Participants

Aaron Howald; IR Contact Officer; Louisiana-Pacific Corp

Brad Southern; Chief Executive Officer; Louisiana-Pacific Corp

Alan Haughie; Chief Financial Officer, Executive Vice President; Louisiana-Pacific Corp

Michael Roxland; Analyst; Truist Securities

Ketan Mamtora; Analyst; BMO Capital Markets

Sean Steuart; Analyst; TD Cowen

Steven Ramsey; Analyst; Thompson Research Group

Mark Weintraub; Analyst; Seaport Global Securities LLC

Matthew McKellar; Analyst; RBC Capital Markets

Kurt Yinger; Analyst; D.A. Davidson & Company

George Staphos; Analyst; Bank of America

Presentation

Operator

Good day, and thank you for standing by. Welcome to the Q4 2024 Louisiana-Pacific corporation earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Aaron Howald, Vice President of Investor Relations. Please go ahead.

Aaron Howald

Thank you, operator, and good morning, everyone.
Thank you for joining us to discuss LP's results for the fourth quarter of 2024 as well as our full year results and our outlook for Q1 and 2025. Hosting the call 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 a 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 8K filing, earnings press release and other materials are also available there.
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 also contains reconciliations that are further supplemented by this morning's 8-K filing. Rather than reading those materials, I will incorporate them by reference.
And with that, over to Brad.

Brad Southern

Thanks, Aaron, and thank you again for joining us today. Q4 was a strong finish to a record year for Siding that featured growth, share gains and margin expansion. In 2024, Siding set records for net sales and EBITDA overall as well as multiple records for export finish. In OSB, we saw slightly higher market prices than in 2023, but more importantly, the business executed our strategy effectively, grew structural solutions, increased operating efficiency and manage capacity with agility and discipline.
Page 5, of the presentation shows financial highlights for the fourth quarter and full year. In Q4, we saw the expected seasonal slowdown as winter weather brought the building season to a close. Compared to the prior year, Siding sales grew by 9% in the quarter. For LP as a whole, the net effect of Siding growth, a decline in OSB prices and an increase in OSB sales volumes resulted in $681 million in sales, $125 million in EBITDA and $105 million in operating cash flow.
After investing $61 million in sustaining maintenance and growth capital, LP returned $42 million to shareholders through dividends and share repurchases. For the full year, Siding sales grew by 17% to $1.56 billion. Thanks to Siding growth, slightly higher OSB prices the margin expansion driven by increased capacity utilization and operating efficiency, we achieved $2.9 billion in sales and $688 million in EBITDA. These represent increases of 14% and 44%, respectively. This nearly doubled earnings per share to $5.88.
LP (inaudible) to $605 million in operating cash flow to continue executing our capital allocation strategy by investing $183 million in CapEx and returning $286 million to shareholders via dividends and share repurchases. Most importantly, we accomplished this safely, ending the year with 0.67 total incident rate. This is considered a world-class TIR, but it's not good enough for LP. We will never stop working to improve our safety performance to ensure no one gets injured while working at LP.
As we look forward to 2025, the market is not radically different to what it was a year ago. On our call this time last year, we said that we expected 2024 to be a flat year for housing and a soft year for R&R, but we expected both businesses to outperform both markets. This is exactly what happened.
In 2024, total US. housing starts were down 4% for the year and 6% in the fourth quarter. LP is over-indexed to single-family housing, which fared better, especially in the first half of the year. Single-family starts were up 7% for the full year, but down 5% in the fourth quarter. It's hard to be precise about the repair and remodeling market, but we estimate that total US. R&R expenditures were down low to mid-single digits.
Against this backdrop, Siding revenue grew by 9% in Q4 and 17% for the full year. We saw the resumption of normal seasonal demand patterns in Siding as well as broad-based growth in all product categories and in all geographies we serve. This growth is driven by new product innovation, our demand creation efforts superior product offerings and by our amazing teams that make it all happen.
Volume growth enabled margin expansion for Siding as we more duly utilized our new capacity at LP's Houlton, Sagola and Bath facilities. As a result of this growth, Siding achieved our long-term EBITDA margin target of 25% for the full year despite a soft market. In OSB, despite housing starts below long-term average demand, the business achieved EBITDA above our long-term cycle average, thanks to efficient cost control and disciplined capacity management.
The consensus expectation for housing starts in 2025 is looking like another flat year with perhaps a modest remound in R&R spending. Accordingly, in OSB, LP is planning for another year of operational excellence cost control and strategic execution. In Siding the focus is on share gains and volume growth. We are seeing encouraging evidence of that growth so far in 2025 with a healthy Siding order file that we will detail in our guidance discussion.
Accordingly, we are increasing our investments in new product innovation, demand creation and capacity expansion to meet our customers needs. 2024 was a relatively light year for capital investments. The recent conversions of our Sagola and Houlton mills and the opening of our pre-finishing facility in Bath gave us room to grow in Siding. If demand continues to increase, we want to ensure that we do not outgrow our Siding capacity.
That means that 2025 and 2026 will see significantly increased investments in capacity expansion starting later this year. The next projects will include a second manufacturing line at LP Houlton, starting the next Siding expansion project after that and increasing capacity at our existing export finished pre-finishing facilities with a significant portion of this work happening in parallel.
At our historic volume growth rate of about 7% per year and our much higher growth rate for export finish prefinished Siding, these projects should be completed in time to keep Siding capacity utilization with inefficient balance. We would much rather be a little early than late with new capacity, and so we are starting now to preserve our ability to grow rather than risking an extended period of allocation like we saw during COVID.
As Alan will detail in a few minutes, we expect the Siding business to generate over $400 million in EBITDA this year, reinforcing our confidence that Siding can comfortably fund its own growth. The LP team is fully committed to executing our growth strategy, and I'm confident that we will continue to innovate new products, gain market share, operate safely and increase the scale and efficiency of our manufacturing network. With that, I will turn the call over to Alan to detail these investments, the financial results and our 2025 outlook, after which, we will take your questions.

