West Fraser Announces First Quarter 2023 Results

West Fraser Timber Co. Ltd. (“West Fraser” or the “Company”) (TSX and NYSE: WFG) reported today the first quarter results of 2023 (“Q1-23”). All dollar amounts in this news release are expressed in U.S. dollars unless noted otherwise. 

First Quarter Highlights

• Sales of $1.627 billion and earnings of $(42) million, or $(0.52) per diluted share 
• Adjusted EBITDA1 of $58 million, representing 4% of sales 
• Lumber segment Adjusted EBITDA1 of $0 million  
• North America Engineered Wood Products (“NA EWP”) segment Adjusted EBITDA1 of $31 million, including $15 million of inventory write-downs
• Pulp & Paper segment Adjusted EBITDA1 of $7 million 
• Europe Engineered Wood Products (“Europe EWP”) segment Adjusted EBITDA1 of $20 million

“In the first quarter of 2023, we faced challenging demand markets due in part to seasonal effects as well as higher mortgage rates that continued to moderate new home construction activity in the U.S. Our Lumber and North America EWP businesses were most impacted by these factors. As in the prior quarter, the product and geographic diversification of our European Engineered Wood Panels and Pulp & Paper segments provided positive EBITDA contributions that helped to offset some of the weakness in North American residential construction markets,” said Ray Ferris, West Fraser’s President & CEO. 

“The West Fraser team is diligently managing through the market cycle and will continue to operate with financial discipline as we leverage our strong balance sheet to reinvest in our operations and return capital to shareholders. Importantly, our financial flexibility allows us to continue our core strategy of being a low-cost producer of wood building products while also positioning us to capitalize on opportunities as the demand environment becomes more favourable over the medium and longer term.”

Results Summary 

First quarter sales were $1.627 billion, compared to $1.615 billion in the fourth quarter of 2022. First quarter earnings were $(42) million, or $(0.52) per diluted share, compared to $(94) million, or $(1.13) per diluted share in the fourth quarter of 2022. First quarter Adjusted EBITDA¹ was $58 million compared to $70 million in the fourth quarter of 2022. 

Liquidity and Capital Allocation 

Cash and short-term investments decreased to $847 million at March 31, 2023 from $1.162 billion at December 31, 2022, largely owing to typical seasonal working capital build. 

Capital expenditures in the first quarter were $99 million.

We paid $25 million of dividends in the first quarter, or $0.30 per share, and declared a $0.30 per share dividend payable in the second quarter of 2023.  

On February 22, 2023, we renewed our normal course issuer bid (“NCIB”) allowing us to acquire up to 4,063,696 Common shares for cancellation from February 27, 2023 until the expiry of the bid on February 26, 2024. As of April 24, 2023, no shares have been repurchased under the bid.

As of April 24, 2023, we have repurchased for cancellation 39,741,794 of the Company’s Common shares since the closing of the Norbord Acquisition on February 1, 2021 through the completion of a substantial issuer bid (“SIB”) in 2021, completion of an SIB in 2022 and normal course issuer bids, equalling 73% of the shares issued in respect of the Norbord Acquisition.

Outlook 

Markets 

Several key trends that have served as positive drivers in recent years are expected to continue to support medium- and longer-term demand for new home construction in North America.

The most significant uses for our North America lumber, OSB and wood panel products are residential construction, repair and remodelling and industrial applications. Over the medium term, we expect that an aging housing stock and greater entrenchment of work-from-home flexibility will help to offset near-term headwinds and spur repair and renovation spending that supports lumber, plywood and OSB demand. Over the longer term, growing market penetration of mass timber in industrial and commercial applications is also expected to become a more significant source of demand growth for wood building products in North America.

The seasonally adjusted annualized rate of U.S. housing starts was 1.42 million units in March 2023, with permits issued of 1.41 million units, according to the U.S. Census Bureau. While there have been near-term headwinds to new home construction, owing in large part to the recent upward reset in interest rates and the impact on housing affordability, unemployment remains relatively low in the U.S. and central bankers across North America and Europe have indicated that the current rate hiking cycle may be nearing an end. However, demand for new home construction and our wood building products may decline in the near term should the broader economy slow or interest rates remain elevated or increase further than currently expected, impacting consumer sentiment and housing affordability.

