Louisiana-Pacific Corporation (LPX) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Louisiana-Pacific Corporation Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Aaron Howald, Vice President, VP -- I'm sorry, 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 second quarter of 2024 as well as our updated outlook. 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. After prepared remarks, we will take 1 round of questions. During this morning's call, we will refer to a presentation that has been posted to LP's IR web page, which is investor.lpcorp.com. Our 8-K filing, our earnings press release and other materials are also available there, including our recently published 2024 Sustainability Report. As always, I will caution you that today's discussion contains forward-looking statements and non-GAAP financial metrics, as described on Slides 2 and 3 of the earnings presentation. The appendix of the presentation also contains reconciliations that are further supplemented by this morning's 8-K filing. Rather than reading those statements, I will incorporate them by reference. And with that, I will turn the call over to Brad.

Thanks, Aaron, and thank you all for joining us this morning. LP Siding and OSB businesses built on a strong first quarter, executing our strategy and delivering continued growth, share gains and margin expansion in the second quarter of 2024. I will summarize a few of the highlights of the quarter, which are detailed on Page 5 of the presentation, and discuss the factors that contributed to these results before turning the call over to Alan for more detail on the business performance in the quarter, and an update on capital allocation. LP's net sales in the quarter reached $814 million, up 33% compared to prior year. Siding sales grew by 30% in the quarter, the result of 22% higher sales volume and 6% higher prices, both of which were helped by another record quarter for ExpertFinish. In OSB, higher prices and improved mix of Structural Solutions, value-added OSB contributed to strong revenue growth. At the same time, leverage from increased volume and operational efficiency improved margins. As a result, LP more than doubled adjusted EBITDA, operating cash flow and adjusted earnings per share compared to the second quarter of 2023. With the capacity expansion projects for the past 2 years now complete and the new facilities fully operational, CapEx was a comparatively light $36 million in the quarter. This led to greater proportion of LP's operating cash flow available to return to shareholders. Therefore, consistent with our capital allocation strategy, $120 million were spent on dividends and share repurchases through the quarter. Share repurchases have continued since quarter end, as Alan will detail in a moment. On the lower left of Page 5, you will see some other highlights. First and most importantly, our business has operated safely. LP wins more than our fair share of industry safety awards. In fact, we were just named the safest company in our category by the APA, Engineered Wood Association, but the best reward is sending everyone home safely every day. I want to thank our operations team for achieving an outstanding total incident rate in the second quarter of 0.6. Siding and OSB, they both delivered impressive operating efficiency in the quarter, which we measure with OEE. The Siding business held OEE flat at 77% despite the complexity of ramping up the most recent Sliding conversion in Sagola, Michigan, and our greenfield prefinished facility in Bath, New York. The OSB business increased OEE by 3 points compared to last year. This high level of operating efficiency was a major contributor to the business' cost performance in the quarter. Finally, LP published our 2024 Sustainability Report in July. As detailed in the report, SmartSide is significantly more sustainable than competing siding technologies, and most of LP's products are carbon negative. I want to thank everyone at LP who contributed to the report into the impressive story it tells. On the left side of Page 6 in the presentation, you will see an updated chart showing normalized growth of Siding volume and revenue compared to U.S. housing starts. The 2024 data for Siding reflects the midpoint of our increased guidance for Siding growth while the housing data is based on [ backset ], consensus for housing starts in 2024, which is currently at $1.4 million. As you can see, Siding growth continues to exceed that at the underlying housing market, as LP gained share in residential construction. Repair and remodeling market is more difficult to track, but the general consensus is that R&R spending overall is down by mid-single digits compared to last year. For the record quarter for ExpertFinish, our prefinished siding design for the R&R market, LP Siding business also seems to be gaining share in the R&R segment. In 2024, we expect ExpertFinish to be close to 10% of total Siding volume, and given its higher price point at 10% of volume, ExpertFinish would account for roughly 14% of Siding revenue. ExpertFinish margins improved in the quarter as well, helping Siding to achieve a 25% EBITDA margin in the quarter. We believe we have a long runway for growth and share gains in the new construction, R&R and offsite segments of the Siding business and with both Prime and prefinished SmartSide. And we intend to continue developing new products, expanding our addressable markets and executing our sales and operation strategies to drive future growth. And with that, I will turn the call over to Alan for more detail on LP's financial performance in the quarter before taking your questions.

