I would now like to hand the conference over to your speaker today, Aaron Howald, Vice President of Investor Relations. Please go ahead..

Thank you, operator, and good morning, everyone. Thank you for joining us to discuss Louisiana-Pacific Corporation's results for the fourth quarter of 2024 as well as our full year results and our outlook for Q1 and 2025.

Hosting the call with me this morning are Brad Southern, Louisiana-Pacific Corporation's Chief Executive Officer, and Alan Haughie, Louisiana-Pacific Corporation's Chief Financial Officer. After prepared remarks, we will take a round of questions.

During this morning's call, we will refer to a presentation that has been posted to Louisiana-Pacific Corporation's IR webpage, which is investors.lpcorp.com. Our 8-K filing, earnings press release, and other materials are also available there.

Today's discussion contains forward-looking statements and non-GAAP financial metrics as described on Slides two and three of the earnings presentation. The appendix also contains reconciliations that are further supplemented by this morning's 8-K file. Rather than reading those materials, I will incorporate them by reference.

And with that, over to Brad..

Thanks, Aaron, and thank you again for joining us today. Q4 was a strong finish to a record year for siding, future growth, share gains, and margin expansion. In 2024, siding set records for net sales and EBITDA overall as well as multiple records for ExpertFinish.

In OSB, we saw slightly higher market prices than in 2023, but more importantly, the business executed our strategy effectively, grew structural solutions, increased operating efficiency, and managed capacity with agility and discipline. Page five of the presentation shows financial highlights for the fourth quarter and full year.

In Q4, we saw the expected seasonal slowdown as winter weather brought the building season to a close. Compared to the prior year, siding sales grew by 9% in the quarter.

For Louisiana-Pacific Corporation as a whole, the net effect of siding growth, a decline in OSB prices, and an increase in OSB sales volumes resulted in $681 million in sales, $125 million in EBITDA, and $105 million in operating cash flow.

After investing $61 million into sustaining maintenance and growth capital, Louisiana-Pacific Corporation returned $42 million to shareholders through dividends and share repurchases. For the full year, siding sales grew by 17% to $1.56 billion.

Thanks to siding growth, slightly higher OSB prices, and the margin expansion driven by increased capacity utilization and operating efficiency, we achieved $2.9 billion in sales and $688 million in EBITDA. These represent increases of 14% and 44% respectively. This nearly doubled earnings per share to $5.88.

Louisiana-Pacific Corporation used $605 million in operating cash flow to continue executing our capital allocation strategy by investing $183 million in CapEx and returning $286 million to shareholders via dividends and share repurchases. Most importantly, we accomplished this safely, ending the year with a 0.67 total incident rate.

This is considered a world-class TIR, but it's not good enough for Louisiana-Pacific Corporation. We will never stop working to improve our safety performance to ensure no one gets injured while working at Louisiana-Pacific Corporation. As we look forward to 2025, the market is not radically different from what it was a year ago.

On our call this time last year, we said that we expected 2024 to be a flat year for housing and a soft year for R&R. We expected both businesses to outperform both markets. This is exactly what happened. In 2024, total US housing starts were down 4% for the year and 6% in the fourth quarter.

Louisiana-Pacific Corporation is over-indexed to single-family housing, which fared better, especially in the first half of the year. Single-family starts were up 7% for the full year but down 5% in the fourth quarter.

It's hard to be precise about the repair and remodeling market, but we estimate the total US R&R expenditures were down low to mid-single digits. Against this backdrop, siding revenue grew by 9% in Q4 and 17% for the full year.

We saw the resumption of normal seasonal demand patterns in siding, as well as broad-based growth in all product categories and in all geographies we serve. This growth is driven by new product innovation, our demand creation efforts, Louisiana-Pacific Corporation's superior product offerings, and by our amazing teams that make it all happen.

Volume growth enabled more margin expansion for siding as we more fully utilized our new capacity at Louisiana-Pacific Corporation's Holton, Sagola, and Bath facilities. As a result of this growth, siding achieved our long-term EBITDA margin target of 25% for the full year despite a soft market.

In OSB, despite housing starts below long-term average demand, the business achieved EBITDA above our long-term cycle average thanks to efficient cost control and disciplined capacity management. The consensus expectation for housing starts in 2025 is looking like another flat year, perhaps a modest rebound in R&R spending.

Accordingly, in OSB, Louisiana-Pacific Corporation is planning for another year of operational excellence, cost control, and strategic execution. In siding, the focus is on share gains and volume growth. We are seeing encouraging evidence of that growth so far in 2025 with a healthy siding order file that we will detail in our guidance discussion.

Accordingly, we are increasing our investments in new product innovation, demand creation, and capacity expansion to meet our customers' needs. 2024 was a relatively light year for CapEx investments. The recent conversions of our Sagola and Holton Mills and the opening of our pre-finishing facility in Bath gave us room to grow in siding.

