CIBC first takeImpact: Neutral. With Interfor buying back 5.0MM shares in the quarter (and a further 1.0MM shares in April), the company has now repurchased the maximum allowable under the NCIB. We suspect IFP may consider initiating an SIB later this year, given its strong free cash flow generation.
Q1/22 Results Noisy, But In Line: Interfor reported adjusted EBITDA of $570MM (after paying lumber duties of $36MM), in line with our forecast of $569MM. While headline adjusted EBITDA appears lower than consensus of $604MM (range of $569MM to $654MM), we believe at least ~40% of the constituents in consensus did not penalize the company for the non-cash one-time $68MM inventory purchase accounting adjustment (related to the EACOM acquisition). Adding this back would suggest economic EBITDA of $638MM, in line with the higher estimates in consensus as well.
Operating Metrics: The company's US$ gross price realizations increased 71% Q/Q, close to the improvement seen in the key benchmarks. The SYP Composite was up 77% Q/Q, while W. SPF 2x4 rose 80% in the quarter. Interfor shipped 860 mmfbm of lumber in Q1, a 20% increase Q/Q (+29% Y/Y), limited by ongoing logistics constraints across the Unites States and Canada. Lumber production was up 22% Q/Q to 921 mmfbm, with output 7% higher in British Columbia, 11% stronger in the South (benefited from the January 9 restart of the DeQuincy, LA sawmill), and 4% higher in the PNW. The seven EACOM mills (acquired on February 22 for ~$731MM, including cumulative duty deposits) contributed 100 mmfbm of production in the quarter.
Management Outlook: Ramp-up of the DeQuincy, LA sawmill (200 mmfbm/yr) is progressing ahead of schedule, with the mill operating on one shift in Q1 and ramping up to two shifts by April (full production expected by year-end). Interfor continues to expect North American lumber markets to remain above historical levels over the near term, supported by strong housing demand and R&R activity despite inflationary pressure, rising interest rates, logistics constraints and labor shortages.