VANCOUVER, BC, July 27,
2022 /PRNewswire/ - West Fraser Timber Co. Ltd.
("West Fraser" or the "Company") (TSX and NYSE: WFG) reported today
the second quarter results of 2022 ("Q2 2022"). All dollar
amounts in this news release are expressed in U.S. dollars unless
noted otherwise.
Second Quarter
Highlights
- Sales of $2.887 billion and
earnings of $762 million, or
$7.59 per diluted share
- Adjusted EBITDA1 of $1,124
million, representing 39% of sales
- Lumber segment Adjusted EBITDA1 of $449 million
- North America Engineered Wood Products ("NA EWP") segment
Adjusted EBITDA1 of $623
million
- Pulp & Paper segment Adjusted EBITDA1 of
negative $3 million
- Europe Engineered Wood Products ("Europe EWP") segment Adjusted
EBITDA1 of $54
million
- Returned $1.475 billion of
capital to shareholders through the repurchase of approximately
16.0 million West Fraser common shares
|
|
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.
|
|
|
"West Fraser generated strong financial results again in the
second quarter of 2022, supporting the return of more than
$1.5 billion of capital to
shareholders through share repurchases and our quarterly dividend,"
said Ray Ferris, West Fraser's
President & CEO. "The acute transportation challenges facing
the company in recent quarters showed signs of improvement in the
second quarter, in large part because of the dedication and
determination of our people. Even so, our ability to ship products
in a timely manner to meet the demands of our customers is not
where it needs to be and therefore transportation and logistics
remain key focus areas for the company. Inflationary cost pressures
persist across our various supply chains, although an environment
of strong demand and above-average product pricing has helped to
absorb most of these cost increases. And while we recognize the
risks of near-term macro headwinds, including rising mortgage rates
and elevated energy prices, we also note that demand for our
products has been resilient, and we continue to see favourable
long-term market fundamentals in support of our wood building
products business."
"In 2021, we took important steps toward becoming a
sustainability leader, and today we are sharing our progress with
the release of our 2021 Sustainability Report," said Ferris. "We
understand the importance, and necessity, of doing the right thing
for the environment, our communities and our employees while
sustainably and profitably growing our business. We are proud
of our past, but even more excited about our future."
Results Summary
Second quarter sales were $2.887
billion, compared to $3.110
billion in the first quarter of 2022. Second quarter
earnings were $762 million, or
$7.59 per diluted share, compared to
$1,090 million, or $10.25 per diluted share in the first quarter of
2022. Second quarter Adjusted EBITDA1 was $1,124 million compared to $1,592 million in the first quarter of
2022.
Liquidity and Capital
Allocation
Cash and short-term investments decreased to $1.281 billion at June 30,
2022 from $1.568 billion at
December 31, 2021.
Capital expenditures in the second quarter were $88 million.
We paid $26 million of dividends
in the second quarter and announced an increase to our quarterly
dividend for the dividend to be paid in the third quarter, raising
it to $0.30 per share from
$0.25 per share.
In the second quarter of 2022, we repurchased 4,120,222 million
shares under our Normal Course Issuer Bid ("NCIB") for aggregate
consideration of $329 million. As of
July 26, 2022, 7,197,924 million
shares have been repurchased under the current NCIB, leaving
2,996,076 million shares available to purchase at our discretion
until the expiry of the NCIB.
We completed a substantial issuer bid ("SIB") in the second
quarter of 2022 and a total of 11,898,205 common shares were
taken up and purchased for cancellation at a price of $95.00 per share for an aggregate purchase price
of $1.13 billion.
As of July 26, 2022, we have
repurchased for cancellation 36,745,718 of the Company's Common
shares since the closing of the Norbord acquisition on February 1, 2021 through the completion of the
2021 SIB and the 2022 SIB as well as normal course issuer bids,
equalling 67% of the shares issued in respect of the Norbord
Acquisition.
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 America lumber, OSB and wood panel
products are residential construction, repair and remodelling and
industrial applications. Over the medium-term, we expect that
an aging housing stock, lagging completions of previously started
new home construction and greater acceptance of work-from-home
practices may offset near-term headwinds and drive 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 demand growth driver for wood building products in
North America.
The seasonally adjusted annualized rate of U.S. housing starts
averaged 1.56 million units in June
2022, with permits issued averaging 1.69 million units,
according to the U.S. Census Bureau. However, demand for new home
construction and for our wood building products may be reduced in
the near-term should interest rates continue to rise and consumer
sentiment and housing affordability continue to be impacted.
The demand for our European products is also expected to remain
robust over the longer-term as use of OSB as an alternative to
plywood continues to grow, and an aging housing stock supports
long-term repair and renovation spending and additional demand for
our wood building products. While near-term challenges, including
rising interest rates, ongoing geopolitical developments and
inflationary pressures akin to those we are seeing in North America may cause a temporary slowing of
demand for our products in Europe,
we are confident that we will be able to navigate through these
periods and capitalize on opportunities for long-term growth
ahead.
Operations
The extent of the transportation challenges experienced in
Western Canada thus far in 2022
continues to be more acute and of longer duration than originally
anticipated, therefore we now expect our SPF lumber shipments for
2022 to be closer to the bottom end of the guidance range of
approximately 2.8 to 3.0 billion board feet. We reiterate
expectations for our 2022 SYP
shipments to be approximately 3.0 to 3.2 billion board feet. On
July 1, 2022, stumpage rates
increased in B.C. due to the market-based adjustments related to
lumber costs, although in the current commodity price environment,
B.C. stumpage rates are expected to decrease later in the
year. We continue to expect modest log cost inflation in the
U.S. South in 2022.
