Michael Kinney - Interim CFO & Treasurer William Southern - CEO & Director.

John Babcock - Bank of America Merrill Lynch Mark Connelly - Stephens Inc. Ketan Mamtora - BMO Capital Markets Chip Dillon - Vertical Research Sean Steuart - TD Securities Steven Chercover - D.A. Davidson & Co. John Tumazos - John Tumazos Very Independent Research Mark Weintraub - Seaport Global Securities Paul Quinn - RBC Capital Markets.

Good day, ladies and gentlemen, and welcome to the 3rd Quarter 2018 Louisiana-Pacific Corporation Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call may be recorded. I would now like to turn the conference over to Mike Kinney. You may begin..

Thank you, Nicole, and good morning, everybody. Thank you for joining us on our conference call today to discuss LPs financial results for the third quarter of 2018. I'm Mike Kinney, LPs Interim Chief Financial Officer, and I'm joined today by Brad Southern, LPs Chief Executive Officer.

As we've done in the past, we've opened up this call to the public and are doing a webcast. The webcast can be accessed at www.lpcorp.com. Additionally, to help with the discussion, we have provided a presentation with supplemental information that should be reviewed in conjunction with our earnings release.

I will be referencing these slides in my comments this morning. Also we have filed our 10-Q and 8-K this morning with some supplemental information. I do want to remind all participants on the call about the forward-looking statements comment on Slide 2 of the presentation.

Please also be aware of the discussion of our use of non-GAAP financial information included on Slide 3 of the presentation. The appendix attached to the presentation has some of the necessary reconciliations that have been supplemented by the Form 8-K filing we made this morning.

Rather than reading these two statements, I incorporate them with this reference. Now let me turn the call over to Brad..

Thanks, Mike, and thank you all for joining us this morning. I'll begin today's call with an overview of our results for the quarter followed by highlights from each of the segments, a review of the current market environment and the outlook for the remainder of the year, including our capital allocation priorities.

Mike will then take you through the financial results in more detail followed by the question-and-answer session.

We delivered solid results in the third quarter, highlighted by the continued progress of our strategic transformation into a leading building solutions company, a company serving markets where we can create and sustain competitive advantage through our distinctive customer value proposition, a strong and growing brand and a focus on innovative, high-performance products with the ultimate goal of delivering top-tier total shareholder returns.

We introduced this strategic shift in the first quarter of this year, and we have been actively working over the last 3 quarters to transition LPs focus to higher value-add and higher-margin Siding and specialty products.

We believe that this transformation, the decoupling of our performance from the commodity cycle that dominates OSB, will lead to more consistent and sustainable results, greater growth opportunities, a stronger margin profile and increased shareholder value.

Against the backdrop of the current commodity market, OSB pricing and transportation headwinds, our results this quarter provide validation of the merits of this strategy and give us confidence that our transformation is positioning LP for long-term stability and profitable growth across the cycle.

It's important to note that this strategic transformation is not just a matter of shifting production capacity and selling more siding. Rather, it's a broad-based change in how we are approaching all aspects of our business, such as focusing on building a performance-based culture and executing our innovation roadmap.

While we have more work to do, we are beginning to deliver on these promises. Let me provide a few quick examples starting with our effort to build a performance-based organization and culture. We recently completed an in-depth review of our corporate organizational structure.

Our transformation to a high-performance culture is dependent upon having an organizational structure that clearly defines accountability, fosters ownership, aligns with our strategy and enables us to deliver the results we expect.

For this reason, we have shifted from a matrix management structure, in which our corporate functional teams were accountable for certain aspects of each business, to a line management structure, which embeds functional support in each business segment reporting directly the business leadership.

Through this structure, Siding, OSB and EWP will have complete accountability for all facets of their business P&L and strategic execution. Our South America operations have been run under a line management structure since inception.

This new line management structure will strengthen LPs competitiveness and improve our efficiency by better positioning each business to resource growth opportunities by aligning our business function with the market and by reducing overall corporate infrastructure costs.

As an additional element of our corporate review, we also took a close look at our geographical footprint across the U.S. and decided to consolidate some of our administrative office locations. The end result is that we will be closing our offices in Hayden Lake, Idaho, Portland, Oregon and Vancouver, Washington in 2019.

The business functions in these offices will be combined into the national operations. Let me now turn to a review of our business segments starting with Siding. We are pleased to report continued strong momentum in Siding as we delivered record net sales, EBITDA, strand volume and strand order intake.

Pricing remains strong compared to prior year for strand and fiber SmartSide. During the quarter we achieved 16% revenue growth for strand and continue to be on track to deliver our anticipated 12% to 14% full year revenue growth. This growth significantly outperforms housing growth and validates our diversified market penetration strategy.

Inventories in the channel for SmartSide products are at normal levels. We continue to proceed, on time and on budget, with the Dawson Creek, British Columbia conversion project. We expect to take the OSB mill off-line in November, and we are targeting restarting the siding mill in the middle of the first quarter of 2019.

We expect the impact from this off-line period to be approximately $5 million during the fourth quarter and an additional potential $5 million during the first quarter.

As a comparison, this is consistent with our experience from our Swan Valley mill conversion project in 2015 during which we experienced an impact of $10 million over Q3 and Q4 of that year. Turning now to our OSB results, during the quarter we achieved strong price realization relative to random lengths despite volume and pricing headwinds.

