaining $50 million is targeted towards projects such as the press rebuild of our Roxboro mill, the expansion of our Tomahawk siding mill, and the third mill in Chile. With that, I'll turn the call over to Curt for his comments.

Thank you for that review, Sallie. I know that you folks on the East Coast are suffering through some bad weather.

I will tell you it is nice in Nashville today, we did skirt the storm, it missed us, went south about 30 miles. So it was pretty close, but we didn't have any problem. I hope you are all being able to stay warm.

While Sallie provided her comments both on the fourth quarter and the full year, I'm going to limit my comments to our accomplishments, and some of the challenges we had in 2013. I'll talk about the current state of the housing market, give you an update on the Ainsworth acquisition, and give you my views on what is ahead for 2014.

LP ended the year at a total incident rate from a safety perspective of 0.54. This is the eighth euro where our safety performance has resulted in a total incident rate below 1.0.

While we shall be understandably proud of this accomplishment, I am personally saddened that we did have a death in Brazil earlier, last year. This is a constant reminder to all of us that we can't let up on our safety focus, for even a moment.

2013 was a good year by almost any standard. As Sallie said, sales were up 23%, adjusted EBITDA was higher by 65%, and our adjusted earnings per share almost doubled, compared to last year. We set volume sales records in many of our product lines, despite housing starts being at the 925,000 level -- SmartSide sliding, TechShield Radiant Barrier, our TopNotch high-performance flooring, laminated strand lumber and more.

We prepared for the housing upturn by restarting production at two of our facilities, we completed the acquisition of the Peace Valley OSB mill, and we announced a transaction to acquire Ainsworth Lumber Company. As Sallie mentioned, we did launch a year-long effort to upgrade our IT systems in North America to a common ERP platform.

We did go live on January 1, on-time and on budget. Progress is being made everyday as our employees become more familiar with the system, and we take care of any bugs in the software.

This has been a massive effort, and I can't say enough about the dedication of LP employees, and the team from our integration partner. I'd also like to thank our customers and vendors for their patience, because there have been a few hiccups along the way.

Towards the end of the year, we restructured our sales and marketing organization to deepen our relationships with key customers, and to allow greater market segmentation, so that we can be responsive with the right products and support. I'm very pleased with the progress we've made over the last month, has been filling key roles and rearranging responsibilities. Both our shareholders and customers should benefit from these positive changes.

So, what's going on in the housing market? Here are some opinions, based on my review of the data, discussions with our customers and builders at the International Builders Show last week in Las Vegas, conversations and presentations of the Policy Advisory Board meeting earlier this week at the Harvard Joint Center for Housing Studies, and comments made by our sales force during our international sales meeting in January.

There is definitely momentum in the housing market, as both single-family and multi-family housing starts were higher last year than the prior year. There was nearly a 20% increase in 2013, and an additional 20% increase is forecast for both this year and next year.

The single-family segment is still focused on more affluent buyers, as evidenced by the average square footage being the highest ever. However, as I'll talk about later, we do need the first-time homebuyer to participate in this recovery.

Despite weather challenges in many parts of the country in January, many of our channel partners had a better January this year than they did in January of last year, and they all say there's pent-up demand that will accelerate activity when the weather does break. Builders are optimistic about 2014, with the number of exhibitors at the International Builders Show was up about 20%, and I believe that attendance was probably 30% to 35% higher than last year.

At the Policy Advisory Board of the Harvard Joint Center for Housing Studies, earlier this week, a couple of insights from that meeting. The general mood on the market was upbeat, and lots of comments on pent-up demand. Consensus estimates from this group were also in that 1.1 million start range for 2014.

There's still a strong belief that the first-time homebuyer is unlikely to participate, until there is more job growth and an increased availability to financing. There was a general feeling that the price increases experienced across the country in 2013 will moderate, in all but the best markets.

Builders continue to be concerned about labor shortages, both skilled and unskilled workers, and most participants were calling for immigration reform as a means to ease some of this tension. We spent an entire morning discussing housing finance reform with a variety of leaders in Washington. There does not appear to be much confidence that Congress will pass any reform on the government-sponsored entities, Freddie Mac and Fannie Mae, that back mortgages.

