Post by
retiredcf on Aug 05, 2022 9:29am
CIBC
EQUITY RESEARCH
August 4, 2022 Flash Research
INTERFOR CORPORATION
Q2/22 Results Better Than Expected - First Glance
Impact: Slightly positive.
Q2/22 Results Better Than Expected: Interfor reported adjusted EBITDA of
$429MM (after paying lumber duties of $46MM), above our forecast of
$395MM and consensus of $387MM (range of $327MM to $428MM). The
quarter was weighed down somewhat by the remaining non-cash inventory
purchase accounting adjustment of $17MM (related to the EACOM
acquisition). Adding this back would suggest economic EBITDA of $446MM
(~30% from the EACOM mills).
Operating Metrics: The company's US$ gross price realizations decreased
22% Q/Q, likely better than the declines of key benchmarks given typical
order file lags. The SYP Composite was down 38% Q/Q, while W. SPF 2x4
fell 31% in the quarter. Interfor shipped 1.1 Bbf of lumber in Q2, a 28%
increase Q/Q (+52% Y/Y) as the company benefited from a full quarter
contribution from the EACOM mills as well as logistics improvements which
allowed IFP to reduce inventories by 46 mmfbm during the quarter (with
further reductions in July bringing inventories back within IFP’s targeted
range). Lumber production was up 11% Q/Q to 1.0 Bbf, driven by EACOM
helping to more than double production in Eastern Canada to 211 mmfbm
(vs. 96 mmfbm in Q1), and higher production in the South (+3%). Results
were weighed down by lower production in British Columbia (-11%) and the
PNW (-6%).
Management Outlook: Ramp-up of the DeQuincy, LA sawmill (200
mmfbm/yr) is progressing ahead of schedule. The mill added a second shift
during Q2 and is expected to reach full production in Q3. Interfor anticipates
that North American lumber markets over the near term will remain volatile.
New supply is expected to be limited by extended capital project completion
and ramp-up timelines, as well as constrained fiber availability.
Mixed Moves In Lumber Prices: On Thursday evening, Random Lengths
reported that W. SPF prices decreased 7.8% or $50 W/W to $590/mfbm ($25
lower than mid-week) [+20% Y/Y], while SYP 2x4 prices increased 2.1% or
$15 W/W to $725/mfbm ($5 higher than mid-week). The RL Composite
declined 4% W/W to $622. Since early May, SPF prices are down 46%, while
SYP is now only off 13%.
Random Lengths pointed to a shift towards oversupply as the market
digested new lower duty rates (8.59%), incremental negative economic news
and falling September futures. In SPF, volumes were light and sales were
reported across wide ranges. Downward momentum continued after mid-
week as prices hit lows not seen since October 2021. In SYP, momentum
slowed later in the week as buyers became more cautious about downside
pricing risk. Despite order files narrowing, some mills continued to push
double-digit premiums as treaters and distributors remained active.
Conference Call On Friday At 11:00 a.m. ET: Dial-in 888-396-8049.