Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- West Fraser Timber Co.Ltd (WFG, Financial) generated $272 million of adjusted EBITDA in Q2 2024, representing a 16% margin.
- The North American Engineered Wood Products segment showed strong performance with $308 million of adjusted EBITDA, up from $188 million in Q1.
- The pulp and paper segment improved significantly, generating $9 million of adjusted EBITDA in Q2 compared to $3 million in Q1 and a negative $74 million in Q2 of the previous year.
- West Fraser Timber Co.Ltd (WFG) has $2 billion of total liquidity at quarter-end, providing financial flexibility and strength.
- The company repurchased approximately 900,000 shares and increased its quarterly dividend by 7%, reflecting strong shareholder returns.
Negative Points
- The lumber segment posted an adjusted EBITDA loss of $51 million in Q2, down from a positive $10 million in Q1.
- Continued soft demand for Southern Yellow Pine (SYP) lumber products negatively impacted results.
- Elevated mortgage rates in the US are constraining existing home sales activity and repair and remodeling spending.
- West Fraser Timber Co.Ltd (WFG) anticipates a $35 million duty expense adjustment in Q3 due to increased softwood lumber duties.
- The company reduced its 2024 guidance for Southern Yellow Pine shipments to a range of 2.5 to 2.7 billion board feet, down from the previous guidance of 2.7 to 2.9 billion board feet.
Q & A Highlights
Q: Can you give additional color on the repair and remodeling trends in the quarter? Is there a way to ballpark the percentage declines in that segment and how it trended through the quarter?
A: We saw muted demand through the quarter, particularly in our treated customers in the U.S. South lumber platform, which largely services the repair and remodeling sector. Demand was slower than expected, indicating a general softness in the market. (Sean McLaren, President and CEO; Matt Tobin, Senior Vice President, Sales and Marketing)
Q: Can you provide more color on the reduction in Southern yellow pine production in the back half of the year?
A: We have reduced our annual guidance to 2.5 to 2.7 billion board feet, a reduction of 200 million board feet. We are continuously monitoring price and demand, making adjustments to our operating schedules and inventory curtailments as needed. (Sean McLaren, President and CEO)
Q: How much of the sequential volume growth in the EWP segment was due to Ellendale ramping up versus pushing legacy mills harder?
A: The majority of the increase was due to Ellendale ramping up, though several other mills also performed well due to recent capital projects. We expect stable costs through the second half of the year despite any potential volume pullbacks. (Sean McLaren, President and CEO; Chris Virostek, CFO)
Q: How are you thinking about discretionary projects at the sawmill level beyond 2024? Are you seeing any relief in capital costs for brownfield expansion projects?
A: Our focus is on finishing current projects and ramping up existing mills. We have not seen significant relief in overall capital costs for brownfield projects, though there may be some minor reductions in steel costs. (Sean McLaren, President and CEO; Chris Virostek, CFO)
Q: Given the weak pricing backdrop for lumber, are you surprised we haven't seen more downtime in the industry?
A: It's difficult to comment on others' actions, but we have taken significant steps, including reducing our SYP shipments and adjusting operating schedules. The extent of our actions reflects the challenging market conditions. (Sean McLaren, President and CEO)
Q: Can you provide a sense of the operating rate at Ellendale one year in?
A: We are pleased with Ellendale's progress, which is tracking as expected. It typically takes 24 to 36 months to reach full operating rate, and we are on that trajectory. (Sean McLaren, President and CEO)
Q: Are you seeing any change in vendor expectations for potential sawmill acquisitions given the weak lumber market?
A: We are always planning and evaluating opportunities, but any acquisition must be synergistic with our existing business and in the right fiber basket. We have the balance sheet to react to opportunities that meet our criteria. (Sean McLaren, President and CEO)
Q: Are you seeing lower saw log costs in the U.S. South, and how material are these trends?
A: Saw log costs are drifting lower by a few percentage points, but the changes are not significant. Availability of logs is improving in some areas, but overall, the market is finding equilibrium slowly. (Sean McLaren, President and CEO)
Q: Are you experiencing any increase in turnover with the reductions in hours and shifts in the U.S. South?
A: Our turnover has been stable. We make longer-term decisions on shifts and operating hours to provide predictability and stability, which helps manage turnover. (Sean McLaren, President and CEO)
Q: Has the channel inventory been fully destocked, or are we still going through a process of destocking?
A: It's hard to have visibility on channel inventory, but our inventories are within the normal range. There has been no urgency to build inventory, indicating that lumber is readily available. (Sean McLaren, President and CEO; Matt Tobin, Senior Vice President, Sales and Marketing)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
