Louisiana-Pacific Corp (LPX) 2014 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the third quarter 2014 Louisiana-Pacific Corporation earnings conference call. My name is Chris, and I will be your conference moderator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. And at this time, I would now like to turn the coverage over to your host for today, Ms. Sallie Bailey, Chief Financial Officer. Ma'am, you may proceed.

Thank you very much, Chris, and good morning. Thank you for joining our conference call to discuss LP's financial results for the third quarter of 2014 and year-to-date 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 will begin our discussion with a review of the financial results for the third quarter of 2014 and the first nine months of 2014. This will be followed by some comments on the performance of the individual segments and selected balance sheet items. After I finish my remarks, Curt will discuss the general market environment in which LP has been operating and provide his perspective on our operating results for the third quarter of 2014 and give some thoughts on the outlook.

As we have done in the past, we have opened up this call to the public and are doing a webcast. The 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 this morning in my comments. We have also filed an 8-K this morning with some supplemental information as well as our third quarter 10-Q.

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

A couple of opening comments. LP's performance for the first nine months of 2014 and the third quarter of 2014 as compared to the same periods in 2013 is primarily driven by lower at OSB average selling prices. Reduction of OSB average selling prices had a negative impact on adjusted EBITDA of $281 million for the first nine months of this year and a negative impact on adjusted EBITDA of $44 million for the third quarter of 2014.

Now, with that, let me go into the details. Moving to slide 4 of the presentation for a discussion of the third quarter 2014 and first nine months consolidated results. We reported net sales of $518 million for the third quarter of 2014, a 2% increase from the net sales reported for the third quarter of 2013. In the third quarter of 2014, we recorded a net loss of $20 million, or $0.14 per diluted share. In the third quarter of 2013, we reported net income of $38 million, or $0.26 per diluted share.

The third quarter of 2013 results included pretax gain of $17 million related to the reduction of a contingent consideration associated with the acquisition of the Peace Valley mill. The adjusted loss from continuing operations for the quarter is $16 million, or $0.12 per share based upon the normalized tax rate of 35% compared to income of $19 million, or $0.13 per share in the third quarter of 2013.

Adjusted EBITDA from continuing operations was $12 million in the quarter compared to adjusted EBITDA of $65 million in the third quarter of 2013. On a year-to-date basis, we recorded $1.5 billion in net sales, a loss of $33 million and a loss per share of $0.23 as compared to net sales of $1.6 billion, net income of $198 million and earnings per share of $1.37 in the first nine months of 2013.

On a non-GAAP basis, we recorded an adjusted loss from continuing operations of $28 million loss per share of $0.20 and adjusted EBITDA of $61 million for the first nine months of 2014, a decline from the first nine months of 2013 when we recorded $137 million of adjusted income from continued operations, earnings per share of $0.94 and adjusted EBITDA of $306 million.

I will now move to slide 5 and review our segment results. Starting with OSB. OSB recorded an operating loss of $16 million on $233 million of sales in the quarter compared to operating profit of $30 million on $245 million of sales in the third quarter of 2013.

For the quarter, we are reporting negative adjusted EBITDA of $1 million compared to adjusted EBITDA of $46 million in the third quarter of 2013. We had a 13% increase in volume over the third quarter of 2013 and pricing for OSB was down 16% over the third quarter of 2013. The decrease in pricing resulted in lower operating results by about $44 million.

For the first nine months, OSB had an operating loss of $24 million compared to income of $224 million in 2014. Adjusted EBITDA for the first nine months of 2014 was $19 million compared to $262 million in the comparable period of 2013. The impact of pricing between the years was $277 million and accounted for the majority of the change.

Slide 6 reports the results of our siding business. This segment includes SmartSide and CanExel siding products. The siding segment reported sales of $163 million in the third order of 2014, an increase of 10% from $194 million reported in the third quarter of 2013. The siding segment reported operating income of $21 million compared to $23 million in the third quarter of 2013 and adjusted EBITDA of $26 million as compared to $27 million in the same quarter of 2013.

