Louisiana-Pacific Corp Q4 FY2023 Earnings Call

Good day and thank you for standing by. Welcome to Q4 2023 Louisiana-Pacific Corporation Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Aaron Howald, Vice President, Investor Relations and Business Development. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us to discuss LP's results for the fourth quarter and full year of 2023. My name is Aaron Howald, and I am LP's Vice President of Investor Relations and Business Development. With me this morning are Brad Southern, LP's Chief Executive Officer, and Alan Haughie, LP's Chief Financial Officer. During this morning's call, we will refer to a presentation that has been posted to LP's IR webpage, which is investor lpcorp.com. Our 8-K filing, press release, and other materials detailing LP's strategy and sustainable business model are also available there. As usual, today's discussion will contain forward-looking statements and non-GAAP financial metrics as detailed on Slides 2 and 3 of the earnings presentation. The appendix to the presentation also contains reconciliations that are further supplemented by this morning's 8-K filing. Rather than reading those materials, I incorporate them herein by reference. And with that, I will turn the call over to Brad.

Thanks, Aaron, and thank you all for joining us to discuss LP's results for the fourth quarter and the full year of 2023. 2023 ended much better than it began for LP and the markets we serve. In the fourth quarter, Siding achieved its highest EBITDA margin of the year. I'm pleased to share that Siding is back on a growth footing, having returned to normal inventory and order flows after a destocking cycle in the first half of last year. We are well positioned to gain share in R&R and with homebuilders. Commodity OSB prices fell early in Q4 but rebounded later in the quarter. These factors, along with strong price realization and efficient operations, contributed to an EBITDA result meaningfully above our guided range. Page 5 of the presentation summarizes some of our results for the quarter and year. LP generated $658 million in sales and $129 million in EBITDA in Q4, bringing the full-year totals to $2.6 billion and $478 million respectively. This translated into $0.71 of earnings per share in Q4 and $3.22 for the full year. The full year comparisons are negative, largely due to normalized OSB prices, but LP's businesses demonstrated exceptional management of the elements within our control. 2023 was a year of heavy investment and capacity to enable growth in Siding and Structural Solutions. LP invested $300 million in capital in 2023 for the largest projects being the conversion of our mill in Sagola, Michigan, to SmartSide from OSB and the construction of our newest ExpertFinish facility in Bath, New York. These projects were completed safely and efficiently, and both facilities are fully up and running. LP also completed the strategic acquisition of a mill in Wawa, Ontario, which expands our portfolio of future Siding conversions. Alan will offer more details on capital allocation, but I will summarize by saying that even after another year of significant investment in SmartSide and ExpertFinish capacity, the Wawa acquisition and $69 million return to shareholders via dividends, LP ended 2023 with $222 million in cash on hand and over $770 million in liquidity. Like LP results, the new residential construction markets we serve saw a meaningful recovery in the second half of 2023 after starting the year notably weaker. Affordability challenges persist, but interest rates have fallen over 100 basis points from their peak in Q4, contributing to improved optimism about single-family housing starts. The Repair and Remodel sector remains softer than new construction, but lower rates and better affordability may encourage more sales of existing homes or offer homeowners the interest rate clarity needed to take on larger home improvement projects. The current consensus for total housing starts is about flat compared to last year at a bit below 1.4 million, but many forecasters expect a higher single-family mix. Compared to the consensus a year ago, we are cautiously optimistic that this improving outlook will translate into a stronger market for LP in 2024. Regardless of the near-term market, I am very confident LP's strategy positions us well with a strong portfolio of products and a long runway for profitable growth. The durability, beauty, and performance of LP's products solve problems for builders, contractors, and homeowners. We are investing in new capacity and new process technologies. This improves our productivity, accelerates product innovation, and enhances our margins. We operate our capacity with discipline and agility in whatever the market brings, and we are prudent stewards of our capital, investing strategically in growth and innovation while returning cash to shareholders. None of this happens without the dedication of LP's people. Our operations teams delivered significantly better efficiency and safety performance in 2023, ending the year with a world-class total incident rate of 0.5. One injury is too many, but I am incredibly proud of our operations team for this performance. We will never stop working to ensure a safe work environment for everyone at LP. I also want to acknowledge and thank LP's sales and marketing teams for navigating the difficult process of transitioning off a managed order file. As a result of our highly talented teams and the great culture we've built, LP was recognized in 2023 by Newsweek nationally and in Nashville by our local paper, the Tennessean, as a great place to work. Thank you to every LP team member for your contributions in 2023. And with that, Alan will share more details about LP's financial performance in the quarter as well as our outlook for Q1 and 2024.

