Good day. Thank you for standing by. Welcome to the Q4 2022 Louisiana-Pacific Corporation Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference call is being recorded. I would like to excuse me, turn the conference over today to Aaron Howald, Vice President, Investor Relations.
Thank you, operator. Good morning, everyone. Thank you for joining us to discuss LP's results for the fourth quarter and full year of 2022, as well as our updated outlook for the first quarter of 2023. As the operator said, my name is Aaron Howald, and I am LP's Vice President of Investor Relations and Business Development. I'm joined this morning by Brad Southern, LP's Chief Executive Officer, and Alan Haughie, LP's Chief Financial Officer. During this morning's conference call and podcast, we will refer to an accompanying presentation that is available on LP's IR webpage, which is investor.lpcorp.com. Our Form 8-K filing is also available there, along with our earnings press release and other materials. Today's discussion will contain forward-looking statements and non-GAAP financial metrics as described on slides 2 and 3 of the earnings presentation. Rather than reading these statements, I incorporate them herein by reference.
The appendix of this presentation also contains reconciliations that are further supplemented by this morning's 8-K filing. With that, I will turn the call over to Brad.
Thanks, Aaron. Good morning, everyone, and thank you for joining LP's conference call to discuss our fourth quarter and full year results. In 2022, LP's 50th year, we delivered record siding volume and earned $1.4 billion in EBITDA and returned nearly $1 billion to shareholders, including repurchasing 14 million shares. We also invested in our ongoing transformation by completing the conversion of our Houlton mill, starting the conversion of Sagola from OSB to siding, and growing our capacity to produce ExpertFinish and Structural Solutions. In Q4, we grew Siding Solutions net sales by 38% and remained EBITDA positive in OSB despite prices falling to levels not seen since 2019. Another highlight of the year was publishing our second susta inability report.
LP's inherently carbon-negative products and efficient manufacturing processes mean that LP is delivering value to customers, homeowners, and shareholders, while also positively impacting communities and the environment every day. It was a truly remarkable year, and I want to thank every LP employee whose contributions helped make it possible. The recent slowdown in housing starts is likely top of mind for most of the audience. Let me address that, starting with a reminder that LP's OSB and Siding businesses have very different relationships with that underlying market. Q4 saw 26% fewer single-family starts than in Q4 of 2021, and single-family starts were down 11% for the full year. LP's OSB segment is closely correlated with new residential construction. As a result, after a remarkable year of cash generation, commodity OSB prices fell to near cash cost in Q4 as demand slowed with reduced housing starts.
We responded with disciplined management of capacity and exceptional execution by our sales team, which allowed the OSB segment to earn $13 million in EBITDA, which is above our algorithmic guidance given how far prices fell. LP's Siding segment, on the other hand, is more specialized, has no connection to commodity prices, and has significantly more diverse channels and end uses, with only about 40% of Siding volume going to new residential construction. We think SmartSide is the best Siding product available. As a result, Siding has consistently outperformed the underlying housing market, with net sales increasing by 38% in the fourth quarter and by 26% for the full year. In the fourth quarter, our Siding distribution customers continued to order, but some of their customers' pulls slowed.
This resulted in an inventory build in the channel of which we were unaware until late December, due to the time lag inherent in a managed order file. By quarter end, therefore, most LP SmartSide products have finally caught up to customer demand, bringing lead times and inventories back to more seasonably normal levels. Alan will talk more about that in the guidance section. Looking back, single family starts grew by 14% from 2020 to 2021, then fell by 11% in 2022, ending essentially flat over two years. Over that same two-year period, we have grown Siding Solutions revenue by more than 50%. Siding is not immune to a housing slowdown, but it has consistently outperformed the underlying market. We are confident this trend will continue as we execute our strategy to grow and take share by focusing on repair and remodel markets and drivi ng product innovation.
Let me talk a bit about LP's view of the current market and how we are navigating it. Consensus for total U.S. housing starts for 2023 is around 1.25 million or 20% lower than 2022. Although data released last week was a bit better than this. Most observers expect the housing market will strengthen in the back half of the year, implying that Q1 could see housing starts fall by more than 20% compared to 2022. There is significant uncertainty in housing and R&R markets at the moment, particularly with regard to interest rates and affordability. As a result of this near-term uncertainty, we are seeing softer demand in Siding and OSB. I want to reinforce that LP's strategy is not simply to wait for strong housing starts for high commodity OSB prices.
