Louisiana-Pacific Corporation (LPX) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the fourth quarter Louisiana-Pacific Corporation's earnings conference call. My name is Brittany, and I'll be the operator for today. [Operator Instructions] At this time, I would now like to turn the presentation over to your host for today, Executive Vice President and Chief Financial Officer, Sallie Bailey. Please proceed, ma'am.

Great. Thank you very much, Brittany, and good morning. Thank you for joining our conference call to discuss LP's financial results for the fourth quarter of 2013 and year-end results. I am Sallie Bailey, LP's Chief Financial Officer. And with me today are Curt Stevens, LP's Chief Executive Officer; as well as Mike Kinney and Becky Barckley, our primary Investor Relations contacts. I'll begin the discussion with a review of the financial results for the fourth quarter of 2013 and the full year of 2013. It will be followed by some comments on the performance of the individual segments and selected balance sheet items. After I finish my comments, Curt will discuss the general market environment in which LP has been operating; provide his perspective on our operating results; give some thoughts on the outlook for 2014 and provide an update on the status of the acquisition of Ainsworth and 8-K, which was filed this morning. As we have done in the past, we have opened up this call to the public and are doing a webcast. That webcast can be accessed at www.lpcorp.com. Additionally, to help with the discussion, we have provided a presentation with supplemental information that should be reviewed in conjunction with the earnings release. I will be referencing these slides in my comments this morning. We filed an 8-K this morning with some supplemental information and anticipate filing our 10-K at the end of the month. I want to remind all the participants about the forward-looking statements comment on Slide 2 of the presentation. Please also be aware of the discussion of our use of non-GAAP financial information included on Slide 3 of the presentation. The Appendix attached to the presentation has some of the necessary reconciliations that's been supplemented by the Form 8-K filing we made this morning. Rather than reading these 2 statements, I incorporate them with this reference. 2013 was a year of strong performance for LP. The housing market continued to show improvement. Single family and multifamily housing starts were 923,400 in 2013, an 18% improvement over 2012. LP's net sales increased 23% in the same time period and adjusted EBITDA increased to $330 million, a 65% improvement. With the improving market as a bedrock, let's review LP's performance in greater detail. Please turn to Slide 4 of the presentation for a review of the fourth quarter 2013 and full year results. We recorded net sales of $480 million for the fourth quarter of 2013, a 6% increase from the net sales reported for the fourth quarter of 2012. Fourth quarter of 2013, we recorded a net loss from continuing operations of $19 million or $0.14 per diluted share, compared to income of $59 million or $0.34 per diluted share for the fourth quarter of 2012. We recorded a tax benefit for the fourth quarter of $10.5 million. The main driver of our [indiscernible] with the release of valuation allowances during the quarter primarily related to our Canadian operation. The adjusted loss from our continuing operations for the quarter was $7 million or a loss of $0.05 per share based on kind of normalized tax rate of 35%, compared to income of $26 million or $0.18 per share in the fourth quarter of 2012. Adjusted EBITDA from continuing operations was $24 million in the quarter compared to adjusted EBITDA of $71 million in the fourth quarter of 2012. On a year-to-date basis, we recorded $2.1 billion in net sales, $177 million in net income and earnings per share of $1.23, as compared to net sales of $1.7 million, net income of $30 million and earnings per share of $0.20 for 2012. The GAAP tax rate for 2013 was 20%. The lower tax rate is primarily due to the release of the valuation allowances [ph]. On a non-GAAP basis, we recorded adjusted income from continuing operations of $129 million, earnings per share of $0.90 based on normalized tax rate of 35% and adjusted EBITDA of $330 million, an increase of $130 million over 2012. I will now move to Slide 5 and a review of our segment results, starting with OSB. OSB recorded operating profit of $7 million on $230 million of sales in the quarter, compared to operating profit of $58 million on $243 million of sales in the fourth quarter of 2012. For the quarter, we reported an adjusted EBITDA of $23 million, compared to adjusted EBITDA of $68 million in the fourth quarter of 2012. Our volumes were higher by 17% as we brought back production at both the Dawson Creek, British Columbia mill and the Clarke County, Alabama mill. Pricing for OSB was down 20% over the fourth quarter of 2012. Random Lengths North Central 7/16 pricing was down 26% over the fourth quarter of 2012. The decline in pricing was the most significant contributor to the low OSB performance, almost $55 million. As we've indicated in the past, our pricing percent change tends to stay above Random Lengths in the market with falling prices and our pricing percent changes tend to lag in markets with improving prices. Higher volumes helped to offset the negative impact of the lower price. For 2013, OSB had an operating income of $230 million, compared to $124 million in 2012. Adjusted EBITDA for a couple of period was $285 million, compared to $166 million in 2012. The impact of pricing between the years was $170 million and accounted for the majority of the change. The remaining difference was due to higher raw material costs and costs and costs associated with starting up our Clarke County and Dawson Creek mills. Moving to Slide 6, which reports the results of our Siding business. This segment includes our SmartSide and CanExel siding products and commodity OSB produced in our Hayward mill. The Siding segment reported sales of $138 million in the fourth quarter of 2013, an increase of 19% from $117 million reported in the fourth quarter of 2012. The Siding segment reported operating income of $16 million, compared to $11 million in the fourth quarter of 2012, and adjusted EBITDA of $20 million, an increase of $5 million compared to the fourth quarter of 2012. Reductions in OSB pricing lowered our results by $6 million