Louisiana-Pacific Corp (LPX) 2022 Q2 法說會逐字稿

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and other mterials. Slides 2 and 3 of the earnings presentation provide notices and detail regarding non-GAAP financial metrics and forward-looking statements. The appendix of the presentation also contains reconciliations that are further supplemented by this morning's 8-K filing. Rather than reading those statements, I incorporate them herein by reference.

And with that, I'll turn the call over to Brad.

Thanks, Aaron. Good morning, and welcome to LP's earnings call for the second quarter of 2022. LP's ongoing transformation continues to deliver results with another very strong quarter of growth and value creation. We face ongoing inflationary pressures for raw materials and freight, but as Alan will discuss later, LP's growth more than offset these cost headwinds in the quarter.

While we are watching inflation, mortgage rates, the housing market and the broader economy very closely, so far, we have seen a few signs of reduced demand for LP's products. This is especially true of demand for a more specialized and higher value-added offerings.

Thanks, Aaron. Good morning, and welcome to LP's earnings call for the second quarter of 2022. LP's ongoing transformation continues to deliver results with another very strong quarter of growth and value creation. We face ongoing inflationary pressures for raw materials and freight, but as Alan will discuss later, LP's growth more than offset these cost headwinds in the quarter.

While we are watching inflation, mortgage rates, the housing market and the broader economy very closely, so far, we have seen a few signs of reduced demand for LP's products. This is especially true of demand for a more specialized and higher value-added offerings.

Siding Solutions grew at 24% year-over-year to hit $356 million in sales, which is another quarterly record. Commodity OSB prices fell steeply through the quarter, but LP's portfolio with specialty Structural Solutions products significantly improved price realization and margin for the OSB segment. As a result, we've somewhat outperformed our algorithmic guidance for OSB revenue. Structural Solutions volume increased by 28% to reach 53% of total volume in the second quarter.

Through the first half of 2022, LP has delivered over 1 billion square feet of Structural Solutions products. Logistics challenges we faced earlier this year, especially in British Columbia, have eased somewhat, helping our operations team minimize logistics-related downtime.

I will give a more detailed capital allocation update in a moment, but LP remains committed to returning cash to shareholders via dividends and share repurchases. In fact, LP returned almost $500 million to shareholders in Q2, and we have spent a little under $200 million so far in Q3 on buybacks. And LP's Board of Directors approved another quarterly dividend of $0.22 per share, as you may have seen in Friday's press release.

Slide 6 of the presentation shows more detail about Siding growth. The bar chart on the left shows that Siding Solutions revenue has grown 17% through Q2 on a trailing 12-month basis compared to the prior period. By contrast, single-family housing starts were flat over the same period as multifamily starts rebounded from COVID lows.

Comparing only the second quarter of 2022 to 2021, single-family starts were down about 3%. The Siding volume and price both hit records, pushing revenue growth to 24%. This is hardly surprising given the diversity of products, applications and customers served by Siding. Only about 40% of Siding volume goes to single-family new construction.

The products that tend to go into repair and remodeling applications are more specialized and generally have a higher price point. The fastest-growing component of the Siding portfolio continues to be innovative products like Shakes, Corners, ExpertFinish prefinished Siding and BuilderSeries. In the second quarter, those products combined for 12% of total Siding volume, up 3 points from last year. That 12% of volume contributed 16% of Siding's Q2 revenue.

LP is committed to investing in this growth. The newest Siding mill in Houlton, Maine is ramping up ahead of schedule. Earlier this summer, we broke ground at LP's new ExpertFinish prefinished facility in Bath, New York, and work continues at LP's OSB mill in Sagola, Michigan. Sagola remains on schedule to produce SmartSide, starting late in Q1 of next year and when fully operational, bring Siding manufacturing capacity to just under 2.3 billion square feet.