Now, given the 10% improvement in sales, we would have expected improved EBITDA; however, the siding segment lost 20 million square feet of production at our Hayward, Wisconsin facility due to wood shortages during the quarter. We estimate that the loss production at Hayward negatively impacted the results by approximately $4 million. In addition, higher wood cost for all of our siding mills impacted the segment's performance negatively by another $3 million to $4 million in the quarter.

During the third quarter, the siding segment did not produce any OSB. In the third quarter of 2013, siding produced 42 million square feet of OSB. For the quarter, SmartSide average sales were up 1% and volumes increased 20%. Volume increased in our SmartSide sizing line due to continued penetration in several key focus markets including retail, repair and remodel markets and sheds.

CanExel prices were up 2% in US dollars and up 6% in Canadian dollars. Canada is CanExel's primary market. Volumes were up 3% in the quarter due to higher Canadian and international demand.

On a year-to-date basis, the siding segment recorded $476 million in sales, $66 million in profit and $79 million in adjusted EBITDA. For the first nine months of 2013, the siding segment recorded sales of $436 million, profit of $70 million and adjusted EBITDA of $83 million. The decrease in OSB average sales price impacted operating results and adjusted EBITDA in the siding segment negatively by approximately $4 million for the nine-month period.

Please turn to slide 7 of the presentation which shows the results for our Engineered Wood Products segment. This segment includes I-Joist Laminated Strand Lumber, Laminated Veneer Lumber, plus other related products. This segment also includes the sale of I-Joist LVL products produced by the Abitibi joint venture are under a sales arrangement with Murphy Plywood.

Engineered Wood Products segment recorded sales of $82 million in the third quarter of 2014, up from $72 million in the third quarter of 2013. The segment's operating loss in the third quarter of 2014 was $300,000 as compared to a loss of $2 million in the third quarter of 2013. For the third quarter of 2014, adjusted EBITDA from continuing operations increased $3 million as compared to the third quarter of 2013.

Volumes of I-Joist were up 3% while volumes of LVL and LSL were up 13% compared to the same quarter last year, primarily driven by a large increase in LSL sales. Pricing was up 7% in I-Joist and 3% in LVL and LSL, and on a year-to-date basis, Engineered Wood Products reported net sales of $229 million, a loss of $8 million and adjusted EBITDA of $5 million.

In the first nine months of 2013, Engineered Wood Products reported net sales of $196 million, a loss of $11 million and negative adjusted EBITDA of $1 million. Sales volumes in I-Joist were up 11% and volumes for LVL and LSL were up 14%. Pricing was up 7% in I-Joist and 3% for LVL and LSL.

Moving onto slide 8 of the presentation. For the quarter, our South American segment recorded sales of $36 million as compared to $42 million in the third quarter of 2013. Operating income was $300,000 in the third quarter of 2014 compared to $5 million in the third quarter of 2013. South America's adjusted EBITDA from continuing operations was $2 million for the third quarter of 2014 compared to $8 million in the third quarter of 2013.

Volumes in Chile were down 14% and flat in Brazil compared to the same quarter last year. The sales volume decrease in Chile was primarily due to the continued political transition which is slowing housing, as well as increased exports from North America. We also lost a month of production in the third quarter at our Lautaro, Chile mill due to the waferizer failure.

In Brazil, we experienced lower local market demand, but the impact of that was offset by higher exports. Pricing was down 12% in Chile and up 3% in Brazil. In local currency, Chile's pricing was flat with the same quarter of 2013, and Brazil experienced a 3% improvement in pricing. For the first nine months of 2014, South America recorded net sales of $115 million, profit of $9 million and adjusted EBITDA of $15 million. For the first nine months of 2013, South America recorded net sales of $131 million, profit of $18 million and adjusted EBITDA of $26 million.

Please refer to slide 9 of the presentation. As of September 30, 2014, we had cash, cash equivalents, investments and restricted cash of $595 million. Working capital of $807 million, net cash of $224 million and in addition to the $595 million of cash on our balance sheet, we had $200 million of availability on our credit facility.

Capital expenditures for the nine months were $55 million. We generated $28 million of operating cash flow in the quarter and used $30 million of operating cash flow for the nine months. We are planning to spend approximately $80 million for capital expenditures in 2014, $10 million lower than the estimate provided on our second-quarter call. And based on our initial review of capital expenditures for 2015, the range is expected to be between $50 million to $60 million related to maintenance, compliance and safety projects and an additional $60 million to $70 million related to strategic growth capital, which Curt will discuss in his comments.