in this segment, compared to the fourth quarter of 2012. For the quarter, SmartSide average sales prices were up 4% and volumes increased 20%. Volume increased from our SmartSide siding line due to continued penetration in several key focus markets including retail, repair and remodel markets and sheds. Improvements due to higher volumes in prices were somewhat offset by higher raw material costs, license and overlays, as well as additional sales and marketing expenses. CanExel prices were flat and remained solid [ph] were up 3% in Canadian dollars, mostly related to mix. And CanExel volumes were down 9% in the quarter. On a year-to-date basis, the Siding segment reported $574 million in sales, $86 million in profit and $103 million in adjusted EBITDA. For 2012, the Siding segment reported sales of $501 million, up from the $67 million and adjusted EBITDA of $83 million. The encouragement from 2012 driven by increased volume of 15% in SmartSide and higher sales volume, about $6 million related to improved OSB pricing. Please turn to Slide 7 of the presentation, where it shows the results of our Engineered Wood Products segment. This segment includes I-Joist, Laminated Strand Lumber, Laminated Veneer Lumber plus other related products. This segment also includes the sale of I-Joist and LVL products produced by the Abitibi joint venture are under a sales arrangement with Murphy Plywood. The Engineered Wood Products segment reported sales of $72 million in the fourth quarter of 2013, up from $52 million in the fourth quarter of 2012. The segment's operating loss in the fourth quarter of 2013 was $4 million, as compared to a loss of $5 million in the fourth quarter of 2012. For the fourth quarter of 2013, adjusted EBITDA from continuing operations was breakeven, as compared to negative adjusted EBITDA of $2 million in the fourth quarter of 2012. The volumes of I-Joist were up 36%, while volumes of LVL and LSL were up 24%, compared to the same quarter last year. Pricing was up 8% in I-Joist and 3% in LVL and LSL, reflecting price increases in all product lines introduced to offset rising raw material costs. On a year-to-date basis, Engineered Wood Products reported net debt of $268 million, a loss of $14 million and negative-adjusted EBITDA of $1 million. In 2012, Engineered Wood Products segment reported net sales of $213 million, a loss of $14 million and negative EBITDA of $2 million. Sales volumes in I-Joist were up 17% and volume for LVL and LSL was off about 17%. Moving to Slide 8 of the presentation. For the quarter, our South American segment reported sales of $41 million, compared to $42 million in the fourth quarter of 2012. Operating income declined to $2 million in the fourth quarter of 2013, compared to $7 million in the fourth quarter of 2012. South America's adjusted EBITDA from continuing operations was $5 million for the fourth quarter of 2013, compared to $10 million reported in the fourth quarter of 2012. Volumes in Chile were down 7% while volumes in Brazil were up 16%, compared to the same quarter last year. The sales volume decrease in Chile was primarily due to increased availability of imported products, which compete with our locally manufactured product. In Brazil, the higher volume was due to increased export sales as well as continued penetration of local market, as compared to the fourth quarter of 2012. Pricing is down 6% in Chile and up 2% in Brazil. In local currency, Chile recorded an increase of 6% and Brazil recorded 12% improvement in pricing. For 2013, South America recorded net sales of $172 million, profit of $20 million and adjusted EBITDA of $31 million. In 2012, South America recorded net sales of $169 million, profit of $18 million and adjusted EBITDA of $30 million. Our other building product segment includes other non-operating facilities. Overall, we are about breakeven in the fourth quarter of 2013, which is slightly better than the fourth quarter of 2012. Operating results for 2013 were a loss of $6 million as compared to a loss of $9 million in 2012. This improvement in operation reflects the sale of our interest in U.S. GreenFiber, which occurred during the fourth quarter of 2013. Total SG&A costs were $47 million in the fourth quarter of 2013, compared to $36 million in the same quarter of 2012. For 2013, SG&A costs were $150 million, compared to $128 million for 2012. The increase in SG&A cost is primarily due to higher costs associated with our systems upgrade project, sales and marketing expenses, as well as costs associated with the proposed acquisition of Ainsworth. We recorded a $2 million foreign exchange loss in the quarter, compared to a $400,000 loss in the same quarter last year. For 2013, we reported a loss of $5.3 million, compared to $2.7 million loss in 2012. Included in our operating income for the fourth quarter of 2013 were other operating charges and credits totaling $12.9 million. The biggest driver of these charges related to an increase in our mechanic rail warranty reserves, related to continuing plans for products sold during the 2003 through 2009 time period. Net interest expense is $6 million in the quarter, compared to $10 million in the fourth quarter 2012. This reduction was primarily related to the lower interest expense we reported due to the refinancing, as well as lower amortization related to our deferred debt expense. For 2013, net interest expense was $26 million, as compared to $35 million in 2012. During the fourth quarter of 2013, we realized a noncash loss of $1.5 million related to the early debt extinguishment charge associated with the refinancing of our credit facility. In the fourth quarter of 2012, we realized a $20 million gain on auction rate securities settlement. Please turn to Slide 9 of the presentation. As of December 31, 2013, we had cash and cash equivalents and investments and restricted cash of $672 million. We had working capital of $868 million and net cash of $297 million. We generated $20 million of operating cash flow in the quarter and $243 million of operating cash flow in 2013. We are planning to spend approximately $100 million for capital expenditures in 2014. Approximately $50 million relates to capital maintenance and productivity improvement projects. The remaining $50 million is targeted towards projects such as the press rebuild in our Roxboro mill, the expansion of our Tomahawk siding mill and a third mill in Chile. With that, I'll turn the call over to Curt for his comments.

