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West Fraser reports strong sales in Q4 2020

West Fraser Timber Co. has reported its fourth quarter and annual results of 2020, citing sales of $1.689 billion in the quarter.

“Despite a year filled with uncertainty, West Fraser maintained its strategy and delivered strong results,” says the company in a statement.

“We minimized COVID-19 related business disruptions, thanks to our focus on workplace safety and the agility of our people and operations, and benefitted from strong demand for our products.”

The acquisition of Norbord Inc. was completed on Feb. 1, 2021. Except where specifically noted, the financial information set out in this release relates solely to West Fraser prior to giving effect to the acquisition of Norbord.

Fourth quarter results

• Sales of $1.689 billion in the quarter
• Earnings of $366 million or 22 per cent of sales
• Adjusted EBITDA of $544 million
• A quarterly cash dividend of $0.20 declared
• Additional export duty recovery of $124 million for the finalization of the 2017 and 2018 administrative review
  2020

Year-end 2020 results

• Sales of $5.850 billion in the year
• Earnings of $776 million or 13 per cent of sales
• Adjusted EBITDA of $1.460 billion
• Cash provided by operating activities of $1.295 billion
• Invested $241 million in capital projects
• Year-end liquidity strong at $1.619 billion and net debt to capital ratio at two per cent

Operational results

Pulp and paper

West Fraser’s pulp and paper segment generated an operating loss in the quarter of $36 million (Q3-20 – loss of $5 million) and adjusted EBITDA of negative $26 million (Q3-20 – positive $5 million).

Hinton pulp’s annual major maintenance and Quesnel pulp’s minor maintenance shutdowns occurred in the quarter resulting in significantly higher maintenance costs than the previous quarter. Despite this challenging quarter, the reliability of the company’s Hinton pulp mill improved in 2020.

Lumber

West Fraser’s lumber segment generated operating earnings in the quarter of $503 million (Q3-20 – $454 million) and adjusted EBITDA of $508 million (Q3-20 – $552 million). Current quarter operating earnings includes a $124 million duty recovery related to the AR1 duty rate finalization.

Adjusted EBITDA, which excludes duties, declined due to lower lumber prices, a stronger Canadian dollar relative to the U.S. dollar, and higher SPF log costs resulting from increased Alberta stumpage rates. Higher SPF shipment volumes partially offset the decline. The company says it remains encouraged by the progress we have seen with the capital that we have invested in the U.S. south.

Panels

West Fraser’s panels segment generated operating earnings in the quarter of $57 million (Q3-20 – $47 million) and adjusted EBITDA of $62 million (Q3-20 – $51 million).

Increased plywood pricing and robust plywood demand positively impacted the panels segment earnings for the quarter, partially offset by a decrease in plywood, MDF, and LVL shipments and higher log costs from increased Alberta stumpage rates. The positive price variance increased adjusted EBITDA by $26 million compared to the previous quarter.

Outlook

West Fraser expects lumber production for 2021 to increase by approximately 340 MMfbm over 2020 production and reach approximately 6,300 MMfbm. Pulp production is expected to slightly improve in 2021.

Capital expenditures are expected to be roughly $550 million in 2021, including estimates for the acquired Norbord operations post-close. With respect to the acquired North American facilities, production at the previously curtailed mill in Chambord, Quebec, will resume in spring 2021.

The company’s focus in 2021 is integrating its newly acquired OSB and panel operations and realizing gains from previous investments in capital.

The U.S. housing starts published in December 2020 remained strong and exceeded that of the previous two years. Industry forecasts for housing in 2021 are for continued strength of which West Fraser says its diversified products are well-positioned to supply. The company expects continued improvement and sustainable growth as it executes on our capital improvement strategy.

Read the full Q4 and year-end 2020 West Fraser financial report here.