Louisiana-Pacific Corp Q2 FY2022 Earnings Call

and other materials. Slides two and three of the earnings presentation provide notices and detail regarding non-GAAP financial metrics and forward-looking statements. The appendix of the presentation also contains reconciliations that are further supplemented by this morning's 8-K filing. Rather than reading those statements, I incorporate them herein by reference. And with that, I'll turn the call over to Brad.

Thanks, Aaron. Good morning and welcome to LP's earnings call for the second quarter of 2022. LP's ongoing transformation continues to deliver results with another very strong quarter of growth and value creation. We face ongoing inflationary pressures for raw materials and freight, but as Alan will discuss later, LP's growth more than offset these cost headwinds in the quarter. While we are watching inflation, mortgage rates, the housing market and the broader economy very closely, so far we have seen a few signs of reduced demand for LP's products. This is especially true of demand for more specialized and higher value-added offerings. Siding Solutions grew at 24% year-over-year to hit $356 million in sales, which is another quarterly record. Commodity OSB prices fell steeply throughout the quarter, but LP's portfolio with specialty Structural Solutions products significantly improved price realization and margin for the OSB segment. As a result, we've somewhat outperformed our algorithmic guidance for OSB revenue. Structural Solutions volume increased by 28% to reach 53% of total volume in the second quarter. Through the first half of 2022, LP has delivered over 1 billion square feet of Structural Solutions products. Logistics challenges we faced earlier this year, especially in British Columbia, have eased somewhat, helping our operations team minimize logistics-related downtime. I will give a more detailed capital allocation update in a moment, but LP remains committed to returning cash to shareholders via dividends and share repurchases. In fact, LP returned almost $500 million to shareholders in Q2 and we have spent a little under $200 million so far in Q3 on buybacks. LP's Board of Directors approved another quarterly dividend of $0.22 per share as you may have seen in Friday's press release. Slide six of the presentation shows more detail about Siding growth. The bar chart on the left shows that Siding Solutions revenue has grown 17% through Q2 on a trailing 12-month basis compared to the prior period. By contrast, single-family housing starts were flat over the same period, as multifamily starts rebounded from COVID lows. Comparing only the second quarter of 2022 to 2021, single-family starts were down about 3%. The Siding volume and price both hit records, pushing revenue growth to 24%. This is hardly surprising, given the diversity of products, applications, and customers served by Siding. Only about 40% of Siding volume goes to single-family new construction. The products that tend to go into repair and remodeling applications are more specialized and generally have a higher price point. The fastest-growing component of the Siding portfolio continues to be innovative products like Shakes, Corners, ExpertFinish, prefinished Siding, and BuilderSeries. In the second quarter, those products combined for 12% of total Siding volume, up three points from last year. That 12% of volume contributed 16% of Siding's Q2 revenue. LP is committed to investing in this growth. The newest Siding mill in Houlton, Maine, is ramping up ahead of schedule. Earlier this summer, we broke ground at LP's new ExpertFinish prefinished facility in Bath, New York, and work continues at LP's OSB mill in Sagola, Michigan. Sagola remains on schedule to produce SmartSide starting late in Q1 of next year and when fully operational, bring Siding manufacturing capacity to just under 2.3 billion square feet. Let me also add a brief word about the engineered wood products segment. The sale of the EWP business closed last Monday, the 1st of August, including LP's equity in the I-Joist joint venture with Resolute and before taxes, fees, and other adjustments, the total proceeds from the EWP divestiture was $260 million. Throughout the process, we sold to a buyer that was committed to investing in the EWP business and who could ensure a smooth transition for its customers and employees. We believe we have found the right owner in Pacific Wood Tech. I want to thank all the people who have shepherded this process to a successful conclusion. And I also want to thank the nearly 700 EWP employees for their many years of service and unwavering focus on safety, value creation, and customer service. I wish the EWP team at Pacific Wood Tech nothing but success. Looking forward with this divestiture complete, LP is more focused, more specialized, less dependent on new construction, and exceptionally well positioned for ongoing growth and innovation. Finally, LP celebrated its 50th anniversary of incorporation on the 20th of July. That is a milestone for few companies reach and one that is impossible without the creativity, determination, and dedication of countless employees, past and present. Thanks to all of them, LP has endured and transformed. Today, LP is an innovative, ethical, safe, and sustainable force in our industry, delivering high-quality specialty building solutions to our customers and exceptional value for our shareholders. I am confident that LP will continue to build on our history and that we have a bright future ahead of us. And with that, I will turn the call over to Alan for a more detailed review of LP's financial results in the quarter and our updated guidance for Q3 and the full year.

