管理層發言
Good day, and thank you for standing by. Welcome to the Second Quarter 2026 Louisiana-Pacific Corporation Earnings Conference Call. Operator instructions: Please be advised that today's conference is recorded. I would now like to hand the conference over to your first speaker today, Aaron Howald. Please go ahead.
Thank you, operator. Good morning, everyone. Thank you for joining LP Building Solutions to discuss our results for the second quarter of 2026, and our updated outlook for the remainder of the year. Hosting the call with me this morning are Jason Ringblom and Alan Haughie, who are LP's Chief Executive Officer and Chief Financial Officer, respectively. After prepared remarks, we will take a round of questions. As always, during today's call, we will be referencing a presentation that has been posted online at investor.lpcorp.com. Our 8-K filing, earnings press release and other materials are also available there. Finally, today's discussion will contain forward-looking statements and non-GAAP financial metrics as described on Slides 2 and 3 of the earnings presentation. The appendix of that presentation also contains reconciliations that are further supplemented by this morning's 8-K filings. I will incorporate those materials by reference rather than reading them. And with that, I will turn the call over to Jason.
Thanks, Aaron. Good morning, everyone, and welcome to LP's Second Quarter Earnings Call. We appreciate you joining us. I'm proud to say that in the second quarter, our team at LP maintained their focus on safety and efficiency as we executed our strategy focused on long-term value creation. Despite a housing market that feels like it's stuck in neutral, our Siding business delivered revenue above the midpoint of our guided range and achieved year-over-year volume growth in ExpertFinish. The inflationary impacts we absorbed in the second quarter were more or less consistent with the sensitivities previously outlined. However, as Alan will detail, Siding margins faced a couple of unexpected headwinds during the quarter, including weather-related disruptions and constrained freight capacity. We expect to recover some of this impact later in the year, which we will discuss in our updated guidance.
Slide 5 of the presentation summarizes our financial and operational highlights for the quarter. Net sales of $664 million were down $90 million from prior year and EBITDA of $79 million was down $63 million. While Siding was comping against last year's all-time record quarter, most of the decline in revenue and EBITDA was driven by lower OSB prices due to soft demand in North and South America. Siding sales were up 4% compared to prior year as 7% higher prices partially offset 11% lower volumes. Even so, Siding delivered a 26% EBITDA margin, which was also in line with our guidance. In terms of cash and capital allocation, operating cash flow of $140 million benefited from the typical seasonal working capital cycle associated with log inventories. LP earned $0.40 of adjusted earnings per share, returned $21 million to shareholders, and ended the quarter with just under $1 billion in liquidity.
On the last call, we described how the unintentional pull forward of Siding sales volume in the fourth quarter of 2025, particularly in the Shed sector, affected first half Siding volumes and channel inventories. I'm pleased to report that Primed SmartSide channel inventories have normalized as expected. The abnormally large sequential increase in volume from the first to the second quarter, led by improvements in all market segments, is further evidence that this is behind us. Additionally, distributor sell-through rates for Primed SmartSide were higher in the second quarter than any of the previous five quarters. Order intake also exceeded levels seen in four of the previous five quarters, surpassed only by the record second quarter of last year. ExpertFinish inventories in the distribution channel have also come down substantially from their first quarter peak and similar to Primed SmartSide, order intake continues to rebound following the end of our managed order file earlier in the year.
Two more highlights from the quarter make me particularly proud of our team at LP. First, despite the challenges ranging from a choppy housing market to record flooding that impacted our team in Manitoba, we maintained our focus on operating safely and efficiently. Our Siding and OSB mills delivered meaningful improvements in operational efficiency as measured by OEE in the quarter. And second, LP continues to receive external recognition for both product innovation and as a top employer in our communities. Engaged team members strengthen our culture, which is key to driving consistent execution of our strategy over the long haul. Slide 6 of the presentation updates a chart that we have shared at previous investor days. It helps us look beyond the near-term churn of inventory fluctuations, managed order files and market volatility to see the longer-term trajectory of our share gains more clearly.