Let me also add a brief word about the Engineered Wood Products segment. The sale of the EWP business closed last Monday, the first of August, Including LP's equity in the I-Joist joint venture with Resolute and before taxes, fees and other adjustments, the total proceeds from the EWP divestiture was $260 million. Throughout the process, we sold a buyer that was committed to investing in the EWP business and who could ensure a smooth transition for its customers and employees. We believe we have found that right for owner in Pacific wood tag.

I want to thank all the people who have shepherded it -- this process to a successful conclusion. And I also want to thank the nearly 700 EWP employees for their many years of service and unwavering focus on safety, value creation and customer service. I wish the EWP team at Pacific Wood Tech nothing but success.

Looking forward, with this divestiture complete, LP is more focused, more specialized, less dependent on new construction and exceptionally well positioned for ongoing growth and innovation.

Finally, LP celebrated its 50th anniversary of incorporation on the 20th of July. That is a milestone for few companies reach and one that is impossible without the creativity, determination and dedication of countless employees past and present. Thanks to all of them, LP has injured and transformed.

Today, LP is an innovative, ethical, safe and sustainable force in our industry, delivering high-quality specialty building solutions to our customers and exceptional value for our shareholders. I am confident that LP will continue to build on our history and that we have a bright future ahead of us.

And with that, I will turn the call over to Alan for a more detailed review of LP's financial results in the quarter and our updated guidance for Q3 and the full year.

Thanks, Brad, and thank you all for joining us this morning. Before we proceed to the quarterly results, I'd like to echo Brad's comments and add my own personal thanks to both the EWP employees and to everyone else who helped bring this process to a successful conclusion.

Let me also say that the completion of this divestiture means that the financial results of the EWP segment have been classified as part of discontinued operations. And for the avoidance of doubt, there was nothing else in discontinued operations in the second quarter other than EWP. Aside from the EWP divestiture, the short story of the second quarter is that demand for LP's products remain healthy, with the growth of both Siding and specialty OSB Structural Solutions more than offsetting inflationary headwinds. And of course, we continued to invest in growth and return significant cash to shareholders via share repurchases.

Slide 7 of the presentation shows the highlights for the quarter. For ease of comparison, we are showing EBITDA and earnings per share both with and without EWP. Net sales from continuing operations of $1.1 billion was down 3% from the prior year. However, largely due to lower OSB prices, EBITDA from continuing operations of $491 million was 26% lower. EWP's final full quarter with LP was another strong one, adding $44 million of EBITDA on top of the $491 million from continuing operations.

Capital expenditures in the quarter of $103 million, are on pace to hit our full year investment target of $400 million plus, which I'll describe further in a moment.

Slide 8 shows the waterfall for Siding. Sales growth of 24% was the compound effect of a 10% increase in volume and a 12% increase in price, about 10 points of which was from list price increases, with 2 points from favorable mix. Please note that the midyear price increase announced on our last earnings call took effect on July 1 and will be reflected in the third quarter results.

Siding sales volume of 448 million square feet was another record, made possible by the ongoing ramp-up of Houlton and a 2 percentage point increase in operating efficiency. Compared to the same quarter of last year, price and volume growth combined to deliver $47 million of EBITDA.

Investments in future growth totaled $7 million, the largest component being the $4 million spent in ongoing commissioning of the Houlton facility. Raw material and freight inflation reduced year-over-year EBITDA by $30 million and all of our costs of $10 million covers regular maintenance as well as SG&A increases from wage inflation and incentive compensation. This performance from Siding stands as a clear demonstration of our strategy in action to grow now, to invest in the future and to drive product innovation. As a result, if and when raw material prices fall, we should see margins return to or even exceed preinflationary levels.

Slide 9 shows the waterfall for OSB, prices for which fell steeply throughout the quarter, ending 24% lower year-over-year. However, growth in Structural Solutions both moderated the impact of price volatility and significantly improved price realization. In fact, Structural Solutions prices fell by 16% at half the rate of the commodity price fall of 32%. Combined with increased structural solutions mix, this dampened the EBITDA margin drop to a respectable 13% from 73% last year to 60% this year.

