Canfor reports Q1 2024 results, closures and expansions By Investing.com

Canfor Company (TSX:) and its subsidiary Canfor Pulp have introduced their first-quarter outcomes for 2024. Through the earnings name, CEO Don Kayne mentioned the corporate’s strategic efforts to diversify globally, particularly highlighting their rising presence within the US South and Europe.

The decision revealed the everlasting closure of the Jackson facility, the enlargement on the Fulton facility in Alabama, and the acquisition of Resolute Forest (NYSE:) Merchandise’ El Dorado lumber manufacturing facility in Arkansas. Regardless of excessive winter situations, Canfor Pulp President Kevin Edgson reported operational enhancements and steady international pulp markets. CFO Pat Elliott outlined the monetary panorama, noting an working loss in lumber however improved efficiency for Canfor Pulp, a powerful steadiness sheet, and anticipated capital expenditures.

Key Takeaways

• Canfor is closing its Jackson facility and increasing the Fulton facility in Alabama.
• The corporate has acquired the El Dorado lumber facility in Arkansas, aiming for a manufacturing capability of 175 million board toes by subsequent 12 months.
• Canfor Pulp exhibits improved efficiency regardless of harsh winter climate, with regular pulp markets and anticipated worth will increase for kraft paper.
• Issues about wildfire dangers and the difficult coverage atmosphere in British Columbia had been addressed.
• Market share positive aspects within the massive field channel and restoration within the latter a part of the quarter had been famous.

Firm Outlook

• Canfor is specializing in investing in low-cost, strategically positioned property.
• The corporate is engaged on diversifying its operations, with a selected emphasis on the US South and Europe.
• They’re pre-planning and allowing for a possible reinvestment plan in Houston.

Bearish Highlights

• There’s an working loss reported in Canfor’s lumber enterprise.
• The Southern Yellow (OTC:) Pine market’s restoration has been gradual, influenced by a sluggish multifamily phase and declining rents.
• Canfor faces challenges in British Columbia as a result of entry to economically viable fiber and ongoing approval processes for salvage harvests after forest fires.

Bullish Highlights

• Canfor Pulp’s monetary efficiency has improved.
• The corporate has a powerful steadiness sheet and anticipates capital expenditures for development and enlargement.
• Canfor expects additional worth will increase for kraft paper, with a modest enhance projected for the second quarter and extra within the second half of the 12 months.

Misses

• Canfor’s lumber enterprise has suffered losses, although particular figures weren’t disclosed.

Q&A Highlights

• Executives mentioned the affect of the difficult coverage and working atmosphere in British Columbia.
• The acquisition of the El Dorado facility is anticipated to supply fiber synergies and uncooked materials provide advantages.
• The corporate addressed issues in regards to the upcoming wildfire season and techniques to mitigate dangers.

In abstract, Canfor is navigating a posh atmosphere with strategic acquisitions and facility expansions whereas managing operational challenges, significantly within the lumber phase and British Columbia. The corporate stays targeted on diversification and bettering its monetary standing amidst fluctuating market situations.

Full transcript – None (CFPUF) Q1 2024:

Operator: Good morning. My title is Jenny, and I will likely be your convention operator right now. Welcome to Canfor and Canfor Pulp’s First Quarter Analyst Name [Operator Instructions]. Throughout this name, Canfor and Canfor Pulp’s Chief Monetary Officer will likely be referring to a slide presentation that’s obtainable within the Investor Relations part of the corporate’s web site. Additionally, the businesses wish to level out that this name will embody forward-looking statements. So please check with the press releases for the related dangers of such statements. I’d now like to show the assembly over to Mr. Don Kayne, Canfor Company’s President Chief Govt Officer. Please go forward, Mr. Kayne.