The chart shows 15 years of normalized SmartSide volume and revenue growth compared to single-family housing starts on a 12-month basis ending with our Q3 guidance. Comparing 2025 to 2011 on a full year basis, single-family starts have been volatile, of course, and have been down in recent years, but have averaged a compound annual growth rate of almost 6%. In contrast, SmartSide volume has grown at a compound annual rate of almost 10% per year and SmartSide revenue has grown at 14%. Comparing the second quarter of this year to the mid-COVID housing peak in the second quarter of 2021, single-family starts are down 18%. By contrast, SmartSide volume is up 10% and SmartSide revenue is up a hair over 50%. Any way you look at it, SmartSide is gaining share and we remain confident that we have a long runway for continued growth ahead of us. Not to steal Aaron's thunder, but as he will lay out in our updated guidance, we expect LP's Siding business to return to year-over-year volume and revenue growth in the third quarter.
To supply growing demand, we are investing in ExpertFinish capacity. So let me update you on our progress. First, the new line at our Green Bay facility is continuing to ramp up following the typical start-up process. We also plan to add another 20 million feet of capacity at our Bath, New York facility later this year. And finally, at the end of June, we broke ground in North Branch, Minnesota, on what will be our largest and most efficient ExpertFinish painting facility. I want to thank everyone at LP who has contributed to the safe and efficient execution of these expansion projects. With inventories now within normal seasonal ranges, and given the strength in our order files, we expect to return to Siding volume growth in the third quarter. Our outlook reflects true customer demand and is not predicated on restocking or other inventory fluctuations, nor does it assume any improvement in the underlying markets we serve.
When those markets do improve, as they inevitably will, our capacity footprint, coupled with our system-wide operational efficiency improvement, positions us well to further accelerate growth, share gains and margin expansion. Finally, as you all know, LP announced in June that Alan will retire as CFO on September 1 after nearly seven years in the role. Before I turn the call over to him, I want to express my thanks personally and on behalf of LP's team members and shareholders for his many contributions to LP. Alan is the architect of LP's disciplined capital allocation strategy, and he has been an invaluable partner to me, to Brad before me and to our executive team and Board as we designed and executed LP's transformation from a commodity forest products company to a specialty building products company. Just as importantly, Alan built an outstanding finance organization and developed a talented team that is well positioned for the future, including helping prepare Aaron as his successor.
Many of you know Aaron well, and I have tremendous confidence in him and the finance team he will lead. Alan, I'm incredibly grateful for your leadership, your partnership and everything you've done for LP, our shareholders and our people. Thank you, and feel free to take it from here.
Well, thank you, Jason. I must add that without a doubt, working at LP has been the professional high point of my career, even more so because I'm leaving the company and the finance function in excellent hands. But enough of this. On Slide 8, you'll see the second quarter year-over-year revenue and EBITDA waterfall for Siding, which largely played out as we expected, but for a couple of unexpected wrinkles, I'll get to in a moment. Prices were 7 points higher than last year for both Primed and ExpertFinish, contributing $27 million to revenue and EBITDA, with some modest benefits from mix and lower rebates. As expected, this year-over-year price performance stepped down a bit from the first quarter in which we recognized final adjustments for lower 2025 rebates. Now average selling prices for Siding do move around a bit quarter-to-quarter due to mix and other factors, but the longer-term chart that Jason just discussed reinforces that SmartSide premium positioning and ongoing product innovation drive long-term pricing uplift, which more than offset inflationary cost increases.
Sales volumes declined by 11% from a comp that I should remind you was our all-time volume record. Within this, Primed volumes were down 12%, while ExpertFinish volumes grew by 1%. The resulting hit to revenue was $46 million, which lowered EBITDA by $24 million. This brings me to the $14 million EBITDA drag from inflationary costs and other items, a little over half of which is from crude oil price increases flowing through our raw material supply chain, broadly in line with the sensitivities we discussed on the prior quarter's call. And finally, EBITDA was negatively impacted by two separate and unanticipated events very late in the quarter. First, we experienced unplanned downtime at our mill in Dawson Creek, British Columbia, where equipment failures cost us a few days of production, and more significantly from a people and production standpoint, unusually severe flooding in Manitoba impacted our team at Swan Valley.