Alan Haughie

Thanks, Brad.
As Brad said, the fourth quarter brought the year to a strong finish. And as I'll explore in a few minutes, the first quarter of 2025 also seems to be shaping up well.
Page 7, shows the fourth quarter waterfall for Siding. 2024 largely exhibited normal seasonal demand patterns with a sequential drop in volumes in the fourth quarter as building activity faded. Single-family starts were down not just seasonally, but also by 5 points year-over-year. Despite this, Siding volumes grew by 3%, beating single-family starts by 8 points.
Higher selling prices added another 6 points of revenue growth, with roughly half coming from list price increases [the half] from mix. And we largely reinvested these earnings in selling and marketing and in meal staffing, with the expectation that 2025 demand will require higher production.
For the full year on Page 8, Siding revenue grew by 17 points outgrowing the underlying markets, as Brad said. This growth added $230 million in revenue, $79 million of it from prices and $151 million from volume and it added $143 million in EBITDA, being the flow-through of $79 million in price with $64 million coming from volume.
Increased investments in demand creation and mill staffing, partially offset by a $60 million benefit from raw material price deflation for 2024 to a close with a 25% EBITDA margin, 500 basis points higher than last year, 2023. We sold just over 1.7 billion square feet of siting in 2024, which is about 75% of our nameplate capacity. So we have a healthy runway of capacity to grow into while we execute new expansion projects.
For OSB, on Page 9, the lower prices in the fourth quarter cost the segment about $18 million in both revenue and EBITDA. However, by effectively managing what we can control, the business recovered most of the revenue impact and half of the EBITDA impact of these lower prices through the combined effects of higher volumes, improved OEE and efficient raw material utilization.
Page 10, shows the full year for OSB. On average, prices were slightly higher year-over-year, but the $35 million pricing benefit was overshadowed somewhat by the $106 million in revenue and $55 million in EBITDA from higher commodity and structural solutions volumes, helped, of course, by a 3 percentage point improvement in OEE which, in essence, means that when we ran, we had so more efficiently.
Raw material deflation, labor inflation and a hodgepodge of other small items left the year at just under $1.2 billion in net sales and $298 million in EBITDA. So the fourth quarter was a bit below our declared cycle average quarterly EBITDA of $60 million for the year ended well above that level.
Page 11, shows cash flows for the quarter and full year. Both are pretty straightforward with EBITDA translating cleanly to operating cash flow, helped by a slight decrease in working capital and a normal cash tax rate. We invested to maintain and expand our manufacturing capabilities and returned most of the excess to shareholders, paying $74 million in dividends and $212 million in the year to repurchase shares at a volume-weighted average price below $90.
LP ended 2024 with $340 million in cash, zero net debt and almost $900 million in total liquidity. As of February 14, LP has paid an additional $51 million to repurchase roughly 0.5 million more shares. And this leaves 69.7 million shares outstanding and $187 million remaining under the pre-existing share repurchase authorization.
Now LP's guidance for the first quarter and full year of 2025 is on Page 12. For Siding, the order file continues to be healthy and to be clear, consistent with the typical seasonal rebound early in the year. Now while there was minimal price lag in January, price realization now fully reflects the annual list price increases.
Accordingly, we expect sales growth in the first quarter between 9% and 11% for revenue in the $390 million to $400 million range. EBITDA should land between $95 million and $105 million for an EBITDA margin of about 25%. For the full year, although we currently expect flat housing starts, we nonetheless anticipate revenue growth of 7 points to 9 points bringing revenue to between $1.65 billion and $1.7 billion.
EBITDA should be between $450 million and $425 million for an EBITDA margin, again, of around 25%. And for OSB, assuming random length prices are flat to last Friday's published levels, we would expect first quarter EBITDA to land between $35 million and $45 million. And for future quarters, we offer no estimate of OSB prices and merely revert to cycle average as a reasonable approach to modeling the longer-term EBITDA potential of the OSB business.
I should note that while we're using the same algorithm to estimate cycle average EBITDA, the inclusion of 2024 data does increase net cycle average EBITDA slightly from $60 to $65 per 1,000 square feet, which is reflected in the outlook for the second through the fourth quarters. And finally, for the avoidance of doubt, we have insufficient clarity about them to incorporate any tariff impacts in our guidance. The first quarter and full year guidance, therefore, assumes the current state continues.
Now if Siding growth proceeds on this trajectory, we will need new press capacity sometime in the next 2 to 3 years, and we'll need additional prefinishing capacity somewhat sooner. The chart on Page 13, shows the schedule of capacity additions that will be necessary to meet demand under these scenarios. As a result, 2025 will be a year of significant investment.
We expect to spend about $200 million in growth capital largely in the second half of 2025 and 2026 will also most likely be a year of heavy investment with two expansion projects in parallel, as Brad mentioned. We'll have more specifics on timing, total project costs and expected returns in coming quarters. Sustaining maintenance is also increasing in 2025 with some green end modernization projects in OSB designed to improve efficiency yield and most importantly, safety.
So in conclusion, 2024 was a strong year. We executed our growth strategies, and that execution generated over $600 million in operating cash flow, which we invested to maintain and enhance our manufacturing capabilities, generate more demand for our products and to develop and reward our people. And we return the rest to shareholders consistent with our capital allocation strategy.
We believe we have a strategy that works, a record of solid execution and a robust balance sheet, all of which gives us confidence that we're very well positioned to make the most of what the housing and repair and remodel markets have to offer and to invest further in more product innovation, growth, capacity expansion and shareholder returns.
And with that, I'll open the call for Q&A. Operator?