On the residential mortgage reform, the Safe Harbor for the qualified mortgage has finally been issued by the Consumer Financial Protection Bureau. But, based on the discussions at the meeting, it doesn't look like these 11,000 pages of related rules have made more credit available for borrowers, or reduced any of the administrative burden at the banks.

Now, let me take a few moments and give you an update on where we are with the Ainsworth acquisition. As Sallie mentioned, we did issue an 8-K today with a joint release.

Since entering the arrangement agreement last September, LP and Ainsworth have both made initial and supplemental filings with the Department of Justice, Canadian Competition Bureau and under the ICA review process in the Investment Review Division of the Ministry of Industry in Canada. LP and Ainsworth have engaged in a number of face-to-face discussions, along with other communications through theses agencies.

We continue to cooperate fully to aid the review of the proposed acquisition. Both of us are eager to complete the acquisition, and are doing whatever we can to aid the agencies to complete the reviews as quickly as possible.

In order to facilitate the continuation of our dialogue, we and Ainsworth have agreed not to consummate the transaction before March 13, 2014, to allow the agencies more time to continue their review. In connection with reaching this agreement with the agencies, we and Ainsworth have amended the arrangement agreement to extend the outside date for the completion of acquisition.

We continue to refine our transition planning for the integration, but are really in a holding pattern until we get the necessary government approvals. We are excited to hit the ground running.

Clearly, gaining regulatory approval has taken much longer than we originally anticipated. I am certain that all of you would like a lot more detail about the discussions we are having with regulators, but as I am sure you can all appreciate, we really are not in a position to discuss any of this much further at this time. So, I would appreciate if you would give Mike and Becky a break and lay off until the middle of next month, when we should know a little more.

As for the outlook for 2014, I remain optimistic. As I said, the consensus forecast for the year is a little over 1.1 million housing starts, almost a 20% increase from last year. For 2015 the consensus is nearly 1.4 million, another 22% increase.

The inventory of new homes for sale remains very low, at about 130,000, and existing homes for sale stand at just over 2 million, about a five-month supply. This has fostered price increases that average 13.6% on a year-over-year basis.

The overall economy is improving, as shown by the strong 4.1 real GDP in Q3, and a forecasted real GDP growth of 3% in 2014. Plus the employment picture is improving.

In the first week of January, as we mentioned we had our sales meeting here in Nashville. It was exciting for me to share the successes of last year, and hear about their growth plans for the coming year. The internal reorganization I talked about a few minutes ago should accelerate our penetration into key markets and customers.

So, for this quarter, there are a few things that we have on our plate to accomplish. We want to continue to make progress with the regulators, so we can get the Ainsworth acquisition done, we need to continue the stabilization of our ERP system that went live on January 1.

We have a bit of a recovery to accomplish due to the aftermath of the various polar vortexes. We had several mills that were forced to take downtime due to a shortage of propane and natural gas. In addition the rail service in Canada so far has been abysmal, and has caused us to take a significant amount of downtime in our mills, as we simply ran out of space to store the OSB we were producing.

In Q1, we did schedule a fair amount of downtime related to capital projects. I'm pleased that our folks were able to complete the Roxboro press rebuild upgrade and the replacement of the environmental system at Carthage, on time and on budget in January. Next up, later this month is the doubling of capacity at our Tomahawk SmartSide siding plant, that will begin soon.

LP is ready to serve a growing housing market, and we are looking forward to the increased activity. With that, let me turn it back over to Sallie for questions-and-answers.

Great, thank you, Curt. Brittany, we are ready for questions, if we could go to the queue.

(Operator Instructions)

Mark Connelly, CLSA.

Two things. At looks like your overall costs, especially in OSB, are in pretty good shape. And obviously Q1 is going to be bumpy, but do you have a view on the broader view for 2014?

And secondly, this is a bigger picture question, are we seeing any shift in the siding market between vinyl and composites and shingle? We keep hearing that multi-family is playing a different role, that McMansions are different now. Are you seeing anything that you think is going to change your market position there?

Let me respond to your second question first, then I will come back to the other one. From a siding perspective, as I mentioned, we had record volumes in our SmartSide siding in 2013, despite housing starts being at 925,000.

We take that as a very meaningful market penetration, probably a little bit against vinyl, but more specifically against fiber cement. So I think that's been principally where we've seen market share gain.