These events resulted in higher freight costs and unplanned inventory movements. For freight, we anticipated higher crude oil prices would lead to increased freight expenses because of the Iran conflict. However, constrained freight capacity has led to additional freight rate pressure. And damage to transportation infrastructure caused by the floods in Manitoba necessitated both switching shipments from rail to truck and taking longer routes to market, thereby exacerbating the freight impacts. The result was higher freight costs than would be explained by crude oil cost increases alone. As for inventory, you may recall from the previous quarter's call that we built finished goods inventory in the first quarter in order to minimize service disruptions during a planned outage for a press rebuild at Sagola scheduled for the third quarter. We pointed out at that time that the high EBITDA margin in the first quarter was partly the result of the absorption benefits of this inventory build, which we anticipated would reverse in the third quarter during the press rebuild.
However, the lost production associated with these events in Dawson Creek and Swan Valley led to inventory reductions in the waning days of the quarter as opposed to the modest inventory build we had planned. So while the magnitude of all this inventory build and consumption is unchanged, as are its absorption impacts, these unexpected outages pulled forward the timing. This explains the bulk of the $4 million in inventory and other on the waterfall. I wouldn't normally comment on a guidance miss. But absent these events, we would have been at or above the top end of our guided EBITDA range. The silver lining is that the third quarter inventory drawdown and associated absorption impacts should be smaller than previously anticipated. In other words, this was a rather laborious way of saying that this is largely timing. Switching to OSB on Slide 9. The story is simpler, but with prices ending the quarter about $15 lower than our guidance algorithm, OSB results were proportionately lower as well.
Commodity prices fell further than those of Structural Solutions, but the Structural Solutions mix also fell. Of course, lower prices reflect soft demand, so it's not surprising that volumes also fell as LP sought to balance supply with demand. Lower prices and volumes combined for $67 million lower revenue and $46 million lower EBITDA. Unlike Siding, freight is a pass-through for OSB and the comparatively lower raw material demands compared to Siding led to smaller inflationary impacts. Finally, the $9 million year-over-year benefit from inventory and other is mostly the nonrecurrence of the lower of cost or market correction of the nearly $100 price drop that occurred during the second quarter of last year. Operating cash flow in the quarter of $140 million, as shown on Slide 10, was boosted by the usual seasonal reduction in log inventory at our Northern Siding and OSB mills as well as the unplanned inventory reduction in Siding.
We invested $59 million in capital projects and returned $21 million to shareholders via dividends to end the quarter with $228 million of cash on hand. This left our total liquidity at just under $1 billion, including the undrawn $750 million revolver. So now it only seems right that I should hand the guidance discussion over to the man who I am delighted to say will be succeeding me as CFO a few weeks from today. So over to you, Aaron.
Thank you, Alan. And let me first echo Jason's thanks for everything you've done for LP. I am incredibly honored to have the opportunity to succeed you. As Jason said earlier, we are expecting LP's Siding business to return to year-over-year growth in the third quarter. Higher selling prices are projected to contribute the majority of this growth. But based on the momentum of our order file as well as our demand outlook, we also expect modest volume increases. The low end of our Q3 Siding revenue guidance of between $460 million and $470 million would tie the previous revenue record. Given that single-family starts are down about 7% on a trailing 12-month basis in Q2, this continues the longer-term trend of siding growth and share gains that Jason discussed earlier. Despite ongoing headwinds from raw material inflation, we anticipate Siding EBITDA in the third quarter of between $110 million and $120 million, for an EBITDA margin of about 25%.
And we affirm our prior full year guidance for Siding revenue, EBITDA and margin. Unfortunately, the outlook for OSB is moving in the opposite direction. The OSB demand environment remains very challenging. Even with a small uptick Friday, OSB prices have fallen by about $12 or 6% since our May call, even as raw material costs have increased. As a result, EBITDA for OSB would fall to approximately negative $45 million in the third quarter and to negative $120 million for the full year, assuming, as we always do, that prices remain flat at their current levels through year-end. LP has no control over OSB prices, obviously, but we are aggressively pursuing opportunities to improve cost and efficiency while protecting our assets and most importantly, keeping our team members safe. As for CapEx, LP's investment plan for the year is back-end loaded. As is frequently the case, this timing allows some flexibility to scale back or postpone nonessential projects as needed, particularly in OSB.
As a result, we now expect to invest about $320 million in CapEx. To give you the math, that is a $70 million reduction from our prior guidance for full year capital. At that level, Siding would account for roughly three quarters of the total CapEx and essentially all of the growth CapEx. And as we have said, nearly $1 billion in liquidity significantly enhances the flexibility with which we can invest in Siding growth, irrespective of OSB volatility. And with that, we will be happy to take a round of questions.
