West Fraser Announces Second Quarter 2020 Results
West Fraser Timber Co. Ltd. (“West Fraser” or the “Company”) reported results for the second quarter of 2020. All dollar amounts in this news release are expressed in Canadian dollars.
Second Quarter Highlights
– Sales of $1,276 million; up 7% on previous quarter.
– Lumber shipments 165 MMfbm higher than the previous quarter.
– Adjusted EBITDA increased to $184 million.
– Available liquidity improved by $506 million to $800 million from March 31, 2020.
– Manufacturing operations fully resumed at virtually all facilities.
– Growth and margin improvement; investments in U.S. South beginning to show in lumber segment results.
– Progress on Dudley, Georgia sawmill on track.
As a result of the various impacts of COVID-19, we made a number of adjustments to our operating schedules starting in March of 2020 and continuing into the second quarter of 2020. The impact on 2020 production was a reduction of approximately 140 MMfbm of SPF lumber, 80 MMfbm of SYP lumber, 60 MMsf of plywood, and 19,000 tonnes of NBSK pulp. As the second quarter progressed, demand for lumber and plywood proved to be more resilient than originally estimated at the start of the pandemic. The higher demand levels, coupled with low inventories in the supply channel and production curtailments, led to an increase in pricing during the quarter.
Ray Ferris, President and CEO of West Fraser stated, “The safety, health and well-being of our employees and the communities in which we operate remain our primary focus. I am proud of the efforts of all our employees to adapt and safely continue our operations, serve our customers, and preserve and enhance value through a very difficult period.”
Administrative Review (“AR”) 1 Duty Rates
On July 21, 2020, the U.S. Department of Commerce issued a new tolling memorandum, which extends the finalization of the AR1 duty rates until November 2020. The delay means we continue to remit cash deposits at a combined duty rate of 23.56% instead of at the lower AR1 rate of 9.08% that was published as preliminary on February 3, 2020. The rates that will ultimately be finalized in November 2020 may be different.
Our lumber segment generated operating earnings in the quarter of $66 million (Q1-20 – $19 million) and Adjusted EBITDA of $156 million (Q1-20 – $106 million). The improvement was due primarily to higher SYP prices and SPF shipment volumes, partially offset by lower SPF prices. The price variance resulted in an increase in Adjusted EBITDA of $23 million compared to the previous quarter with the balance coming from volume, cost, and productivity improvements despite the unpredictable operating conditions. The current quarter included temporary curtailments of SPF and SYP production of 170 MMfbm compared to 50 MMfbm in the previous quarter.
Our panels segment generated operating earnings in the quarter of $17 million (Q1-20 – $4 million) and Adjusted EBITDA of $20 million (Q1-20 – $8 million). Improved plywood pricing was offset by lower shipment volumes for plywood, MDF, and LVL, resulting in lower overall sales. We fully settled the WestPine insurance claim related to the 2016 fire at this MDF facility resulting in a $7 million benefit recorded in cost of products sold from business interruption insurance and an additional $7 million from proceeds on the involuntary disposal of equipment recorded in other income. These settlement amounts are in addition to insurance proceeds we received in earlier periods. The current quarter included temporary plywood curtailments of 50 MMsf compared to 10 MMsf in the previous quarter.
Our pulp & paper segment generated operating earnings in the quarter of negative $1 million (Q1-20 – nil) and Adjusted EBITDA of $10 million (Q1-20 – $11 million). Increased pulp prices were offset by lower net shipment volumes and higher fibre costs. Our Cariboo NBSK mill was temporarily shut down for four weeks during the quarter in response to low fibre availability, and we extended the shut by 12 days to complete the annual maintenance outage. This shutdown resulted in 19,000 tonnes of lower production during the quarter. Despite the downtime, NBSK production was in line with the prior quarter, reflecting improved performance at our Hinton pulp mill.
Over the balance of the year, our operating strategy will be to manage production schedules and inventory levels to available demand. It is not possible to predict at this time what impact, if any, the ongoing COVID-19 pandemic or the resumption of industry lumber production in British Columbia may have on earnings. Replenishment of inventory in the depleted supply chain, increased levels of demand for repair and remodeling activity, involving products for treated lumber, and a recovering new housing market, have all served to increase lumber and plywood pricing through the second quarter and into the third quarter. At this time, it is not possible to estimate how long the current market conditions will endure, including if they will be negatively impacted by a resurgence of COVID-19. We are presently operating at as close to full capacity as possible to meet market demand.
Risks and Uncertainties
Given the continuing and dynamic nature of the COVID-19 pandemic, it is challenging to predict the ongoing impact on the Company’s business. The extent of such impact will depend on future developments, which are highly uncertain, including the resurgence of COVID-19 as restrictions are eased or lifted, new information that may emerge concerning the spread and severity of COVID-19 and actions taken to address its impact, among others. It is difficult to predict how this virus may affect our business in the future, including the effect it may have (positive or negative; long or short term) on the demand and price for our products. The spread of such viruses among our employees or those of our suppliers, service providers or customers could result in lower production and sales, higher costs, and supply and transportation constraints. It is possible that COVID-19, particularly if it has a prolonged duration, could have a material adverse effect on our production levels, costs, supply chain, market pricing, customer demand, and distribution networks. These factors may further impact our operating plans, business, financial condition, liquidity, the valuation of long-lived assets, and operating results. Our second quarter of 2020 management’s discussion & analysis includes additional risk disclosures under the title “Recent Developments – Coronavirus – Risks and Uncertainties.”
For the full second quarter results, click here.
About West Fraser
West Fraser is a diversified wood products company producing lumber, LVL, MDF, plywood, pulp, newsprint, wood chips, other residuals, and energy with facilities in western Canada and the southern United States.
Chris Virostek – Vice President Finance & CFO – (604) 895-2700
Source: West Fraser Timber Co. Ltd.