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West Fraser Timber Co. Ltd.
(WFG-N, WFG-T) US$75.25 | C$101.79
Q3 Results Near Forecasts; Tempered Shipment Targets No Surprise
Event
West Fraser reported Q3/22 results yesterday evening after market close. Adjusted EBITDA of $426 million exceeded our estimate of $323.4 million and the consensus forecast of $365.8 million. We note that the reported EBITDA figure included a positive retroactive contribution of $81 million related to an administrative review of lumber duty deposit rates. This was not included in our forecast nor in the consensus estimate. Excluding this item, adjusted EBITDA would have been between our forecast and the consensus estimate. Adjusted Q3/22 EPS of $2.50 - including ~$0.70 for the duty review - was similarly above our forecast of $1.46 and the consensus estimate of $1.74.
Conference call at 11:30 a.m. ET today: 1-888-390-0605 or westfraser.com.
Impact: NEUTRAL
Adjusted for the retroactive duty benefit, operating results were near expectations. West Fraser's Q3 earnings fell back to earth following exceptional H1/22 results. The sequential decline reflected sharp wood product commodity price pressure, lower lumber/European panel volumes, and ongoing cost headwinds.
North American EWP and pulp & paper margins were better than expected. To a greater than expected extent, OSB price realization declines were cushioned by timing lags. Pulp & paper margins benefited from lower unit costs (lower maintenance).
Modest 2022 shipment guidance revisions are not surprising. The company now expects that 2022 western Canadian lumber shipments will be below the bottom end of the previous 2.8-3.0 billion board feet range. 2022 Europe OSB shipment guidance is towards the bottom end of the previous 1.0-1.2 billion square feet target.
West Fraser is proceeding with another brownfield lumber expansion in the U.S. South. The company will build a 275 MMfbm capacity sawmill in Henderson, Texas to replace the existing asset (net capacity increase of ~140 MMfbm). The capacity multiple for this project is $927/Mfbm - a modest premium to recent greenfield initiatives and ~40% higher than replacement cost five years ago. Management targets an after-tax IRR of 12% based on mid-cycle commodity prices. We will ask for more context on project economics on today's call. West Fraser ended Q3/22 with net cash on its balance sheet and available liquidity of almost $2.4 billion.