And while random length prices may have ended the quarter significantly below the level assumed in our algorithmic guidance, the higher mix of structural solutions helped OSB to deliver, nonetheless, impressive results.

Commodity volumes were 4% lower year-over-year. This is the net effect of increases in volume from Peace Valley, which has not yet resumed operating in the second quarter of last year, offset by a shift to Structural Solutions, logistics constraints and lower operating efficiency. However, Structural Solutions volume increased by 28% year-over-year to 53% of total volume in the second quarter, a full 7 percentage points higher than last year. This was again partly due to Peace Valley, which makes specialty LP products such as TechShield Radiant Barrier premium flooring and partly due to the ongoing system-wide transition from commodity to Structural Solutions.

The OSB business, too, continues to experience raw material inflation with a $22 million hit to EBITDA. But again, the performance of OSB this quarter describes our strategy better than any words could. Not only did the Structural Solutions portfolio of products help moderate the impact of price volatility, but the EBITDA from this specialty growth was nearly double the combined impact of lower commodity volume and raw material prices. Much more exciting, our aim in OSBs to drive Structural Solutions growth to make these benefits sustainable.

Slide 10 summarizes all of this for continuing operations. Even though lower OSB prices reduced EBITDA by $195 million, the things we can control, namely citing growth and the shift from commodity to specialty OSB, they netted $99 million, just enough to offset raw material inflation, costs for the Houlton and Sagola conversions and everything else besides.

Slide 11 summarizes cash flow for the second quarter. LP began the quarter with $637 million in cash and earned $535 million in total EBITDA. Working capital reductions brought in $94 million, mostly the impact on receivables of lower OSB prices. LP paid $158 million in cash taxes and $12 million of a stuff from an operating cash flow of $483 million.

LP's cash balance at June 30 was $516 million after spending $103 million in CapEx and returning $489 million to shareholders, mostly by repurchasing shares. Proceeds from the EWP divestiture of $210 million, less taxes and fees, will be recorded in our third quarter results. Those funds are not earmarked for any particular purpose, other than supporting our capital allocation strategy, but they obviously contribute to an already strong balance sheet.

Speaking of which, let me update you on LP's capital allocation. Having purchased 7.3 million shares for $471 million in the second quarter, LP's share count was 77.3 million as of June 30. Since then, we've spent an additional $197 million to repurchase a further 3.4 million shares, bringing our share count as of August 8 to 73.9 million shares. We have $329 million remaining in the prior Board authorization.

And our capital allocation strategy and the motivation driving remain unchanged. We will return cash to shareholders after necessary investments in growth, and we will continue to do so while our share price remains meaningfully below our assessment of LP's intrinsic value. But of course, we must earn the cash first, given that we plan to maintain our very strong balance sheet, which brings me to guidance for the third quarter and full year.

The major drivers of third quarter performance are expected to be similar to those in the second quarter with growth in Siding and specialty products in OSB expected to more than offset inflation. And I should stress that we see no signs that any of these growth trends are decelerating despite growing macroeconomic uncertainty.

In order to meet that long-term demand, LP continues to invest in capacity for SmartSide and Structural Solutions. We still expect full year CapEx to be in the $400 million to $430 million range. And of the $210 million earmarked for Siding mill conversions, roughly $50 million is for Houlton, the vast majority of which has already been spent. And about $130 million is for Sagola, with the bulk of that occurring in the second half of this year. Spending for Sagola will continue into 2023, and it remains on schedule for a start-up in the first quarter of 2023. The remainder of the mill conversion spend is for long lead time items for the as yet unnamed Siding line that will follow Sagola.

We expect Siding growth in the third quarter of about 20%, and we are affirming our previous guidance of full year Siding revenue growth of at least 20%. Also, while raw material inflation impacted Siding's EBITDA margin in the second quarter, we reiterate our long-term EBITDA margin target for Siding of at least 25%.

