CANFOR REPORTS RESULTS FOR THIRD QUARTER OF 2023
VANCOUVER, BC, Nov. 2, 2023 /CNW/ - Canfor Corporation ("The Company" or "Canfor") (TSX: CFP) today reported its third quarter of 2023 results1:
Overview
Q3 2023 consolidated operating loss of $65 million, including a $49 million operating loss from the pulp business; adjusted operating loss of $86 million; adjusted shareholder net loss of $19 million, or $0.16 per share
Continued strong results in the US South; solid European results despite seasonal downtime; another challenging quarter for Western Canada
Persistent pressure on global lumber market demand and pricing through much of the quarter
Market-driven curtailments in Western Canada & seasonal downtime in Europe led to lower shipments
Confirmed future investment of approximately $200 million in a new, state-of-the-art manufacturing facility in Houston, British Columbia
Challenging results for Canfor Pulp despite stable global pulp market fundamentals; Northwood NBSK Pulp Mill scheduled maintenance completed as planned; restart delayed due to operational challenges
Financial Results
The following table summarizes selected financial information for the Company for the comparative periods:
Q3 | Q2 | YTD | Q3 | YTD | ||||||
(millions of Canadian dollars, except per share amounts) | 2023 | 2023 | 2023 | 2022 | 2022 | |||||
Sales | $ | 1,312.3 | $ | 1,446.0 | $ | 4,143.7 | $ | 1,666.4 | $ | 6,053.4 |
Reported operating income (loss) before amortization | $ | 42.6 | $ | 41.0 | $ | (22.1) | $ | 211.5 | $ | 1,672.5 |
Reported operating income (loss) | $ | (65.1) | $ | (66.7) | $ | (340.3) | $ | 108.6 | $ | 1,382.1 |
Adjusted operating income (loss) before amortization1 | $ | 21.8 | $ | (16.4) | $ | (38.2) | $ | 300.0 | $ | 1,760.4 |
Adjusted operating income (loss)1 | $ | (85.9) | $ | (124.1) | $ | (356.4) | $ | 197.1 | $ | 1,470.0 |
Net income (loss)2 | $ | (23.1) | $ | (43.9) | $ | (209.0) | $ | 87.4 | $ | 995.2 |
Net income (loss) per share, basic and diluted2 | $ | (0.19) | $ | (0.36) | $ | (1.74) | $ | 0.71 | $ | 8.05 |
Adjusted net income (loss)1, 2 | $ | (19.4) | $ | (44.3) | $ | (208.6) | $ | 98.5 | $ | 1,007.2 |
Adjusted net income (loss) per share, basic and diluted1, 2 | $ | (0.16) | $ | (0.36) | $ | (1.73) | $ | 0.80 | $ | 8.15 |
1 Adjusted results referenced throughout this news release are defined as non-IFRS financial measures. For further details, refer to the "Non-IFRS Financial Measures" section of this document. |
2 Attributable to equity shareholders of the Company. |
For the third quarter of 2023, the Company reported a consolidated operating loss of $65.1 million, which included a $49.3 million operating loss from Canfor Pulp Products Inc. ("CPPI"). This compares to a consolidated operating loss of $66.7 million in the second quarter of 2023, $37.9 million of which was attributed to CPPI.
Results in the current quarter include a net $20.8 million reversal of a previously recognized inventory write-down, principally driven by the lumber segment, as well as a net duty recovery of $43.3 million (US$34.7 million) resulting from the finalization of countervailing ("CVD") and anti-dumping duty ("ADD") rates applicable to the fourth period of review ("POR4").
Commenting on the Company's third quarter results, Canfor's President and Chief Executive Officer, Don Kayne said "Although global lumber markets remained under pressure in the quarter, our US South operations continued to deliver strong earnings. When combined with solid earnings from Europe and slightly better results from our Western Canadian operations, this outcome underscores the importance of our global diversification strategy. For our pulp business, this was a difficult quarter as global pulp market conditions continued to be challenged with the oversupply of product and tepid demand, and our operations faced significant planned and unplanned downtime that continued into the fourth quarter."
Lumber Segment Highlights and Outlook
For the lumber segment, adjusted results increased $59.7 million quarter-over-quarter. In the US South, results remained solid quarter-over-quarter as a 5% increase in the Southern Yellow Pine ("SYP") East 2x6 #2 price and higher production and shipment volumes, largely driven by the newly constructed sawmill in DeRidder, Louisiana, ("DeRidder"), were offset by a 7% decline in the SYP East 2x4 #2. Earnings in Europe in the current period principally reflected a modest improvement in market pricing in the United Kingdom ("UK"), offset by the Company's regular summer downtime in the period and a 3% stronger Canadian dollar (versus the Swedish Krona ("SEK")). In Western Canada, the ongoing challenging results primarily reflected a 17% increase in the average North American Random Lengths Western Spruce/Pine/Fir ("SPF") 2x4 #2&Btr price offset by lower production and shipment volumes quarter-over-quarter mainly driven by an increase in market-related downtime in the current period as well as a full quarter impact of mill closures, which took effect in April.