Question and Answer Session

Operator

(Operator Instruction)
Michael Roxland, Truist Securities.

Michael Roxland

Yeah, thank you, Brad, Allan, and Aaron for taking my questions. Congrats on a strong finish to the year. I'm wondering if you could comment, obviously, Siding demand is, as you've noted, continuing to be strong. Could you comment on the [Lennar] pull-through and help us think about the cadence of that growth this year?

Brad Southern

Yeah. So I would say we have ramped into like full contract execution with [Lennar]. There was a ramp-up period after the deal was signed. We didn't get all the homes immediately, obviously. So we're running at full scale with them. We're in the second year that agreement. And I would say it's at or exceeded at or have exceeded our expectations as far as volume pull-through.

Michael Roxland

Yeah, right, would you say this -- I mean or exceeded, would you say it's more of the latter than the (inaudible) that it's performed?

Brad Southern

Yeah, it's performed as expected. Yes, sorry for any confusion. I mean we are contracted for a certain amount of homes and we've gotten those homes. And I mean, a little extra here and there, but materially, it's with within the bounds of the agreement.

Michael Roxland

Got it. Okay. And just second question, just given the weakness or what (inaudible) weakness in commodity OSB, have you shifted any more of the production to structural solutions, which should be -- which are more margin-accretive? And are you [handicapped] any way for making a large shift to structure solutions from commodity OSB, particularly as you look to build out builder series given tie-ins sell opportunities?

Brad Southern

Yeah. We do have to invest to continue to grow Structural Solutions from a manufacturing standpoint. Those investments tend to be small relative to sided conversion and fairly quick to execute. So there are times that we run into constraints around product availability and structural solutions, but that's very rare.
So yes, you're right. As commodity pricing flattens out or is below trend lines, and we really enjoy that incremental margin we get from structural solutions and our strategy is to continue to sell -- have a strategy to pull those SKUs through distribution and capture that margin. It's been a key part of our strategy. I'm proud of where we were for 2024, and we have plans to grow on that in 2025.

Operator

Ketan Mamtora, BMO Capital Markets.

Ketan Mamtora

Good morning and thanks for taking my question. Perhaps to start with on Siding. Can you talk about sort of the EBITDA and the margin level in Siding for 2025? Clearly, the export finished business is growing quite nicely. We know that is the higher price point products should be margin enhancing. Can you talk about a couple of offsetting factors that may be keeping margins at the same level? Is it SG&A? Is it anything else?