As demand continues to increase, we want to ensure that we do not outgrow our siding capacity. That means that 2025 and 2026 will see significantly increased investments in capacity expansion starting later this year.

The next projects will include a second manufacturing line at Louisiana-Pacific Corporation's Holton, starting the next siding expansion project after that, and increasing capacity at our existing ExpertFinish pre-finishing facilities, with a significant portion of this work happening in parallel.

At our historic volume growth rate of about 7% per year, and our much higher growth rate for ExpertFinish pre-finished siding, these projects should be completed in time to keep siding capacity utilization within an efficient balance.

We would much rather be a little early than late with new capacity, and so we are starting now to preserve our ability to grow, rather than risking an extended period of allocation like we saw during COVID.

As Alan will detail in a few minutes, we expect the siding business to generate over $400 million in EBITDA this year, reinforcing our confidence that siding can comfortably fund its own growth. The Louisiana-Pacific Corporation team is fully committed to executing our growth strategy.

I'm confident that we will continue to innovate new products, gain market share, operate safely, and increase the scale and efficiency of our manufacturing network. With that, I will turn the call over to Alan to detail these investments, the financial results, and our 2025 outlook, after which we will take your questions..

Thanks, Brad. As Brad said, the fourth quarter brought the year to a strong finish. As I'll explore in a few minutes, the first quarter of 2025 also seems to be shaping up well. Page seven shows the fourth quarter waterfall for siding.

2024 largely exhibited normal seasonal demand patterns, with a sequential drop in volumes in the fourth quarter as building activity faded. Single-family starts were down not just seasonally, but also by 5% year-over-year. Despite this, siding volumes grew by 3%, beating single-family starts by eight points.

Higher selling prices added another six points of revenue growth, with roughly half coming from list price increases and half from mix. And we largely reinvested these earnings in selling and marketing and in mill staffing, with the expectation that 2025 demand will require higher production.

For the full year on page eight, siding revenue grew by 17 points, outgrowing the underlying markets, as Brad said. This growth added $230 million in revenue, $79 million of it from prices, and $151 million from volume. And it added $143 million in EBITDA, being the flow-through of $79 million in price, with $64 million coming from volume.

Increased investments in demand creation and mill staffing, partially offset by a $60 million benefit from raw material price deflation, brought 2024 to a close with a 25% EBITDA margin, 500 basis points higher than last year, 2023. We sold just over 1.7 billion square feet of siding in 2024, which is about 75% of our nameplate capacity.

So we have a healthy runway of capacity to grow into while we execute new expansion projects. For OSB on page nine, lower prices in the fourth quarter cost the segment about $18 million in both revenue and EBITDA.

However, by effectively managing what we can control, the business recovered most of the revenue impact and half of the EBITDA impact of these lower prices through the combined effects of higher volumes, improved OEE, and efficient raw material utilization. Page ten shows the full year of OSB.

On average, prices were slightly higher year-over-year, but the $35 million in pricing benefit was overshadowed somewhat by the $106 million in revenue and $55 million in EBITDA from higher commodity and structural solutions volumes.

Helped, of course, by a three percentage point improvement in OEE, which in essence means that when we ran, we did so more efficiently. Raw material deflation, labor inflation, and a hodgepodge of other small items left the year at just under $1.2 billion in net sales and $298 million in EBITDA.

So the fourth quarter was a bit below our declared cycle average quarterly EBITDA of $60 million, but the year ended well above that level. Page eleven shows cash flows for the quarter and full year.

Both are pretty straightforward, with EBITDA translating cleanly to operating cash flow, helped by a slight decrease in working capital and a normal cash tax rate.

We invested to maintain and expand our manufacturing capabilities and returned most of the excess to shareholders, paying $74 million in dividends and $212 million in the year to repurchase shares at a volume-weighted average price below $90.

Louisiana-Pacific Corporation ended 2024 with $340 million in cash, zero net debt, and almost $900 million in total liquidity..

As of February the fourteenth, Louisiana-Pacific Corporation has paid an additional $51 million to repurchase roughly 0.5 million more shares. And this leaves 69.7 million shares outstanding and $187 million remaining under the pre-existing share repurchase authorization.

Now, Louisiana-Pacific Corporation's guidance for the first quarter and full year of 2025 is on page twelve. For siding, the order file continues to be healthy. And to be clear, consistent with a typical seasonal rebound early in the year.

And while there was minimal price lag in January, price realization now fully reflects the annual list price increases. Accordingly, we expect sales growth in the first quarter between 9% and 11% for revenue in the $390 million to $400 million range. EBITDA should land between $95 million and $105 million for an EBITDA margin of about 25%.

For the full year, although we currently expect flat housing starts, we nonetheless anticipate revenue growth of seven to nine points, bringing revenue to between $1.65 billion and $1.7 billion. EBITDA should be between $450 million and $425 million, for an EBITDA margin, again, of around 25%.