Thanks, Brad. As Brad said, it was a strong quarter, and as the waterfall charts on the next 2 pages of the presentation show, it was also a refreshingly straightforward one in terms of year-over-year comparisons. Page 8 shows the performance of Siding compared to the second quarter of 2023. With last year's capacity addition projects and channel inventory destocking both now behind us, the waterfall tells a story of volume growth, price increases and some much anticipated operating leverage. Sales volumes grew by 22%, boosted by share gains in new residential construction and repair and remodel. And a record quarter in ExpertFinish, all admittedly riding on a relatively soft comparable. But this higher sales volume generated $71 million in additional revenue and $28 million of EBITDA at an incremental EBITDA margin of almost 40% before considering the impact of price increases. Speaking of which, list price increases and favorable mix combined roughly equally towards 6% in higher prices worth $24 million. Increases in selling and marketing investments were almost fully funded by the nonrecurrence of last year's mill conversions resulting in a net $2 million of investment costs, while lower logs and resin prices supplied a useful $5 million tailwind. Finally, as a result of ramping up the more automated prefinishing facility in Bath, New York, and investments in similarly advanced equipment in our Green Bay prefinishing facility, there has been, as Brad said, a significant improvement in ExpertFinish margins over last year. Now ExpertFinish margins are not yet equivalent to the business average, but they're getting closer and closer. Incidentally, this improvement shows up in other costs on the waterfall because our methodology is to value changes in volume at the prior year margin. The net result of all this is $415 million in revenue, up $95 million with a near doubling of EBITDA to $105 million. And naturally, this pushed Siding's EBITDA margin up by 7 points to 25%. The waterfall on Page 9 also tells a simple and effective story of consistent execution by the OSB team. Prices were 34% higher than last year, adding $73 million in both sales and EBITDA. Unlike Siding, OSB prices are largely outside our control or what the OSB team can control, however, is volume, mix and operating efficiency. And like Siding, the OSB team delivered an exceptional quarter on all of these fronts. Sales volumes in the quarter were 100 million square feet higher than last year, made possible in part by an impressive 3 percentage point increase in operating efficiency. 52% volume in the quarter was higher value-added Structural Solutions. This incremental volume generated an additional $40 million in net sales and $23 million in EBITDA. OSB ended the quarter with $351 million of sales and $125 million in EBITDA. And as Brad mentioned earlier, they did so safely. Clean quarters of sales growth and operational excellence in both Siding and OSB make for a similarly straightforward cash flow as Slide 10 shows. After starting the quarter with $244 million in cash, LP [Technical Difficulty] $229 million in EBITDA, paid $59 million in taxes and saw a seasonally normal reduction in working capital that brought in a further $39 million. With the resulting $212 million in operating cash flow, we executed our capital allocation strategy as we have consistently done, investing $36 million in CapEx and returning $120 million to shareholders. During the quarter, we paid $102 million to repurchase 1.2 million shares at an average price of a little over $84 per share. The $17 million in other investing and financing is mostly the sale of LP's 50% ownership of a joint venture, a remnant of our investment in Entekra. And for avoidance of doubt, this gain was excluded from adjusted EBITDA, as you can see in the reconciliation in the appendix. And LP ended the second quarter with $317 million in cash. As of yesterday, the 6th of August, LP has paid a further $64 million for share repurchases, bringing our outstanding shares to about 70.3 million and a remaining board authorization as of yesterday of $270 million. Which brings me to guidance on Slide 11. I'd like to briefly remind you that when we updated our guidance on our first quarter earnings call, we increased the full year guidance for Siding by the sum of the first quarter beat and the increase in the second quarter outlook. At that time, we had insufficient visibility to adjust guidance for the second half. But 90 days, hence, with a Siding order file that continues to be robust, we can now offer updated outlook through the year-end. As Brad said earlier, demand for SmartSide continues to outperform a moderately weak repair and remodel market. But based on new volume records for both prime and the prefinished SmartSide in the second quarter, we now expect year-over-year revenue growth in the third quarter of between 16% and 18% for revenue between $390 million and $410 million, an EBITDA margin of about 25% would yield siding EBITDA in the third quarter of between $95 million and $105 million. We continue to see typical seasonal patterns in demand, which usually means that the fourth quarter delivers weaker sales volumes as the building season winds down. If the third quarter turns out as we expect and typical seasonal demand patterns emerge, the resulting full year revenue growth for Siding in 2024 would be between 14% and 16% to a bit above $1.5 billion. Increased volume should boost the EBITDA margin up a point or so from our prior guidance to about 24%, yielding full year EBITDA for Siding between $355 million and $375 million. In summary, this is a beaten raise for Siding with a third quarter that so far looks very much like the second. OSB is a different story. Prices fell significantly at the end of the second quarter, the bulk of that will be felt in LP's third quarter due to the time lag in our order file. And assuming prices remain flat at last Friday's levels published by Random Lengths, the OSB business would earn somewhere between $10 million and $20 million in EBITDA in the third quarter. As always, this is not a price prediction, just an attempt to offer useful modeling. For the fourth quarter and full year OSB outlook and to reflect the reality that OSB demand and prices really increased meaningfully in the fourth quarter, we will extend the flat from Friday prior approach through year-end. Therefore, holding prices flat at current levels and assuming seasonally lower OSB volumes would imply EBITDA for the fourth quarter of about $10 million below that of the third quarter. So assuming the year plays out, as I've just described, and as usual, treating LPSA earnings and corporate expenses as mutually offsetting, total EBITDA for LP in the third quarter would be in the $105 million to $125 million range and full year EBITDA would be between $580 million and $620 million. And with that, we'll be happy to take your questions.

