West Fraser Timber, the Quesnel area’s largest economic force, posted notable financial setbacks, in their second quarter (Q2) report.
Their revenues compared to Q2 of last year were down more than 40 per cent, and the company incurred a bottom line loss of $131-million for the quarter, although revenues were in the range of $1.6-billion.
“Early in the second quarter of 2023, we continued to experience challenging demand markets, particularly in the pulp and paper segment where we managed through several unscheduled downtime events at our mills, including an extended maintenance shutdown at Hinton Pulp as well as curtailment of our Cariboo Pulp mill related to fibre supply constraints,” said Ray Ferris, West Fraser’s president and CEO. “Combined with declining pulp prices that led to a significant inventory write-down, the pulp and paper segment experienced higher losses than expected. Notwithstanding these challenges, we did see signs of demand improvement for some of our key wood building products as the quarter unfolded against a backdrop of mortgage rates well above year-ago levels. Our North America EWP (engineered wood products) segment saw particular improvement this quarter, with recovering demand in our OSB (oriented strand board) business, which has given us sufficient confidence to increase our North American OSB shipments guidance for 2023. As in the prior quarter, the product and geographic diversification of our European Engineered Wood Panels segment provided another positive EBITDA (earnings before interest, taxes, depreciation, and amortization) contribution that helped offset some of the weakness in our other businesses.”
The news may be why West Fraser’s stock prices took a small dip, this week. The price is currently about $112 per share, down from almost $118 on July 18. However, West Fraser’s stock health has been substantial this spring. It was at a one-year low of $91.61 on May 31, then steadily climbed. In the past 12 months there have been peaks of $119 and $125 to go along with the current surge – all five-year highs.
What must also be considered is how lumber and other wood products were selling at record prices, last year, so a dip in revenues is at least partially tied to market easing.
“The West Fraser team continues to manage through the market cycle and while there have been indications that the upward trend in mortgage rates may be nearing an end and that new home construction has stabilized, we will continue to operate with financial discipline, leveraging our strong balance sheet to reinvest in our operations and return capital to shareholders,” said Ferris. “We believe our financial flexibility remains a competitive advantage that allows us to continue our core strategy of being a low-cost producer of wood building products while also preparing us to capitalize on opportunities as the demand environment becomes more favourable in the years ahead.”