Canfor Q4 results up 31%
February 5, 2014, Vancouver - The North American pulp and lumber giant Canfor Corp. reported results of $28.0 million in Q4 2013, flat with Q3 but up almost $7 million over last year.
By Scott Jamieson
This compared to $28.4 million, or $0.20 per share, for the third quarter of 2013 and $21.3 million, or $0.15 per share, for the fourth quarter of 2012. For the year ended December 31, 2013, the company’s shareholder net income was $228.6 million, or $1.61 per share, compared to $26.4 million, or $0.18 per share, reported for 2012.
After adjusting for various items affecting comparability with the prior periods, the company’s adjusted shareholder net income for the fourth quarter of 2013 was $48.8 million, or $0.35 per share, compared to an adjusted shareholder net income of $26.2 million, or $0.18 per share, for the third quarter of 2013. Canfor’s adjusted shareholder net income for the fourth quarter of 2012 was $20.3 million, or $0.14 per share. For 2013, the company’s adjusted shareholder net income was $233.0 million, or $1.64 per share, compared to $19.0 million, or $0.13 per share, for 2012.
The company reported operating income of $53.8 million for the fourth quarter of 2013, compared to operating income of $49.3 million for the third quarter. The modest improvement in operating income was largely attributable to strong gains in lumber markets as well as higher pulp production and shipments, partially offset by lower lumber production and shipments and increased log costs as well as restructuring costs of $20.0 million related to the announced closure of the company’s Quesnel Sawmill and one-time costs of $1.1 million associated with new five year collective labour agreements for the lumber business ratified in the current quarter. Adjusted for these one-time items, operating income in the fourth quarter was $74.9 million, an increase of $25.6 million compared to the third quarter.
The North American lumber market saw strong gains in prices during the fourth quarter of 2013 supported by momentum in the U.S. housing market recovery and continued solid offshore lumber demand. U.S housing starts reached their highest level in five years, averaging 1,002,000 units SAAR (seasonally adjusted annual rate), up 14% from the previous quarter. Single-family starts, which consume a larger proportion of lumber compared to multi-family starts, increased 11% in the quarter, a further indication of the strengthening U.S. housing market. Canadian housing starts were up 4% from the third quarter of 2013 to 200,000 units SAAR, primarily reflecting steady construction activity. Canfor’s offshore lumber shipments remained at strong levels in the fourth quarter of 2013, driven in part by increased shipments to China.
The average North American benchmark Western Spruce/Pine/Fir (“SPF”) 2×4 #2&Btr lumber price was up 13% in the fourth quarter of 2013 to US$370 per Mfbm, and solid increases were seen across most other dimensions during the quarter. North American sales realizations benefited from this upward trend in pricing, as well as lower export taxes and a favourable impact from the weakening of the Canadian dollar over the period (for the Company’s Western SPF operations). Offshore sales realizations saw more modest gains in the current quarter, lagging North American gains mostly due to the nature of pricing, much of which is negotiated monthly or quarterly in advance. Sales realizations for Southern Yellow Pine (“SYP”) products were relatively flat quarter-over-quarter with an increase of US$22/Mfbm, or 6%, in the benchmark SYP 2×4 #2 price to US$415 per Mfbm, offset somewhat by declines in most wider dimension products.
Lumber shipments and production were down 63 million board feet (5%) and 56 million board feet (5%), respectively, from the prior quarter, primarily reflecting downtime related to capital installations and ramp-ups, less operating hours in the current quarter (mostly due to additional statutory holidays), and, to a lesser extent, weather related factors. Unit manufacturing costs showed a modest increase compared to the previous quarter resulting from the lower production, a continued industry-wide focus on dust control safety, and increased log costs stemming from log profile challenges related in part to severe flooding in the southeast area of British Columbia earlier in the year.
