Norbord won’t restart Val-d’Or
Nov. 1, 2013, Toronto - Norbord reported EBITDA of $45 million in the third quarter of 2013, compared to $66 million in the same quarter last year and $102 million in the second quarter of 2013. North American operations generated EBITDA of $36 million in the quarter versus $58 million last year and $92 million in the prior quarter. European operations generated EBITDA of $12 million in both the third and second quarters of 2013 versus $10 million in the third quarter last year.
Norbord recorded $27 million of earnings ($0.50 per share diluted) in the third quarter of 2013 compared to $27 million ($0.59 per share diluted) in the same quarter last year and $53 million ($0.99 per share diluted) in the prior quarter. Earnings this quarter include a $9 million ($0.17 per share diluted) one-time non-recurring income tax recovery.
"I am pleased with our third quarter result in spite of the volatile OSB pricing we've experienced in North America this year," said Barrie Shineton, President and CEO. "Prices have adjusted by 45% since the spring, yet even at today's more moderate levels, we continue to generate attractive free cash flow. OSB prices bottomed in September and we are now seeing a gradual, positive improvement that I believe will continue into the fourth quarter. Demand from our customers remains strong, their inventories are lean and Norbord has a healthy four-week order file."
"In Europe, panel markets continued to strengthen, particularly OSB, and our plants are running at capacity. It is clear that the housing recovery is now well entrenched in our core UK and German markets."
"Finally, I'm also pleased the Board has declared another quarterly dividend, reflecting our continuing favourable outlook for US and European housing and strong OSB industry fundamentals."
August year-to-date US housing starts and permits were 23% and 21% higher, respectively, than the same period last year. US housing economists are in the process of adjusting their forecasts for the year and consensus is now just under 950,000 starts for 2013. While this is marginally lower than their earlier indications of 1.0 million starts, it is still a 20% increase over last year.
After a significant correction earlier in the year, North American North Central OSB prices were relatively stable in the third quarter, while South East prices drifted further in August. The North Central benchmark averaged $252 per thousand square feet (Msf) (7⁄16-inch basis) for the quarter, compared to $347 per Msf in the previous quarter and $313 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 $207 per Msf in the third quarter, compared to $313 per Msf in the prior quarter and $274 per Msf in the same quarter last year. The wider than usual price spread reflects both the impact of OSB industry restart activity in the South East and the comparatively slower pace of the housing recovery in that region.
Third quarter European average panel prices were 7% higher than the same quarter last year and 2% better than the prior quarter. OSB and particleboard markets continued to perform well, with prices for both products up 8% over the same quarter last year. OSB and particleboard prices increased 3% and 2%, respectively, versus the prior quarter. MDF prices improved by 4% versus the same period a year ago and were relatively unchanged from the second quarter.
In North America, Norbord's third quarter OSB shipment volumes increased 11% year-over-year and 9% quarter-over-quarter due to improved mill operating performance and the ramp-up of the Jefferson, Texas mill. Norbord's OSB mills produced at approximately 80% of installed capacity, compared to 75% in the prior quarter and 70% in the same quarter last year.
Excluding the two mothballed mills, Norbord produced at approximately 100% of stated capacity compared to 105% in the prior quarter and unchanged from a year ago. Both comparative quarters exclude the Jefferson mill which started up at the end of June 2013 and represents 9% of the Company's 4.4 billion square feet (3/8-inch basis) of North American OSB capacity. Norbord will continue to monitor market conditions, but does not currently expect to restart its curtailed mills in Huguley, Alabama or Val-d'Or, Quebec in 2014.
Norbord's North American OSB cash production costs per unit (excluding mill profit share) increased by 8% year-over-year. Excluding the impact of higher raw material prices and Jefferson restart costs, unit costs increased by just 4% compared to the prior year. The remaining increase in unit costs was driven primarily by higher supplies and maintenance costs. Quarter-over-quarter, unit costs decreased by 4%, the result of lower supplies and maintenance costs, higher production volumes and reduced restart costs for the Jefferson mill.
In Europe, panel shipments were flat year-over-year. Total shipments, including flat-pack furniture, were 3% lower than the same quarter last year and 5% lower than the prior quarter reflecting the usual summer slowdown. Norbord's European panel mills produced at approximately 95% of capacity in the third quarters of both 2013 and 2012, compared to 100% in the prior quarter.
Norbord's mills continue to deliver positive results from the company's Margin Improvement Program (MIP). However, the benefits of improved productivity and a richer added-value product mix were offset by higher supplies and maintenance costs.
Capital investments totaled $45 million year-to-date, $32 million higher than last year. The increase is primarily due to capital spending for the Jefferson mill restart that was completed in June 2013. Norbord's 2013 capital expenditures are targeted at $70 million, including approximately $16 million for Jefferson, versus $26 million in 2012.
Operating working capital was $66 million compared to $77 million at the end of the same quarter last year and $86 million in the prior quarter. The decrease versus both comparative quarters is primarily due to the timing of payments on accounts payable.
At quarter-end, Norbord had unutilized liquidity of $580 million, including $239 million of cash. The Company's tangible net worth was $519 million and net debt to total capitalization on a book basis was 28%, well within bank covenants.
The Board of Directors declared a quarterly dividend of CAD $0.60 per common share, payable on December 21, 2013 to shareholders of record on December 1, 2013.
Norbord's Q3 2013 letter to shareholders, news release, management's discussion and analysis, consolidated unaudited financial statements and notes to the financial statements have been filed on SEDAR (www.sedar.com) and are available in the investor section of the Company's website at www.norbord.com. Shareholders are encouraged to read this material.