For OSB, assuming random length prices are flat to last Friday's published levels, we would expect first quarter EBITDA to land between $35 million and $45 million. And for future quarters, we offer no estimate of OSB prices and merely revert to cycle average as a reasonable approach to modeling the longer-term EBITDA potential of the OSB business.

I should note that while we're using the same algorithm to estimate cycle average EBITDA, the inclusion of 2024 data does increase that cycle average EBITDA slightly from $60 to $65 per thousand square feet, as reflected in the outlook for the second through the fourth quarters.

And finally, for the avoidance of doubt, we have insufficient clarity about them to incorporate any tariff impacts in our guidance. The first quarter and full year guidance therefore assumes the current state continues. Now if siding growth proceeds on this trajectory, we will need new press capacity sometime in the next two to three years.

And will need additional pre-finishing capacity somewhat sooner. The chart on page thirteen shows this schedule of capacity additions that will be necessary to meet demand under these scenarios. As a result, 2025 will be a year of significant investment. We expect to spend about $200 million in growth capital largely in the second half of 2025.

And 2026 will also most likely be a year of heavy investment, with two expansion projects in parallel, as Brad mentioned. We'll have more specifics on timing, total project cost, and expected returns in coming quarters.

Sustaining maintenance is also increasing in 2025 with some green and modernization projects in OSB designed to improve efficiency, yield, and most importantly, safety. So in conclusion, 2024 was a strong year. We executed our growth strategies.

And that execution generated over $600 million in operating cash flow, which we invested to maintain and enhance our manufacturing capabilities, generate more demand for our products, and to develop and reward our people. And we returned the rest to shareholders consistent with our capital allocation strategy.

We believe we have a strategy that works, a record of solid execution, and a robust balance sheet, all of which gives us confidence that we're very well positioned to make the most of what the housing and repair remodel markets have to offer. And to invest further in more product innovation, growth, capacity expansion, and shareholder returns.

And with that, I'll open the call for Q&A.

Operator?.

Certainly. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. Our first question will be coming from Michael Roxland of Truist Securities. Your line is open, Michael..

Yeah. Thank you, Brad, Alan, and Aaron for taking my questions. Congrats on a strong finish to the year..

Thank you..

I'm wondering if you could comment, obviously, siding demand is, as you noted, continuing to be strong.

Could you comment on the Lennar pull-through and help us think about the cadence of that growth this year?.

Yeah. So we, I would say we have ramped into full contract execution with Lennar. There was a ramp period after the deal was signed. We didn't get all the homes immediately, obviously. So we're running at full scale with them. We're in the second year of that agreement.

And I would say it's at or exceeded or at or have exceeded our expectations as far as volume pull-through..

Yeah.

When you say this, I mean, add or exceeded, would you say it's more of the latter? Than the at, meaning that it's, you know, it's performed?.

Yeah. It's performed as expected. Yes. Sorry for any confusion. I mean, they are contracted for a certain amount of homes, and we've gotten those homes. And I mean, a little extra here and there, but you know, materially, it's within the bounds of the agreement..

Got it. Okay.

And just, you know, second question, I have this, given the weakness or what had been weakness in commodity OSB, have you shifted any more of the production to structural solutions, which are more margin accretive? And are you handicapped in any way for making a large shift to structured solutions from commodity OSB, particularly as you look to build out, you know, build a series given, you know, tie-in across opportunities?.

Yeah. We do have to invest to continue to grow structural solutions from a manufacturing standpoint. Those investments tend to be small, especially relative to the siding conversion, and fairly quick to execute. So there are times that we run into some constraints around product availability and structural solutions, but that's very rare.

So yeah, you're right. As commodity pricing flattens out or is below trend lines, we really enjoy incremental margin we get from structural solutions. And our strategy to continue to sell, have a strategy for the PULDAS SKUs through distribution and capture that margin. And that's been a key part of our strategy.

I'm proud of where we were in 2024, and we have plans to grow on that in 2025..

Yeah. Thanks very much..

Welcome..

And one moment for our next question. Our next question comes from Ketan Mamtora of BMO Capital Markets. Your line is open..

Good morning and thanks for taking my question. Perhaps to start with on siding, can you talk about, you know, sort of the EBITDA and the margin level in siding for 2025? Clearly, the ExpertFinish business is growing quite nicely. We know that it is, you know, there is a higher price point product should be margin enhancing.

Can you talk about a couple of offsetting factors, you know, that may be keeping margins at the same level? Is it SG&A? Is it anything else?.

Yeah. Thanks, Ketan, for the question. I'm sure that's a bit of a burning question. I do want to say, so I'm gonna be sort of trying to be a little thoughtful and careful in my response. This is the first time that we've guided to a 25% EBITDA margin for the siding business. So I do want to answer the question in reverse.