Our strategy is to grow SmartSide, grow ExpertFinish, grow our exposure in R&R, grow our portfolio of Structural Solutions, and expand our reach geographically. We will continue to execute on our strategy because we have shown that it delivers value. This strategy is the reason why Siding has gained share and consistently outperformed the housing market. As we have said before, we have more than enough flexibility in our production plans and capital projects to respond effectively to short-term weakness and more than sufficient liquidity to continue investing for long-term growth in Siding and Structural Solutions. In the long run, fundamentals remain very strong. With demographics and structural undersupply as tailwinds for new construction and aging housing stock supporting R&R growth. LP will bridge the short-term gap, protecting against market downside while preserving our ability to benefit when the housing market regains its footing.
We will do it by executing our strategy with disciplined operations and capital allocation. With that, I will turn it over to Alan to discuss our financial results for the quarter and an update on our capital allocation strategy.
Thanks, Brad. I'll spend a few minutes reviewing LP's performance for the fourth quarter and full year, then I'll discuss the current market environment and its impact on our near-term outlook. Slide 7 shows Siding growth compared to housing starts on a trailing 12-month basis. As Brad mentioned, the disconnect was even more pronounced in the fourth quarter. The pie charts to the right show the mix of the more specialized Siding products, primarily ExpertFinish and Shakes. Although the percentage of total volume shrank by 1 percentage point, this is an artifact of the exceptional 20% growth of overall volume, which was admittedly magnified by the soft comp, resulting from a press rebuild in the fourth quarter of 2021. ExpertFinish revenue grew by 65% year-over-year. Slide 8 shows the quarter for Siding in more detail. The story is a fairly simple one.
List price increases and favorable mix drove net prices 15% higher while volume grew by 20%. These two factors added $70 million to EBITDA. Inflation of raw materials and freight costs for conversions and increased selling and marketing produced a $32 million headwind. In other words, the EBITDA gain from growth was double the negative impact of inflation and investments in future growth. The resulting EBITDA margin increased by 6 points to 23%. Again, in a quarter when single-family housing starts fell by 26%. Slide 9 tells a similar story for the full year. 14% higher prices and 11% volume growth added $212 million of EBITDA, partially offset by $31 million of discretionary investments, meaning no conversion costs in selling and marketing.
After $123 million of inflation, EBITDA was $50 million higher than the prior year for a full-year EBITDA margin of 23%. In a year with two press rebuilds, significant inflation, and 11% lower single-family starts. The OSB charts on pages 10 and 11 are dominated by the impact of falling OSB prices and rising raw material costs. The volume reductions caused by market curtailment late in the quarter resulted in $61 million lower EBITDA than the fourth quarter of 2021, $11 million from commodity OSB and $50 million from higher-priced Structural Solutions. There was a $14 million hit from inflation, mostly raw materials, and a $10 million impact from inventory devaluation. Despite this, higher price realization resulted in the OSB segment outperforming our algorithmic guidance and generating $13 million of EBIT DA.
While the full-year water perform on page 11 is again dominated by price inflation, I do want to highlight that the $65 million of increase to EBITDA from Structural Solutions growth more than offset the $41 million impact from lower commodity volume. This shows the incremental margin impact of the higher value-added Structural Solutions products. These 4 slides are LP's transformation strategy in a nutshell. OSB prices ebb and flow outside our control. We generate significant amounts of cash when demand and prices are high, and we manage our production capacity with discipline and focus when demand ebbs. Siding, on the other hand, is our growth and value creation engine with specialized products, steady prices, and a long runway for continued growth well above the underlying market. Slide 12 shows a very high-level roll forward for the revenue and EBITDA for the quarter.
OSB price drops reduced revenue by $120 million. This was almost completely offset by $105 million or 38% of Siding growth, a remarkable accomplishment for the Siding team. OSB market curtailment and the losses for Golden's OSB capacity further reduced revenue by $37 million and $19 million respectively. Partly offset by $13 million from increased commodity OSB volume, mostly due to Peace Valley's ramp-up. LPSA, etc. and everything else saw revenue fall by a combined $22 million. The EBITDA story in the right-hand column is similar, other than the call-outs. In North America, the sum of what we can control, specifically Siding growth, Structural Solutions growth, and OSB volume, netted a $37 million positive EBI TDA contribution.
It was not enough, however, to offset falling OSB prices and inflationary pressures, with the result that LP delivered $100 million in EBITDA in the quarter, lower than the prior year quarter by $178 million. Slide 13 provides the same analysis for the full year. Revenue, $456 million of growth more than offset the impact of falling OSB prices. EBITDA, the growth of Siding and Structural Solutions produced $294 million of EBITDA compared to 2021. Other than OSB prices, this $294 million was almost enough to offset the combined impact of inflation, the cost of mill conversions, the Golas Pewaukee outage for conversion to siding, LPSA's EBITDA drop, and everything else besides. Page 14 of the presentation shows cash flows for quarter and full year.
