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West Fraser reports $605M Adjusted EBITDA thanks to higher lumber prices

West Fraser Timber Co. Ltd. today reported results for the third quarter of 2020.

Third quarter highlights

• Sales increased by 32 per cent to $1,690 million in the quarter.
• Adjusted EBITDA increased to $605 million from $184 million in the second quarter.
• Cash flow from operations of $613 million for the third quarter and $930 million year to date.
• Available liquidity improved by $546 million to $1,346 million from June 30, 2020, revolving credit facility repaid in the quarter.
• Growth and margin improvement in the U.S. South as investments continue to show results.

Operational results

West Fraser’s lumber segment generated operating earnings in the quarter of $454 million (Q2-20 – $66 million) and Adjusted EBITDA of $552 million (Q2-20 – $156 million). The improvement was due primarily to higher lumber prices and SYP shipment volumes, partially offset by lower SPF shipment volumes. Higher lumber prices increased Adjusted EBITDA by $424 million compared to the previous quarter. The combination of lower manufacturing costs, increases in variable compensation expense, and slightly lower shipment volumes resulted in a $28 million offset to Adjusted EBITDA. The company’s lumber segment operated near capacity during the current quarter compared with the second quarter where temporary curtailments reduced SPF and SYP production by approximately 170 MMfbm.

West Fraser’s panels segment generated operating earnings in the quarter of $47 million (Q2-20 – $17 million) and Adjusted EBITDA of $51 million (Q2-20 – $20 million). Increased plywood pricing and robust plywood demand positively impacted the panels segment earnings for the quarter. The positive price and volume variance increased Adjusted EBITDA by $33 million compared to the previous quarter. The WestPine insurance claim related to the 2016 fire at this MDF facility was settled in the second quarter resulting in a $7 million benefit recorded in cost of products sold from business interruption insurance and an additional $7 million from proceeds on the involuntary disposal of equipment recorded in other income. The company’s plywood facilities operated near capacity during the current quarter, while the second quarter included temporary plywood curtailments of approximately 50 MMsf.

Outlook

Throughout the third quarter, demand for lumber and plywood products remained strong, resulting in higher product prices. Repair and renovation activity and related demand also continued to trend positively. Housing market indicators, including new home starts, available for sale inventory, and mortgage rates, support the continued expectation of healthy demand for wood products. Despite recent volatility, the longer-term outlook for growth in wood products consumption appears favourable.

West Fraser’s lumber and plywood facilities are operating at as close to full capacity as possible to meet market demand.

Quarter end available liquidity was $1,346 million, and West Fraser’s balance sheet is well prepared to face potential volatility that may exist in the markets over the coming quarters. The benefits of the company’s modernization program at its mills in the U.S. South are yielding results with improvements in capacity, grade, and recovery.