Western Forest Products invests $97.7 million
Western Forest Products Inc.'s has annouced plans to invest $97.7 million of its $125-million strategic capital program. Through the end of the second quarter of 2016, the company has implemented and capitalized $86.5 million under that program. Strategic capital invested in the second quarter of 2016 was $5.6 million.
In the second quarter of 2016, Western advanced the Duke Point sawmill and planer modernization project, timberlands LiDAR mapping initiative, and information technology upgrades. The company annouced that the projects will continue through the end of 2016.
Second quarter growth
Western reported yesterday an adjusted EBITDA of $43.0 million in the second quarter of 2016, compared to adjusted EBITDA of $35.7 million reported in the previous quarter and $29.2 million reported in the second quarter of 2015. Improved specialty log and lumber pricing, a stronger commodity lumber market and increased lumber sales volumes delivered a 47% increase in second quarter adjusted EBITDA.
The company successfully grew revenue to $301.8 million in the second quarter of 2016, as compared to $269.8 million in the previous quarter, and $289.2 million in the second quarter of 2015. Higher average log prices and record quarterly average lumber prices were realized through an improved sales mix, high demand for specialty products and the impact of stronger commodity lumber markets. The positive pricing environment combined with increased sales volumes enabled Western to achieve its highest quarterly lumber revenue in the company's history.
"I'm pleased to report another quarter of strong financial results and impressive safety performance," said Don Demens, President and Chief Executive Officer. "We delivered increased profitability in the quarter thanks to robust demand for our specialty log and lumber products and by increasing our leverage to the improving global commodity lumber market."
Operating income prior to restructuring items and other income increased 60% to $33.7 million in the second quarter of 2016, compared to $26.3 million in the previous quarter and $21.0 million in the second quarter of 2015. Net income of $23.8 million ($0.06 per diluted share) was reported for the second quarter of 2016, compared to $17.3 million ($0.04 per diluted share) in the previous quarter and $19.1 million ($0.05 per diluted share) for the second quarter of 2015.
In the United States, improved housing starts and continued strength in the repair and renovation market have supported higher consumption of wood products and improved pricing. In China, lumber inventories are in balance which is supporting pricing; and, while the Japanese market remains competitive, Western sees opportunity over the medium term to capture a greater share of North American imports into that market.
Commodity lumber markets performed as expected in the second quarter of 2016 as Benchmark 2x4 KD Western SPF prices closed the quarter 5% higher than in the same period last year and 15% higher than at Dec. 31, 2015. The company expects third quarter demand to continue to improve which should support increased commodity lumber consumption and pricing.
The company's Western Red Cedar and Niche lumber products continue to benefit from the strength in the repair and renovation market. It expects the pricing environment to remain positive through the third quarter of 2016 as seasonal demand supports consumption.
Western anticipates export and domestic sawlog markets to continue to perform well in the third quarter of 2016. Strong demand for specialty lumber products will support the domestic sawlog market through the third quarter. In Asian log markets, the company believes balanced market conditions will lead to improved export log shipments and pricing over the second half of 2016 despite the usual seasonal slowdown. Pulp log prices are expected to remain depressed due to a combination of high log inventories and lower consumption levels from coastal BC pulp mills.
The twelve-month standstill period of the Softwood Lumber Agreement, which precludes trade action by the United States, continues through Oct. 11, 2016. Discussions regarding a replacement of the Softwood Lumber Agreement continue between Canadian and American government representatives. Western supports these efforts, but uncertainty remains regarding a solution. If there is no new agreement prior to the expiry of the standstill, there could be U.S. government trade action against Canadian softwood lumber imports. Western intends to maintain its strong balance sheet and diversified product and geographic mix as it awaits the outcome of the trade discussion.