VANCOUVER, BC, April 28,
2022 /CNW/ - West Fraser Timber Co. Ltd. ("West
Fraser" or the "Company") (TSX and NYSE: WFG) reported today
the first quarter results of 2022 ("Q1 2022"). All dollar
amounts in this news release are expressed in U.S. dollars unless
noted otherwise.
First Quarter
Highlights
- Sales of $3.110 billion and
earnings of $1,090 million, or
$10.25 per diluted share
- Adjusted EBITDA1 of $1,592
million, representing 51% of sales
- Lumber segment Adjusted EBITDA1 of $796 million
- North America Engineered Wood Products ("NA EWP") segment
Adjusted EBITDA1 of $730
million
- Pulp & Paper segment Adjusted EBITDA1 of
negative $15 million
- Europe Engineered Wood Products ("Europe EWP") segment Adjusted
EBITDA1 of $78
million
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.
|
"Despite a number of ongoing challenges, we posted strong
results in the first quarter of 2022," said Ray Ferris, West Fraser's President & CEO.
"We continued to manage significant transportation challenges and
the resulting mill disruptions that commenced late last year in
B.C. and that were exacerbated in the first quarter by the typical
transportation issues posed by Canadian winters. These near-term
constraints to North American supply were offset by continued
strong demand for our products."
"While we continue to monitor rising mortgage rates and the
potential risk to demand for new home construction and our wood
building products, fundamentals for housing and repair and
remodelling activity appear favourable. I expect our team will
continue to be agile and creative as we navigate our supply
challenges and the evolving requirements of our customers."
Results Summary
First quarter sales were $3.110
billion, compared to $2.038
billion in the fourth quarter of 2021. First quarter
earnings were $1,090 million, or
$10.25 per diluted share, compared to
$334 million, or $3.13 per diluted share in the fourth quarter of
2021. First quarter Adjusted EBITDA1 was $1,592 million compared to $615 million in the fourth quarter of
2021.
Liquidity and Capital
Allocation
Cash and short-term investments increased to $1.816 billion at March
31, 2022 from $1.568 billion
at December 31, 2021.
Capital expenditures in the first quarter were $93 million.
We paid $21 million of dividends
in the first quarter and announced an increase to our quarterly
dividend for the dividend to be paid in the second quarter, raising
it to $0.25 per share from
$0.20 per share.
In the first quarter of 2022, we repurchased approximately 2.574
million shares under our Normal Course Issuer Bids ("NCIB") for
aggregate consideration of $233 million. As of April 28,
2022, approximately 3.994 million shares have been repurchased
under the current NCIB, leaving approximately 6.200 million shares
available to purchase at our discretion until the expiry of the
NCIB.
On April 26, 2022, we commenced a
substantial issuer bid ("SIB") pursuant to which the Company has
offered to purchase from shareholders for cancellation up to
$1.25 billion of its outstanding
common shares. The SIB will proceed by way of a "modified Dutch
auction" procedure with a tender price range from $80.00 to $95.00
per share. The SIB will expire on June 2,
2022, unless extended or withdrawn.
Outlook
Markets
The most significant uses for our North American lumber, OSB and
wood panel products are residential construction, repair and
remodelling and industrial applications. Historically low mortgage
rates, low volumes of homes available for resale and increased
acceptance and practice of remote working appear to be positively
influencing the demand for new home construction in North America. However, interest rates have
been trending higher in early 2022 and should they continue to do
so, housing affordability may be impacted, which could reduce
demand for new home construction and our wood building products. An
aging housing stock and repair and renovation spending is expected
to continue to support lumber, plywood and OSB demand. Over the
medium to long term, growing market penetration of mass timber in
industrial and commercial applications is also expected to support
demand growth for wood building products.
The demand for our European products is expected to remain
robust as demand for OSB as an alternative to plywood in
Europe continues to grow. An aging
European housing stock is also expected to support repair and
renovation spending, supporting growing demand for our wood
building products. Recent geopolitical developments in Ukraine have caused inflationary price
pressures in regional energy markets, which are expected to raise
the cost of production within our European operations.
Operations
Given the extent of the transportation challenges experienced in
Western Canada thus far in 2022,
which have been more acute and of longer duration than anticipated,
we are reducing our SPF lumber shipment expectations for 2022. We
now anticipate SPF shipments to be approximately 2.8 to 3.0 billion
board feet, down from our original outlook of 3.0 to 3.2 billion
board feet. We reiterate expectations for our 2022 SYP shipments to be approximately 3.0 to 3.2
billion board feet.