[Operator Instructions] Our first question will be coming from Steven Ramsey of Thompson Research Group.

Maybe to start with the Q2 Siding EBITDA margin just slightly above the first quarter despite much higher sales. Maybe talk to the puts and takes, I'm sure some of that is the ExpertFinish growth, which I know is an incremental drag that volume is growing better than the core SmartSide product. But just overall, the puts and takes on the Q1 to Q2 Siding EBITDA margin?

Sure. There's not a great deal to add. You captured one of the factors. The ExpertFinish margin is significantly improving, but [ it'll be ] average. We have, in some instances, added shifts to help make sure we keep health -- lead times healthy. And the mix changes slightly in terms of the top line in terms of pricing and that obviously affects the margin a little bit. But other than that, there's nothing really of any great significance other than, as you said, ExpertFinish growing slightly at addition of labor and changes in top line mix.

Okay. That's helpful. And then also thinking on Siding the BuilderSeries rollout. Just curious on general updates on how that is going with the current partnership with Lennar and how you're thinking about potential partnerships with other large builders, how that could play out over the second half and into next year?

Very pleased with the growth [Technical Difficulty], product line, particularly incremental coming in from Lennar, but we do have initiatives with certain of national and large regional [Technical Difficulty] to secure additional volume there [Technical Difficulty] BuilderSeries volume that directly [Technical Difficulty] the competitive with a big builder. We are seeing really good [Technical Difficulty] product pick up in those regions as well [Technical Difficulty] SKUs [Technical Difficulty] along as a result of the BuilderSeries lap product being -- allowing us to secure a position with the builders. So the growth -- a lot of the growth that we're seeing currently on Siding can be attributed directly to the big builder initiative that we have. And we expect -- and the second part of your question, we expect continued success there as we move through the rest of this year into next year.

And our next question will be coming from Kurt Yinger of D.A. Davidson.

Brad, I just wanted to follow-up on the last comment around to strengthen the big builder business, is that primarily a BuilderSeries dynamic at this stage, just that product? Or are you seeing solid takeaway on prime product as well and kind of big builder as we think about it, should be sort of a collection of those products as opposed to just BuilderSeries?