We began the quarter with $482 million in cash. Operating cash flow of $41 million is the net result of $100 million of EBITDA, + $29 million in working capital decreases, less $78 million in taxes. The fourth quarter saw heavy CapEx spending of $133 million, mostly on the Sagola Siding conversion and Green Bay ExpertFinish expansion. After $16 million of dividends and a few other things, our cash balance fell by $99 million, ending the year at $383 million. Finally, if you look at the P&L account on page 17 of the presentation, you will see an $82 million non-operating charge in the quarter. This includes a $78 million non-cash charge resulting from the settlement of our defined contribution pension plan.
This charge is omitted from the EBITDA and adjusted earnings per share. With that, let me move on to the current market dynamics and how LP's strategy helps us respond before transitioning to guidance. As Brad described, and as you all know, there is significant uncertainty in the housing market. LP is investing in growth for SmartSide, ExpertFinish, and Structural Solutions to meet customer demand. As we said before, we have significant flexibility to delay the timing of capacity expansion projects should we anticipate that current market softness is likely to continue. However, we also have more than enough liquidity to withstand the temporary reduction in cash flow that reduced customer demand would imply. LP will continue to manage its mills with discipline to meet customer demand. In Siding, we are working through the inventory digestion that has accompanied the transition from a managed order file.
All indications are that inventory is now flowing naturally. In OSB, just as we took market downtime at the end of the quarter, we are constantly assessing customer demand, milling inventories, and OSB prices to balance supply and demand. I'm confident that this strategy will allow us to manage this period of decreased demand, which I hope and expect is temporary, with the agility to respond up or down as the market evolves. Our capital allocation strategy remains unchanged, though the timing is somewhat cash flow dependent. As a reminder, that strategy is to first earn the cash, then to invest in growth, and only then to return the remainder to stockholders via dividends and share repurchases. In the fourth quarter, as OSB prices and cash flow fell, we did not repurchase any shares, leaving our share count at about 72 million.
We have a remaining board authorization for $200 million of repurchases. Consistent with our belief that our shares are undervalued, cash flow allows, we'll be back in the market. In terms of liquidity, we retain a $550 million undrawn revolver. We have $350 million of long-term debt at 3.625% due in 6 years. We intend to protect this very strong balance sheet, but use it to execute our strategy. While 2023 is shaping up to be a year of negative cash flow, at least at the current housing consensus and OSB prices, we will manage our CapEx and balance sheet with appropriate discip line.
For the first quarter, as Brad mentioned, we expect inventory digestion following our transition from a managed order file in Siding, with the result that revenue for Siding Solutions is expected to be flat to 5% lower than the first quarter of 2022, with price increases roughly offsetting lower volumes. In OSB, assuming prices remain constant at the level published last Friday by Random Lengths, OSB revenue would be down by about 20% sequentially from fourth quarter levels. With OSB prices at these levels, please bear in mind that LP's algorithmic guidance for OSB revenue reflects currently planned capacity reductions taken to match production to customer demand. All of these factors would result in a first quarter EBITDA of at least $35 million.
Given the current uncertainty in the market with regard to full-year housing and repair and remodel demand, it's difficult to offer accurate full-year guidance for Siding revenue growth. However, we are confident that the Siding segment will outperform the underlying market by a substantial margin. Since the underlying market itself is difficult to predict, we're going to hold off on offering meaningful guidance until our next earnings call, by which point we expect to have greater clarity. Similarly, for full-year CapEx guidance, we will make the investments necessary to grow and outperform the underlying market. As I said, we have significant flexibility in our CapEx plans and more than enough liquidity to adjust up or down as we gain more data about customer demand. Now I'd like to hand it back to Brad for some closing comments.
Thanks, Alan. As Alan detailed, we are working through the effects of catching up to the siding order file, and we're managing OSB capacity to match current market demand. I don't want to minimize the near-term challenges these factors present as we enter a period of softer housing starts. The market is still quite uncertain. Housing starts and R&R activity have never been easy to predict. There are a few things we are very confident about. First, there is a structural undersupply of homes in the U.S. This undersupply must eventually be resolved. Second, the age of the average house in the U.S. suggests a very long runway for growth in R&R. Third, we know that we have the best products and team in the industry. LP Siding segment has a long history of outperforming the underlying market and gaining share, and that will continue.
We will manage our OSB capacity, our CapEx plans, and our balance sheet with discipline so that we can continue to outperform the market and deliver results for our shareholders. 2022 was an incredible year. 2023 has started with market conditions different than what we have experienced the past two and a half years. However, we are not resting on our laurels. As we bring our first 50 years to a close, I have never been more confident that LP will build on our record of growth, innovation and sustainability to deliver shareholder value in our next 50 years. With that, we will be happy to take your questions.
Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. One moment while we compile the Q&A roster. Our first question today will be coming from George Staphos of Bank of America. Your line is open.