The volume leverage and the price flow-through that you're used to seeing on our waterfalls that you see in the Q4 and the 2024 full-year waterfall, right? Waterfall. They're expected to continue. Let's say, the pure volume conversion of revenue to EBITDA at about 40% and, of course, price flows to 100%.

So we get that kind of blended volume and price flow-through about 65%. But so thank you for the question. But we're not harvesting. It's way too early in Louisiana-Pacific Corporation's growth trajectory for us to even consider that. So the costs that are included in this full-year guide, there's about $20 million of inflation.

Now a third of that's labor, so that's certain. The remainder is, let's call it raw materials. I will admit that's largely speculative. There is about $10 to $15 million closer to the high end of additional selling and marketing expense.

And so, yes, you know, in order to generate future business as well as help secure this year's growth, we are continuing to invest in adding selling and marketing dollars. And I've said it before, on sort of broad public calls and on individual discussions, we encourage this.

We encourage discretionary selling and marketing investments in order to generate future growth. I will say that the push into repair and remodel does require, let's call it, a higher level of marketing dollars per foot of business gained.

Then, again, further on the discretionary side, there's roughly $5 million of, let's call it, engineering costs and staffing associated with the capacity expansions. And some additional mill staffing very much in the hope that the market or the market share gains give us for the growth. On top of the amount that we've guided to.

So we are certainly, as always, building in the necessary discretionary spending that would help us overachieve. And there's about a one and a half to two percentage point margin impact from all of that stuff that I just described. What's not included? We have not assumed any material price mix favorability.

It's too early to know whether or not that how ExpertFinish will progress in the year. We're obviously optimistic, but it always feels a bit reckless to just basically take that as a given. Given the fact that 2025 as a housing market is gonna be challenging. It's a flat market in housing and probably down in R&R.

So this is definitely a market share gain year. We can't always predict where and quite how and when those market share gains will occur..

Thanks, Alan. That's very helpful and very detailed. So appreciate it.

And then switching to kind of siding capacity expansion, on Holton line two, can you share with us at this point kind of what kind of capacity expansion you are planning and what kind of total investments will be on line two?.

Yeah, Ketan, that'll add about 300 million feet of volume. The Holton expansion would be adding a parallel manufacturing line to the existing mill. So adding a forming line then a press. I don't think we've gotten into the details precisely of how expensive that's going to be. Haven't yet. No.

But the returns are consistent with previous expansion projects that we've had. So as we get closer to that and have more specifics about timing and things like that, we'll be able to share that..

And, Ketan, I would just say from a manufacturing standpoint, we would be focusing that line on the lap and trim capacity versus panel..

Got it. That's very helpful. I'll jump back in the queue. Good luck in 2025..

Thank you, Ketan..

One moment for our next question. Our next question will be coming from Susan Maklari of Goldman Sachs. Your line is open, Susan..

Thank you. Good morning. This is Charles Perron in for Susan today..

Your voice has gone down a couple of octaves, Susan..

Yeah. I know. Maybe first, I wanna ask about the siding guide and the application for, you know, the volume outperformance versus the market.

Where do you see the biggest opportunity for growth and outperformance across, you know, new construction, R&R, and maybe shed as we look into 2025?.

Yeah. Great. Good question. We are really expecting volume growth across all product offerings this year. There is, when we compare it to 2024, probably just some recovery volume or percentage in shed. Shed was rather weak, especially in the first half of last year. So, you know, fortunately, that's back to normal. It's not a little strong right now.

So that, to be, if any one sector is kind of leading the good growth, it's shed at the moment, but we're expecting above-margin growth across all sectors. Retail, the builder new construction, as well as repair and remodel. And we're also looking at it across all geographies.

So we've got a really, you know, we're off to a good start, and the visibility we have into the order file is the strength, really strength everywhere..

Gotcha. That's good color. And maybe can we talk about also the raw material and freight expectations for 2025? I think on siding you alluded to $20 million inflation.

What does it imply for price cost? And how would potential tariffs impact, you know, your siding cost structure as we think about the year ahead?.

Well, I'll take the easy one first. And then we'll avoid the second one. The $20 million I referenced does include about, I don't know, $8 million or so of labor. So that's as it was certain, that's already been given and gifted as it were. And the rest is raw material.

And, you know, there will be, we think we'll see increases in paper overlay costs mostly offset by reductions in MDI costs. So there is some potential for raw material inflation, but I will admit that piece is broadly speculative. But I can't point to anything in particular.

But most of our major raw materials other than wood are indexed to various derivative products that go into it. So we have to do some kind of forecasting around benzene cost, oil cost, to do these analyses. So that's the analysis that we did that drove the assumptions around price increases for raw materials other than wood..

Got it. Thank you, guys..

Yeah. And there's no assumptions in nothing that we've talked about as far as the cost. Assumes any tariffs replaced on raw material inflows..

And one moment for our next question. Our next question will be coming from Sean Steuart of TD Cohen. Sean, your line is open..