Thank you, thank you for that review, Sallie. I know that you and -- you folks on East Coast are suffering through some bad weather. I will tell you it's nice in Nashville today. We didn't skirt the storm and missed this one South, about 30 miles so it was pretty close, but we didn't have any problem. I hope you're all being able to stay warm. While Sallie provided her comments both on the fourth quarter and the full year, I'm going to limit my comments to our accomplishments and some of the challenges we had in 2013. I'll talk about the current state of the housing market, give you an update on the Ainsworth acquisition and give you my views on what is ahead for 2014. LP ended the year with a total incident rate from a safety perspective of 0.54. This is the eighth year in a row where safety performance has resulted in a total incident rate below 1.0. Well, we should all be understandably proud of this accomplishment. I'm personally saddened that we did have a death in Brazil earlier last year. This is a constant reminder to all of us that we can't let up on our safety focus for even a moment. 2013 was a good year by almost any standard. As Sallie said, sales were up 23%, adjusted EBITDA was higher by 65% and our adjusted earnings per share almost doubled compared to last year. We set volume sales records in many of our product lines despite housing starts being at the $925,000 level. SmartSide siding, TechShield radiant barrier, our topnotch high performance flooring, Laminated Strand Lumber and more. We prepared for the housing upturn by restarting production at 2 of our facilities. We completed the acquisition of the Peace Valley OSB mill and we announced a transaction to acquire Ainsworth Lumber Company. Sallie mentioned we did launch a year-long effort to upgrade our IT systems in North America to a common ERP platform. We did go live on January 1, on time and on budget. Progress is being made every day as our employees become more familiar with the system and we take care of any bugs in the software. This has been a massive effort and I can't say enough about the dedication of LP employees and the team from our integration partner. I'd also like to thank our customers and vendors for their patience because there have been a few hiccups along the way. Towards the end of the year, we restructured our sales and marketing organization to deepen our relationships with key customers and to allow greater market segmentation, so that we can be responsive for the right products and support. I'm very pleased the progress we have made over the last month has been filling key roles and rearranging responsibilities. Both our shareholders and customers should benefit from these positive changes. So what's going on in the housing market? Here are some opinions based on my review of the data, discussions with our customers and builders at the International Builders Show last week in Las Vegas, conversations and presentations of the Policy Advisory Board Meeting earlier this week at the Harvard Joint Center for Housing Studies and comments made by our sales force during our international sales meeting in January. There's definitely a momentum in the housing market as both single family and multifamily housing starts were higher last year than the prior year. There was nearly a 20% increase in 2013 and an additional 20% increase is forecasted for both this year and next year. The single family segment is still focused on more affluent buyers as evidenced by the average square footage being the highest ever. However, as I'll talk about later, we do need the first-time homebuyer to participate in this recovery. Despite weather challenges in many parts of the country in January, many of our channel partners had a better January this year than they did January of last year. And they all say there is pent-up demand that will accelerate activity when the weather does break. Builders are optimistic about 2014. The number of exhibitors at the International Builders Show was up about 20%, and I believe that attendance was probably 30% to 35% higher than last year. At the Policy Advisory Board of the Harvard Joint Center for Housing Studies earlier this week, a couple of insights from that meeting. The general mood on the market was upbeat and lots of comments were on pent-up demand. Consensus estimates for this group were also in that 1.0 million start range for 2014. There's still the strong belief that the first-time homebuyer is unlikely to participate until there is more job growth and increased availability to financing. There was a general feeling that the price increases experienced across the country in 2013 will moderate in all but the best markets. Builders continue to be concerned about labor shortages, both skilled