Thanks, Brad, and thank you all for joining us this morning. Before we proceed to the quarterly results, I'd like to echo Brad's comments and add my own personal thanks to both the EWP employees and to everyone else who helped bring this process to a successful conclusion. Let me also say that the completion of this divestiture means that the financial results of the EWP segment have been classified as part of discontinued operations. And for the avoidance of doubt, there was nothing else in discontinued operations in the second quarter other than EWP. Aside from the EWP divestiture, the short story of the second quarter is that demand for LP's products remains healthy, with the growth of both siding and specialty OSB Structural Solutions more than offsetting inflationary headwinds. And of course, we continued to invest in growth and return significant cash to shareholders via share repurchases. Slide seven of the presentation shows the highlights for the quarter. For ease of comparison, we are showing EBITDA and earnings per share, both with and without EWP. Net sales from continuing operations of $1.1 billion were down 3% from the prior year. However, largely due to lower OSB prices, EBITDA from continuing operations of $491 million was 26% lower. EWP's final full quarter with LP was another strong one, adding $44 million of EBITDA on top of the $491 million from continuing operations. Capital expenditures in the quarter of $103 million are on pace to hit our full-year investment target of $400 million plus, which I'll describe further in a moment. Slide eight shows the waterfall for Siding. Sales growth of 24% was the compound effect of a 10% increase in volume and a 12% increase in price, about 10 points of which was from list price increases, with two points from favorable mix. Please note that the midyear price increase announced on our last earnings call took effect on July 1 and will be reflected in the third-quarter results. Siding sales volume of 448 million square feet was another record, made possible by the ongoing ramp-up of Houlton and a two percentage point increase in operating efficiency. Compared to the same quarter of last year, price and volume growth combined to deliver $47 million of EBITDA. Investments in future growth totaled $7 million, the largest component being the $4 million spent in ongoing commissioning of the Houlton facility. Raw material and freight inflation reduced year-over-year EBITDA by $30 million and all of our costs of $10 million cover regular maintenance, as well as SG&A increases from wage inflation and incentive compensation. This performance from Siding stands as a clear demonstration of our strategy in action: to grow now, to invest in the future, and to drive product innovation. As a result, if and when raw material prices fall, we should see margins return to or even exceed pre-inflationary levels. Slide nine shows the waterfall for OSB, prices for which fell steeply throughout the quarter, ending 24% lower year-over-year. However, growth in Structural Solutions both moderated the impact of price volatility and significantly improved price realization. In fact, Structural Solutions prices fell by 16%, at half the rate of the commodity price fall of 32%. Combined with an increased structural solutions mix, this dampened the EBITDA margin drop to a respectable 13% from 73% last year to 60% this year. And while random length prices may have ended the quarter significantly below the level assumed in our algorithmic guidance, the higher mix of structural solutions helped OSB to deliver nonetheless impressive results. Commodity volumes were 4% lower year-over-year. This is the net effect of increases in volume from Peace Valley, which has not yet resumed operation compared to the second quarter of last year, offset by a shift to Structural Solutions, logistics constraints, and lower operating efficiency. However, Structural Solutions volume increased by 28% year-over-year to 53% of total volume in the second quarter, a full seven percentage points higher than last year. This was again partly due to Peace Valley, which makes specialty LP products such as TechShield Radiant Barrier premium flooring, and partly due to the ongoing system-wide transition from commodity to Structural Solutions. The OSB business too continues to experience raw material inflation with a $22 