Norbord sees Q3 earnings rise
Growing U.S. new home construction helped Norbord Inc. more than double its earnings from the second to third quarter of 2012.
By John Tenpenny
“This is our best sustained quarterly EBITDA result since the second quarter of 2006,” said Barrie Shineton, President and CEO. “This positive trend is due entirely to stronger demand from US new home construction that pushed North American OSB prices sharply higher this quarter. While prices have declined recently, they are still at very robust levels. The housing recovery is accelerating, consumer spending is picking up and both are key to a U.S. economic recovery. All of this suggests that OSB demand will continue to improve over the next several years.
“In Europe, our panel business delivered another positive quarterly result. The UK housing market remains stable and our construction panel business is holding up in spite of the economic challenges on the Continent. Our strong market position and ongoing currency advantage point to another solid result next year from our European operations.”
The company reported EBITDA of $66 million in the third quarter of 2012 compared to $31 million in the second quarter of 2012 and $12 million in the third quarter of 2011. North American operations generated EBITDA of $58 million in the quarter versus $26 million in the prior quarter and $5 million in the same quarter last year. European operations generated EBITDA of $10 million in the third quarters of 2012 and 2011 versus $9 million in the prior quarter.
The company recorded earnings of $28 million or $0.64 per share ($0.61 per share diluted) in the third quarter of 2012. This compares to earnings of $6 million or $0.14 per share in the prior quarter and a loss of $1 million or $0.02 per share in the same quarter last year.
Reflecting the increased demand from new home construction, North American OSB prices rose across all regions in the third quarter. The North Central benchmark price peaked at $360 per thousand square feet (Msf) (7⁄16-inch basis) and averaged $313 per Msf for the quarter, compared to $235 per Msf in the prior quarter and $184 per Msf in the same quarter last year. In the South East region, where approximately 55% of Norbord’s North American capacity is located, benchmark prices averaged $274 per Msf in the third quarter, compared to $204 per Msf in the prior quarter and $169 per Msf in the same quarter last year. The spread between North Central and South East benchmark prices widened further during the third quarter, reflecting continuing regional differences in the pace of the U.S. housing recovery.
In Europe, panel markets remain resilient in spite of the persistent economic uncertainty. In the third quarter, average panel prices were only marginally lower than the prior quarter. Compared to the same quarter last year, average panel prices were down 9%, reflecting OSB prices that have come off 2011 peak levels.
In North America, third quarter OSB shipment volumes increased 7% over the same quarter last year, but decreased marginally compared to the prior quarter. Norbord’s North American operations produced at approximately 70% of estimated capacity (including the three indefinitely closed mills) in the third quarter compared to 75% in the prior quarter and 65% in the same quarter last year. The quarter-over-quarter decrease in both shipment volumes and capacity utilization is due to the indefinite curtailment of the Val-d’Or, Quebec mill that took effect in July and the related transition of specialty products to the La Sarre, Quebec mill.
In Europe, third quarter panel shipments were 3% and 6% higher than the prior quarter and the same quarter last year, respectively. Norbord’s European mills produced at approximately 95% of estimated capacity in the second and third quarters of 2012, reflecting a 6% increase in our stated panel capacity effective December 31, 2011. This compares to 100% in the third quarter of 2011.
Norbord’s Margin Improvement Program (MIP) has delivered $17 million in gains year-to-date. Contributions to the MIP included improved production efficiencies, raw material usage reduction initiatives and a richer added-value product mix.
Norbord’s North American OSB cash production costs per unit decreased by 2% year-to-date (excluding profit share) compared to the prior year due to lower raw material usages resulting from continuing MIP initiatives
Capital investments totaled $6 million in the third quarter compared to $4 million in both the prior quarter and third quarter of 2011. Norbord’s 2012 capital investments are expected to total $25 million and continue to focus on productivity improvement and manufacturing cost reduction projects with quick paybacks
Operating working capital was $77 million at quarter-end compared to $64 million in the prior quarter and $65 million in the same quarter last year. This increase is primarily due to the impact of significantly higher North American OSB prices on accounts receivable.
At quarter-end, Norbord had unutilized liquidity of $371 million, comprised of $242 million in undrawn revolving bank lines and $129 million in cash and cash equivalents. The Company’s tangible net worth was $380 million and net debt to total capitalization on a book basis was 45%, down from 50% at the end of the second quarter and well within bank covenants.