Wet weather across many southern markets slowed jobsite activity during the latter half of Q3, and as a result, inventories ended higher than in previous quarters. Our continued focus on shifting our sales mix, especially OSB, delivered strong results in the quarter, with value-added sales volumes improving by 8% compared to the prior year quarter.

This compares to commodity sales down 4% versus the prior year quarter. As a reminder, diversifying our sales mix to include more specialty OSB is a key focus area because these products generate stronger, more stable margins through the cycle.

We have been taking action to improve the operational efficiency of our OSB mills in an effort to drive competitiveness and profitability by increasing plant run time, efficiency and quality. We refer to this internally as overall equipment effectiveness, or OEE.

I am very pleased to report that, as a result of this work, in Q3, we delivered a 5% increase in OEE on a year-over-year basis. To provide some context, a 5% increase across our system is equivalent to adding 1/2 of the capacity of a new mill on an annual basis. This initiative is now underway in our siding plants as well.

Additionally within the quarter, we locked in on a schedule for an upcoming press rebuild at our Carthage, Texas mill. The plant will go down in the first quarter for approximately 35 days. Commodity pricing continues to be a source of pressure within our OSB business, with prices falling throughout October.

In response, we took, and will continue to take, the appropriate actions to adjust our commodity production to match demand. Turning to EWP, we continue to make progress against our ongoing EWP initiatives during the quarter.

Our average sales price improved quarter-over-quarter, and we continue to see strong demand in LSL, with sales in the third quarter beating the prior year period by 30%. LSL growth is a key driver in the turnaround story for this business.

We continue to experience softer demand for I-Joists and for LVL as well as higher cost of sales, which have outpaced average price increases for these products. Overall inventory levels in the channel for EWP are aligned with demand.

Our Wilmington, North Carolina LVL facility sustained significant damage from Hurricane Florence, and we expect the facility to be down through mid-December. Thankfully, all of our employees are safe; however, many did sustain significant property damage.

For LP in the interim, we have been servicing customers through finished goods inventory at Wilmington, supplemented by inventory from our Western plant in Golden, British Columbia and from a third-party LVL supply agreement. Mike will provide some more color on the financial impact in his section.

Finally, in LP South America, I'm pleased to report a record financial quarter in Brazil, the highest since the start of operations in the region. The team in Brazil has done a tremendous job in a difficult market environment. In July, we started up the Panguipulli second line, our third press line in the country, on time and on budget.

We did experience slower demand in Chile during the softening market as well as pricing pressure from importers. We are closely monitoring this and expect to see recovery during the fourth quarter.

Before I hand off the call to Mike, I want to take a few moments to discuss our outlook for the remainder of the year and our capital allocation priorities. We see continued strength reflective of a robust economy with a combination of low unemployment and steady income growth.

Builder sentiment remains positive, and consumers and small businesses remain optimistic about current and future economic conditions. While home prices remain affordable relative to historical levels, interest rates and housing supply availability are affecting affordability.

Looking ahead, we continue to anticipate a solid outlook for housing due to favorable demographic trends related to the Millennial generation. Balancing this are constraints, including rising interest rates and construction labor scarcity.

Consistent with our commitment to strategically deploy capital where we believe we can drive the greatest value for our shareholders, during the quarter we deployed $60 million to repurchase 2.1 million shares, almost completing the balance of the existing $100 million authorization approved in 2014.

We also began repurchasing shares under the new authorization of $150 million, which we announced last quarter. To date, we've repurchased 4.4 million shares, or approximately $119 million worth, leaving $131 million to be deployed. In addition, in August we paid another $0.13 dividend, our 3rd payment since reinstating the dividend in February.

And last Friday we announced that we will be paying the next dividend later this month. In conclusion, we are well-positioned for the long term as we approach the end of the year.

We are pleased with the progress of our transformation into a leading building solutions provider, and we believe that our results reflect the long-term value of this strategy.

Looking ahead, we will continue to leverage our strong balance sheet to deploy capital with the highest return opportunities while continuing to invest in our specialty products businesses. With that, let me turn the call over to Mike..

Thanks, Brad. I will begin my discussion with a review of the financial results for the third quarter of 2018. This will be followed by some comments on the performance of the individual segments and selected balance sheet items. Moving to Slide 4 of the presentation for a discussion of the third quarter 2018 consolidated results.

We reported net sales of $737 million for the third quarter of 2018, a 3% increase from the third quarter of 2017. Net income was $124 million or $0.86 per diluted share compared to net income of $110 million or $0.75 per diluted share in the third quarter of 2017.

Adjusted EBITDA from continuing operations was $193 million in the quarter compared to $194 million in the third quarter of 2017. Turning to our results for the first 9 months of 2018, net sales were $2.2 billion, an 11% increase year-over-year.

Net income was $378 million, or $2.59 per diluted share, up from $259 million, or $1.77 per diluted share, in the first 9 months of 2017. Adjusted EBITDA from continuing operations was $595 million compared to $475 million in the same period of 2017. Moving on to Slide 5 and a review of our segment results. Starting with Siding..

This segment includes our SmartSide fiber and strand and CanExel siding products as well as OSB produced on one line of our Hayward, Wisconsin operation and our Dawson Creek operation. The Siding segment reported sales of $241 million, a 6% increase from the third quarter of 2017.