and unskilled workers and most participants were calling for immigration reform as a means to ease some of this tension. We spent an entire morning discussing housing financial reform with a variety of leaders in Washington. There does not appear to be much confidence that Congress will pass any reform on the government-sponsored entities Freddie Mac and Fannie Mae that back mortgages. On the residential mortgage reform, the Safe Harbor for the qualified mortgage has finally been issued by the Consumer Finance Protection Bureau. But based on the discussions at the meeting, it doesn't look like these 11,000 pages of related rules have made more credit available for borrowers or reduced any of the administrative burden at the banks. Now let me take a few minutes to give you an update on where we are with the Ainsworth acquisition. As Sallie mentioned, we did issue an 8-K today with the joint release. Since entering the arrangement agreement last September, LP and Ainsworth have both made initial and supplemental filings with the Department of Justice, Canadian Competition Bureau and under the ICA review process and investment review division of the Ministry of Industry in Canada. LP and Ainsworth have engaged in a number of face-to-face discussions along with other communications with these agencies. We continue to cooperate fully to aid the review of the proposed acquisition. Both of us are eager to complete the acquisition and are doing whatever we can to aid the agencies to complete the reviews as quickly as possible. In order to facilitate the continuation of our dialogue, we and Ainsworth have agreed not to consummate the transaction before March 13, 2014, to allow the agencies more time to continue their review. In connection with reaching this agreement with the agencies, we and Ainsworth have amended the arrangement agreement to extend the outside date for the completion of the acquisition. We continue to refine our transition planning for the integration. We're really in a holding pattern until we get the necessary government approvals. We are excited to hit the ground running. Clearly, gaining regulatory approval has taken much longer than we originally anticipated. I am certain that all of you would like a lot more detail about the discussions we were having [indiscernible], but as I am sure you can all appreciate, we really are not in a position to discuss any of this much further at this time. So I would appreciate it if you would give Mike and Becky a break and lay off until the middle of next month, when we should know a little more. As for the outlook for 2014, I remain optimistic. As I said, the consensus forecast for the year is a little over 1.1 million housing starts, almost a 20% increase from last year. For 2015, the consensus is nearly 1.4 million, another 22% increase. The inventory of new homes for sale remains very low at about 130,000 and existing homes for sale stand at just over 2 million, about a 5-month supply. This has fostered price increases that averaged 13.6% on a year-over-year basis. The overall economy is improving as shown by the strong 4.1% real GDP in Q3 and a forecast of real GDP growth of 3% in 2014, once the employment picture is improving. In the first week of January, as I mentioned, we had a sales meeting here at Nashville. It was exciting for me to share the successes of last year and hear about their growth plans for the coming year. The internal reorganization I talked about a few minutes ago should accelerate our penetration into key markets and customers. So for this quarter, there are a few things that we have on our plate to accomplish. We're going to continue to make progress with the regulators so we can get the Ainsworth acquisition done. We need to continue the stabilization of our ERP system that went live on January 1. We have a bit of a recovery to accomplish due to the aftermath of the various polar vortexes. We had several mills that were forced to take downtime due to shortages of propane and natural gas. In addition, the rail service in Canada so far has been abysmal and has caused us to take a significant amount of downtime in our mills, as we simply ran out of space to store the OSB we were producing. In Q1, we did schedule a fair amount of downtime related to capital projects. I'm pleased that our folks were able to complete the Roxboro press rebuild upgrade and the replacement of the environmental system in Carthage on time and on budget in January. Next up later this month is of the doubling of capacity at our Tomahawk SmartSide siding plant that will begin soon. LP is ready to serve a growing housing market and we are looking forward to the increased activity. With that, let me turn it back over to Sallie for the questions and answers.

