Sallie B. Bailey - Chief Financial Officer & Executive Vice President Curtis M. Stevens - Chief Executive Officer & Director.

Mark W. Connelly - CLSA Americas LLC George L. Staphos - Bank of America Merrill Lynch Chip A. Dillon - Vertical Research Partners LLC Ketan Mamtora - BMO Capital Markets (United States) Paul C. Quinn - RBC Dominion Securities, Inc. Mark A. Weintraub - The Buckingham Research Group, Inc. Alex Ovshey - Goldman Sachs & Co. Steven Chercover - D.A.

Davidson & Co..

Good day, ladies and gentlemen, and welcome to the Louisiana-Pacific Corp. Second Quarter 2015 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Sallie Bailey, Executive Vice President and Chief Financial Officer. Please begin..

Great, thank you, Latoya, and good morning. Thank you for joining our conference call to discuss LP's financial results for the second 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 second quarter of 2015 and this will be followed by some comments on the performance of individual segments and selected balance sheet items.

After I finish my comments, Curt will discuss the general market environment in which LP has been operating, provide his perspective on our 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. The webcast can be accessed at www.lpcorp.com.

And additionally to help with the discussion, we have provided a presentation with supplemental information that should be reviewed in conjunction with the earnings release. I will be referencing these slides in my comment 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 of the participants about the forward-looking statements comment on slide two of the presentation. Please also be aware of the discussion of our use of non-GAAP financial information included on slide three 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 and rather than reading these two statements, I incorporate them with this reference.

For the second quarter of 2015 as compared to the second quarter of 2014, OSB prices were lower by 15%, which had a negative impact on LP's financial results of $39 million. For the first six-month period, OSB prices were 14% lower, which had negative impact on LP's financial results of $68 million.

Now, obviously this caused our second quarter as well as our year-to-date performance to be lower than the same periods in 2014. These decreases in OSB prices occurred in a market where actual housing starts were 50% higher – 15% higher quarter-over-quarter and 10% higher for the first half of this year as compared to the first six months of 2014.

However, the negative impact of the lower 2015 OSB price environment was offset in our results by another strong quarter and six months from the Siding segment. And with that, let me go into the details. Moving to slide four of the presentation for a discussion of the second quarter 2015 and first half consolidated results.

We are reporting net sales of $493 million for the first quarter of 2015, a 5% decrease from the net sales of $519 million reported in the second quarter of 2014.

In the second quarter, we reported a net loss of $20 million, a loss of $0.14 per diluted share, compared to net income for the second quarter of 2014 of $2 million, or $0.01 per diluted share.

The adjusted loss for the quarter was $12 million, or a loss per diluted share of $0.08, based upon a normalized tax rate of 35% compared to a loss of $4 million, or loss per diluted share of $0.03, for the second quarter of 2014.

Adjusted EBITDA from continuing operations was $16 million in the quarter, compared to $26 million in the second quarter of 2014. In the first six months of 2015, we reported a net loss of $54 million, or a loss per diluted share of $0.38, compared to a net loss for the second quarter of 2014 of $12 million, or a loss per diluted share of $0.09.

The adjusted loss for the six-month period was $31 million, for a loss per diluted share of $0.22 based upon the normalized tax rate of 35%, compared to a loss of $11 million or a loss per diluted share of $0.08 for the first six months of 2014.

Adjusted EBITDA from continuing operations was $22 million in the first six months of 2015 compared to $49 million in the 2014 comparable period. Moving now on to slide five, and a review of our business segment results, starting with OSB.

OSB reported an operating loss of $18 million on sales of $211 million compared to a loss of $6 million on $224 million of sales in the second quarter of 2014. For the quarter, we reported negative adjusted EBITDA of $4 million compared to positive adjusted EBITDA of $8 million in the second quarter of 2014.

We have an 11% increase in sales volume and a 2% increase in production. We reduced our finished goods inventory in the second quarter and we took 110 days of downtime, or the equivalent of 179 million square feet.

