Acadian reports 7% improvement
Oct. 30, 2014 – Acadian Timber reported its third quarter results, reflecting a solid performance over the quarter.
"Acadian's financial performance improved significantly year-over-year", commented Reid Carter, Chief Executive Officer of Acadian. "Solid demand for the majority of our products resulted in improved prices which, combined with good summer operating conditions, led to higher net sales and a 50% increase in Adjusted EBITDA."
For the third quarter, Acadian generated net sales of $21.6 million on sales volume of 368 thousand m3, a $2.8 million increase compared to the same period in 2013. The increase in net sales year-over-year reflects a 7% increase in sales volume and a 9% increase in the weighted average log selling price with the majority of the increase in this sales volume and selling price occurring in Acadian's higher margin spruce-fir sawlog sort. On a year-to-date basis, net sales are 4% higher than in the same period last year with a 7% decline in sales volume more than offset by a 10% increase in the weighted average log price.
Adjusted EBITDA of $5.7 million for the third quarter was $1.9 million higher than in the third quarter of 2013, while Adjusted EBITDA margin increased to 26%, up 6% from the same period in 2013. Free Cash Flow was $4.7 million during the third quarter, also an increase of $1.9 million compared to the prior year. These improvements reflect the log price and volume improvements noted above along with minimal change in overall average per unit variable costs.
Operating earnings for the third quarter, at $5.5 million, increased $1.9 million year-over-year, reflecting increased sales volumes and margin improvements stemming from a higher value product mix and stronger pricing. Acadian's net loss for the third quarter was $0.6 million, or $0.03 per share, a decrease of $4.0 million or $0.23 per share from the same period in 2013, however the majority of the difference is related to non-cash items including a larger fair value adjustment due to the higher harvest volume and a difference of $5.4 million in the unrealized exchange loss on long-term debt compared to the same period of the prior year.
Acadian's operations ran well during the third quarter with weather conditions typical for the summer season and improved demand for softwood resulting in a 7% increase in total sales volume compared to the same period in the prior year. Acadian's softwood sawlog sales volume for the third quarter increased 14% from the same period in 2013, while sales volumes for hardwood sawlogs and pulpwood increased by 3% and 6%, respectively, and biomass volumes remained almost unchanged.
Acadian's weighted average log selling price for the third quarter increased 9% year-over-year due to higher softwood and hardwood sawlog and hardwood pulpwood prices, a stronger U.S. dollar and a higher value sales mix. While stronger softwood sawlog markets drove an 11% increase in softwood sawlog prices relative to the third quarter of 2013, the higher prices were partially offset by higher cost associated with sales to more distant markets. Prices for hardwood sawlogs and pulpwood improved, each increasing by 9% over the same period last year. Softwood pulpwood pricing has remained stable, however, the number of groundwood pulp customers operating in the region continues to decline.
Biomass gross margin was down 20% year-over-year with the majority of the change coming from the New Brunswick operations where a smaller proportion of the volume was sold to the higher margin export markets than in the prior year.
New Brunswick Timberlands
Acadian's New Brunswick Timberlands had a very strong quarter with softwood, hardwood and biomass shipments of 109 thousand m3, 112 thousand m3 and 69 thousand m3, respectively, during the third quarter representing a 14% year-over-year increase in sales volume. Approximately 36% of sales volume was sold as sawlogs, 40% as pulpwood and 24% as biomass in the third quarter. This compares to 33% sold as sawlogs, 43% as pulpwood and 24% as biomass in the third quarter of 2013.
Net sales for the third quarter totaled $16.3 million compared to $13.6 million for the same period last year reflecting more favourable operating and market conditions. The weighted average log selling price was $61.55 per m3 in the third quarter of 2014, a 10% increase from $55.94 per m3 in the same period of 2013 as a result of improved selling prices for most products and a higher proportion of sawlogs in the sales mix. Net sales for the nine months ended September 27, 2014 were $40.0 million, an increase of $0.7 million over the same period in 2013, with lower sales volumes more than offset by improved pricing.
Costs for the third quarter were $11.8 million, compared to $10.9 million in the same period in 2013, due to higher harvest volumes of primary products. Variable costs per m3 were unchanged from the prior year. For the nine months ended September 27, 2014, costs were $29.4 million, $1.3 million lower than during the same period of 2013, due to lower harvest volumes.
Adjusted EBITDA for the third quarter was $4.5 million, compared to $2.7 million in the third quarter of 2013 reflecting higher sales volumes and improved prices. The improved prices along with unchanged average per unit variable costs increased Adjusted EBITDA margin to 28% from 20% in the prior year. For the nine months ended September 27, 2014, Adjusted EBITDA was $10.6 million, an increase of $2.0 million over the same period of 2013 with the decrease in harvest volume more than offset by improved year-to-date prices.
There was one recordable safety incident among employees and two recordable incidents among our contractors during the third quarter of 2014.
The U.S. market is showing broad improvement in economic conditions including strong real GDP and consumer spending growth with the unemployment rate now below six percent. This strength has had little impact on the housing market to date however, with new and existing home sales remaining disappointing. Household formations are still lagging and most new households are still choosing to rent rather than buy. We believe the market is steadily improving with consumers' net wealth steadily improving and fewer homeowners in distress as indicated by the steady decline over the past few years in delinquency rates, foreclosures and the share of mortgages in a negative equity position. This is expected to support continued increases in housing starts through 2016 and this optimism, along with supply-side challenges and continued strong exports, should keep North American lumber prices well above historical norms, encouraging Acadian's key solid wood customers to continue to operate at full capacity. As such, we expect to see ongoing strong demand for softwood sawlogs in the region.
Markets for hardwood sawlogs have been positive and are expected to remain stable and demand and pricing for hardwood pulpwood continues to be very favourable. While Acadian has been successful in selling its softwood pulpwood production, this market is expected to be increasingly challenged due to the recent closure of several regional mills. Biomass sales have begun to improve as the reduction of logistical challenges previously constraining exports from our NB Timberlands have been relieved.