Hi, everyone. Good morning. Thanks for taking my questions and thanks for the details. Brad, Alan, I know it's difficult, but is there a way to assess for us what your production stance is right now in siding relative to takeaway? Are you still, I'm assuming, producing at a lower rate relative to demand just to clear inventories? Or have you largely gone through that and you're producing, as far as you can tell, pretty much in line with takeaway? In terms of first quarter, thank you for the guidance points, recognizing it's very difficult given all the moving parts and the volatility related to pricing with OSB. Is there a way for you to give us a bit more color in terms of how you see OSB and siding stacking up in that more than $35 million guidance?
Thank you.
George Staphos, let me start with a production question around siding. Just keep in mind that Houlton has been, you know, Houlton line one ramped up all through last year and is, you know, right at or close to full production. Has the capability to produce at full production. We have governed that volume back a little bit in Houlton as we went into Q4 and beginning of Q. Well, more so actually in Q1. We're, you know, to answer the question, if we're running the siding plants at full production other than Houlton, where we, you know, decided to take some capacity out there just to try to match the order pull through a little bit better.
The second question, George, was, could we give color around the $35 million? Yes, I think we owe you that. Bear in mind, please, that the number I'm about to quote for OSB is predicated algorithmically on OSB prices of last Friday holding flat. The 35 roughly breaks down as follows, and it is rough. About $50 million from siding, about -$10 from OSB, and then everything else, including a bit of conservatism, perhaps LPSA, offsetting corporate of -$5. + $50 for siding, -$10 for OSB, -$5 for everything else, $35 million.
Thanks, Alan. The last one I'll turn it over. You mentioned, you know, you have the flexibility to push ahead or delay as needed in terms of your capacity ramp in siding. What will be the key mile markers for you relative to how quickly you go ahead or decide to pull back? You know, one of your peer companies talked about some weakness they were seeing in repair and model activity. You know, is that going to be, you know, whether it's dollars of revenue or commentary out of the big box retailers, what will you be looking to and what should we be looking at as analysts engaging that? Thank you. I'll turn it over.
George, let me just say for press production, we're full steam ahead on bringing Sagola up to full gear by the end of the year. We see no reason to back off at all on the path forward for Sagola startup, which, you know, added a significant amount of press capacity. Similarly in Bath, New York, we're full steam ahead on that production for ExpertFinish. As we get to this, you know, the next tier of volume from a press capacity standpoint, that would be Houlton line two, and then, you know, various options on ExpertFinish.
You know, we'll just be looking at the market as we go through the year, looking at, you know, what ultimately what we feel like growth will be for this year and, you know, and apply that as well and also look over what we expect for housing the next couple of years, and those will, you know, inform our decision on whether to, or what kind of pace to continue that capacity expansion. You know, we're still actively involved in engineering and design for ExpertFinish capacity beyond that. As we've talked about on the call previously, you know, we have, we have begun procurement for different capital components for Houlton line two. We haven't, you know, we haven't delayed anything.
We haven't had to make decisions on beginning to actually put, you know, steel in the ground or pour foundations. As we get to the spring and summer, we'll have a better feel for, you know, what the market's looking like in the near term, and then we'll govern our capacity spend, you know, around the reality of what we're seeing in the order file.
Thank you.
Welcome.
Thank you. One moment while we prepare for the next question. Our next question will be coming from Ketan Mamtora of BMO. Your line is open.
Thank you. Good morning, Brad, Alan, Aaron. First question, you know, coming back to siding, Alan, in your prepared remarks, you talked about meaningfully outperforming the broad market. Is there a way to think about, you know, either in terms of sensitivity or if there is a better way to think about, you know, sort of the degree or of outperformance or sort of, you know, volume growth at different housing stocks level? I'm just trying to understand kind of what is the best way to think about volume in the siding business, recognizing that there is still a lot of uncertainty.
Yeah, it's a great question, and it's a very hard question to answer, particularly given that, you know, experience over the last couple of years, we've been on a managed order file. Very high level over sufficiently long periods of time, we believe that we outperform on a revenue basis the underlying market by, let's say, 8 to 10 percentage points of growth. A simple way of articulating that, and I say the underlying market, we've only really got one clear marker of the market, and that's single family housing. If single family housing were, let's say, to be down 10%, then I would argue that we should be able to grow our revenue above that. And that model, you might expect slight revenue year-over-year.
Of course, it depends on what happens in R&R and to what extent that's impacted by the housing single family housing starts. I would argue, and I'd like to think that at 10% housing decline, we might actually see some strength in repair and remodel, and maybe that would be better. It's flexible. The two, R&R and housing don't necessarily move in tandem, but we use as a simple working model, 8-10 points better than the market, whatever that market marker ends up being. We believe we have a long history of being able to do that through market share gains, partly driven by our innovations.