Thanks, Brad. I'll briefly review the results for the Siding and the OSB businesses for the fourth quarter and full year, and then offer guidance for EBITDA and capital expenditures. Slide 6 shows Siding's quarterly results. Jumping 12 months back in time, the fourth quarter of 2022 was the last quarter in which Siding was on a managed order file, and as such, it represents a difficult comparison. The biggest difference in the year-over-year waterfall is therefore the 15% drop in volume, a corresponding $55 million drop in revenue, and a $26 million drop in EBITDA. On the plus side, Bath and Sagola are now fully up and running, resulting in lower conversion and ramp-up costs. This, combined with continued improvements in raw material costs, produced a $13 million EBITDA tailwind. Net of $6 million in inventory absorption and other items, the Siding business finished the quarter with $72 million of EBITDA. The EBITDA margin of 22% was the highest of the year, which reinforces our confidence in Siding's long-term 25% EBITDA margin target. Now, I won't belabor the full-year waterfall on Slide 7, given that we've discussed the most important elements in prior quarters. However, it is perhaps useful to recap that the transition from a managed order file made for a difficult year regarding volume, particularly in the first six months while inventories normalized. Nonetheless, the full-year EBITDA of $269 million represents a robust EBITDA margin of 20%, particularly so in light of the carrying costs of new capacity. Capacity, which I would like to stress provides a long runway for growth with meaningfully lower future CapEx, at least until customer demand necessitates further investments. Slide 8 covers the fourth quarter for OSB. While prices fell steeply during the shoulders of the third and fourth quarters, they subsequently recovered and ended the year higher than the prior year, adding about $17 million to year-over-year EBITDA. Volumes were lower in part because of the Sagola conversion, but this was partially offset by a significant improvement in operating efficiency. Structural Solutions accounted for 52% of OSB volume in the quarter, with value-added products producing $20 million of incremental EBITDA on $39 million of incremental revenue. Lower raw material, mill, and SG&A costs added a $30 million tailwind, resulting in a very respectable $59 million of EBITDA in the quarter. OSB's full-year results on Slide 9 are dominated by price normalization, but other than that, the year can be summarized as one of lower volume partially offset by higher operational efficiency, lower raw material costs, and lower overhead costs due to the transfer of Sagola to the Siding business. Taken as a whole, despite volatility, quarter-to-quarter, 2023 was slightly better than the historical cycle average for the OSB business, which shows the power of LP's OSB strategy, improved efficiency in operations, disciplined capacity management, and the value generated by the consistent incremental uplift from the Structural Solutions portfolio. Other than the acquisition of Wawa, cash flows for the quarter and year were straightforward, as shown on Slide 10. For the year, LP earned $478 million of EBITDA, paid $65 million in cash taxes, and built $93 million of working capital, resulting in $316 million of operating cash flow. After investing $300 million in CapEx, paying $80 million to acquire the Wawa mill, and returning $69 million to shareholders via dividends, the net outflow of $161 million left us with $222 million in cash. Now, before I transition to guidance, let me anticipate and answer one question. LP's capital allocation strategy is unchanged. We will earn cash, invest in growth, and return cash to shareholders via dividends and share repurchases in that order. LP did not repurchase any shares in 2023, but our motivation to do so is undiminished, and we retain a $200 million authorization from the Board. We will resume share repurchases when our cash flows and cash balances warrant. 2024 should be a year of growth and meaningfully lower CapEx in Siding. So all else equal, share repurchases are very much back on the table, which brings us to guidance on Slide 11. With the inventory destocking behind us and Siding back on a growth footing, as well as more historically normal OSB prices, we have improved visibility to offer a full-year outlook for both businesses if you'll forgive some very obvious caveats. In Siding, we expect a year of resumed growth and a more normal seasonal order pattern, consistent with what we saw in the fourth quarter and have seen so far in 2024. Revenue growth is expected to outpace both the current flat consensus for total U.S. housing starts and the forecast for single-digit declines in Repair and Remodel. We therefore expect revenue