Don Kayne: Thanks, operator, and good morning, everybody. Thanks for becoming a member of the Canfor and Canfor Pulp Q1 2024 Outcomes Convention Name. I will make just a few feedback earlier than I flip issues over to Kevin Edgson, Canfor Pulp President and Chief Govt Officer; and Pat Elliott, Chief Monetary Officer of Canfor Company and Canfor Pulp and our Senior Vice President of Sustainability; and moreover, we’re joined by Kevin Pankratz, Senior Vice President of Gross sales and Advertising. Earlier than speaking about our monetary outcomes, I am going to share just a few Q1 enterprise updates. As , over the previous decade, we now have been targeted on constructing a globally diversified working platform by growing our footprint within the US South and Europe, whereas working in the direction of a smaller however stronger presence in British Columbia. Though international lumber markets remained below strain in Q1, due to this technique, we now have a extra resilient group that has been higher capable of mitigate market-related pressures and the persistent constraints we proceed to tempo accessing economically viable fiber in British Columbia. By a focused and expansive capital funding program, we now have been rising and reworking our manufacturing services in fiber-rich areas to be low-cost leaders which might be globally aggressive over the long run. As a part of this effort and our plans to optimize our operational footprint in Alabama, this quarter, we introduced that we are going to completely shut our Jackson facility in June and develop manufacturing at our close by Fulton facility with a second shift. These steps along with our new state-of-the-art greenfield sawmill being inbuilt Axis, Alabama and pending closure of our cell sawmill will enhance our price construction, optimize the fiber provide in Alabama and add 100 million board toes of Southern Yellow Pine manufacturing capability within the area. By consolidating and increasing our Alabama operations, we will likely be higher positioned to serve our international prospects from a contemporary, aggressive working platform whereas offering extra sustainable jobs and improved working situations for our valued workers. Equally, as a part of our continued development technique within the U.S. South, yesterday, we introduced an settlement with Resolute Forest merchandise to amass their El Dorado lumber manufacturing facility in Union County, Arkansas. Bringing this facility to Canfor will create synergies and vertical integration alternatives given its complementary geographic match with our present operations within the area. These embody our El Dorado laminating plant in addition to our Urbana plant, which is progressing in its USD 130 million modernization that may enhance manufacturing by 115 million board toes to a complete of 285 million board toes subsequent 12 months. The El Dorado acquisition will capitalize on our regional manufacturing footprint to optimize our product portfolio and maximize worth. We anticipate investing an extra USD 50 million to improve the sawmill which is able to enhance its manufacturing capability to 175 million board toes per 12 months. As we sit up for ongoing development, we stay deeply dedicated to sustainability, which is embedded all through our total operations from the forest to the shopper. This quarter, we launched our 2023 sustainability report, highlighting the actions and our efficiency to advance our sustainability technique. We’ve got an bold plan to be a pacesetter in sustainable enterprise targeted on three key areas: individuals, planet and merchandise. Our report tracks our progress throughout 13 materials subjects, every with discrete objectives to considerably shift the way in which we do enterprise. Naturally, this features a concentrate on local weather change by means of our targets on Scope 1, 2 and three emissions however it additionally consists of bettering security, increasing relationships with indigenous nations, growing help for our working communities and additional enhancing the variety of our workforce. By these actions and our carbon pleasant merchandise, Canfor is nicely positioned to be a part of the answer to local weather change. Turning to our monetary outcomes. Our lumber enterprise benefited from strong lumber pricing and earnings in Europe with sturdy contribution from Vida highlighting the worth of our diversification technique. In North America, weak lumber markets proceed to replicate ongoing affordability points associated to inflation and the present rate of interest atmosphere along with a major decline in multifamily development exercise. Whereas our Western Canadian operations benefited from improved pricing within the first quarter, our monetary outcomes proceed to replicate the affect of weak North American lumber pricing, challenges accessing economically viable fiber provide in British Columbia. Whereas lumber costs are anticipated to stay below strain within the quick time period, Canfor has seen regular underlying demand within the restore and rework sector, and we proceed to consider the medium- to long-term market fundamentals stay sturdy. However present market situations, our steadiness sheet stays sturdy, considerably continued reinvestment in our operations over the following a number of years. I’ll now flip it over to Kevin to supply an summary of Canfor Pulp.