Dead on, Kurt. The BuilderSeries lap certainly makes us competitive from -- or help to make us competitive from a Lap standpoint. But we're -- as we are successful converting builders with our Lap offering and BuilderSeries, we have -- generally speaking, the house has also trimmed. The soft that is ours, any panel or shake product which we use is an LP product. And we are seeing in the regions -- in the geographic regions where we are seeing success that is measurable directly [Technical Difficulty] so yes, we've got good growth on BuilderSeries. We've got good growth on all prime SKUs that go into new -- single-family new construction [Technical Difficulty] this year.

Okay. Makes sense. And then on the ExpertFinish front, I mean the answer seems kind of obvious, but I'll ask it anyways. I mean, does the performance and strength that you're seeing there, are you seeing any offset from lower volume to others, who might have been prefinishing the products themselves and selling them under a different brand name. And then on the margin front, how should we sort of ring fence the long-term vision in terms of what ExpertFinish to be? Is it reasonable to think that just given the price point, it could be higher than the company average over time? Or just given the operations and infrastructure around prefinishing operations is meeting the company average kind of where your heads that at this stage?

Yes. So the first part of that question is a good one around -- I think, Kurt, what you're asking are we cannibalizing historical -- historical partners that were prefinishing our product, our prime product and selling it. And I mean, certainly, some of that has happened as we've gone into this ExpertFinish initiative, but we still have a significant amount of lap siding going into other prefinishers for conversion. So I would say, certainly, as a whole or addition of ExpertFinish on portfolio has been overall additive to our lap sales. But certainly, there has been some cannibalization that that's the impact there, but certainly positive. On the margin side, look, from our -- if you recall, we used to have a CanExel product line in Eastern Canada at the time, one of the highest margin products in the entire LP portfolio. And I certainly believe that ExpertFinish can be above, at or should be an above product margin for us. It will be -- and we're getting there, as Alan reported, we're getting to be or it's quite a drag any longer. It will be -- it is one of those things, though, as we ramp into incremental volume at times, there will be inefficiencies associated with those that continued growth that may delay the ultimate achievement of higher-than-average margin for ExpertFinish, but our expectation is, ultimately, that's for [Technical Difficulty] it should be -- we should be getting paid more than normal margin amounts to paint the product given the quality of the end product as a result of our finishing.

And our next question will be coming from Mark Weintraub of Seaport Research Partners.

First, congrats, very strong quarter, good outlook. What question is -- obviously, we had this big destock in Siding last year. Do you think customers have just continued to hold inventories very low or do -- does some of the strength potentially represent some restock to, say, more normal levels? Or how would you have us think about that?

I would say that we discussed this internally a lot. And we feel like we are at normal inventory levels for this time of year and normal being prior to last year back in the days when things were normal, which Mark was kind of a long time ago given we were on allocation and COVID and all that. But we feel good about current inventory situations as far as our distributor partners. I mean, we are still in the building season, so products moving, and inventories are being maintained. But there has been no material build in inventory -- nor do I believe, is necessarily light. I just think it's where it needs to be right now to service the market conditions that we have in Siding.

Okay. And then good on ExpertFinish, great on the BuilderSeries. Any update on the Smooth SmartSide initiative?

Yes. I mean -- those products have been launched. It's a significant -- there was some of a -- I won't say significant, but a meaningful part of the Lennar program was -- availability is smooth. And then that is a key component to our East Coast prefinish -- our ExpertFinish strategy. And so we're pleased with that new product. We'll continue to innovate around that product and others that are needed especially in the repair and remodel SKU selection for the homeowner, but it's going well, and we're pleased with our -- with the sales of that product so far this year.

Super. And then just last kind of tie 2 together. One, so if I look at the full year guide for Siding, I know you said it's seasonally weaker, but I think the math is it goes from $100 million at the midpoint to like $70 million of EBITDA for 4Q, it seems pretty -- like a pretty steep drop off. So I was curious if there's anything else embedded there, maybe just a bit of conservatism? And then also just -- I know you made some OSB in the Siding operations in the first quarter. I'm guessing you did in the second quarter too, maybe a bit more color on what happened there and/or whether you're assuming now that OSB is weaker, whether there's OSB still being produced in Siding in the second half of the year?

