Louisiana-Pacific Corp (LPX) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Louisiana-Pacific Corp Q1 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference Ms. Sallie Bailey, Executive Vice President and Chief Financial Officer. Ma'am, please go ahead.

Great. Thank you very much, Michelle, and good morning. Thank you for joining our conference call to discuss LP's financial results for the first quarter of 2015. 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 the discussion with a review of the financial results for the first quarter of 2015. This will be followed by some comments on the performance of 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, provide his perspective on our operating results 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. And that webcast can be accessed at www.lpcorp.com. Additionally to help with the discussion, we've 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 have filed an 8-K this morning with some supplemental information as well as our Form 10-Q.

I want to remind all the participants about the forward-looking statements comments 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 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.

The housing market was still in recovery mode for the first quarter of 2015. The results in our OSB segment reflect the lower pricing environment, down 13% from last year and impacted the Company's financial results for the quarter. The reduction in OSB pricing accounts for approximately $29 million of the change in our operating loss and adjusted EBITDA relative to the first quarter of 2014. The stronger dollar, lower raw material costs, better plant operating performance and a record-setting quarter in our Siding segment offset the impact of the decline in OSB price.

With that let me go into the details. Moving to slide 4 of the presentation for a discussion of the first quarter 2015 consolidated results. We are reporting net sales of $472 million for the first quarter of 2015, a 6% increase from the net sales of $445 million reported in the first quarter of 2014. In the first quarter we recorded a net loss of $35 million, or a loss per diluted share of $0.24 as compared to a net loss for the first three months of 2014 of $14 million, or loss of $0.10 per diluted share.

Included in our GAAP results for the quarter is an $11.6 million write-off of the timber licenses associated with our indefinitely idle Chambord, Quebec facility. Given our ongoing losses in Canada, this write-off provides no immediate tax benefit to LP due to our valuation reserves. The Quebec Ministry of Forestry terminated our license in the first quarter of 2015, and Curt will discuss this a bit more -- in more detail in a few minutes.

The adjusted loss for the quarter was $19 million, or a loss of $0.13 per diluted share based upon a normalized tax rate of 35% compared to adjusted loss of $7 million, or a loss of $0.05 per diluted share for the first quarter of 2014. Adjusted EBITDA from continuing operations was $6 million in the quarter compared to $23 million in the first quarter of 2014.

I'll move to slide 5 in review of our segment results. Beginning with OSB. OSB recorded an operating loss of $28 million on $190 million of sales in the quarter compared to an operating loss of $2 million on $195 million of sales in the first quarter of 2014.

For the quarter, we are reporting negative adjusted EBITDA of $13 million compared to positive EBITDA of $12 million in the first quarter of 2014. We have a 14% increase in sales volume and a 4% increase in the OSB segments production. Pricing for OSB was down 13% over the first quarter of 2014. The decrease in pricing resulted in lower operating results by about $29 million.

The OSB segment took 127 down days or the equivalent of just under 200 million square feet of reduced production during the quarter. Despite the significant number of down days, our cost of sales per MSF improved relative to the first quarter of 2014 as well as the fourth quarter of 2014 due to the impact of the weaker Canadian dollar, lower raw material costs, and improved operating performance of our Clarke County facility.

Slide 6 reports the results of the Siding segment. This segment includes our SmartSide and CanExel siding products. The first quarter of 2015 was a record quarter for the Siding segment for sales, operating income and adjusted EBITDA. The Siding segment reported sales of $174 million in the first quarter of 2015, an increase of 21% from $144 million reported in the first quarter of 2014.

The Siding segment reported operating income of $33 million compared to $19 million in the first quarter of 2014. And adjusted EBITDA of $38 million as compared to $24 million in the same quarter of 2014. For the second quarter in a row, the Siding segment did not produce any OSB.

Consistent with the past several quarters, the Siding segment continued to experience higher wood costs. However we are able to acquire logs to run our facility as planned and took no downtime in the quarter related to log shortages. The higher wood costs in the first quarter of 2015 were partially offset by lower resin cost and improved absorption in our manufacturing facility. The results for the quarter were also positively affected by improved product mix and higher sales volume.

For the quarter SmartSide average sales prices were up 8% and volumes increased 19%. Volumes increased in our SmartSide siding line due to continued penetration in several key focus markets including retail, repair and remodel, markets, and sheds.