Got it. No, that's helpful perspective. Alan, perhaps I missed it. Did you talk about sort of 2023 CapEx guidance?
No, I didn't quite specifically. It's very hard to give guidance in a without being able to discuss it in a sort of open forum like this. You know, I think last couple of quarters I've guided to I said that 2023 will be a figure closer to $500 million. I'm obviously gonna lower that guidance a bit. Let me tell you what our working model is as of today, and I'm happy to do that because it indicates the range. I would say our working model for CapEx, this is not a projection, this is basically describing what we see and the level of flexibility we think would be wise.
Our working model is in a range of $350 million-$450 million of CapEx in 2023. It's hard to say, as Brad said, where that will land because we will use the flexibility that we have. Q1 CapEx will be pretty heavy. I'm willing to quote a number of something like $120 million-$125 million of Q1 CapEx though. That would be fairly heavy. We have a number of commitments for long lead time items that we intend to plow ahead with. Of course, we're creating scale up. There's no, absolutely no slowdown there.
Understood. No, that's very helpful. I'll jump back in the queue. Good luck.
Thank you. One moment while we prepare for the next question. Our next question is coming from Susan Maklari of Goldman Sachs. Your line is open.
Thank you. Good morning, everyone. My first question is talking a bit about the pricing environment for siding. First of all, I guess, can you give us any update on the success that you've seen with that increase that you announced in, I believe it was late last year, effective in early January? In this environment with volumes moving lower, how do you think about price versus volume? What's the ability to continue to hold the pricing that you've realized? Would you be willing to think about the volume versus price a little differently, given where we are from a macro and a housing perspective?
Susan, for the first question, we were able to implement our price increase January 1.
I would say just as consistent with the way we've done it in the past, there could be a little lingering effect through Q1 of realization. Predominantly all of it was accepted in the marketplace, so we have minimal concerns there. For the price volume trade-off, generally siding doesn't work that way. I mean, there's, you know, we're slow pricing it into distribution. I don't think most siding jobs are a cost play to start with. You know, we feel like we're pricing the product equivalent to the value that it warrants in the market. You know, and our distribution partners have done a good job of getting that price through the channel.
Now, I do want to say there is an exception to that, and that is around of large national builder deals, which typically do require some back-end rebates. Obviously we are, you know, we're part of that game, and we are active in continuing to process those kind of opportunities now. That can result in, or a rebate pattern that chips away at that list price increase for specific customers and for large volume type of deals. I would just say for the year, we should expect to see by the time we get to the second quarter that January price increase has worked its way into our P&L.
Okay, that's very helpful. Turning to the OSB segment, you talked a bit about some production curtailments there. Can you give us more color on some of those locations and how you're thinking about holding production as we think about where pricing may move for OSB through the year?
Yeah. Susan Maklari, I'm not going to go through mill by mill and talk about what we did. I would say, I would describe it this way in Q4 was pretty general across our entire system with downtime. You know that is somewhat easier to do during the holiday season. We, you know, it was widespread distribution of downtime late in Q4 to try to match demand. As we come into the Q1 and get, you know, everybody comes back from the holidays, it is more targeted around mill cost and including the, you know, transportation. In Q1, the downtime will be a little bit more concentrated, but we'll be taking as needed in order to match demand.
Okay, thank you. Good luck.
Thank you, Susan.
Thank you. One moment while we prepare for the next question. Our next question is coming from Mike Roxland of Truist Securities. Your line is open.
Thank you. Good morning, Brad, Alan, and Aaron. Thank you for taking my questions. On siding. Realizing that as we can give an excess inventory, and as you've mentioned, you transition away from a managed order file. I'm just trying to get a sense that what gives you the confidence that siding will continue to grow as the economy softens, home equity value declines, unemployment increases? The premise of the question is this, you know, you grew the siding business during an economic and a housing upcycle, and it really has yet to be stress tested during a down cycle. In addition, R&R likely grew more than normal the last few years, given work from home, people obviously during COVID, building out decks, building, you know, building sheds, other things during their lunch breaks.
There's a risk that R&R could actually slow more given the backdrop as consumers choose to focus on, let's say, on more small-ticket items. I'm just trying to get a sense of how you're framing siding in the current environment.
Mike, the risk that you describe around just kind of macro R&R spend is real. You know, as we talked about in our prepared remarks, the outlook for new construction is uncertain to say the least right now, kind of all over the board, depending on the analyst that you look at. Yeah, the underlying market certainly will impact the results for our siding volume growth as we go through this year. No question about it. Where I disagree with you is the point about the business not being stress tested. You know, during other periods of downtime of housing slowing or housing going down, we've consistently outpaced the market on volume growth and certainly on revenue growth.