million hit to EBITDA. But again, the performance of OSB this quarter describes our strategy better than any words could. Not only did the Structural Solutions portfolio of products help moderate the impact of price volatility, but the EBITDA from this specialty growth was nearly double the combined impact of lower commodity volume and raw material prices. Much more exciting, our aim in OSBs is to drive Structural Solutions growth to make these benefits sustainable. Slide 10 summarizes all of this for continuing operations. Even though lower OSB prices reduced EBITDA by $195 million, the things we can control namely Siding growth and the shift from commodity to specialty OSB, netted $99 million, just enough to offset raw material inflation costs for the Houlton and Sagola conversions, and everything else besides. Slide 11 summarizes cash flow for the second quarter. LP began the quarter with $637 million in cash and earned $535 million in total EBITDA. Working capital reductions brought in $94 million, mostly the impact on receivables of lower OSB prices. LP paid $158 million in cash taxes and $12 million from an operating cash flow of $483 million. LP's cash balance at June 30 was $516 million after spending $103 million in CapEx and returning $489 million to shareholders, mostly by repurchasing shares. Proceeds from the EWP divestiture of $210 million, less taxes and fees, will be recorded in our third-quarter results. Those funds are not earmarked for any particular purpose other than supporting our capital allocation strategy, but they obviously contribute to an already strong balance sheet. Speaking of which, let me update you on LP's capital allocation. Having purchased 7.3 million shares for $471 million in the second quarter, LP's share count was 77.3 million as of June 30th. Since then, we've spent an additional $197 million to repurchase a further 3.4 million shares, bringing our share count as of August 8th to 73.9 million shares. We have $329 million remaining in the prior Board authorization and our capital allocation strategy and the motivation driving remain unchanged. We will return cash to shareholders after necessary investments in growth, and we will continue to do so while our share price remains meaningfully below our assessment of LP's intrinsic value. But of course, we must earn the cash first, given that we plan to maintain our very strong balance sheet, which brings me to guidance for the third quarter and full year. The major drivers of third-quarter performance are expected to be similar to those in the second quarter with growth in Siding and specialty products in OSB expected to more than offset inflation. I should stress that we see no signs that any of these growth trends are decelerating despite growing macroeconomic uncertainty. In order to meet that long-term demand, LP continues to invest in capacity for SmartSide and Structural Solutions. We still expect full-year CapEx to be in the $400 million to $430 million range and of the $210 million earmarked for Siding mill conversions, roughly $50 million is for Houlton, the vast majority of which has already been spent, and about $130 million is for Sagola, with the bulk of that occurring in the second half of this year. Spending for Sagola will continue into 2023, and it remains on schedule for a start-up in the first quarter of 2023. The remainder of the mill conversion spend is for long lead-time items for the as yet unnamed Siding line that will follow Sagola. We expect Siding growth in the third quarter of about 20% and we are affirming our previous guidance of full-year Siding revenue growth of at least 20%. Also, while raw material inflation impacted Siding's EBITDA margin in the second quarter, we reiterate our long-term EBITDA margin target for Siding of at least 25%. Commodity OSB prices are down both sequentially and year-over-year, but have stabilized in July. As a result, we'll use the same algorithm for OSB revenue guidance, as we did for the second quarter but with an updated price assumption. Assuming random length prices are flat for the remainder of the third quarter at last Friday's published levels, we would expect to see a sequential reduction in OSB revenue of about 40%. This would bring third-quarter EBITDA from continuing operations to about $200 million. And with that, we'll be happy to take your questions.