CanExel prices were flat in US dollars. However, the prices were up 12% in Canadian dollars which is CanExel's primary market. Volumes were down 18% in the quarter due to decreases in Canadian and international demand.

Please turn to slide 7 of the presentation which shows the results of 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 and LVL products produced by the Abitibi joint venture are under a sales arrangement with Murphy Plywood.

The EWP segment did produce 10 million square feet of OSB in the first quarter of 2015 out of the Houlton, Maine facility. The Engineered Wood Products segment recorded sales of $65 million in the first quarter of 2015 up from $62 million in the first quarter of 2014. The segment's operating loss in the first quarter of 2015 was $4 million as compared to a loss of $3 million in the first quarter of 2014.

For the first quarter of 2015, adjusted EBITDA from continuing operations declined to a negative $400,000 as compared to a positive adjusted EBITDA of $1.3 million in the first quarter of 2014. Volumes of I-Joist were down 12% primarily due to lower volumes in Western Canada while volumes in LVL and LSL were up 16% compared to the same quarter last year as we focus more on export and industrial markets.

Pricing was up 6% in I-Joist and down 3% in LVL and LSL. The increase in I-Joist reflects price increases introduced to offset rising raw material costs during 2014. The decline in LVL and LSL reflects changes in mix to a higher percentage of industrial uses which are sold at a lower price.

Turning to slide 8 of the presentation. For the quarter our South American segment recorded sales of $36 million as compared to $37 million in the first quarter of 2014. Operating income was $2 million in the first quarter of 2014 compared to $4 million in the first quarter of 2015. South America's adjusted EBITDA from continuing operations was $5 million for the first quarter of 2014 as compared to $7 million in the first quarter of 2014.

Volumes in the quarter were up 31% and lower by 18% of Brazil compared to the same quarter last year. The sales volume increase in Chile was primarily due to improved housing demand. In Brazil, the reduction in sales volume was due to the economic recession which led to less demand. Pricing was down 13% in Chile and down 16% in Brazil. And in local currency, Chile's pricing was lower by 1% compared with the same quarter in 2014 and Brazil recorded a 3% improvement in pricing.

Total SG&A costs were $39 million in the first quarter of 2015 compared to $41 million in the same quarter of 2014. For the quarter the reduction in SG&A costs was primarily related to legal costs incurred in 2014 associated with the aborted Ainsworth transaction. We recorded $2 million of foreign exchange loss in the quarter compared to $4 million loss in the same quarter last year. And net interest expense was flat between quarters.

Please refer to slide 9 of the presentation. As of March 31, 2015 we have cash, cash equivalents, investments and restricted cash of $483 million, working capital of $742 million, net cash of $114 million. And then in addition to the $483 million of cash on our balance sheet, we had $200 million of availability on our credit facility. March year-to-date capital expenditures were $15 million.

We do expect capital expenditures for 2015 to be in the range of $120 million to $130 million with over half of this amount related to Swan Valley mill conversion. We did not repurchase any shares of LP stock during the quarter, but we do continue to evaluate opportunities to repurchase shares along with other uses of the Company's capital. Now I'll turn the call over to Curt for his comments.

Thanks, Sallie for that review. Good morning to all of you and thanks for joining us on the call. Let me start with LP safety performance. Last week the APA announced the results of their safety and health awards program for 2014. I'm pleased that LP was named the Safest Large Company in our industry for the year. This is the fifth time we have been so recognized in the last seven years. We also had 10 facilities included in the incident-free honor society.

I'm very proud of all of our employees who recognize the value of being safe and act accordingly. In addition to the obvious savings in workers compensation costs, LP believes that our safety culture gives us a competitive edge in the hiring and retention of our employees.

This morning I'll provide a few comments on the results of the first quarter, talk about the state of the housing market and give you my views for the next several quarters. After that I'll turn the call back to Sallie for questions.

With two notable exceptions that negatively affected our results, OSB pricing and the write-off of the wood license, LP actually had a pretty good quarter. Let me just start with a quick review of the two negative items. OSB pricing has fallen below analysts projections for the last six quarters and [random links] north central was 12% an already low 2014 pricing level.

The easy scapegoat of Q1 is always the weather. While I know this did have an impact, the primary driver of lower pricing was more available supply than demand. As a result we had to take significant downtime in our mills in the quarter. In Q2 we continue to evaluate and take market related downtime as the recovery in new residential demand has been short of economists' projections.