Alan Haughie

Yeah. Thanks, Ketan, for the question. I'm sure that's a bit of a burning question. I do want to say -- so I'm going to be sort of trying to be a little thoughtful and careful in my response. This is the first time that we've guided to a 25% EBITDA margin for the Siding business. So I do want to sort of answer the question in reverse.
The volume leverage and the price flow-through that you're used to seeing on our waterfalls that you see in the Q4 and the 2024 full year waterfall, they're expected to continue. Let's say, the pure volume conversion of revenue to EBITDA at about 40% and of course, price flows through 100%. So we get that kind of blended volume and price flow-through of about 65%.
But -- so thank you for the question, but we're not harvesting. It's way too early in LP's growth trajectory for us to even consider that. So the costs that are included in this full year guide there's about $20 million of inflation. Now one-third of that is labor, so that's certain. The remainder is, let's call it, raw materials, and I will admit that's largely speculative.
There is about $10 million to $15 million closer to the high end of additional selling and marketing expense. And so yes, in order to generate future business as well as help secure this year's growth, we are continuing to invest in adding, selling and marketing dollars. And I've said it before on sort of broad public calls and individual discussions, we encourage this.
We encourage discretionary selling and marketing investments in order to generate future growth. I will say that the push into repair and remodel does require, let's call it, a higher level of marketing dollars per foot of business gain. Then again, further on the discretionary side, there's roughly $5 million of, let's call it, engineering costs and staffing associated with the capacity expansions and some additional mill. Staffing are very much in the hope that the market or the market share gains give us further growth on top of the amount that we've guided to.
So we are certainly, as always, building in the necessary discretionary spending that would overachieve. And there's about a 1.5- to 2-point margin impact from all of that stuff that I just described. What's not included that we have not assumed any material price mix favorability. It's too early to know whether or not and how expert finish will progress in the year. We're obviously optimistic, but it always feels a bit reckless to just basically take that as a given.
Given the fact that 2025 as the housing market is going to be challenging. It's a flat market in housing and probably down in R&R. So this is definitely a market share gain year and we can't always predict where and quite how when those market share gains will occur. So that's the answer.

Ketan Mamtora

Thanks, Alan. That's very helpful and very detailed. So I appreciate it. And then switching to kind of Siding capacity expansion on Houlton Line two, can you share with us at this point kind of what type of capacity expansion you are you are planning? And what kind of total investments will be on Line two?

Aaron Howald

Yeah, Ketan, that will add about 300 million feet of volume. The Houlton expansion would be adding a parallel manufacturing line to the existing mill, so adding a forming line in a press. I don't think we've gotten into the details precisely of how expensive that's going to be. But the returns are consistent with previous expansion projects that we've had. So as we get closer to that and have more specifics about timing and things like that, we'll be able to share that.

Brad Southern

And Ketan, I would just say from a manufacturing standpoint, we'd be focusing that line on lap and trim capacity versus panel.

Operator

Susan Maklari, Goldman Sachs.

Thank you. Good morning. This is [Charles Perron] in for Susan today.

Alan Haughie

Your voice has gone down a couple of octaves, Susan.

Yeah, no. Maybe first, I want to ask about the Siding guide and the implication for the volume outperformance versus the market, where do you see the biggest opportunity for growth and outperformance across new construction, R&R and maybe shed as we look into 2025?

Brad Southern

Yeah. Good question. We are really expecting volume growth across all product offerings this year. There is -- when we compare to 2024, there probably is some recovery volume or percentage in shed. Shed was rather weak, especially first half of last year. So fortunately, that's back to normal. It's not a little strong right now.
So that to be -- if any one sector is kind of leading the good growth that shed at the moment, but we're expecting above margin growth across all sectors, retail, the builder new construction as well as repair and remodel. And we're also looking at it across all geographies. So we've got a really -- there to a good start and the visibility we have into order files to strength -- really strength everywhere.

Got you. That's good color. And maybe can we talk about also the raw material and freight expectation for '25. I think on Siding, you alluded for $20 million inflation. What does it imply for price cost? And how would potential tariff impact your setting cost structure as we think about the year ahead?

Alan Haughie

Well, I'll take the easy one first, and that will avoid the second one. The $20 million I referenced does include about $8 million or so of labor inflation. So that's as it was certain. That's already been given and gifted as it well. And the rest is raw material. And there will be -- we think we'll see increases in paper (inaudible) overbid costs, mostly offset by reductions in MDI costs. So there is some potential for raw material inflation. But I will admit that piece is broadly speculative. (inaudible) to anything in particular.

Brad Southern

Most of our major raw material other than wood are indexed to various derivative products that go into it. So we have to do some kind of forecasting around benzene cost, oil cost to do these analysis. So that's the analysis that we did that drove the assumptions around the price increases for raw materials other than wood. And there's no assumptions in nothing that we've talked about as far as the cost assumes any tariffs replaced on raw material flows.