Thanks. Good morning, everyone. A couple of questions. Want to revisit tariff exposure.

Can you give us a sense of your approach in engaging with customers on OSB and siding if and when tariffs materialize? Is the intention to try and pass it on in complete or to fully offset the tariff in terms of pricing? And, Brad, I'm just wondering if you can speak to, I guess, your perspective on demand, elasticity, intention in the market, the ability to pass those tariffs on, and how much of a supply response might be needed for both OSB and siding..

Well, you know, for OSB, it's a traded commodity. So, you know, there's not a direct way to pass costs onto the customer in OSB other than through the trading floors. And that and that'll be, I mean, you know how that works.

So there's, you know, the price of OSB will be the price of OSB, and the cost structure, a cost structure change in the industry that's due to tariffs will reset the cost curve, and price will be where price will be. You know, it's hard to know what the impact will be on siding with the information that we have today.

As you know, we do have two siding mills in Canada. We have the ability to move volume around in our network. So and, you know, and there's some things we can do on supply chain to optimize supply chain if tariffs were to change the dynamics there.

And so that we would, you know, we certainly have done scenario planning around what we would do and how we would go about doing it. But we haven't gotten to a situation yet where we've really put a number on it because of the lack of clarity.

And we've had minimal, you know, I mean, obviously, customers are aware that the industry would be significantly impacted across the board by particularly Canadian tariffs. But we haven't gotten into any level of discussion around how that would get manifested, you know, from a siding perspective..

Thanks for that, Brad. And I wanted to revisit the 2025 siding sales growth targets that you provided, the 7% to 9% sales growth. And maybe I'm paraphrasing you. Tell me if I'm right and if there's any nuance to it. But 7% to 9% reflects market share gains in still a very difficult housing environment.

In a more normalized scenario where we potentially get a bit of an uplift in housing, is 10% annual sales growth a feasible number for you guys? And when you're thinking about longer-term growth, whether it's Holton two or, you know, expansion beyond that, is that the premise of the longer-term sales growth potential for that segment?.

Sean, I would, yeah. So certainly single-family housing recovery along with broader, which would, I mean, look, this gets a little more detail, which would probably drive increased R&R spend if we got existing home sales as a part of that. Well, let me back up even more.

If interest, if mortgage rates were lower, and the housing market took off across the board, we would see increases in single-family construction. We would see increases in R&R spend. And that would provide a really nice tailwind that we haven't had since the COVID tailwind, which was the tailwind of all tailwinds.

And that would certainly, you know, push the addressable market, real-time addressable market for us up and allow us to grow at a higher growth rate than what we're seeing in a year where we were kind of expecting the market to be flat.

And also, in siding, probably gives you a little more pricing pressure, pricing opportunity, which means that, you know, the revenue, you get maybe another point on the revenue as a result of that. So yeah, if your question is, would a recovering and stronger housing market and R&R market allow us to go above 7% to 9% growth? Yeah, it would.

And both help in volume and pricing, I believe..

And just to add a point about capacity investments, our biggest fear in Nashville is that we would be late to that party. So we've got to make sure that we have the, because we are convinced that it is going to happen at some point. And we need to be ready..

Understood. That's all I have for now. Thanks very much..

Welcome. Thanks, Sean..

And one moment for our next question. Our next question will be from Steven Ramsey of Thompson Research Group. Your line is open, Steven..

Hi. Good morning. Maybe to start with the order file inside and be encouraging. If I recall, this is what you guys were seeing a year ago early in 2024.

I'm curious what the makeup of the order file now is compared to a year ago, and if it's telling you anything different compared to a year ago when you think about the portfolio between SmartSide, Builder Series, and ExpertFinish?.

I would say the only material difference in the order file strength this quarter versus a year ago was this, we have seen stronger shed pulls this year than we had last year in the first quarter. Other than that, there were other single-family or big builder retail and or consistent with what we were seeing Q1 of last year.

And the same thing's true geographically, if that's of interest..

Okay. That's helpful. And then secondly, Bath margins. This has been on a positive trajectory over the last year or two.

Is there an assumption that it stays on that kind of trajectory in 2025, or maybe another way to ask it, is it less of a margin headwind in 2025 than it was last year, even as it's increasing?.

We basically assumed in our guide, in our budgeting, that we make kind of make slow progress in 2025. Still improving. But we're adding capacity at a rate that will drag on that a little, but it's improving. Definitely. But not quite by the same amount as in 2024. That's our modeling assumption anyway..

Great. Thank you..

One moment for our next question. Our next question will be coming from Mark Weintraub of Seaport Research Partners. Your line is open, Mark..

Thank you. First, Alan, just one point of clarification. So when you were talking on the siding margin bridge, you mentioned price mix flattish.

Was that just mix? Are you still, should we, are we still building at, like, 3% on price from list price adjustments?.

