Canfor reports flat Q3
Nov. 6, 2014, Vancouver - Canfor Corporation reported net income attributable to shareholders of $45.5 million, or $0.34 per share, for the third quarter of 2014, compared to $54.3 million, or $0.39 per share, for the second quarter of 2014 and $28.4 million, or $0.20 per share, for the third quarter of 2013. For the nine months ended September 30, 2014, the company's shareholder net income was $145.3 million, or $1.05 per share, compared to shareholder net income of $200.6 million, or $1.41 per share, reported for the comparable period of 2013.
After adjusting for items affecting comparability with the prior periods, the company's adjusted shareholder net income for the third quarter of 2014 was $50.7 million, or $0.38 per share, compared to an adjusted shareholder net income of $56.7 million, or $0.41 per share, for the second quarter of 2014. Canfor's adjusted shareholder net income for the third quarter of 2013 was $26.2 million, or $0.18 per share.
The company reported operating income of $85.6 million for the third quarter of 2014, compared to operating income of $97.3 million for the second quarter of 2014. The decrease in operating income largely reflected higher-than-normal lumber shipments in the second quarter of 2014 following resolution of the transportation related challenges from earlier in the year. Lumber sales realizations were broadly in line with the previous quarter, as offshore sales realizations lagged North American gains. Further impacting the third quarter results were higher unit log costs principally due to increased logging and hauling costs and higher market-driven stumpage rates. These factors were mitigated somewhat by a modest improvement in the performance of the company's pulp and paper segment, which for the most part reflected higher operating rates in the quarter.
In the third quarter of 2014, Western Spruce/Pine/Fir ("SPF") lumber prices saw a gradual improvement through most of the quarter driven in part by improving U.S housing starts which averaged 1,024,000 units SAAR (seasonally adjusted annual rate), up 4% from the previous quarter but still below historical levels. In Canada, housing starts were in line with the previous quarter at an average of 196,000 units SAAR in the third quarter of 2014. Offshore shipments were relatively stable during the quarter and returned to more normal levels following the release of excess inventory in the previous quarter.
The company's lumber sales realizations were relatively unchanged compared to the previous quarter as the 7% improvement in the average North American Western SPF 2x4 #2&Btr price (up US$22 per Mfbm to US$357 per Mfbm) was offset by lower sales realizations in offshore markets, in part reflecting the nature of offshore pricing, much of which is negotiated monthly or quarterly in advance. Average sales realizations for Southern Yellow Pine ("SYP") products were up slightly compared to the previous quarter, as a US$33 per Mfbm, or 8%, increase in the benchmark SYP 2x4 #2 price was largely mitigated by price decreases in most wider dimension products.
Lumber shipments were down 9% from the previous quarter as shipments returned to more normal levels following improved railcar availability and resolution of the truckers' strike at the Vancouver Port in the second quarter of 2014. Lumber production was down slightly from the previous quarter, largely as a result of an additional statutory day in Canada, continued capital ramp-ups at several mills following major capital upgrades and semi-annual maintenance shuts at the company's southern pine operations in the current quarter. Lumber unit manufacturing costs saw a modest increase from the previous quarter, largely due to higher unit log costs and, to a lesser extent, the unfavourable impact of lower production volumes on unit cash conversion costs.
During the third quarter of 2014, the Company completed the second phase of the purchase of Scotch & Gulf Lumber, LLC ("Scotch & Gulf"), increasing Canfor's interest in Scotch & Gulf to 33.3%. Canfor also announced the acquisitions of Balfour Lumber Company and Beadles Lumber Company, both located in Georgia, and Southern Lumber Company, located in Mississippi, which are currently anticipated to close in the first quarter of 2015. In regard to the recent investments, Canfor's President and Chief Executive Officer, Don Kayne, said, "We are pleased to acquire interests in additional high performing operations located in strong fibre regions. With the welcome additions of Balfour Lumber Company, Beadles Lumber Company and Southern Lumber Company to Canfor, we look forward to continuing to enhance our margins in the U.S. South."
Looking ahead, North American lumber consumption is forecast to ease somewhat with a seasonal slowdown in both residential construction and repair and remodeling sectors, although the underlying fundamentals of the U.S. housing market remain favourable and are anticipated to result in improving demand in early 2015. Offshore shipments are forecast to remain stable for the balance of the year with relatively steady volume to China and Japan. The company anticipates NBSK pulp list prices will remain relatively stable for the fourth quarter of 2014.