Yes. Thanks, Mark. The actual is that the part of the answer that ties to the question you asked about was Smooth. We're ramping up production of Smooth in the fourth quarter given its success. And again, rather like ExpertFinish, it is currently an inefficient manufacturing process, given its infancy. So there is some nonmaterial capital investment plan next year to help us automate that process more efficiently. So part of the drag is that. Another aspect is that we did, as I said in answer to an earlier question, the labor to the Siding network in Q2, which will be maintained through Q3 and through Q4 with Q4 being a slightly lighter -- most likely a lighter revenue quarter that it was going to be diverted to some essential maintenance, including a month down at one of our mills to replace its furnace. I was chatting to one of the engineers about this -- as a perfect phrase, he said, we don't have to do this now. But in 2025, we'll wish we did if we don't. And therefore, that's what they do -- that's what we're doing. Thirdly, yes, there was some OSB production in Siding in Q1 a lot, less in Q2, less in Q3, and at that level has been roughly where it is in Q4. But that's not -- that's $1 million or so, but I know means the lion share of the change in EBITDA. It's mostly the maintenance and [Technical Difficulty] costs. And as you gave me the out, so I'll take it, and yes, of course, we try to give our target and we're confident we can be sort of a bit of conservatism expect in there as always.

Our next question will be coming from Mike Roxland of Truist Securities.

Congrats on a good quarter despite the backdrop. First question I had was just in terms of the selling and marketing expenses, you mentioned adding -- increasing headcount, adding additional selling and marketing expenses. I'm just wondering how much you incurred in the quarter and where that -- what's left to spend in the balance of the year?

[ Oh gosh ], well, we added about $5 million of selling and marketing costs year-over-year in Q2. How much is left to spend? It depends on the opportunities; I would like to see us continue investing relatively heavy rates. So I think you should expect to see similar type year-over-year variances for the remainder of the year, and that fundamentally baked into the focus.

And at that point out, do you think that you're fully staffed to correlate to meet the Siding demand that's out there? Or is this something that's going to be ongoing, particularly as you continue to grow your innovation, your pipeline and the like?

Yes. No, you should expect the absolute number to continue to grow. This market share strategy that we have requires contractor builder conversions, which requires human interaction. And so we're going to support our sales team appropriately, both on the sales front and the technical group behind -- that provides a structure on installation. And then also as we continue to grow ExpertFinish would mean higher market share and higher -- and aspirations for even higher market share in repair and remodel, that does require marketing support. Those are -- that's an in-home sale initiative, straight interaction with the consumer, and so as R&R becomes a bigger part of our mix, that segment requires a bigger investment in marketing. And so we should expect absolute growth in our sales and marketing expense, but hopefully find leverage when -- if you ratio that against revenue. I mean there obviously, there should be a good bit of leverage there, but we're not done investing in sales and marketing. We're not don't -- so those 2 things go hand in hand.

Got it. And then just one quick one on OSB. Could you share where your OSB operating rate stood in 2Q, where it stands currently, where is the -- where do you think the industry stands -- and really, any sense that curtailments could be forthcoming as prices continue to be under pressure here?

The operating rate in Q2 of this year was around about 86%, I believe. We're forecasting to be slightly lower in Q3.

And look, we will run our OSB business to match our customers' demand and do everything within our power for inventories to stay actually in OSB, I would call it slightly lean right now. And so we will match our capacity going into Q4 and beyond to the customer demand.

And our next question will be coming from Sean Steuart of TD Cowen.

A couple of questions. With respect to the Siding business, given the positive momentum and positive revision guidance or guidance revision rather for that segment, Brad, can you give us a sense of what you would need to see either in terms of margins at the segments or with respect to order file pull to make the decision on the next capacity expansion for that segment?