Operator

Sean Steuart, TD Cowen.

Sean Steuart

Thanks, good morning everyone. A couple of questions. I want to revisit tariff exposure. Can you give us a sense of your approach in engaging with customers on OSB and Siding if and when tariffs materialize, is the intention to try and pass it on and complete to fully offset the tariff in terms of pricing. And Brad, I'm just wondering if you can speak to, I guess, your perspective on demand elasticity intention in the market, the ability to pass those tariffs on and how much of a supply response might be needed for both OSB and Siding?

Brad Southern

Well, for OSB, it's a traded commodity. So there's not a direct way to pass cost into the customer in OSB other than through -- at the trading floor. And that will be -- I mean, you know how that works. So there's -- the price of OSB will be the price of OSB in the cost structure -- cost structure change to the industry that's due to tariffs will reset the cost curve and price will be where price will be.
It's hard to know what the impact will be on Siding with the information that we have today. As you know, we do have two Siding mills in. In Canada, we have the ability to move volume around in our network. And there are some things we can do on supply chain to optimize the supply chain if tariffs were to change the dynamics there.
And so we would -- we certainly have done scenario planning around what we would do and how we would go about doing it. But we haven't gotten to a situation yet where we've really put a number on it because of the lack of clarity. And we've had minimal -- I mean, obviously, because we're aware that the industry would be significantly impacted across the board, particularly Canadian tariffs. But we haven't gotten into any level of discussion around how that would get manifested from a Siding perspective.

Sean Steuart

Okay, thanks for that, Brad. And I wanted to revisit the 2025 Siding sales growth targets that you provided, the 7% to 9% sales growth. And maybe I'm paraphrasing, you tell me if I'm right, and if there's any nuance to it, but 7% to 9% reflects market share gains and still a very difficult housing environment. In a more normalized scenario where we potentially get a bit of an uplift in housing, is 10% annual sales growth at a feasible number for you guys and when you're thinking about longer-term growth whether it's Houlton two or expansion beyond that, is that the premise of the longer-term sales growth potential for that segment?

Brad Southern

Sean, I would -- so certainly, single-family housing recovery, along with broader which -- I mean, to get a little more detail, which would probably drive increased R&R spend, if we got existing home sales as a part of that. Well, let me back up even more. If interest -- if mortgage rates were lower and the housing market took off across the board, we would see increases in the family construction.
We would see increases in R&R spend, and that would provide a really nice tailwind that we haven't had since the COVID tailwind, which was the tailwind of all tailwinds. And that would certainly push the addressable market real-time addressable market for us up and allow us to grow at a higher growth rate than what we're seeing in a year where we're kind of expecting the market to be flat.
I mean also in Siding probably gives you a little more pricing pressure -- pricing opportunity, which means that the revenue, you get maybe another point on the revenue as a result of that. So yes, if your question is, would a recovering and stronger housing market and R&R market allow us to go above 7% to 9% growth? Yes, it would. And both help on volume and pricing, I believe.

Alan Haughie

And just to point about capacity investments. Our biggest fear in Nashville is that we would -- is being late to that party. So we've got to make sure that we have the capacity because we are convinced that it is going to happen at some point, and we need to be ready.

Operator

Steven Ramsey, Thompson Research Group.

Steven Ramsey

Hi, good morning. Maybe to start with the order file in Siding be encouraging. If I recall, this is what you guys were seeing a year ago early in 2024. I'm curious what the makeup of the order file now is compared to a year ago and if it's telling you anything different compared to a year ago when you think about the portfolio between Smart Side, Builder Series and Expert Finish?

Brad Southern

I would say the only material difference in the order file strength this quarter versus year ago was -- we have seen stronger shed polls this year than we had last year in the first quarter. Other than that, the other single-family or a big builder retail and R&R are consistent with what we were seeing in Q1 of last year. And the same thing is true geographically if that's of interest.

Steven Ramsey

Okay. That's helpful. And then secondly, Bath margins. This has been on a positive trajectory over the last year or 2. Is there an assumption that it stays on that kind of trajectory in 2025? Or maybe another way to ask it, is it less of a margin headwind in '25 than it was last year even as it's increasing?

Alan Haughie

We basically assumed in our guide and our budgeting that we make kind of make slow progress in 2025, still improving, but we're adding capacity at a rate that will drag on that a little. But it's improving, definitely, but not quite about same amount as in 2024. That's our modeling assumption anyway.

Operator

Mark Weintraub, Seaport Research Partners.