Pricing for OSB was lower by 15% over the second quarter of 2014, and the decrease in pricing resulted in lower operating results by $38 million. For the first six months of 2015, OSB reported an operating loss of $47 million on sales of $401 million, compared to a loss of $7 million on $419 million of sales in the first six months of 2014.

For the first six months, we reported negative adjusted EBITDA of $17 million compared to positive adjusted EBITDA of $20 million in the first six months of 2014. Sales were higher by 12% and production was 3% higher. Year-to-date, we have taken 237 days of downtime, or the equivalent of 375 million square feet.

Sales prices were lower by 14% and the impact of the lower sales price on OSB operations was $67 million for the first six months of 2015 compared to the prior year.

Offsetting the reduction in sales price for both the quarter and the six-month period was the reduction in raw material costs related to petroleum-based raw material as well as the positive impact of the Canadian currency exchange rate on the cost incurred in our Canadian operations as compared to the same periods in the prior year.

Moving to slide six, which reports the results of our Siding business. This segment includes our SmartSide and CanExel siding product. The Siding segment reported sales of $164 million in the second quarter of 2015.

Operating income of $29 million and adjusted EBITDA of $35 million, as compared to $170 million of sales, operating income of $26 million, and adjusted EBITDA of $30 million reported in the second quarter of 2014. For the quarter, SmartSide average sales prices were up 4%, and volumes decreased 6%.

Volumes decreased in our SmartSide siding line relative to the second quarter of 2014 as well as the first quarter of 2015, as our customers were rebalancing their inventories as sales into Texas and Oklahoma in particular were impacted by the very wet weather. The conversion of the Swan Valley OSB mill into a siding mill is well underway.

And beginning in the third quarter, the results associated with the Swan mill will be included in the Siding segment rather than as part of OSB segment. Curt will provide more details on the status of the conversion in his comments. Our CanExel product line reports price decreases of 7% in U.S. dollars and price increases of 11% in Canadian dollars.

Volumes were up 14% in the quarter due to increases in Canadian demand, Canada is CanExel's primary market. The Siding segment reported $337 million for the first six months of 2015, an increase of 8% from $313 million reported in the first six months of 2014.

The Siding segment reported operating income of $62 million compared to $45 million and adjusted EBITDA of $73 million as compared to $54 million in the same period of 2014. SmartSide sales prices and volumes were both up 6% for the first six months of 2015 compared to the same period in 2014.

The increase in our volume was due to continued penetration in several key focus markets, including retail, repair and remodel markets, and outdoor building products including sheds. CanExel prices were down 3% in U.S. dollars, however, they were up 16% in Canadian dollars.

Sales volumes decreased 5% due to decreased demand primarily from Europe due to discontinuation of certain prefinished colored siding products. Please turn the slide seven on the presentation which shows the results from our Engineered Wood Products segment.

This segment includes I-Joists, laminated strand lumber, laminated veneer lumber, OSB produced at our Houlton, Maine facility plus other related products. This segment also includes the sale of I-Joist and LVL products produced by the Abitibi joint venture or under our sales arrangement with Murphy Plywood.

The Engineered Wood Products segment reported sales of $72 million in the second quarter of 2015, down from $76 million in the second quarter of 2014. The segment's operating loss in the second quarter of 2015 was $2 million as compared to $5 million in the second quarter of 2014.

For the second quarter of 2015, adjusted EBITDA from continuing operations improved to a positive $600,000, as compared to a negative $1 million in the second quarter of 2014. Volumes of I-Joists were down 10% while volumes of LVL and LSL were down 2% compared to the same quarter last year. Pricing was down 1% in I-Joist and down 3% in LVL and LSL.

And during the quarter and the first six months of 2015, we changed the mix of OSB products at our Houlton operation to produce more value added product. The impact of this change resulted in improved operating results by $800,000 in the quarter and $1.2 million for the first six months.