Yes, Sean, we're -- we are beginning to talk about that more robustly than we were 6 months ago. And so the -- certainly, we want to be in a situation to stay ahead of demand. This year as our reporting has been a really good year as far as growth, and we expect to continue to build on that next year. So we are actively back into the scenario planning around the next incremental capacity as we learn about which SKUs are growing, that conforms the configuration of the next expansion. And that puts into play not only Wawa, but some of our existing facilities where an additional press line may be the best way to get the next incremental capacity. So we're actively in the planning stage there, not spending any significant or meaningful CapEx yet as part of that. But this year's growth has put that back on the planning horizon for us. And we're -- as we look into next year, which we're not obviously at all haven't done the budget yet or certainly not giving guidance to, but we could see us beginning to do engineering for the next expansion sometime next year.

Appreciating [ you don't ] give 2025 guidance. But with the current footprint, can you give us a sense of how much incremental volume in Siding you expect to be able to produce and ship with the current footprint beyond what's implied in 2024 guidance?

I would say because we are not fully shipped at all the facilities because of the pullback last year. So I would say we could -- from where we are today at capacity around ship additions that would give us another 200 million to 300 million feet of capacity. So we've got a good bit of head room given the fact that we just converted Houlton and Sagola, Sagola being a big facility as well. So it's not like we're at all on edge, but we do want to stay ahead of it, Sean, as you know, to try to not go back into a managed order file situation like we were in 2 years ago.

And our next question will be coming from Matthew McKellar of RBC Capital Markets.

First, I'd like to ask if you have an updated view on how high Siding margins can go before the next capacity addition. And I think -- you previously talked about 25%. You've been there for a couple of quarters. You're guiding to the same range. ExpertFinish margins seem to be improving pretty rapidly. So just any updates on that front would be helpful.

Yes, it's a great question. Well that I'm reluctant to answer. So as you know, we try to give ourselves more than enough room to operate what we describe as this rising sign wave. And at this point in time, particularly given the introduction of Brushed Smooth, which I said, is going very well, but at this point, it's relatively inefficient. We're making great gains in ExpertFinish. I think we are -- with increasing certainty capable of it in this 25% mark with this excess capacity that we're carrying. So yes, the trend is upwards, Matt, but I'm not going to commit on where that upside is. I think that we need to see how the next few capacity additions play out and the timing of those. So [Technical Difficulty] yes, probably best that I thought I've said any more on that.

Okay. Fair enough. And then just one last cleanup for me. I was wondering if you have any color you could give around expected impact of exciting production levels and margins as a result of the new forestry plant under development in the Swan Valley, Manitoba area?

Yes. Good question. That's something we are actively working [Technical Difficulty] say from a siding margin or a matter of [Technical Difficulty] costs associated with those management plans, but it's really not material to the [Technical Difficulty] we talked about on this call [Technical Difficulty] of normal as far as some -- or the impact that [Technical Difficulty].

Our next question will be coming from Jeff Stevenson of Loop Capital.

Congrats on the nice quarter. I was wondering if you could talk about whether there was any variance in Siding demand trends in the home center channel compared with your overall Siding results. And then also how we should think about your expanded partnership with Home Depot regarding your Trim product as far as an impact on channel demand moving forward?

Yes. So we did see meaningful growth -- year-over-year growth in our retail business and expect that momentum to continue in Q3. Some of that has been -- strengthened panel that has been historic SKU there. But as you have mentioned, the Trim placement in the -- and particularly in the Home Depot has been all incremental volume for us. And that has been a meaningful part of the growth that we saw in Q2 and expect to see in Q3. So we're continuing to grow with the home center, particularly Home Depot by being a good partner as far as that SKUs there, particularly around Trim, some lap and certain places. And that has gotten us in a position where we have the ability to grow with the Home Depot beyond just the traditional panel play has been historic basis of the relationship. And I guess you were asking a little bit we're seeing cannibalization as a result of that and the answer is not a meaning -- not seeing [Technical Difficulty] the trim order file is so strong, right now across the board that I don't think there has been any significant loss of -- [Technical Difficulty] that's a strong DIY, still a strong DIY or ultra small [ counter ] customer base there, so small in scale. So it's given us the ability to have a product presented to a customer base, if we probably didn't have access to the product -- as it was [Technical Difficulty] and lumber yards.