Operating income was $60 million and adjusted EBITDA was $68 million, representing an increase of $7 million from the third quarter of 2017. For the quarter, SmartSide strand average sales prices were up 5% due to changes in the product mix and a price increase implemented in the first quarter of 2018, with sales volumes higher by 10%.

In SmartSide fiber, sales prices were up 11%, while volumes were down 5%. As a reminder, we raised prices on our SmartSide fiber products, which slowed demand as we continue to seek opportunities to position our fiber offerings to maximize return.

We produced about 100 million feet of OSB in this segment during the quarter of 2018, which is consistent with the third quarter of some 2017 as we continue to prepare for the conversion of our Dawson OSB mill into a siding mill later this year.

We estimate adjusted EBITDA from continuing operations associated with OSB and sold in the Siding segment for the third quarter was $4.5 million compared to $8.5 million in the third quarter of 2017.

For the third quarter of 2018, as compared to 2017, CanExel prices were down 5% and flat in Canadian dollars as a majority of these sales are made in Canada. Volume was down 42% in the quarter primarily due to customers rebalancing their inventories.

As a reminder, based upon the last 3 years of Siding sales, CanExel represents about 6% of our total sales. For the first 9 months of 2018, Siding segment sales were $729 million, an increase of 9% year-over-year. Siding operating income was $168 million compared to $143 million in first 9 months of 2017.

Adjusted EBITDA was $193 million compared to $167 million in the same period of 2017. Turning to Slide 6, OSB reported net sales for the third quarter of 2018 of $349 million, about flat with the third quarter of 2017. Operating income was $115 million compared to income of $127 million in the third quarter of 2017.

Adjusted EBITDA from continuing operations was $131 million compared to $142 million in 2017. For the quarter, sales volumes in commodity OSB were 4% lower, while sales volumes in our value-add products were 8% higher. The volume increase in the value-add products was across all major value-add product lines.

Pricing for OSB was lower by 4% in commodity and 3% higher in value-add. Generally, pricing from our value-add products trail the commodity decrease based upon how prices are set. The decrease in OSB pricing resulted in decreased operating results of $4 million.

In addition to the reduced sales price, we saw increases in raw material costs, primarily resin. For the first 9 months of 2018, OSB segment sales were $1 billion, an increase of 11% year-over-year. Operating income was $370 million compared to $291 million in the first 9 months of 2018.

Adjusted EBITDA was $414 million compared to $336 million in the same period of 2017. The increase in OSB prices accounted for $117 million of this increase, offset by increases in raw material costs and manufacturing costs due to downtime related to logistics associated with our Western Canadian operations and maintenance capital improvements.

Now turning to EWP. Please turn to Slide 7 of the presentation, which shows the results from our Engineered Wood Products segment. The segment includes I-Joist, Laminated Strand Lumber, Laminated Veneer Lumber, OSB produced at our Houlton, Maine facility, plywood plus other related products.

This segment also includes the sale of I-Joist and LVL products produced by the Resolute joint venture or under a contract manufacturing agreement with Murphy Plywood.. For the third quarter, EWP sales were $105 million, up from $98 million in the third quarter of 2017.

Operating income was $9 million compared to $7 million in the third quarter of 2017. Adjusted EBITDA from continuing operations was $12 million compared to $11 million in the third quarter of 2017. LSL volumes were up 30%, while LVL volumes were down 10%. I-Joist volumes were up 4% compared to the same quarter last year.

Pricing was up 13% in LSL, 9% in LDL and 5% in I-Joist. For the first 9 months of 2018, EWP reported sales of $315 million, an increase of 15% year-over-year. EWP operating income was $20 million compared to $13 million in the prior-year period. Adjusted EBITDA was $33 million as compared to $24 million in the same period of 2017.

As Brad noted during the third quarter, our Wilmington, North Carolina LVL operation suffered damage in Hurricane Florence and has been temporarily shut down. The initial cost of $0.5 million associated with the repairs and cleanup are included in our other operating charges and credits for the third quarter of 2018.

We anticipate additional costs of $10 to $15 million including capital will be incurred in the fourth quarter of 2018. It is expected that we will receive reimbursement from our insurance carriers for costs in excess of our $5 million deductible.

Moving on to Slide 8 of the presentation, for the quarter, our South America segment reported sales of $35 million, about $4 million lower than the third quarter of 2017. Operating income was $7 million and adjusted EBITDA was $9 million. Pricing was up 7% on OSB and 2% in Siding.

Volumes were lower in both OSB and Siding due to the slowing housing market in Chile and general economic weakness across all of South America. For the first 9 months of 2018, our South America operations reported sales of $122 million, an increase of 6% year-over-year.

Segment operating income was $25 million compared to $16 million in the first 9 months of 2017. Adjusted EBITDA was $32 million as compared to $23 million in the same period of 2017. Turning to our costs for the quarter, total SG&A costs were $51 million compared to $49 million in the same quarter in 2017.

For the first 9 months, our total SG&A costs were $152 million, up from $145 million in 2017. These increases are primarily related to the increased investment in our sales and marketing areas. In terms of our unallocated costs, these were slightly lower at $28 million for the quarter and $83 million for the first 9 months.

As Brad noted, given our realignment to a line management organization, we do anticipate the unallocated to continue to decrease as these costs are redeployed into the businesses.