In our NA EWP segment, while transportation and logistics
constraints in western Canada and
Ontario have been more challenging
than previously anticipated, we still expect OSB shipments in 2022
to be approximately 6.1 to 6.4 billion square feet (3/8-inch
basis). However, we now expect input costs for the NA EWP business
to increase more significantly than originally anticipated, due to
higher energy costs and Canadian pulp log costs that are linked to
the price of OSB.
In our Europe EWP segment we reiterate expectations for OSB
shipments to be approximately 1.1 to 1.3 billion square feet
(3/8-inch basis) in 2022. However, input costs for the Europe EWP
business are now expected to increase more significantly, due
primarily to higher energy costs.
Inflationary cost pressures and availability constraints for
labour, transportation, raw materials such as resin and chemicals,
and energy are expected to remain elevated for the balance of
2022.
Based on our current outlook, assuming no deterioration in
market conditions during the year and that there is no additional
lengthening of lead times for projects underway or planned, we
continue to anticipate that we will incur capital expenditures of
approximately $500 to $600 million in 20221.
1. This is a
specified financial measure. Refer to the "Non-GAAP and Other
Specified Financial Measures" section of this document for more
information on this measure.
|
MD&A
Our Q1 2022 MD&A and interim consolidated financial
statements and the related notes are available on our website at
www.westfraser.com and the System for Electronic Document Analysis
and Retrieval ("SEDAR") at www.sedar.com and the Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR") website at
www.sec.gov/edgar.shtml under the Company's profile.
Sustainability
Report
West Fraser's full Sustainability Report is available on the
Company's website at www.westfraser.com. This report reviews the
Company's key Environmental, Social, and Governance (ESG) topics,
opportunities and performance and includes information aligned with
the Sustainable Accounting Standards Board (SASB), Global Reporting
Initiative (GRI), and the recommendations of the Task Force on
Climate-Related Disclosures (TFCD).
Risks and
Uncertainties
Risk and uncertainty disclosures are included in our 2021 annual
MD&A, as updated by the disclosures in our Q1 2022 MD&A, as
well as in our public filings with securities regulatory
authorities. See also the discussion of "Forward-Looking
Statements" below.
Conference Call
West Fraser will hold an analysts' conference call to discuss
the Company's Q1 2022 financial and operating results on
Friday, April 29, 2022, at
8:30 a.m. Pacific Time (11:30 a.m. Eastern Time). To participate in the
call, please dial: 1-888-390-0605 (toll-free North America) or 416-764-8609 (toll) or
connect on the webcast. The call and an earnings presentation may
also be accessed through West Fraser's website at
www.westfraser.com. Please let the operator know you wish to
participate in the West Fraser conference call chaired by Mr.
Ray Ferris, President and Chief
Executive Officer.
Following management's discussion of the quarterly results,
investors and the analyst community will be invited to ask
questions. The call will be recorded for webcasting purposes and
will be available on the West Fraser website at
www.westfraser.com.
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.
From responsibly sourced and sustainably managed forest resources,
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.
Forward-Looking
Statements
This press release includes statements and information that
constitutes "forward-looking information" within the meaning of
Canadian securities laws and "forward-looking statements" within
the meaning of United States
securities laws (collectively, "forward-looking statements").
Forward-looking statements include statements that are
forward-looking or predictive in nature and are dependent upon or
refer to future events or conditions. We use words such as
"expects," "anticipates," "plans," "believes," "estimates,"
"seeks," "intends," "targets," "projects," "forecasts" or negative
versions thereof and other similar expressions, or future or
conditional verbs such as "may," "will," "should," "would" and
"could" to identify these forward-looking statements. These
forward-looking statements generally include statements which
reflect management's expectations regarding the operations,
business, financial condition, expected financial results,
performance, prospects, opportunities, priorities, targets, goals,
ongoing objectives, strategies and outlook of West Fraser and its
subsidiaries, as well as the outlook for North American and
international economies for the current fiscal year and subsequent
periods.
