West Fraser Announces Third Quarter 2020 Results
West Fraser Timber Co. Ltd. (“West Fraser” or the “Company”) reported results for the third quarter of 2020. All dollar amounts in this news release are expressed in Canadian dollars.
Third Quarter Highlights
– Sales increased by 32% to $1,690 million in the quarter.
– Adjusted EBITDA increased to $605 million from $184 million in the second quarter.
– Cash flow from operations of $613 million for the third quarter and $930 million year to date.
– Available liquidity improved by $546 million to $1,346 million from June 30, 2020, revolving credit facility repaid in the quarter.
– Growth and margin improvement in the U.S. South as investments continue to show results.
Our lumber segment generated operating earnings in the quarter of $454 million (Q2-20 – $66 million) and Adjusted EBITDA of $552 million (Q2-20 – $156 million). The improvement was due primarily to higher lumber prices and SYP shipment volumes, partially offset by lower SPF shipment volumes. Higher lumber prices increased Adjusted EBITDA by $424 million compared to the previous quarter. The combination of lower manufacturing costs, increases in variable compensation expense, and slightly lower shipment volumes resulted in a $28 million offset to Adjusted EBITDA. Our lumber segment operated near capacity during the current quarter compared with the second quarter where temporary curtailments reduced SPF and SYP production by approximately 170 MMfbm.
Our panels segment generated operating earnings in the quarter of $47 million (Q2-20 – $17 million) and Adjusted EBITDA of $51 million (Q2-20 – $20 million). Increased plywood pricing and robust plywood demand positively impacted the panels segment earnings for the quarter. The positive price and volume variance increased Adjusted EBITDA by $33 million compared to the previous quarter. The WestPine insurance claim related to the 2016 fire at this MDF facility was settled in the second quarter 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. Our plywood facilities operated near capacity during the current quarter, while the second quarter included temporary plywood curtailments of approximately 50 MMsf.
Our pulp & paper segment generated operating earnings in the quarter of negative $5 million (Q2-20 – negative $1 million) and Adjusted EBITDA of $5 million (Q2-20 – $10 million). Lower pulp and newsprint prices offset improved shipping volumes, and per-unit manufacturing costs benefits resulting in a net decrease in Adjusted EBIDTA compared to the previous quarter. Our Cariboo NBSK mill was temporarily shutdown during the second quarter in response to low fibre availability and to complete the annual maintenance outage resulting in 19,000 tonnes of lower production.
Throughout the third quarter, demand for lumber and plywood products remained strong, resulting in higher product prices. Repair and renovation activity and related demand also continued to trend positively. Housing market indicators, including new home starts, available for sale inventory, and mortgage rates, support the continued expectation of healthy demand for wood products. Despite recent volatility, the longer-term outlook for growth in wood products consumption appears favourable.
Our lumber and plywood facilities are operating at as close to full capacity as possible to meet market demand.
Pulp markets are anticipated to experience some stress in the near term due to decreased demand for pulp used in printing and writing products, which has been accelerated by several factors, including the shift in advertising from paper to digital media and the economic impact of COVID-19. The restart of our Hinton pulp facility following the major maintenance shutdown will be delayed and forth quarter production is expected to be impacted by 24,000 tonnes. Our Quesnel BCTMP mill is scheduled for downtime for capital installation in the fourth quarter, resulting in approximately 11,000 lost production tonnes.
Quarter end available liquidity was $1,346 million, and our balance sheet is well prepared to face potential volatility that may exist in our markets over the coming quarters. The benefits of our modernization program at our mills in the U.S. South are yielding results with improvements in capacity, grade, and recovery.
Administrative Review (“AR”) 1 Duty Rates
On October 7, 2020, the U.S. Department of Commerce (“USDOC”) indicated that it expects to finalize AR1 duty rates on November 23, 2020. West Fraser will continue to remit cash deposits at a combined duty rate of 23.56% until the new rates are finalized. The preliminary AR1 rates of 9.08%, which were published on February 3, 2020, may be different when finalized in November 2020. Cash deposits at the new duty rates will commence when the AR1 rates are finalized.
The USDOC has commenced AR2 for the 2019 fiscal period. It is unclear when the USDOC will finalize the AR2 rates, given the tolling delay of all administrative reviews in 2020.
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 its effect (positive or negative; long or short term) on the demand and price for our products. It is possible that COVID-19, particularly if it has a prolonged duration, could have a material adverse effect on our supply chain, market pricing and 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.
Additional risk disclosures are included under the heading “Risks and Uncertainties” in our third quarter 2020 Management’s Discussion & Analysis (“MD&A”) and the MD&A included in our 2019 Annual Report.
For the full third 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.