Net interest income was higher by $2 million in the third quarter of 2018 as compared to the third quarter of 2017, driven by the higher cash balances and improved interest rates. Please refer to Slide 9 of the presentation. As of September 30, 2018, we had cash and cash equivalents of $986 million.

Capital expenditures for the first 9 months of 2018 were $150 million. Inventory is up from December 31, with the $16 million of this related to in-transits and our adoption of the new revenue recognition standard.

We are projecting capital expenditures for the full year at $200 million to $225 million, of which $115 million is for growth and $100 million associated with maintenance projects. Thank you, Nicole, and if we could now go to the queue..

[Operator Instructions]. Our first question comes from the line of George Staphos of Bank of America Merrill Lynch..

This is actually John Babcock on the line for George. Just want to quickly follow-up with regards to the management structure change there.

Can you talk a little bit about what led to that decision and also provide a little bit more color on what you see the benefits are of this line management style versus the matrix structure?.

Sure, John. Thanks. So we -- as part of our strategy, we're aligning our corporation around a series of strategic agenda items to drive incremental shareholder value.

Predominantly, these initiatives reside within our business lines, obviously, because they're related to either product growth or more efficient operations, as I referenced in my prepared comments. At LP, we have a history of having a more matrix functional organization.

I think that it's a legacy, when we had several more businesses in our portfolio than we do today.

So as we went through over the past year and really looked at our cost structure and the way accountability was being assigned, we felt like it was -- to better align our functional organization with the businesses, we wanted to move away from the matrix structure and embed all the functional support that is around those businesses directly into the business.

And we feel like that will better align all of our organization around executing on our strategic agenda and also provide some efficiency as well. So that was really the initiative and the thought catalyst that went into initiating the study.

We did this cross functionally with representatives from the business and functional leadership engaged in coming up with our new structure, and we're in the process of rolling it out today and will have it pretty much fully in place by the end of the year..

Okay. Thanks for that. And then just moving to the OSB business, I was wondering if you could talk about market conditions as they stand now, how inventories are in the channel and also where your order files stand..

Okay. So I think everybody's pretty much understands what happened in Q3. Just as a reminder, the capacity additions that of come online over the past 12 months were definitely -- there's volume in the market there. Starts were softer Q3 and coming into October.

Weather certainly hasn't helped, especially the rains in Texas and the associated rains with the 2 hurricanes that landed in the Southeast. I do believe, in preparation for some of the hurricane issues, there was some pre-buy and inventory build within the channel that we've been working through.

And then on the supply side, fortunately, we -- as an industry, we did have all the logistics issues that plagued us in the first and second quarter kind of ease up on us so product could truly move around North America. And so we saw pricing pressure.

As we look into October, we were encouraged by the random lengths reports last week where we saw little bit of a bounce. But I do think buyers have been looking for a floor, so they've been cautious about taking positions as pricing -- especially as rapidly as price was falling, but we have seen that firm up a little bit.

And we have currently have our order files out 2 weeks, 2 to 3 weeks, so we feel good about our current position.

As far as inventory in the channel, I do think we've worked through some inventory, some higher-than-normal inventory levels in September and October associated with the pre-builds that were -- or positions that were taken prior to the hurricanes, but feel pretty good about where those inventories are now..

Thank you. And then just in Siding, it looks like volumes were down a little bit from last quarter. What were the big drivers of that? And then also if you could, just kind of tagging on that last question just on -- or rather commentary on OSB pricing.

Has that had any impact on prices within Siding and how your customers are viewing current pricing levels?.

Hey, John. This is Mike. We think that we probably left a little bit out there in Q3, maybe 20 million feet in terms of shipments that we couldn't get out that we had the orders. We still had some lingering availability of cars, getting the cars and getting the trucks to get the product out.

No real impact on the price part because it's not a commodity, and we're not trading from a price standpoint, but when you still look at the full year, kind of 9 months, rolling 12 months-type thing, we're in that 13% growth, which is within the 12% to 14% revenue guidance that we've given, and 8% of that was volume and 5% of that price.

So I think that what we didn't get out in Q3, we'll get that out in Q4..

Okay.

And what was that? Just transportation and logistics that impacted that?.

Yes. I mean, we were having a hard time getting -- at the end of the corner, at the end of any time period, it's just if you get the cars great and then sometimes they flop into the next week, and when you're -- and that's really what happened at the end of the quarter..

Yes. We did have -- as I reported in my prepared comments, we had record order intake for SmartSide strand in the quarter, so we definitely had the orders to ship more than we did. It just became a little bit of issue of buttoning things up at the end of the quarter..

Our next question comes from the line of Mark Connolly of Stephens..

Can you hear--.

Mark, are you there?.

Sorry.

Can you hear me?.

Yes. We can hear you..

Okay. Sorry about that. My line cut out. Can you talk about market penetration for your Siding business a little? Clearly an improving market.

You can grow sales, but when housing slows down, how much will your strategy shift to capture greater market share? Where are the markets you think you're underpenetrated versus potential? And are those different markets in terms of repair and remodel versus new-home construction?.

So we are very focused on further penetration in the repair and remodel market. We have relatively low market share there, especially compared to our position in single family. That's a major initiative to us. We continue to execute on that. That's some of the sales and marketing additional SG&A that Mike spoke to.

We're focused on adding resources to our effort there and so that -- we see a lot of possibility there. I mean, it was encouraging this quarter to get the kind of growth we got as housing began to slow, so I think we're seeing some fruits of that.