growth of about 8% to 10% for the full year from a combination of volume and price, and this would result in Siding revenue of approximately $1.45 billion, approaching 2022's record level. An EBITDA margin of around 20% would result in full-year EBITDA for Siding of between $280 million and $300 million, with reduced investments in capacity partially offset by discretionary increases in selling and marketing. So what does this mean for the first quarter? Well, the expected return to more normal seasonal demand patterns means somewhat higher demand in the second and third quarters compared to the first and the fourth. Accordingly, first-quarter sales for Siding are expected to be in the range of $340 million to $350 million, with EBITDA between $65 million and $70 million, assuming an EBITDA margin of about 20%. For OSB, full-year revenue guidance is impossible without a price prediction, which we won't even pretend to offer. Instead, we're going to introduce the concept of cycle average EBITDA spread. This is the EBITDA that the OSB business earns per thousand square feet of volume on average over the cycle. This spread accounts for variations in both selling prices and the cost of production. As demand, and therefore commodity prices, fluctuate, in response, we adjust our capacity utilization, our product mix, maintenance costs, and other factors. To illustrate how this distinction can be useful, recall that in the third quarter of 2019, the OSB business achieved breakeven EBITDA. And in the first quarter of 2023, we reported a small positive EBITDA. These were very similar outcomes but at very different nominal selling prices and cost of manufacture. Now, historically, LP's cycle average OSB spreads have been around $60 per thousand square feet of sales volume. This is actually the trailing 10-year average for LP's OSB business, excluding the outlier years of 2021 and 2022, when the spread was actually much higher. Actual commodity price fluctuations result in an EBITDA range with a floor that we've demonstrated can be held above zero when prices are low, such as in the two examples I just cited, and actually with a very high ceiling when prices rise. If we take this concept and apply it to current conditions, I would estimate that LP's 4 billion square feet of capacity running at about 85% average utilization at $60 per thousand square feet should generate about $200 million in EBITDA on a cycle average basis. This is actually very close to the EBITDA we just generated in 2023. To use this concept to construct the outlook for OSB, we'll start with the first quarter and build from there. For the first quarter, we expect shipment volumes to be similar to fourth-quarter levels at around 770 million square feet to 790 million square feet. So far, Random Lengths prices have averaged about $25 higher than the fourth quarter we've just reported. So under that volume assumption, if the OSB price holds, EBITDA in the first quarter should be around $65 million to $75 million. We're making no attempt to predict future OSB prices. So our full-year outlook for OSB is the sum of the first-quarter outlook I just gave, followed by three quarters of cycle average EBITDA. Adding the two businesses together and assuming for simplicity that LP South America's EBITDA covers corporate costs, we expect full-year EBITDA of about $495 million to $525 million with the first quarter in the $130 million to $145 million range. A quick word on sensitivities. As we are already realizing the January price increase in Siding, the most significant sensitivity in that business is volume. Each increase or decrease in volume of 10 million square feet from this baseline would add or subtract about $4 million in EBITDA at typical incremental EBITDA margins. For OSB, sensitivities for incremental volume and price shown in the table are based on the same utilization and EBITDA assumptions used to construct our outlook and would of course compound. With respect to capital spending, LP invested heavily in SmartSide and ExpertFinish capacity in 2022 and 2023. As a result, we have a healthy runway of capacity ahead of us. We will continue to invest in growth this year, albeit on a smaller and more targeted scale compared to recent years. Accordingly, 2024 should see capital investments roughly $100 million lower than 2023, with sustaining maintenance comprising roughly 75% of the total. So in many ways, 2024 is a return to normal. Siding is growing again after something of a destocking hangover. OSB prices are currently in a historically normal range, albeit on the high side of that range, and LP's capital investment in 2024 will be nearly $100 million lower than last year because the Sagola, Holton, and Bath projects are complete. And with that, we'll be happy to take your questions.