Now, before I turn the call over to Curt, I will update you on our capital allocation strategy. As we discussed on our second-quarter conference call, we plan to retain between $250 million and $300 million of minimum cash balances. This amount is sufficient to cover our fixed cash costs for two to three years.

For cash in excess of the $250 million to $300 million, we will continue to evaluate opportunities for acquisitions, investments in our current businesses and return of capital to shareholders. And as we announced this morning in our press release, LP's Board has authorized $100 million share repurchase plan. The share repurchases may be made from time to time opportunistically based on market conditions and subject to regulatory conditions. With that, I'll turn the call over to Curt.

Thank you for the review of the third quarter, Sallie, and welcome to our call. My brief comments today will focus on our accomplishments and challenges in the quarter, talk about the current state of the housing market, and provide you with my views on what is ahead for the rest of 2014 and into next year.

From a safety perspective, LP had a year-to-date total incident rate of 0.38 for the first nine months of 2014. Within that number, we had zero recordable injuries in all of our South American operations and all of our administrative functioning including our field sales and forestry groups.

As Sallie just discussed, we did experience sinking OSB prices throughout the third quarter which hurt both our top line revenue in our bottom line profit. On a year-to-date basis, the decline in OSB pricing accounted for a reduction in sales and operating earnings of about $280 million. The good news is that OSB pricing has been increasing since the end of the last quarter, and further demand should come from steadily increasing housing starts in the future.

That leaves me with a few comments on the housing market where most of the news is positive. US housing starts in September were once again over one million and permits were even a little higher than that. The Case-Shiller index of home prices was up between 6.5% to 7% compared to one year ago. The average mortgage rate near the end of October fell under 4%, the lowest level we've seen since the spike in rates in May of 2013.

We mentioned last quarter, there continues to be a lot of talk by the homebuilders about increasing the pace of new home closures by focusing on bringing back the first-time home buyer in the market. Just within the last few days, the information came out that first-time home buyers only accounted for one-third of new home purchases for the 12 months ended last June. This is the lowest it's been in three decades.

There does seem to be growing acceptance that Fannie Mae and Freddie Mac will have a long-term role in guaranteeing mortgages. Still to come are the final rules for down payments and Safe Harbors for the mortgage putbacks at the banks.

In other markets, retail sales of building materials were up 5.3% compared to August of last year, indicating that consumers are spending more on repair and remodel activities. About a month ago, I had the opportunity to attend the Home Depot vendor conference, and they are very positive on repair and remodel activity for the next three years as the homes continue to get older and the pace of home ownership changes is growing, which is a strong indication of repair and remodel activity.

For the rest of 2014, we are at the back end of the year where there usually is a seasonal slowing; however, in October, as I just said, we did see a welcome and steady rise in OSB pricing. The consensus forecast for the rest of the year now stands at just over one million housing starts, which is up 8%, but that's the point, it's only up 8%.

For 2015, the consensus is about 1.2 million, a 20% increase over this year's revised forecast. Both of these forecasts are lower than they were when we talked last time. As I mentioned last quarter, we'll be a little bit more cautious and base our initial planning on 1.1 million housing starts for the next year.

We have several important projects on our near-term growth agenda. We've been managing our order file and siding and have been doing that for the last several months. This is primarily been the result of dealing with log shortages in the region where our siding mills are located. Our Forestry group has a plan in place to address this fiber shortage, and I'm optimistic that we can fill up our log yards during the winter. This, along with limited planned downtime in our current siding mills, should allow us to meet the anticipated market growth next year.

In addition, we recently kicked off an accelerated project to convert our Swan Valley Manitoba OSB mill to siding production before the end of next year. We will need this new production to continue our growth beyond next year.

In South America, we have submitted our environmental permits for a third mill in Chile and have left a contract to do the detailed engineering to be ready to begin construction when the permits are approved. We believe that will be sometime next summer.