Kevin Edgson: Thanks, Don, and good morning, everybody. Canfor Pulp generated improved monetary ends in the primary quarter, supported by a 7% quarter-over-quarter enhance in pulp manufacturing and regular international pulp markets. However the impacts of utmost winter climate in January, we proceed to see enhancements in our working efficiency. Given projected weak point in North American lumber markets within the quick time period, mixed with ongoing uncertainty almost about the supply of economically obtainable fiber in BC, we proceed to guage our working situations and stay targeted on bettering our working efficiency and price construction whereas optimizing the obtainable fiber provide. I wish to thank our workers for his or her resilience and continued efforts to reinforce our operational efficiency as we reply to the exterior pressures going through our enterprise. Turning to pulp markets. Whereas softwood pulp markets had been regular within the first quarter, pricing has elevated significantly to start out the second quarter, pushed by international provide disruptions and pulp producer downtime. Wanting forward, we proceed to consider sturdy international pulp market fundamentals will stay over the medium to long run, supporting our capital reinvestment plan. The magnitude of spend will likely be modest in 2024 with future spending accomplished its market and monetary circumstances permit. I’ll now flip it over to Pat to supply an summary of our monetary outcomes.

Pat Elliott: Thanks, Kevin, and good morning, everybody. The Canfor and Canfor Pulp first quarter outcomes had been launched yesterday morning. In my feedback this morning, I am going to communicate to the primary quarter monetary highlights, a abstract of which is included in our overview slide presentation positioned within the Investor Relations part of the Canfor web site. Our lumber enterprise generated an working lack of $57 million within the first quarter, which included a $30 million restoration of a beforehand recorded write-down of stock in Western Canada and a noncash responsibility expense of $15 million associated to our antidumping responsibility accrual charge. Adjusting for these noncash objects, our lumber enterprise generated an working lack of $72 million within the first quarter in comparison with a equally adjusted lack of $111 million within the prior quarter. However an enchancment quarter-over-quarter, these outcomes proceed to replicate losses related to our BC operations as a result of weak lumber pricing and a persistent lack of economically viable fiber. Whereas our Western Canadian operations benefited from an uplift in SPF lumber pricing, lumber markets remained below strain within the first quarter, significantly for Southern Yellow Mine. Our European operations continued to carry out nicely and attributed $31 million in money earnings within the first quarter, reinforcing the worth of our diversification technique. These outcomes replicate the advantage of larger manufacturing and cargo volumes in addition to improved gross sales realizations. Canfor Pulp generated an adjusted working lack of $16 million within the first quarter, an enchancment of $10 million quarterly. These outcomes largely mirrored of modest uplift pulp gross sales realizations, mixed with the rise in pulp manufacturing beforehand talked about by Kevin, which greater than offset the affect of a difficult January associated to excessive winter climate. Canfor, excluding Canfor Pulp ended the quarter with web money of roughly $225 million, following a seasonal construct of working capital in Western Canada. However present market dynamics, our steadiness sheet stays sturdy, supporting the continued reinvestment in our lumber enterprise. On the finish of the primary quarter, Canfor Pulp had web debt of $85 million and $148 million of accessible liquidity and of which $80 million is restricted to be used in the direction of future reinvestment in Northwood’s restoration boiler primary. On a consolidated foundation, capital expenditures had been roughly $103 million within the first quarter, together with roughly $12 million for Canfor. We anticipate capital spend of roughly $450 million within the lumber phase in 2024 and together with remaining spend on our Alabama greenfield, deliberate capital funding on the El Dorado sawmill and numerous natural development initiatives within the US South. For Canfor Pulp, we’re presently forecasting capital spend of roughly $40 million in 2024, together with capitalized upkeep. As well as, we anticipate Canfor will proceed to allocate a modest quantity of capital to opportunistically repurchase shares all year long. And with that, Don, I am going to flip the decision again to you.

Don Kayne: Nice. Thanks, Pat. And with that, I am going to flip it again to you, operator, and so we’re now able to take questions from analysts.

Operator: [Operator Instructions] Your first query is from Ben Isaacson from Scotiabank.

Ben Isaacson: First query on Southern Yellow Pine, having come off fairly a bit during the last quarter or so. Are you able to speak about how has that impacted export economics from Europe, are you beginning to see a pullback? And will you simply give some colour on the dynamics there?

Don Kayne: Kevin, why do not you go forward [Multiple Speakers] Southern Yellow Pine scenario?