Oh, yes. Yes. Yes. What I meant was that, you know, this year, we enjoyed something closer to six. I don't model that additional mixed benefit. So, yeah, the underlying price increase is exactly that. Yes..

Gotcha.

So we do get that, let's say, $45 million or something from?.

Yep. Good. Yep..

And then second, we spoke on siding how, you know, you've been driving the market share gains through innovation and demand creation efforts. And, you know, last year, we had Lennar, Home Depot, you had the smooth side introduction, although maybe that fills into this year more.

Maybe can you talk a little bit more about more specifically what some of the items that are gonna help drive it this year will be that are perhaps new and different?.

Well, we would invite anybody to come by our booth in Las Vegas next week and take a look at the new products that we've launched and talked about, but also some new things that we have on board, things around coloring for our prefinished, some really interesting product expansion there.

Obviously, to your point, having the full portfolio of smooth in market all of this year, including January, is a nice add compared to last year at this time. So innovation has been a key to all the growth we've gotten, particularly after we've come off allocation.

You know, some of that work was done before COVID, but the Builder Series and ExpertFinish growth, as we've talked about, Mark, has been phenomenal. So we certainly, innovation will continue to play a big part in our growth story because that increases our addressable market with customers that we have. That, you know, the easiest customer to sell.

And then as far as expanding customers, you know, we are continuing to make inroads around builders, both large, medium-sized, and small. And, you know, and then on the R&R side, that's a contractor play.

And, you know, the number is how many loyal contractors do you have pushing and installing your product, and that's a big part of the marketing spend increase that Alan talked about is in support of that initiative. That's just a steady constant execution play that will never end.

I mean, there's a lot of siding contractors in North America, and we are selling to a rather small percentage of them. And so the opportunity there is huge, and it's just an annual localized execution that we're encouraged by the progress that we've made. I'm encouraged about what we've learned about how to do that.

And that's given us, you know, a lot of confidence that we'll be able to continue to grow as we gain that expertise.

Round out the portfolio of products, in the case of repair and remodel, continue to strengthen distribution and, you know, create a recognizable brand that that's beautiful and works well and customers want and contractors want to install..

Thank you, Brad. And then just lastly, I know you've had efforts underway to try to get a better sense of where customer inventories are. So two parts.

One, where are you in that process? Do you feel that you now do have a much better sense of where customer inventories and siding tend to be or are? And where are they currently?.

Yeah. So we'll look at it. We'll never have perfect visibility, but we have way better visibility than we've ever had. Over the last couple of years, it's gotten a lot better.

And we're normal for where we would expect to be here in the middle of February, which is a little on the high side, coming into the year, distributors tend to want to build some inventory in anticipation of the spring selling season. And so it's, you know, there's more in the channel now than there was thirty days ago.

But normal given, you know, where we are in relation to the home building season and the busy season for R&R contractors being able to get back outside and get to work. We're pleased with where inventories are.

I'm very pleased with the way we were able to manage that with the cooperation of our distribution base through the price increase and across the board as well..

Thanks so much..

Yep..

One moment for our next question. Our next question will be coming from Matthew McKellar of RBC Capital Markets. Your line is open, Matthew..

Good morning. Thanks for taking my questions.

Just looking at your siding capacity slide, am I correct in thinking this implies you'll start investing in another siding line essentially as you complete the expansion at Holton? And with that, I recognize there are lots of moving parts here, but how would you think about what the trough for siding margins looks like as you work through this next capacity cycle?.

I'll talk a little bit about the execution, Aaron can join in. He's part of that team, and then Alan can speculate on margin with a double execution. So, you know, I've been part of siding for twenty years or so, twenty-five years.

It's the first time we, if we end up doing it, which we certainly believe it's gonna be required, we'll be running two parallel expansion projects not completely overlapped. We're gonna start Holton first, but then move into the second one after that. And, you know, it's gonna be pretty intense.

We are staffing, as Alan talked about, up our engineering group in anticipation of that. You know, a lot of that work will be executed from contract engineers, but we are increasing our in-house capability as well.

And, you know, it's pretty exciting to be in a position now, you know, given our scale, where 10% growth leads to us being a kind of a continual expansion mode versus more of a batch process that we've had in the past. So that provides good continuity on expertise, good continuity with vendors that are a big part of those expansions.

So, yeah, we'll be starting Holton and talking specifically about that soon. And then shortly after that, have a decision made on where the second or the next capacity expansion goes. As we mentioned in the prepared comments, we have a lot of options and we're narrowing those options today.

And I'll just, you know, future tariff situation will have an impact on that decision, obviously. Because we have opportunities in both or options in both Canada and in the US..

And the risk of going out all in, I think we're more likely to be having, when we're in the throes of this sort of parallel expansion, having a conversation not dissimilar to this one about margins, but it'll be, I think it'll be closer to why the hell are margins rising as opposed to are they falling? It's more likely that you might see us absorbing again additional benefits of additional growth with the headwind that comes from margin expansion.

