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Canfor Reports Results for First Quarter of 2018

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Canfor Reports Results for First Quarter of 2018

Canada NewsWire

VANCOUVER, April 24, 2018 /CNW/ - Canfor Corporation (TSX:CFP) today reported first quarter 2018 results:

Canfor Corporation (CNW Group/Canfor Corporation)

Highlights

  • Q1, 2018 adjusted operating income of $238.7 million driven by historically high lumber prices and record-high pulp and paper earnings; record-high sales of $1.23 billion
  • Adjusted net income of $145.4 million, or $1.13 per share
  • Net debt of $96.8 million, or 4.3% net debt to total capitalization, at March 31, 2018

Financial Results

The following table summarizes selected financial information for the Company for the comparative periods:

(millions of Canadian dollars, except per share amounts)


Q1

2018


Q4

2017


Q1

2017




Sales

$

1,233.5

$

1,156.0

$

1,105.2

Reported operating income before amortization

$

268.6

$

278.2

$

169.1

Reported operating income 

$

203.8

$

214.2

$

106.8

Adjusted operating income before amortization1

$

303.5

$

254.8

$

169.1

Adjusted operating income1

$

238.7

$

190.8

$

106.8

Net income2

$

112.2

$

131.8

$

66.1

Net income per share, basic and diluted2

$

0.87

$

1.02

$

0.50

Adjusted net income2

$

145.4

$

114.8

$

59.3

Adjusted net income per share, basic and diluted2

$

1.13

$

0.89

$

0.45

1

Adjusted for countervailing and anti-dumping duty deposits expensed for accounting purposes (net expense of $34.9 million in the first quarter of 2018 and net recovery of $23.4 million in the fourth quarter of 2017).

2

Attributable to equity shareholders of the Company.

 

The Company reported operating income of $203.8 million for the first quarter of 2018, down $10.4 million from reported operating income of $214.2 million for the fourth quarter of 2017, as lower operating earnings for the lumber segment were offset in part by record-high operating earnings for the pulp and paper segment.  Reported results in the first quarter of 2018 include a net duty expense of $34.9 million, at a combined effective countervailing duty ("CVD") and anti-dumping duty ("ADD") rate of 14.34%.  This compares to a net duty recovery of $23.4 million in the fourth quarter of 2017 reflecting the year-to-date true-up of preliminary CVD and ADD rates to current rates following final determinations announced by the US Department of Commerce ("DOC") and US International Trade Commission ("ITC").  After adjusting for the duties, operating income was $238.7 million for the first quarter of 2018, up $47.9 million from similarly adjusted operating income in the fourth quarter of 2017.

Adjusted lumber segment earnings largely reflected higher Western Spruce/Pine/Fir ("Western SPF") and Southern Yellow Pine ("SYP") benchmark lumber prices, more than offsetting the impact of adverse winter weather conditions which resulted in significant transportation delays and contributed to increased unit log costs and lower production volumes through the quarter.  Unit log costs in Western Canada also increased reflecting higher market-based stumpage and continued upward pressure on purchased wood costs.  Record pulp and paper segment earnings largely reflected continued strong demand that resulted in significantly higher Northern Bleached Softwood Kraft ("NBSK") pulp unit sales realizations.

North American lumber demand remained solid in the first quarter of 2018.  US housing starts averaged 1,314,000 units on a seasonally adjusted basis, up 5% from the previous quarter and up 6% from the first quarter of 2017.  Canadian housing construction activity in the first quarter of 2018 was in line with the previous quarter, at an average of 227,000 units on a seasonally adjusted basis.  Offshore lumber demand from China, Japan and other regions remained solid through the first quarter, particularly for the Company's higher-value lumber products.

The average benchmark North American Random Lengths Western SPF 2x4 #2&Btr price was up US$51 per Mfbm, or 11%, compared to the fourth quarter of 2017, with more pronounced price increases across wider-width dimensions.  Improved Western SPF lumber pricing was offset in part by increased duty deposits, as both CVD and ADD were in effect for the full quarter following the re-introduction of CVD in late December 2017.  Overall, Western SPF lumber unit sales realizations showed a modest improvement compared to the previous quarter.  The average benchmark North American Random Lengths SYP East 2x4 #2 price was up US$111 per Mfbm, or 24%, compared to the fourth quarter of 2017, while prices for 2x6 and 2x10 #2 dimensions were stable.  Overall, SYP lumber unit sales realizations showed a modest increase quarter-over-quarter.