Mark Weintraub

Thank you. First, Alan, just one point of clarification. So when you were talking on the Siding margin bridge, you mentioned price mix flattish. Was that just mix -- are you still -- should we -- are we still building like 3% on price from list price adjustments?

Alan Haughie

Yes, yes, yes. What I meant was that this year, we enjoyed something closer to 6%. I don't model that additional mix benefit. So yes, the underlying price increase is exactly that. Yes.

Mark Weintraub

Got you. So we do get that, let's say, $45 million or something.

Alan Haughie

Yes.

Mark Weintraub

And then second, you spoke on Siding how you've been driving the market share gains through innovation and demand creation efforts. And last year, we had Lennar, [Home Depot], you had the smooth side introduction, although maybe that fills into this year more. Maybe can you talk a little bit more about -- more specifically what some of the items that are going to help drive it this year will be that are perhaps new and different?

Brad Southern

Well, we would invite anybody to come by our booth in Las Vegas next week and take a look at the new products that we've launched and talked about but also some new things that we have on board things around coloring for our pre-finish, some really interesting product expansion there.
Obviously, to your point, having the full portfolio of smooth in market all of this year, including January is a nice add compared to last year at this time. So innovation has been a key to all the growth we've gotten particularly after we've gotten come off allocation. Some of that work was done before COVID, but the Builder series and Expert Finish growth, as we've talked about, market has been phenomenal.
So we -- certainly innovation will continue to play a big part in our growth story because that increases our addressable market with customers that we have. The easiest customer [sale]. And then as far as expanding customers, we are continuing to make inroads around builders, both large, medium-sized and small and then on the R&R side, that's a contractor play. And the number is how many loyal contractors do you have pushing and installing your product, and that's a big part of the marketing spend increase that Alan talked about is in support of that initiative.
That's just a steady constant execution play that we'll never end. I mean there's a lot of site contractors in North America, and we are selling to rather small percentage of them. And so the opportunity there is huge and it's just an annual localized execution that we're encouraged by the progress that we've made. I'm encouraged about what we've learned about how to do that.
And that's given us a lot of confidence that we'll be able to continue to grow as we gain that expertise, round out the portfolio of products in the case of repair and the model, continue to strengthen distribution and create a recognizable brand that's beautiful and works well and customers want and contractors want to install.

Mark Weintraub

Thank you, Brad. And then just lastly, I know you've had efforts underway to try to get a better sense of where customer inventories are two parts. One, where are you in that process? Do you feel that you now do have a much better sense of where customer inventories and Sidings tend to be or are and where are they currently?

Brad Southern

Yeah. So look, we'll never have perfect visibility, but we have way better visibility we've ever had. And over the last couple of years, it's gotten a lot better. And we are normal for where we would expect to be here in the middle of February, which is a little on the high side because coming into the year, distributors tend to want to build some inventory in anticipation of the spring selling season.
And so it's there's more in the channel now than there was 30 days ago, but normal given where we are as relation in relationship to the home building season and the busy season for -- are on our contractors being able to get back outside and get to work. So we're pleased with where inventories are. I'm very pleased with the way we were able to manage that with the cooperation of our distribution base through the price increase and across year-end as well.

Operator

Matthew McKellar, RBC Capital Markets.

Matthew McKellar

Good morning. Thanks for taking my questions. Just looking at your Siding capacity slide, am I correctly in thinking this implies you'll start investing in another exciting line essentially as you complete the expansion at Houlton and with that, I recognize there are lots of moving parts here, but how would you think about what the trough for Siding margins looks like as you work through this next capacity cycle?

Brad Southern

I'll talk a little bit about the execution, Aaron can join in. He's part of that team and then Alan can speculate on margin with a double execution. So I've been part of Siding for 20 years or so, 25 years, is the first time if we end up doing it, which we certainly believe that's going to be required, we'll be running two parallel expansion projects, not completely overlapped. We will start Houlton first, but then move into the second one after that. And it's going to be pretty intense.
We are staffing, as Alan talked about, our engineering group, in anticipation of that. A lot of that work will be executed from -- with contract engineers, but we are increasing our in-house capability as well. And it's pretty exciting to be in a position now, given our scale where 10% growth leads to us being a kind of a continual expansion mode versus more of a batch process that we've had in the past.
So that provides good continuity on expertise, good continuity with vendors that are a big part of those expansions. So yes, we'll be starting Houlton and talking specifically about that soon. And then shortly after that, have a decision made on where the second or the next expansion goes. As we mentioned in the prepared comments, we have a lot of options, and we're narrowing those options today. And I'll just future tariff situation will have an impact on that decision, obviously, because we have opportunities in both or options in both Canada and in the US.