But without question, repair and remodel is the biggest opportunity and our highest-focus area other than just executing on the single-family side. I will also mention -- this is a smaller opportunity is the -- what we call specified markets, so that would be more commercial-type applications for SmartSide.

We are very underpenetrated there as well and see that as an opportunity. We geared up in that area of sales and marketing when we introduced our FlameBlock product out of OSB. And so we have learned how to be successful in that channel through the success of our FlameBlock offering and are using those resources to also sell and promote Siding there.

So those are the two kind of -- well, repair and remodel is a very large area, but the specified market is also an area of focus for us and an area where we believe we're underpenetrated..

Great. That's very helpful. So just kind of going back to OSB prices a little bit. They've come down recently, but for a little while, they looked too high to be sustainable.

Did those very high OSB prices worry you to some extent in terms of the potential for creating a more sustainably profitable OSB market? How do you think about your customers and just sort of the incentive for competitors to add capacity?.

Well, usually it doesn't stay up there very long is one thing I've experienced, so I don't think it has -- those kind of prices have in any way affected the overall competitive position of OSB in the marketplace, especially relative to plywood, which kind of tends to move in relationship to OSB.

So I don't think it's hurt us competitively over the last couple spikes, though, I mean, I understand the nature of the question.

OSB remains, over a cycle or even over a year, a very competitive way of sheathing a home, so I think it could -- if it stayed up there forever, people might start looking for alternatives, but I don't think there's been any significant substitution of OSB in the marketplace over this last couple of peaks in pricing..

Our next question comes from the line of Ketan Mamtora of BMO Capital Markets..

Brad, Mike, just coming back to that earlier question, is it possible for you to kind of quantify some of your exposure in terms of your volumes right now, how much goes to kind of new res versus repair and remodeling? And I also know you have the outdoor building solutions kind of exposure as well, so is there any way to kind of quantify that?.

So Ketan, what the -- kind of the new res in the Siding is 35% to 40%. So if you compare that to OSB, which would be in that 75% to 80%, and Engineered Wood, which would be significantly -- would be 90% to 95% new res, so kind of that 35 to 40%.

And then kind of the outdoor, the building solutions, the sheds is kind of 25%, so a quarter of the overall from a segment standpoint.

And I think if you look at -- I think everybody thinks that it's the majority of it is in the new res, and I think what it does is that provides the diversification across the whole portfolio, whether it's the repair-remodel, whether it's the sheds and then also in the new res as well. So it's not just all new residential..

Right.

So what would be the remaining 1/3 of the piece, Mike? So if new res is, let's say, about 40% and sheds is 25%, what would be the biggest piece of that remaining 1/3?.

I think retail environment..

I see. Got you. Okay..

There are some specified markets, but not much..

Got it.

And then any update on kind of when you plan to launch the smooth SmartSide product? I recall last quarter you talked about tentatively planning for Feb 2019?.

Yes. Let me give you an update on that. So we have -- are almost complete with all the, I'll call it in-house testing, weatherability testing and durability testing. We are in the process of installing the siding on some test homes, which is really a means of making sure, from an installed standpoint, that the product functions as we want to.

We are planning now to show the product at IBS in February and expect to be taking orders shortly thereafter. So I would say late Q1, we'll be taking orders for smooth SmartSide strand..

Got it. That's very helpful..

Yes. Great question, Ketan. I just want to -- I'm very proud of the progress we've made there. As you know, that's been a focus of us for several years, with a really intense focus over the last couple, and we're really looking forward to showing it at the builder show in February..

Got it. That's helpful. And then just one other question, and this is sort of big picture.

If you sort of step back, you talked about Q3 housing wasn't great, and I know there were other things going on this quarter with the hurricanes, the weather, but if you step back, what are you hearing from your customers in terms of just general housing demand outside of these weather-related issues that we've seen.

Obviously, the one piece is affordability. We've also talked about labor and lot constraints.

So what are you hearing from your customers as you look out to 2019?.

Ketan, I spent a lot of time with customers, builder customers, in this past quarter, and I was -- I've actually been encouraged by the conversations. I guess I was expecting a little more pessimism kind of based on where the share prices were for our sector, but I was encouraged.

They are, as a general statement, looking at modest growth for next year, so I would say instead of the higher, closer to 10%, I mean, which some do range there, but more at the middle, 4% to 6% growth for next year. So they see opportunity to continue to grow their business into next year.

And despite some ups and downs that happen quarter-to-quarter or month-to-month, there was generally a conservative, positive mood across the customers we interacted with in Q3..

Got it. That's helpful. And just one last cleanup question. Mike, when I look at the presentation and I look at the sliding -- sorry, the Siding slide, in that, the OSB price decline quarter-over-quarter is 24%, but when I look at the OSB segment and in that, the commodity price decline is only about 14%.

What would drive such a large difference between the price declines in those 2 segments within sort of just OSB?.

Yes, Ketan. It's a completely different mix. We have -- if you look at the mix that's coming out of Hayward and coming out of Dawson, that's going to be a different mix, both from a product mix and from a regional mix. So Dawson Creek is going to be all Western Canadian production, and anything coming out of Hayward is going to be North Central..

Our next question comes from the line of Chip Dillon of Vertical Research..