Lumber market fundamentals remained relatively subdued through most of the third quarter of 2023. Market-related curtailments and wildfires, particularly in Western Canada, continued well into the current quarter constraining North American lumber supply. These supply pressures were met with solid repair and remodeling activity and a slight uptick in new home construction in July, despite ongoing affordability challenges tied to high interest rates and persistent inflation. As a result, most North American US-dollar benchmark lumber prices posted modest gains early in the period but softened through the balance of the quarter as supply constraints eased.
Notwithstanding affordability headwinds, high home prices and low inventory in the existing home market led to an increase in US housing starts in July, particularly for single-family units which consume approximately three times the volume of lumber compared to multi-family homes. Extreme heat across much of the Southern US in August, however, hindered building activity through the balance of the period. As a result, for the current quarter overall, US housing starts averaged 1,359,000 units on a seasonally adjusted basis, down 6% from the previous quarter, reflecting a 3% increase in single-family starts and a 24% decline in multi-family starts. In Canada, housing starts averaged 259,000 units on a seasonally adjusted basis in the third quarter of 2023, up 4% from the previous quarter, primarily driven by a 5% increase in the construction of multi-family homes, with a consistent level of activity seen for single-family homes.
Offshore lumber pricing to Asian markets remained relatively stable in the third quarter of 2023, as improved demand in China and Japan was met with elevated inventory levels in those regions, due in part to an influx of supply from Russia and Europe in the previous quarter.
In Europe, lumber demand and pricing saw a modest improvement quarter-over-quarter, especially in the UK, driven largely by ongoing strength in the repair and remodeling segment.
Operationally, in the US South, the Company continued to successfully ramp-up its greenfield DeRidder facility and transitioned effectively to two shifts in August. The ramp-up of this facility is progressing well and is forecast to continue to improve through the balance of 2023.
In Western Canada, the Company announced its plan to invest approximately $200 million in a new, state-of-the-art manufacturing facility in Houston, British Columbia ("BC"). This decision followed a comprehensive evaluation of the availability of economic fibre in the region, as well as customer requirements, to support a successful investment. The low cost, high efficiency facility will have an annual production capacity of approximately 350 million board feet. In the fourth quarter of 2023, work began on detailed project engineering and permitting requirements. Vendor and equipment selection is anticipated to be finalized in early 2024, with demolition and site preparation scheduled for the spring.
Looking ahead, although longer-term lumber market fundamentals remain positive, affordability constraints are anticipated to continue to weigh on demand in the near to mid-term. High mortgage rates, persistent inflation and geopolitical tensions are forecast to exert pressure on new home construction activity through the balance of the year and into 2024. On the positive side, persistent underlying demand for housing in North America, coupled with low supply of existing home inventories, are projected to support the housing sector in the long-term. In the repair and remodeling segment, demand is anticipated to be muted through the fourth quarter of 2023 due to affordability constraints combined with seasonal factors.
Offshore lumber demand in Japan is projected to remain somewhat muted through the balance of 2023, reflecting general economic uncertainty and a slowed housing market. The same demand trend is anticipated for China, despite the introduction of government stimulus measures mid-year. Pricing to China, however, is estimated to improve slightly in the coming months, due to reduced European imports and a continued draw-down of inventories in that region.
European lumber pricing is forecast to face downward pressure through the fourth quarter of 2023 driven mainly by low levels of residential construction activity, moderated to a degree, by continued strength in the do-it-yourself space.
Looking forward from an operational perspective, there remains significant uncertainty with regards to the availability of economically viable fibre in BC. This uncertainty is driven by recent wildfire events, combined with the lasting impacts of the Mountain Pine Beetle epidemic, uncertainties associated with unsettled land and title claims by various Indigenous Nations and outstanding policy, land use decisions and legislative initiatives by the BC Government. While the Company has taken a number of actions in recent years in response to these fibre constraints, the near-term outlook in BC remains challenging. As a result, the Company continues to anticipate sustained log cost pressures in BC for its sawmills and a challenging fibre supply environment for CPPI's pulp mills (both for sawmill residual chips and whole-log chips). With these continued log cost pressures and the projected weaker North American lumber market demand and pricing, the Company will continue to adjust operating rates to align with demand and economically available timber supply.
Pulp and Paper Segment Highlights and Outlook
For the pulp and paper segment, the adjusted operating loss was $51.3 million for the third quarter of 2023, compared to an adjusted operating loss of $31.0 million for the second quarter of 2023. These results principally reflected the continuation of soft global pulp market conditions throughout most of the current period combined with extensive downtime at CPPI's Northwood Northern Bleached Softwood Kraft ("NBSK") pulp mill ("Northwood") driven by supply chain disruptions and scheduled maintenance, as well as persistent reliability challenges and a delayed restart. When combined, these factors drove a significant unfavourable timing lag in CPPI's shipments (versus orders) and led to a substantial decline in CPPI's NBSK pulp sales unit realizations in the current quarter.