Commodity OSB prices are down both sequentially and year-over-year, but have stabilized in July. As a result, we'll use the same algorithm for OSB revenue guidance as we did for the second quarter, but with an updated price assumption. Assuming random length prices are flat for the remainder of the third quarter at last Friday's published levels, we would expect to see a sequential reduction in OSB revenue of about 40%. This would bring third quarter EBITDA from continuing operations to about $200 million.

And with that, we'll be happy to take your questions.

(Operator Instructions) Our first question coming from the line of Ketan Mamtora from BMO.

First question, can you talk a little bit about the channel inventories that you are seeing in the Siding business? We are seeing quite a bit of inventory destocking in some building product categories. So I was just curious kind of what you are seeing in Siding?

Yes, Ketan, we are still experiencing very lean channel inventories as it relates to our siding product. As you know, we've been on managed order file for close to 2 years now. Certainly, the volume we're getting out of Houlton is helping some now, but we're still running very lean inventories at distribution. So really no change since the last call. .

Got it. That's helpful. And then as my follow-up, Alan, I was just wondering if you can talk a little bit about how you think about share repurchases versus keeping some liquidity cushion, flexibility with your balance sheet if the market were to slow over the next 2 or 3 quarters? .

Yes. And great question. Thank you. I'm going to start by saying that we still have an extremely strong balance sheet today. We have $350 million of very cheap high-yield debt, which I intend to keep in place. We have $550 million of undrawn revolver. We have borrowing capacity should we need it for any sort of investment in future growth. And as I want to reiterate that the cash we devote to share buybacks, not only has to be earned first, but forms part of a strategy whereby we basically pass out the cash needs of the business first in terms of investment in all of our growth plans. And it is the, what I'll call a safe remainder, at times, a huge safe remainder that we return to shareholders via share buybacks.

So there's no question that investment in the business comes first. And I also believe that the incredibly strong balance sheet that we have today puts us in a very safe position to handle any potential downturn should it occur without compromising our ability to continue to invest in growth.

And our next question coming from the line of Susan Maklari from Goldman Sachs.

My first question is, thinking about the demand environment, perhaps especially as it relates Siding, it seems like you didn't see any material slowdown in the quarter, which we've heard from some of your broader building product peers. I guess can you talk about how the quarter trended and how you're thinking about the outlook for volumes as we get into the back half of this year and then maybe even into early 2023?

Yes, Susan. We had very strong order patterns throughout the quarter. Being on managed order file, we're essentially oversold, and we have stayed that way certainly all of this year. Whenever we've experienced weakness in one of our distribution channels or regions, other distributors, other customers, other regions, have been able to take up that available inventory pretty much on demand. And so we're not sensing any slowdown in Siding order patterns at all.

And we expect that to continue certainly for the rest of this year. It will help, as I mentioned, to Ketan, as we bring -- continue to ramp Houlton up, having that extra volume. But frankly, as we look into the remainder of this year and as kind of Alan reiterated in the guidance, we will be selling to capacity really certainly for the rest of this year.

Now you also ask and looking over into next year, and we have -- we've been recently really beginning the planning process for next year's budget. And we continue to see very strong growth extending into next year. Once we have Sagola up and running, that will be a sizable increase in capacity for us, about 50% to 75% more than the Houlton line. But again, the ramp-up for those are -- we start from 0% and you get to 100% in about a year.

So I feel like we'll be running to capacity for certainly the first half of next year. And then we'll see what happens from there. But we're still very optimistic about Siding, given the diversity of our end use customers, the diversity of channels that we operate in, our geographic diversity and then the diversity within the product offering. So we're running full steam ahead.

Okay. That's very helpful color. And then following up on that, you mentioned that you did see some of those logistics challenges in Canada ease a bit in the quarter. Can you just talk in general about what you're seeing on the supply chain and inflationary side? And how you're thinking about that for the back half of this year? .