There is several other things we'd like to accomplish this quarter. We want to continue to drive the organic growth initiatives in all of our businesses. And for the capital projects I just discussed, we need to of the plans and documentation in place so that our Board can give their final stamp of approval early next year.

While we'd like to see housing recover more quickly, we are pleased with our positioning in the market, and we stand ready to serve the increased housing market activity. With that, let me turn it back over to Sallie for questions and answers.

Great, thank you, Curt. Chris, we are ready for questions if we can go to the queue?

Thank you.

(Operator Instructions)

Chip Dillon, Vertical Research Partners.

Yes, good morning, Curt and Sallie. If I add these numbers up, it looks like your CapEx for next year could range between $110 million and $130 million, and I would guess -- I know on the last call you were feeling a little more cautious than you sounded today, I think you all were assuming $1.05 million for 2015. And so I guess what I'm asking is between this CapEx budget increase in what you missed about October, are you starting to sense that maybe it will be a better year next year? And let's say it turns out not to be, would you be able to push out at least the $60 million to $70 million of the growth capital? And I'm asking all these questions, is that $60 million to $70 million the placeholder for Manitoba and Chile, or is there more that you can touch on?

That's -- Chip, your last statement is exactly correct. That $60 million to $70 million is what we expect to spend to convert Swan Valley to siding production and to begin the construction of the third mill in Chile. So, that growth capital is dependent, at least in South America, on when we get the environmental permitting, so that can move further out. We'd like it to start the middle of the year, but it could move out based on permitting.

On the siding, we simply have to have more production. We've had very good growth in our SmartSide and we need to get that mill converted as quickly as we can. The rest of the capital is really pretty much following up on regular maintenance. There are some regulatory needs, we have to comply with MACT, that's about a $4 million to $5 million of that number. And then in Canada, as you're probably aware, there's been a lot of increased emphasis on dust, and so we do have some dust prevention programs to help with our safety.

Got you. And then it makes -- totally understand the siding need, and you all have a great business there and have telegraphed that very well. But just looking at the numbers, and not to get too short-term, but it looks like Chile, and you mentioned some of it might be due to some political changes, but really was weak. Could there be -- is there a possibility that maybe it may warrant a delay in adding capacity? I'm just curious with the market being as weak as it's been recently down there, why would now be a good time? Is there a strategic imperative or risk of another competitor doing the same thing?

No, I don't think we have any risk of any competitor putting in production there. What we experienced in Chile is with the change in the leadership of the country, it has turned more socialist. And as a result, the housing activity has slowed. What we are seeing looking forward is we're seeing that recover a little bit. From a timing standpoint, we started talking about Chile about 1.5 years ago, so we basically already have pushed it off 6 to 9 months, based on what we saw going on in the country. The weakness in their operating results were two factors, one was we lost a month of production due to the waferizer going out at Lautaro. And the second is we are seeing imports because of the weak pricing environment in North America coming from North America into Chile and putting a little more pricing pressure on there.

That's helpful, and then the last question is on the buyback, if you, let's say for example you pursue these projects and you generate the cash to do so, and let's say you generate another $100 million above your $250 million to $300 million balance you like to keep, could be see you exercise that entire buyback next year if those conditions took hold? Or would there be reason to think that this might stretch out longer than that?

Well, as Sallie said, what the Board has given us the authority to do is to manage that based on what we see as market conditions and cash flow coming into the Company. I think you can rest assured we'll take all that into consideration.

Got you. Thanks.

Gail Glazerman, UBS.

Thank you. Good morning. Can you talk a little bit more about the wood issues that you've been having in siding? What caused them? Are they getting better? I guess you mentioned confidence that you would be able to build your decks during the winter. And how significant? Can you balance -- is the worst of it over, and do you expect to recover in the fourth quarter to any extent?

What we need is we need is we need a cold winter, but not a frigid winter. Let me just talk about it a little bit. It's mainly the lake states, and what we had in the lake states is we had the arctic freeze came through in the first quarter, which limited our ability and our contractors' ability to bring logs into the mills. So, while we had limited production coming out of the woods, we also had increased demand, primarily from some of the pulp producers. That's who we compete with for this wood.

