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West Fraser sees sales spike in Q3 2020 financial results

West Fraser Timber Co. Ltd. has reported its results for the third quarter of 2020, citing a 32 per cent increase in sales to nearly $1.7 billion in the quarter.

Adjusted EBITDA increased to $605 million from $184 million in the second quarter, and cash flow from operations of $613 million for the third quarter and $930 million year to date.

Pulp and paper

West Fraser’s pulp and paper segment generated operating earnings in the third quarter of negative $5 million (Q2-20 – negative $1 million) and adjusted EBITDA of $5 million (Q2-20 – $10 million).

Lower pulp and newsprint prices offset improved shipping volumes, and per-unit manufacturing costs benefits resulting in a net decrease in adjusted EBIDTA compared to the previous quarter.

The company’s Cariboo NBSK mill was temporarily shutdown during the second quarter in response to low fibre availability and to complete the annual maintenance outage resulting in 19,000 tonnes of lower production.

Lumber

The company’s lumber segment generated operating earnings in the quarter of $454 million (Q2 20 – $66 million) and adjusted EBITDA of $552 million (Q2 20 – $156 million).

The improvement was due primarily to higher lumber prices and SYP shipment volumes, partially offset by lower SPF shipment volumes.

Higher lumber prices increased adjusted EBITDA by $424 million compared to the previous quarter.

The combination of lower manufacturing costs, increases in variable compensation expense and slightly lower shipment volumes resulted in a $28 million offset to adjusted EBITDA.

West Fraser’s lumber segment operated near capacity during the current quarter compared with the second quarter where temporary curtailments reduced SPF and SYP production by approximately 170 MMfbm.

Panels

The company’s panels segment generated operating earnings in the quarter of $47 million (Q2-20 – $17 million) and adjusted EBITDA of $51 million (Q2-20 – $20 million).

Increased plywood pricing and robust plywood demand positively impacted the panels segment earnings for the quarter.

The positive price and volume variance increased adjusted EBITDA by $33 million compared to the previous quarter.

The WestPine insurance claim related to the 2016 fire at this MDF facility was settled in the second quarter resulting in a $7 million benefit recorded in cost of products sold from business interruption insurance and an additional $7 million from proceeds on the involuntary disposal of equipment recorded in other income.

Plywood facilities operated near capacity during the current quarter, while the second quarter included temporary plywood curtailments of approximately 50 MMsf.

Outlook

Throughout the third quarter, demand for lumber and plywood products remained strong, resulting in higher product prices.

Repair and renovation activity and related demand also continued to trend positively. Housing market indicators, including new home starts, available for sale inventory, and mortgage rates, support the continued expectation of healthy demand for wood products.

Despite recent volatility, the longer-term outlook for growth in wood products consumption appears favourable.

The company’s lumber and plywood facilities are operating at as close to full capacity as possible to meet market demand.

Pulp markets are anticipated to experience some stress in the near term due to decreased demand for pulp used in printing and writing products, which has been accelerated by several factors, including the shift in advertising from paper to digital media and the economic impact of COVID-19.

The restart of the Hinton pulp facility following the major maintenance shutdown will be delayed, and forth quarter production is expected to be impacted by 24,000 tonnes. The Quesnel BCTMP mill is scheduled for downtime for capital installation in the fourth quarter, resulting in approximately 11,000 lost production tonnes.

Quarter end available liquidity was $1,346 million, and the balance sheet is well prepared to face potential volatility that may exist in the company’s markets over the coming quarters.

Read the full West Fraser Timber Co. Q3 2020 financial report here.