Norbord NA shipments up 8%
May 2, 2014, Toronto - Norbord reported EBITDA of $27 million in the first quarter of 2014 compared to $29 million in the fourth quarter of 2013 and $111 million in the first quarter of 2013 (in US dollars). The year-over-year change is due to the exceptional North American OSB prices in the first quarter of last year - the highest in 10 years. North American operations generated EBITDA of $17 million in the quarter versus $21 million in the prior quarter and $106 million in the same quarter last year. European operations generated EBITDA of $13 million in the quarter versus $12 million in the prior quarter and $10 million in the same quarter last year.
"Severe weather conditions across North America presented both market and operational challenges that impacted our business in the first two months of the year," said Peter Wijnbergen, President and CEO. "Homebuilding activity was delayed, resulting in weaker OSB demand and prices. Our mills also ran less efficiently. Looking ahead, the spring homebuilding season is finally starting to take hold and we have already started to see OSB consumption pick up. Customer inventories are low and increasing demand from new home construction will support a more robust pricing environment."
"Our European panel business delivered its best quarterly EBITDA result in three years. Panel demand is strengthening and our mills ran very well, supporting almost 10% higher shipments than the same quarter a year ago. I expect this trend of improved performance to continue throughout the remainder of the year as our core markets recover."
In North America, March year-to-date US housing starts were down 2% versus the same period in 2013. Permits, however, were 7% higher. The consensus forecast from US housing economists stands at 1.1 million starts in 2014, a 19% improvement over last year.
New home construction activity was held back during the quarter by the extreme winter conditions experienced across North America, resulting in softer OSB demand and prices. Benchmark OSB prices traded in a very tight range in the first quarter. The North Central benchmark averaged $219 per thousand square feet (Msf) (7⁄16-inch basis), compared to $245 per Msf in the previous quarter and $417 per Msf in the same quarter last year. In the South East region, where more than half of Norbord's North American capacity is located, benchmark prices averaged $193 per Msf, compared to $192 per Msf and $396 per Msf in the comparative quarters.
In Europe, panel markets remained strong, reflecting improving housing markets in the company's core geographies, particularly the UK and Germany. First quarter average panel prices held firm, unchanged versus the prior quarter and 4% higher than the same quarter last year.
In North America, Norbord's OSB shipments decreased by 8% quarter-over-quarter, primarily due to fewer fiscal days versus the prior quarter. However, first quarter shipments increased 8% year-over-year, despite lower US housing starts activity in the first three months of the year.
The North American OSB mills produced at approximately 80% of stated capacity (including the two curtailed mills in Huguley, Alabama and Val-d'Or, Quebec), compared to 75% in the prior quarter and 70% in the same quarter last year. Quarter-over-quarter, capacity utilization (based on fiscal days in each period) increased due to fewer maintenance shutdown days taken in the quarter. Year-over-year, capacity utilization increased due to additional volume from the company's operating mills and the restart of the Jefferson, Texas mill in the third quarter of 2013.
Norbord's North American OSB cash production costs per unit (before mill profit share) were in line with the prior quarter and decreased by 2% versus the same quarter last year. The impact of extreme weather and higher raw material prices was offset by lower maintenance costs.
As previously announced, Norbord has begun rebuilding the press line at the curtailed Huguley, Alabama mill to prepare it for restart. The company has not set a restart date, however, and will do so only when it is sufficiently clear that customers require more product. Norbord does not currently expect to restart its curtailed mill in Val-d'Or, Quebec in 2014, but will continue to monitor market conditions.
In Europe, Norbord's shipments were 16% higher versus the prior quarter and 9% higher than the same quarter last year due to improving core markets and mill productivity. All of Norbord's panel mills continued to run on full operating schedules and achieved a quarterly production record, producing at approximately 110% of stated capacity in the quarter. Capacity utilization was 90% in the prior quarter and 100% in the same quarter last year.
Norbord's mills delivered Margin Improvement Program (MIP) gains of $3 million in the quarter from improved productivity, a richer value-added product mix and lower maintenance costs.
Capital investments totaled $15 million in the first quarter and are currently targeted at $65 million for the full year 2014. This year's capex target includes preliminary work at the mothballed Huguley, Alabama mill, annual maintenance projects and a continuation of strategic investments across the company's other mills to improve productivity and reduce manufacturing costs.
Operating working capital was $93 million compared to $44 million at year-end and $101 million at the end of the same quarter last year. Working capital increased quarter-over-quarter for the usual seasonal reasons, including log inventory builds and the payment of mill profit share and bonuses across the company.
At quarter-end, Norbord had unutilized liquidity of $459 million, consisting of $117 million in cash and $342 million in unused credit lines. The company's tangible net worth was $470 million and net debt to total capitalization on a book basis was 41%. Both ratios remain well within bank covenants.