Brad and Mike, it looks like that you guys took -- unless I missed something 3 months ago, that you're edging down the CapEx guidance for the year, and I didn't know if you could just A, affirm that and B, give us kind of an early look, even if it's just directional, in terms of what you see CapEx doing in 2019..

Yes. Chip, we probably didn't really -- I mean, even though it's down from what we said, it really is -- we are essentially implementing all the same projects we were planning on implementing. It's really about timing of when the cash is going to come through in 2018 versus going into 2019.

So we've been saying $200 million to $250 million, and if it's going to be a little bit lower, if we're in that $20 million, $25 million lower in 2018, that's just going to go into 2019. So now when you look at 2019, our first it look at 2019 is about the same as 2018, so no significant difference, $200 million to $225 million..

Okay. That's helpful. And when you -- it's actually very interesting to hear you all describe some of the inner workings of the company. And it makes all the sense to me that if you have people doing a lot of different things, then when things go wrong, they don't have to take responsibility. When things go well, they will all try.

It seems like there's a bit of that changing at LPX, and as you go through this process and we look at those 3 locations that you're taking -- that you're going to be closing, can you give us an idea in terms of kind of A, the headcount? And will some of that show up on the corporate line or will it all be -- whatever the savings are be in the segment lines?.

Yes, Chip. No. Thanks. So those three operations, or those locations, had about 85 people, I think, maybe 90 between the three of them. They had our accounts payable, accounts receivable, some of the accounting functions and then as well as our IT operations as well as our tax department.

So mostly they were functional in terms of supporting the functions. So we are in the -- we had 3 separate leases that we will be getting out of those leases and moving them into Nashville.

In 2019, we will actually incur probably more cost in terms of severance and the move costs and as you transition people from one location to another location, you're going to end up having an overlap of that. So in the end, our costs will be down. We have not specifically kind of stated that externally yet.

I think we'll probably have to think about how much we say publicly on that. But we're looking forward to having those people here in Nashville and having a nucleus of people in Nashville versus a few people here and a few people there in the different locations.

So we're -- if you think about it, it's similar to moving from the matrix to the line management in terms of having those people closest to where all -- everything is going on in Nashville versus out in the mid -- I mean, I've traveled to Portland and Hayden Lake quite a bit, and I think the benefits of having those people here will be realized.

It'll be very important..

Chip, I just -- let me add, if you don't mind.

One of the learnings we had during the downturn is when you have everybody in one location, you do find ways for efficiency gains and productivity gains by sharing work or somebody leaves the company and instead of hiring, you maybe parse out that individual's work, and a couple years later you find out that it actually worked doing that.

So I see this as -- while we definitely have some cost savings baked into our expectations, by consolidating all those activities here, we will find efficiency and productivity improvements just by having it all consolidated in one place. So there was a bit of a yet-to-be-discovered cost number on that.

But it will be real, and we'll continue to share it with y'all as we get more clarity around it..

Okay..

Yes. Chip. One other point I would say is we couldn't have even done this in the past when we were not on our enterprise system and from an -- being on SAP made us realize that that is the way we should be is centralized. So we couldn't have even done it before we went onto SAP..

Our next question comes from the line of Sean Steuart of TD Securities..

A couple questions.

On the move to the line management system, excluding potential cost savings from closing down some of those offices and relocating people, how should we think about your quarterly corporate expense falling going forward? And I guess I'm just trying to get a sense of if we're at a run rate of $25 million a quarter now, does that trend to between $5 million and $10 million and the rest gets reallocated to the segments? How should we thing about that?.

No, Sean. I wouldn't think about it that way. It might be -- it's probably too early to say how much it's going to go down, but I think it will trend down. But trending, unless we significantly change the allocation aspect of it, it's going to be not to the $5 million range.

It's going to be slightly down, yes, but I wouldn't say that it's going to be in the $5 million range unless we significantly change an allocation methodology, which at this point in time, we have not -- we aren't planning on doing in the near term..

Okay. Mike, to follow-up, you guys had a big pension payment this quarter.

Can you give us the catalyst for that and rationale? And should we expect any further lump-sum payments going forward on that front?.

No. I think that was it at this point. When we looked at the change in the tax law, it made sense. And if you look at it across multiple industries and multiple -- when you look at the tax reform -- and so being that we were paying the pension benefit guarantee fees to -- because we weren't fully funded.

By bringing it up closer to being fully funded, that reduced those. And so when we looked at it from an IRR standpoint, that was the best thing to do. And then it essentially pre-funded that and also eliminated those fees. So we don't have any more of that planned at this point in time..

Our next question comes from the line of Steven Chercover of Davidson..

First one, real simple.

What financial impact of the Carthage press rebuild?.

I think CapEx is $14 million, a little over $14 million. It's between $14 million and $15 million, I believe, but it's typically -- those pressured builds are in that range..

And it's 35 days down?.

Plus or minus, yes. I mean, that's what we're "budgeting," and we're always trying to do it shorter. But that's the plan at this point in time..

Okay. And then secondly, it sounds fair to say that your operational stance has evolved substantially.

And I'm just wondering, is it as simple as just producing to your order files or are there other financial and strategic elements when you contemplate your order stance?.

We are producing to our order file. Our view is we want to service our customers. We do not want to build inventory within our own system, and we do not want to normally build inventory within the channel. And so we try to match our production to our customers' demand. And we focus on that every day..

