Canfor results up from Q1 and 2015
Canfor Corporation today reported net income attributable to shareholders of $36.0 million, or $0.27 per share, for the second quarter of 2016, compared to shareholder net income of $26.0 million, or $0.20 per share, for the first quarter of 2016 and shareholder net income of $11.1 million, or $0.08 per share, for the second quarter of 2015. For the six months ended June 30, 2016, the Company’s shareholder net income was $62.0 million, or $0.47 per share, compared to $40.4 million, or $0.30 per share, for the six months ended June 30, 2015.
The Company reported adjusted operating income of $54.1 million for the second quarter of 2016, down $11.0 million from operating income of $65.1 million for the first quarter of 2016, with a solid improvement in lumber segment operating earnings more than offset by lower operating earnings in the pulp and paper segment, which reflected significant scheduled maintenance downtime in the quarter. Adjusted operating income excludes a one-time pre-tax gain of $15.5 million related to the settlement of a legal claim with respect to logistics services for its pellet business.
Improved lumber segment results principally reflected higher Western Spruce/Pine/Fir (“SPF”) and Southern Yellow Pine (“SYP”) benchmark lumber prices and to a lesser extent, the contribution from the Company’s Wynndel Box and Lumber Ltd. (“Wynndel”) acquisition on April 15, 2016. These factors were offset in part by a 5 cent, or 7%, stronger Canadian dollar, and slightly lower planer production at the Company’s Houston sawmill following a kiln fire in May. Pulp and paper segment operating earnings were lower than the previous quarter primarily due to scheduled maintenance outages at all three of the Company’s NBSK pulp mills as well as lower Canadian-dollar NBSK pulp unit sales realizations.
North American lumber demand was solid across all segments of the market in the second quarter of 2016, with US housing starts in line with the previous quarter, averaging 1,160,000 units on a seasonally adjusted basis. Canadian housing starts were also broadly in line with the previous quarter, at an average of 198,000 units on a seasonally adjusted basis. Offshore lumber demand remained steady during the quarter.
The average benchmark North American Random Lengths Western SPF 2x4 #2&Btr price was US$311 per Mfbm in the second quarter of 2016, up US$39 per Mfbm compared to the previous quarter, with similar price increases seen across most other dimensions and grades, with the exception of Western SPF 2x6 #2&Btr price which showed a more modest increase. Western SPF unit sales realizations benefitted from the higher US-dollar benchmark lumber prices as well as a higher-value sales mix. Partly offsetting these factors was the 7% stronger Canadian dollar during the quarter. SYP unit sales realizations also increased compared to the previous quarter reflecting both a US$30 per Mfbm increase in the SYP 2x4 #2 price and more pronounced price increases in most wide-dimension SYP lumber products which represent a significant proportion of the Company’s product mix in the US South.
Total lumber shipments and production were in line with the first quarter of 2016 as the recent acquisition of Wynndel offset slightly reduced production in Western Canada as a result of the Houston sawmill’s kiln fire. Unit manufacturing costs in the second quarter of 2016 were in line with the previous quarter. Positive pricing momentum in global softwood pulp markets during the secondquarter of 2016 was due mostly to the impact of industry spring maintenance outages and solid demand, particularly from China.
The average North American US-dollar NBSK pulp list price, as published by RISI, was up US$37 per tonne, or 4%, to US$980 per tonne, while the average price to China was up US$27 per tonne, or 5%. However, NBSK pulp unit sales realizations showed a modest decline from the previous quarter as price increases were outweighed by the stronger Canadian dollar and a higher proportion of shipments at the beginning of the quarter when NBSK prices were lower. Similarly, Bleached Chemi-Thermo Mechanical Pulp (“BCTMP”) US-dollar list prices also trended positively in the second quarter of 2016 but the increases were offset by the stronger Canadian dollar. Lower energy revenue in the current quarter reflected both increased scheduled maintenance downtimeand seasonally lower energy prices.
Pulp shipment and production volumes were down 10% and 13%, respectively, from the previous quarter principally reflecting the impact of the aforementioned scheduled maintenance outages and, to a lesser extent, isolated unplanned disruptions prior to the scheduled outages, which reduced market NBSK pulp production by approximately 40,000 tonnes compared to the 38,000 tonne impact forecast in the previous quarter’s press release. NBSK unit manufacturing costs were substantially higher than the previous quarter principally as a result of the scheduled maintenance outages. BCTMP production volumes and unit manufacturing costs were broadly in line with the first quarter of 2016.
Discussions between the Canadian and US Governments regarding the Softwood Lumber Agreement continued through the second quarter of 2016. The one-year stand-still period, during which no trade actions may be imposed, expires in October 2016. While discussions have been progressing, it remains uncertain as to whether a new Softwood Lumber Agreement will be in place by the end of the stand-still period. Looking ahead, the US housing market is forecast to continue its gradual recovery through the balance of 2016.
North American lumber consumption is forecast to improve reflecting steady demand in the residential construction market and continued strength from the repair and remodelling sector. For the Company’s key offshore lumber markets, demand is anticipated to remain stable through the third quarter.
July 26, 2016 By Scott Jamieson
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