Potential for them to raise their current target of $140.00. GLTA
WEST FRASER TIMBER CO. LTD Q1/24 Results Well Above Expectations – First Glance
Impact: Slightly positive.
WFG printed Q1 EBITDA ~25% above consensus. Relative to our forecast, the beat was driven by higher-than- expected lumber realizations (up $36/mfbm Q/Q vs. Weyerhaeuser’s late March guidance for a $15/mfbm improvement), as well as lower-than-
expected NA EWP costs. WFG’s NA OSB realizations were in line with our
forecast, with the $20/msf Q/Q gain close to WY’s $18/msf improvement into
late March. While the Q1 performance was impressive, we note that
benchmark lumber prices are down 15%-20% since the end of the quarter,
with current levels below breakeven in both the US South and BC Interior
(combined ~73% of WFG’s operating regions). At the same time, pricing for
OSB (which surged 30%-65% YTD) finally cracked last night (down 3% in
Western Canada), and our latest channel checks indicate Tolko’s High
Prairie, AB mill (~3% of NA capacity) is slated to come online in early May.
Q1/24 Results Well Above Expectations: West Fraser reported adjusted
EBITDA of $200MM (after paying lumber duties of $14MM), well above our
forecast of $135MM and consensus of $160MM (range of $135MM to
$189MM).
Segment Performance: Lumber EBITDA increased $65MM Q/Q to $10MM
[CIBCe ($27MM)], due to higher SPF product pricing and shipment volumes.
Realizations were up 9% Q/Q, better than the RL Composite’s 5% rise. SPF
shipments increased 7% Q/Q (+2% Y/Y) on higher output, while SYP
volumes were unchanged Q/Q (-13% Y/Y). SPF production rose 3% Q/Q due
to a full quarter of production from the acquisition of the Spray Lake, AB mill,
partially offset by reduced operating schedules at some mills as a result of
log shortages from unusually warm weather. SYP output was up 7% Q/Q due
to increased operating days and reliability improvements, partially offset by
the curtailment of the Huttig, AR mill and the closure of the Maxville, FL mill.
NA EWP (OSB/Plywood) EBITDA was up $45MM Q/Q to $188MM (CIBCe
$144MM), largely due to stronger pricing (OSB North Central prices were up
9% Q/Q) and higher OSB shipments driven by new res demand. Within the
other segments, the European OSB business had EBITDA of ($1MM)
[CIBCe $12MM], while Pulp & Paper came in at $3MM (CIBCe $7MM).
Management Guidance Largely Unchanged: On the volume front, while
West Fraser maintained its guidance ranges for lumber shipments in 2024 of
5.3 Bbf-5.7 Bbf (~2.7 Bbf SPF and ~2.8 Bbf SYP at the mid-points),
persistently weak markets have increased the downside risk to the shipment
guidance (particularly for SYP). WFG maintained its 2024 capex guidance of
$450MM-$550MM (vs. ~$475MM last year), including $80MM for the
Henderson, TX facility modernization (which is still expected to ramp up
starting in H1/25). The company is pointing to moderately higher Canadian
stumpage rates in the second quarter. In the South, WFG continues to
expect 2024 log costs to be similar to 2023 levels.