分析師問答
Operator instructions: Our first question comes from Ketan Mamtora at BMO Capital Markets.
First off, Alan, congratulations. This indeed is a very different company from when you took over as CFO. And Aaron, I look forward to continuing to work with you and congratulations. Maybe just to start with, can you give us a little bit of a breakdown for Q2 Siding volumes in terms of just end markets? How did sheds, new construction, and repair and remodel perform, and what is embedded for Q3 by way of Siding volumes by end market?
Thanks, Ketan. I appreciate the question. Yes, I'll touch on that. So as you recall, in Q1 we were working through a pretty significant destock across all market segments, but the major one was the offsite segment, or what we call shed. Fortunately, we saw that particular market segment rebound very nicely. I think we were up over 30% from Q1 to Q2. So very good progress there in offsite. That being said, for the year, we're anticipating that segment being down anywhere from 10% to 15% in volume. Looking at repair and remodel, we're projecting that segment to be flat to slightly up. We use our ExpertFinish product category as a proxy to look at how that particular market segment is performing and are pleased with the progress we're making there. And then everything else I would say is flat to slightly down in alignment with underlying market conditions and starts that Aaron mentioned earlier.
Understood. That's helpful. And then just one more from my side. In terms of your distribution partnerships, obviously, there has been news recently. I'm curious what the implications are for LP, both for SmartSide and OSB. Can you give us just a rough order of magnitude of your exposure to Boise Cascade on SmartSide Siding?
Yes, Ketan, what I'd say is those changes didn't necessarily come as a surprise to us. In fact, we thought it would happen or materialize a little bit sooner. For LP, we don't anticipate any lapse in coverage. We've talked about this before on calls. From a two-step distribution standpoint, we have two or more distributors that service all of our markets. And we're in the midst of working through transition plans to ensure that our channel customers and all of our end users feel no disruption as a result of these changes. As you can imagine, this news hit the wire late last week, early this week. And we've been fielding inbound calls, pretty much nonstop from distributors eager to promote SmartSide. So we're in the process of going through a pretty robust evaluation process with the goal of having new committed LP Siding partners in place as soon as possible by October 1 of this year at the latest. The other thing I would mention, Ketan, is we've been through similar transitions, but even at a much larger scale. You may remember the transition we went through in 2017, that represented almost double the scale of this one. And our goal is to really replicate exactly what transpired there from an outcome standpoint.
Our next question comes from Phil Ng at Jefferies.
Congratulations, Alan and Aaron. Aaron, looking forward to working more with you going forward. I guess from a high level, you guys managed price and cost quite well in the first half, but any more color on what you're seeing on the inflation part as we look into the back half of 2026 and into 2027? A few of your competitors on the vinyl side have announced second rounds of price increases. Just big picture, how should we think about your approach and philosophy on pricing especially as we look out to 2027 with raw costs and how your adjacent competitive products are pricing?
Yes, thanks, Phil. I would say that our strategy is essentially the same as it has been so far year-to-date, and that is the raw material inflation has been volatile, but we're looking at it more as a potential opportunity to gain volume share. The later we get into the year, the less sense it makes to have a midyear price increase given that we're close to the time when we would be announcing next year's price increase as well. In terms of where those raw material inputs are, of course they've been highly volatile. You almost need a time stamp to the minute on an answer for what crude prices are relative to the last time we gave the guide. But we're seeing maybe slightly more raw material cost headwinds in the back half of the year due to some factors that are probably more complicated than we need to dive into here, but some of the raw material feedstocks that move differently from crude have worked against us a little bit. So short version, not much strategy change. We're seeing some potential signs that our stance on price has helped with our volume in the back half and we'll probably roll any raw material cost offset into our full year price increase for next year.
A question for Jason. Certainly, the first half was very noisy with the channel destocking. Just any color in terms of how order patterns and sell-through by the different end markets look? Has that kind of stabilized? We're in a better spot. And then the back half, certainly, you're expecting volumes to rebound there. Is part of that just some of the wins that you've had, particularly in the homebuilder side or any of the bundling that you've talked about?
