West Fraser Announces Second Quarter 2024 Results

West Fraser Timber Co. Ltd. (“West Fraser” or the “Company”) reported the second quarter results of 2024 (“Q2-24”). All dollar amounts in this news release are expressed in U.S. dollars unless noted otherwise.

Second Quarter Highlights?

Sales of $1.705 billion and earnings of $105 million, or $1.20 per diluted share
Adjusted EBITDA¹ of $272 million, representing 16% of sales
Lumber segment Adjusted EBITDA¹ of $(51) million
North America Engineered Wood Products (“NA EWP”) segment Adjusted EBITDA¹ of $308 million
Pulp & Paper segment Adjusted EBITDA¹ of $9 million
Europe Engineered Wood Products (“Europe EWP”) segment Adjusted EBITDA¹ of $6 million
Repurchased 935,568 shares for aggregate consideration of $74 million
Released 2023 Sustainability Report
Announced increase in quarterly dividend to $0.32 per share from $0.30 per share

“Once again our North American OSB, plywood and other engineered wood products demonstrated strong results and the value of our product diversification strategy. Q2-24 benefited from relative strength in new home construction demand that carried over from the prior quarter. Conversely, we continued to experience demand softness in our North American lumber business, particularly for SYP lumber with its greater relative exposure to repair and remodelling applications,” said Sean McLaren, West Fraser’s President and CEO.

“Despite near-term demand uncertainty across some of our end-markets, the team at West Fraser will continue to work diligently, executing on our strategy of investing capital to modernize mills and lower costs, returning excess capital to shareholders when it is prudent to do so, and maintaining financial flexibility through a strong balance sheet. While it is difficult to see catalysts for a near-term demand recovery across our industry, we remain steadfast in our approach to navigating uncertainty. We continue to realize the financial benefits from the recent closures of some of our higher-cost lumber mills and will continue to focus on optimizing our portfolio of assets to lower costs and create a more resilient organization.”

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.

Results Summary

Second quarter sales were $1.705 billion, compared to $1.627 billion in the first quarter of 2024. Second quarter earnings were $105 million, or $1.20 per diluted share, compared to $35 million, or $0.42 per diluted share in the first quarter of 2024. Second quarter Adjusted EBITDA was $272 million compared to $200 million in the first quarter of 2024.

Liquidity and Capital Allocation

Cash and short-term investments increased to $1,004 million at June 28, 2024 from $900 million at December 31, 2023.

Capital expenditures in the second quarter were $102 million.

We paid $24 million of dividends in the second quarter, or $0.30 per share, and announced an increase to our quarterly dividend for the dividend to be paid in the third quarter, raising it to $0.32 per share.

On February 27, 2024, we renewed our normal course issuer bid (“2024 NCIB”), which allows us to acquire up to 3,971,380 Common shares for cancellation from March 1, 2024 until the expiry of the bid on February 28, 2025. From January 1, 2024 to July 23, 2024, 1,379,659 total shares have been repurchased under both the prior NCIB and the 2024 NCIB.

As of July 23, 2024, we have repurchased for cancellation 42,956,254 of the Company’s shares since the closing of the acquisition of Norbord on February 1, 2021 through the completion of a substantial issuer bid (“SIB”) in 2021, completion of a SIB in 2022 and normal course issuer bids, equalling 79% 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 American lumber, OSB and engineered wood panel products are residential construction, repair and remodelling and industrial applications. Over the medium term, improved housing affordability from stabilization of inflation and interest rates, a large cohort of the population entering the typical home buying stage, and an aging U.S. housing stock are expected to drive new home construction and 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 1.35 million units in June 2024, with permits issued of 1.45 million units, according to the U.S. Census Bureau. While there are near-term uncertainties for new home construction, owing in large part to interest rates and the direction of changes to mortgage rates and the resulting impact on housing affordability, unemployment remains relatively low in the U.S. Although central bankers across North America have indicated that rates may be higher for longer, the latest rate hiking cycle appears to be over with U.S. Federal funds futures recently indicating prospects for approximately two rate cuts in the second half of 2024. 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 the trend in interest rates negatively impact consumer sentiment and housing affordability.

In Europe and the U.K., we continue to experience slightly better demand for our OSB products in 2024 but relatively softer demand for MDF and particleboard panel products. We continue to 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. While inflation appears to have stabilized, near-term risks, including relatively high interest rates, ongoing geopolitical developments and the lagged impact of prior inflationary pressures may adversely impact future demand for our panel products in the U.K. and Europe. Despite these risks, we are confident that we will be able to navigate through the current environment and capitalize on the long-term growth opportunities ahead.

With the dispositions of one UKP mill and two BCTMP mills earlier this year, we expect the financial impact of the Pulp & Paper segment to be less significant and to contribute much less variability to our consolidated results going forward.

Operations

Given the weaker than expected demand for SYP in the first half of 2024, we now anticipate that total lumber shipments this year will be moderately lower than 2023 levels. The acquisition of Spray Lake lumber mill and reliability and capital improvement gains across our lumber mill portfolio are now expected to be more than offset by capacity reductions from recently announced permanent closures and indefinite curtailments as well as shift reductions across select lumber mills. As such, while we are reiterating 2024 SPF shipments guidance of 2.6 to 2.8 billion board feet, we are reducing SYP shipments guidance to 2.5 to 2.7 billion board feet from our previous guidance of 2.7 to 2.9 billion board feet.

In our NA EWP segment, we continue to expect 2024 OSB shipments to be consistent with 2023 levels and reiterate shipments guidance of 6.3 to 6.6 billion square feet (3/8-inch basis) this year. Start-up of the Allendale mill continues to progress and we anticipate a ramp-up period for the mill of up to three years to meet targeted production levels. We expect our overall OSB platform to be better and lower cost with a modern Allendale facility operating, and as with all our wood products operations, demand is a key input in determining our operating schedules across our manufacturing footprint. Input costs for the NA EWP business are expected to be relatively stable through 2024. However, recent sawmill curtailments across the industry are creating chip shortages for pulp producers, which is increasing demand tension for pulp logs, the primary fibre source for OSB production.

In our Europe EWP segment, we continue to expect soft near-term demand for our panel products, with 2024 shipments of MDF, particleboard and OSB expected to be similar or slightly better than 2023 levels. For OSB, we reiterate shipments guidance in the range of 0.9 to 1.1 billion square feet (3/8-inch basis). Input costs for the Europe EWP business, including energy and resin costs, are expected to stabilize in 2024 but remain elevated.

On balance, we experienced relatively stable costs for inputs across our supply chain in Q2-24, including resins and chemicals, 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, assuming no deterioration from current market demand conditions during the year and no additional lengthening of lead times for projects underway or planned, we continue to anticipate that we will invest approximately $450 million to $550 million in 2024¹.

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 Q2-24 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 2023 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 2023 Annual MD&A, as updated in the disclosures in our Q2-24 MD&A, as well as in our public filings with securities regulatory authorities. See also the discussion of “Forward-Looking Statements” below.

To view the full results, click here.

About West Fraser

West Fraser is a diversified wood products company with more than 60 facilities in Canada, the United States, the United Kingdom, and Europe, which promotes sustainable forest practices in its operations 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. For more information about West Fraser, visit www.westfraser.com.

Contact:

Joyce Wagenaar – Director, Communications – media@westfraser.com – (604) 817-5539

Source: West Fraser Timber Co. Ltd.

Most Read