Right. And then you mentioned that price mix was roughly an equal contributor to the 6% growth in the second quarter. Would you expect a similar contribution from price and mix as we move through the back half of the year would one be more than the other?

We kind of -- it's hard to predict the mix aspect, the 3% net from list price increases. Yes, that's relatively safe. The mix is a little more variable depending on the mix of products. So I think it will be our friend, whether it's as much as 3 points is -- is so demand specific that it's hard to predict with any great precision. They'll become it will be positive.

Our next question will be coming from the line of George Staphos of Bank of America Securities.

You mentioned the progress that you're seeing an expert and the processing with BuilderSeries, would it be possible for you to give us some additional color and perhaps you already did, but -- and I missed it. In terms of the guidance raise, how much of that was from the progress that you're seeing in single-family and your progress there and also then within repair model. Similarly, you talked about the share gains. Is there a way to give us some order dimension. It sounds like you're doing very well with expert. How much of that is coming again from single-family from builder versus repair and remodel and that distribution channel? And then questions that we've received today from investors. Is it possible at all recognizing it's an open mic conference call to talk about where you think you're getting your share relative to other products that are in the market? Is it more coming from vinyl? Is it more coming from fiber cement, anything that you would have us take away from that?

Okay. So let's speak to the where is the growth coming from question first. And I would say when you look at the long growth we got, I would put about -- I mean, in general terms, George, about half of that growth in [Technical Difficulty] and EBIT [Technical Difficulty]...

Brad, your phone is cutting out on our side. I don't know if you...

[Technical Difficulty] speaker and see if that helps. Let me know if it doesn't. So the...

Much better.

So the -- if you take the growth that we reported, about half of that I would attribute to single-family new construction -- let me just back up. There's a little growth in there at shed and retail, okay? So -- but the meaningful growth is about half and half between single-family new construction, and I would say about half of that is driven by the initiatives around the big builder focus that we have. And then the other [Technical Difficulty] that would be repair and remodel, which is just [Technical Difficulty] converting contractors and getting Siding installed on homes. That's just -- that's a [Technical Difficulty] initiative there. So -- but certainly, we would not have had as good a quarter before casting as good as Q3 if it wasn't for the success we're seeing in single-family new construction or repair and remodel. The shed in retail has just been a nice little bump to have year-over-year. Where is it coming from? I would say it's coming from across the board. There is still opportunities particularly in repair and remodel, but certainly also in new construction as we compete against vinyl. And I would think most of the success in repair and remodel is probably against vinyl. On the single-family new construction side, then you get into some competitive hard Siding as well as vinyl as the competition. And so as we gained share there, it's coming from some line if it's not coming from growth with an existing big builder customer. But obviously, what we would be replacing would be either vinyl or our competitive [ part ] size. There's still a lot of opportunity to go head-to-head against vinyl with our product being certainly an upgrade -- perceived upgrade to vinyl or being not perceived, actually a upgrade to vinyl. And so we have to be competitive there because that's where the big market share is. So there's a lot of focus on us making sure we have and can explain in a good way the value proposition against vinyl, but also against other hard Sidings.

Just closing the loop, and I think I know the answer, but if basically you're getting half of the progress from single-family and half from repair model, would that also be the equivalent driver of the guidance raise within Siding? And then separate and I'll turn it over. Can you remind us what's left to attack an OEE in terms of margin opportunity across the businesses, if trends are as you expect over the next year. And recognize there are no guarantees in life. What could that mean for your profit dollars, Alan, over the next year or 2 years?

Well, I'll answer the -- yes, on the revised Q3 [Technical Difficulty] is predicated on the strength we're seeing in the repair and remodel and single-family construction order [Technical Difficulty] and there is still upside on OEE, and I'll challenge Alan to articulate that.