And then we got into the spring and we had all the rain and again, they couldn't get into the woods to pull the wood in. So, we lost production from the first quarter and the second quarter at Hayward. And then coming into the summer, we also had to divert wood from some of our OSB mills into Hayward to run that production. But as Sallie mentioned, we are about 20 million feet short of where we expect it to be. Where we are right now is it's starting to get cold up there, but it's also raining, so that, again, rain limits your ability to get into the woods. But if we have a reasonable winter, we should be able to fill up our log decks appropriately over the winter and into the spring for the spring breakup. So, I'm pretty confident that our foresters have a plan. It does require us to bring wood from further out, and that's why we had an increase in the wood cost in the third quarter.

Okay, and are you having any of these issues and other segments and generally some perspective on inflation, particularly given the recent decline in oil prices?

Well from the wood issues, we haven't really -- we had a little bit of wood issues in Manitoba. Again, it was very wet during the summer, but I don't expect any problems there. In the US South, our wood costs were actually down a little bit. So, I think we're in good position in our southern mills. As far as what the impact on oil pricing, that affects us a couple different ways. One, we would expect resin pricing to come down. It's a tailing adjustment, so we'll get the advantage of the $80 oil more in the first half of next year that we will this quarter. The other impact on that is on the freight side. Both incoming and outgoing, there is freight -- there is oil surcharges on some of our freight costs. That generally benefits our customers more than us, because they pay the freight in general.

Okay, and turning to OSB a little bit, can you give a sense of downtime and maybe how it would have compared to the second quarter and any sort of outlook for the fourth quarter?

Sure, Gail, in the second quarter we took 50 days of downtime -- I'm sorry, in the third quarter we took 50 days of downtime, so it was -- which is about the equivalent of 75 million square feet. In the second quarter we took about the equivalent of 125 million square feet, so we took less downtime. And as for the fourth quarter, we don't give mix statements about what our downtime is going to be, but we'll just continue to manage the supply and demand as we traditionally do in our OSB business.

Okay, and just on the Swan Valley conversion, can you give a sense of, A, what type of utilization rate it's been running at recently? And when would you expect, based on your current plan, appreciate it hasn't been formally approved by the Board, to be able to produce some siding on the line?

Well, we've -- Swan Valley has -- our Canadian mills have taken most of our downtime through the last couple of years. So, Maniwaki in Quebec as well as Dawson Creek in British Columbia and Swan have all taken downtime. I think typically we've run Swan at the 60% to 65% utilization level. From a timing standpoint, we would like to be producing siding beginning of the fourth quarter of next year.

Okay, in your expectation was that you'd still be able to produce OSB during the conversion for most of the time?

Well, certainly -- well, through most of the conversion we will need to take the mill down to do the tie-in, so we will probably lose 30 to 35 days of production late in the third quarter. But we would anticipate running Swan on OSB through August probably.

Okay. Thanks very much.

Michael Roxland, Banc of America

Thanks for taking my questions. Just a follow up to Gail's on the downtime, is there a particular reason you took less downtime in 3Q? The reason I ask, it seems like many of your peers took increasing amounts of downtime during the quarter and also pointed to the potential for them to take more downtime in 4Q.

The way I'd address that, Michael, is we have contractual obligations with our customers. So, generally what we did in the third quarter is we met those contractual obligations, and we had a little bit of open market wood, which meant we produced above those contracts. But not significantly above. If you look at the increase, the increase in our volume was about 10% or 11%. The market overall, if you look at the demand from the APA was up about 9% to 11%, so we were right where the market is in Q3.

Okay, but you produced a little bit more because of the contractual obligations that you have with the customers, is that why? Those contracts required more square footage in the third quarter?

We had better pulls from the home centers in the third quarter.

Got it. Thanks, Curt, for that. My final question, just on the EWP business, continue to be surprised by some of the weakness you have in that business relative to the results that some of your peers have posted within the last week or two. Can you just comment on what you are seeing in EWP and what some of the constraints are that you are experiencing on why we wouldn't see a more robust EWP performance relative to some your competitors?