So I would like to believe that our scale has reached a point where that sort of rising sine wave has a higher minimum than before..

Great. Thanks very much for all that color. Next one for me, just sticking with your capacity plans. And taking to the investment in Green Bay.

Aside from the incremental capacity shown on the slide, should we think about other improvements you hope to drive through your investments, in particular thinking about potential automation opportunities and with them cost savings?.

Okay. Let me start on the pre-finished as you mentioned. It's just remarkable how fast that technology is advancing. And look, we started out basically doing pre-finish skunk work. So there was a lot of opportunity for us to increase investment and get better throughput and automation. And we're certainly doing that in ExpertFinish.

Little bit for us is it's been somewhat delayed maybe has been good because the technology's advanced so much that we've really been able to, you know, to see significant efficiency gains as we've added capacity. So I think there's way more to come on the ExpertFinish side as we continue to scale that business.

We are still relatively small in the big picture of prefinished manufacturing and every increment of capacity that we add will be significantly more efficient. Our average efficiency gain. That's a little bit not, you know, not there's not quite that opportunity on the press side of the business.

Though, we do have active projects around automation of our finishing operation, which tends to be high labor and more highly labor-intensive. And in cases from a safety standpoint, more hands-on. That technology is advancing as well, particularly in the packaging area. And so we see opportunities there.

I think those margins will be more maybe less obvious to see at any one period of time, but just part of, like, overall continuous improvement effort. And then I'll just close that by saying, one of the most exciting things though is this second line after Holton.

Could give us an opportunity to, for really the first time for us, to be designing almost an entire mill footprint for siding production. Versus an OSB production line that gets converted. And, you know, we've, I mean, Holton line two will have some of that element in it. But the one after that will most probably be almost like a greenfield.

Even if it's at a current location of an existing siding mill.

And so the opportunity for us to design specifically the entire footprint of the mill for siding production versus, you know, forcing it in on an existing OSB mill is gonna be more capital intensive, but the opportunity and the efficiencies that we could design in will be pretty interesting. So more to come.

As we learn about that, but I do see that as an opportunity for another step change in margin at least to that facility when it comes online as full production..

Thanks very much. I'll turn it back..

And one moment for our next question. Our next question will be coming from Kurt Yinger of DA Davidson. Your line is open..

Great. Thanks, and good morning, everyone. Just wanted to circle back on Lennar. And I'm curious as that business has ramped and you've executed against the agreement, if there have been any surprises or big learnings that you can kind of take and look to leverage as you continue to pursue other larger builders in the space..

Once it, not really any surprises. It's been executed as planned, you know, more or less as in normal course of business. I mean, I guess the learning, I mean, not this is not a learning that surprised us, but what we've been good at with Lennar is making sure that their contractor base is trained up.

Technically, you know, able to install our siding the first time they do it in a very efficient and beautiful way. And so, you know, with the technical support that's gone in, to this conversion, it was called that for them. It's been significant on our part.

And we understand now that part, you know, a key part of the selling process for the builder is not is to, you know, win, you know, the procurement battle for that business, but then it quickly becomes an execution play around educating the installer base and making sure that we have local distribution in place to serve every one of their developments.

And there were cases where that was not true with some of the business that we garnered from Lennar and other builders that we've gone in. So, you know, it is an execution game once you get the agreement. And, of course, Lennar is was a big one for us.

So the learnings there, you know, certainly will translate well into how we approach, you know, future opportunities in that area..

Is it fair to think that, I mean, given how important kind of that the contractor training or technical details of installation would be that, you know, as you grow in scale and you convert some of these bigger builders, like, the next conversion is a little bit easier because that contractor base is just naturally, you know, more aware of installation and whatnot?.

Yeah. No doubt. The wider we cast our net in both R&R and new construction. And by the way, there's installers that do both. You know, depending on where the strength of the market is locally.

You know, every contractor we get, we have the opportunity to train up as a contractor to now so now knows how to install our product and we believe and have evidence that they become advocates for our product because of the ease of installation. And there's a stickiness there.

And then that also translates into, you know, this has been historic for us, but as we grow the business, both R&R and new construction and open up new distribution, you know, the channel makes money off our product. And so that creates, you know, some loyalty.

I mean, they're gonna sell what the contractor wants, but it does strengthen our overall effort beyond just the framework of that one deal in the case of the builder or that one contractor that you convert, you know, on the R&R side.

So, I mean, I mentioned, you know, building scale for ExpertFinish, but we're also building scale with distribution in a contractor base is probably more valuable than the scale we build on the operation side..

Okay. Alright. Appreciate the color. Thank you..

Welcome..

One moment for our next question. And our next question will be coming from George Staphos of Bank of America Securities. Your line is open, George..

Thanks very much, everyone. Good morning. Thanks for the details. You know, given the success with SmartSide, it doesn't sound like you need to make any changes.