So the raw material availability has been mostly unconstrained in Q2. So that we've had availability of supply. Of course, pricing is a different matter, and Alan talked about that, and we can go in a little more detail if you would like. Similarly, on the logistics side, where we've certainly experienced -- where we had to take downtime Q1 and early in Q2 as it related to just inability to get railcars or trucks in the Canadian -- some of the Canadian facilities, Susan, we have limitations on how much finished goods inventory we can put on the ground there. So once we hit those capacity constraints, then we have to take the mills down.

We have been working diligently by swapping trucks for rail or rail for truck, depending on the situation and have been able to keep product flowing certainly through the second half of Q2 and as we speak today, it's a daily grind. There is, I would say, risk associated with potential for further downtime, especially given weather conditions as we get later into the year. But right now, we're basically able to get equipment under every load we can produce.

Our next question is coming from the line of Sean Steuart with TD Securities. .

A couple of questions. Can you remind us of the magnitude of the July Siding price hike? And just trying to gauge how much catch up there could be on margins for that segment, if at all, this quarter given the cost inflation that cut into margins in Q2?

Yes, Sean, we went out, depending on region, depending on channel, the 2% to 3% price increase July 1. We expect to realize most of that fairly quickly. There's some agreements we have in place that can delay it by a matter of weeks. But that price increase, it's not that large, but it is sticky. So we expect it to pass through, certainly by the time we get to the end of the quarter.

I was just going to add that with respect to the -- I think the second part of the question was with respect to which raw material inflation is impacting the margin. The Siding business is running at a year-over-year inflationary cost impact of about -- sorry, quarter over -- year-over-year per quarter of about $25 million, about 7 points of margin.

I mean if you just took the raw material increases that we experienced in the second quarter and half them, let's pretend that we enjoyed half of that, then the margin would have been back to 25% of our long-term guidance. So the business is carrying hefty inflation and still maintaining a very healthy margins. So we are optimistic that there's an upside in the siding margins, we'll call it, a permanent upside, should we see raw material deflation.

Got it. Second question, Brad, I'm wondering if you can comment on your sense of the shape of the OSB cost curve. And any sense you have that market-related downtime might be possible at some of the higher cost mills in the industry at some point over the second half of this year. What -- are prices getting low enough where that might be necessary at this point? Or is there still some cushion left?

Well, let me just say, from a cost curve perspective, I think -- I guess half my career in the paper side of forest products, where some of those cost curves can be rather steep when you get to very small paper mills. In OSB bid, comparatively, I think OSB's cost curve is relatively flat. So there's not -- I mean there are a few smaller, high-cost OSB mills that are still operating and obviously, that would be stressed if pricing fell.

As I look into the second half of the year, I really believe, Sean, that it's a demand capacity issue that is at risk. We're not sensing that in our OSB order file right now, any like significant weakness. And so I would not want to speculate on pricing, but I could see OSB demand staying kind of stable as we get through at least the early fall. And then as you know, once we get to Thanksgiving to 15th of January, a lot can happen depending on if the builders decide to keep building through that holiday season and also the impact of weather as we get later into the year, that could have an impact on demand that could drive that the operating ratio down.

So -- but we're pretty -- I mean we feel pretty good about underlying demand right now as we work through the rest of the fall season. Inventories for OSB are more balanced, and I don't think we've answered that question yet in the channel. I do think there was some -- there's been some -- a little bit of inventory build over the summer that have allowed for where we are today is we're selling to demand. I think inventories are pretty much in balance. And so the orders that we get in, we feel pretty confident are going right out the door into the market.

Now let me just say on downtime, we are committed to balancing the demand for our OSB product line against our capacity. And we're committed to supplying our customers to OSB that they need. We're not committed to building inventories or location or in off-site locations in order to keep operating our facilities. And so that's how we will behave if we do see demand falling as we get later into the year or the first part of next year.

Our next question coming from the line of Mark Weintraub with Seaport. .