Pulp a bit better
Global softwood pulp markets saw a modest improvement in the fourth quarter, with an increase in demand and a corresponding increase in list prices. Global softwood pulp producer inventory levels were balanced during the quarter, at 27 days’ supply in December 2013, in line with September 2013. Average Northern Bleached Softwood Kraft (“NBSK”) pulp list prices increased in all regions during the fourth quarter, with the North American pulp list price up US$36 per tonne from the previous quarter to US$983 and Europe up US$35 per tonne from the previous quarter to US$902 reflecting a 4% gain in both regions. Pulp list prices to China were up US$52 per tonne to US$737, an increase of 8% in the quarter. List prices to all regions ended the 2013 year at their highest levels for two years, but price gains for the 2013 year as a whole were partly eroded by increased upward pressure on discounts, particularly in North America. Fourth quarter sales realizations also benefited slightly from the weaker Canadian dollar against the US dollar.
Higher pulp shipment levels for the fourth quarter of 2013, up over 62,000 tonnes from the prior quarter, were attributable to higher pulp production and a drawdown of inventories resulting from increased purchasing, principally from China, in part due to inventory build ahead of the Chinese Lunar New Year. The increased production levels mainly reflected a reduction in scheduled outages during the period. Pulp unit manufacturing costs in the fourth quarter of 2013 were broadly in line with the previous quarter, with the favourable impact of the higher production levels offset by higher energy costs.
Commenting on the fourth quarter performance, Canfor’s president and CEO Don Kayne, said that lumber markets continued to demonstrate improvement in demand in the U.S. and solid offshore markets, and that early indications for 2014 were encouraging. Kayne added, “With our significant investment in capital upgrades over the last couple of years, most recently at our Mackenzie and Elko Sawmills, we are well placed to take full advantage of the improving market conditions”. Regarding the pulp and paper segment’s fourth quarter results, Kayne said, “Overall shipments were strong in the fourth quarter, supported by better-than-anticipated market conditions.” He added that he was encouraged by the company’s improving operating performance as it entered 2014 and by the continued growth of its green energy business, with CPPI’s turbine upgrades at its Northwood Pulp Mill projected to be commissioned by the end of the first quarter of 2014.
Looking ahead, North American lumber consumption is forecast to improve as the U.S. housing market continues to recover and more existing homeowners are forecast to undertake home improvement projects this year. Offshore markets are projected to remain solid supported by continued demand from China, Japan and other emerging markets. With significant new hardwood pulp capacity projected to come online in the coming months, there continues to be a risk that pulp prices may come under pressure in 2014.
Lumber production, at just over 1.1 billion board feet, was down 5% from the previous quarter, caused by a combination of factors including downtime related to capital installations and ramp-ups, including work on the recent capital project at the Houston Sawmill, less operating hours in the current quarter (mostly due to additional statutory holidays), and to a lesser extent, weather related issues. Productivity in the fourth quarter of 2013 was also impacted by the start-up of additional shifts at the company’s southern pine operations. Compared to the fourth quarter of 2012, lumber production was broadly in line, with continued productivity improvements from various capital projects undertaken in 2013 and a full quarter of production from the company’s Radium Sawmill, which was restarted in the comparative period of 2012, offset by a reduction in overtime shifts in the fourth quarter of 2013.
Overall, the company’s lumber unit manufacturing costs saw a modest increase compared to the previous quarter, resulting from an increase in unit log costs coupled with moderate increases in unit cash conversion costs. The increase in unit manufacturing costs reflected the lower production as well as a continued industry-wide focus on dust control safety efforts. Higher unit manufacturing costs also reflected log profile challenges resulting from the severe flooding in 2013 in the southeast area of British Columbia and increased hauling and logging costs. These factors were partly offset by market-driven decreases in stumpage.
Compared to the fourth quarter of 2012, higher unit manufacturing costs were largely attributable to market-related stumpage increases and higher logging and hauling costs and to a lesser degree, the aforementioned continuing dust control efforts and additional shifts at the Company’s southern pine operations.