I think, and the reason we've been able to do that is, first of all, our portfolio is pretty highly diversified, you know, given the exposure to non-housing and even non-repair and remodel segments like shed, and positions in retail. Also over the past 5 to 7 years, we've done a really good job around product innovation that has opened up, you know, new opportunities for us, and that's why we show that slide in our deck about the percentage of the revenue that is, you know, new products.
The fact that we have an ExpertFinish kind of just coming in, you know, into any kind of significant market position now, you know, R&R could be down, but because of our market share being pretty low in R&R and the fact that we're essentially in the last phases of introducing our ExpertFinish to the market. We see a lot of upside to that from a market share standpoint.
We can overcome, you know, if R&R is down, if siding R&R is down 10% this year, we're gonna feel that, but we are confident that we still have the ability, given how well our product performs, given the innovation that we've been able to bring to market in the last 5 years or so, and given, you know, depending on the geography and the segment, relative low-lower penetration rates in certain parts of the country, in certain segments. You know, we're confident that we're gonna fill up the Sagola facility. From a press standpoint, we're confident we're gonna have to continue to build ExpertFinish capacity, and we're confident we're gonna grow. That growth can be gauged somewhat by the underlying R&R and single-family start market.
I'd, you know, we're all in on gaining market share. I'll just make one final remark. Historically, and this is a general statement, but historically, that we've actually picked up more market share in a down market, you know, than in an up market, and then been able to hold that market share. I'm not saying I'm excited about a down market at all, but I do believe it brings opportunity for customers to shop around a little bit. Given how well our product performs, you know, once we get a trial, that can bode pretty well for us in over the long term.
Got it. Thank you for the color. One quick follow-up on that. You mentioned lower penetration rates in certain parts of the country and segments. Can you provide a little bit more color about, you know, what parts of the country and what segments have lower penetration rates that you're trying to increase your share in?
Let me just. In general, geographically, in the center of the country, north to south, Texas up to Minnesota, we've got, you know, good market share there. Once you go east of Texas in the south, up the Atlantic Seaboard, a lot of opportunity there for both new construction and repair and remodel. That's the reason we've converted Houlton in Maine, and it's the reason we're building ExpertFinish capacity in New York and expanding the capacity that we have in North Carolina for ExpertFinish. There's a good opportunity there. I would say in pockets of the Pacific Northwest, there's some good markets for us there historically, but there's still opportunity for growth, particularly with ExpertFinish.
Got it. Then just one last question before turning it over. Obviously, you have a large shareholder which slightly increased its stake last quarter to slightly under 10%. Obviously, you've been doing a good job, you know, in terms of reorienting the portfolio to higher growth, higher value add product. Do you see more shareholder value being created through the involvement of the shareholder?
Maybe reputationally it helps a little bit, but I don't think there's any direct we haven't noticed any direct, you know, improved shareholder value as a result of that. I mean, we're proud to have it, I'll tell you that. You know, I think any. Yeah. Not directly, but I would assume that the credibility that brings to our strategy, it cannot hurt.
Gotcha. Good luck in 2023.
Thank you. Thanks, Mike.
Thank you. One moment while we prepare for our next question. Our next question is coming from Mark Weintraub of Seaport. Your line is open.
Thanks, guys. For first quarter, if I'm doing my math right, you seem to be pointing to order of magnitude 16% EBITDA margins for the siding business. I was hoping to get a little bit of color on some of the variables at play, 'cause obviously below the types of ranges you've been achieving beforehand. In particular, how much in the way of like start-up or conversion costs related to Sagola might be included in there? How much of this is kinda just fixed absorption higher costs? What other variables might we wanna contemplate?
Yeah. Good question, Mark. Let me articulate this in a context of a year-over-year for Q1. You know, year-over-year, we basically said that we think more or less, pricing and volume will offset. That would fundamentally leave zero EBITDA impact. What you're left with, high level, is, you know, last year's EBITDA of $83 million dropping to the figure I quoted of $50 million. So it's a $32 million drop. About $20 and change of that is raw material costs, the carryover raw material inflation. As we all know, normally that would be offset with pricing, and technically it is, except for the fact that, in Q1, volumes are down.
to sort of unravel it differently, yes, with volumes being down, one of the problems of having a profitable product is that when your volumes are down, you make less money. As I've said more than once on calls like this, we enjoy a high variable margin on our siding products. yes, when volumes are down year-over-year, there's a heavy EBITDA impact of, you know, 45%-50% of the revenue drop caused by volume. The way I look at it is pricing and volume, EBITDA impacts basically net off. We're left with 20 and change of raw material, and then $5 million-$10 million of yes, continuing investments. That's really how it compares year-over-year.
