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West Fraser reports loss in Q2 2019, impacted by softer lumber prices

July 19, 2019 – West Fraser Timber Co. Ltd. reported a loss in its second quarter 2019 results compared to the year-ago period, which the company attributes to softer lumber prices, higher log costs and higher duties.

Sales in Q2 2019 were $1.32 billion, down from $1.83 billion in Q2 2018. Its adjusted earnings for Q2 2019 were down $17 million, or 25 cents per share, from $397 million in earnings, or $5.19 a share, in Q2 2018.

West Fraser announced the permanent closure of its Chasm, British Columbia lumber mill in June, along with third-shift reduction at 100 Mile House lumber mill. Permanent and temporary curtailments resulted in 250 MMfbm of reduced lumber production during the first half of 2019. Permanent curtailments are expected to reduce annual production capacity by 614 MMfbm.

The company cited cash flow from operations of $187 million for the quarter, with a quarter-ending net debt to capital ratio of 26 per cent and available liquidity of $365 million.

On July 18, 2019, available credit under West Fraser’s syndicated committed revolving credit facilities was increased by $350 million to $850 million and maturity date of these facilities and US$200 million syndicated term loan extended to August 28, 2024. Proforma for this increase, available liquidity totalled $715 million.

The company also announced Ray Ferris as its new CEO, effective July 1, 2019, replacing Ted Seraphim, who retired.

Operational results
Lumber production was up five per cent over the first quarter even with the curtailments that were undertaken in both quarters as productivity increased from the first quarter. Lumber shipments exceeded production by approximately 150 MMfbm resulting in reduced inventories. Adjusted EBITDA for the lumber segment was $39 million compared to $84 million in the previous quarter as lower lumber prices prevailed in the quarter.

Panel production and shipments were relatively consistent with comparative periods. Lower plywood pricing reduced adjusted EBITDA in the panels segment to $10 million from $15 million in the prior quarter.

West Fraser completed the second of two major maintenance shutdowns at its NBSK mills in the quarter and resumed normal production schedules. NBSK production was 12 per cent better than the prior quarter as both of the NBSK mills recovered from their shutdowns. Softer pulp pricing and higher maintenance costs reduced adjusted EBITDA for the pulp and paper segment to $7 million from $11 million for the quarter.

Outlook
As a result of the temporary and permanent curtailments of production announced to date, West Fraser says it expects 2019 lumber production to be at least 600 million board feet lower than 2018. The company expects that industry production reductions will have a more significant impact on lumber supply in the second half of 2019 as permanent closures are implemented and shipments are reduced as mill inventories are eliminated.

Forest fires followed by wet weather have resulted in low log inventories at some of West Fraser’s Alberta mills. The company says there is risk it may need to take more downtime due to a shortage of logs at some of the Alberta mills in addition to the previously announced downtime at the plywood facility.

Read the full West Fraser Q2 2019 financial report.