Yes. What I'd say, you're right. First half was pretty noisy. That being said, our goal is really to keep all of our sales and marketing resources in the field focused on what they can control, and that's creating demand downstream. Fortunately, over the course of the last 30 to 45 days, we've seen a really nice incremental improvement in week-over-week order intake, and that's continued into Q3 and really informed our guidance. So seeing good progress there. I'm pleased with it, quite frankly. A quarter ago, it was probably hard to see this type of improvement, but I think it's a credit to our team and the way they're executing against our market segment strategies locally in all markets.
Our next question comes from Mike Roxland at Truist Securities.
Hi, Alan, congrats on your retirement and Aaron, look forward to working with you more closely. First question I have, just in terms of Manitoba, the flooding, and the unexpected downtime at Dawson Creek, are those mills now fully up and running?
Yes. We're happy to say that the damage to the infrastructure was limited and there was not much direct impact to the mill in Swan Valley related to the flooding. It was more our people who were impacted and the transportation infrastructure that made it difficult to get to and from. So we're back at a steady state now.
Got it. Perfect. And then just what was your operating rate in OSB in Q2? Where do you plan to run in Q3? And at this juncture, what are you evaluating to determine whether you should continue running assets as is or consider taking downtime given the deteriorating supply/demand and pricing backdrop?
Yes. I'll touch on OSB a little more holistically. Certainly, unusual times for OSB, adjusted for inflation. Prices have been bumping up against historical lows. Aaron mentioned it earlier, we remain focused on opportunities to reduce cost and increase efficiency. That's our focus while we optimize our network around a utilization rate in the mid- to high-70s. That's what we operated at in Q2. That's our plan for Q3. We think that is the right level to balance supply with our customer demand. What I would say in addition to that is OSB is cyclical, and we've been through this before. What's different now at LP is prior cycles we didn't have the scale or the cash generation potential of our Siding business. So we're trying to manage the OSB side of the business wisely, matching capacity to demand, pulling back on CapEx a little bit where it makes sense, and we're not compromising safety in any way, shape or form. This market will come back to us, and we're committed to operating within that utilization range I just mentioned.
Our next question comes from Susan Maklari at Goldman Sachs.
Alan, let me add my congratulations. We'll miss hearing you on the call. And Aaron, look forward to working with you more in your new role. My first question is just getting more information on the share gains that you're seeing in Siding. Can you give us more color on what's coming through across the various channels relative to retail, repair and remodel, and the builders? And then how do you think about the sustainability of the recent gains that you've realized?
Thanks, Susan. I think as we mentioned on prior calls, the majority of our share gains broadly speaking are coming from vinyl and from traditional wood and, to a lesser extent, from brick and stucco as builders look to cut costs and address some of the affordability challenges that the industry faces. In terms of the stickiness of the share gains, I would point to our innovation strategy. Over the course of the last 10 years, we've brought a lot of new products to market. We've completed our portfolio and we've led in some areas such as our ExpertFinish naturals line. All of that is just playing into a very robust offering that addresses the broad needs of our different end-use segments. So we feel that these gains are very sticky and that there are a number of product categories that we're on the cusp of scaling in a more significant way.
Okay. That's helpful. And then turning to OSB, as you think about capacity there and the underlying supply-demand dynamics, can you talk about the ability to support Structural Solutions within any changes you make on that side of the business and where that can get to over time as you perhaps take some initiatives?
So in regards to Structural Solutions, we have quite a bit of redundancy built into our manufacturing network. As we flex our mills, that is something we take into consideration, but there's plenty of headroom so we're not sacrificing Structural Solutions supply as we make those decisions. That being said, more broadly speaking, when you compare the margins of commodity to Structural Solutions, they're not materially different. So although it's important to supply that demand we're creating in the marketplace, if we were to sacrifice some of that, it wouldn't necessarily show up materially in the financials.
Just a little color on that. The incremental margin difference between them has compressed a little bit since Structural Solutions products tend to be more raw material intensive. When we see inflation in those inputs, that compresses that difference. But Jason is right: there are very few Structural Solutions products that we manufacture at only one mill. So we've got plenty of redundancy and flexibility. Our strategy with those products is the same as with all the others. We'll respond to customer demand and supply the market with the products they need.
Our next question comes from George Staphos at Bank of America Securities.
George, if you're speaking, we can't hear you. Operator, maybe we go to the next one and give George a chance to circle back in.
Our next question comes from Matthew Bouley at Barclays.
