West Fraser reported Adjusted EBITDA that was slightly above consensus, and somewhat below our expectations – Adjusted EBITDA of $97MM was somewhat below our estimate of $106MM but slightly above Bloomberg consensus of $92MM.
Management's 2024 outlook – Management provided 2024 guidance for SPF shipments of 2.6–2.8 Bbf (RBCe: 2.8 Bbf), SYP shipments of 2.7–2.9 Bbf (RBCe: 3.2 Bbf), North American OSB shipments of 6.3–6.6 bsf (3/8" basis; RBCe: 6.4 Bsf), and European OSB shipments of 0.9-1.1 Bsf (RBCe: 1.1 Bsf). Of note, we had not adjusted our shipment estimates following the curtailments of Maxville, Huttig, or Fraser Lake. It expects capex to be in the $450-550MM range in 2024 (RBCe: $480MM; consensus: $503MM), including $80MM for the modernization of its Henderson facility; this implies slightly higher spending from 2023 ($477MM). Management also noted that it expects costs and availability constraints for transportation, raw materials (e.g., resins and chemicals) and energy to moderate over the near term, while it expects labour availability and capital equipment lead times to remain challenging. Please see Exhibit 2 for more information.
Segment results
Lumber Adjusted EBITDA of -$51MM was below our -$18MM forecast – Segment sales of $614MM were below our $665MM forecast, driven by somewhat weaker realized lumber pricing (-6.4%) and shipments (-3.2%). Management noted incremental reductions in operating schedules versus Q323 to manage inventory levels. Segment Adjusted EBITDA was negatively impacted by a one-time $2MM charge related to inventory purchase price accounting for the Spray Lake acquisition. The company expects BC stumpage rates to decrease modestly through much of Q124 before stabilizing into Q224 given recent stability in commodity prices. It expects average 2024 log costs across the U.S. South to be largely similar to those of 2023. West Fraser now expects the modernization of its Henderson, Texas facility to be ready for ramp-up starting in H1/25 (from Q424 previously); anticipated capital costs (per the company's Q423 investor presentation) are unchanged.
North America Engineered Wood Products Adjusted EBITDA of $143MM was in line with our $144MM forecast – Segment sales of $661MM were above our $615MM forecast, driven by stronger OSB sales of $516MM vs. our $477MM forecast. OSB shipments of 1,590 mmsf were 2.6% above our 1,550 mmsf forecast, while realized OSB pricing was 5.5% ahead of our forecast. Management noted that compared to Q323, production volumes were slightly lower (-3.5%) due to higher major maintenance shutdowns and production curtailments taken to manage inventory levels. Plywood shipments were up 3.4% q/q, and 6.4% ahead of our forecast. Management noted that the start-up of the Allendale mill is progressing, and that it expects its overall OSB platform to be better and lower cost with the facility operating.
Pulp & Paper Adjusted EBITDA of $2MM was better than our -$13MM forecast – Segment sales of $159MM were above our $136MM forecast, with pulp shipments ~11% above our expectations. The company announced on February 5 that the sale of its Hinton Pulp mill to Mondi had closed, and the company expects its Quesnel River and Slave Lake mill transactions to close in "early 2024" (unchanged from its previous guidance).
Europe Engineered Wood Products Adjusted EBITDA of $3MM was better than our -$8MM forecast – Segment sales of $100MM were below our $114MM forecast. OSB shipments were ~1.3% below our forecast, and management noted lower product pricing and lower MDF and particleboard shipment volumes q/q.