Thank you, Curt. Brittany, we're ready for questions. So if we could go to the queue.

[Operator Instructions] And your first question comes from the line of Mark Connelly with CLSA.

Two things. It looks like your overall costs, especially in OSB, are in pretty good shape. And obviously Q1 is going to be bumpy but do you have a view on the broader view for 2014? And secondly, just a bigger picture question. Are we seeing any shifts in the siding market between vinyl and composites and shingle? We keep hearing that multifamily's playing a different role, that McMansions are different now. Are you seeing anything that you think is going to change the -- your market position there?

Let me respond to your second question first and then I'll come back to the other one. From a siding perspective, as I mentioned, we had record volumes in our SmartSide siding in 2013 despite housing starts being at 925,000. We take that as a very meaningful market penetration, probably a little bit against vinyl, but more specifically against fiber cement. So I think that's been principally where we've seen market share gains. As you know, vinyl has preferences in various parts of the country and remains the leading choice for repair remodeling because you can put it over existing siding. So we're very pleased with the progress we're making and we're making that not only on new construction but we're also having some success in multifamily, a lot of success with non-residential structures like sheds and strong retail business. But I'll let Sallie answer the cost question.

Yes, on cost for next year, I think we certainly are monitoring wood. And I think we anticipate seeing some increases in some of our wood stock. On the raw materials, plus-or-minus some increases primarily related to the resin wax area and possibly energy.

But it's -- less than 5% change in that. Where we are going to get some improvements in our cost position is the mills that we start up last year, that weren't fully utilized as we have more demand for that product and produce more product, we'll get the absorption there and so it should bring down our overall cost of production.

Okay. So no meaningful headwinds there. Great.

And your next question comes from the line of Gail Glazerman with UBS.

I guess, maybe to the last part about the mills, can you just give an update -- the mills that restarted, can you just give an update in terms of where you are with Clarke County just in terms of utilization and also, are you still seeing kind of incremental start-up cost of reassembling this past that? And I guess while talking about Clarke County. Last quarter, I think you've referenced potential the benefit as IP shut their Courtland mill, have you started to see -- in terms of wood cost, have you started to see any benefits there?

Well, let me talk about Clarke County first. Clarke County is improving. We are about on our plan for the first quarter so far. That has production ramping up for the year. I think we need to average about 1.5 million for the full year a day. And we've had days, we've done better than that in the first quarter so that mill continues to make progress. In the fourth quarter, we did have higher cost in that mill and we also had some downgraded products that cost us a little bit, so our costs were higher in the fourth quarter. But I'm happy with the progress that we're making now. As far as the wood cost, the shutdown by IP affects more of our Hanceville mill and we have seen some relaxation, a pressure on wood in that area.

Okay. And, Curt, can you just give some perspective as to how you think your customers are positioned this year for the building season and maybe compare it to how they were positioned last year at this time?

Well, the anecdotal information from our salespeople and what we and the -- our partners that we talked to at the Builder Show is that there are very lean inventories right now. Part of that is our own doing because we can't get rail cars in Canada so we have been lower on shipment to customers coming out of Canada. I think that they're all talking about pent-up demand. Almost every customer I talked to said that the weather has held back the takeaways from their operations but they really felt there was a demand there. So I think we'll see a pretty rapid channel fill starting as soon as the weather breaks.

Okay. And can you possibly quantify some of the financial impact of the weather issues you've seen this quarter or is it something you think you could catch up with this weather, we still have a quarter left, if weather normalized tomorrow?

Well I can't give you numbers on it but I can tell you that we've had about 30 mill down days so far this year in Canada related to the railcar issue, where we simply just couldn't put any more wood anywhere else from the mill so we had to shut down. Now the difficulty from a channel perspective, and Rick and his team have been talking to our customers about it, is you can't gain that production back, you can't run more than 24/7 so there's -- there could be some short-term issues on that, that could go into the spring season.

And your next question comes from the line of Mike Roxland with Bank of America Merrill Lynch.

I'm not sure if you're able to comment on this, but I will ask the question anyway. Based on the type of questions that you're getting from the DOJ and the Canadian authorities regarding the Ainsworth acquisition, can you give us any indication as to what their biggest concern is? And is there anything that you think you can do to allay their concerns to get the deal done maybe a little bit sooner?

I'm very hesitant to do that because I'm sure our friends from the DOJ and Competition Bureau are on this call, so I'm going to be very careful to answer that. We are being as responsive as we can to their request. And I think that's really all I can say and that's both true for us, as well as for Ainsworth.