Kevin Pankratz: So Yellow Pine pricing for positive and in addition SPF pricing, Ben, is impacted it. So we’re discovering even with ourselves, our volumes from Sweden into the US are down 1 proportion or 2%. And we’re truly seeing much less quantity coming from Central Europe. And the massive cause they obtained higher or various choices at larger values to ship their merchandise, be it the UK, Center East, North Africa and Asia. So we anticipate to return to perhaps extra historic ranges for European imports and never what we noticed January and Q1 of the earlier 12 months.

Ben Isaacson: And the way do you consider the unfold between SPF and SYP? Clearly, it is sort of disconnected from what it is normally at, and do you assume that is sustainable going ahead?

Kevin Pankratz: I feel the dynamics are for positive altering versus historic spreads on the market, Ben. And as manufacturing out of Western Canada comes below extra strain and diminished, I feel you are going to see perhaps a reversal or a pattern change the place SPM 2×4 might be at a premium with simply [Technical Difficulty] much less quantity and with extra quantity approaching to that dynamic, I feel, will pattern change sooner or later.

Ben Isaacson: And simply final one for me shortly. I do know it is early days. It is solely the beginning of Could, however we’re listening to that the wildfire season might be extra intense than it was final 12 months. Do you’ve gotten any colour by way of how that is progressing and what’s the danger for Canfor?

Don Kayne: Definitely the wildfire scenario continues to be a priority. And I feel we proceed to study. Final 5 years, there’s been plenty of typical years there, Ben. So we spent plenty of time as I feel as a result of the federal government has to attempt to perceive it higher and to attempt to put in additional mitigating actions to attempt to get in entrance of {that a} bit, and I feel that is taking place. However clearly, touring as much as the mills final week a bit. There’s — all our operations are involved about it. There’s been just a few fires, significantly in Alberta out of the gate that we have been working by means of. However certainly, it is — I feel that is one thing that we have to see to simply mainly conclude that it’ll be a subject for a number of years going ahead. And so I feel we study annually extra about it and how one can battle it, how one can forestall them and so forth, and we’ll proceed to do this. And perhaps that is all I can actually say about that.

Operator: Your subsequent query is from Sean Steuart from TD Securities Cowen.

Sean Steuart: A few questions. First on El Dorado. I recognize your feedback with respect to the synergies I suppose together with your different property within the area. However primarily based on my earlier protection of different corporations, this asset has a checkered historical past. Are you able to give a little bit little bit of context on how this transaction materialized and time line to take a position the remaining $50 million to get capability as much as 175 million board toes, a little bit bit extra element on that entrance.

Don Kayne: I imply, once more, down there, we have been, I feel, actual considerate and affected person by way of alternatives as they come up and which of them sort of make sense to us and which of them do not, and that one, it was one which we have checked out for quite a few years and primarily due to the fiber synergies that it supplies with our Urbana facility there and a few of the synergies that it supplies by way of uncooked materials provide to a few of our vertically built-in services, significantly within the El Dorado Glulam plant. That is at all times been a possibility that we would wish to develop on. In order that’s one of many most important causes. Nevertheless it has been one thing we have checked out for a very long time. However we have additionally recognized by means of that interval that we wanted to spend some cash there. We felt that we be a bit undercapitalized earlier than. And we consider — and we’re very assured that with our of us that if we put within the sum of money we talked about there, we will make that right into a strong operation going ahead in a fiber bridge space with some aggressive fiber and high-quality fiber. So these are all of the issues that we sort of thought-about. And so anyway, so we’re comfortable to have the ability to conclude that.

Sean Steuart: And time line on while you anticipate to get to 175 million board toes for that asset?

Don Kayne: Sure, that is going to be someday most likely in the direction of the early a part of subsequent 12 months — center of subsequent 12 months or one thing like that.

Sean Steuart: Don, any replace on the Houston potential reinvestment plan milestones that you should advance that initiative? Then has there been any progress on that entrance?

Don Kayne: And I feel perhaps what I can say there may be, as we now have talked about in a number of of the earlier calls, we perhaps — we definitely stay involved in regards to the difficult coverage and working atmosphere right here in British Columbia. For us, so because of that, we proceed to evaluate the impacts of a few of these modifications that I discuss. In the present day, I’d say additionally although that we’re much more involved than we had been earlier than that coverage atmosphere that I discuss right here continues to alter, appears to be fairly dynamic and because of this, be very unsure. So we’re — like I say, we will proceed to evaluate these impacts. And on the similar time, Sean, I’ll say although that we’re doing a little pre-planning and it is nonetheless ongoing with — and in addition some allowing.

