Interfor reported Adjusted EBITDA of $611MM, above both our estimate of $527M and consensus of $566MM. Adjusted EPS of $6.67 was above our $5.67 forecast and consensus at $6.05. During the quarter, Interfor repurchased ~1.7 million shares for $49MM.
First impression
Revenue of $1,100MM was above our $1,012MM forecast – Lumber revenue of $1,013MM was above our $935MM forecast, as much higher- than-expected average selling prices more than offset slightly lower-than- expected shipments. Lumber production was slightly below our forecast, with higher-than-expected production in the US South offset by lower- than-expected production in the Pacific Northwest and Canada.
The Hammond sawmill property was finally sold – In July, Interfor completed the sale of the former sawmill site in Maple Ridge, BC for net cash proceeds of $40MM, at the low end of our $40-55MM estimate. We still view this positively, as most investors had not given value for the non- operating asset.
Phase III? Interfor is expanding its US South capital program – The company plans to make an additional US$230MM of investments in its US South platform through 2024, with projects including: 1) the re- initiation of a major rebuild of the Thomaston, Georgia sawmill; 2) a follow-on investment in the recently acquired Summerville, South Carolina sawmill; 3) a second phase to the modernization of the Georgetown, South Carolina sawmill; and, 4) several other targeted upgrades. Cumulatively, these investments are expected to increase production by ~250 mmfbm while also optimizing conversion costs, improving lumber recovery, and enhancing the product mix. For 2021, Interfor is increasing its capex guidance +$25MM to $175MM as projects have been accelerated. For 2022, management expects capex in the $200-250MM range.
Outlook – Management expects that lumber pricing will remain above historical levels, driven by continued strength in new residential construction. The repair & remodel segment is expected to be volatile. With the acquisition of four sawmills from Georgia-Pacific having closed on July 9, Interfor plans to re-start operations at the idled DeQuincy, Louisiana sawmill in the first half of 2022. We had already expected the sawmill to re-start production, but the timing was previously unclear.
Curtailing lumber production in BC due to log supply constraints – As previously noted, Interfor still expects to curtail a minimum of 50 mmfbm of production across the BC Interior during August with the possibility of further downtime in September and beyond depending on evolving weather conditions.
Conference call on Friday, August 6, at 11:00 am ET – Dial-in: 1-833-297-9919.