For the first six months, sales were $137 million, essentially flat with the first six months of 2014. The segment operating loss in the first six months was $6 million as compared to $8 million in the first half of 2014. Adjusted EBITDA for the first six months of 2015 was also essentially flat with the first six months of 2014.

Moving on to slide eight of the presentation. For the quarter, our South America segment reported sales of $39 million as compared to sales of $42 million from the second quarter of 2014. Operating income was $2 million in the second quarter of 2015 compared to $4 million in the second quarter of 2014.

South America's adjusted EBITDA was $4 million for the second quarter of 2015 as compared to $7 million in the second quarter of 2014. Sales volumes in Chile were up 16% and lower by 21% in Brazil compared to the same quarter last year. The sales volume increase in Chile was primarily due to improved housing demand.

In Brazil, reported sales volumes were lower due to the economic recession as well as lower exports to China but this decrease in demand was offset by higher exports to Chile. Sales of Brazilian products, which are sold in Chile, are reflected in the Chilean sales volumes.

On a standalone basis, Brazil's sales volumes were equal to the second quarter of 2014. Pricing was down 7% in Chile and down 24% in Brazil in U.S. dollars. In local currency, Chile's prices was 4% higher than the same quarter in 2014 and Brazil's pricing was about flat with the prior year.

For the first six months, our South America segment reported sales of $75 million as compared to $79 million in the first quarter of 2014. Operating income was $4 million compared to $8 million in the first six months of 2014, and adjusted EBITDA declined to $9 million from $13 million from the same period in 2014.

Total selling, general and administrative expenses were $38 million in the second quarter of 2015 compared to $36 million in the same quarter in 2014. For the quarter, the increase in selling, general and administrative expenses primarily relate to the higher information technology costs and increased sales and marketing related expenses.

For the six months period, our selling, general and administrative expenses are flat at $77 million. The lower legal costs associated with the 2014 Ainsworth acquisition were offset by the increase in information technology costs and the higher sales and marketing expenses.

Turning now to slide nine of the presentation, as of June 30, 2015, we have cash, cash equivalent, investments and restricted cash of $501 million, working capital of $717 million, net cash of $132 million. And in addition to the $497 million of cash on our balance sheet, we had $200 million of availability on our credit facility.

Capital expenditures through June 30, 2015 were $34 million. We generated $42 million of cash from operating activities in the quarter and LP's cash balance increased $13 million in the quarter. Decreases in inventory and receivables were key drivers of the cash flow generation and operating activity.

Capital expenditures for 2015 are expected to be between $120 million and $130 million with about two-thirds related to growth projects. And we did not repurchase any stock in the quarter under our authorized stock repurchase plan. With that, I'll turn the call over to Curt for his comments..

Thanks for that review, Sallie. Good morning to all of you and thanks for joining us on the call. Let me start with LP's safety performance. For the quarter, we slipped a bit in our rolling 12-month total incident rate at the end of June was at 0.41.

Our performance the first half of this year is a reminder that we can never let our attention waver as to the importance of safety. As an example, we had two injuries at a plant that went seven years with no recordables and three injuries at another plant that hadn't had an injury in over 800,000 hours.

Rest assured that we remain focused on the safety of our employees and contractors. As I typically do on these calls, I'll provide a few comments on our results for the second quarter, discuss the housing market and give you my views on the next several quarters and the midterm.

After that, I'll turn the call back over to Sallie to take your questions. OSB pricing continues to be below the industry forecaster's projections from the FEA, RISI, analysts and others. Random Lengths North Central was 14% below an already low Q2 2014 pricing level.

This was coupled with the wettest May on record for much of the middle of the country including Texas. As we did in Q1, we took significant downtime in our OSB and EWP businesses in the quarter and also reduced our inventories. Our Siding business had another very strong quarter with $35 million in adjusted EBITDA.

We did see a slight slip in shipments compared to last year, as we believe the wet weather delayed the pace or reorders. Conversion of our Swan Valley OSB mill to SmartSide production's going well. We have poured most of the foundations, begun making the building modifications and are accepting equipment at the mill on a daily basis.