Further, while we are meeting our commitments to our customers, we are also aggressively exploring other applications beyond single-family new construction. These areas include repair remodeling, industrial, transportation and modest exports.

Let me give you some background on the Chambord wood license. We indefinitely curtailed production at the Chambord, Quebec mill in 2008 as the great recession wacked housing. Over the intervening years, we have been a regular contact with the Quebec Government and we've met all of our mutually agreed upon obligations to retain the license. Over the last year there's been increasing pressure to use the wood to create jobs in the area.

Unfortunately, the government decided that they would not wait for LP to restart the mill and informed us last quarter that they had canceled our wood license. They will be setting up a project office to review alternative proposals for the wood. We'll be a part of this process and believe that the LP mill is still the best alternative to use the wood in the area.

We do have other options for these assets we will also be exploring. As to the write-off, the accounting rules dictated that we take a non-cash charge for the carrying value of the wood license.

On the positive side, as Sallie mentioned, our Siding business had a record quarter, SmartSide shipments, revenue and EBITDA. We did enjoy lower resin costs in Q1 and the lower Canadian dollar made our operations north of the border more competitive. Efforts to fully convert our Swan Valley mill to SmartSide production are underway with initial production expected in Q4 of this year.

Next let me just share some views on the housing market. As you know there are mountains of data on the future of the housing market that are confusing, sometimes conflicting and definitely frustrating. My bottom line is housing is improving but not at the pace forecast by most economists.

Here are some numbers on expected housing starts. The consensus forecast for this year is 1.153 million which would represent a 15% increase over 2014. Consensus forecast for 2016 stands at 1.36 million which is a further 18% increase on the forecast for this year.

At LP, as I mentioned last quarter, we forecast 1.1 million housing starts for 2015 and I believe that still looks like a reasonable number. In 2016, we expect a 10% to 15% improvement in starts.

Other positive housing related news, household formations accelerated in Q4 to 1.7 million and follow that up with about 1.5 million in Q1 of this year. This is much better than the anemic 400,000 to 500,000 pace of the last several years. And when a household is formed, this usually means that a home is occupied which is good news for industry.

The Deutsche Bank economist just published a following tidbit, which might be of interest. The number of people per household returns to the 2000 to 2003 level, this would lead to 4 million new households, a very positive for housing looking forward. Mortgage rate remain below 4%.

The inventory of new and existing homes for sale is shrinking. And most of the big builders who have reported first-quarter results have mentioned a strong spring selling season. Repair and remodel expenditures are expected to be strong. And the rental vacancy rate is at the lowest level in 20 years.

So what does this all mean for LP in the next several quarters? With spring finally happening in most of the country and positive momentum in the housing sector, we should see increased demand in North America. Obviously we would like to see an improvement in OSB pricing as well. With high channel inventories and ready wood in the market, we didn't see an increase in pricing or demand in April. We have taken steps to adjust our production levels to take this into consideration as we focus on meeting our customer commitments while limiting the sale of unprofitable open market wood.

Before I turn it back to Sallie, let me make a few comments on South America. We continue to see high demand in Chile due to increased spending by the government on housing. And with the terrible floods in Northern Chile 24,000 homes were destroyed and we are helping with emergency shelters. We are supplying this demand currently from Brazil. And as you know we are working on a project to add a third mill into Chile to eliminate the costly freight coming from Brazil.

With that let me turn it back over to Sallie for questions.

Great. Well, thank you, Curt. Michelle, we'd like to go to the queue for questions please.

(Operator Instructions)

Gail Glazerman, UBS.

Can you give maybe a little bit more color on the strength in Siding particularly looking at close to 20% volume growth on top of what I think was double-digit growth last year? Was there some sort of catch up from prior quarters or what you shipped in the quarter is a sustainable level moving forward?

Well Gail, I'll take that. We did enjoy a very good quarter in Q1. A couple things there. One, Siding is not solely tied to single-family new construction. We have a big repair remodel portion of that. And we also have at least two SKUs in every Home Depot, Lowe's and Menards store in North America. So we've been exploring those other markets and satisfying the needs there.

In the first quarter, a little bit of an anomaly is in the repair remodel business they need to pre-finish, we have a series of pre finishers that are our customers that then sell directly into the market. Those pre finishers don't have the capability of finishing enough product to meet the annual demand unless they do it in the first quarter. So there is a little bit of a channel fill for the repair remodel part of that. And we enjoyed those volumes that went into that market.