Actually, I'm pretty pleased with the performance. What you need to remember about our EWP business is about 40% of that is through either a joint venture or marketing arrangement. So, what we did on that is we share the margin with the Abitibi JV for I-Joist, and then the arrangement, we have Murphy Plywood to sell their LDL. We basically get a sales commission on that. We're not going to enjoyed the manufacturing margins -- the full manufacturing margins on either the JV, which we split, or on the marketing arrangement. But if you also look at it on a return on capital, we don't have big capital investment. We have no capital investment in the Murphy arrangement and just half of the JV. You've got to really adjust those margins for what is, if you will, contract manufacturing versus our own production.

Got it. Thanks, and good luck for the balance of the year.

Thank you.

[Kapam Amtura], BMO Capital Markets

Good morning, thanks for taking my question. Curt, I was wondering if you can comment at all in terms of just inventories in the supply chain in OSB and how, if at all, you've seen any noticeable change in the last quarter?

If you're asking for inventory in the channel, we have not seen any noticeable change in that. I think as we go into the fourth quarter, we will be pulling down their inventories. But in the third quarter, I didn't see any big changes.

And how would you categorize, at this moment, in terms of maybe on an absolute level or relative to what you have seen historically?

I would say based, and it's all anecdotal, but based on what I've heard from our salespeople, the inventory in the channel is about where it was the same time last year.

That's right. We haven't seen any builds and we've haven't seen it -- just they're pulling as they need it.

Got you, that's helpful. And as my follow up, can you just tell us at what operating rate are you running Dawson Creek and maybe Clark County?

We don't tell how we're running mill by mill, Kapam. But our OSB business for the operating mills in the quarter ran about 79% of total in --

And this is both the US and Canadian mills combined?

Yes.

Got you. That's helpful. Thanks very much.

Thank you.

Steven Chercover, Davidson

Thanks, good morning, everyone. I think it's appropriate that you are budgeting for no more than 1.1 million starts, however, I think current capacity is still sufficient to satisfy 1.2 million, which means we are about 1 billion square feet too much. So, how are you going to adjust your operating stance? Or does the conversion of Swan Valley address this?

I think there is two things. One, we won't be producing any OSB at Hayward at all next year. We produced a little bit in the first half, as Sallie said, we didn't produce any in the third quarter. So, that production has been taken out of the equation. And then the conversion at Swan Valley will take 550 million square feet eventually, totally off the OSB market.

And is it offline next year as you do the work, or does it still produce until you switch?

As I just said, we probably wouldn't take it offline until September. So, it will run at reduced levels until September, and then we'll take it offline due to the conversion and hopefully, come up on siding in the October timeframe.

With Hayward out, you are making a little bit of a dent, but we probably still need to see some other people step up with either downtime or it would be great to see a mill go down.

If we are really at 1.1, that's another 1.1 billion square feet of demand from those 100,000 housing starts. And if we're anywhere north of that, then it will cut into that excess capacity. We are aware of that.

Okay, and then if I'm not mistaken, your sales to the big boxes like Home Depot are linked to benchmark 7/16" North Central. That's probably served you well this year.

No. Steve, they are linked to whatever region we're selling into.

Oh, they are linked by region, okay.

Regional pricing.

Got it. I thought that might --

Very little wood actually gets sold at North Central.

Well, we know that. But I think people focus too much on that, it's like West Texas intermediate, I guess.

I agree with that.

All right. I appreciate it.

Thanks, Steve.

Alex Ovshey, Goldman Sachs

Thank you, good morning, everyone.

Good morning.

A couple of questions for you guys. If housing starts, let's say, come in better than where the base case is now, how quickly do you think you can react to that demand? How long would it take to be able to react to any sort of upside surprise in the demand side?

Well, as we just talked about, Alex, if it gets to 1.2, as Steve said, I think there's sufficient capacity in the market to handle that. As a gets north of that, then there will be a need to be some of the idle mill will need to come back online. If it's another 200,000 housing starts, that's 2.2 billion square feet of capacity, which uses up a lot of what is excess at the current time.

Right, but I guess my question really is, if you guys are budgeting for 1.1 though, we have no idea what everybody is doing. If that's really what you guys are doing, so if it's at 1.2, do you lose share next year because you budgeted for 1.1, or is it not really the way we work?