We are on track to have initial Siding production in Swan Valley in Q4 of this year. At our board meeting last week, we did present, and the board approved, our project to add FlameBlock coating capacity at one of our OSB mills in Alabama.

This will allow us to expand the production and sale of fire resistant OSB panels for use in multi-family and single-family construction. It's about a $15 million project and should be complete around the middle of next year. This is very consistent with our strategy to increase the percentage of value-added OSB in our sales mix.

Next, let me share my views of the housing market, based on the most recent numbers, demand for our products should be much better than we're seeing. This is quite frustrating. Let me give you some facts and figures. For June, housing starts came in at 1.174 million, almost 10% higher than May.

This puts the second quarter run rate at 1.14 million housing starts, 17% higher than Q1. Permits were even stronger at 1.343 million. Multi-family continues to be a big part of the growth in both starts and permits. Coupled with existing home sales with the highest rate in over eight years, this certainly points to an accelerating market.

The forecast for future activity are just slightly lower than last quarter as economists appear to be exercising some caution as the strong June housing report numbers are not fully reflected, but here are the numbers.

The consensus forecast for 2015 is now 1.122 million housing starts, which is a 12% increase over 2014, and the consensus forecast for 2016 stands at 1.315 million housing starts, a 17% increase over the 2015 forecast.

As I reported the last two quarters, our forecast going into this year was 1.1 million housing starts and that looks to be achievable. We're just putting together our budget assumptions for next year and we haven't yet landed on a number for starts, but I think it's fair to say it'll be somewhere between the current 2015 and 2016 consensus forecast.

Other positive housing-related news, household formations continue to exceed the anemic 400,000 to 500,000 pace the last several years, and it does appear the millennials are moving out. The NAHB home builder confidence index reached the highest level in over eight years which bodes well for future activity.

Thirty-year fixed mortgage rates are right about the 4% level. The inventory of new and existing homes for sale is shrinking. Most of the big builders who reported second quarter results were optimistic for demand and cautious as to available labor. With higher sales of existing homes, this is good news for repair/remodeling expenditures as well.

Rental rates are increasing and vacancy rates are declining, making home ownership a more attractive alternative in many markets. In the first half this year, we did see increasing demand for our products but the very cold weather in the first quarter and the wet weather in the second quarter dampened the demand based on increase in housing starts.

As we look into the second quarter with a hindsight – second half of the year with a hindsight of the June housing numbers, certainly my belief that actual housing activity will accelerate in the second half of the year.

Based on our discussions with our customers, it is also my belief that channel inventories are in relative balance, which means higher housing-related demand should convert to orders which should benefit all of our product lines.

However, if I'm wrong, we'll have no choice but to take steps to adjust our production levels, as we have done in the past, to focus on meeting our customer commitments while limiting the sale of unprofitable open market wood. As I look at the next few years, I'm very confident we'll continue to see growth in housing starts as the U.S.

has a fundamental shortage of housing units simply based on demographics. The recovery has not been at a pace any of us anticipated and there are still some headwinds.

However, I believe that the labor issues faced by the builders will ease, banks will get back into the business of making loans, and millennials will start getting married and having kids. All this is good news for our shareholders as LP is well positioned to capitalize on the continued recovery in housing, repair and remodeling activities.

With that, let me turn back to Sallie for Q&A..

Great. Well, thank you, Curt. And thank you, Latoya, we'd like to go to queue now for questions..

[Operator Instruction] And the first question comes from Mark Connelly of CLSA. Your line is open..

Thank you. Two things, we've started to hear from some other players in building materials about opportunities to improve logistics and plant flexibility.

And I'm curious, given the growth that you're having in Siding, whether the opportunities for you to manage your supply chain differently might be expanding? And a second question, you didn't mention sales to Asia from Latin America, can you remind us how you think about that opportunity in the medium term?.

Well, let me turn to the logistics question. We were disadvantaged in logistics for the last couple years primarily with the service we were getting from the Canadian railroads, which caused us to put reloads in locations that weren't very cost effective for us.

