West Fraser reported Adjusted EBITDA that was somewhat below consensus after adjusting for an export duty recovery –
Adjusted EBITDA of $325MM was below our Street-high estimate of $354MM but ahead of consensus of $287MM; however, Lumber segment results included a $62MM export duty recovery that we did not model and believe was not in consensus. After adjusting for this recovery, Adjusted EBITDA of $263MM was somewhat below consensus.
Management outlook – Management reiterated its 2023 guidance for SPF shipments of 2.6–2.8 Bbf and North American OSB shipments of 6.1–6.4 bsf (3/8" basis). With signs of cooling in market demand in the US, it now expects SYP shipments to be at the bottom of its 2.9–3.1 Bbf guidance range. It also expects its European OSB shipments to be near the bottom of its guidance range of 1.0–1.2 bsf (3/8" basis) due to continued near-term demand weakness. On capex, management now expects to invest $450MM in 2023, down from the bottom of its prior $500–600MM guidance range, due to lengthened lead times for projects under way or planned (i.e., the spending will carry over into 2024). With that, West Fraser now expects the brownfield modernization of its mill in Henderson, Texas to start up in Q424 (revised from Q224 previously). Please see Exhibit 2 for more information.
Segment results
Lumber Adjusted EBITDA of $44MM was above our ($29)MM forecast but included a $62MM export duty recovery – After adjusting for the recovery, segment Adjusted EBITDA of ($18)MM was still ahead of our estimate. Segment sales of $697MM were slightly ahead of our $687MM forecast, driven by slightly better realized pricing (+2.8%) but partially offset by modestly lower shipments (-1.3%). The company noted that it expects its acquisition of Spray Lake Sawmills to close by the end of 2023.
North America Engineered Wood Products Adjusted EBITDA of $289MM was below our $414MM forecast – Segment sales of $777MM were well below our $916MM forecast, driven by weaker OSB sales of $627MM vs. our $760MM forecast. OSB shipments of 1,589 mmsf were 6.5% below our 1,700 mmsf forecast, with production volumes down q/q on maintenance downtime, while realized pricing was also 11.8% below our forecast. Plywood shipments were down 14% q/q, although production levels were similar. Management noted that the Allendale mill continues to progress in line with its expectations.
Pulp & Paper Adjusted EBITDA of ($12)MM was ahead of our ($46)MM forecast – Segment sales of $128MM were somewhat ahead of our $118MM forecast. Management disclosed that a portion of inventory valuation reserves recorded in Q223 were released in Q323 as product pricing improved later in the quarter. West Fraser expects the sale of the Hinton pulp mill, as well as the Quesnel River and Slave Lake pulp mills, to close in “early 2024”.
Europe Engineered Wood Products Adjusted EBITDA of $4MM was below our $16MM forecast – Segment sales of $121MM were somewhat below our $132MM forecast, with OSB shipments down 5% q/q on softer demand and pricing trending lower in local currency terms.
Other updates and conference call
Conference call on Thursday, October 26, at 11:30AM ET – Dial-in: 1-888-390-0605.