LP's siding is growing again. Why hasn't the margin followed?

LP Building Solutions delivered the return to siding growth it promised in August. Sales of engineered wood siding reached a quarterly record, even as higher costs limited the improvement in that business's profit.

Research by Ticker Byline shows that LP's latest capital-spending cut leaves its planned growth investment unchanged. The entire $20 million reduction comes from maintenance projects, while the company raises its annual adjusted profit range.

That is a selective response to a difficult building-products market. The siding recovery is taking hold alongside continuing losses in the company's structural wood-panel business.

The siding promise was delivered

Third-quarter siding sales reached $473 million, above August's $460 million to $470 million forecast and up from $443 million a year earlier. Unit shipments increased 2%, reversing the decline seen over the first half. Higher prices also helped.

Siding adjusted EBITDA was $119 million, within its $110 million to $120 million forecast. This profit measure excludes interest, taxes, depreciation, amortization, stock compensation and selected other items. Sales growth did not produce a wider margin: the segment earned roughly 25% on that basis, compared with about 26% a year earlier.

Price gains and higher volume helped cover increased raw-material, freight and labor costs. Maintenance costs and inventory reductions also weighed on the result.

The budget cut has a specific source

LP now plans about $300 million of capital spending this year, down from $320 million in August. Comparing the two forecasts shows growth projects remain at $140 million. Sustaining maintenance spending falls to $160 million from $180 million.

The company also raised its full-year consolidated adjusted EBITDA range to $270 million to $280 million, from $255 million to $270 million. Third-quarter group adjusted EBITDA of $82 million exceeded its separate $50 million to $60 million forecast, although it was flat against last year.

Quarterly operating cash rose to $112 million from $89 million, while capital spending fell to $56 million from $84 million. Our calculation leaves $56 million after capital spending, compared with $5 million a year earlier. Over the full nine months, however, the same calculation leaves $38 million, below last year's $99 million.

The panel business still needs a recovery

Oriented strand board, or OSB, is used in roofs, walls and floors. That segment lost $24 million on an adjusted EBITDA basis in Q3. Its smaller loss than last year partly reflected lower inventory reserve adjustments, rather than a recovery in selling prices.

LP expects another OSB loss in Q4, using late-October prices as a modeling assumption. Its annual siding sales forecast also remains slightly below 2025. The LP Building Solutions company profile tracks the operating recovery, capital budget and cash position as those plans develop.