In the last six months, both our Siding business, our OSB business have spent a lot more time looking at that. The railroad performance improved this year and we're also seeing more availability of trucks in the U.S. So, I do think there's an opportunity to bring down our logistics cost.

And as Sallie mentioned, we did bring our inventories down pretty significant in the second quarter across all the businesses and a big piece of that was taking them out of the reloads -.

Okay, okay..

... to make it more efficient for us. As far as sales to Asia, from the U.S. we look at that very opportunistically. Most of what we ship from the U.S. or from Canada into Asia has been going into Korea. There is some activity in China but that's really kind of at its infancy for us. The big exports out of North America were going into Russia.

And since the sanctions were put in place, that business has basically been eliminated. We don't do much business there at all. On South America, we did have a decorative OSB product that was going into China, and that demand had been sporadic. And in the last couple quarters, we haven't shipped much of that product at all..

Okay, that's very helpful. Thanks, Curt..

Thank you. The next question is from George Staphos of Bank of America. Your line is open..

Hi everyone. Good morning. Thanks for all the comment. I guess, Curt, first question I had, you said that inventories are more or less in balance.

So just to be maybe a little bit finer point on it, so would you say that your inventories are where you'd expect then to be this time of the year? And I realize it's very difficult to call this, but from what you can see in terms of your customers and distributors, where you think your inventories are, above normal, normal, below normal as we head into the back half of the year..

Well, our sales guys talk to our customers, so I'll put them in buckets for you. In general the home centers don't have any excess inventory because they're pulling out of our reloads and VMIs, so that from the home center business I don't think it's an issue. Although I do think the wet weather in May reduced takeaways from the centers.

So we did see reduce demand. In the pro dealer channel, I think they did have more inventory going into Q2, and I think they came out of Q2 with a little more inventory than they expected. With the July – there's usually a July slowdown from a building standpoint. We are seeing increased activity at the end of July and going into August.

So I think we're in pretty good shape and I don't think there's a lot of inventory in the channel that's excess at this point..

All right, that's helpful, Curt, appreciate the latter comments there. Next question I had, you talked about Houlton trying to move up the curve in terms of value added products, and yet if I was mistaken, I thought I saw prices being down and recognizing one mill isn't going to drive the whole mix.

Can you reconcile those two things for us? And then you mentioned that you didn't do any repurchase in the quarter, and that's fine, you have other growth projects ahead of you, but can you comment in terms of why repurchase didn't seem to be as attractive an opportunity in relation to your investment projects in the quarter?.

Okay, I will handle the Houlton question and let Sallie handle the other one. In Houlton, we saw an opportunity to do a value added flooring product in the Houlton mill, and that's really what we focused on.

We were looking at it more from a geographic standpoint in the past, where we had demand in the local geography, back to the earlier question on logistics, and we focused on that. In the second quarter, it was really more of the high performance flooring..

Yeah and as it relates to capital allocation, George, we've looked at the investments that we're making in Swan, and there will be some heavy uptick in our capital expenditures in the second half of the year as we finish out the Swan conversion, and those have returns on them that are well in excess of our cost of capital.

And likewise with the FlameBlock capital expenditure investment that Curt was talking about, those also are good uses of our cash and provide good returns for our shareholders..

So you said FlameBlock could be $50 million, five-zero?.

One-five [$15 million]..

Okay, very good. I'll turn it over..

I think we'll be having trouble with the mic..

One-five [$15 million]..

One-five [$15 million], thanks for clarifying..

Okay, I'll be back. Thanks..

Thank you. The next question is from Chip Dillon of Vertical Partners. Your line is open..

Yes, good morning. First question is – I noticed that the Swan Valley mill capacity had always been listed at about 410 million square feet and then it jumped to 520 square feet last year, or at least in the K it came out earlier this year, and I know that's the one that's being converted.

What caused the capacity to jump like that? Was there any capital that you spent there, or was it a change in the mix ahead of the conversion?.