My congratulations as well to Alan and to Aaron. Best of luck to you both. The CapEx guide was reduced by $70 million. You mentioned you have flexibility to scale back or postpone. Can you unpack that a little bit? What would you be pulling back on? And are there any changes to your medium-term market views influencing your CapEx outlook?
Mostly, what we would be pulling back on would be maintenance projects that are lower risk, both from a safety standpoint and from a compliance standpoint with regard to environmental emissions and similar items. When those projects are delayed, they are only delayed; they cannot be eliminated. So eventually, we will have to do that work. We balance that risk relative to customer demand to determine where we have mills and projects that can be delayed a bit. In terms of investing in growth, we didn't slow that down much at all. We broke ground on the North Branch facility, which will be our largest and most efficient ExpertFinish facility earlier this summer. The postponement is on the longer-term sustaining maintenance-type projects and predominantly in OSB, where we push those costs.
Got it. Second one, on OSB Structural Solutions, the volume pressure there this quarter and last quarter — is there a theme where homebuilders are decontenting or shifting toward other lower-value commodity products? Anything else going on there?
I think you're spot on. There's cost pressure that's playing into it. For example, a builder might trade down from one flooring option to another. But there is a broader code evolution that's taking place that is impacting our radiant barrier, which is the largest portion of that volume. So between those two factors, that's what's driving the reduction in volume.
Our next question comes from Steven Ramsey at Thompson Research Group.
Like others, congrats. Connecting the dots here a little bit: you maintained the full year Siding guide yet order patterns have been very strong. Is there some conservatism built in here? Or is this catch-up from Q2?
There's a bit of conservatism built in, yes. We don't want to extrapolate forward just a couple of weeks of pretty robust order files, so yes, there is perhaps a bit of conservatism in that.
That's helpful. And then sticking to Siding growth, there's the long-term opportunity in manufactured housing. Can you talk about progress on that in 2026 and the manufactured housing outlook within the guide?
Do you want to take that?
I'll talk about the progress in a couple of ways. One, we are encouraged by the traction we've seen for taking the enterprise approach to bundling Siding and OSB with homebuilders. We're encouraged that that approach is attractive to manufactured housing customers as well. So there's an opportunity for growth there. In terms of the market itself, with the passage of the Housing Act recently, that should, all else equal, help manufactured housing be part of the affordability solution and compete against the lowest price point stick-built homes where LP would struggle to get traction just from an overall cost standpoint. So we think the market has some potential to improve and within that we're encouraged by the progress we've made.
Over the last two to three years, we've allocated more resources to that segment than in prior years because we saw it as an opportunity for traction. I'm pleased to see that even in a soft market, we've seen year-over-year growth. As Aaron mentioned, the enterprise bundling approach seems to have some stickiness in that segment. We're looking forward to future updates there.
Our next question comes from Sean Steuart at TD Cowen.
Congrats to both Alan and Aaron. A couple of questions. Given the ongoing positive trajectory you're seeing for Siding order files, how are you thinking about the next capacity expansion option timing and how that might inform your CapEx plans into 2027?
Right now there are no specific updates relative to what we've shared on prior calls. We're confident we have plenty of capacity available right now. I think I mentioned on the prior call we have 400 million to 500 million feet of headroom in Primed and plenty more coming in ExpertFinish with Green Bay, Bath and North Branch expansions. We're continuing to assess demand projections. Our Maniwaki facility is more than likely the lead candidate, but we have other options available. It's in flux right now, but we're keeping a close eye on it.
Okay. Second question on cost: resin is probably the most volatile piece right now. We've heard from one peer that they've seen relief for log costs in North America given less competition for pulp logs. Have you seen any of that in your mix, both OSB and Siding, in recent weeks or months?
We saw some of that to begin the year, but with oil prices moving so dramatically the other direction, that has trended in the opposite direction. So that relief isn't going to carry through for us in the back half of the year.
Those dynamics are very local. So it's not necessarily the case that the same dynamics that impact pulp logs in one region will impact all consumers of those pulp logs.
Our next question comes from Kurt Yinger at D.A. Davidson.
Congrats Alan and Aaron. Following up on the question around capacity expansion: recognizing Maniwaki may not be 100% the next project, is there any consideration to pulling a project like that forward given what's happening in OSB? And more broadly, what are the puts and takes around that, recognizing you don't necessarily need upside capacity, but it might help on the OSB side given where we are now?