Our first question comes from the line of Ketan Mamtora from BMO.

Thank you. Good morning, Brad and Alan. Thanks for all the details. Alan, perhaps to start with, when I think about the 2024 Siding EBITDA guidance, can you talk about at a high level what the key elements are? Given that in 2023, volume was a significant drag and there were probably inefficiencies as you worked through the inventory destocking phase, and then you also have a price increase for this year. So can you talk about just three or four key elements as we think about the bridge?

Sure. Ketan, thanks for the question. I do want to stress that this is the most comprehensive guidance, to my knowledge, that the company has ever given. One of the objectives, particularly around the 20% EBITDA margin for Siding, was to actually convey a sense of comfort. If you think about the volume sensitivities, the margin is obviously heavily impacted by fluctuations in volume. Therefore, we're confident that we're going to see a volume increase in 2024, and hence our EBITDA margin will benefit from that presence of that volume uplift. On the question of volume, we are expecting and anticipating increases in our ExpertFinish production, which is itself right now, as we grow that business, not necessarily margin accretive, it's profitable, but not to the same degree as the rest of the business, a situation which I have absolutely no doubt we will improve as the year progresses. We are also investing rather heavily in selling and marketing, certainly more heavily in 2024 than we did in 2023. That largely offsets the benefits we get from the removal of the ramp-up costs that you saw in 2023. Thirdly, we are carrying still, as you will note, essentially one extra mill in our network. This is a decision we're making to ensure that we have all of our mills agile and adept at producing Siding products as we move ourselves from 2024 into 2025 and continued future growth. There is, of course, some labor inflation and freight inflation that we're anticipating. That's by no means certain yet. So those are the factors I’ve included in this guidance. I was tempted to say at least 20% EBITDA margin, but occasionally when I've said at least, we've literally blown the number out of the water. I don't want to send any signal that I believe blowing this number out of the water is on the card. However, I think 20%, given all of these investments we're making and our confidence in the volume uplift, is a very safe number.

Understood. That's very helpful context. And one more on Siding. Can you talk, perhaps, Brad, about how the sheds business is performing? I know in the middle of the year, we went through this pretty significant destocking phase there. What are you seeing in sheds demand?

Yes. So, Ketan, we had a good recovery in shed demand in the second half of last year. So certainly, Q4 was okay to good. Right now, in our order file, it's probably the weakest sector that we have. I think there was a little bit of inventory built in that shed-serving channel in Q4, but it's okay. However, right now, it's the weakest part of our order file. We do not anticipate that carrying out throughout the year. It's just the current situation. We certainly experienced an overhang post-COVID of shed demand being very light in the first half of this year. We're seeing this year being more of a normal demand pool for that sector again. Again, we did carry a little inventory across the year that we're working through right now. No worries there. It's just the current market situation.

Understood. That's very helpful. I'll jump back in the queue. Good luck.

Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Steven Ramsey from Thompson Research Group.

Hi. Good morning. Maybe to continue the Siding sales and marketing spend topic. I’m curious where that spend is focused by product set or customer type. Can you talk to how you're judging the success there, the ROI, and the timing between spend to sales?

Yes. The two areas of focus, first of all, from a sales resource standpoint, are around new construction and the sales assets that are focused on that segment, along with the technical support that goes into ensuring a smooth transition of the incumbent Siding product onto SmartSide. We're adding sales resources in support of that push in new construction. On the marketing side, the focus there is primarily in Repair and Remodel. That is a different sales process where contractors are actually convincing a homeowner to reside their house and then to use our product. This requires a good bit of personalized or more consumer-oriented marketing support. Not all of the increases are there, but certainly, the majority of the marketing spend increase is focused on our growth in Repair and Remodel.

Okay, that's perfect. Then on the Siding margin outlook, you have a consistent 20% on Slide 11 for both Q1 and the full year. Just going midpoint to midpoint, it looks like about 100 basis points of improvement. I'm curious how you think about the cadence through the year, how seasonality plays into that, and volume uptake off of the higher base of production.