We were limited on what we could produce from an environmental perspective. And we had a negotiation with the Manitoba government where we put a stack in that allowed us to run at its full capacity. So we made that capital addition, I think in the first part of last year. So it's really adding a stack for environmental..

Got you, okay. That's helpful..

Good question, Chip..

Okay and then – thank you. And then the next one is, I know in the last call you talked about the Chambord tree license, I guess, up in Canada and how I guess that's been lost. I guess two questions.

One, is there any chance you might get it back, in other words, is there another buyer for those trees? And maybe regardless of the answer to that question, have you thought about where those assets might be deployed, assuming they aren't deployed in Canada or they don't stay in their current location?.

Well, what we look at, Chip, is we look at three scenarios. One scenario is we get the license back. The province has set up a project office in the region and I think we need to respond sometime the end of this quarter, early the next quarter with a proposal to them on using that wood. So one option would be get the license back and run it.

Second option would be to run it with other available wood, which means we wouldn't run the full capacity, but we can run it probably about two-thirds. And then the third option was to relocate that equipment to another region that had more favorable wood pricing. And we're looking at all three of those.

I don't really have an update on that until we decide what we're going to do with the project office again towards the end of this quarter or early next quarter..

No, okay, that's helpful.

And then on the CapEx, and I could go back and look, but is the $120 million to $130 million range, is that a – I had $130 million in my model, I don't know if that's what you said last time or whether you've lowered it slightly to a range? And then, if you could give us, at least from vantage point of August what next year looks like, assuming no major changes in what you're thinking in terms of projects..

Well, $130 million is what we've talked about before. I think the lowering the range, because we have had a delay in the environmental permitting in South America. So, the mill in Chile, we haven't actually started construction yet, so much of that will move into next year as we get through that permitting process.

As far as the capital budget for next year, we are meeting as a group on, I think at the 18th of this month, to go through our capital summit for next year. So, I don't really have a number at this point in time.

It does look like there'll be about a $40 million to $50 million carryover from projects that will start this year that will go into next year, but I don't know beyond that..

Got you. Okay.

So, maybe one way to think about that is, it sounds like your base is around $40 million or $50 million and so then you had to carryover maybe in the high double-digits, and then whatever else you add to that would be what the ultimate number is, is that roughly correct?.

I will tell you at next earnings call..

Okay..

Yeah. We'll provide some guess, but typically, we do that at the third quarter call, Chip, but it's a little early..

I got you. All right, thank you..

Thank you. The next question is from Ketan Mamtora of BMO Capital Markets. Your line is open..

Hi, Curt, Sallie..

Morning..

First question on OSB. I'm just trying to bridge the year-over-year EBITDA here. And you guys mentioned price was a $38 million drag.

Can you help me understand how much costs were lower year-over-year basis?.

Well, the difference is at a very high level. The difference between the price would be the cost and the cost would be the improvement in resins and then also the impact of the Canadian foreign exchange rate..

And we were ran (32:20) -.

And -.

... in our mills too..

Right, that's a good point. Clarke County and Peace have improved..

Both Clarke County and Peace Valley have improved..

Got you, okay, that's helpful.

And then, switching gears to Siding, can you just help us understand or give us a sense of the ramp up at the Swan Valley and how should we think about Siding production to start with and the interplay between OSB and Siding there?.

Yeah, I think we've – well, I've talked about this in the past. The plan is when we convert Swan to Siding is that we only will run Siding at that mill. And what we'll do is we'll move production capacity out of our Hayward mill and potentially some of the smaller mills in that region, and we'll use Hayward as the swing (32:56).

You recall, that's a two line – three or two full lines there, so we can run one on Siding and one on OSB. So that will be the swing on that Swan. As far as the ramp up, we're hoping it's going to go relatively quickly, but this is an $85 million project. It's a pretty big deal.

What we are planning on is that we probably, at least in our numbers, we're planning on supplying the market out of existing mills until the first quarter. So we'll use the fourth quarter as a ramp up..

