Lumber sales boost Canfor’s Q3 income
Canfor Corporation reported that its net income in the third quarter of 2012 rose more than $17 million from the second quarter and improved by more than $43 million from the same time last year.
Canfor reported net income attributable to shareholders of $22.2 million, or $0.16 per share, for the third quarter of 2012, compared to $4.5 million, or $0.03 per share, for the second quarter of 2012 and a shareholder net loss of $21.6 million, or $0.15 per share, for the third quarter of 2011. For the nine months ended September 30, 2012, the shareholder net income was $10.5 million, or $0.08 per share, compared to net loss of $12.5 million, or $0.09 per share, for the comparable period of 2011.
The shareholder net income for the third quarter of 2012 included various items affecting comparability with prior periods, which had an overall impact of $6.9 million, or $0.05 per share. After adjusting for such items, the company’s adjusted shareholder net income for the third quarter of 2012 was $15.3 million, or $0.11 per share, up $4.2 million, or $0.03 per share, from an adjusted shareholder net income of $11.1 million, or $0.08 per share, for the second quarter of 2012. Adjusted shareholder net loss for the third quarter of 2011 was $1.8 million, or $0.01 per share.
The company reported operating income of $22.3 million for the third quarter of 2012, down $3.7 million from $26.0 million for the second quarter. The negative variance primarily reflected a significant weakening of Northern Bleached Softwood Kraft (“NBSK”) pulp markets and one-time restructuring costs which were largely offset by improved results in the lumber and panels segments, where solid demand supported higher sales realizations.
“The improvement in lumber sales realizations reflected a steady increase in construction activity in North America and continued solid offshore demand for Western SPF lumber products,” Said Canfor’s President and CEO, Don Kayne He added that Canfor has now fully integrated its recently acquired operations in the south-east Kootenay region. “The start-up of our upgraded Radium mill early in the fourth quarter of 2012 will further boost our capacity to provide high quality products to our valued customers,” he said.
Regarding the pulp and paper segment’s third quarter results, Kayne said, “It was a tough quarter as our pulp business faced challenges presented by weaker markets and the Canfor Pulp facilities came out of an extended period of major maintenance and capital upgrades. The focus now is on getting these recently upgraded pulp mills achieving targeted operating rates.”
According to the company, lumber markets improved moderately in the third quarter of 2012, reflecting further stabilization of underlying demand in both North American and offshore markets. U.S. housing activity continued the upward trend seen in the prior quarter, with housing starts for the quarter averaging 786,000 units SAAR (seasonally adjusted annual rate), up 7% from the previous quarter. Canadian housing starts were down 3% from the previous quarter, to 223,000 units SAAR, and up 8% from the third quarter of 2011 when starts were 206,000 units SAAR. Market conditions in China continued to reflect solid demand. Demand in Japan also remained solid through the quarter. Global softwood pulp markets weakened through the summer months, with price erosion occurring for most of the quarter.
The average North American benchmark Western Spruce/Pine/Fir (“SPF”) 2×4 price rose 2% to US$300 per Mfbm, with slightly higher increases seen for most wider SPF products. The export tax on Canadian shipments to the US averaged 8% in the third quarter of 2012, down from a 13% average in the previous quarter. Southern Yellow Pine (“SYP”) prices saw similar increases to SPF in 2×4 benchmark pricing but prices for wider products were down over the quarter. For NBSK pulp US dollar sales realizations fell with the average North America list price down US$47 to US$853 per tonne, as challenging markets resulted in downward pressure on prices. Canadian dollar sales realizations across all solid wood and pulp products were negatively impacted by an average 1.5% strengthening of the Canadian dollar.
Lumber production and shipments were down 2% from the previous quarter, principally reflecting less operating time as a result of annual maintenance shuts at the Canfor’s southern pine operations and the observance of one additional statutory day in the third quarter. Lumber unit manufacturing costs were up slightly from the previous quarter, with the positive impact of higher productivity offset by higher unit log costs resulting from market-related stumpage increases and wet weather conditions in the US South, the latter tightening log supply for part of the quarter. Pulp manufacturing costs were up slightly from the previous quarter due to one-time costs of $3.2 million associated with new five-year collective labour agreements, partially offset by the impact of higher production volumes.
Pulp shipment and production levels for the third quarter reflected a scheduled capital and maintenance outage at Canfor Pulp’s Prince George Pulp Mill in the quarter, partly offset by higher production at the Northwood Pulp Mill following the unscheduled recovery boiler-related outage from late May to early July. Both mills experienced slower than anticipated ramp ups in the period following the schedule and unscheduled outages. Inventories subsequently returned to more normal levels by the end of the quarter.
Looking forward, U.S. lumber consumption is projected to slow in the fourth quarter of 2012 with traditionally lower seasonal homebuilding activity. The Canadian housing market is forecast to follow a similar trend, with demand projected to level off towards the end of the year. U.S. home inventories are projected to remain relatively low aided by low mortgage rates and gradual appreciation in home prices. Shipments to the U.S. are projected to taper off as export taxes increase from 5% in October to 10% in November, but offshore lumber shipments to China, Japan and Korea are anticipated to offset any slowdown in North American shipments. In the pulp segment, Canfor Pulp has announced an increase in the NBSK pulp list price of US$20 per tonne in all regions in October.