Operator: Your subsequent query is from Hamir Patel from CIBC Capital Markets.

Hamir Patel: Don, it looks as if you’ve got been seeing stronger R&R takeaway than a few of your friends. Do you assume you’ve got been gaining share in that massive field channel?

Don Kayne: I feel so, however I am going to let — Kevin has been plenty of work on that. He is the professional on that, have [Multiple Speakers] let him communicate to that.

Kevin Pankratz: So I imply — so after we’re speaking in regards to the development there, we’re speaking on a volume-based on greenback base, simply to be clear, as a result of I feel generally that will get a mixed-up headline. And so from our expertise, for positive, January was a tricky begin for most individuals. Many of the markets within the US largely due to climate. And in my conferences with of us there. Since then, we have seen a very good restoration in February and March. So year-to-date, had been truly fairly flat versus 2023, and that is what the poor begin in January. So it kind of speaks to the gained momentum that we’re seeing within the latter a part of the quarter. And this phase continues to evolve and develop, and they’re rising market share. I hope that helps.

Hamir Patel: After which, Kevin, when you consider weak point in Southern Yellow Pine and what’s been driving that? I do know your outlook had commented on weak point in multifamily, however we at all times assume single-family begins is utilizing 3x as a lot lumber as multi. So perhaps you could possibly communicate extra to why maybe that weak point in multi is dragging down Southern Yellow Pine worth and if you’re seeing any signal of enchancment there.

Kevin Pankratz: I feel that is one phase there, Hamir. It is going to have — it’ll take a little bit of time for that market to recuperate. It is so depending on the rate of interest piece at only a longer time interval to get these tasks deliberate, engineered and permitted. To allow them to’t react as quick as single-family properties. I feel the opposite financial dynamic that is impacting multifamily is that rents during the last 12 months of decline. So after they’re tasks, both rents have to come back up or rates of interest have to come back all the way down to make the economics work. And while you’re speaking to plenty of of us on this area, it’ll be mainly — perhaps begin to see a restoration mid-2025 after which perhaps not totally rolling till 2026. And the US South, similar to it is heavy for single household, it is actually heavy for multifamily. Over 50% of multifamily tasks are within the US South. And so disproportionately Yellow Pines is extra impacted you are proper, 3:1 on the quantity for lumber, however it’s not zero. And there is plenty of lumber 2×4 particularly that goes into sill plates and into trusses and spans. And so I feel that is a dynamic that’s taking part in out proper now that’s contributing to the Yellow Pine worth pressures that we’re seeing.

Operator: Your subsequent query is from Ketan Mamtora from BMO Capital Markets.

Ketan Mamtora: Possibly first query on log stock in BC. How is that for you guys at this level? There’s been some discuss again due to the nice and cozy climate that log inventories haven’t been capable of be in that place the place it needs to be for this time of the 12 months? How are you guys positioned?

Don Kayne: Principally, we’re in first rate form for positive and principally that was a results of Polar Houston and sure, most likely Polar and Houston, additionally Chetwynd being down, so we’re in fine condition because of that.

Ketan Mamtora: So you do not anticipate any kind of manufacturing challenges as we undergo Q2 right here by way of the place your lot positions are and the way a lot you should produce in a seasonally stronger time?

Don Kayne: I imply I feel general, because of every part, we do not — we’re not anticipating any extra downtime investor getting at manufacturing ranges. going ahead in any respect. We’re mainly in a [lock] scenario. And except — however we’ll proceed to take a look at it from — if I understood your query appropriately as a result of I missed a part of it, I feel. However by way of what we have mentioned in quite a few instances, I feel, over the internally and externally is we focus laborious on matching manufacturing demand with our manufacturing with market demand. And we’ll proceed to do this, and we hold a detailed eye on that and it takes some downtime due to market demand will try this, and we’re not afraid to do this. We’ll proceed to do this.

