Q322 results were above our forecast but slightly below consensus expectations — Interfor reported Adjusted EBITDA of $103MM (adjusted for a $26MM duty recovery), which was above our $99MM forecast but below consensus at $109MM. Adjusted diluted EPS of $0.22 was below our $0.61 forecast and consensus at $0.74.
Outlook — Interfor expects the lumber markets to remain volatile amid inflationary pressures, higher interest rates, supply chain constraints, labour shortages, and geopolitical uncertainty. In the mid-term, the company anticipates a favourable lumber market given the advanced age of U.S. housing stock, a shortage of available housing, and limited lumber supply given constrained overall fibre availability and extended capital project completion and ramp-up timelines. The company reiterated its strategy of maintaining a diversified portfolio of operations in multiple regions, allowing the company to both reduce risk and maximize returns on capital over the business cycle.
Revenue of $1,036MM was above our $965MM forecast — Lumber revenue of $838MM was above our $794MM forecast on higher-than-expected average realized pricing ($800/mfbm vs. $RBCe at $758/mfbm) and shipments (1,064 mmfbm vs. RBCe 1,047 mmfbm). Log, Residual Products, and Other revenue of $198MM was above our estimate of $172MM. The difference of 78 mmfbm between production and shipments was attributed to the company's efforts to realign inventory levels with their target range.
Other updates
Chaleur transaction on track for a Q4 close — Interfor announced October 3 that it had agreed with an affiliate of the Kilmer Group to acquire 100% of the equity interests in the entities comprising Chaleur Forest Products (please click here). The acquisition includes sawmills in Belledune and Bathurst, New Brunswick with a total of 350 mmfbm of lumber production capacity and a woodlands management division based in Miramichi which manages approximately 30% of the total Crown forest in New Brunswick. Interfor confirmed it expects the transaction to close in Q422.
Interfor recently announced a curtailment — The company announced on October 20 that it would reduce its lumber production output by approximately 200 mmfbm (~17% of quarterly capacity), driven by “current economic conditions and market uncertainty” that have driven reduced lumber demand. The reduction will be spread across each of the company's operating regions and primarily timed around the US Thanksgiving and Christmas holiday periods. Interfor expects to resume normal operating schedules in January 2023 “but will closely monitor market conditions and adjust its production plans accordingly”.
Conference call
Conference call on Friday, November 4, at 11:00 AM ET — Dial-in: 1-888-396-8049.