Thank you, and good morning, Brad, Alan. First question, can you talk a little bit about the channel inventories that you are seeing in the Siding business? We are seeing quite a bit of inventory destocking in some building product categories. So I was just curious about what you are seeing in Siding?

Yes, Ketan, we are still experiencing very lean channel inventories as it relates to our siding product. As you know, we've been on a managed order file for close to two years now. Certainly, the volume we're getting out of Houlton is helping some now, but we're still running very lean inventories at distribution, so really no change since the last call.

Got it. That's helpful. And then as my follow-up, Alan, I was just wondering if you can talk a little bit about how you think about share repurchases versus keeping some liquidity cushion flexibility with your balance sheet if the market were to slow over the next two or three quarters?

Yes. And great question. Thank you. I'm going to start by saying that we still have an extremely strong balance sheet today. We have $350 million of very cheap high-yield debt, which I intend to keep in place. We have $550 million of undrawn revolver. We have borrowing capacity should we need it for any sort of investment in future growth. And I want to reiterate that the cash we devote to share buybacks not only has to be earned first but forms part of a strategy whereby we basically pass out the cash needs of the business first in terms of investment in all of our growth plans. It is what I'll call a safe remainder, at times a huge safe remainder that we return to shareholders via share buybacks. So there's no question that investment in the business comes first. And I also believe that the incredibly strong balance sheet that we have today puts us in a very safe position to handle any potential downturn should it occur without compromising our ability to continue to invest in growth.

All right. That's helpful. I’ll jump back in the queue.

Thank you, Ketan.

Thank you. Good morning everyone. My first question is thinking about the demand environment perhaps, especially as it relates to Siding. It seems like you didn't see any material slowdown in the quarter, which we've heard from some of your broader building product peers. I guess, can you talk about how the quarter trended and how you're thinking about the outlook for volumes as we get into the back half of this year and possibly even into early 2023?

Yes, Susan. We had very strong order patterns throughout the quarter. Being on a managed order file, we're essentially oversold and we have stayed that way certainly all of this year. Whenever we've experienced weakness in one of our distribution channels or regions, other distributors, other customers, and other regions have been able to take up that available inventory pretty much on demand. So we're not sensing any slowdown in Siding order patterns at all. We expect that to continue certainly for the rest of this year. It will help as I mentioned to Ketan, as we continue to ramp Houlton up, having that extra volume. But frankly, as we look into the remainder of this year, and as kind of Alan reiterated in the guidance, we will be selling to capacity really certainly for the rest of this year. Now you also asked about looking over into next year, and we have been recently really beginning the planning process for next year's budget. We continue to see very strong growth extending into next year. Once we have Sagola up and running, that will be a sizable increase in capacity for us, about 50% to 75% more than the Houlton line. But again, the ramp-up for those starts from 0%, and you get to 100% in about a year. So I feel like we'll be running to capacity for certainly the first half of next year. Then we'll see what happens from there. But we're still very optimistic about Siding, given the diversity of our end-use customers, the diversity of channels that we operate in our geographic diversity, and then the diversity within the product offering. So we're running full steam ahead.

Okay. That's very helpful color. And then following up on that, you mentioned that you did see some of those logistics challenges in Canada ease a bit in the quarter. Can you just talk in general about what you're seeing on the supply chain and inflationary side? And how you're thinking about that for the back half of this year?

The availability of raw materials was mostly stable in Q2, ensuring a consistent supply. However, pricing remains a different issue, which Alan discussed, and I'm happy to provide more details if needed. On the logistics front, we did face challenges, particularly in Q1 and early Q2, due to difficulties in acquiring railcars or trucks for some Canadian facilities. This has limited our capacity to maintain finished goods inventory there. Once we reached those capacity limits, we had to reduce operations at the mills. We have been actively working to swap transportation modes, using trucks in place of rail or vice versa as needed, which allowed us to keep our product moving through the latter part of Q2. Currently, it remains a continuous effort. There is a risk of additional downtime related to weather as the year progresses, but at this moment, we are effectively managing to load all the equipment we can produce.

Okay, that’s very helpful color. Thank you, and good luck with everyone.

Thank you, Susan.

Thank you, good morning. A couple of questions. Can you remind us of the magnitude of the July Siding price hike? And just trying to gauge how much catch up there could be on margins for that segment if at all this quarter, given the cost inflation that cut into margins in Q2?

Yes, Sean, we went out depending on region, depending on channel with a 2% to 3% price increase July 1. We expect to realize most of that fairly quickly. There are some agreements we have in place that can delay it by a matter of weeks. But that price increase, it's not that large but it is sticky. So we expect it to pass through certainly by the time we get to the end of the quarter.

