GreenFirst Reports Financial Results for the First Quarter of 2024

GreenFirst Forest Products Inc. (“GreenFirst” or the “Company”) announced results for the first quarter ended March 30, 2024. The Company’s interim financial statements (“Financial Statements”) and related Management’s Discussion and Analysis (“MD&A”) for the first quarter ended March 30, 2024 are available on GreenFirst’s website at www.greenfirst.ca and on SEDAR+ at www.sedarplus.ca.

Highlights

• Q1 2024 net loss from continuing operations was $13.4 million or $0.08 per share (diluted), compared to net loss of $21.6 million or loss of $0.12 per share (diluted) in Q4 2023. Adjusted EBITDA for Q1 2024 was negative $3.5 million compared to negative $18.0 million in Q4 2023. In Q1 2024, this represents a positive contribution from the Company’s lumber operations and a negative contribution from the paper operations and overhead.
• Average lumber prices for Q1 2024 were higher than Q4 2023, with an average selling price of $626/mfbm compared to $601/mfbm in Q4 2023. There was strong pricing momentum during Q1 2024, however, toward the tail end of the quarter, pricing started to be impacted due to lower housing affordability with increasing mortgage rates. With recent inflation figures coming in higher than expectations, there is growing sentiment that the US Federal Reserve and Bank of Canada may be hesitant to cut interest rates in the very near future.
• The valuation provision for lumber and log inventory was decreased to $1.0 million from $4.3 million at the end of Q4 2023, generating a $3.3 million credit to lumber cost of sales in Q1 2024.
• Our lower duty rate has positively impacted the Company’s earnings and free cash flow since August 1, 2023. The Company’s initial duty deposit rate, totaling 20.23%, remained in effect for almost two years, since the Company’s acquisition of its sawmill and paper mill assets on August 28, 2021. This resulted in US$22 million in higher duties paid compared to its Canadian peers.
• There continues to be downward pressure on newsprint and paper products prices in North America. Our paper operations were also impacted by external events in Q1 2024, including two significant power interruptions, that impacted production rate and maintenance related expenditures.
• Effective January 1, 2024, we began operating our lumber and paper segments as decentralized units, with Terry Skiffington engaged as Chief Executive Officer of the paper mill division.
• We continue to divest non-core properties owned by the Company and are in the process of finalizing a public listing of our Kenora property. Simultaneously, we remain engaged with the third-party with whom we had a prior letter of intent.

“We initially saw some positive momentum in lumber pricing at the start of the first quarter; however, this positive trend reversed at the end of the quarter resulting in curtailments by some of our competitors in the lumber industry,” said Paul Rivett, GreenFirst’s Executive Chair. “In these tough times, we are thankful to be operating in a province that is business friendly and supportive of lumber producers and the forest products ecosystem. That said, Joel and the entire GreenFirst lumber team’s relentless focus on efficiency gains continues to pay dividends with new operating records being broken in the quarter. On the paper side, we faced some disruptions caused by external events but pricing erosion has led to deeper losses. We are exploring ways to reduce the negative financial impact of the paper mill on our overall results.”

Financial Highlights

Forest Products (Lumber)

During Q1 2024, the Company saw contribution (net sales less cost of sales) of $6.8 million from the lumber segment.

Net sales were $68.9 million in Q1 2024, a decrease of approximately 2% compared to Q4 2023. The decrease in net sales was primarily due to lower volumes as a result of lower housing affordability resulting from increased mortgage rates in the first quarter. This was partially offset by higher average pricing in the first quarter of 2024 driven by increased field takeaways due to unseasonably warmer climate, which aided buyer sentiment toward the latter half of the first quarter.

Cost of sales were $62.1, a decrease of approximately 19% compared to Q4 2023. This is primarily driven by gained efficiencies, lower shipments and a net benefit related to inventory net realizable value recorded in the first quarter of 2024.

Paper Products

During Q1 2024, the Company saw contribution (net sales less cost of sales) of negative $8.9 million from the paper segment. 

Net sales were $24.2 million in Q1 2024, a decrease of approximately 27% compared to Q4 2023. Production related disruptions impacted volume levels in the first quarter of 2024. In addition, the first quarter saw a decline in average pricing for paper products due to continued lower demand in North America.

Cost of sales were $33.1, a decrease of approximately 16% compared to Q4 2023. This was primarily driven by lower volumes sold in the first quarter of 2024. Both quarters saw lower than expected paper production due to production related disruptions. Certain disruptions and maintenance costs in the first quarter of 2024 related to external events. The Company continues to work on gaining sustained efficiencies.

Other Expenses

The initial duty deposit rate, totaling 20.23%, had remained in effect since the Company’s acquisition of its sawmill and paper mill assets and has resulted in a higher payment in relation to our Canadian peers as at March 30, 2024, totaling US$22 million. The Company became eligible for the rate applied to all other lumber exporters from August 1, 2023 onwards, calculated by the US DOC to be 8.05%, following the results of the US DOC’s Fourth Administrative Review.

SG&A expenses of $2.5 million in Q1 2024 were lower compared to $5.7 million in Q4 2023. This was primarily due to a recovery of $1.3 million related to the difference between accrued and actual incentive payout for 2023, lower spend on external services and credits related to fringe benefits.

Liquidity and Borrowings

At March 30, 2024, the Company had $17.1 million, less $5.4 million for standby letters of credit, of excess availability under the asset based lending (“ABL”), or revolving, portion of the credit facility. During Q1 2024 the Company made net borrowings of $20.5  million against the revolving portion of the credit facility, primarily to support the Company’s seasonal harvesting activities. The Company also made a draw of $5.3 million on its equipment lending facility ($25.0 million gross availability under the facility) to finance a key strategic project. Subsequent to Q1 2024, the Company was able to access an additional $10.4 million under the equipment lending facility.

Outlook

High interest rates, overall macroeconomic concerns and tensions in Middle East and Europe continue to negatively impact lumber demand and pricing. The positive impact on new home builds in the US, due to lack of activity in the resale market, has also subsided as affordability continues to be negatively impacted by higher interest rates. The slowing of activity in the repair and remodeling segment has added to the downward pressure on lumber prices. With recent inflation figures coming in higher than expectations, there is growing sentiment that the US Federal Reserve and Bank of Canada may delay interest rate cuts.

In the longer-term, lack of available housing inventory, record levels of immigration in Canada, aging of homes in the US and demographic driven demand are expected to positively impact lumber markets.

Despite continued curtailment of lumber production in the Province of British Columbia and some other regions of North America, short-term pricing benefits have not been material. Reduced lumber demand and low inventory maintenance continue to balance out supply side pressures in the short-term. However, as curtailments mount with the recent sharp drop in lumber prices in April, lumber pricing could see some positive support.

For full first quarter results click here.

About GreenFirst

GreenFirst Forest Products is a forest-first business, focused on sustainable forest management and lumber production. The Company owns four sawmills located in rich wood baskets proudly operating over six million hectares of FSC® certified public Ontario forest lands (FSC®-C167905). The Company believes that responsible forest practices, coupled with the long-term green advantage of lumber, provide GreenFirst with significant cyclical and secular advantages in building products.

Source: GreenFirst Forest Products Inc.