As far as the sustainability going forward, for the next two quarters, actually the next three quarters we'll be constrained until Swan Valley comes online. As Sallie said we didn't produce any OSB in our Siding mills. We ran them basically at capacity, but we also pulled down our inventories in the first quarter. And we won't have the opportunity to do that in the next couple quarters.

I'd add one other thing Gail just to remind you that we had a Tomahawk expansion last year, so we increased the capacity in our Siding business last year with that project.

Okay, thanks. And Curt can you expand a little bit on the comments about inventory channels being pretty full and ready availability? Is your -- just how full do you think they are? Are they full ahead of the normal seasonal spring building season or a little bit chunkier than that?

It's all anecdotal because there is no firm data out there. But I was actually with a big customer yesterday and what they said is they expected takeaways to be better than they were in April because of the return of the cold weather in the Northwest and the rain in the south -- or Northeast rather and the rain in the south. They've said the last couple weeks however with the warmer weather, they are seeing those inventories come down. So I think it's a three to four week issue, and probably started to dissipate a little bit in the middle of last month.

Okay and can you talk a little bit about the wood situation late state, you're able to get wood there's a question at what cost and is there any line of sight for those costs normalizing?

In the late stage, we're in a little bit of -- if you look at the wood supply in that area overall we're in a little bit of a dip but we should come out of that in the next couple of years where the growth should significantly exceed the drainage. It's the age classification of the wood there.

What we did is we reached further out principally into Canada, and again we were aided by the Canadian exchange rate, so that helped us a little bit. So we are going to pull in wood from Canada to support those mills and probably for the next couple years. But then at that point in time, and it also depends on what happens with the pulp mills in the area, we would expect to see wood costs come down a little bit.

Okay and on Chambord, when you're talking about other option, is that other option do you secure wood for the facility should you choose to restart it or is that just other options at the facility other than keeping it as something that could restart?

Well I think there's three things we're looking at. One is to get the wood license back so we can run that at full capacity when it's needed in the market. The second is there is enough non governmental wood in the area to run that 50% to 60%. So we'd look at how we could modify the facility to run at 50% to 60% on OSB and use the other capacity for some other use and I don't know what that might be.

And the third is we have shown an ability to relocate physical assets in other parts of the world. We would look at Chambord as another opportunity to do that. So that'd be the third option.

Okay and then quickly last quarter I think you had indicated based -- that oil prices could be a I think $40 million to $50 million benefit this year, is that still your view? And if not, can you give an updated estimate?

It's -- that is our current view, it's a $50 million number.

Okay, thank you.

Chip Dillon, Vertical Research Partners.

Yes, good morning and congratulations on the way you've really managed and grown the Siding business.

Thank you.

Question about that is as we go -- if we look at the last few years there does seem to be a seasonal element there. And I know that could have been influenced by the fact that you used to make more commodity OSB in that segment. But at any rate it looks like the seasonal rise in revenue has been roughly $20 million from the first to the second quarter and I just didn't know if there was any reason not to assume something roughly similar. Not asking you for a specific forecast but are there factors that might have made the first quarter either unusually strong and therefore not in the normal pattern?

Well as we just said, Chip we had Tomahawk was down part of the first quarter of last year as we increased the capacity there. So we had significantly more capacity in Tomahawk this first quarter than we did last year. In addition to that, we manufactured probably 40 million square feet of OSB in Hayward last year and we didn't manufacture any this year.

So we utilized the increased capacity at Tomahawk plus the conversion of the OSB we're running to Siding, so that allowed us to sell more product. And we're gaining traction in the market, there's no question about that. We are seeing single-family new constructions coming back a little bit. We do have a presence in the multi-family with that product. And then repair remodel on the nonresidential structures have really been the bulk of the growth over the last year.

I see. So what you're suggesting is not quite the same bump seasonally but is there also as you think about costs going from first to second quarter obviously you're dealing with less winter weather, but we do hear about wood cost especially in the upper Midwest being still elevated. Any thoughts on what you see profitability in that particular segment doing from first to second?

Well from first to second as I said we're probably going to have less volume actually ship because we shipped out of inventory in addition to what we produce. So we're going to be constrained on the volume side until Swan Valley comes up in the fourth quarter.

On the wood cost, our guys are saying we're going to be probably about flat on wood cost. We don't see any big change in Q2. We had planned for the breakup, so we're in pretty good shape from that perspective.

