CFP Canfor Corporation

VANCOUVER, BC, Oct. 25, 2024 /CNW/ - Canfor Corporation ("The Company" or "Canfor") (TSX: CFP) today reported its third quarter of 2024 results:

Overview.

• Q3 2024 operating loss of $560 million, including a $311 million asset write-down and impairment charge as well as other one-time items¹; shareholder net loss of $350 million, or $2.96 per share.
• After taking into consideration adjusting and one-time items¹, Q3 2024 operating loss of $139 million, compared to a similarly adjusted operating loss of $135 million in Q2 2024.
• Persistent pressure on North American lumber markets and pricing, especially in US South; positive results from Alberta and Europe.
• Ongoing North American lumber market weakness, high duties and persistent challenges accessing economic fibre led to the announcement of sawmill closures in British Columbia and, as a result, an asset write-down and impairment charge of $100 million in the lumber segment.
• Proceeds of $314 million received in relation to duty deposits loan agreement.
• Modest improvement in NBSK pulp unit sales realizations driven by steady North American pulp pricing through most of the third quarter and favourable timing lag in shipments, despite weak demand in China; fibre-driven asset write-down and impairment charge of $211 million in the pulp segment.

Financial results.

The following table summarizes select financial information for the Company for the comparative periods:

For the third quarter of 2024, the Company reported an operating loss of $559.7 million, compared to an operating loss of $250.8 million in the second quarter of 2024.

During the current period, the Company's British Columbia ("BC") operations continued to encounter operational challenges, including limited access to economic fibre, weak lumber market conditions, rising operating costs, increased export tariffs to the United States ("US"), as well as various regulatory complexities. After a thorough review of these operational constraints, the Company made the difficult decision to permanently close its Plateau and Fort St. John operations located in northern BC, following an orderly wind down in the fourth quarter of 2024. In connection with these closures, in the third quarter of 2024 the Company recognized an asset write-down and impairment charge of $100.3 million to reduce the carrying value of its lumber segment assets, as well as $38.6 million in restructuring costs.

Recognizing the impact of these recent closures, along with the fibre effects of previously announced reductions and curtailments across the industry in the BC Interior, Canfor Pulp Products Inc. ("CPPI") recorded an asset write-down and impairment charge of $211.0 million in the same period, as a reduction to the carrying value of its pulp segment assets.

Commenting on the Company's third quarter results, Canfor's President and Chief Executive Officer, Don Kayne, said, "This was another extremely challenging quarter for our lumber business. While Alberta and Europe delivered positive results, our North American operations continued to face a persistently weak pricing environment. In BC, this depressed pricing was exacerbated by a complex operating environment, high costs, rising US tariffs and ongoing difficulties in reliably accessing sufficient economic fibre. These conditions have resulted in unsustainable financial losses from our BC operations. As a result, we made the very difficult decision to close both our Plateau and Fort St. John operations in northern BC by the end of 2024. We sincerely regret the impact these decisions have on our employees, their families, contractors, and the businesses that support our operations and the local community."

"For our pulp business," added Kayne, "we also continue to face persistent fibre-related constraints, however, during the current quarter, our business had improved adjusted operating results, benefiting from an uplift in pulp unit sales realizations."

Third quarter adjusting and one-time items.

After taking account of the aforementioned asset write-down and impairment charges as well as other one-time items, combined totaling $420.8 million, as outlined in the table below, the Company's operating loss for the third quarter of 2024 was $138.9 million, compared to a similarly adjusted operating loss of $135.2 million in the prior quarter. These results primarily reflected lower lumber segment results, partly offset by improved pulp and paper segment earnings.

Third quarter lumber segment highlights.

For the lumber segment, the operating loss was $336.2 million for the third quarter of 2024, compared to the previous quarter's operating loss of $230.5 million. After taking account of adjustments and other one-time items totaling $207.7 million for the lumber segment in the current period, as noted in the table above, the operating loss was $128.5 million, compared to a similarly adjusted operating loss of $114.9 million in the prior quarter.

These results reflected the ongoing weakness in North American lumber markets and pricing in the current quarter, particularly in the US South. These conditions were accompanied by lower lumber production and shipment volumes, driven by continued curtailments in BC, a full quarter impact of the April 2024 closure of Polar, as well as market and capital project related downtime in the US South. Although earnings from Europe were positive in the quarter, overall results reflected the Company's regular summer downtime.

Despite modestly improving fundamentals, North American lumber markets remained under pressure during the third quarter of 2024. Affordability constraints continued to impact both the repair and remodeling and housing sectors, leading to a decline in US residential construction activity in the current quarter. While some supply pressures in the region resulted in pricing improvements towards the end of the third quarter, weakened demand ultimately contributed to an overall decline in certain North American benchmark prices compared to the previous quarter.

Offshore lumber demand and pricing in Asia remained relatively stable during the third quarter of 2024. In China, the real estate market continued to face challenges despite the government's ongoing efforts to rejuvenate the economy. However, a slight reduction in inventories in the region contributed to small price increases in the current quarter. In Japan, rising demand in the multi-family rental housing market helped to offset declines in the single-family sector, leading to relatively flat pricing quarter-over-quarter.