Forward-looking statements included in this press release
include references to the following and their impact on our
business:
- Demand in North American and European markets for our products,
including demand from new home construction and repairs and
renovations, the impact of rising interest rates and the growing
penetration of mass timber
- Disruptions in transportation services, and the timelines for
resumptions of full transportation services
- Operation guidance, including projected shipments, inflationary
cost pressures and projected capital expenditures
- Completion of our SIB
By their nature, these forward-looking statements involve
numerous assumptions, inherent risks and uncertainties, both
general and specific, which contribute to the possibility that the
predictions, forecasts, and other forward-looking statements will
not occur. Factors that could cause actual results to differ
materially from those contemplated or implied by forward-looking
statements include, but are not limited to:
- assumptions in connection with the economic and financial
conditions in the U.S., Canada,
U.K., Europe and globally and
consequential demand for our products, including the impact of the
conflict in the Ukraine and
increases in interest rates and global supply chain issues;
- risks inherent to product concentration and cyclicality;
- effects of competition and product pricing pressures, including
continued access to log supply and fibre resources at competitive
prices and the impact of third-party certification standards;
- effects of variations in the price and availability of
manufacturing inputs and energy, including continued access to
fibre resources at competitive prices and the impact of third-party
certification standards, and the impact of inflationary pressures
on the costs of these manufacturing costs, including increases in
stumpage fees and log costs;
- availability and costs of transportation services, including
truck and rail services, and port facilities, the impacts on
transportation services of wildfires and severe weather events, and
the impact of increased energy prices on the costs of
transportation services;
- various events that could disrupt operations, including
natural, man-made or catastrophic events including wildfires and
any state of emergency and/or evacuation orders issued by
governments and ongoing relations with employees;
- risks inherent to customer dependence;
- impact of future cross border trade rulings or agreements;
- implementation of important strategic initiatives and
identification, completion and integration of acquisitions;
- impact of changes to, or non-compliance with, environmental or
other regulations;
- the impact of the COVID-19 pandemic on our operations and on
customer demand, supply and distribution and other factors;
- government restrictions, standards or regulations intended to
reduce greenhouse gas emissions;
- changes in government policy and regulation, including against
taken by the Government of British
Columbia pursuant to recent amendments to forestry
legislation and initiatives to defer logging of forests deemed "old
growth" and the impact of these actions on our timber supply;
- impact of weather and climate change on our operations or the
operations or demand of its suppliers and customers;
- ability to implement new or upgraded information technology
infrastructure;
- impact of information technology service disruptions or
failures;
- impact of any product liability claims in excess of insurance
coverage;
- risks inherent to a capital intensive industry;
- impact of future outcomes of tax exposures;
- potential future changes in tax laws, including tax rates;
- effects of currency exposures and exchange rate
fluctuations;
- future operating costs;
- availability of financing, bank lines, securitization programs
and/or other means of liquidity;
- continued integration of the Norbord business;
- continued access to timber supply in the traditional
territories of Indigenous Nations;
- the extent to which shareholders tender under our SIB, and the
prices at which shares are tendered;
- a determination by us that the conditions for completion of the
SIB have not been satisfied;
- the risks and uncertainties described above in this MD&A;
and
- other risks detailed from time-to-time in our annual
information forms, annual reports, MD&A, quarterly reports and
material change reports filed with and furnished to securities
regulators
In addition, actual outcomes and results of these statements
will depend on a number of factors including those matters
described under "Risks and Uncertainties" in our 2021 MD&A and
may differ materially from those anticipated or projected.
This list of important factors affecting forward‑looking statements
is not exhaustive and reference should be made to the other factors
discussed in public filings with securities regulatory authorities.
Accordingly, readers should exercise caution in relying upon
forward‑looking statements and we undertake no obligation to
publicly update or revise any forward‑looking statements, whether
written or oral, to reflect subsequent events or circumstances
except as required by applicable securities laws.
Non-GAAP and Other Specified
Financial Measures
Throughout this news release, we make reference to (1) certain
non-GAAP financial measures, including Adjusted EBITDA and Adjusted
EBITDA by segment (our "Non-GAAP Financial Measures"), and (ii)
certain supplementary financial measures, including our expected
capital expenditures (our "Supplementary Financial Measures"). We
believe that these Non-GAAP Financial Measures and Supplementary
Financial Measures (collectively, our "Non-GAAP and other specified
financial measures") are useful performance indicators for
investors with regard to operating and financial performance and
our financial condition. These Non-GAAP and other specified
financial measures are not generally accepted financial measures
under IFRS and do not have standardized meanings prescribed by
IFRS. Investors are cautioned that none of our Non-GAAP Financial
Measures should be considered as an alternative to earnings or cash
flow, as determined in accordance with IFRS. As there is no
standardized method of calculating any of these Non-GAAP and other
specified financial measures, our method of calculating each of
them may differ from the methods used by other entities and,
accordingly, our use of any of these Non-GAAP and other specified
financial measures may not be directly comparable to similarly
titled measures used by other entities. Accordingly, these Non-GAAP
and other specified financial measures are intended to provide
additional information and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance
with IFRS. The reconciliation of the Non-GAAP measures used and
presented by the Company to the most directly comparable IFRS
measures is provided in the tables set forth below.
Adjusted EBITDA and
Adjusted EBITDA by segment
Adjusted EBITDA is used to evaluate the operating and financial
performance of our operating segments, generate future operating
plans, and make strategic decisions. Adjusted EBITDA is defined as
earnings determined in accordance with IFRS adding back the
following line items from the consolidated statements of earnings
and comprehensive earnings: finance expense, tax provision or
recovery, amortization, equity-based compensation, restructuring
and impairment charges, and other.
