Interfor Corporation recorded a net loss in Q1’19 of $15.3 million, or $0.23 per share, compared to $13.5 million, or $0.20 per share in Q4’18 and net earnings of $32.7 million, or $0.47 per share in Q1’18. Adjusted net loss in Q1’19 was $12.7 million compared to $20.2 million in Q4’18 and Adjusted net earnings of $36.5 million in Q1’18.
Adjusted EBITDA was $16.3 million on sales of $451.2 million in Q1’19 versus $8.9 million on sales of $468.5 million in Q4’18. The Q1’19 Adjusted EBITDA included approximately $1.2 million of expenses that were refinements of prior estimates.
Other notable items in the quarter included:
Marginally higher lumber prices:
- The key benchmark prices improved marginally quarter-over-quarter with the SYP Composite, Western SPF Composite and KD H-F Stud 2×4 9’ increasing by U.S. $10, U.S. $41 and U.S. $21 per mfbm, respectively. Interfor’s average lumber selling price increased $14 from Q4’18 to $613 per mfbm.
Increased production/reduced shipments:
- Total lumber production was 646 million board feet, or 39 million board feet more than the prior quarter with a return to normal operating schedules after the holidays and the easing of temporary production curtailments in the B.C. Interior. Production in the U.S. South increased to 316 million board feet from 303 million board feet in the preceding quarter. The B.C. and U.S. Northwest regions accounted for 195 million board feet and 135 million board feet, respectively, compared to 174 million board feet and 130 million board feet in Q4’18.
- Total lumber shipments were 621 million board feet, including agency and wholesale volumes, or 26 million board feet lower than Q4’18.
- On April 25, 2019, the company announced temporary reductions in operating hours at its sawmills in the B.C. Interior for the month of May 2019 due to a combination of weak lumber prices and continuing high log costs.
Continued strong financial position:
- Net debt ended the quarter at $172.7 million, or 15.6 per cent of invested capital, resulting in available liquidity of $425.3 million.
- On March 28, 2019, the company completed a modernization of its credit facilities. The new facility replaces the U.S. Operating Line, Canadian Operating Line, and Revolving Term Line with one consolidated facility. The new facility increased credit availability to $350 million, which is in addition to the company’s U.S. $200 million of Senior Secured Notes, and matures in March 2024.
- The company generated $17.1 million of cash flow from operations before changes in working capital, or $0.25 per share. During the quarter, working capital increased by $75.4 million as a result of the payment of 2018 incentive compensation as well as typical seasonal factors including a build up of lumber and log inventories in the B.C. Interior.
- Capital investments of $43.8 million in Q1’19 included $32.1 million primarily on U.S. South focused high-return discretionary projects, with the remainder related to maintenance capital and woodlands projects.
- Interfor purchased and cancelled 515,100 of its common shares at a cost of $7.8 million in Q1’19. The company’s normal course issuer bid (NCIB) was renewed on March 4, 2019 and permits the purchase of up to 6,652,006 shares until its expiry on March 6, 2020.
Softwood lumber duties:
- Interfor expensed $11.1 million of duties in the quarter, representing the full amount of countervailing (CV) and anti-dumping (AD) duties incurred on its Canadian shipments of softwood lumber into the U.S. at a combined rate of 20.23 per cent.
- Cumulative duties of U.S. $68.7 million have been paid by Interfor since the inception of the current trade dispute and are held in trust by the U.S. Except for U.S. $3.3 million recorded as a long-term receivable in respect of overpayments arising from duty rate adjustments, Interfor has recorded the duty deposits as an expense.
Strategic capital plan update
Interfor continues to make progress on previously announced Phase I and II strategic capital projects in the U.S. South.
The Phase I projects at the Meldrim, Georgia and Monticello, Arkansas sawmills are scheduled for completion in May 2019. Total project costs are expected to be within a 10 per cent variance of the original U.S. $62.5 million budget. As of March 31, 2019, U.S. $48.7 million has been capitalized.
The Phase II projects at the Thomaston and Eatonton sawmills in Georgia and the Georgetown sawmill in South Carolina are on track for completion in various stages over the period of 2019 to 2021. As of March 31, 2019, U.S. $21.7 million has been capitalized and the projects remain on budget.
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