As you know, vinyl has preferences in various parts of the country and remains the leading choice for repair remodeling, because you can put it over existing siding. So we're very pleased with the progress we're making, and we're making not only in new construction, but we're also having some success in multi-family, a lot of success with non-residential structures like sheds, and a strong retail business. But I'll let Sallie answer the cost question.

Yes, on cost for next year, I think we certainly are monitoring wood, and I think we would anticipate some increases in some of our would costs. On the raw materials, plus or minus, some increases, primarily related to the resin wax area, and possibly energy.

But it's less than 5% change in that. Where we are going to get some improvements in our cost position is the mills that we started up last year that weren't fully utilized, as we have more demand for that product, and produce more product, we'll get the absorption there, and so it should bring down our overall cost of production.

Okay so no meaningful headwinds there? Great. Thank you very much.

Gail Glazerman, UBS.

I guess, maybe to the last part about the mills, can you just give an update, the mills that restarted, can you just give an update in terms of where you are with Clark County, just in terms of utilization? And also are you still seeing incremental start up cost, or have you finally moved past that?

And while talk about Clark County, last quarter, I think you referenced the potential to benefit as IP shut their Portland mill. Have you started to see, in terms of wood costs, have you started to see any benefits there?

Let me talk about Clark County first. Clark County is improving, we are about on our plan for the first quarter so far. That has production ramping up for the year.

I think we need average about $1.5 million for the year a day. We've had days we've done better than that in the first quarter, so that mill continues to make progress.

In the fourth quarter, we did have higher cost in that mill, and we also had some downgraded product that cost us a little bit, so our costs were higher in the fourth quarter. But I'm happy with the progress we are making, making now.

As far as the wood costs, the shutdown by IP affects more of our Hanceville mill. And we have seen some relaxation of pressure on wood in that area.

Okay, and can you just give some perspective as to how you think your customers are positioned this year for the building season, and maybe compare it to how they were positioned last year at this time?

Well, the anecdotal information from our sales people and our partners that we talked to of the builders show is there are very lean inventories right now. Part of that is our own doing because we can't get rail cars in Canada, so we have been lower on shipments to customers, coming out of Canada.

I think that they're all talking about pent-up demand, almost every customer I talked to said that the weather has held back the takeaways from their operations, but that they really felt there was a demand there. So I think we'll see a pretty rapid channel fill, starting as soon as the weather breaks.

Okay. And, can you possibly quantify some of the financial impact of the weather issues you've seen this quarter, or is it something you think you could catch up with, if weather -- we still have a quarter left, if weather normalized tomorrow?

I can't give you numbers on it but I can tell you that without about 30 mill down days so far this year in Canada, related to the rail car issue. Where we simply just couldn't put anymore wood anywhere else in the mill, so we had to shut down.

Now the difficulty from a channel perspective and Rick and his team have been talking to our customers about it, is you can't gain that production back. You cannot run more than 24/7, so there could be some short-term issues on that, that could go into the spring season.

Okay. Thank you for the perspective.

Mike Roxland, Bank of America Merrill Lynch.

Not sure you're able to comment on this, but figured I'd ask the question anyway. Based on the type of questions that you're getting from the DOJ and the Canadian authorities regarding the Ainsworth acquisition, can you give us any indication as to what your biggest concern is, and is there anything you think you can do to allay their concerns to get the deal done, maybe a little bit sooner?

I am very hesitant, because I am sure our friends from the DOJ and Competition Bureau are on this call. So I'm going to be very careful to answer that.

We are being as responsive as we can to their requests. And I think that's really all I can say, and that's both true for us, as well as for Ainsworth.

I do understand, Curt. In the press release, you mentioned that you also curtailed one other facility, due to market conditions, if I read that correctly.

What facility -- is that referring to some of the issues that you have up in Canada? Or did you actually take out a facility just due to weak OSB demand? And are there any other potential facilities that you could look to indefinitely idle, if the demand does not pick up?

Mike, I think that's reflecting the Chambord facility, that's been curtailed. There are no new curtailments.

Got it, okay.

The one that's been curtailed since -- for a number of years.

Got it and this last question I have is just on costs. Curt, you mentioned in terms of costs and labor availability really being -- particularly labor being an issue for the homebuilders. I think you actually mentioned labor being an issue also for your own operations, either a lot of people left the industry or went back to their home country during the downturn.