Adjusted EBITDA by segment is defined as earnings before tax
determined for each reportable segment in accordance with IFRS
adding back the following line items from the consolidated
statements of earnings and comprehensive earnings for that
reportable segment: finance expense, amortization, equity-based
compensation, restructuring and impairment charges, and other.
EBITDA is commonly reported and widely used by investors and
lending institutions as an indicator of a company's operating
performance, ability to incur and service debt, and as a valuation
metric. We calculate Adjusted EBITDA and Adjusted EBITDA by segment
to exclude items that do not reflect our ongoing operations and
should not, in our opinion, be considered in a long-term valuation
metric or should not be included in an assessment of our ability to
service or incur debt.
We believe that disclosing these measures assists readers in
measuring performance relative to other entities that operate in
similar industries and understanding the ongoing cash generating
potential of our business to provide liquidity to fund working
capital needs, service outstanding debt, fund future capital
expenditures and investment opportunities, and pay dividends.
Adjusted EBITDA is used as an additional measure to evaluate the
operating and financial performance of our reportable segments.
The following table reconciles Adjusted EBITDA to the most
directly comparable IFRS measure, earnings.
Quarterly Adjusted EBITDA
($ millions)
|
Q1-22
|
Q4-21
|
Earnings
|
1,090
|
334
|
Finance expense,
net
|
7
|
1
|
Tax
provision
|
330
|
104
|
Amortization
|
157
|
153
|
Equity-based
compensation
|
(5)
|
12
|
Impairment
charges
|
13
|
—
|
Other
|
—
|
11
|
Adjusted
EBITDA
|
1,592
|
615
|
The following tables reconcile Adjusted EBITDA by segment to the
most directly comparable IFRS measures for each of our reportable
segments. We consider that earnings before tax is the most directly
comparable measure for Adjusted EBITDA by segment, given we do not
allocate consolidated tax amounts across our reportable
segments.
Please refer to the "Adjusted EBITDA" section above for
additional details concerning the composition of this measure and
how it provides useful information to readers.
Quarterly Adjusted EBITDA by segment
($ millions)
Q1-22
|
Lumber
|
North America
EWP
|
Pulp &
Paper
|
Europe
EWP
|
Corporate &
Other
|
Total
|
Earnings before
tax
|
$
738
|
$
651
|
$
(38)
|
$
59
|
$
10
|
$
1,420
|
Finance expense,
net
|
6
|
1
|
1
|
2
|
(3)
|
7
|
Amortization
|
46
|
83
|
9
|
17
|
2
|
157
|
Equity-based
compensation
|
—
|
—
|
—
|
—
|
(5)
|
(5)
|
Impairment
charges
|
—
|
—
|
13
|
—
|
—
|
13
|
Other
|
6
|
(5)
|
—
|
—
|
(1)
|
—
|
Adjusted EBITDA by
segment
|
$
796
|
$
730
|
$
(15)
|
$
78
|
$
3
|
$
1,592
|
Q4-21
|
Lumber
|
North America
EWP
|
Pulp &
Paper
|
Europe
EWP
|
Corporate &
Other
|
Total
|
Earnings before
tax
|
$
194
|
$
265
|
$
(25)
|
$
36
|
$
(32)
|
$
438
|
Finance expense,
net
|
(1)
|
—
|
—
|
1
|
1
|
1
|
Amortization
|
45
|
73
|
9
|
24
|
2
|
153
|
Equity-based
compensation
|
—
|
—
|
—
|
—
|
12
|
12
|
Other
|
2
|
5
|
2
|
—
|
2
|
11
|
Adjusted EBITDA by
segment
|
$
240
|
$
343
|
$
(14)
|
$
61
|
$
(15)
|
$
615
|
Expected capital
expenditures
This measure represents our best estimate of the amount of cash
outflows relating to additions to capital assets for 2022 based on
our current outlook. This amount is comprised primarily of various
improvement projects and maintenance-of-business expenditures,
projects focused on optimization and automation of the
manufacturing process, and projects targeted to reduce greenhouse
gas emissions. This measure assumes no deterioration in market
conditions during the year and that we are able to proceed with our
plans on time and on budget. This estimate is subject to the risks
and uncertainties identified in the Company's 2021 Annual MD&A
and Q1 2022 MD&A.
For More Information
Investor Contact
Robert B.
Winslow, CFA
Director, Investor Relations & Corporate Development
Tel. (416) 777-4426
shareholder@westfraser.com
Media Contact
Heather
Colpitts
Director, Corporate Affairs
Tel. (416) 643-8838
shareholder@westfraser.com
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SOURCE West Fraser Timber Co. Ltd.