Alan Haughie

All right. Thank you, Brad. The risk we've gone out on a limb. I think we're more likely to be having when we're in the throes of these this sort of parallel expansion. Having a conversation not dissimilar to this one about margins, but I think it will be closer to why the hell (inaudible) margin is rising as opposed to why they falling? It's more likely that you might see us absorbing, again, additional -- the benefits of additional growth with the headwind that comes from margin expansion. So I would like to believe that our scale has reached a point where -- but that's sort of right in wave has a higher minimum than before.

Matthew McKellar

Great. Thanks very much for all that color. Next one for me, just sticking with your capacity plans and taking to the investment in Green Bay. Aside from the incremental capacity shown on the slide, how should we think about other improvements you hope to drive through your investments in particular thinking about potential automation opportunities and risk cost savings?

Brad Southern

Let me start on the pre-finish as you mentioned. It's just remarkable how fast that technology is advancing look, and we started out basically doing prefinished gunk work. So there was a lot of opportunity for us to increase investment and get better throughput and automation, and we're certainly doing that in Expert Finish.
And a little bit for us, it's been somewhat -- the delay maybe has been good because the technology has advanced so much that we've really been able to see significant efficiency gains as we've added capacity. So I think there's way more to come on the Expert Finish side as we continue to scale that business.
We are still relatively small in the big picture of prefinished manufacturing and every increment of capacity that we add will be significantly more efficient than our average efficiency gain. That's a little bit -- there's not quite that opportunity on the press side of the business, though we do have active projects around automation of our finishing operation, which tends to be high labor and more highly labor-intensive and in cases from a safety standpoint, more hands-on.
That technology is advancing as well, particularly in the packaging area. And so we see opportunities there. I think those margins will be more -- maybe less obvious to see at any one period of time, but just part of an overall continuous improvement effort. And then I'll just close that by saying one of the most exciting things, though, is this second line after Houlton could give us an opportunity to -- for really the first time for us to be designing almost an entire mill footprint for Siding production versus I know with the production line that gets converted.
And we've Houlton Line two will have some of that element in it, but the one after that will most probably be almost like a greenfield even if it said a current location of an existing Siding mill. And so the opportunity for us to design specifically the entire footprint of the mill for Siding production versus forcing it in on an existing OSB mill is want to be more capital intensive, but the opportunity and the efficiencies that we could design in will be pretty interesting.
So more to come as we lap that, but I do see that as an opportunity for another step change in margin, at least at that facility when it comes online at full production.

Operator

Kurt Yinger, D.A. Davidson.

Kurt Yinger

Great thanks and good morning everyone. I just wanted to circle back on [Lennar], and I'm curious as that business has ramped and you've executed against the agreement. If there are any -- has there been any surprises or big learnings that you can kind of take and look to leverage as you continue to pursue other larger builders in the space?

Brad Southern

Well I said no, Not really any surprises. It's been executed as planned, more or less a normal course of business. And I guess the learning. I mean this is not a learning that surprised us, but what we've been good at with Lennar is making sure that their contractor base is trained up, technically able to install our Siding the first time they do it in a very efficient and a beautiful way.
And so with the technical support that's gone in to this conversion, let's call it that for them, has been significant on our part. And we understand now that a key part of the selling process for the builder is not when the procurement battle for that business, but then it quickly becomes an execution play around educating the installer base and making sure that we have local distribution in place to serve every one of their developments.
And there were cases where that was not true with some of the business that we garnered from (inaudible) dollar and other builders that we've won in. So it is an execution game once you get the agreement. And of course, [nor] was a big one for us. So the learnings there certainly will translate well into how we approach for future opportunities in that area.

Kurt Yinger

Is it fair to think that, I mean, given how important kind of the contractor training or technical details of installation would be that as you grow in scale and you convert some of these bigger builders, like the next conversion is a little bit easier because that contractor base is just naturally more aware of installation and whatnot?

Brad Southern

Yeah, No doubt. The wider we cast our net in both R&R and new construction. And by the way, there's installers that do both depending on where the strength of the market is locally. Every contractor we get, we had the opportunity to train up as a contractor now knows how to install our product. And we believe and have evidence that they become advocates for our product because of the ease of installation. And so there's a stickiness there.
And then that also translates into -- this has been historic for us. But as we grow the business, both R&R and new construction and open up new distribution, the channel makes money off our product. And so that creates some loyalty and we're going to sell what the contractor wants, but it does strengthen our overall effort beyond just the framework work of that one deal in the case of the builder or that one contractor that you convert on the R&R side.
So I mean, I mentioned building scale for Expert Finish, but we're also building scale with distribution and the contractor base is probably more valuable than the scale we build on the operations side.

Operator

George Staphos, Bank of America Securities.