Just a follow-up first on the EBITDA margins in Siding. And so if we were to take the price increase, the midyear price increase and what you've seen so far in terms of incremental change and inflation? And any color on that would be great, too. Do you imagine margins climbing towards that 25%? Or somewhere between where they were in the second quarter and the sort of 25% longer-term expectation in the second half of the year? And any other color as to the critical variables that might impact where the EBITDA margins in Siding would be likely to come out in the second half of the year? .

Sure. Yes. Given the price increase, if raw material prices -- I'll give a -- I'll answer the question the way we sort of answer always the price guidance. If raw material costs don't rise from the second quarter levels and everything else about our forecast on Siding remains robust, I will say that the pricing in the market has been well received and is proving relatively sticky. You would see margins around about or slightly above 25%, if the raw material prices don't worsen. So...

Great. And to date, as you look at where things are today versus where they were on average in the second quarter on the raw material side, how would you characterize that? .

I would characterize that as I'm going to refuse to answer that question right now.

Our next question coming from the line of Michael Roxland with Truist.

Good to be here. One quick question on the -- your order book. You obviously mentioned that you have managed order file for the last couple of years. You're not since seeing any weakness in OSB orders right now. Can you -- I mean how far -- what's your line of sight with respect to your orders? How far do they extend, is it a couple of weeks, is it the months? Are there any indications that as you get in the back half of this year that you should start to see -- could start to see weakness, particularly given what some of the builders have indicated in terms of slowing demand? .

Yes. That's a good question, Mike. So for Siding, we have good lenses out for 6 weeks on Siding. And so when I speak of strength, just kind of the nuance of the way we're managing the order file in Siding, we've got pretty good visibility out on that order book. So let's just say, 4 to 6 weeks, no weakness in the forecast at all.

We are -- have shorter order window on OSB. Typically, that is 2% to 4%. And I would say right now, we're probably selling 2 to 3 weeks out, 3 weeks, more than 2. And so if things were to fall off the cliff, say, here it is, 1st of August, middle of September, we do not have a visibility out that far for OSB. So we're a little more -- a lot shorter on order file in OSB, so a little bit more vulnerable to a downturn in demand.

Got it. Appreciate that, Brad. Just -- and then one quick follow-up. You mentioned, have your commitment to capital allocation. Obviously, the priority being investing in the business first and then anything that's left over for return to shareholders. But how do you think about share repurchases given the inflation reduction , which is -- looks like it's going to pass, and which is taxes share repurchases at 1%? Does that impact at all how much capital you intend to return?

No, not at all. That 1%, I'll call it, tax, is so small compared to the gap we believe exists between our intrinsic value and our current share price as of even right now, not that I've looked in the last half hour, that 1% is a drop in the ocean. That's of no consequence to our capital allocation strategy.

(Operator Instructions) And our next question coming from the line of Kurt Yinger with D.A. Davidson.

Just my first one on, in terms of OSB cash production costs, what's the best way to think about the difference between commodity and Structural Solutions from a cost perspective?

Well, there's a lot of variation on the Structural Solutions side to the incremental cost, depending on how sophisticated the product is relative to commodity. So I would say we're looking at adding I don't know, Aaron $30 to $60 well; and for claimblock, $100 plus. So there's a lot of variation, but just looking at our portfolio, I'd say somewhere between $30 to $80 of additional cost. .

Got it. Okay. That's helpful. And then on my second, could you just help us think about what annualized production on the OSB side looks like given where Peace Valley is and with Sagola out of the picture next year?

Yes, Kurt. So we would be pretty close to 4 billion total square feet with the net effect of Peace Valley edition and Sagola removal from the system.

And our next question coming from the line of Paul Quinn with RBC Capital.

Just following up on Kurt's question on Peace Valley, you started that about a year ago. Are we at full capacity at the mill right now?

We are, Paul, yes.