Okay, understood. Thanks very much. I'll turn it over..

Thank you..

Thank you. Next question is from Paul Quinn of RBC Capital Markets. Your line is open..

Yeah, thanks very much. Good morning. Couple questions, one on price. We had some price improvement till the beginning of July and then it's come off quite a bit in the last couple weeks.

Just wondering what's really driving that?.

I wish I could tell you, Paul. I don't have a good theory. As I said earlier, we think it should be better than it is but I don't have a theory..

Okay and then back to the – your statement on inventory levels in the field, but it sounds like you're saying relatively balanced when your competitors came out and said that it was rock bottom levels for pro dealers; how do I reconcile those two? Does that mean they've got more LP product in their yards and less of the competitor?.

I don't know how you reconcile this. All I can tell you is Mike Sims, our sales guy, sit down and talk with his customers and he gave me a pretty good rundown before the call here..

I think you're going to reconcile that with time, Paul..

Okay. Fair enough..

One of them will play out..

Best of luck going forward, guys. Thanks..

Thank you..

Thank you. The next question is from Mark Weintraub of Buckingham Research. Your line is open..

Sure.

I have one quick follow-up, first off, when you said OSB should be better than it is, was that a reference to price or demand or both?.

I think it's both. If you look at for the first six months, housing starts are up 12% to 13%, and OSB production, as reported by the APA, was only up 6%..

Yeah..

So seems like it ought to be better than that..

And it wasn't plywood taking share, and you don't seem to think that it was significant inventory destocking, any other theories?.

Well, I do think that takeaways were hurt. I mean the strongest housing market in the country is Texas, and Texas had over 16 inches of rain in May, so there weren't any starts going on there. So the takeaways, certainly, in Texas and Oklahoma that Sallie talked about hurt that, but we ought to be seeing accelerating activity.

Now the other side of that is all the builders have talked about labor issues, where it's taking them longer to finish a home. But again, as I said, I think they're going to start solving that issue as we go forward..

Yeah. I don't want to get too much into the weeds, but when you say with all the rain, et cetera, that there wouldn't have been starts. Would there possibly have been starts, but then they actually slow it up so that the wood doesn't flow.

And I think you talked about business getting a little bit better more recently and maybe they're catching up, or is that not how it works from a reporting perspective?.

Well, I don't know how much surge capacity they have, again, because of the labor issue. So I think they could build at a pace. And if you lose a whole month, you've got to lose that and move those starts forward, but I don't think they have the ability to accelerate.

And the water issue in Texas and Oklahoma is – most of this is slab on grade, and you can't pour concrete..

Right. So you can't really start a house..

Right.

And then, lastly, I guess, one window you definitely do have is where your inventories are at your mills, and where are they – I think you said they came down from the end of the first quarter – where would they be versus where they were a year ago?.

In our OSB mills, we're down pretty significantly. In the Siding business, we actually had too low of inventory this time last year. We've raised that a little bit this year. So our Siding, we're pretty good – where we think we need to be. Engineered Wood, we brought them down. I think we're in pretty good shape there.

So OSB lower, Engineered Wood about the same, Siding just a little bit higher right now.

Okay. Thank you..

Thank you. And the next question is from Alex Ovshey of Goldman Sachs. Your line is now open..

Okay. Good morning, guys..

Morning..

Hi, Alex..

Couple of ones for you with the correction in the structural lumber price, I'm curious if you're seeing customers switch back from Engineered Wood to lumber as lumber prices have corrected?.

Well, it's interesting, we just talked about that this morning. We're seeing a little of it but it's not significant..

Okay..

Actually, it's more related to some of the fire codes than it is to pricing..

Okay, got it.

So you don't think that that potentially accelerates if lumber prices stay low?.

Historically, it hasn't. I mean if you look over the last eight years to 10 years, that really hasn't gone back..

Got it. That's helpful, Curt. And then just on imports of panels, it sounds like we're seeing that flow on the plywood side.

