West Fraser Announces Third Quarter 2023 Results

West Fraser Timber Co. Ltd. (“West Fraser” or the “Company”) (TSX and NYSE: WFG) reported today the third quarter results of 2023 (“Q3-23”). All dollar amounts in this news release are expressed in U.S. dollars unless noted otherwise.

Third Quarter Highlights

• Sales of $1.705 billion and earnings of $159 million, or $1.81 per diluted share
• Adjusted EBITDA1 of $325 million, representing 19% of sales
• Lumber segment Adjusted EBITDA1 of $44 million, including $62 million of export duty recovery
• North America Engineered Wood Products (“NA EWP”) segment Adjusted EBITDA1 of $289 million
• Pulp & Paper segment Adjusted EBITDA1 of $(12) million
• Europe Engineered Wood Products (“Europe EWP”) segment Adjusted EBITDA1 of $4 million
• Announced an agreement to acquire Spray Lake Sawmills in Cochrane, Alberta for CAD$140 million
• Announced an agreement to sell two BCTMP pulp mills to Atlas Holdings for $120 million
• Announced the planned retirement of Ray Ferris, President and CEO, on December 31, 2023 and appointment of Sean McLaren, current COO, to the President and CEO role effective January 1, 2024

1 – Adjusted EBITDA is a non-GAAP financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure.

“While the third quarter of 2023 marked a continuation of the challenging demand markets we experienced in recent quarters, particularly in the Lumber segment where we executed curtailments at several locations for planned capital upgrades and to meet customer needs, our North American EWP business had its best result in several quarters against a backdrop of rising mortgage rates that remain well above year-ago levels,” said Ray Ferris, West Fraser’s President and CEO.

“In the face of the current economic environment, we will continue to focus on those items we can control, such as safety, operational excellence and sustainability initiatives that improve our production flexibility and lower costs. Importantly, we will continue our approach of counter-cyclical investment in our assets during these times of softer demand while we manage our balance sheet conservatively. We are always looking for opportunities to improve our Company over the longer term, such as the announced acquisition of a sawmill in southern Alberta, which expands our Canadian treated lumber business and provides access to high-quality timber. As we move into the latter part of 2023 and into 2024, we believe our financial flexibility and low-cost position will remain competitive advantages that position us well to execute on the opportunities that lie ahead.”

Results Summary

Third quarter sales were $1.705 billion, compared to $1.608 billion in the second quarter of 2023. Third quarter earnings were $159 million, or $1.81 per diluted share, compared to $(131) million, or $(1.57) per diluted share in the second quarter of 2023. Third quarter Adjusted EBITDA1 was $325 million compared to $80 million in the second quarter of 2023.

Liquidity and Capital Allocation

Cash and short-term investments increased to $1.204 billion at September 29, 2023 from $1.162 billion at December 31, 2022.

Capital expenditures in the third quarter were $115 million.

We paid $25 million of dividends in the third quarter, or $0.30 per share, and declared a $0.30 per share dividend payable in the fourth quarter of 2023.

On February 22, 2023, we renewed our normal course issuer bid (“NCIB”), allowing us to acquire up to 4,063,696 Common shares for cancellation from February 27, 2023 until the expiry of the bid on February 26, 2024. As of October 24, 2023, 1,124,208 shares have been repurchased under the bid, leaving 2,939,488 shares available to purchase at our discretion until the expiry of the NCIB.

As of October 24, 2023, we have repurchased for cancellation 40,866,002 of the Company’s Common shares since the closing of the Norbord Acquisition on February 1, 2021 through the completion of a substantial issuer bid (“SIB”) in 2021, completion of an SIB in 2022 and normal course issuer bids, equalling 75% of the shares issued in respect of the Norbord Acquisition.

Outlook

Markets

Several key trends that have served as positive drivers in recent years are expected to continue to support medium and longer-term demand for new home construction in North America.

The most significant uses for our North America lumber, OSB and wood panel products are residential construction, repair and remodelling and industrial applications. Over the medium term, we expect that an aging housing stock, stabilization of inflation and interest rates and greater entrenchment of work-from-home flexibility will help to offset current headwinds from higher interest rates and historically low levels of existing home sales, spurring repair and renovation spending that supports lumber, plywood and OSB demand. Over the longer term, growing market penetration of mass timber in industrial and commercial applications is also expected to become a more significant source of demand growth for wood building products in North America.

The seasonally adjusted annualized rate of U.S. housing starts was 1.36 million units in September 2023, with permits issued of 1.47 million units, according to the U.S. Census Bureau. While there are near-term headwinds to new home construction, owing in large part to the upward reset in interest rates and the impact on housing affordability, unemployment remains relatively low in the U.S. and central bankers across North America have indicated that the current rate hiking cycle may be nearing an end. However, demand for new home construction and our wood building products may decline in the near term should the broader economy and employment slow or interest rates remain elevated or increase further than currently expected, impacting consumer sentiment and housing affordability.