And the last one from me. If I did my math right, the first repo, you did about 2.1 million shares at $28.60 or so, and the second one 4.4 at $27. So it sends a strong signal of about assessment of intrinsic value.

But shares can also overshoot, so I'm just wondering if you'll be a bit more opportunistic on the second half of the second repo?.

Well, if it was a good deal at $27, it's probably a better deal at $23, right?.

That kind of makes sense..

Our next question comes from the line of John Tumazos of John Tumazos Very Independent Research..

I'm looking at the last Friday's random lengths price, 185 Western Canada, 203 Southeasten U.S.

And what price level do you think would cause material production cuts? Are these prices at random lengths probably just correct or are there competitors that have annual contracts with minimums or floors above that level? Are $30 to $50 of the cost fixed or semi-fixed, so that if we read a statement that has an EBITDA cost of 180? If you're idle, you still continue to have $30 to $50 of costs.

But at what level does supply contract?.

Well, John, I think if you look back and look -- go back into October and look at what happened over most of October, I think what you'll find is that when it hits about where it is right now, it kind of slowed down.

I mean, so I think that what happens is that the buyers end up waiting for a bottom, or whatever they think the bottom is, and then the order files are longer now. When you look at random length, they're out 2 to 3 weeks. So plus or minus, I would say that you're in that range right now, depending on the region.

And you've had -- some regions are down 5. Some regions are plus 10, plus 3 when you look at last week. And if you look at the commentary from random lengths, the -- it showed a lift coming towards the end of the week from a demand standpoint.

So some of the things Brad was talking about in terms of the weather in October will -- it seems to be it's starting to dry out a little bit and we'll see how that plays out over the next few months..

Is the situation partly expectational, where most people expect prices to begin rising in December and into the spring? So if we're at these prices on March 1 or April 1, for sure we get production cuts?.

I don't know about any of that, but I would say it's probably expectational from a buyer standpoint and a seller standpoint and what enters into all their mind at any given point in time.

I would say that's probably the definition of a commodity, right?.

Hey, John.

I'll just add from my experience in the OSB business that there's a lot of emotion on the selling floor and on the buying floor when price is moving either up or down, and that emotion is -- people do not want to take a stocking position if next week they believe the price is going to be lower, and they do want to take a stocking position if they believe next week the price is going to be higher.

And that is as much feel as science, especially during these times of movement. So I think we see these swings, especially as we approach peak or trough, that are as much emotion driven as they are any kind of mathematical formula that you could run.

I mean, even if you look at, from a standpoint of demand and capacity, we're still very balanced as an industry, and prices have moved the way they've moved this year. So it's very hard to predict.

And all we can do is make sure our customers -- we're matching our customers' demand to capacity and into our production, and that's what we focus on every day..

Our next question comes from the line of Mark Weintraub of Seaport Global..

First just on Siding, you laid out your initiatives for repair-remodel. You also talked about the smooth appearance product.

If housing were to be relatively flat -- and obviously, we're hoping there's still going to be upside -- but if it were to be relatively flat, do you think you can achieve the lion's share of that 12% to 14% revenue growth on the back of the initiatives you're launching?.

Mark, I do. I would say -- this is an initial reaction. I would stick to that as long as housing didn't decline. I think if we saw a decline in predicted starts, we would want to evaluate that before I would make a statement about it.

But given the diversification in our product offering across segments and the market share that we continue to garner, even in single-family, I would -- it would -- we're pretty robust about our guidance we've been giving on volume -- or actually on revenue. Yes..

Thank you. And then as you point out, if the stock's attractive at $27, it's even more attractive at $23.50, and you've also got almost $1 billion of cash on the balance sheet.

In the past, you've talked about wanting to have, I think, on the order of $300 million and then having some money for CapEx projects, although you're now much further along in that process.

Maybe if you could kind of just update us on what you'd like the balance sheet to look at when we have a situation where maybe your stock is a fair bit undervalued relative to your views of intrinsic value..

Well, so let me go through our capital allocation priorities and see if that answers your question. As Mike mentioned, we're going to do another press rebuild in OSB next year. We have begun the formalizing the study around the next siding mill.

And just as a reminder to that, we've kind of done the easy ones there from a conversion standpoint, in that taking running OSB mills and converting them to siding. We now have a site in Cook, Minnesota. We have a nonoperating mill in Quebec.

So the next siding mill is going to be -- could potentially be substantially more capital associated with funding that growth. We want to make sure we have adequate financing for that as well as the next one.

On the pace that we're on now, I mean, it is encouraging from a siding standpoint to be beginning the planning on the next mill before the mill we're working on has started up on siding. And so those are our biggest priorities. The organic growth let's call that.

We would like to continue to evaluate adjacency M&A opportunities similar to what we've done with Barrier and then similar to what we've done with the Entekra. While those have been modest, we continue to be active in that area, and obviously, we're going to buy on value, but that certainly could be a use of capital in the future.

Then you know, Mark, we reinstated the dividend. We're buying back shares, and we do understand that our shareholders deserve a return on their investment with LP. And depending on where we are with share pricing, we can flex some of that share buyback initiative that we have, and we plan to do that. But so that's where we're focused.

You're right, we do speak to the $300 million cushion that we want to have in cash, and as long as it's higher than that, we will be actively pursuing opportunities to create shareholder value with the remaining capital for our shareholders..

Okay. Thank you. And that's -- you've obviously got a list of attractive potential opportunities competing for capital.

