West Fraser reports 2018 Q1 financials
Apr. 25, 2018 - West Fraser Timber Co. Ltd. has reported its first quarter 2018 results. The highlights include: earnings of $197 million or basic EPS of $2.53; adjusted earnings of $231 million or Adjusted basic EPS of $2.98; and reinvested $104 million through capital expenditure and returned $58 million to shareholders through share buybacks and dividend.
Our lumber segment generated operating earnings of $189 million (Q4-17 - $232 million) and Adjusted EBITDA of $282 million (Q4-17 - $258 million). This quarter’s results were unfavourably impacted by severe winter weather, significant transportation challenges and a full quarter of export duties. Both SPF and SYP production were higher than the prior quarter, but SPF production was slightly lower than the prior year.
Our panels segment generated operating earnings in the quarter of $25 million (Q4-17 - $20 million) and Adjusted EBITDA of $28 million (Q4-17 - $24 million). The plywood market was strong throughout the quarter with pricing well ahead of 2017 levels. Plywood shipments were held back by transportation challenges as well.
Our pulp & paper segment generated operating earnings of $58 million (Q4-17 - $48 million) and Adjusted EBITDA of $70 million (Q4-17 - $60 million). The major factors contributing to the increase in operating earnings were higher Canadian dollar pulp prices and an increase in NBSK shipments offset by lower BCTMP shipments, again due to transportation headwinds.
“This was a challenging quarter operationally. Weather and transportation challenges were significant headwinds to production and shipments. I also want to congratulate Ray Ferris on taking on the role of President and Chief Operating Officer. I look forward to working even closer with Ray as we continue to build upon the great efforts of all our employees," said Ted Seraphim, Chief Executive Officer.
We will continue to focus on operational improvements which should contribute to growing production in lumber and MDF versus the prior year. In the first quarter, results were adversely affected by transportation service disruptions resulting in a substantial increase in finished good inventory levels. We are uncertain when the backlog of shipments will be cleared and we will likely incur additional storage, freight and other distribution costs. Our pulp mills do not have any scheduled major maintenance shutdowns during the balance of 2018.
Countervailing (“CVD”) and antidumping (“ADD”) duty dispute
In November 2016, a coalition of U.S. lumber producers filed a CVD/ADD petition against Canadian softwood lumber producers who import lumber into the United States. The petition alleged that Canadian lumber producers are subsidized. CVD and ADD duties have been imposed against Canadian softwood lumber imports beginning in 2017. See Note 26 “Softwood lumber dispute” of our 2017 annual consolidated financial statements included in the company’s 2017 Annual Report for additional information.
During the first quarter of 2018 we incurred duty deposits of $34 million related to CVD and $11 million related to ADD. We continue to recalculate the ADD rate for the current period of review using our reported results and the same calculation methodology as the U.S. Department of Commerce (“USDOC”). Based on our current data, we determined that the expected ADD rate will be substantially lower than the current ADD deposit rate and as such, we have recorded a long-term duty deposit receivable related to ADD for the difference.
During the quarter, the USDOC and U.S. International Trade Commission completed a preliminary investigation and assigned our jointly-owned newsprint mill a CVD rate of 6.53 per cent and an ADD rate of 22.16 per cent. This resulted in an expense of $2 million in the quarter for our pulp & paper segment.
The duty rates are subject to change based on administrative reviews and appeals available to us. Notwithstanding the deposit rates assigned under the investigations, our final liability for the assessment of CVD and ADD will not be determined until each annual administrative review process is complete and related appeal processes are concluded.
West Fraser is a diversified wood products company producing lumber, LVL, MDF, plywood, pulp, newsprint, wood chips and energy with facilities in western Canada and the southern United States.
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