We are plowing on with the conversion of Sagola and other projects. Those do put a, let's call it a strain on the EBITDA. It's the right strain, in my opinion. $10 million of investments in stuff and about $20 and change of raw material with pricing volume impact offsetting in EBITDA.
Great. Thank you. I realize this is tough and lots of moving pieces. Did you have any assessment as to how much of the volume weakness is either, you know, you sold a little bit ahead of time or destock is kind of really maybe the same thing. Really trying to get a sense is let's just say conditions were to remain similar to what they are. What type of volume improvement might you expect on a go-forward basis? I guess what I'm really sort of just trying to get a sense of is kinda range, ranges for volume expectations, recognizing you don't wanna give a full year estimate given all these uncertainties.
If there's some, like, sort of sensitivity analysis you can provide to us under the different macro situations of where you might think volume and siding might come out, that'd be super helpful.
Mark, let me start there, and then Alan can add, maybe some color to this. In the context of gauging where we are today, and I'm talking about Q1 relative to the market condition. We guided 30% growth in Q4 and got 38%. We had a price increase January 1. We were on managed order file, which means customers were ordering, you know, 6 to 8 weeks or longer out in our managed order file situation. I do believe that there was some order pulled forward into Q4 that, you know, allowed us that drove an outstanding Q4 growth relative to what we were guiding to, you know, when we talked to you guys late October, first of November.
I think that you've gotta kind of look at the two quarters combined to understand kind of what's happened there. As we look into Q2, there's a bit of that gauging, you know, what are we really on pull-throughs, which have been kind of hard to understand because there was that inventory build at the end of the quarter. I think we are right now, it feels like right now in our order file, we are beginning to see, you know, where we're servicing true demand. I think, you know, as Alan, I think, mentioned in his prepared remarks, when we get to... I know this doesn't help you in the meantime, but when we get to the next call, and we'll have a really good feel for that.
It's just that the uncertainty around what was being pulled out at distribution from, say, January 1 till a week or so ago, has been difficult for us to gauge because there was an inventory build, as a result of what I've just spoken to. I don't know, Alan, if you.
No, I think that covers anything I should add. Yeah.
Yeah.
Great. That's super. Just squeeze in real quickly, because you did note another big, kinda inflation year-over-year impact. I mean, there's been some optimism, maybe resin comes down a little bit. Are we not seeing that yet in siding? When might that start showing up?
On the resin side, and basically just say all materials other than wood, those major materials frames are contracted and there's a contract price, which is, you know, based on some derivative of oil, but it is a lag. If we continue to see oil prices fall and even some of that have fallen, it's already happened, we haven't realized yet, certainly could be helpful for our margin this year. We, you know, we certainly are not seeing any more increases in that area. Then on the wood side, same thing. The, you know, big driver for us, you know, we're buying pulpwood, so there's a big driver for us is diesel as far as just getting the wood into the facilities.
I will say structurally, we have experienced some price increases in, to service our Canadian mills due to us having to go further to procure wood, given some of the restrictions on harvesting in Canada. So, you know, you may not be surprised From an OSB perspective, that's where we're, you know, looking at for some downtime. You know, I think costs for moderate Mark as we go through the year, certainly on the resin side, and we're having to just really manage hard on the wood side to bring those costs down. Relief, for, with diesel pricing would be certainly helpful there.
Much appreciated. Thanks, Brad.
Thank you. One moment while we prepare for the next question. Our next question is coming from Kurt Yinger of D.A. Davidson. Your line is open.
Great. Thank you, and good morning, everyone. Just starting off on the OSB segment, any thoughts on the relative weakness in structural solutions versus commodity volumes in Q4? Do you think that reflects maybe timing differences in terms of prices, declining or kind of a larger trend we should be aware of in terms of those products perhaps being less in demand in a weaker commodity pricing environment?
Yes. Yeah, we certainly saw from an overall volume standpoint, those go down. I just think primarily the market got so competitive in Q4 as folks were kind of rationalizing inventory and production. We certainly saw a falloff there. I am totally optimistic on the long term about our ability to grow LP Structural Solutions. I do think, again, both, in both directions in a strong upmarket, it's easier to push LP Structural Solutions into the market. In a hard down market, you know, those, given where our pricing can lag around certain flooring SKUs, those SKUs can really become disadvantaged against more commodity products.
I think we have to be careful of about gauging and where we are both on the upside and downside of the Structural Solutions because of that kind of value, the value proposition can get out of kilter from a pricing standpoint when the market's moving. I'm, I, it's something that we're keeping an eye on, but I do believe the strategy's sound. We did grow it, you know, obviously from an annual standpoint. Just like I had mentioned earlier with siding, we've introduced some really exciting new SKUs that give us an opportunity to continue to grow that.