Okay. And then just looking at the North American OSB market itself, there's -- on paper, there seems to be quite a few capacity adds in '23 and then another couple in '24. Have you heard anything in the channels or from customers about some of the delays that might be affecting some of those mills that are expected to start up? .

I don't want to be specific because it would be hearsay, but I would just say, generally, we're hearing more delays than expediting of those capacity additions in OSB for a variety of reasons depending on the project. .

Okay. And then just on housing search, in general, it seems like you're slowing with the jump up in rates here, although it seems to be slowing here. But on your Siding side, it's really more leveraged to the repair and remodel market. I know you can only support it, see sort of that 4 to 6 weeks out. But how are you thinking about that market for '23 and beyond? .

We feel good about prepared remodel. We're adding capacity right now in Green Bay, Wisconsin at one of our pre-finished facilities. We've talked about on the call in the prepared remarks, the facility in Bath, New York, that will be operational middle of next year. We're pretty much running -- well, we are running our prefinished capacity also on managed order file.

And so those -- that additional capacity at Green Bay and Bath will have an immediate impact on our ability to grow in the pain remodel. We do believe it is more that we are capacity constrained on growing that part of the business today, not market constrained or market acceptance constrained. And so as we ramp up these prefinished facilities, we're expecting that to be a significant contributor to our growth next year.

And it could turn out -- sorry, I was just still to say it could turn out for once we could get the timing right that if housing does weaken, we will have some momentum in repaying remodel to continue this good growth story that we have. Sorry to interrupt.

Yes, no worries. Let's hope that works out for you. Just lastly, just on Entekra, if you could give us an update there?

Yes. We continue to make slow progress in Entekra. I'll just -- pretty much similar to what I said last quarter, we're very pleased by the market acceptance, repeat customers, customers coming back in for a second time with more volume. We are working through operational issues at the facility.

We're pretty much -- I mean LP has pretty much taken the operational side of that business into our system now. And we're seeing improvements. We need to see continued improvements there on the cost side. Just as you can imagine, it's been volatile with lumber prices and EWP pricing running through there and capturing that. But we certainly also have some operational improvement opportunities that we're beginning to implement in earnest that we're wanting to see improvement on the cost side, the rest of this year and crossing the rent into next year.

We'll probably have -- we'll have more to say on the next call, Paul. We're going through a pretty intensive strategic evaluation of that business. And I mean that positively, I'm not talking EWP language on strategic reviews, but we are -- we'll have been operating the facility full time for about 2.5 years when we get to November. And it's -- we're going to really take a step back over the next 3 months and see what we have and try to understand its place in our portfolio of businesses.

And we're still bullish about the business in general. Just want to make sure that from an operating perspective, we feel like we can continue to make the progress we need to make that a viable business for us.

And our next question coming from the line of Mark Weintraub from Seaport.

Two quick follow-ups on cash generation. So on the EWP, I think you mentioned $260 million in gross, and then there are going to be some fees and taxes, et cetera. Can you give us what the net proceeds for that's likely to be? .

Well, yes, sure. The net proceeds for the $210 million, after taxes are going to be around about $170 million. There's roughly -- I'm being very conservative here. Let's say, $10 million of fees in such, and there will be a little less than that, and over adjustment and about $30 million of taxes on the $210 million. On the $60 million that we already received from the JV, there's no taxes payable. So that's free and clear. .

Okay. And so you described, so the $60 million already showed up in the first half of the year? .

That's right. Yes, yes.

Okay. And then can you give us a preliminary assessment on where CapEx is likely to be next year?

Certainly, of the same order of magnitude as this year, all things considered, it maybe a little bit lower, but not meaningfully. So I would say at this point, early read, somewhere between $340 million, all of the things being equal.

Mark, while you're on, let me -- I just want to go back and see if you get -- if you allow me to improve on my answer to the raw material question. I'm sorry for being as abrupt as I was. Obviously, the guidance we gave of $200 million -- of about $200 million for the third quarter, that includes about the same level of year-over-year raw material inflation that the business experienced in Q2. A very, very, very modest uptick from Q2 to Q3. We've seen no signs as of right now that that's under threat, let's say.

