Outlook — Interfor expects the lumber market to remain volatile in the near term as the economy continues to adjust to inflationary pressures, elevated interest rates, 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. In an event of a sustained lumber market downturn, the company plans to reduce capital expenditures and working capital, while adjusting lumber production to match demand.
Revenue of $810MM was above our $764MM forecast — Lumber revenue of $656MM was above our $590MM forecast on higher-than-expected average realized pricing ($699/mfbm vs. $RBCe at $641/mfbm) and shipments (939 mmfbm vs. RBCe at 921 mmfbm). Log, Residual Products, and Other revenue of $154MM was below our estimate of $174MM. The difference of 65 mmfbm between production and shipments was attributed to the company's efforts to realign inventory levels with its target range.
Other updates
Q123 production curtailment — The company announced on January 11 that it would reduce its Q123 lumber production by at least 100 mmfbm (or 8% of its quarterly capacity), with the reductions concentrated mostly outside the US South. Please click here for more information.
Chaleur transaction closed — On November 30, Interfor completed its previously announced acquisition of Chaleur Forest Products for total consideration of $383.7MM, which was funded from drawings on the company's revolving term line. Interfor assumed US$83.5MM of countervailing and anti-dumping duty deposits as part of the transaction. Please click here for more information on the acquisition. Chaleur produced ~19 mmfbm of lumber during the one month in the quarter following the transaction (i.e., ~224 mmfbm annualized compared to its sawmill capacity of 350 mmfbm, implying utilization in the ~65% range).
Duties on deposit update — Interfor had cumulative duties of US$512.3MM held in trust by U.S. Customs and Border Protection as of December 31, 2022, which the company estimates is equivalent to ~$9.85/share after-tax (i.e., ~37% of the February 9, 2023 share price of $26.58).
Conference call
Conference call on Friday, February 10, at 11:00 AM ET — Dial-in: 1-888-396-8049.