I want to add that regarding the second part of your question about which raw material inflation is affecting the margin, the Siding business is experiencing a year-over-year inflationary cost impact of approximately $25 million per quarter, which translates to about seven points of margin. If we take the raw material increases from the second quarter and reduce them by half, the margin would return to 25% of our long-term guidance. Despite facing significant inflation, the business is still achieving healthy margins. We remain optimistic about a potential permanent upside in siding margins if we see a decline in raw material costs.

Got it. Thanks for that. Second question, Brad, could you share your thoughts on the current state of the OSB cost curve? Additionally, do you anticipate any market-related shutdowns at some of the higher-cost mills in the industry later this year? Are prices low enough that this might be necessary, or is there still some buffer remaining?

From a cost curve perspective, I have spent a significant portion of my career in the paper sector of forest products, where the cost dynamics can become quite steep for smaller paper mills. In contrast, the cost curve for OSB is generally flatter. While there are a few smaller, higher-cost OSB mills still operating, they could be under pressure if prices were to decline. Looking ahead to the second half of the year, I believe that the primary concern is the demand-capacity balance. Currently, we are not observing any substantial weakness in our OSB order backlog. Although I won't predict pricing, I anticipate that OSB demand will remain stable through at least early fall. As you know, from Thanksgiving to mid-January, various factors can influence this, including builders' decisions to continue their projects during the holiday season and weather-related impacts later in the year, which could affect demand and operating ratios. Nevertheless, we are optimistic about the underlying demand as we navigate through the fall. Our OSB inventories are fairly balanced, and we have not yet fully addressed that aspect within the supply chain. There has been a slight buildup of inventory over the summer, allowing us to align with current demand. We feel confident that incoming orders are being promptly fulfilled in the market. Regarding downtime, we are focused on balancing the demand for our OSB line with our capacity. We are dedicated to supplying our customers with the OSB they require but are not planning to build inventories at our locations or store inventory off-site just to keep our facilities running. This is how we will approach the situation if we see a decline in demand as we approach the end of the year or early next year.

Brad, excellent detail. Thanks very much.

Thank you. Just a follow-up first on the EBITDA margins in Siding. And so if we were to take the price increase, the midyear price increase, and what you've seen so far in terms of incremental change and inflation? And any color on that would be great too. Do you imagine margins climbing towards that 25% or somewhere between where they were in the second quarter and the sort of 25% longer-term expectation in the second half of the year? And any other color as to the critical variables that might impact where the EBITDA margins in Siding would be likely to come out in the second half of the year?

Sure. Yes. Given the price increase, if raw material prices don't rise from the second quarter levels and everything else about our forecast on Siding remains robust, I will say that the pricing in the market has been well received and is proving relatively sticky. You would see margins around about or slightly above 25% if the raw material prices don't worsen.

Great. And to date, as you look at where things are today versus where they were on average in the second quarter on the raw material side, how would you characterize that?

I would characterize that as I'm going to refuse to answer that question right now.

Thank you. Good morning, Brad and Alan. Thanks for taking my questions.

Welcome to the call.

One quick question about your order book. You mentioned that you have a managed order file from the last couple of years and that you are not currently seeing any weakness in OSB orders. Can you share how far ahead your visibility extends regarding your orders? Is it a couple of weeks or a month? Are there any signs that suggest you might start to see weakness in the latter half of this year, especially considering what some builders have indicated about slowing demand?

That's a good question, Mike. For siding, we currently have a strong outlook with visibility extending about six weeks into our order book. When I mention strength, it relates to our effective management of siding orders, which looks solid with no signs of weakness in our forecasts. However, we have a shorter order window for OSB, typically around 2% to 4%. Right now, we are selling about two to three weeks out, with more than two weeks of visibility. If there were a sudden drop in demand, like at the beginning of August or mid-September, we wouldn't have a clear view that far ahead for OSB. Our order file for OSB is shorter, making us somewhat more susceptible to a decline in demand.

Got it. Appreciate that, Brad. Just one quick follow-up. You mentioned capital allocation, with the priority being to invest in the business first, and then use any remaining funds for returns to shareholders. How do you view share repurchases in light of the Inflation Reduction Act, which appears likely to pass and will tax share repurchases at 1%? Does this affect the amount of capital you plan to return?