In Europe, the ongoing impact of low levels of residential and commercial construction throughout the current quarter was coupled with weakness in the do-it-yourself sector, resulting in continued pricing pressure in the region.

Lumber segment outlook.

Looking ahead, demand in the North American lumber market is anticipated to remain under pressure for the balance of 2024. Residential housing and do-it-yourself activity are likely to continue to be constrained largely due to ongoing affordability concerns despite some initial relief provided by lower interest rates. On the supply side, however, the gradual effects of industry-wide sawmill curtailments and closures, coupled with the decline in European imports into the North American market, have resulted in some modest pricing improvements early in the fourth quarter. This slow improvement is projected to continue through the balance of the year.

Offshore lumber demand and pricing in China is forecast to remain under pressure in the fourth quarter of 2024 predominately due to persistent challenges in the real estate market. In contrast, Japan's multi-family rental and non-residential markets are anticipated to continue to strengthen and result in some modest upward pricing trends for the rest of the year.

European lumber pricing and demand are projected to remain relatively flat through the fourth quarter of 2024. Increased inventory levels in the United Kingdom are forecast to lead to some pricing declines in the near-term; however, this reduction is anticipated to be offset by overall supply constraints in other European regions.

In BC, despite the Company's recent announced changes with regards to its operating footprint, it is anticipated that this region will continue to face challenging operating conditions especially with respect to the availability of economically viable fibre and high duties on lumber shipments to the US.

Third quarter pulp and paper segment highlights.

For the pulp and paper segment, the operating loss was $209.3 million, including an asset write-down and impairment charge totaling $211.0 million for the third quarter of 2024. After adjusting for the asset write-down and impairment charge, CPPI's operating income for the third quarter of 2024 was $1.7 million, a $7.3 million improvement compared to the second quarter of 2024.

Despite some moderation in US-dollar pulp list prices to China during the current quarter, these results largely reflected modestly higher Northern Bleached Softwood Kraft ("NBSK") pulp unit sales realizations, offset in part by reduced pulp production and shipment volumes in the period following the successful wind down of one production line at Northwood NBSK pulp mill ("Northwood") in August 2024.

Global softwood pulp market fundamentals experienced downward pressure throughout the third quarter of 2024 primarily driven by weak demand from China, as well as the introduction of additional global hardwood capacity. These factors, when combined with the traditional seasonal summer slowdown in global demand, led to a moderation in purchasing activity and prices during the current period. As a result, NBSK US-dollar pulp list prices to China, the world's largest consumer of pulp, declined in the quarter to a low of US$750 per tonne in August, before stabilizing through the balance of the period, ending September at US$754 per tonne. For the current quarter overall, US-dollar NBSK pulp list prices to China averaged US$771 per tonne, down US$40 per tonne, or 5%, from the prior quarter. Other global regions, including North America, experienced a delayed impact on price moderation, as prices remained steady for most of the third quarter, with slight declines seen towards the end of the period. As a result of these market conditions, particularly in China, global softwood pulp producer inventories experienced a notable increase in the current period to well above the balanced range, ending August at 50 days of supply, an increase of 12 days compared to June 2024.

Pulp and paper segment outlook.

Looking forward, global softwood pulp market conditions are anticipated to experience a slight improvement through the fourth quarter of 2024, as demand from the Chinese market is forecast to gradually recover and as elevated inventory levels slowly begin to normalize following the end of the seasonally slower summer months.

Results in the fourth quarter of 2024 will reflect the full wind down of one production line at Northwood, including the impact on pulp production (a reduction of approximately 300,000 tonnes of market kraft pulp annually), shipments and costs. Looking forward, CPPI remains focused on optimizing its operating footprint, enhancing operational reliability and closely managing manufacturing and fibre costs.

In addition, CPPI will continue to evaluate operating conditions and adjust operating rates at its pulp mills to align with economically viable fibre supply. These factors could also affect CPPI's operating plan, liquidity, cash flows and the valuation of long-lived assets.

Additional information and conference call.

A conference call to discuss the third quarter's financial and operating results will be held on Monday, October 28, 2024, at 8:00 AM Pacific time. To participate in the call, please dial Toll-Free 1-888-510-2154. For instant replay access until November 11, 2024, please dial Toll-Free 1-888-660-6345 and enter participant pass code 89443#.

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 Accounting Standards and may not be directly comparable with similarly titled measures used by other companies.

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.

About Canfor Corporation.

Canfor is a global leader in the manufacturing of high-value low-carbon forest products including dimension and specialty lumber, engineered wood products, pulp and paper, wood pellets and green energy. Proudly headquartered in Vancouver, British Columbia, Canfor produces renewable products from sustainably managed forests, at more than 50 facilities across its diversified operating platform in Canada, the United States and Europe. The Company has a 70% stake in Vida AB, Sweden's largest privately owned sawmill company and also owns a 54.8% interest in Canfor Pulp Products Inc. Canfor shares are traded on the Toronto Stock Exchange under the symbol CFP. For more information visit canfor.com.

SOURCE Canfor Corporation