Got you. I understand, Curt. In the press release, I guess, you mentioned that you also curtailed one other facility due to market conditions, if I've read that correctly. What facility -- is that referring to some of the issues that you have up in Canada or did you actually take out a facility just due to weak, [indiscernible] demand? And are there any other potential facilities that you could look to, and definitely idle if demand does not pick up?

Mike, I think that's reflecting the Chambord facility that's been curtailed, there are no new curtailments. The one that's been curtailed since -- for a number of years.

Got it. And then the last question I have was just on cost. Curt, you mentioned in terms of cost that labor availability really being -- in particular labor being an issue for the home builders, I think you actually mentioned labor being an issue also for your own operations, either a lot of people left the industry or back to their home country, during the downturn. Can you give us a sense of how much labor increased year-over-year in 4Q and whether you've seen any improvement in the labor availability? And comment also about what you've done, what the industry has done to foster or to bring back workers to the industry?

Well, the struggle for us has generally been in the skilled trade, so it's been the electricians, process control, mill rides, in that area. And we have, frankly, we've been backfilling with contract labor, because we can't hire quick enough to keep those fully staffed. Most of the areas we operate, we compete with the oil and gas sector. And they, they simply pay higher wages than we can pay. And so the things that we're responding to is we're responding to grow your own electricians, grow your own mill rides. So we're putting in our own [indiscernible] programs, we're partnering with junior colleges and trade schools and areas where our mills are located to get people so we're doing all those kinds of things. And then from the industry as a whole, we're struggling with drivers, and I think as everybody is, and we're struggling with loggers. And so we do have a place, a core logger program where we will commit to a select group of loggers and keep them working through good times and bad times. So that's how we're trying to address that.

Got it. And just the last question for me, for Sallie. For the first 3 quarters of 2013, SG&A as a percentage of sales has been averaging around 6.5%. In 4Q, that spiked about to 9.5%, a little over that. What drove the increase and how should we be thinking about SG&A as a percent of sales on a go-forward basis?

What really drove that increase are the costs associated with the Ainsworth acquisition. And I think you should anticipate looking forward what will be closer to the first, second and third quarter on a normalized basis but -- while we're still working with our -- going through the regulations, that you're going to continue to see some kind of spike. It was in the fourth -- for the full year that costs associated with Ainsworth acquisition was around $6 million and the majority of that was in the fourth quarter.

And your next question comes from the line of Chip Dillon with Vertical Research Partners.

Coming on the last up-cycle, we saw -- certainly OSB really gained most of its share versus plywood in the new housing construction business. And as you know, that area has been probably a lot weaker and continues to be versus repair and remodeling. And I was just wondering, have we seen a shift in OSB back or shall I say a share gain in the channel of selling to people who are repairing or remodeling their homes given that, that seems to be an area that's stronger than new housing, at least has been so far.

Not noticeably, Chip. When we look at our retail sales, our retails sales from a volume perspective are up about the same store-to-store that Lowe's and Home Depot are reporting, 3 to 6 kind of percent. So the growth is really coming in the housing.

Got you. Got you. When you look at your capital spending, last year -- was $75 million in '13. How does that look right now and has it changed in terms of how you think about '14 especially since we don't have the same head of steam as we had last year in your markets. And could you give us a little bit of a range, and this is my assumption not yours, but let's just say, you owned Ainsworth in the back half of the year, kind of what could the sensitivity be to that CapEx number?

Well, Chip, I don't think we're going to speculate yet on what the capital plans for Ainsworth will be, but in terms of our capital plans for LP, we're anticipating spending around $100 million this year, which is an increase of that $25 million from 2013. And all of that increase would be related to growth projects or, as Curt mentioned in his comments, with the press rebuild at Roxboro, we had the environmental technology, the RTO at Carthage and now that we've seen some improvement in our cash flow, we're going back and we'll be able to gain those types of projects and, of course, the Tomahawk expansion, which Curt also mentioned, and the third mill in Chile.

Got you. And then I guess the last question, just to maybe underscore the competitive nature of your business. I just noticed in Engineered Wood Products, year-over-year, your volumes were just up massively, 24% to 36%, with higher pricing and your operating loss was basically the same. Can you tell us what's going on there?

Sure. That's all related to the increased raw material prices. Remember, in the first half of the year in particular, in particular, the Engineered Wood Products group had to deal with the higher raw material costs associated with I-Joist, which is made out of the OSB.

Of course, got you. I would expect those cost to go down, I guess, in coming -- in the next quarter or 2.

Well I think that's why you see some improvement in the fourth quarter.

And your next question comes from the line of Joe Stivaletti with Goldman Sachs.

