West Fraser Announces First Quarter 2024 Results

West Fraser Timber Co. Ltd. (“West Fraser” or the “Company”) reported the first quarter results of 2024 (“Q1-24”). 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 $35 million, or $0.42 per diluted share
• Adjusted EBITDA¹ of $200 million, representing 12% of sales
• Lumber segment Adjusted EBITDA¹ of $10 million
• North America Engineered Wood Products (“NA EWP”) segment Adjusted EBITDA¹ of $188 million
• Pulp & Paper segment Adjusted EBITDA¹ of $3 million
• Europe Engineered Wood Products (“Europe EWP”) segment Adjusted EBITDA¹ of $(1) million
• Repurchased 105,666 shares for aggregate consideration of $8 million
• Completed sale of Hinton pulp mill to Mondi Group plc
• Subsequent to quarter-end, completed sale of Quesnel River Pulp mill and Slave Lake Pulp mill to Atlas Holdings
• Subsequent to quarter-end, announced dissolution of Cariboo Pulp & Paper (“CPP”) 50/50 JV with Mercer, and West Fraser’s continuation as sole owner/operator of CPP

“Our North American OSB, plywood and other engineered products had another strong quarter in Q1-24, with robust demand driven by strength in new home construction, which carried over from the fourth quarter. This was in contrast to ongoing demand softness in our European EWP business and North American lumber business, particularly for SYP lumber with its greater relative exposure to repair and remodelling applications,” said Sean McLaren, West Fraser’s President and CEO.

“While some of our wood building products still face near-term demand uncertainties, we remain optimistic in our ability to continue managing through current markets, executing on our strategy with the strong balance sheet, people and expertise to handle whatever comes our way. We continue to make progress optimizing our portfolio of assets and investing capital to modernize mills and lower costs across our platform, creating a more resilient organization. Of note, we are already seeing early financial benefits from the recent closures of some of our higher-cost lumber mills. Finally, we completed the disposition of three of our pulp and paper mills and are now the sole owner and operator of CPP following the dissolution of our joint venture. These developments took considerable effort and perseverance across the organization and are a key part of our ongoing optimization strategy, making the company stronger and benefiting all our stakeholders.”

Results Summary

First quarter sales were $1.627 billion, compared to $1.514 billion in the fourth quarter of 2023. First quarter earnings were $35 million, or $0.42 per diluted share, compared to $(153) million, or $(1.87) per diluted share in the fourth quarter of 2023. First quarter Adjusted EBITDA was $200 million compared to $97 million in the fourth quarter of 2023.

Liquidity and Capital Allocation 

Cash and short-term investments decreased to $711 million at March 29, 2024 from $900 million at December 31, 2023.  

Capital expenditures in the first quarter were $122 million.

We paid $24 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 2024.

On February 27, 2024, we renewed our normal course issuer bid (“2024 NCIB”), which allows us to acquire up to 3,971,380 Common shares for cancellation from March 1, 2024 until the expiry of the bid on February 28, 2025. From January 1, 2024 to April 22, 2024, 296,307 total shares have been repurchased under both the prior NCIB and the 2024 NCIB.

As of April 22, 2024, we have repurchased for cancellation 41,872,902 of the Company’s shares since the closing of the acquisition of Norbord on February 1, 2021 through the completion of a substantial issuer bid (“SIB”) in 2021, completion of a SIB in 2022 and normal course issuer bids, equalling 77% 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 American lumber, OSB and engineered wood panel products are residential construction, repair and remodelling and industrial applications. Over the medium term, improved housing affordability from stabilization of inflation and interest rates, a large cohort of the population entering the typical home buying stage, and an aging U.S. housing stock are expected to drive new home construction and 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 1.32 million units in March 2024, with permits issued of 1.46 million units, according to the U.S. Census Bureau. While there are near-term uncertainties for new home construction, owing in large part to interest rates and the direction of changes to mortgage rates and the resulting impact on housing affordability, unemployment remains relatively low in the U.S. And although central bankers across North America have indicated that rates may be higher for longer, the latest rate hiking cycle appears to be over with U.S. rate futures indicating potential for one or more rate cuts later in the year. However, demand for new home construction and our wood building products may decline in the near term should the broader economy and employment slow or the trend in interest rates negatively impact consumer sentiment and housing affordability.