No, not at all. That 1% I'll call it tax is so small compared to the gap we believe exists between our intrinsic value and our current share price as of even right now, not that I've looked in the last half hour, that 1% is a drop in the ocean. That's of no consequence to our capital allocation strategy.

Great. Thank you and good morning, everyone. Just my first one in terms of OSB cash production costs, what's the best way to think about the difference between commodity and Structural Solutions from a cost perspective?

Well, there's a lot of variation on the Structural Solutions side to the incremental cost, depending on how sophisticated the product is relative to commodity. I would say we're looking at adding, I don't know, around $30 to $60 each; and for claim block $100 plus. So there’s a lot of variation, but just looking at our portfolio, I'd say somewhere between $30 to $80 of additional cost.

Got it. Okay. That's helpful. And then on my second, could you just help us think about what annualized production on the OSB side looks like given where Peace Valley is and with Sagola out of the picture next year?

Yeah. Kurt. So we would be pretty close to four billion total square feet, with the net effect of Peace Valley addition and Sagola removal from the system.

Yeah. Thanks very much. Good morning guys. Just following up on Kurt's question on Peace Valley, you started that about a year ago. Are we at full capacity at the mill right now?

We are, Paul, yes.

Okay. Looking at the North American OSB market, there appear to be several new capacities expected in 2023 and a few more in 2024. Have you received any updates from the channels or customers regarding potential delays that could impact the mills scheduled to start up?

I don't want to be specific because it would be hearsay, but I would just say generally we're hearing more delays than expediting of those capacity additions in OSB, for a variety of reasons depending on the project.

Okay. And then, just on housing search, in general, it seems like you're slowing with the jump up in rates here, although it seems to be slowing here. But on your Siding side, it's really more leveraged to the repair and remodel market. I know you can only support to see sort of that four to six weeks out. But how are you thinking about that market for 2023 and beyond?

We are optimistic about the repair and remodel sector. Currently, we are increasing capacity in Green Bay, Wisconsin, at one of our pre-finished facilities. In the prepared remarks, we mentioned the facility in Bath, New York, which is set to become operational in the middle of next year. We are actively managing our pre-finished capacity. The additional capacity at Green Bay and Bath will have an immediate effect on our ability to expand in the repair and remodel market. We believe that our growth in this area is limited by capacity rather than market demand or acceptance. As we enhance these pre-finished facilities, we anticipate they will significantly contribute to our growth next year. If housing starts to weaken, we may still maintain our positive growth trajectory in repair and remodel. Thank you for your understanding.

Yeah. No worries. Let's hope that works out for you. Just lastly, just on Entekra, if you could give us an update there?

We are making gradual progress with Entekra. Similar to my comments from last quarter, we are pleased with market acceptance and the return of customers for additional orders. We are addressing operational challenges at the facility, and LP has effectively integrated the operational side into our system. We are observing improvements, but we need to focus on further cost enhancements. As expected, we have faced fluctuations in lumber and EWP prices, which affects our operations. However, we see opportunities for operational improvements that we are starting to implement seriously, aiming for better cost performance throughout this year and into the next. In our next call, we will provide more insights. We are undergoing a thorough strategic evaluation of the business and will have operated the facility continuously for about 2.5 years by November. Over the next three months, we will take a closer look at our operations to assess its role within our portfolio. Overall, we remain optimistic about the business but want to ensure we can achieve the necessary progress to maintain its viability.

Great. Thanks so much. Best of luck.

Thanks, Paul.

Thank you. Two quick follow-ups on cash generation. So, on the EWP, I think you mentioned $260 million in gross and then there are going to be some fees and taxes etcetera. Can you give us what the net proceeds from that are likely to be?

The net proceeds from the $210 million, after taxes, are expected to be around $170 million. I'm being very conservative here, estimating about $10 million in fees, which might actually be a little less, and approximately $30 million in taxes on the $210 million. As for the $60 million we have already received from the joint venture, there are no taxes owed on that amount, so it is completely free and clear.