George Staphos

Thanks very much. Hi everyone, good morning. Thanks for the details. Given the success with Smart Side, it doesn't sound like you need to make any changes, but does there come a time in the horizon where the marketing advertising maybe needs to change or change because of the scale and the acceptance of the product, recognizing it's right now much more of a technical sale you're working on the installer and that's been working just fine. But does national advertising or something like that ever come into play at this -- in the next 2- to 3-years?

Brad Southern

Yeah. I would say, George, for the next 2- to 3-years, what's been working for us and what we're increasing our investment in is having boots on the ground with -- on our sales force, so being -- having folks selling, actively selling our product every day and supporting that for the technical sales discussion which I won't repeat.
And then from an R&R standpoint, where we've had success is really more on focused local markets where we've gone into areas and where we do consumer advertising but at a local level in the local basis using local media. And then we're doing that in places where we have distribution, we have contractors that are on board.
And then we follow that groundwork, let's say, that foundation with focused local marketing, we're seeing really, really good results. And so I'm -- the markets change, over the years, my opinions have changed, but I do think that this is more of a local selling, but there's more value, more return on local selling, local brand awareness than there is on national programs.
That's my personal view. But -- and it can be changed with evidence otherwise we could accelerate growth with more of a national branding opportunity. But I like what we're doing locally, and it's really been something that we've seen the results of as we executed that.

George Staphos

And it's working. And at the same time, you have to stage it with your ability to produce and meet the demand. So no, I mean, that all makes sense. Yes, exactly. I'm sorry, Alan, is that -- do you have a comment there?

Alan Haughie

No, I'm agreeing with you. Yeah.

George Staphos

Yeah. Sounds good. In terms of the next line, what are the lead times such that if you're going to be producing around 2029, you need to actually start to have the orders in place to the equipment dealers? And what kind of inflation maybe or maybe not, are you seeing in terms of press capacity versus what we've seen in the past per 1,000 square feet?

Brad Southern

Yeah. So let me just kind of give comment on where we're at and then Alan, Aaron comment kind of on what we're seeing far down the road. But we've started securing pieces and parts of what we need to do for both Houlton Line one and actually for equipment or orders that we could fit that we could place at our location agnostic, that has begun.
We've gotten preliminary approval -- we've got approval from the Board for Houlton, the preliminary approval from the Board to start the pre-buys, let's call it, securing factory time and fabrication time or steel and in some cases, beginning the fabrication of the equipment. So that has started.
The inflationary impact has been significant over the past couple of mill conversions, Houlton, Sagola and now this one. We're not seeing increases in inflationary issues there other than I would say, more normal. But compared to what it costs to do these projects pre-COVID is significantly more expensive. And then I think Aaron can speak more to the specifics of where we are on the two projects and what we're seeing.

Aaron Howald

Yeah. Inflation is certainly a factor, but the nature of the projects are also changing. So Sagola and Houlton were conversions of existing plants. The Houlton Line two is an expansion. So we're not converting a press, we're actually adding a (inaudible).
So the nature of the products also, the nature of the projects themselves can drive some changes in the total cost. Fortunately, the other thing that's inflating is Siding price. So the cost of the projects go up, but the returns stay very healthy because we've got pricing power for the specialized product that we're producing at those mills.
In terms of timing, as Brad said, some of the items are longer lead time and site agnostic. And so it makes sense to secure that capacity now because there's not a huge amount of production capacity for some of these specialized pieces of equipment. And we're pretty confident that if we continue to grow with the historical volume CAGR that we've seen over the past several years that we'll have capacity ready in time that we minimize the risk of another extended period of a managed order file.

George Staphos

Understood. My two last questions, and then I'll turn it over. I wouldn't expect it would be a factor, you didn't really call it out, but with shed growing a little bit more quickly this year, is that any kind of impact on the margin trend -- is it -- would it maybe take a few basis points off of margin because of mix? And then in terms of maintenance, can you remind me, are there any specific cadence factors we should be considering as we're modeling out the quarters?
Thank you very much.

Brad Southern

Yes. On the shed, it would be -- that tends to be lower than average price but not lower than average margin. So it's not a margin hit, but we'd see a pricing hit. As always, Q4 will be the heaviest in terms of maintenance projects and spending.

Aaron Howald

Yeah. And we've got a few projects here that are maybe a little larger than normal, but they're in the OSB business, not the Siding business. So you won't see a large maintenance projects being a source of perturbation in the Siding margin this year. Yeah, knock on wood.

Operator

Thank you. And I'm now showing no further questions. I would now like to turn the conference back to Aaron for closing remarks.

Aaron Howald

Okay. Thank you, everyone, for joining us. With no further questions, we'll end the call there. Stay safe, and come and see us next week in Vegas and see some of the new products that we were talking about driving our growth in 2025.

Operator

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