Norbord shipments up 10%
July 29, 2014, Toronto - Norbord Inc. reported EBITDA of $33 million in the second quarter of 2014 compared to $27 million in the first quarter of 2014 and $102 million in the second quarter of 2013 (prices are in US dollars). The year-over-year change is due to the exceptional North American OSB prices in the first half of 2013. North American operations generated EBITDA of $24 million in the quarter versus $17 million in the prior quarter and $92 million in the same quarter last year. European operations generated EBITDA of $12 million in the second quarters of both 2014 and 2013 versus $13 million in the prior quarter.
"In North America, homebuilding activity continues to improve. But the pace has been held back by labour availability and a lack of entry-level buyers and OSB prices have been disappointing," said Peter Wijnbergen, President and CEO. "However, we are not discouraged. We always expected it would take time for OSB demand growth to absorb the additional capacity that has been ramping up since early 2013. At Norbord, demand from our key customers in all core segments - new home construction, home improvement and industrial - continues to grow, driving 10% higher shipments so far this year. At the same time, our OSB cash production costs are declining due to improved productivity and lower raw material usages."
"European panel markets were a bit slower in the second quarter, reflecting a pullback from a particularly robust first quarter. Our business there performed well once again and our panel mills are operating at record production levels. I expect we will continue to generate solid results through the second half of the year."
Norbord recorded earnings of $11 million or $0.21 per share ($0.20 per share diluted) in the second quarter of 2014 compared to $7 million or $0.13 per share (basic and diluted) in the prior quarter and $53 million or $1.00 per share ($0.99 per share diluted) in the second quarter of 2013. There were no one-time items in either the current or comparative quarters' earnings.
In North America, year-to-date US housing starts were 6% higher than the same period in 2013 and permits were 5% higher. The consensus forecast from US housing economists is continuing to decline and currently stands at 1.05 million starts in 2014, which would still be a 13% improvement over last year.
North American OSB prices were relatively stable and continued to trade in a tight range in the second quarter. The North Central benchmark averaged $219 per thousand square feet (Msf) (7⁄16-inch basis), unchanged from the previous quarter and down from $347 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 $199 per Msf, compared to $193 per Msf in the prior quarter and $313 per Msf in the same quarter last year.
In Europe, panel markets slowed in the second quarter as strong demand on the Continent in the first quarter due to unseasonably mild and dry weather pulled homebuilding activity forward. Average panel prices held firm in the quarter, unchanged versus the prior quarter and 2% higher than the same quarter last year.
In North America, Norbord's OSB shipments increased by 11% versus the prior quarter, 12% versus the same quarter last year and 10% year-to-date, primarily due to higher demand from all customer segments.
The North American OSB mills produced at approximately 85% of stated capacity (including the two curtailed mills in Huguley, Alabama and Val-d'Or, Quebec), compared to 80% in the prior quarter and 75% in the same quarter last year. The increase versus both comparative periods is due to improved mill productivity. The year-over-year improvement also reflects the additional volume from the Jefferson, Texas mill, which restarted in the third quarter of 2013.
Norbord's North American OSB cash production costs per unit (before mill profit share) decreased by 4% versus both the prior quarter and the same quarter last year. Lower raw material usages and higher production volume more than offset higher raw material prices. Excluding the impact of higher raw material prices, unit costs decreased by 6% year-over-year.
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 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 increased 3% year-to-date, but were 9% lower versus the prior quarter and 3% lower than the same quarter last year. The company's panel mills achieved a second consecutive quarterly production record. The European mills produced at approximately 105% of stated capacity in the quarter, compared to 110% in the prior quarter and 100% in the same quarter last year.
Norbord's mills delivered Margin Improvement Program (MIP) gains of $6 million in the first half of 2014 from a richer value-added product mix, improved productivity, lower raw material usages, lower labour and maintenance costs and the timing of maintenance shuts.
Capital investments totaled $42 million year-to-date and the full year target remains at $65 million. This year's capex target includes the rebuild of the wood handling end at the Joanna, South Carolina mill and a continuation of strategic investments across the Company's other mills to improve productivity and reduce manufacturing costs. It also includes approximately $10 million for preliminary work to rebuild the press line at the mothballed Huguley, Alabama mill. Further spending to prepare this mill for restart has been deferred to 2015.
Operating working capital was $96 million compared to $93 million in the prior quarter and $86 million in the prior year. Working capital increased year-over-year due to the foreign exchange translation impact of a stronger Pound Sterling relative to the US dollar, as well as higher inventory and maintenance supplies on hand for annual maintenance shuts planned for the third quarter.
At quarter-end, Norbord had unutilized liquidity of $425 million, consisting of $83 million in cash and $342 million in unused credit lines. The company's tangible net worth was $453 million and net debt to total capitalization on a book basis was 44%. Both ratios remain well within bank covenants.