And I guess, as you put it all together and you have a share repurchase -- which I think you mentioned is about $130 million left to potentially be deployed -- if the share price opportunity remains very attractive from your perspective, how quickly do you think it's realistic that you would deploy that and/or would there potentially be appetite to do more?.

Well, I think, Mark, so we had the $100 million, which we obviously initiated quite a while ago. Then between the last two quarters, we did $39 million and $60 million, so yet a little bit more than 50 a quarter. And then we still have $131 million left on the $150 million authorization.

So I think that we will continue to look at that, and obviously, the opportunity to accelerate that is better at $23 then at $27 or $28..

Okay. Thanks very much,.

But Mark, let me say, I think our board is actively involved in these discussions around the questions you're asking, and we -- my feel is share repurchase will be a viable part of our strategy going forward, given the strength of our balance sheet.

So we'll work through this current authorization, and I'm confident that, if it makes sense, our board will be supportive of the next one, and then we'll execute around that depending on where we are in the cycle..

Our next question comes from the line of Paul Quinn from RBC Capital Markets..

Brad and Mike, just a question on the Siding. It's great to see you kept the revenue guidance at 12% to 14%, but I suspect when you put in that guidance, you weren't quite 100% sure that you'd have this smooth side product available. Just wondering what if you could sort of give us a rough idea what kind of growth you see in the smooth-sided product.

And is that a significant portion of the 12% to 14% going forward?.

Yes. Paul, when we -- as we go into next year and launch that product, we'll sharpen our pencil on that. But I want to tell you where I stand right now on it is we have these questions around how are you going to sustain the 12% to 14%,.

A key initiative for us, as the cycle for single-family begins to slowdown in growth, is we have to accelerate in repair and remodel.

And as we've talked about in the past without having smooth, it has blocked us out of some geographic regions, and it has been a hindrance overall to the repair and remodel across really all regions because that is an option you really need to have in your portfolio.

So currently, we see that product as being an enabler to sustain the 12% to 14% rather than an incremental to that. Now give us a year to have that product launched and out in the market, and we can come back and be more specific, if we see that changing on the upper side..

Okay. That's helpful. And then just tweaking my supply-demand model on the OSB side, we've got these four -- well, three restarts and one new mill coming in over the last 12 months.

What are you hearing on that little Forex mill in Quebec? Are you hearing anything on that? And do you expect any other additions in the market place over the next year going forward?.

Well, I'll -- from a Forex standpoint Paul, we don't hear a thing. To be honest with you, I'm not even sure, when we ask our sales guys, that they even know it's running. So if it is, it's barely running, and if it isn't, we're not really hearing anything, so I don't -- we're not real sure on that one.

And then on anything else, it's hard to say, but the only ones that are being talked about, from a mill standpoint, is the Chambord mill that we traded with Norbord, and I'm sure you heard what they said on their conference call the other -- last week.

So other than that, I don't think there's any other mill-specific, other than just continued productivity enhancements, whether they're us or anybody else..

Okay. So then on the withdrawal side, we've got the Dawson Creek conversion which takes that out for 3 months, and we've got it sounds like a month plus at Carthage.

Do you have any idea on maintenance downtime Q4 or Q1 of '19?.

No. We wouldn't say that even -- I mean, obviously, we have our plans, but at this point in time, what we've talked about is Dawson being down from November to kind of Q1, and then when you look at Carthage, 35 days middle of Q1. Maybe that goes into Q2, but kind of right in that range..

Okay. And last thing I had. Just that OSL volume pick up, that 30% year-over-year, is pretty impressive, especially given the drop in lumber, which I guess is a substitute for that product.

Just wondering, that whole mill, what percentage of production is OSL versus OSB? Do you have any kind of rough breakdown there?.

I'll take the volume part. There's very little OSB being produced there. I'll have to get back to you on the actual volume, but it's not a lot.

The majority of the increase for sure is LSL, and then I don't know, Brad, if you want to talk about the strategy and the value-add?.

Paul, over the last several years, LSL -- our LSL strategy has really been a dealer strategy, which is adding to the number of stocking dealers we have in that product. We have found that if you get good dealers, lumber dealers who take a stocking position, the product does move.

And so we've been incenting that and marketing and selling around that, and our sales force and our dealer network, supported by our distribution network, has done a really good job of just increasing the exposure that product has to the market. And once it gets exposed and once it gets used, we've been really successful growing it.

So it's been a -- in the big scheme of LP, it's kind of a small thing, but I'm really proud of the execution of that product growth strategy by our sales force and by our distributor and dealer network. It's been impactful to the segment, very impactful to the segment profitability..

And I'm showing no further questions at this time. I'm handing the call back over to Mike Kinney for any closing remarks..

Nicole, I think that's all the time we have for questions, so if you could provide the replay number, that would be great. And as always, thank you for participating in our call. And myself and Becky are here to answer any follow-up questions. Thank you, and have a good day..

Thank you. Ladies and gentlemen, this conference will be available for replay on today, November 6, 2018 at 2:00 p.m. Eastern Time. You may access the remote replay at any time by dialing 1-800-585-6367 or 855-859-2056 with a conference ID of 5745448.

For international participants, we ask that you please dial 474-537-3406, and the same conference ID is 5745448. That does conclude our conference today. You may now disconnect. Everyone have a great day..