Yes, well, the second and third quarters will most likely see higher volumes year-over-year than the first and fourth quarters. So my anticipation is that if the margin peaks, it will certainly be in the second and third quarters, which will be healthy EBITDA margins.

Thank you. One moment for our next question. Our next question comes from the line of George Staphos from Bank of America Securities, Inc.

Thanks very much. Hi everyone. Good morning. Aaron, Alan, Brad, thanks for the details. I had a question on Siding margin as well and sort of the investment that you're making this year on marketing and selling. Is there much of a lag between when you ultimately expect to get the volume and the investment that you need to support the volume growth that you're expecting? Said differently, should we expect the selling general administration, and the marketing to move more or less in tandem with the incremental volume and the incremental margin? That's question number one. Question number two, and I'll jump back in queue. Can you talk to us? Recognizing it's very difficult to project anything in OSB, what would you be looking to in terms of Structural Solutions as a percentage of the overall mix when we're all said and done with '24? Thank you.

George, let me address the additional sales and marketing spend. The impact of that spend is not instantaneous; it’s always an investment. In support of our CapEx investments over the last several years, we consciously cut back on sales and marketing spend as we were in a managed order file. Obviously, there wasn't an immediate need for demand creation, and any demand that would have been created we would have struggled to satisfy. We see this year really as a return to more in line with our previous COVID rate, plus added emphasis around the segments where we have historically been underpenetrated and not had the sales assets or the appropriate level of marketing spend. From a marketing standpoint, you create impressions and brand equity in anticipation of creating demand that you feel later on. On the sales side, some of these technical support staff can have an immediate impact, but that's more to help us with volume we've already converted. The more strategic sales investments take a few months to hire and train, so I would say that most of this incremental sales and marketing spend is going into demand creation that will fill, at the best case, late this year, and probably more into next year.

Okay. But bottom line, there'll be a bias in terms of incremental and overall EBITDA margin, attention to the upside as the year progresses would be my takeaway, both because of the seasonal pickup in volume and even as we get into the fourth quarter, some of that investment you've already made. So should we see benefits later in the year?

No, I agree with that conceptually, yes. And then on the OSB question, if you want to come back to the Siding question, we can certainly revisit that. But on the Structural Solutions, I would aim between 50% and 60% as a realistic goal for this year, I'd love to see 55%. We do manage that for margin more so than for volume, but certainly our strategy is to get volume growth as well. Our ability to push that volume is somewhat dependent on the current price level and our enthusiasm about margin management. But a realistic goal will probably be 53% to 54%, and our upside goal may be 55% to 56%.

Okay, thank you, Brad. I'll turn it over.

Thank you. One moment for our next question. Our next question comes from the line of Susan Maklari from Goldman Sachs.

Thank you. Good morning, everyone. My first question is on Siding. You had mentioned on the last quarter call that you were limiting the amount of pre-buy ahead of the January price increase. Was that a success? Given that, how are you thinking about the order files as we come into this year and the channel inventories, and what that could suggest for the volumes in that segment as we think about the next couple of quarters?

Susan, we did limit the pre-buy volume to basically the average purchases over the prior nine months for our customers. We had essentially no to minimal pre-buy or pre-buy into December volume for January. I feel really good about how we carried that across the year. I feel good about the activity in our order file during the first six weeks. There is always some seasonal inventory build this time of year in Siding as people come back from the holidays in anticipation of the spring build, especially now that we're in the pre-finished business. I would call the seasonal build in the channel normal, pre-COVID normal. We feel good about the pace of our order file and inventory levels at the mill level.

Okay, that's helpful. And then perhaps a higher-level question, as we think about the potential that rates will come down as we move through the year, and that could drive some pickup in existing home sales, how do you think that would affect your business, and any thoughts on the timing around that increase in the turnover in housing relative to when it could come through to your actual results?