Okay. And so you described so the $60 million already showed up in the first half of the year?

That's right, yes.

Okay. Can you give us a preliminary assessment on where CapEx is likely to be next year?

Certainly, of the same order of magnitude as this year, all things considered, it may be a little bit lower, but not meaningfully. I would say at this point, early read somewhere between $340 million. Mark, I want to revisit the raw material question and expand on my earlier response. I apologize for being abrupt. The guidance we provided for approximately $200 million in the third quarter reflects a similar level of year-over-year raw material inflation that we saw in Q2, with only a very slight increase from Q2 to Q3. Currently, we have no indications that this trend is at risk.

Thank you.

Thanks. Hi everyone, good morning. Thanks for all the detail. Alan, Brad could you give us a bit of color in terms of what you're seeing on lead times for the next presses and equipment that you'll see with the next siding mill relative to what you saw with Houlton and Sagola and what you're seeing with Sagola? Any change there? And if you had to put a number on it, are we talking about 18 months, 24 months? Any thoughts on that?

George, that is a great question. Fortunately, our Board supported early lead time procurement for the conversion after Sagola. We feel confident that we've secured our place in the queue for all the critical equipment, adhering to our schedule without delays. While there is some risk involved, we were proactive in ordering the components we would need regardless of where we set up the next mill, and those are mostly locked in with delivery schedules. Therefore, we do not anticipate any delays on that front. It will depend on our timing, not on any vendor-related timing issues. While there could be delays that extend it by a quarter, currently, we feel positive about the situation.

Is there any way to say, let's say, somebody else wanted to order a press for Siding or for OSB or anything else? What that might look like, assuming obviously, they weren't as proactive as you end in the queue, as well? If I want to get as the Siding business, assuming I knew what I was doing, would I be looking at two years plus in terms of equipment? And I don't know, what I'm doing on that front. So just in case, you're worried.

If you're planning to do it exactly as we do, you would need to use our vendors and would have to wait behind us in line, at the very least. However, a lot depends on your specific situation: whether it's a mill conversion or a new mill, for example. The two-year timeframe you mentioned seems reasonable, but that's just a quick estimate from me.

No, I appreciate your patience with the question, Brad. Thank you. I know you've addressed this before, but is the target for structured solutions versus structural solutions versus base-level OSB still 75% at some point? Additionally, do you have a general base level of OSB that you believe is necessary to maintain in relation to your expected growth in the Siding business?

Great question. 75% is our next target. In 2017, when we launched our Structural Solutions strategy, we set it at 50%, which we've now exceeded. Now it's on the 75%. I do believe that when we get to 75%, there'll be a new goal that's greater than 75%. I don't believe there's some kind of underlying optimal commodity volume that we would want to hold on to. There's always going to be some commodity volume, as you change SKUs or startup a mill after maintenance downtime. I don't think that number will ever be zero, but we're looking at converting a very high percentage of Structural Solutions over time.

Okay. And perhaps you mentioned it and I missed it, but any quick thoughts on how South America is progressing? Any things that you've seen early in the quarter, relative to demand and for that matter more broadly just the macro in your key markets? Thanks so much. And I'll turn it over.

Yes. So demand has held up fairly well in South America through some of the political and economic chaos that's going on down there. Chaos might be a little strong a word. We've really been running to production in our South American operations. There is some pessimism about the economies down there, but we're pretty diverse across countries, or very diverse on product offering. We do have a fairly healthy export business out of there that we use as the relief valve for that extra capacity. I feel good about us being able to produce to basically around capacity volumes. What we end up doing is balancing the internal demand to the continent of South America with our export volume, and that does have a margin. That’s a more location. It's better higher margin to keep it domestic. So I would say, the second half probably not as optimistic as what we saw in the first half. So far, to your question, and so far in the quarter, it's been holding up okay.

Okay. Thank you, everybody. With no more questions, we'll bring the second quarter earnings call for Louisiana-Pacific to a close. Have a great rest of your day, and we'll look forward to speaking again soon. Thank you very much.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect. Good day.