West Fraser Announces Third Quarter 2024 Results

West Fraser Timber Co. Ltd. (“West Fraser” or the “Company”) reported the third quarter results of 2024 (“Q3-24”). All dollar amounts in this news release are expressed in U.S. dollars unless noted otherwise. 

Third Quarter Highlights

• Sales of $1.437 billion and earnings of $(83) million, or $(1.03) per diluted share 
• Adjusted EBITDA¹ of $62 million, representing 4% of sales 
• Lumber segment Adjusted EBITDA¹ of $(62) million, including $32 million of export duty expense attributable to the finalization of AR5   
• North America Engineered Wood Products (“NA EWP”) segment Adjusted EBITDA¹ of $121 million
• Pulp & Paper segment Adjusted EBITDA¹ of $2 million 
• Europe Engineered Wood Products (“Europe EWP”) segment Adjusted EBITDA¹ of $1 million
• Repurchased 446,460 shares for aggregate consideration of $35 million
• Announced indefinite curtailment of operations at lumber mill in Lake Butler, Florida
• Subsequent to quarter-end, repaid principal and accrued interest on $300 million senior notes on maturity with cash on hand

“The benefits of our product diversification strategy were apparent once again in the third quarter of 2024, a period marked by uneven demand across our key products. North American OSB, plywood and other engineered wood products continued to experience healthy demand and the Lumber segment saw unexpected improvement in SPF demand, while SYP markets remained challenging, in part reflecting ongoing softness in repair and remodelling markets,” said Sean McLaren, West Fraser’s President and CEO.

“The team at West Fraser has been actively improving the cost position across our portfolio of mills, and in particular we continue to make progress within our U.S. South lumber platform. We expect to continue working diligently to execute on our strategy of investing capital to modernize mills and lower costs, helping build a more resilient organization. We will also continue to return excess capital to shareholders when it is prudent to do so, maintaining our strong balance sheet that continues to allow West Fraser the financial flexibility to take advantage of opportunities that fit our long-term strategy.”

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.

Results Summary 

Third quarter sales were $1.437 billion, compared to $1.705 billion in the second quarter of 2024. Third quarter earnings were $(83) million, or $(1.03) per diluted share, compared to $105 million, or $1.20 per diluted share in the second quarter of 2024. Third quarter Adjusted EBITDA was $62 million compared to $272 million in the second quarter of 2024. 

Liquidity and Capital Allocation 

Cash and short-term investments increased to $997 million at September 27, 2024 from $900 million at December 31, 2023.  

Capital expenditures in the third quarter were $107 million.

We paid $26 million of dividends in the third quarter, or $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 October 22, 2024, 1,487,694 total shares have been repurchased under both the prior NCIB and the 2024 NCIB.

As of October 22, 2024, we have repurchased for cancellation 43,064,289 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.

On October 15, 2024, we repaid the principal and accrued interest on our $300 million senior notes on maturity with cash on hand.

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 September 2024, with permits issued of 1.43 million units, according to the U.S. Census Bureau. While there are near-term uncertainties for new home construction, owing in large part to the level and rate of change of mortgage rates and the resulting impact on housing affordability, unemployment remains relatively low in the U.S. and though central bankers across North America previously indicated that rates may be higher for longer, the most recent rate hiking cycle is now generally believed to be over as the U.S. central bank has begun to cut rates and Federal funds futures indicate prospects for near term future rate cuts. These developments notwithstanding, 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 and mortgage 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. In the current environment, inflation appears to have stabilized and interest rates have begun to decline, which is directionally positive for housing demand. That said, ongoing geopolitical developments and the lagged impact of prior inflationary pressures may adversely impact near-term demand for our panel products in the U.K. and Europe. Despite these risk factors, we are confident that we will be able to navigate demand markets and capitalize on the long-term growth opportunities ahead.

With the dispositions of one UKP mill and two BCTMP mills earlier this year, offset in part by attaining sole control of CPP, 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

Although the demand environment for SYP has been relatively weak year-to-date, demand for SPF has exceeded our expectations. The acquisition of Spray Lake lumber mill and reliability and capital improvement gains across our lumber mill portfolio are still 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, we now expect 2024 SPF shipments to moderately exceed the top end of our guidance range of 2.6 to 2.8 billion board feet while we reiterate our previously revised SYP shipments guidance of 2.5 to 2.7 billion board feet.

In our NA EWP segment, despite expectations of a typical seasonal slowdown in Q4, we now anticipate 2024 OSB shipments will be modestly higher than 2023 levels, finishing the year closer to the higher end of the guidance range of 6.3 to 6.6 billion square feet (3/8-inch basis). 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 continue to create 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, with the latter part of Q4 expected to be seasonally slow, we reiterate full year 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 again in Q3-24, 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 are narrowing the range of anticipated capital expenditures to be approximately $475 million to $525 million in 2024¹.

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 Q3-24 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 Q3-24 MD&A, as well as in our public filings with securities regulatory authorities. See also the discussion of “Forward-Looking Statements” below.

For 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.