Since we've quoted EBITDA numbers that relate to percentage point increases in OEE and we're looking to do so today. The way to think about OEE is that what it can fundamentally allow us to do is meet thresholds in terms of ships. And so it's obviously more efficient when we're managing our capacity up or down to be able to generate more OEE output without adding a shift and all, we're lowering up to be able to take out a whole shift. And OEE gives us that leverage. And as you can imagine, I have discussed it before, it's leverage that we don't sort of use in the Siding business because the idea with the Siding business is to try to maintain this sort of more consistent, stable and growing workforce as we grow volumes. But it's the opportunities it gives us to be -- to operate the system with increased flexibility, and we make brave decisions a little earlier in terms of taking out capacity when the field demand is not there to my mind, that's the real benefit of OEE. And of course, that manifested itself in terms of increased operating performance. But I'm going to refrain from reintroducing a pure EBITDA dollar, I guess, as a percentage of margin [Technical Difficulty].

George, I'll just add to that, what's been remarkable about our OEE journey to me is as we -- we're way ahead of where we thought we would be 5 years ago, but we still see opportunity for improvement as. And so it's kind of probably will be a never-ending journey of finding ways to be more efficient and more productive. And of course, CapEx helps that. It could actually increase the baseline. And then when we launch a new product like Brushed Smooth and Siding, there's all kind of OEE opportunity there because we would learn to make the product more efficiently. So -- we're on a never-ending continuous journey on OEE. And I feel like we'll be talking about that 10 years from now and still see plenty of opportunity. That's kind of the beauty of the industry and the way that our machines work at the facilities.

To some degree, it's the beauty of growth. But anyway, you guys will turn it over...

And our next question will be coming from the line of Susan Maklari of Goldman Sachs.

I wanted to start with digging a little bit more into the R&R side of things. Can you just give some perspective on what you're hearing around the consumer and sellout trends on the ground? And what level of sellout do you think the channel is positioned for in the back half given the inventories that they're carrying?

I think the channel is adequately stocked for the second half for any reasonable demand expectation on repair and remodel. So I have no concerns about ability to serve, and I don't have concerns about there being any kind of overstocking and repair and remodel. I mean one step distributors are experts managing inventory in that channel. Look, I think I do believe demand has dampened for Siding. Siding remodel is a big-ticket expense, many times financed, and so with interest rates where they are, with the economic uncertainty that's out there, there is, I think R&R spend for reside is constrained. So I'm really proud of the fact that we're seeing the growth that we are seeing because that has to mean that hypothesis is true that that's market share gain. But -- with interest rate reductions, if that happens, if we get through as Alan, Aaron [indiscernible] this morning a soft landing or quasi soft landing, the pent-up demand around potential Siding reside projects could be pretty significant. So I think we're in a really good position to have our product commercialized, building credibility around the offering, expanding geographically, our access to market through picking up some really high-quality distribution where we -- when we see repair and remodel, spend come back and financing loosened up a little bit, so that a homeowner can afford to do a big-ticket remodel on Siding, and we're going to be in a really good position. And that's why we're so encouraged about the future for our Siding business is repair and remodel just is -- we're so underpenetrated from a market share standpoint if we continue to be able to gain market share, while the market also gets stronger, that sets us up for some really good growth over the next several years.

Okay. That's very helpful. And then you did see a bit of a raw material tailwind this quarter. Can you talk about the outlook from that perspective? And how we should think about that flowing through over the next couple of quarters?

Yes. It may be a little -- it may not be quite as positive as it has been in Q2 for the remainder of the year, but we still expect a raw material tailwind...

Okay.

[Technical Difficulty]. So we're optimistic.

Okay. All right. Good luck with everything.

Thank you. That does conclude today's Q&A session. I would like to turn the call back over to Aaron for closing remarks. Please go ahead.

Okay. Thank you, operator. With one around [Technical Difficulty] question [Technical Difficulty] there and give everybody a couple of minutes back in today. Stay safe, and we look forward to connecting [Technical Difficulty]. Thank you very much.

Thank you, everyone, for joining today's conference call. You may disconnect.