Okay.

So I would hope to see volumes modifying a little bit not a lot. I can assure you if we can produce it, we'll sell it.

And could you updated us quickly on what you're doing in South America at this point? I know -- I believe you're building something down there or moving a plant down there as well.

Yes, we're doing a couple things. One, we are making a very small investment in an I-Joist line that probably will be operational towards the end of the year. When I say small, less than $5 million because we have been shipping product from our engineered wood business up here down there. And they do think they've got enough demand to begin to run their own.

On the OSB side, we applied for the environmental permits last October. We got the comments from the government in the first quarter January, February. We have now responded to all those comments and we'll be entering into I think it's the end of this week we'll enter into a 30-day wait period for the government to hear back on that environmental permit.

So we've been doing base engineering. We have acquired used equipment in the market for a portion of that facility. Actually probably 75% of it we've acquired to date. So the plan is as soon as we get the environmental permitting, we'll complete the engineering and we hope to get Board approval with that -- for that project in October. And we would immediately start construction, so that's the summer period in South America.

And maybe start up like second quarter next year, would that be a good guess or maybe later?

It'd probably be later than that. It's probably a 9 to 12-month construction period, so it'd probably be towards the end of 2016.

Got you. Okay, helpful, thank you.

[Keaton Mantura], BMO Capital.

One quick question coming back to Chambord again, so should we assume that (inaudible) Chambord machine to Siding is completely ruled out or is that option on the table?

It's -- we did look at it. Chambord doesn't have rail which makes it a little bit hard from a logistic standpoint that what's nice about Swan is it does have rail service directly there. The other is that the wood species mix at Swan is better for -- we consider better for our Siding products than the mix in Chambord. Chambord needs to be an OSB mill.

Got you, that's helpful. And then coming back to Siding, obviously it was a very good quarter. You talked about how volumes would be down a little bit but just looking out a little bit on a medium-term basis, do you think margins in the 20% range are achievable if you go back to housing starts at 1.4, 1.5?

I certainly think they're achievable, yes.

Okay, that's helpful. That's all I've got, thank you.

Bill Hoffmann, RBC Capital Markets.

Curt can you talk a little bit more about what's going on down in Latin America with the weakness in Brazil, are you guys able to operate there, are you pushing product out of market, what's the strategy?

Well what's hurting us in Brazil right now is when we acquired that mill most of the product going into Brazil was going into these industrial markets. So it was for hoarding material like construction siding, it was on packaging that was being used for concrete forming. And we went in there with the expectation that we could change building practices like we did in Chile and we are but we're doing that at a much slower rate.

With the decline in the Brazilian economy, that core business that we acquired that's the business decline. We're actually selling more into new home construction and we're selling more from an export standpoint. But we're selling less for that basic courting material and concrete form because there's less activity going on.

So what's been good for us is we've been able to take that excess capacity we have, manufacture the product and ship it to Chile to meet this demand that we have in Chile until we have the new mill operating. But similar to providing product from North America, you give all your profit to the shipper. So shipping it from Brazil is actually -- to Chile is not any less expensive than shipping it out of the Southern US.

Right, but at least it allows you to run those plants, right?

So we're running the plant and we're making a contribution from an absorption standpoint. But we're not putting the profitability in that we need to.

Got you. And then on the OSB side, one of the things that we've talked about before is diversifying your OSB, obviously Siding has been a great end market. But can you talk a little bit more about what other end markets you feel like you've been able to move product into and what percent of sales you are at this point and what the targets might be?

Yes, I can't give you the sales breakdown because I don't have it in front of me. But we've been successful right after the great recession started we started focusing on the furniture market and we've been successful in several manufacturers there. Because OSB actually provides a better product for the frame of couches and chairs than plywood does. So we've had some success there.

We've had some success in the transportation market. And that's pretty broad, that could be inside of trailers, inside of trucks, the inside of containers. So we've had some success there. I think those are the principal areas. We are as I said continuing to look at other industrial applications that may have an opportunity. You can put a surface on the OSB and actually increase its usefulness.

Any sense of how much of your product can go into of those other markets or is going into those other markets? Is it a quarter of the sales?

It's not that big right now. It's probably 10%, 5% to 10% right now. But we do think that there's the opportunity to grow that. The export market hasn't been that attractive to us with the strong dollar but that's hurt our export business so it's down a little bit.

