West Fraser Timber Co. Ltd.
Q322 results below consensus; Brownfield planned for Henderson, Texas
NYSE: WFG | USD 75.25 | Outperform | Price Target USD 110.00
Sentiment: Neutral
Headline results
West Fraser reported Adjusted EBITDA below our estimate and consensus expectations — Adjusted EBITDA of $345MM (adjusted for a $81MM duty recovery) was slightly below our estimate of $350MM and below consensus of $366MM.
Segment results
Lumber Adjusted EBITDA of $79MM (after adjusting for the $81MM duty recovery) was below our $158MM forecast; SPF shipment guidance slips — Segment sales of $935MM were below our $1,001MM forecast, with shipments and realized pricing both below our estimates. While West Fraser reported Adjusted EBITDA for the segment of $160MM, this included a $81MM export duty recovery (related to the US Department of Commerce's finalization of the AR3 duty rates, with West Fraser's final rate of 8.25% being below the cash deposit rates of 8.97-23.56% effective during 2020) that we have adjusted out. West Fraser expects SPF lumber shipments for 2022 to be "modestly below" the bottom end of its previous 2.8-3.0 bbf guidance range on slowing demand, while it reiterated its guidance for 3.0-3.2 bbf of SYP shipments.
Brownfield mill redevelopment in Henderson, Texas. West Fraser announced it will undertake a brownfield redevelopment of its facility in Henderson, Texas, by constructing a new mill next to the existing mill. Capital investment is estimated at $255MM, while capacity of the mill is anticipated to be 275 mmfbm (approximately double the existing mill's capacity); this implies a build cost of ~$927/mfbm on total capacity (i.e., slightly above the cost of the rebuild in Alabama that Canfor announced in July). Management noted that the mill's mid-cycle EBITDA should increase nearly four-fold, and that the rebuild will take advantage of the existing local ecosystem (e.g., robust fibre basket, proximity to end-markets, workforce, existing residuals outlets, transportation infrastructure, etc.). Construction will start in Q422 and mill start-up is planned for Q224, while full run-rate production is not anticipated before 2025.