Although we continue to experience near-term softness for MDF and particleboard panel products in Europe and the U.K., we are experiencing slightly better demand for our OSB products early in 2024. We continue to expect demand for our European products will grow 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 risks, including relatively high interest rates, ongoing geopolitical developments and the lagged impact of recent inflationary pressures, may cause further temporary slowing of demand for our panel products in the U.K. and Europe. Despite these risks, we are confident that we will be able to navigate through this period and capitalize on the long-term growth opportunities ahead.

With the recent developments in our Pulp & Paper segment, namely the disposition of one UKP mill and two BCTMP mills, we expect the financial impact of the Pulp & Paper segment to be less significant and to contribute much less variability to our consolidated results going forward.

Operations

We continue to expect total lumber shipments in 2024 will be largely similar to 2023 levels. The acquisition of Spray Lake lumber mill and reliability and capital improvement gains across our lumber mill portfolio will be largely offset by capacity reductions from the recently announced permanent closures and indefinite curtailments. However, persistently weak market conditions have increased the downside risk to our current shipments guidance, particularly for SYP. That notwithstanding, for now we reiterate 2024 SPF shipments guidance of 2.6 to 2.8 billion board feet and SYP shipments of 2.7 to 2.9 billion board feet.

In our NA EWP segment, we continue to expect 2024 OSB shipments to be consistent with 2023 levels and reiterate shipments guidance of 6.3 to 6.6 billion square feet (3/8-inch basis) this year. Start-up of the Allendale mill continues to progress and we still anticipate a ramp-up period for the mill of up to three years to meet targeted production levels. We expect our overall OSB platform to be better and lower cost with a modern Allendale facility operating, and as with all our wood products operations, demand is a key input in determining our operating schedules across our manufacturing footprint. Input costs for the NA EWP business are expected to be relatively stable through 2024.

In our Europe EWP segment, we expect near-term demand weakness to persist for our panel products, although 2024 shipments of MDF, particleboard and OSB are now expected to be similar or slightly better than 2023 levels. For OSB, we reiterate shipments guidance in the range of 0.9 to 1.1 billion square feet (3/8-inch basis). Input costs for the Europe EWP business, including energy and resin costs, are expected to stabilize in 2024 but remain elevated.

In Q1-24, we continued to experience moderation of costs and improved availability for inputs across our supply chain, including resins and chemicals, although labour availability and some capital equipment lead times remained challenging. We expect these trends to largely continue over the near term.

Based on our current outlook, assuming no deterioration from current market demand conditions during the year and no additional lengthening of lead times for projects underway or planned, we continue to anticipate that we will invest approximately $450 million to $550 million in 2024¹.

Management Discussion & Analysis (“MD&A”) 

Our Q1-24 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.sedarplus.ca 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 2023 Sustainability Report is available on the Company’s website at www.westfraser.com. This report summarizes our Environmental, Social, and Governance (“ESG”) performance with a focus on our people, communities and role of our products in the carbon cycle. It is aligned with the Sustainable Accounting Standards Board (“SASB”), Global Reporting Initiative (“GRI”), the Task Force on Climate-Related Financial Disclosures (“TCFD”) and CDP (formerly the Carbon Disclosure Project). 

Risks and Uncertainties 

Risk and uncertainty disclosures are included in our 2023 Annual MD&A, as updated in the disclosures in our Q1-24 MD&A, as well as in our public filings with securities regulatory authorities. See also the discussion of “Forward-Looking Statements” below.

For full first quarter results click here.

About West Fraser

West Fraser is a diversified wood products company with more than 60 facilities in Canada, the United States, the United Kingdom, 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. For more information about West Fraser, visit www.westfraser.com.

Contact:

Joyce Wagenaar – Director, Communications – media@westfraser.com – (604) 817-5539

Source: West Fraser Timber Co. Ltd.