Total lumber production, at 1.24 billion board feet, was in line with the prior quarter, as fewer statutory holidays and productivity gains in the US South offset lower productivity in Western Canada as a result of the aforementioned severe winter weather.  Total lumber shipments, at 1.20 billion board feet, were also in line with the previous quarter as modestly higher SYP shipments offset the weather-related transportation disruptions in Western Canada which placed a significant strain on railcar and truck availability through the first quarter.  As a result of the aforementioned challenges, lumber unit manufacturing costs in the first quarter of 2018 were slightly higher than the previous quarter.

Global softwood pulp markets remained favourable through the first quarter of 2018, resulting in US-dollar NBSK pulp list prices holding at near-record high prices, and a significant increase in average NBSK pulp unit sales realizations.  Average Bleached Chemi-Thermo Mechanical Pulp ("BCTMP") unit sales realizations showed a more moderate increase in the quarter, with increased demand towards the end of 2017 translating into higher average prices for product shipped in the current quarter.

Pulp shipments were up 3% from the previous quarter, as a 14,000 tonne vessel slippage from December into January more than offset transportation constraints in the current quarter.  Pulp production was broadly in line with the fourth quarter of 2017, as strong productivity in March combined with increased operating days following the unscheduled outage at CPPI's Northwood pulp mill in the previous quarter largely offset the impacts of various weather-related disruptions in January and February.  Pulp unit manufacturing costs were moderately higher than the previous quarter, largely reflecting market-driven increases in fibre costs and weather-related increases in energy costs.

Commenting on the Company's first quarter results, Canfor's President and Chief Executive Officer, Don Kayne, said, "Despite the unprecedented challenges caused by severe weather and railcar availability, both our lumber and pulp businesses recorded solid financial results for the first quarter of 2018.  This reflected strong market demand and the commitment of our sales, transportation and operations teams to ensure we minimized any disruption to our customers."

The Company remains committed to the previously announced greenfield sawmill and is working on finalizing the construction schedule for project completion.

Looking ahead, the US housing market is forecast to continue its ongoing gradual recovery through the balance of 2018.  North American lumber prices are projected to remain solid (and high by historical standards) in the second quarter of 2018 reflecting solid seasonal demand and the transportation network's slow return to normal service levels.  For the Company's key offshore lumber markets, demand is anticipated to remain solid through the second quarter of 2018, particularly in Japan.

In the pulp and paper segment, global softwood kraft pulp markets are projected to remain well positioned through the second quarter of 2018, reflecting both continued solid demand and tighter supply arising from the current transportation challenges as well as the traditional spring maintenance period.  The outlook for the latter part of 2018 remains more uncertain given incremental pulp capacity currently projected to come online.  For the month of April 2018, CPPI announced an increase of US$30 per tonne for NBSK pulp list prices to North America.  

Pulp and paper segment results in the second quarter of 2018 will reflect scheduled maintenance outages at the Prince George NBSK pulp mill and paper machine, as well as at the Taylor BCTMP mill, with a projected 5,000 tonnes of reduced NBSK pulp production, 4,000 tonnes of reduced paper production and 11,000 tonnes of reduced BCTMP production, respectively, combined with higher associated maintenance costs and lower projected shipment volume.  The scheduled outage at the Taylor BCTMP mill will include work associated with the previously announced energy project.  The Northwood NBSK pulp mill has a maintenance outage scheduled for the third quarter of 2018, with a projected 22,000 tonnes of reduced NBSK pulp production.

Additional Information and Conference Call 

A conference call to discuss the first quarter's financial and operating results will be held on Thursday, April 26, 2018 at 7:30 AM Pacific time.  To participate in the call, please dial Toll-Free 1-888-390-0546.  For instant replay access until May 10, 2018, please dial Toll-Free 1-888-390-0541 and enter participant pass code 150025#.  The conference call will be webcast live and will be available at www.canfor.com.  This news release, the attached financial statements and a presentation used during the conference call can be accessed via the Company's website at http://www.canfor.com/investor-relations/webcasts.

Forward Looking Statements

Certain statements in this press release constitute "forward-looking statements" which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements.  Words such as "expects", "anticipates", "projects", "intends", "plans", "will", "believes", "seeks", "estimates", "should", "may", "could", and variations of such words and similar expressions are intended to identify such forward-looking statements.  These statements are based on management's current expectations and beliefs and actual events or results may differ materially.  There are many factors that could cause such actual events or results expressed or implied by such forward-looking statements to differ materially from any future results expressed or implied by such statements.  Forward-looking statements are based on current expectations and the Company assumes no obligation to update

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