I was just wondering if you could talk a little bit about the industry supply side of the equation. You talked about forecast for volumes to be up close to 20% next year in terms of housing starts. So I was wondering if you could talk about what you're seeing and expecting on the supply side in North America.

Well, Joe, I'd be happy to tell you what we're doing because, as you know, we did restart Clarke County, which is ramping up, and I think that will be running. Under our plans, it would be running about 65% of capacity for the full year, with a lot of that volume weighted towards the back half of the year. Dawson Creek, we're still running at a very limited shifting pattern so we can add additional capacity into Dawson Creek. Swan Valley has taken a fair amount of downtime related to the rail issue so hopefully, we'll be able to run that during the spring run up. And then in Maniwaki, we continue to look at export opportunities there as we're not fully utilizing that for North America. And then there was a question earlier, the 1 mill that we don't have started yet is Chambord, and I really don't have any plans this year to think about that.

So if you pull that together, what basically -- what would your capacity change by in 2014 based on what you just walked through?

Well, Clarke County, because we started up in April, and as we talked about earlier, it's got a miserable start-up. Clarke County will probably tripling in volume of what we had last year, probably about 150 million feet and will probably triple. Dawson Creek, I would anticipate, because that one also start up late April, probably have a doubling of the volume that came out of there. And then I would guess both in Swan and Maniwaki, we're probably looking at 20% kind of increases. So if you added all that up, it's probably another 600 million square feet.

And then I guess just for the overall industry, I mean, you don't -- I mean are you expecting if we see this type of close to 20% growth in volume of housing starts, you would expect it to be a considerably tighter year or I just wondered about what your perspective was in terms of industry overall, the outlook there.

Well, if we're going to go from 925,000 to 1.1 million, that's 175,000 housing starts. That should equate to a demand of right around 1.8 billion to 1.9 billion square feet of additional demand. Because the rule of thumb is 1.1 billion square feet for every 100,000 housing starts.

And your next question comes from the line of Mark Weintraub with Buckingham Research Group.

First, just one quick clarification. So basically, if housing starts go up by 20%, then what's the demand? It kind of goes up 10%-ish, 10% to 12%, is that about right using the numbers you...

I think I look at it the other way. Just take the number of housing starts and multiply every 100,000 as 1.1 and you can figure out what the incremental demand is in OSB.

Okay, great. And then on the new timing agreement, if this is a fair question, can you just share with us whether this agreement was initiated by you and Ainsworth or what was it initiated by the regulatory agencies?

Well, I think the fact that we have agreement in place, it was mutually agreed to. There were discussions around on how we continued to assist the DOJ and Competition at Canada and making progress towards improving these acquisitions.

Okay. And then just lastly, I know you made the comments on your sense that the inventory channel was relatively lean, at least with your customers, so you probably built up some inventory. And yet if you look at fourth quarter production for the industry, it was actually as high as it was in the third quarter and it was up substantially versus a year ago. More so than you would have thought based on what was happening with housing starts, demand would have increased. So I guess, when you look at the amount of OSB that was produced in the latter part of last year, does that not kind of suggest that actually there's quite a lot of OSB out there at least coming into the year?

Again, I'm relying on our sales force coming back to us and talking to customers. And we're not seeing -- we're not hearing from either our salespeople or customers that they bought inventory.

And your next question comes from the line of Sean Steuart with TD Securities.

Just one question. South America is the weakest results we've seen from that segment in I think at least a couple of years. Maybe just going through some of the contributing factors in more detail. You touched on I guess, imports into Chile and few other factors. Is there more happening there than that? It's a pretty steep decline in results there.

I think there's 2 things. One, the competitive pressure that Sallie talked about is certainly a major factor there. We also had a strengthening of the U.S. dollar so there was some translation that have affected both results.

Not changing your thinking on the growth strategy there long term, no?

No. No. In fact, as Sallie mentioned, we're doing preliminary planning on a third mill there.

Yes. But pricing difference. You have to remember, the Chilean price really is impacted by what's going on here in North America. And so think about the pricing environment that exists in North America in the fourth quarter of 2012 versus the pricing environment that exists in North America in the fourth quarter of 2013. And that gives you some -- the dynamics that would cause the Chilean results to reflect that as well.

And your next question comes from the line of Mark Wilde with Deutsche Bank.

Just first of all, I want to come back on the weather. Curt, you've mentioned natural gas and propane. And I just -- I want to get a sense of how big an issue that might be in the first quarter? Propane in particular is up sharply but natural gas is also up.