Can you give us a sense of how much labor increased year-over-year in 4Q, and whether you've seen any improvement in labor availability? And, if you could comment also about what you've done, or the industry has done, to foster or to bring back workers to the industry?

Well, the struggle for us has generally been in the skilled trades, so it's been the electricians, process control, millwrights and that area, and we have -- frankly, we've been backfilling with contract labor. Because we definitely can't hire quick enough to keep those fully staffed.

Mostly the areas we operate, we compete with the oil and gas sector, and they simply pay higher wages than we can pay. And so the things we're responding to is, we're responding to grow your electricians, grow your own millwrights so we're putting in our own [relative] programs, we're parting with junior colleges and trade schools in areas where our mills are located to get people, so we're doing all those kinds of things.

And then from the industry as a whole, we're struggling with drivers, I think as everybody is, and we're struggling with loggers. And so, we do have in place a core logger program, where we will commit to a select group of loggers working through good times and bad times, that's how we're trying to address that.

Got it and just last question, maybe for Sallie. For the first three quarters of 2013, SG&A as a percentage of sales had been averaging around 6.5%.

In 4Q that spiked about 9.5% a little over that. What drove the increase, and how should we be thinking about SG&A as a percent of sales on a go-forward basis?

What really drove that increase are the costs associated with Ainsworth acquisition. And I think you should anticipate, looking forward that we will be closer to first, second and third quarter on a normalized basis, but while we're still working with -- going through the regulations, you're going to continue to see some kind of spike. It was in the -- for the full year, the costs associated with Ainsworth acquisition was around $6 million, and the majority of that was in the fourth quarter.

Got you. Good luck in the quarter and for 2014.

Chip Dillon, Vertical Research Partners.

Coming out of last upcycle, we saw, certainly OSB really gained most of its share versus plywood in the new housing construction business, and as you know, that area has been probably a lot weaker, and continues to be, versus repair and remodeling. And I was just wondering have we seen a shift in OSB back, or shall I say, a share gain in the channel of selling to people who are repairing and remodeling their homes, given that seems to be an area that's stronger than new housing, and at least has been so far?

Not noticeably, Chip. We look at our retail sales, our retail sales from a volume perspective are up about the same store to store that Lowe's and Home Depot are reporting, 3% to 6%. The growth is really coming in housing.

Got you. When you look at your capital spending, last year it was $75 million in 2013.

How does that look right now, and has it changed in terms of how you think about 2014, especially since we don't have the same head of steam as we had last year in your markets. Could you give us a little bit of a range, and this is my assumption not yours, but let's just say, you own Ainsworth in the back half of the year, what could the sensitivity be to that CapEx number?

Well, Chip, I don't think we're going to speculate yet on what the capital plans for Ainsworth will be, but in terms of capital plans for LP, we're anticipating spending around $100 million this year, which is an increase of about $25 million from 2013. All of the increase would be related to growth projects, or as Curt mentioned in his comments, we have the press rebuild at Roxboro, we had environmental technology, the RTO at Carthage, and now that we've seen some improvement in our cash flow, we're going back and we'll be looking at those types of projects. And of course the Tomahawk expansion, which Curt also mentioned, and the third mill in Chile.

Got you. and I guess the last question, just to maybe underscore the competitive nature of your business, I just noticed in engineered wood products, year over year your volumes are just massively, 24% to 36%, with higher pricing and your operating loss was basically the same. Can you tell us what's going on there?

Sure. That's all related to the increase in raw material prices. Remember in the first half of the year, in particular, the engineered wood products group had to deal with higher raw material costs associated with I-Joist, which is made out of OSB and lumber.

Got you, of course, got you. I would expect those costs to go down, coming in the next quarter or two?

I guess that's where you see some improvement in the fourth quarter.

Got you. Thank you.

Joe Stivaletti, Goldman Sachs.

I was just wondering if you could talk a little bit about the industry supply side of the equation? You talked about forecasts for volumes to be up close to 20% next year in terms of housing starts, but I was wondering if you could talk about what you're seeing, and expecting on the supply side in North America?

Joe, I'd be happy to tell you what we are doing, because as you know, we did restart Clark County, which is ramping up, and I think that will be running -- under our plans, it will be running at about 65% of capacity for the full year, with a lot of that volume weighted towards the back half of the year. Dawson Creek, we are still running at a very limited shifting pattern, so we can add additional capacity into Dawson Creek.