Although we continue to experience near-term softness, we expect demand for our European products will grow over the longer term as use of OSB as an alternative to plywood grows. Further, an aging housing stock supports long-term repair and renovation spending and additional demand for our wood building products. Near-term risks, including relatively high and rising interest rates, ongoing geopolitical developments and the lagged impact of recent inflationary pressures, may cause further temporary slowing of demand for our products in Europe. Despite these risks, we are confident that we will be able to navigate through this period and capitalize on the long-term growth opportunities ahead.

Operations

We continue to expect total lumber shipments in 2023 will be largely similar to 2022 levels since we have not experienced in 2023 the type of severe transportation challenges faced last year, though this has been partially offset by the permanent B.C. mill curtailments announced in August 2022 and the indefinite curtailment of the Perry, Florida sawmill announced in January 2023. However, while we are reiterating our 2023 SPF shipments guidance of 2.6 to 2.8 billion board feet, market demand in the U.S. South has begun to show signs of cooling and as such we now expect 2023 SYP shipments to be at the bottom end of our 2.9 to 3.1 billion board feet guidance range.

In our NA EWP segment, demand has remained relatively robust and as such we are reiterating our 2023 OSB shipments guidance of 6.1 to 6.4 billion square feet (3/8-inch basis). Our modernization capital investment in Allendale, South Carolina is now effectively complete as the start-up phase of the mill, which began in late Q2-23, progresses in-line with expectations. We anticipate a ramp-up period of up to three years to meet targeted production and as such we do not anticipate the Allendale mill contributing materially to shipments in 2023.

In our Europe EWP segment, we expect near-term demand weakness to continue and thus expect 2023 OSB shipments to be near the bottom end of the guidance range of 1.0 to 1.2 billion square feet (3/8-inch basis).

In the Pulp & Paper segment, activities in respect of the closing conditions for the previously announced sale of Hinton pulp mill are proceeding and we now anticipate closing the transaction in early 2024. Activities in respect of the closing conditions for the sale of Quesnel River Pulp mill and Slave Lake Pulp mill are proceeding and we anticipate closing of the transaction in early 2024.

In Q3-23, we experienced continued moderation of costs and improved availability for inputs across our supply chain, including resins, chemicals, transportation and energy, although labour availability and some capital equipment lead times remained challenging. We expect these trends to largely continue over the near term.

Based on our current outlook and owing to lengthened lead times for projects underway or planned, we anticipate that there will be a carryover of capital spending into 2024 for projects in progress, and as such we now expect to invest approximately $450 million in 20231.

1.     This is a supplementary financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure.

Management Discussion & Analysis (“MD&A”)

Our Q3-23 MD&A and interim consolidated financial statements and accompanying notes are available on our website at www.westfraser.com and the System for Electronic Document Analysis and Retrieval + (“SEDAR+”) at  www.sedarplus.ca and the Electronic Data Gathering, Analysis and Retrieval System (“EDGAR”) website at   www.sec.gov/edgar under the Company’s profile.

Sustainability Report

West Fraser’s 2022 Sustainability Report is available on the Company’s website at www.westfraser.com. This report summarizes our Environmental, Social, and Governance (“ESG”) performance with a focus on our people, communities and role of our products in the carbon cycle. It is aligned with the Sustainable Accounting Standards Board (“SASB”), Global Reporting Initiative (“GRI”), the Task Force on Climate-Related Financial Disclosures (“TCFD”) and CDP (formerly the Carbon Disclosure Project).

Risks and Uncertainties

Risk and uncertainty disclosures are included in our 2022 Annual MD&A, as updated in the disclosures in our Q3-23 MD&A, as well as in our public filings with securities regulatory authorities. See also the discussion of “Forward- Looking Statements” below.

For the full press release, click here.

About West Fraser

West Fraser is a diversified wood products company with more than 60 facilities in Canada, the United States (“U.S.”), the United Kingdom (“U.K.”), and Europe. From responsibly sourced and sustainably managed forest resources, the Company produces lumber, engineered wood products (OSB, LVL, MDF, plywood, and particleboard), pulp, newsprint, wood chips, other residuals and renewable energy. West Fraser’s products are used in home construction, repair and remodelling, industrial applications, papers, tissue, and box materials.

Contact:

Robert B. Winslow, CFA – Director, Investor Relations & Corporate Development –shareholder@westfraser.com – (416) 777-4426

Source: West Fraser Timber Co. Ltd.