Well, for us, we really only use that on our pollution control basement [ph] equipment. We don't use it as part of our process, or if we can't run your pollution control equipment you can't run your mill. And so it primarily affected our siding mill, we had several outages in siding. We were tied to use natural gas but we only use propane, when we can't get natural gas and so we had -- they were diverting natural gas to household for home heating and then there was a storage of propane. And who knows whether it's true or not, what I heard the corn crop was very big and it takes a lot of natural gas and propane to dry up the corn, that's what I heard. So -- relatively limited to a couple of mills in the late-stage associated with siding.

Okay. All right. Another question -- actually it was also related to natural gas. If gas stays elevated, what's the effect on that on kind of your rise in the cost, rise in prices, because a lot of that stuff is natural gas derivatives, I believe.

It's not a -- it is a derivative but the biggest ones are benzene and phenol, the biggest drivers.

[indiscernible] oil.

So natural gas has an impact but it's not as big as the derivative, the old derivatives.

Okay. All right. Side question, can you give us the operating rate at that Brazilian mill right now?

I don't have it in front of me, I'd be guessing. I would guess that was probably running at about 80%.

Okay. That's a little better than I might have thought. And how -- about how much of that gets exported, Curt?

I don't have that in front of me either.

I don't have it in front of me, probably 1/2 of it. 1/3 to 1/2. Trending downwards because we're selling more of it in Brazil.

Yes. And just generally in Brazil, I think the big issue down there has just been kind of getting kind of builders and building codes modified so that people could use OSB. Can you give us just a 60-second update on that?

Well, we sold OSB in to over twice as many homes in 2013 than we did in 2012, so we continue to make progress there. We've probably got half a dozen to a dozen builders, who are now qualified to use our building systems, so we continue to make good progress there.

Mark, about 30% of our Brazilian sales in the quarter were exported.

Okay. Thanks, Sallie. And then the last one, Curt, just sort of any change in view on the Engineered Wood business and what it's going to take to move that business to profitability? I think in the past, you talked about 1 million or 1.1 million starts in kind of a threshold number.

I still think that's a good number. And as Sallie say, we made progress towards the latter half of the year. I think we are EBITDA break -- we were EBITDA positive in the second half of the year in that business and that's a positive sign. That was relaxation of raw materials. We also did put in a couple of price increases during the year to recover those higher raw materials costs. We only had significant increases in our volume on Laminated Strand Lumber volume so we're continuing to make progress there [indiscernible] path for a recovery.

Are you putting any more capital in to that business right now?

Well, we're maintaining our mills and we haven't made any -- obviously, we're turning more capacity so M&A in capacity increases there, but we did make an investment in our holding [ph] mill that will allow us to make limited quantities of OSB at that mill, which was always the plan but we didn't need that and now we've seen opportunity for some high-quality foreign products.

And your last question comes from the line of Paul Quinn with RBC Capital Markets.

Just a couple of quick cleanups. Just on poor rail service, I think you called it abysmal, Curt. Is that more weather-related or is that just strictly on service levels?

Well, I'm going to be in your city next week with the Forest Park Association in Canada, that's a major item on our agenda. As you know, we've been trying to fight for service level agreements with the CN and CP for a long time. There is a rail review in Canada coming up in 2016. I really don't want to wait until then. This has been a problem. I think weather was clearly a problem in January and into February. But I also think it's how they're staging their prevent, what equipment they're making available. They're focused on utilization of equipment rather than satisfying customers, from my perspective. So just to give you an example, at Peace Valley, we need 90 cars a day. We went 2 weeks with 0. And then the third week, we got 30. So you just can't run the mill when that happens.

Okay. And then if you could give us an idea of operating rates in Canada on the OSB side versus the U.S. as a result of that?

Well, that was an impact this quarter, which, obviously, I haven't reported the results for this quarter. We didn't have rail service issues on the fourth quarter.

Okay. And then just in South America, you referenced increased imports in to that. Where is that? Is that coming from North American competitors and is that having any effect, I guess, it's not having any effect on your plans to put in a third mill.

It is coming from North American competitors. And as Sallie said, they look at it opportunistically when they have excess capacity that they could take South from their operations and make a contribution margin, they're doing that. It's not dissimilar to what we're doing out of Northern Quebec, now on our Maniwaki mill. And we'll take extra capacity over into Eastern Europe and Russia that will still make a contribution margin.

I will now turn the call over to Sallie Bailey, for closing remarks.

Great. Thank you, Brittany. If you could please provide the replay number, we would appreciate it. And I'd like to thank everybody for participating in our call. And as always, Mike and Becky are here to help answer any follow-up questions you may have. So I hope you have a great day and we appreciate your participation.

Ladies and gentlemen, that concludes the presentation for today's conference. You may now all disconnect and have a wonderful day.