Obviously you don't have exposure there, but I'm curious if you have any thoughts around whether or not the plywood imports could have an impact on your business, and whether or not you see potential for maybe OSB to be coming in from other places in the U.S. – I'm sorry, into the U.S.

from other places given how strong the dollar is?.

Well, I think that plywood, I saw the import numbers went up but I don't think it's going to have a big impact on us. We are seeing imported wood from Europe going into South America, and that has had some downward pressure on our pricing, particularly in Chile. We have not seen much coming to U.S.

even with a stronger dollar, pricing really is about cash breakeven for most U.S. producers. So if you're a European producer and you add $100 freight to it, I don't think it makes a whole lot of sense..

Yeah, that makes sense. And just last one just on starts. So the headline numbers certainly look very encouraging, but looking at the details especially on the permit side, it's almost half of the starts are multi-family.

So do you have any thoughts around what the mix will look like for housing starts over the next 12 months and sort of implications for your business if more of the mix is multi versus single?.

Yeah, we spent a lot of time – we actually had Metrostudy in here last week, talked to them and (40:32), the Harvard Joint Center for Housing Studies, the view is that multi-family has basically recovered, so it's back at its historic rate for starts.

And the single family has been buffeted by all these other issues but that growth in the next couple years is going to come from single family, not from the multi-family. Multi-family will probably stay at the level it's at, but probably won't be as big a share going forward.

And that's consistent with what Harvard believes, Metrostudy believes, FEA also believes that..

Got it. Very good. Thank you, Curt. Appreciate it..

Thank you, Alex..

Thank you. And the last question is from George Staphos of Bank of America. Your line is open..

Hi everyone, two quickies to conclude here. Sallie, I remember you saying on SmartSide that you wanted to be, and correct me if I'm wrong, ahead of the market over time because you have great demand for the product; in new products you're gaining market share.

If you could, where would you sort of index your production relative to market demand at this juncture? And then switching gears just on pricing, both for Siding and EWP, prices ticked down a little bit sequentially.

I'm assuming that's just seasonality, but was there anything else going on that we should be mindful of? Thanks and good luck in the quarter..

Thank you..

On SmartSide, we are running in the mid to high 90%s on our current production. That's why Swan – the timing of the Swan Valley project is so important because that will allow us a couple more years of growth to come out of that mill. And then we have to start thinking about what the next mill is for siding. So, you're right, we want to be ahead.

I think we're probably a quarter behind where I'd like to be, I'd rather have that mill coming up next month than in the fourth quarter. And I think we're in pretty good shape. We're actually – we were on allocation most of last year. We did see some improvements in our Tomahawk operations.

So we are off allocation, which is good for our customers and good for us. So, I think the timing of the new mill is okay, it should have been a little bit earlier but I'm happy with that. As far as pricing, a lot of the pricing is related to the Canadian dollar. If you look at SmartSide or the CanExel pricing, it's all Canadian dollar exchange rate..

But on SmartSide and also on EWP, was that also largely driven by currency or is that something else?.

Well, in the case of EWP, currency does play a role because we have some export sales in Australia. There's also mix in EWP and likewise with SmartSide, I mean it's down 1%, I mean that's, you know, mix and....

Nickels and dimes, I appreciate it. Thanks very much..

(43:22) Sure, thanks..

Thank you..

Okay. We'll take this one..

Thank you. And the next question is from Steve Chercover of D.A. Davidson. Your line is open..

Good morning and thank you. I just got on a bit late but I had I guess corollary to George's question.

If SmartSide will be sold out hopefully in another two years, three years after Swan is done, would the subsequent growth also coming from a conversion or something greenfield? And hopefully it's conversion, do you have any mothballed facilities? Can you hear me?.

One moment, looks like the speaker line disconnected..

Curt, Sallie? You couldn't hear my question..

Ladies and gentlemen please standby. Ladies and gentlemen, this concludes today conference call. You may now disconnect at this time. Good day..