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EQUITY RESEARCH
October 26, 2023 Flash Research
WEST FRASER TIMBER CO. LTD. Q3/23 Results In Line With Expectations – First Glance
Impact: Neutral. WFG printed Q3 EBITDA within ~5% of consensus
expectations. While performance in Lumber was weaker than expected, this
was largely offset by stronger-than-expected earnings in the NA OSB
business.
Q3/23 Results In Line With Expectations: West Fraser reported adjusted
EBITDA of $272MM (after paying lumber duties of $14MM), in line with our
forecast of $278MM and close to consensus of $287MM (range of $257MM
to $354MM).
Segment Performance: Lumber EBITDA decreased $31MM Q/Q to ($9MM)
(CIBCe $60MM), due to lower SYP shipment volumes and product pricing,
partially offset by stronger SPF pricing. Realizations were down $5MM Q/Q,
worse than the RL Composite’s 7% rise. SPF shipments decreased 1% Q/Q
(-5% Y/Y), while SYP volumes fell 6% Q/Q (-8% Y/Y) on softer demand and
weather challenges. SPF production rose 12% Q/Q due to less market-
related downtime at the BC sawmills. SYP output was down 5% Q/Q due to
market-related downtime and planned outages for capital upgrades.
NA EWP (OSB/Plywood) EBITDA was up $257MM Q/Q to $289MM (CIBCe
$249MM), largely due to stronger pricing (OSB North Central prices were up
64% Q/Q), partially offset by lower OSB shipments (-4%) due to
maintenance-related downtime. Within the other segments, the European
OSB business added $4MM to EBITDA (CIBCe $18MM), while Pulp & Paper
came in at ($12MM) [CIBCe ($48MM)]. Pulp & Paper performance was
negatively impacted by lower pulp pricing and lower shipments from the
BCTMP mills, somewhat offset by higher shipments from the Cariboo pulp
mill.
Management Lowers Capex Guidance, Other Metrics Largely
Unchanged: WFG lowered its 2023 capex guidance to ~$450MM (vs.
~$475MM last year) [previously guided closer to $500MM], due to
lengthened lead times, with capital spending carrying over into 2024 for
projects underway. While costs for inputs across the supply chain have
moderated, WFG expects labor constraints and longer capital equipment
lead times to persist over the near-term. On the stumpage front, the company
is pointing to mixed Canadian stumpage rates in the fourth quarter. In BC,
stumpage rates are expected to be modestly higher Q/Q in Q4, before levels
ease in early 2024 as the impact for moderating commodity prices is felt. In
Alberta, stumpage rates are expected to be relatively unchanged Q/Q,
remaining at relatively low levels due to the quicker response to changing
lumber prices. In the South, near-term log costs are expected to slightly
moderate. WFG now expects the Henderson, TX replacement sawmill to be ready for
ramp-up starting in Q4/24, later than the company’s initial expectation of
Q2/24.
On the volume front, while West Fraser maintained its guidance ranges for lumber shipments in 2023 of 5.5 Bbf-5.9 Bbf (~2.7 Bbf SPF and ~3.0 Bbf SYP at the mid-points), SYP is now expected to come in closer to the bottom end of the range (~2.9 Bsf). On the OSB side, NA shipments are still expected to be 6.1 Bsf-6.4 Bsf, while European OSB volumes are expected to come in near the bottom-end of the range (1.0 Bsf-1.2 Bsf).
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