Susan, I think interest rate reduction this year would have a significant impact on housing. The short term would likely be more emotional than economic. Just the downward movement would provide some homebuyers the confidence to enter the market. Over time, it could free up some existing homes to go on the market for homeowners who have been hesitant in this interest rate environment to make that move. That won't necessarily translate into new home construction, but it’s certainly housing that would be on the market. For this year, the impact on new construction could be more emotional than economic, but for 2025, it could be a powerful driver of demand. For Repair and Remodel, a residing project is a high-dollar project likely to be financed instead of paid out of savings. Thus, interest rate reduction would likely have a more immediate impact on Repair and Remodel, making those projects more affordable. If we get that reduction, it could provide a tailwind for new constructions, but it could be more impactful to 2025. I think for Repair and Remodel, the impact could be immediate for us.

Okay. Thank you for the color. It's helpful, and good luck with everything.

Thanks, Susan.

Thank you. One moment for our next question. Our next question comes from the line of Matthew McKellar from RBC Capital Markets.

Hi, good morning. Thanks for taking my questions. First, just setting aside the price increases, can you talk about how you expect the mix shift from what I assume would be more ExpertFinish and potentially more BuilderSeries products year-over-year to affect average selling price in Siding in 2024?

Yes, certainly, our focus this year is around growing our BuilderSeries and ExpertFinish brands. The BuilderSeries depends on the SKU, but typically that is a price point item to a certain extent, so that would dampen average price as that volume increases—not necessarily on margin but on price. For ExpertFinish, that sells for a much higher price and would weight our revenue up if we achieve more ExpertFinish. I believe there's more opportunity for ExpertFinish to positively impact than BuilderSeries negatively. However, we'll see how that plays out as we go through the year. The mix might provide a slight positive upside for us compared to 2023.

Okay, that's helpful. Thank you for that. Next, in new home construction, can you share what the tone is like from your customers in that segment? Do you have a view at this point on whether housing starts by regional builders should trend differently than housing starts across the industry?

I would say, based on our exposure to conferences and one-on-one conversations, I felt more pessimistic about this year from a builder standpoint in the middle of fall last year. However, the mood has strengthened through Q4, and certainly, the tone right now is pretty solid. The conversations about rate reductions have positively impacted sentiment. The large national builders we partner with are certainly optimistic about this year. They've positioned themselves to sell throughout this year and anticipate growth. I've also been surprised to hear in a recent conference that regional builders are anticipating some strengthening since there's significant demand for new home construction due to existing homes being on the market. At the end of the day, only so much can be done by national builders at the moment as they continue to grow, and post-COVID, regional builders have worked on permitting and infrastructure, which allows them to catch up. Overall, we may see recovery or growth at the regional level, which complements our established presence in that segment, coupled with the growth among national builders leading to a good year for us in new construction.

Great, thanks very much. That's all for me. I'll turn it back.

Thank you. One moment for our next question. Our next question comes from the line of Mark Weintraub from Seaport Research Partners.

Thank you. Alan, I appreciate the qualitative drivers behind the Siding margin changes. I was hoping you could provide a little more color on how that translates into the quantitative 20%, which seems a little lower than my back-of-the-envelope calculations. There are certainly lots of details that you know I don’t. What can you add to the conversation?

I'm not sure which direction you want me to go. Let me give you a couple of big numbers in this. High level, the selling and marketing investment is $15 million to $20 million year-over-year, and the mill investment reversal is also around $15 million to $20 million. We are adding elements of SG&A around the development of new products and other aspects of the Siding business in the range of about $10 million. Anticipating inflation, which can change, but for labor, around $20 million or so. These are some significant ticket items that are, in some instances, manageable, such as the selling and marketing investment. That's probably about as much detail as I'm willing to give.

That's super helpful. May I ask two more questions? Is it that one shouldn't use the 50% on incremental margins you indicated for anything new above and beyond the sensitivities chart, or is it more complex?

Given those big-ticket items, I would say if you use the incremental margins, it should all work. The risk of going further and giving you a way forward is something that we're not going to be particularly forthcoming about since there is a relationship between the two on how volume and price break down within that revenue guide. It’s simply too early in the year for us to provide a reasonable call on that. However, if you make volume and price assumptions and use the sensitivities accordingly, you should arrive at something reasonable.

Last question: on pricing, would that be discrete? If we're seeing a 2% additional pricing, will that be incremental to the EBITDA, or is that sort of embedded in the incremental margin analysis?

