Higher volumes and prices boost Interfor’s Q2 results
International Forest Products Limited (Interfor) reported net earnings of $0.3 million or $0.01 per share in the second quarter of 2012.
By John Tenpenny
Excluding restructuring costs and other one-time items, the Company’s net earnings in the second quarter were $0.9 million or $0.02 per share compared with a net loss of $5.2 million or $0.09 per share in the first quarter of 2012 and a net loss of $3.2 million or $0.06 per share in the second quarter of 2011.
Key factors impacting the Company’s results in the current quarter were higher lumber sales volumes and prices which increased 13% and 7% respectively versus the immediately preceding quarter.
EBITDA for the quarter (adjusted to exclude one-time items and other income) was $16.5 million, up $10.7 million versus the first quarter of 2012 and $5.2 million higher than the same quarter last year.
Lumber production in the quarter was 333 million board feet, up 10 million board feet or 3 percent compared to the immediately preceding quarter. Sales volume, including wholesale activities, was 363 million board feet, compared with 320 million board feet in the first quarter.
Capacity utilization in the second quarter was 80%, up from 78% in the first quarter, in spite of a week curtailment at Adams Lake to facilitate repairs to one of that mill’s kilns.
In the quarter, SPF 2×4 in the U.S. market averaged US$295 per mfbm, up US$29 per mfbm versus the first quarter, and Hem-Fir studs were $US337 per mfbm, up US$43 per mfbm. MSR was particularly strong with prices of SPF 1650f up US$58 per mfbm in the quarter. Activity levels in China remained firm in the second quarter although prices lagged those in North America. In Japan, prices for traditional products were impacted by changes in currency rates with green hemlock squares off US$18 per mfbm quarter-over-quarter while J Grade dimension was flat. Cedar prices were up 2-3% in the quarter.
Export taxes on shipments to the U.S. fell to 10% in June in response to higher lumber prices resulting in a tax saving of approximately $0.4 million or $0.01 per share in the quarter.
In the quarter, Interfor generated $12.0 million in cash from operations after changes in working capital were considered. Capital spending amounted to $14.4 million, including $6.2 million on the Grand Forks and Castlegar upgrades that are now underway.
Net debt closed the quarter at $119.4 million or 24 percent of invested capital.
The near-term outlook for recovery in the U.S. housing sector remains uncertain and concerns over sustainability continue. Export taxes have declined to 5% for July but will increase to 10% in August due to recent decreases in the relevant market benchmark. Canadian housing starts are expected to slow slightly over the balance of 2012.
Compared to recent years, the economic outlook for China has softened as the Chinese government scales back economic growth targets and real estate markets weaken under government restrictions designed to stabilize housing prices.
Activity levels in Japan should improve as the year progresses as reconstruction in the areas impacted by the March 2011 earthquake and tsunami gains momentum.
The Canadian dollar is projected to trade near parity relative to its U.S. counterpart through 2012.
Considerable attention continues to be devoted to the capital projects at Grand Forks and Castlegar with timelines on track for completion in the first quarter, 2013. The Company recently introduced a number of scope changes to the Grand Forks project including plans to upgrade the mill’s log and lumber storage yards that had originally been planned for the third and fourth quarter, 2013 and for 2014. The additional capital authorized totals $8.9 million and will be funded from internally-generated cash flow and, if necessary, from the Company’s credit lines.