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West Fraser reports improvements in pulp segment in Q1 2020

West Fraser Timber Co. Ltd has reported improvements in its pulp segment in the company’s first-quarter 2020 financial results.

Sales are $1.195 billion for Q1 2020, up six per cent over Q4 2019. The company’s adjusted EBITDA is $127 million, $47 million higher than prior quarter.
Improved prices, favourable foreign exchange rate movements, and lower fibre costs resulted in improved Adjusted EBITDA for the quarter.

The company says the impact of coronavirus has been “swift,” and resulted in first-quarter production adjustments including a reduction of approximately 50 MMfbm of lumber and 10 MMsf of plywood.

“The safety, health, and well-being of our employees and the communities in which we operate remain our primary focus,” says Ray Ferris, president and CEO of West Fraser in the report.

“Our goal is to operate safely and to mitigate potential exposure. As such, we have implemented physical distancing strategies, increased cleaning and disinfection at our sites, provided protective equipment as required, executed remote working policies, and eliminated all non-essential travel.”

Pulp results

The company’s pulp and paper segment generated operating earnings of $nil, over a Q4 2019 $12 million loss, and an adjusted EBITDA of $11 million.

The improvement was due primarily to improved pulp pricing, favourable foreign exchange rate movements, lower chip costs and positive inventory valuation adjustments resulting from improved pulp prices, partially offset by lower pulp shipment volumes.

The price variance resulted in a $6 million increase in adjusted EBITDA compared to the previous quarter.

Outlook

West Fraser expects production to continue to be negatively affected over the coming months due to the COVID-19 pandemic’s impact on the supply chain and market demand.

As previously announced, the company has been operating below capacity in SPF, SYP and plywood. West Fraser also announced four weeks of downtime at its Cariboo Pulp joint operation starting April 20, 2020, that will reduce its share of production by 15,000 tonnes.

The company expects that production schedules will be variable for the foreseeable future and will continue to adjust operations as necessary. At this point, it is not possible to predict when all operations will return to normal schedules or whether production schedules will be further changed.

At this time, West Fraser is withdrawing the production outlook for 2020 provided in our 2019 annual MD&A and are not able to provide any further guidance.

“Our well capitalized balance sheet along with our low-cost manufacturing operations and product and geographic diversification, provide us with a strong platform to manage through the impacts of the COVID-19 pandemic,” says Ferris.

Read the full Q1 2020 West Fraser financial report.