So we're made to assume that it's running at about the same level as of today.

And our next question coming from the line of George Staphos with Bank of America.

Alan, Brad, could you give us a bit of color in terms of what you're seeing on lead times for the next presses and equipment that you'll see with the next siding mill relative to what you saw with Houlton and Sagola and what you're seeing with Sagola? Any change there? And if you had to put a number on it, are we talking about 18 months, 24 months? Any thoughts on that?

George, that is a great question. And fortunately, with our Board did support early lead time procurement for the next -- the conversion after Sagola. So we feel good that we've gotten in the queue for all the critical equipment, delivering kind of on our schedule, not having to wait on that. Certainly, there's some risk there. So I don't want to say there's not.

But we were proactive about getting the components that we would order no matter where we cited the next mill. Those are pretty much locked in with delivery schedules. So we're not expecting that to be a delay. It will be our timing, not a vendor-related timing issue. I mean certainly, there could be delays that push it a quarter. But right now, we feel good about that.

Is there any way to say, let's say, somebody else wanted to order a press for Siding or for OSB or anything else? What that might look like assuming, obviously, they weren't as proactive as you end in the queue as well? If I want to get as the Siding business assuming I knew what I was doing, would I be looking at 2 years plus in terms of equipment? And I don't know what I'm doing on that front. So just in case you're worried. .

Well, they would most -- well, if you're going to do it exactly like we do it, you've got to use to -- probably have to use the vendors we use, and you would be after us in the queue at a minimum. And so a lot of it depends, though, the nature of your question, is it a mill conversion or a new mill or whatever. So I mean, I think your 2 years sound would be reasonable. But I mean, I'm just -- that's just right off the top of my head.

No, I appreciate the patience with the question, Brad. I know you've talked to this in the past, but structured solutions versus Structural Solutions versus base-level OSB is the target still 75% at some point? And in turn, perhaps you've talked about this in the past, is there just a general base level of OSB that you think you need to be -- to run relative to what you ultimately expect to grow in terms of the Siding business? .

Great question. 75% is our next target. In 2017, when we launched our Structural Solutions strategy, we set it at 50%, which we've now exceeded. So now it's on the 75%. And I do believe that when we get to 75%, there'll be a new goal that's greater than 75%. And I don't believe, George, there's some kind of underlying optimal commodity volume that we would want to hold on to. There's always going to be some commodity volume as you change SKUs or start-up of mill after maintenance downtime. So I don't think that number will ever be 0, but we're looking at converting a very high percentage of Structural Solutions over time.

Okay. And perhaps you mentioned it and I missed it, but any quick thoughts on how South America is progressing? Any things that you've seen early in the quarter relative to demand and for that matter, more broadly just the macro in your key markets? And I'll turn it over.

Yes. So demand has held up fairly well in South America through some of the political and economic chaos that's going on down there, chaos might be a little bit strong of a word. But -- so we've really been running to production in our South American operations.

There is some pessimism about the economies down there, but we're pretty diverse across countries or very diverse on product offering. And then we do have a fairly healthy export business out of there that we use as the relief valve for that extra capacity. So I feel good about us being able to produce to basically around capacity volumes.

And then what we end up doing is balancing the internal demand to the continent of South America with our export volume and that does have a margin. That's a more location. It's better, higher margin to keep it domestic. And so I would say the second half probably not as optimistic as what we saw in the first half. But so far, to your question, and so far in the quarter, it's been holding up okay.

I will now turn the call back to Aaron Howald for any closing remarks.

Okay. Thank you, everybody. With no more questions, we'll bring the second quarter earnings call for Louisiana-Pacific to a close. Have a great rest of your day, and we'll look forward to speaking again soon. Thank you very much.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect. Good day.