Good question, Kurt. We're not going to make long-term Siding capacity decisions based on short-term OSB conditions. We'll broadly assess all options and look at what's the best return for LP and the Siding business. So I understand the point, but that's not the primary filter we're using.
Even if we did pull a project forward, the cost of that magnitude of expenditure for a Siding mill a couple of years earlier than needed would more than offset the likely benefit it could create on OSB pricing. So even if tempted, it probably wouldn't be effective.
Okay. And there's been some noise around building codes locally and wildfire-prone areas. Big picture, what are you hearing across parts of the country and how are you positioning engineered wood as a siding material given those conversations? Any color would be helpful.
I think you're referring to Wildland-Urban Interface (WUI) codes. This dynamic is not new; we've dealt with it for as long as I've been with LP. There have been some changes in one state in particular and a couple of local markets where code requires an ignition-resistant or noncombustible cladding and does not allow for a wall assembly that includes SmartSide to meet code. That is where we are challenged. Fortunately, this is a small portion of the addressable market. One area in particular is Colorado. For us, our volume there is down but not more than housing starts in general. We're monitoring that closely and have a number of new product development initiatives in place, coupled with a heavy push on educating local authorities on the value proposition of SmartSide relative to some of the code changes they're debating to ensure we're positioned well for the future.
Our next question comes from Mark Weintraub at Seaport Research Partners.
Alan, congratulations. While Brad and Jason transformed LP from OSB to Siding, you certainly did your thing with the balance sheet and the share repurchases. Congrats again and Aaron, congrats to you as well. When you do build the next Siding facility, costs have increased a lot across industries. Is there any color you can share to help us understand the potential magnitude of a project when you do decide to move forward?
It's too premature to share specifics, but rough order of magnitude: inflation is a factor. Steel and labor are more expensive, so a future project will be more expensive than prior conversions at Sagola and Houlton for a couple of reasons. One, it would likely be bigger — assuming Maniwaki is where we build, it would be a larger project producing more Siding. That alone increases cost. But inflation is another factor. Fortunately, siding volume and siding prices have increased. If you do the internal rate of return calculations, the inputs are bigger and the outputs are bigger. The return in percentage terms is pretty similar. When we have more detail about location and project scope we'll share it. For now, it's a bit early. We're confident it will be an excellent investment in ongoing Siding growth.
Makes sense. Since Maniwaki was characterized as lead dog by Jason, is it fair to conclude the new Canadian tariffs that were announced don't have any impact on Siding?
That is correct. We wouldn't make a long-term Siding decision based on short-term OSB volatility or a tweet about tariff policy.
Understood. How long is it from decision to move forward to having a facility up and running?
A lot of moving pieces: location, project scope, and product mix. But on the order of roughly 2.5 years from decision to first board is a reasonable ballpark. Given the capacity in our existing footprint, we have flexibility to time that so we don't have too much excess capacity for too long before bringing the next mill up to speed.
Our last question comes from Adam Baumgarten of Vertical Research Partners.
Last quarter you talked about ExpertFinish volumes growing mid-single digits in 2026. Is that still your assumption for the year?
Yes. That's more or less what we expect. ExpertFinish has been the best-performing category of our Siding business year-to-date. We saw volume growth in the second quarter and that makes us even more confident in the capacity we're adding to supply that future demand.
Great. And then a comment you made earlier on your lack of incremental price actions in 2026 potentially driving some share gains — is that a broad-based comment across channels or more specific to homebuilder channel or R&R? Any more color on where you're seeing that progress?
I don't think it's knowable exactly. If our lack of price action is driving volume, it's reasonable to assume it's relative to products that are taking price action, but we can't know exactly why we're gaining a particular amount of additional share in a particular market. We do know that we are incrementally more competitive when pricing is stable and dependable, and we think that contributes positively to our performance in the back half. It can't be precisely measured, but it can't be hurting.
This concludes the question-and-answer session. I would now like to turn it back to Aaron for closing remarks.
Okay. I guess George wasn't able to dive back in, so we'll connect with you later. Thanks for everybody for joining us. With no more questions, we'll end the call there. I hope everyone is safe, and we look forward to connecting later on during the day and during the week. Thanks very much.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.