But does it come a time in the horizon where the marketing, advertising, maybe needs to change or change it because of the scale and the acceptance of the product recognizing it's right now much more of a technical sale you're working on, the installer, and that's been working just fine.

But, you know, does national advertising or something like that ever come into play at this, you know, in the next two to three years?.

Yeah. I wouldn't say, George, for the next two to three years, what's been working for us and what we're increasing our investment in is having boots on the ground with our Salesforce. So being, you know, having folks selling, actively selling our product every day, and supporting that the technical sales discussion, which I won't repeat.

And then, you know, from an R&R standpoint, where we've had success is really more on focused local markets, where we've gone into areas and where we do consumer advertising, but at a local level and a local base as using local media and create and then we're doing that in places where we have distribution, we have contractors that have, you know, that are on board.

And then we follow that groundwork, let's say, that foundation with focused local marketing, we're seeing really, really good results. And so I'm, you know, so the markets change, over the years, my opinions have changed.

But I do think that this is more of a local selling that there's more value, more return on local selling, local brand awareness, than there is on national programs. That's my personal view. But and it can be changed with evidence.

Otherwise, it could we could accelerate growth with more of a national branding opportunity, but I like what we're doing locally, and it's really been something that we've seen the results of as we executed that..

And it's working, and at the same time, you have to stage it with your ability to produce and meet the demand. So no. I mean, that all makes sense..

Exactly..

You know?.

Yeah. Exactly..

And oh, I'm sorry.

Alan, was that did you have a comment there?.

Nope. I can't seem to ring with you..

Yeah. Sounds good. In terms of the next line, what are the lead times such that, you know, if you're gonna be producing, you know, around 2029, need to actually start to have the orders in place to the equipment dealers.

And what kind of inflation maybe or maybe not are you seeing in terms of press capacity versus what we've seen in the past per thousand square feet?.

Yeah. Well, so let me just kind of give a comment on where we're at and then Aaron can comment kind of on what we're seeing far down the road. But we've started securing pieces and parts of what we need to do for both Holton line one and actually for equipment or orders that we could that we could place that are location agnostic. That has begun.

We've gotten, you know, preliminary approval. We've got approval from the board for Holton but preliminary approval from the board to start the pre-buy, let's call it. Securing factory time and fabrication time or steel and in some cases beginning the application of the equipment. So that has started.

You know, the inflationary impact has been significant over the past couple of mill conversions, Holton, Sagola, and now this one. We're not seeing increases in inflationary issues there other than, well, I would say, more normal compared to what it costs to do these projects, pre-COVID, is significantly more expensive.

And then I think Aaron can speak more to the specifics of where we are on the two projects. And what we're seeing..

Yeah. The inflation is certainly a factor, but the nature of the projects is also changing. So Sagola and Holton were conversions of existing plants. The Holton line two is an expansion, so we're not converting a press, we're actually adding a press.

So the nature of the products also the nature of the projects themselves can drive some changes in the total cost. Fortunately, the other thing that's inflating is siding price. So the cost of the projects go up, but the returns stay very healthy because we've got pricing power for specialized products that we're producing at those mills.

In terms of timing, as Brad said, you know, some of the items are longer lead time and site agnostic, and so it makes sense to secure that capacity now because there's not a huge amount of production capacity for some of these specialized pieces of equipment.

And we're pretty confident that if we continue to grow at the historical volume CAGR that we've seen over the past several years, that we'll have capacity ready in time that we minimize the risk of another extended period of a managed order file. I wouldn't expect it would be..

Understood. My two last questions, and I'll turn it over.

A factor since you didn't really call it out, but with shed growing a little bit more quickly this year, is that any kind of impact on the margin trend? You know, is it would it, you know, maybe take a, you know, a few basis points off of margin because of mix? And then in terms of maintenance, can you remind me, are there any specific cadence factors we should be, you know, considering as we're modeling out the quarters? Thank you very much..

Yeah. On the shed, it would be good. Tends to be lower than average price, but not lower than average margin. So it's not a margin hit, but we would see a pricing hit..

Then all for Q4, as always, Q4 will be the heaviest in terms of maintenance project and spending, George..

Yeah. And we've got a few projects this year that are maybe a little larger than normal, but they're in the OSB business, not the siding business. So you won't see large maintenance projects being a source of perturbation in the siding margin this year..

Yeah. Knock on wood. Knock on wood. Yeah. Thanks very much. Good luck on the quarter..

Our size. Yeah..

Thank you. And I'm showing no further questions. I would now like to turn the conference back to Aaron for closing remarks..

Okay. Thank you, everyone, for joining us. With no further questions, we'll end the call there. Stay safe, and come and see us next week in Vegas and see some of the new products that we were talking about driving our growth in 2025..

And this concludes today's conference call. Thank you for participating. You may now disconnect..