No, that pricing is not embedded in the incremental margin. It's not factored into the incremental margin. The incremental margin discussion is purely volume at a pre-existing mix. So yes, pricing is incremental to revenue and EBITDA.

Thank you. One moment for our next question. Our next question comes from the line of Sean Steuart from TD Securities.

Thanks. Good morning. I have a question on the OSB cycle average you're giving, which seems to make sense. However, you're discussing an 85% operating rate assumption that underlies that, which isn’t great. Can you speak to the shape of the cost curve in your OSB portfolio and any potential asset closures? Is there a possibility for that in the future?

Well, I'll address the shape of the cost curve. It's pretty flat, Sean. We have some mills that are lower cost, and that’s how we rationalize capacity when we take downtime. But it's relatively unmeasurable at the $4 billion level. Earlier in my career, I was in the paper business, where cost curves could be quite steep, but that isn’t the case in OSB.

For utilization, the 85% is the trailing 10-year actual average utilization. So it’s very consistent with historical data.

Okay. Thank you. I have a second question on the projected growth CapEx of $50 million to $60 million in 2024. Could you provide more details on that? Is it a few specific projects or a broad array of projects across several assets?

It will include everything and everywhere. The biggest single item is the investment in Structural Solutions enhancements for value-added OSB. However, it consists of several smaller projects. I can't point out any major projects specifically.

Got it. Understood. Thank you very much. That's all I have.

Thank you. One moment for our next question. Our next question comes from the line of Kurt Yinger from D.A. Davidson.

Hi, thanks, and good morning, everyone. I was curious how important BuilderSeries itself is to your objectives for growth in the new residential construction segment. Along those lines, what has been the primary feedback from production builders regarding that product, and what do you think is important to really penetrate that specific customer set moving forward?

Yes, the BuilderSeries is very important to our growth objectives for both our segment and the company. It provides a competitive alternative for larger builders in new construction. The reception has been very good, as it is a workable product that is easier to install than the competitive products we are up against. The key is trial, and getting the product into the hands of builders takes time as decisions don’t happen overnight. We have a great value proposition with BuilderSeries standalone. Coupling that with Structural Solutions and our commodity OSB, we provide substantial value in sales discussions. This combination has helped establish a strong relationship with national builders, and I believe that once we achieve trial and build usage of our products among these builders, it will prove to be a lasting demand.

Understood. Thank you for the color there, Brad. As a quick follow-up on Siding margins, it sounds like the increase in sales, marketing, and SG&A investments this year is more of a return to normal as opposed to a one-time step-up. Given the large gap between the current 20% and mid-20s target for that segment, could you discuss the timeline for getting back to those targeted Siding EBITDA margins and if that's feasible prior to another conversion, assuming demand warrants it?

Yes, it's very possible to reach those target margins before another mill conversion. The main drag on the EBITDA margin right now is the fact that we're operating with one extra mill in the network. As we successfully fill that mill with new high-priced product, the margins will improve. We're confident that the necessary volume to run that capacity profitably is certainly achievable.

Got it. One more question regarding Siding EBITDA margins in Q1 versus Q4. It seems that volume could be flat or slightly better. You’ll have the price increase; however, it appears like the increase in selling and marketing is weighing down Q1 versus Q4. Is that the only factor, or is there anything else to call out?

No, that's it. There is labor inflation with January wage increases and other factors. Nothing out of the ordinary.

Got it. Thanks, Alan.

Thank you. At this time, I would like to turn the conference back over to Aaron Howald for closing remarks.

Okay, thank you, operator. If there are no more questions, we'll end there. Let me briefly remind everyone that LP will be hosting an Investor Day in Las Vegas at the International Builder Show, two weeks from today on the 28th of February, starting at 10 o'clock in the morning, local time. The event will be in-person only, with no simultaneous webcast, but we will record it and post the recording on the IR webpage soon after. If you're interested in attending, check the IR webpage for details or reach out and contact me. With that, we'll close the call. Thank you, everyone, and we hope to see you in Vegas.

This concludes today's conference call. Thank you for participating. You may now disconnect.