Global softwood pulp market fundamentals were relatively flat through the current quarter, following a significant decline in the preceding quarter. Later in the period, however, buyers started to regain some market confidence, with lower global pulp pricing leading to a slight increase in purchasing activity, as producers worked to reduce their higher-than-average inventory levels. Consequently, US-dollar NBSK list prices to China, the world's largest pulp consumer, saw some positive momentum towards the end of the quarter, ending September at US$715 per tonne. As a result, average US-dollar NBSK pulp list prices to China for the current quarter were US$680 per tonne, up US$12 per tonne, or 2%, from the previous quarter. Notwithstanding the slight uplift in US-dollar NBSK list prices to China in the current period, CPPI's average NBSK pulp unit sales realizations experienced a significant decrease compared to the previous quarter, principally driven by an unfavourable timing lag in shipments (versus orders), which was exacerbated by CPPI's reduced pulp production in the current quarter, and was combined with the ongoing deterioration in pulp market conditions and pricing to other global regions, including North America.
Looking forward, global softwood pulp markets are anticipated to experience a slight improvement in the fourth quarter of 2023, as elevated inventory levels slowly begin to normalize following the seasonally slower summer months. These factors are projected to be tempered by general global economic uncertainty and pressures.
CPPI's results in the fourth quarter of 2023 will reflect the aforementioned operational challenges at Northwood associated with the delayed startup, with a projected 30,000 tonnes of reduced NBSK pulp production, combined with higher associated maintenance costs and lower shipment volumes. These factors are also anticipated to give rise to a larger-than-normal unfavourable timing lag in shipments (vs orders) and thus it is estimated that fourth quarter results will reflect persistently lower NBSK pulp sales unit realizations, regardless of any uptick in US-dollar NBSK list prices that may arise.
While no major maintenance outages are planned at CPPI's operations in the fourth quarter of 2023, given the ongoing uncertainty with regards to the availability of economically viable fibre in BC, and a projected weaker North American lumber market, CPPI anticipates a challenging fibre supply environment for its pulp mills (both for sawmill residual chips and whole-log chips). CPPI will continue to monitor operating conditions and will adjust operating rates, to align with economically viable fibre supply, through the balance of 2023 and into 2024.
Additional Information and Conference Call
A conference call to discuss the third quarter's financial and operating results will be held on Friday, November 3, 2023, at 8:00 AM Pacific time. To participate in the call, please dial Toll-Free 1-888-390-0546. For instant replay access until November 17, 2023, please dial Toll-Free 1-888-390-0541 and enter participant pass code 364295#. 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 www.canfor.com/investor-relations/webcasts.
Non-IFRS Financial Measures
Throughout this press release, reference is made to certain non-IFRS financial measures which are used to evaluate the Company's performance but are not generally accepted under IFRS and may not be directly comparable with similarly titled measures used by other companies. The following table provides a reconciliation of these non-IFRS financial measures to figures reported in the Company's condensed consolidated interim financial statements:
(millions of Canadian dollars) | Q3 2023 | Q2 2023 | YTD 2023 | Q3 2022 | YTD 2022 | ||||||||||
Reported operating income (loss) | $ | (65.1) | $ | (66.7) | $ | (340.3) | $ | 108.6 | $ | 1,382.1 | |||||
Inventory write-down (recovery), net | $ | (20.8) | $ | (57.4) | $ | (16.1) | $ | 88.5 | $ | 87.9 | |||||
Adjusted operating income (loss) | $ | (85.9) | $ | (124.1) | $ | (356.4) | $ | 197.1 | $ | 1,470.0 | |||||
Amortization | $ | 107.7 | $ | 107.7 | $ | 318.2 | $ | 102.9 | $ | 290.4 | |||||
Adjusted operating income (loss) before amortization | $ | 21.8 | $ | (16.4) | $ | (38.2) | $ | 300.0 | $ | 1,760.4 | |||||
After-tax impact, net of non-controlling interests | Q3 2023 | Q2 | YTD | Q3 | YTD | ||||||||||
Net income (loss)3 | $ | (23.1) | $ | (43.9) | $ | (209.0) | $ | 87.4 | $ | 995.2 | |||||
Foreign exchange (gain) loss on term debt | $ | 6.4 | $ | (6.7) | $ | (0.7) | $ | 10.6 | $ | 12.5 | |||||
(Gain) loss on derivative financial instruments | $ | (2.7) | $ | 6.3 | $ | 1.1 | $ | 0.5 | $ | (0.5) | |||||
Adjusted net income (loss)3 | $ | (19.4) | $ | (44.3) | $ | (208.6) | $ | 98.5 | $ | 1007.2 | |||||
3 Attributable to equity shareholders of the Company. |
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 Canfor assumes no obligation to update such information to reflect later events or developments, except as required by law.
Canfor is a leading integrated forest products company based in Vancouver, BC with interests in BC, Alberta, North and South Carolina, Alabama, Georgia, Mississippi, Arkansas and Louisiana, as well as in Sweden with its majority acquisition of the Vida Group. Canfor produces primarily softwood lumber and also owns a 54.8% interest in CPPI, which is one of the largest global producers of market Northern Bleached Softwood Kraft Pulp and a leading producer of high performance kraft paper. Canfor shares are traded on The Toronto Stock Exchange under the symbol CFP. For more information visit canfor.com.
SOURCE Canadian Forest Products Ltd.
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