What you would do is you would add back the shifts that you have taken off. Relatively short-term -- what takes time and takes money is to bring up a mill that's been idle. And the only mill that we have that's been idled that could come back online a Chambord, it's been down since 2008. That's going to take time to hire the crew back and to do the necessary maintenance on that mill. So, it's probably a 12 to 14 month kind of process.

That's long, but adding a shift, is that a week or is that a couple of months?

It depends on where it is, but it's generally 6 to 8 weeks.

But Alex, one of the other ways we supplement that is by having our teams work overtime. It is -- you can have a shift and a half by adding overtime or taking the overtime away if the demand is not there.

Great, I appreciate that detail, that's helpful for me. Okay, and then just on Clark County, so would that mill be running 24/7 right now, but maybe not running all the shifts 24/7? How does that sort of facility, your newest and best facility, so how does that facility actually run right now?

As I just talked a minute ago, what we've been doing is satisfying our contract wood. Because we brought that mill up, we didn't heavily contract that, so it's a fair amount of open market wood. And as a result of the weakness in the market, we will take some downtime there. Plus, we've had some logistics issues at that mill getting service from the railroads, which continue to be something that all of us are going to have to pay attention to over the winter is the railroad service levels.

Got you. I just wanted to ask on siding because it's interesting, you really have seen a very significant improvement in profitability there even through, obviously though housing is well below where we were in the previous cycle, so it's really secularly driven. If you think about what the earnings power of that business would be in siding when housing does get back to a more normal 1.4, 1.5 level? Can you help us frame that opportunity for Louisiana-Pacific?

I think you have to look at it, for housing, we're going to get a little bit greater than the recovery in housing. So, if housing goes up 10%, we should get more than 10% because we have a better product. In repair/remodel that activity is generally a 5% to 10% growth rate. And then in the big boxes, you get the repair -- you get their growth rate which, Home Depot, I think gave guidance out that they expect 6% to 7% store-to-store revenue growth in the coming couple of years. And then the new markets like sheds, that's an area that we've been growing in the high teens. So, overall, we would expect our siding business to be north of 14% to 15% growth on an annualized basis.

Okay, I got you. And would the incremental margins be above where it's running right now, or with there have to be investment that you would have to put into the business so margin profile would be similar? Maybe even a little bit lower than where it is on that 15% of topline growth?

For the first part of next year, we will be using existing assets that we've already made the capital investments. As you get to the end of next year, then we will add on the additional capital of Swan Valley to that, so there will be a little more capital required. But these should be good margins all the way through the cycle.

Okay. That make sense. Thank you, Curt and Sallie. I appreciate it.

Thank you.

Paul Quinn, RBC Capital Markets

Thanks, and good morning, Sallie and Curt. I've been on and off this call, so hopefully these questions have not been asked. But talking about the Swan Valley conversion, if you look at the 2016, and we've seen great growth in the siding market in terms of volume pick up, and its positive here that Hayward won't be producing siding next year, but do you expect a 90%/10% OSB siding mix out of that mill depending on the operating rate in 2016 once you are fully up and running on siding?

It's -- that's a good question, Paul. That is a 24-foot press, which makes it ideal for doing our panel products. So, what we'd likely do is move the panel production that's in our other mills to Swan, and Swan probably will be primarily a siding mill and then we'll go back to Hayward and shift that between siding and OSB.

That makes a lot of sense. Okay, and then the other question I have is just on the pricing premium that we're still seeing in the marketplace between plywood and OSB, whether you can comment when do you see that shrinking anytime soon?

It's surprising to me it's been as large as it has. I would have thought that there would have been more substitution. But I don't have a good answer for you. It seems like plywood has found its equilibrium in nonconstruction markets, and that's what's driving that pricing.

Yes, and everybody points to higher operating rates as the real prime difference. Okay, thanks very much, best of luck going forward.

Thanks, Paul and thanks, everyone. Well, Chris, I think that was the final question. So, if you could please provide the replay number, that would be great. And we would like to thank everyone for participating on the call and as always, Mike and Becky are here to answer any of your follow-up questions. Thank you, and have a great day.

Thank you. Ladies and gentlemen, the toll-free replay number is 1-888-286-8010. That's 1-888-286-8010. The access code is 58281501. I repeat, that's 58281501. Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect. Have a great day.