Swan Valley is taking a fair amount of this downtime related to the real issue so, hopefully we'll be able to run that during the spring run up. And then in Maniwaki, we continue to look at export opportunities there, as we're not fully utilizing that for North America. And then there was a question earlier, the one mill that we don't have started yet, is Chambord, and I really don't have any plans this year to think about that.

So, if you pull that together, what basically what would your capacity change by in 2014, based on what you just walked through?

Clark County, because we start off in April, and as we talked about earlier, it was kind of a miserable start-up. Clark County would probably be a tripling of volume of what we had last year, probably about 150 million feet, and it will probably triple.

Dawson Creek, I would anticipate, because that one will also start up late April, probably have a doubling of the volume that came out of there. And then I would guess both in Swan and Maniwaki we're probably looking at 20% increases. So if you added all that up, it's probably another 600 million square feet.

And I guess just for the overall industry -- you don't, are you expecting if we see this type of close to 20% growth in volume of housing starts, do you expect it to be a considerably tighter year, or I just wondered about what your perspective was in terms of industry, overall the outlook there?

Well if we're going to go from 925,000 to 1.1 million, that's 175,000 housing starts. That should equate to a demand of right around 1.8 billion to 1.9 billion square feet of additional demand. Because the rule of thumb is 1.1 billion square feet for every 100,000 housing starts.

Okay.

Mark Weintraub, Buckingham Research Group.

First just one quick clarification. So basically, if housing starts go up by 20%, then OSB demand goes up 10% to 12%, is that about right?

I think I look at it the other way. Just take the number of housing starts and multiply every 100,000 is 1.1 billion and you can figure out what the incremental demand is in OSB.

And then on the new timing agreement, if this is it fair question, can you share with us whether this agreement was initiated, but by you and Ainsworth, or was it initiated by the regulatory agencies?

Well I think the fact that we have an agreement in place that was mutually agreed to, there were discussions around on how we continue to assist the DOJ and Competition of Canada, making progress towards approving this acquisition.

Okay. And then just lastly, I know you made the comment on your sense that the inventory channel was relatively -- at least with your customers, that you probably built up some inventory. And yet if you look at fourth-quarter production for it the industry, it was actually as high as it was in the third quarter, and it was up substantially versus a year ago.

More so than you would've thought based on what was happening with housing starts, demand would have increased. So I guess when you look at the amount of OSB that was produced in the latter part of last year, does that not kind of suggest that actually there's quite a lot of OSB out there, at least coming into the year?

Again, I'm relying on our sales force coming back to us, and talking to customers and we're not seeing, we're not hearing from either our salespeople or customers that they have a lot of inventory.

Okay, fair enough, thank you.

Sean Steuart with TD Securities.

Thanks, just one question. South America is the weakest results we've seen from that segment in, I think, at least a couple years.

Maybe just going to some of the contributive factors in more detail. You touched on I guess imports into July, and a few other factors.

Is there more happening there than that? Some pretty steep decline in results there?

I think there's two things. One, the competitive pressure about Sallie talked about is certainly a major factor there. We also have a strengthening of the US dollar, so there was some translation that would have affected those results.

Not changing your thinking on the growth strategy there long-term, though?

No. In fact, as Sallie mentioned, we are doing preliminary planning on our third mill there.

The pricing difference, remember, the Chilean price really is impacted by what's going on here in North America, and so think about the pricing environment that exist in North America in the fourth quarter of 2012, versus the pricing environment that exists in North America in the fourth quarter of 2013, and that gives you the sense of the dynamic that would cause the Chilean results to reflect that, as well.

Got it. Okay, the rest of my questions have been answered, thanks.

Mark Wilde, Deutsche Bank.

Just first of all, I wanted to come back on the weather. Curt, you mentioned natural gas and propane, and I just want to get a sense of how big of an issue that might be in the first quarter. Propane in particular is up sharply, but natural gas is also up.

Well for us, we really only use that in our pollution control abatement equipment, we don't use it as part of our process. When you can't run your pollution control equipment, you can't run your mill, so it primarily affected our siding mill. we had several outages in siding.

We're piped to use natural gas, and we only use propane when we can't get natural gas. So they were diverting natural gas to households for home heating, and there was a shortage of propane.

