Acadian Q1 net sales up 16%
May 14, 2014, Vancouver – Acadian generated net sales of $21.2 million on sales volume of 350 thousand m3 in the first quarter, which represents a $3.0 million, or 16% increase in net sales compared to the same period in 2013.
"Acadian's operations ran well this quarter with favorable winter operating conditions extending through the end of the quarter," said Reid Carter, Chief Executive Officer of Acadian. "Recent announcements of capital investments and additional operating shifts in the region are expected to result in continued strong demand for softwood sawlogs going forward."
Adjusted EBITDA of $6.7 million for the first quarter was $2.0 million higher than in the first quarter of 2013, while Adjusted EBITDA margin increased to 32% from 26% in the same period of last year.
Acadian continues to actively pursue business development opportunities in support of Acadian's global growth strategy. After a prolonged period of limited investment opportunities, management is currently seeing an increasing number of owners willing to test the market and is optimistic that Acadian will be in a position to participate in attractive opportunities during 2014.
Financial and Operating Highlights
Operating earnings for the period, at $6.5 million, increased $2.0 million year-over-year reflecting improved log selling prices and sales volumes. Net income totaled $0.7 million, or $0.04 per share, for the first quarter, a decrease of $0.6 million or $0.04 per share from the same period in 2013. The decrease in net income primarily reflects a higher non-cash fair value adjustment to timber and an increased unrealized exchange loss on long-term debt.
Acadian's operations ran well during the first quarter with favorable winter operating conditions extending through the end of the quarter. Harvest volume for the first quarter, excluding biomass, was 349 thousand m3, in line with the same period in the prior year. Sales volume of 350 thousand m3 was up 3% from the first quarter of 2013, with the increase coming from Acadian's operations in New Brunswick.
Acadian's weighted average log price for the first quarter of 2014 increased 9% year-over-year reflecting increased prices across most products and changes in product mix. Stronger softwood sawlog markets and the strengthening of the U.S. dollar resulted in a 7% increase in the weighted average softwood sawlog price relative to the first quarter of 2013. Most of this benefit came from the Maine operations. Hardwood sawlog markets improved for both the New Brunswick and Maine operations with weighted average selling prices increasing by 16%. Prices for softwood and hardwood pulpwood decreased 7% and increased 10%, respectively, year-over-year. While market conditions for hardwood pulpwood continued to be strong, softwood pulpwood markets were challenged during the quarter due to a limited customer base. Biomass markets remained stable, however, realized gross margins on this product decreased 23% year-over-year due to fewer export customers.
New Brunswick Timberlands
Softwood, hardwood and biomass shipments were 100 thousand m3, 116 thousand m3 and 29 thousand m3, respectively, during the first quarter. This represents a year-over-year increase in sales volume of 7%. Approximately 38% of sales volume was sold as sawlogs, 50% as pulpwood and 12% as biomass in the first quarter. This compares to 27% sold as sawlogs, 53% as pulpwood and 20% as biomass in the first quarter of 2013.
Net sales for the first quarter totaled $14.4 million compared to $12.2 million for the same period last year, reflecting the positive impact of not operating under the VMI program that resulted in the deferral of softwood sawlog sales into the second quarter in 2013. Net sales also benefited from increases in selling prices across most products and a more favourable product mix. The weighted average log selling price was $60.88 per m3 in the first quarter, a 5% increase from $57.77 per m3 in the same period of 2013.
Costs for the first quarter were $10.0 million, compared to $9.2 million in the same period in 2013, due to 1% higher variable costs per m3 resulting primarily from higher hardwood harvest volumes.
Adjusted EBITDA for the first quarter was $4.5 million, compared to $3.0 million in the first quarter of 2013 reflecting improved market demand for most products and the impact of the VMI program in 2013. Adjusted EBITDA margin increased to 31% from 25% in the prior year.
During the first quarter of 2014, NB Timberlands experienced no recordable incidents among employees and one reportable incident among contractors.
The U.S. housing market has struggled in 2014 despite significant increases in pent up demand. While severe winter weather is almost certainly behind much of the slowdown, underlying demand remains weak as traditional buyers continue to defer home purchases while they wait for employment conditions to strengthen further. Although the current housing outlook is uncertain, almost all industry watchers are forecasting year-over-year increases in total housing starts of approximately 15% in 2014 with increases of the same magnitude forecast for 2015.
Meanwhile, Acadian's key solid wood customers continue to operate at high levels and, following the New Brunswick government's announcement of its Forestry Plan in mid-March, there have been announcements of significant capital investments and additional operating shifts at Irving's St. Leonard and Kedgwick sawmills and Twin Rivers' Plaster Rock sawmill. This is in addition to last summer's announcement of Irving's new sawmill in Portage, Maine. As a result, we expect to see continued strong demand for softwood sawlogs in the region.
In addition to our positive outlook for softwood sawlogs, markets for hardwood sawlogs have been positive and are expected to remain stable while demand and pricing for hardwood pulpwood continues to be strong. While Acadian has been successful in selling its softwood pulpwood production, this market continues to be challenging owing to the closure of regional groundwood mills. Fortunately, this product represents only a small portion of Acadian's sales and an even lower proportion of our operating earnings. Biomass markets are mixed owing to a slowdown in export markets, with demand and pricing expected to remain reasonable offering modest margins.