Ketan Mamtora: After which perhaps one for Pat. However on the capital allocation aspect, I am simply curious, as you consider kind of M&A and the acquisition that you just simply introduced yesterday, between that and share repurchases given the place the inventory is, how do you kind of take into consideration evaluating these two choices. Maybe you possibly can present some colour on that.

Pat Elliott: So Ketan, I imply, I feel we have been pretty constant on this the final variety of years that the diversification of our enterprise into the US South and into Sweden is paramount, frankly, to bettering our working outcomes over time whereas shopping for again the inventory clearly on straight math, you see the worth. We purchased again about 2 million shares within the final 12 months. So it isn’t like we’ve not been lively. However we actually see the precedence is proceed to put money into low-cost property in the appropriate areas, and that is our precedence. And even the El Dorado, while you have a look at on a price per thousand foundation, I feel it is extremely aggressive on the value that we paid. So we’re not going to exit and purchase any asset, however we will act opportunistically after which the reinvestment in our personal enterprise by means of the greenfield, I feel units us up rather well for the longer term. So I feel we have been fairly constant on that, and that is our plan going ahead as nicely.

Operator: Your subsequent query is from Matthew McKellar from RBC Capital Markets.

Matthew McKellar: First, I would similar to to ask in regards to the Polar mill. I feel when that initially went down while you introduced it in November, you had been speaking about perhaps a 6-month kind of interval of curtailment there. Is there a path again to restarting that mill in 2024, given what you are seeing round entry to financial fiber within the province?

Don Kayne: Possibly for positive, I am going to attempt to reply that, I suppose. In British Columbia, as I discussed on the query earlier about Houston, the working situations are nonetheless remaining fairly difficult right here as we proceed to face the continued constraints related to the dearth of economically viable fiber. And we have mentioned that quite a bit, and that continues to be the case. And in Western Canada, there nonetheless stays vital uncertainty almost about that availability on that fiber. So we proceed to maintain log price pressures and chronic constraints accessing that fiber in BC in any respect of our — at these sawmills. And in addition to it has been a difficult atmosphere — fiber atmosphere, for pulp mills too. So with all that occurring we proceed to guage a few of the choices, and we’ll regulate our working ratio BC to align with that demand, as I discussed once more earlier, and the economically obtainable timber provide within the close to time period. And we’ll proceed to do this by means of 2024. That is not going to alter, like I feel I discussed earlier, proper? So Polar falls into that class.

Matthew McKellar: Subsequent, I would like to simply observe up on Ben’s query round forest fires. I feel final quarter, you famous a slower approval course of in BC regarding the salvage harvest following final 12 months’s fires. May you give us a way of how issues have advanced on that entrance over the previous couple of months?

Don Kayne: I am undecided I can reply that query 100% by way of the place we’re at on that. Aside from, like I sort of talked about it earlier, there’s a lot of initiatives underway right here to attempt to get forward of scenario of wildfires, for positive, NBC. However Alberta, for positive, I’ll say this, Alberta is fairly good. They’re up to the mark for positive and never that BC is not, however the larger affect right here is in BC for positive.

Matthew McKellar: After which final query for me, simply on the Canfor Pulp aspect. We’re seeing some opponents on the market with a few worth will increase for kraft paper out there. With that backdrop, how ought to we be fascinated by your realizations over the steadiness of ’24.

Kevin Edgson: We anticipate to see on the pulp aspect, there’s one other spherical of will increase coming in Could. We predict the step up by means of the primary half of the 12 months has been actually strong. And we’re wanting extra steady out the again finish provided that it is pushed largely by provide constraints, we’d like the market — the paper market to catch up. On the graph paper aspect, we’ll be saying or have introduced a rise — considerably modest enhance for the second quarter that we anticipate to be in place by June. Paper is shifting slower than pulp. And so we proceed to anticipate some will increase by means of the again half of the 12 months on paper.

Operator: There are not any additional questions. I’ll now flip it over to Don Kayne for closing feedback. Go forward, Mr. Kayne.

Don Kayne: Thanks, operator, and thanks, everybody, for taking part on this morning’s name. We recognize your help, and we sit up for speaking to you on the finish of subsequent quarter.

Operator: Thanks. Women and gents, the convention has now ended. Thanks all for becoming a member of. You could all disconnect.

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