TD Currently have a US$115.00 target. GLTA
West Fraser Timber Co. Ltd.
(WFG-N, WFG-T) US$78.70 | C$106.55
North American Panel Contribution Supports Q4 Beat
Event
West Fraser (WFG) reported Q4/23 results yesterday after market close. Headline
adjusted EBITDA of $97 million was well above our conservative estimate of
$34 million and, to a lesser extent, also surpassed the consensus forecast
of $92 million. Results were supported by a modest reduction to inventory
valuation reserves, but were still robust, led by resilient North American engineered
wood product (EWP) contributions. Estimated adjusted EPS of ($0.69) (excluding
restructuring charges) was above our forecast of ($0.77) but below consensus of
($0.30).
Conference call at 11:30 a.m. ET today: 1-888-390-0605 or replay.
Impact: SLIGHTLY POSITIVE
On a segmented basis, earnings contributions from North American panel
(EWP) operations and pulp & paper assets exceeded our forecasts. Those
positive variances more than offset steeper-than-expected losses at WFG's
sawmills. Impressive margins for WFG's OSB operations reflected better-than-
expected price realizations — the same trend was evident in WY and LPX Q4
results.
Initial 2024 shipment guidance ranges indicate expected minor y/y
variances. At the midpoint, Western Canadian lumber shipment guidance of
2.6-2.8 billion board feet would be flat y/y; Southern U.S. lumber shipment targets
of 2.7-2.9 billion board feet would be 3% below 2023 volume; North American
OSB shipment guidance of 6.3-6.6 billion square feet would be 1% above 2023
shipments; and the European OSB shipment target of 0.9-1.0 billion square feet
would be down 2% y/y. Management expects flat costs for fibre and freight, labour
cost inflation, and relief for resin costs.
The 2024 capex budget of $450-$550 million would represent a modest y/y
uptick and is consistent with our estimate. The midpoint represents >90% of
expected depreciation and on a relative basis should stack up as an aggressive
plan versus most wood-weighted peers.
WFG's year-ending net cash was $401 million ($4.91/share, or 6% of the
current share price), down from $705 million at the end of Q3/23. Available
liquidity was $1.95 billion. WFG bought back 1.5 million shares during Q4/23 (2%
of the total) for $104 million, building on repurchase momentum from Q3/23.