Lousiana-Pacific, James Hardie, & US Building Products Competition

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Is it primarily a cost standpoint, because transporting it to that location makes it cost-prohibitive for someone to do it versus whatever the alternative is?

Some of it is, but there is zone pricing to address that. The paint world that LP just got into helps some areas, because previously, LP only sold primed material which was painted on-site or by third party pre-finishers such as Diamond Coat and other similar companies, so they couldn’t advertise or talk about painted which is a big part of the market. On the East Coast, they use a lot of different colors than they would in the Midwest, for instance, so there’s an advantage that you can get any color you want. LP offers a basic palette, and beyond that, you can get a third-party pre-finisher to make you anything you want or have it painted on-site, custom.

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Maybe it’s not the case, but I know in some air conditioning in HVAC worlds, ultimately the customer is the one that ends up using the product but it’s really the HVAC installer that is kind of the decision-maker; they’re putting three or four things in front of you but telling you which is the best. How does that work in terms of siding? Is it really the end user that is deciding or is it really the builder side where you guys would market to them and they push it?

On new construction, it is builder-driven. They’re going to offer a product and they’re typically going to get rebates from one of the large companies, whether it be vinyl etc. That’s where the battle is fought and that’s where we’ll win or lose new construction; it’s mainly with the builder. For repair/remodel, it’s with the installer or the one pitching it, which is usually the installing company. I was part of a session where we talked to individuals about their siding choice, and the customer doesn’t know LP outside of the Midwest region; even in Illinois, the customer doesn’t know what it is. They know Hardie because a Hardie board is kind of like Kleenex. They know what vinyl is, and if the homeowner wants to go bigger and better, they’ll choose Hardie. The installers love LP because it’s easy to install but they don’t do a lot of selling, they don’t want to do too much selling, they want the easier sale and vinyl has been the easier sale.

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Just in terms of margins, from a pricing standpoint, it seems like LP was able to increase prices alongside inflation going along, but if material prices start coming down and oil prices come down, some of that inflationary pressure comes back. How much of that price do you think they have to give back to keep the same kind of volumes going?

That’s the big question; we’re going to have a recession and come out of a recession. It’s driven a lot by LP not owning their trees, so they rely on forestry. Does that forestry price come down, does shipping come down? I don’t see a significant drop. Typically, when the prices go up, they stay, they just don’t increase a lot and they don’t really go down, even in groceries and that type of thing, so I don’t see the price really giving back a lot. But if they want to get into new channels and markets, that would narrow the margin. For instance, National Builders are commercial; that maybe something they will take a downward margin on, but I don’t see the residential changing drastically in price.

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