The demand for our European products is expected to remain robust over the longer term as use of OSB as an alternative to plywood grows. Further, an aging housing stock supports long-term repair and renovation spending and additional demand for our wood building products. Near-term challenges, including relatively high and rising interest rates, ongoing geopolitical developments and inflationary pressures, are expected to cause a temporary slowing of demand for our products in Europe. Despite these challenges, we are confident that we will be able to navigate through this period and capitalize on the long-term growth opportunities ahead. 

Operations

We expect total lumber shipments in 2023 to be similar to 2022 levels as the transportation challenges that we faced last year are not expected to be as severe in 2023, offset by relative year-over-year softness in new home construction demand, the permanent B.C. mill curtailments announced in August 2022 and the indefinite curtailment of the Perry, Florida sawmill announced in January 2023. As such, we reiterate 2023 SPF shipments guidance of 2.6 to 2.8 billion board feet, and in the U.S. South, we reiterate 2023 SYP shipments guidance of 2.9 to 3.1 billion board feet.

In our NA EWP segment, we expect 2023 OSB shipments to be similar to 2022 levels and reiterate shipments guidance of 5.9 to 6.2 billion square feet (3/8-inch basis) this year. Our modernization capital investment in Allendale, SC is nearing completion and we remain on track for a potential restart of the mill by the end of Q2-23. We anticipate a ramp-up period of up to three years to meet targeted production and as such we do not anticipate the Allendale mill contributing materially to shipments in 2023.

In our Europe EWP segment, we reiterate 2023 OSB shipments guidance of 1.0 to 1.2 billion square feet (3/8-inch basis), moderately above 2022 levels, as demand markets stabilize.

Pulp & Paper segment shipments are not expected to increase from 2022 levels this year as near-term supply and demand fundamentals are challenging. Recent demand weakness in China coupled with conversion of Russian NBSK pulp capacity to UKP has led to current oversupply conditions.

In Q1-23, we experienced a moderation of costs and improved availability for inputs across our supply chain, including resins, chemicals, transportation and energy, although labour availability remained challenging. We expect these trends to continue over the near term. 

Based on our current outlook, assuming no deterioration from current market demand conditions during the year and that there is no additional lengthening of lead times for projects underway or planned, we reiterate our guidance of investing approximately $500 million to $600 million in expected capital expenditures¹ in 2023.

1.  This is a supplementary financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure.

Management Discussion & Analysis (“MD&A”) 

Our Q1-23 MD&A and interim consolidated financial statements and accompanying notes are available on our website at www.westfraser.com and the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com and the Electronic Data Gathering, Analysis and Retrieval System (“EDGAR”) website at www.sec.gov/edgar under the Company’s profile. 

Sustainability Report 

West Fraser’s 2021 Sustainability Report is available on the Company’s website at www.westfraser.com. This report reviews the Company’s key Environmental, Social, and Governance (“ESG”) performance and includes information aligned with the Sustainable Accounting Standards Board (“SASB”), Global Reporting Initiative (“GRI”), the Task Force on Climate-Related Disclosures (“TCFD”) and CDP (formerly the Carbon Disclosure Project). 

For the complete First Quarter 2023 results, click here.

About West Fraser

West Fraser is a diversified wood products company with more than 60 facilities in Canada, the United States (“U.S.”), the United Kingdom (“U.K.”), and Europe. From responsibly sourced and sustainably managed forest resources, the Company produces lumber, engineered wood products (OSB, LVL, MDF, plywood, and particleboard), pulp, newsprint, wood chips, other residuals and renewable energy. West Fraser’s products are used in home construction, repair and remodelling, industrial applications, papers, tissue, and box materials.

Contact:

Robert B. Winslow – Investor Relations & Corporate Development – shareholder@westfraser.com – (416) 777-4426

Source: West Fraser Timber Co. Ltd.