Who knows whether it's true or not, what I heard, the corn crop was very big, and it takes a lot of natural gas and propane to drive the corn. That's what I heard. Relatively limited to a couple of mills in the late stage, associated with siding.

Okay. All right other question -- actually also related to natural gas, if gas stays elevated, what's the effect on your resin cost, resin prices, because a lot of that stuff is natural gas derivatives, I believe?

It's not -- it is a derivative but the biggest ones are benzene and phenol, are the biggest drivers.

Mostly oil-based.

Natural gas has an impact, but it's not as big as the derivative, the oil derivatives.

Okay. Second question, can you give us the operating rate at that Brazilian mill right now?

I don't have in front of me, I'd be guessing, I would guess that it's probably running at about 80%.

Okay that's a little better than I might have thought. And about how much of that gets exported, Curt?

I don't have it in front of me either.

I don't have in front of me, probably half of it? A third to a half.

Okay all right --

It's been trending downwards, because we're selling more of it in Brazil.

Just generally in Brazil, I think a big issue down there has been getting builders and building codes modified, so that people could use OSB. Can you give us a 60 second update on that?

We sold OSB into over twice as many homes in 2013 than we did 2012, so we continue to make progress there. We probably have a half a dozen to a dozen builders who are now qualified to use our building system, so we continue to make good progress there.

Mark, about 30% of our Brazilian sales in the quarter were exported.

Okay, thanks, Sallie and the last one, Curt. Any change in view on the engineered wood business and what it's going to take to move that business to profitability? I think in the past you talked about 1 million or 1.1 million starts being a threshold number?

It still think that's a good number, and as Sallie said, we made progress towards the latter half of the year. I think we were EBITDA positive in the second out of the year in that business. That's a positive sign, there was a relaxation in raw materials.

We also did put in a couple price increases during the year to recover those high raw materials costs. We had significant increases in our volume in our laminated strand lumber volumes, so we're continuing to make progress there. Faster recovery.

Are you putting any more capital into that business right now?

Well we're maintaining our mills. We haven't made any, obviously, we don't need more capacity, so we haven't made any capacity increases there. But we did make an investment in our Houlton mill that will allow us to make them limited quantities of OSB in that mill, which is always the plan. But we didn't need that, and now we see an opportunity for some high-quality flooring products.

Very good. Good luck in the first quarter and through the rest of the year.

Paul Quinn, RBC Capital Markets.

Just a couple quick cleanups. Just on core rail service, I think you called it abysmal, Curt. Is that more weather-related, or is that just strictly on service levels?

I'm going to be in your city next week with the Forest Products Association of Canada, that's a major item on our agenda. As you know we've been trying to fight for service level agreements with the CN and CP for a long time.

There is a rail review in Canada coming up in 2016, I really don't want to wait until then, this has been a problem. I think weather was clearly a problem in January and into February, but I also think it's how they're staging their equipment, what equipment they are making available. They're focused on utilization of equipment, rather than satisfying customers from our perspective.

Just to give you an example, at Peace Valley we need 90 cars a day. We went two weeks with zero, and then the third week, we got 30. So, you just can't run the mill when that happens.

Okay then if you could give us an idea of operating rates in Canada on the OSB side versus the US, as a result of that?

Well that was an impact this quarter, which obviously we haven't reported our results for this quarter. We didn't have rail service issues in the fourth quarter.

Okay. And then just in South America, you referenced increased imports into that. Where is that -- is that coming from North American competitors, and is that having any effect, I guess that's not having any affect on your plans to put in a third mill?

It is coming from North American competitors, and as Sallie said, they look at it opportunistically. When they have excess capacity, that they can take South from their operations, and make a contribution margin, they are doing that.

It's not dissimilar to what we're doing out of northern Quebec at our Maniwaki mill. We'll take extra capacity over into Eastern Europe and Russia, that we'll still make a contribution margin.

All right, best of luck, thanks.

I will now turn the call over to Sallie Bailey for closing remarks.

Great, thank you, Brittany. If you could please provide the replay number, we would appreciate it, and I would like to thank everybody for participating in our call. And as always, Mike and Becky are here to answer any follow-up questions you may have. So I hope you have a great day, and we appreciate your participation.

Ladies and gentlemen, that concludes the presentation for today's conference. You may now all disconnect and have a wonderful day.