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May 6, 2021
Interfor Corporation Q121 results: In line, but still impressive
Q121 results above RBC/consensus expectations – Interfor reported Adjusted EBITDA of $392MM, in line with both our estimate of $395M and consensus of $394MM. Adjusted EPS of $4.11 were in line with our forecast of $4.07 and consensus of $4.04.
First impression
Revenue of $849MM was above our $828MM forecast – Relative to our forecast, higher-than-expected Lumber and Log sales were partially offset by slightly lower-than-expected Chips sales. Lumber revenue of $762MM was slightly above our $757MM forecast, as both shipments and average selling prices were a bit above our forecast. Lumber production was above our forecast, as both the Pacific Northwest and Canada exceeded our expectations. Relative to last year, sales in the United States were up 112% y/y and sales in Canada were up 4% y/y, while sales to Japan (-49% y/y) and China/Taiwan (-24% y/y) were down meaningfully.
Interfor reiterated plans to spend ~$150MM on capital projects in 2021 and $150–180MM in 2022 – The company noted that projects continue to be underwritten at “conservative” lumber prices. We expect that most of Interfor’s mills will be top-quartile by the end of 2022. The remaining mill that we think could use some capital is the recently acquired Summerville sawmill. Management highlighted the following projects:
The major rebuild at the Eatonton, Georgia sawmill is on track for completion in Q4 2021 – Management expects the full ramp-up to take about nine months and the new facility to add ~110 mmfbm of annual production capacity and result in lower cash conversion costs and improved grade mix.
Interfor has received board approval to proceed with capital projects at its Castlegar, BC and Perry, Georgia sawmills – The projects will cost C$35MM and US$30MM, respectively, with benefits including improved lumber recovery/grade mix and lower conversion costs. These projects are expected to be completed in Q3/22.
• A new kiln was installed at the Adams Lake sawmill – The kiln allows for increased site-wide production and a significantly improved grade mix.
Outlook – Management expects that lumber pricing will remain above historical levels, but volatile, as low levels of lumber inventories industry- wide combined with growing demand have put pressure on available lumber supply from manufacturers.
Now up to a $236MM net cash position – Interfor is carrying more than $600 million of cash on its balance sheet, which works out to ~$9.40 per share. We expect that the cash pile will only grow over the coming quarters, necessitating either more aggressive share repurchases, a special dividend, or an acquisition.
Conference call on Friday, May 7, at 11:00AM ET – Dial-in: 1-833-297-9919
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