Got it. Okay. That, that makes sense. Just for my second, you know, there was a question earlier around pricing, and you alluded to kind of volume discounts and rebate program with builders. You know, one of your competitors, I guess, had some interesting comments in regards to kind of the pricing dynamic there and perhaps just getting more aggressive. I mean, do you have any thoughts around that dynamic as it relates to SmartSide? And maybe you could also just touch on the success that you've seen with the LP BuilderSeries introduction.
Yeah. We're excited about the progress we made last year with the LP BuilderSeries. We're excited about, you know, some wins that we've had recently and some ongoing negotiations that are happening now. It is competitive. I mean, there's no question about it. That's the reason we engineered a product, you know, specifically for that channel or that end use. As the market slows, you know, there's certainly that's a competitive landscape right there where, you know, big builders have a negotiating leverage given the volume that they'll consume and the market share that they've gained, you know, during COVID. Unlike in our history, we now have a product that is very competitive there, that is very aesthetically pleasing.
Once it is trialed, it tends to be accepted, and there's a stickiness to it. You know, we're gonna continue to grow that. You know, you point out correctly that that is a competitive landscape, unlike, probably any other we operate in where, you know, price can be a dominant driver, sometimes even, you know, not necessarily the, what we view as the entire value proposition. I feel good about the way we're positioned to win there, but we won't win them all.
Right. Okay. Well, appreciate the details. I'll turn it over. Thank you.
Thank you.
Thank you. One moment while we prepare for the next question. Our next question will come from Paul Quinn of RBC. Your line is open.
Yeah, thanks very much. Morning, guys. Just one of your siding competitors signed contract with 24-25 top U.S. builders to supply hard siding. Just wondering, you know, how you expect that to affect your LP BuilderSeries. Also, they've reintroduced their low-priced Cem plank product. Just wondering if that's gonna have a material headwind on sort of the growth of LP BuilderSeries.
As I just mentioned, yeah, it's a very competitive field around big builder, you know, lap siding. I, you know, I really feel like the product that we introduced, Paul, the LP BuilderSeries, is a superior product of everything that's out there for that application. You know, we're able to price it competitively to, I mean, to win, you know, our share of the opportunities. You know, it's a negotiated deal. It's a lot of volume involved. You know, we'll kind of have to see how it plays out this year. The market share we gained last year is sticky.
I mean, I think I'm confident that we can battle head to head with anybody around that type of business now that given that we have this product, and I'm also confident that once a builder tries the product, they're gonna really like it because it's superior to their alternative hard sidings. To circle back around, it's a competitive landscape and sometimes you can win off of price and sometimes the price gets to a point where we don't want the business anymore, and then we have to walk away or we lose it 'cause we bid too high for it.
Got it. Thanks for that. Then just over on ExpertFinish, if you could give us an idea what that margin boost is on that product. I mean, it's great to see the growth. Just wondering how that, how does that affect the overall margin profile.
Yeah. Significant price boost associated with ExpertFinish. The margin per boost today isn't that material. As we get these newer lines up in Bath and the expansion that we've contemplated out west, the line we just added to Green Bay, there's a... The margin boost from ExpertFinish is ahead of us. It currently in our, with our reported margin, it's kinda immaterial. It's pretty much a wash right now.
Okay, great. Best of luck, guys. Thanks.
Thank you.
Thank you. One moment while we prepare for our next question. Our next question is coming from Sean Steuart of TD Securities. Your line is open.
Thank you. Good morning. Thanks for all the thoughtful answers to the questions. I just have one. It's with respect to the share buyback program. Alan, I think your wording was you could finish off that program subject to cash flows supporting it and with potentially a tempered CapEx outlook. Is there an implication there that you forgo the share buyback activity for the foreseeable future? Presuming your thoughts on intrinsic value haven't really changed, I guess your intent to stay active on that program in light of share price weakness we've seen of late.
I wanna reiterate something. It's a great question. Thank you. We don't buy opportunistically. Yes, a day like this, one might imagine that we should take the opportunity to buy back shares. We put investments in the business first, as I repeat my mantra, that we put investments in the business first, and we don't buy opportunistically. We do maintain that discipline that we have to have the cash already generated to engage in buybacks. I'm sure that point will come, and I just can't predict when.
Understood. The rest of my questions have been asked, answered. Thanks very much.
Thank you, Sean.
Thank you. This concludes today's Q&A session. I would like to turn the call back over to Aaron Howald for closing remarks. Please go ahead.
Okay. Thank you, operator, and thank you everyone for joining us. We are at the hour. There are no further questions. We will bring the fourth quarter earnings call for LP Building Solutions to a close. Thank you very much for joining us. We'll look forward to speaking with you again soon.
This concludes today's conference call. Thank you all for joining, and please enjoy the rest of your day.