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Interfor earnings way up over 2015, Q1 too

Interfor's Q2 2016 earnings were up significantly over both Q1 2016 and the same quarter last year.

The company recorded net earnings in Q2'16 of $23.2 million, or $0.33 per share, compared to $0.8 million, or $0.01 per share in Q1'16. Adjusted net earnings1 in Q2'16 were $20.9 million, or $0.30 per share, compared to $2.6 million, or $0.04 per share, in Q1'16.

Adjusted EBITDA1 was $56.9 million on sales of $458.8 million in Q2'16, versus Adjusted EBITDA1 of $33.4 million on sales of $433.9 million in Q1'16.

Highlights for the quarter include:

  • Higher lumber prices: Product prices were higher in Q2'16 versus Q1'16, with the Western SPF Composite and the Southern Pine ("SP") Composite up over the prior quarter by US$38 and US$27 per mfbm, respectively. As somewhat of an offsetting factor, the Canadian Dollar was stronger quarter-over-quarter, averaging 1.2886 in Q2'16 versus 1.3732 in Q1'16.
  • Higher lumber production: The company produced an additional 19 million board feet in Q2'16 versus Q1'16, mostly reflective of productivity gains at several operations as ongoing improvement initiatives take effect.
  • Business Optimization Initiative: The company is focused on capturing margin expansion opportunities across its operations and has taken a number of steps to advance this initiative. In particular, the company achieved strong productivity, cost and product mix gains at its Gilchrist, Oregon operation, which resulted in a significant margin improvement over Q1'16. In addition, a number of margin improvement projects are underway across the U.S. South platform, with early stage results being realized.
  • Tacoma Sawmill Monetization: The monetization process for the Tacoma sawmill property is proceeding on track, with the sale expected to close in the second half of 2016.
  • Free Cash Flow Generation: Interfor generated $62.6 million of cash from operations, with a reduction in working capital contributing $6.3 million. Capital spending amounted to $15.8 million during the quarter. The company's net debt decreased by $32.1 million during the quarter to $396.0 million, or 35.2% of invested capital, providing Interfor with $181.2 million of available liquidity as at June 30, 2016.

Lumber production in Q2'16 was 637 million board feet versus 618 million board feet in Q1'16.

Production from Canadian operations totaled 218 million board feet in Q2'16, up 8 million board feet compared to Q1'16. Production increased most significantly at Castlegar, which produced an additional 4 million board feet as productivity gains have continued following the resumption of operations at that mill in Q4'15.

Production from the company's nine U.S. South sawmills totaled 270 million board feet, up 5 million board feet compared to Q1'16 as a result of a modest increase in total productivity.

Production from U.S. Northwest operations totaled 149 million board feet in Q2'16, an increase of 6 million board feet over the preceding quarter. The company's three stud mills in the region contributed an additional 3 million board feet while its specialty board mill at Gilchrist also added 3 million board feet, both as a result of productivity improvements.

Lumber Markets and Pricing
Lumber markets were relatively strong in the second quarter on increased demand, as reflected by improvements in all three of Interfor's key price benchmarks over the first quarter. The Western SPF Composite improved by US$38 to US$300 per mfbm, the SP Composite increased by US$27 to US$390 per mfbm and the KD HF Stud 2x4 9' benchmark rose by US$23 to US$355 per mfbm.

As of June 30, 2016, the company had commitments for capital expenditures totaling $17.5 million, related to both maintenance and discretionary capital projects.

Interfor continues to maintain its disciplined focus on monitoring discretionary capital expenditures, optimizing inventory levels and matching production with offshore and domestic demand.

As at June 30, 2016, the company had net working capital of $161.2 million and available capacity on operating and term facilities of $170.1 million. These resources, in addition to cash generated from operations, will be used to support working capital requirements, debt servicing commitments and capital expenditures. We believe that Interfor will have sufficient liquidity to fund operating and capital requirements for the foreseeable future.

More details can be found on the company's site.

July 29, 2016  By  Scott Jamieson

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