Okay and then in Engineered Wood Products, the decline in I-Joist in Q1, what's your outlook for that? Is that market balance here in Q2?

It was almost all in Western Canada and it was all pricing because we produce that in California and ship it to Canada. And on an $0.80 -- $0.82 dollar, the local producers have a huge advantage and we didn't want to take the loss.

Okay are those markets getting any better? Obviously not Canada, but can you move it into other markets?

Western Canada we did put a price increase but we're frankly focused at domestic markets in the US. And then out of our Eastern Canadian joint venture we have with Resolute, they benefit from the cost and so our I-Joist sales into the eastern half of the US are pretty good from a profitability standpoint.

Okay, thank you.

Mark Weintraub, Buckingham Research.

Couple quick follow ups, if I could. First can you give a sense of how much of the volume in Siding was from the draw down of inventory? Did that account for 5% or 10% or how much of volume?

I think we drew it down by 20 million feet, about 20 million feet of --

Okay and order of magnitude what's total production in the quarter or volumes?

We did about [240 million].

Okay, great.

A little less than 10%.

Great. And then the Swan River, how much capacity will that be adding to the system in terms of capability recognizing you may ramp it up over time?

Should add about 450 million square feet. For OSB it's a little higher than that but can't run it as fast.

Okay so that's as much as a 40% type of increased capability?

Yes, there's about 1 billion square feet of capacity for Strand.

Okay and so is it reasonable to expect -- I think you've talked in the past about the market growing at about a 15% clip. Is it conceivable that you can get that 15% and some catch up from any constraint that might have developed this year? Is that a reasonable way to think about it for next year?

Well first let me just clarify, if I ever said anything about 15% that would have been our own growth. Because the growth of Siding is dependent on level of housing activity and repair remodel activity and the rest of that. We think we can grow faster than that if we have the capacity. But we think we should be in the high double digits. I'm sorry, high teens, not double digits.

Okay, great. And then shifting real quickly, if I could, to OSB. You had indicated that you thought it was about a three to four-week issue in terms of the high channel -- the high inventories in the channel. And I think you said that you thought it started to reverse in the middle of last month.

Again anecdotally that's what our customers have said is that they've seen the takeaway from their inventory.

Okay, great. So is it fair to say that hopefully we're getting close to the point where the inventories in the channel you would think are reasonably balanced or am I misreading that?

I think we're a couple weeks away but that's what it feels like to me.

Okay, great. Thanks so much.

Paul Quinn, RBC Capital Markets.

Guys, you outlined the expansion at Tomahawk and if you could give us the numbers on that expansion. And then the results on the expansion at Two Harbors was there not, I'm trying to understand how you've grown that Siding segment in terms of capability over the last couple of years.

We did the expansion at Two Harbors in 2013. We added about 25% capacity and that was a smaller mill of like 120. So I think we added 25 million, 30 million square feet there. And that is -- we're producing all of that. In the Tomahawk it was about a 50% expansion, so we probably went from 130 million to 190 million square feet.

Okay, great. And then on Chambord, (technical difficulty) any kind of legal or financial recourse on that for taking away the license? And then in terms of the wood supply for completing uses, is there other mills in that area that would automatically grab that wood or is that -- do you expect to get that back?

We expect to get it back. I think the premier is from the [Lake Sanguenay] area so is very sensitive to the jobs in the area. And I think we had a local mayor say, if that wood was available by God there'd be a sawmill in here. So I think it's a little bit of French-Canadian bravado.

We are the logical user of that. Resolute is the other big user in the area and they're our partner in the JV. And they think it would be the right thing to do to restart Chambord because we provide the web stock by truck to those operations, so it's very convenient from the JV standpoint.

That make sense, the French-Canadians are known for that. And lastly on North America, flat sales or profit down is that all on FX or is there a cost increase in Brazil?

No. It's mainly FX. There is a little bit of pressure because there is a small amount of imported product that goes into Chile and puts a cap on pricing. So we have had pricing down in real dollars, but the FX is the biggest part of that.

Great, that's all I had. Thanks, guys, good luck.

Great. Thank you, Paul.

And I'm showing no further questions at this time and I would like to turn the conference back over to Ms. Sallie Bailey for any closing comments.

Great. Well thank you very much, Michelle, and I'd like to thank everybody for participating in our call today. As always Mike and Becky are here to answer any follow-up questions you may have. Thank you and we hope you have a very good day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.