In our NA EWP segment, we expect OSB shipments to increase in
2022 as we account for a full year of contribution from Norbord,
recapture production and shipments lost due to temporary
disruptions to our operations in 2021, and as we continue to ramp
operations at our Chambord OSB mill. However, transportation
and logistics constraints across North
America remain challenging and demand for our products is
showing signs of slowing, and as such we now expect OSB shipments
in 2022 to be approximately 5.9 to 6.2 billion square feet
(3/8-inch basis), down modestly from our original guidance of 6.1
to 6.4 billion square feet (3/8-inch basis). We also continue to
expect that input costs for the NA EWP business will remain
elevated in the near-term, due primarily to high energy and resin
costs. Work at the Allendale OSB facility is ongoing to prepare the
mill for an eventual re-start when warranted by customer demand.
However, due to inflationary cost pressures and supply chain
challenges the capital investment is expected to increase
approximately 10% from the original estimate of approximately
$70 million and project completion
has been shifted to the end of the first quarter of 2023.
We do not expect to increase our Pulp & Paper segment
shipments in 2022.
In our Europe EWP segment we reduce expectations for OSB
shipments and now project them to be approximately 1.0 to 1.2
billion square feet (3/8-inch basis) in 2022, down slightly from
our original guidance of 1.1 to 1.3 billion square feet (3/8-inch
basis). Input costs for the Europe EWP business are expected to
remain elevated in the near-term, due primarily to higher energy
and resin costs.
Across much of our supply chain, we continue to experience
greater than usual inflationary cost pressures and availability
constraints for labour, transportation, raw materials such as
resins and chemicals, and energy. We expect these cost pressures
and availability constraints to remain elevated through 2022.
Based on our current outlook, assuming no deterioration in
market conditions during the year and no additional lengthening of
lead times for projects underway or planned, we continue to
anticipate that we will invest approximately $500 to $600
million in 20221. However, given the rate of 2022
capital spending to-date we now expect full year capital
expenditures to be nearer the bottom end of the guidance range.
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 Q2 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 2021 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")
performance and includes information aligned with the Sustainable
Accounting Standards Board ("SASB"), Global Reporting Initiative
("GRI"), the Task Force on Climate-Related Disclosures ("TFCD") and
CDP (formerly the Carbon Disclosure Project). In 2021, West Fraser
built on its sustainability foundations and strategy by beginning
the work to establish robust and credible environmental and social
ambitions, goals and targets to guide the company's next chapter.
This work included taking the necessary steps to become the first
Canadian company committing to join the Science Based Targets
Initiative ("SBTi") targets to materially reduce GHG emissions by
2030, aligning with the Paris Agreement.
Risks and
Uncertainties
Risk and uncertainty disclosures are included in our 2021 annual
MD&A, as updated by the disclosures in our Q2 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 Q2 2022 financial and operating results on
Thursday, July 28, 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 ("U.S."), the
United Kingdom ("U.K."), 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 inflationary
pressures 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 on our input costs, projected capital expenditures
and the timing and costs of the restart of the Allendale OSB
facility
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;
- continued increases in interest rates and inflation could
impact housing affordability and repair and remodelling demand,
which could reduce demand for our products;
- global supply chain issues may result in increases to our costs
and may contribute to a reduction in near-term demand for our
products;
- 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, including energy, resin and other input
costs, 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 and the timing of the resolution of
transportation constraints in Western
Canada;
- transportation constraints may continue to negatively impact
our ability to meet projected shipment volumes;
- the timing of our planned capital investments may be delayed
and the ultimate costs of these investments may be increased as a
result of inflation;
- 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 and our ability to achieve our SBTi
commitment for the reduction of greenhouse gases as planned;
- 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 risks and uncertainties described in our 2021 Annual
MD&A and Q2 2022 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 (i) 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 segment 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)
|
Q2-22
|
Q1-22
|
Earnings
|
762
|
1,090
|
Finance expense,
net
|
3
|
7
|
Tax
provision
|
240
|
330
|
Amortization
|
144
|
157
|
Equity-based
compensation
|
(1)
|
(5)
|
Impairment
charges
|
—
|
13
|
Other
|
(24)
|
—
|
Adjusted
EBITDA
|
1,124
|
1,592
|
The following tables reconcile Adjusted EBITDA by segment to the
most directly comparable IFRS measures for each of our reportable
segments. We consider that segment 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.
Quarterly Adjusted EBITDA by
segment
($ millions)
Q2-22
|
Lumber
|
North
America EWP
|
Pulp &
Paper
|
Europe
EWP
|
Corporate &
Other
|
Total
|
Earnings before
tax
|
$
414
|
$
548
|
$
(8)
|
$
45
|
$
3
|
$
1,002
|
Finance expense,
net
|
(1)
|
3
|
—
|
(2)
|
3
|
3
|
Amortization
|
44
|
78
|
8
|
12
|
2
|
144
|
Equity-based
compensation
|
—
|
—
|
—
|
—
|
(1)
|
(1)
|
Other
|
(8)
|
(6)
|
(3)
|
(1)
|
(6)
|
(24)
|
Adjusted EBITDA by
segment
|
$
449
|
$
623
|
$
(3)
|
$
54
|
$
1
|
$
1,124
|
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
|
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 Q2 2022 MD&A.
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SOURCE West Fraser Timber Co. Ltd.