West Fraser shows improved earnings

Weaker Canadian dollar and high lumber prices responsible for WF improved earnings

West Fraser is crediting a weaker Canadian dollar, and higher lumber prices for improved earnings in the first quarter.

The company reported earnings of $72 million or $0.84 per share on sales of $809 million in the first quarter.

Lumber operations generated operating earnings of $79 million and operation earnings  plus amortization and restructuring charges (EBITDA) of $107 million.

“The improvement over the prior quarter reflects higher southern yellow pine (SYP) lumber prices and the benefit of a weaker Canadian dollar partially offset by lower shipments,” the company’s release states.

Operating earnings in the previous quarter included a $24 million restructuring charge.

The panel segment, which includes plywood, laminated veneer lumber (LVL) and medium density fibreboard (MDF) generated $7 million of operating earnings and EBITDA of $11 million in the quarter, reflecting higher plywood prices.

Pulp and paper operations generated operating earnings of $22 million in the quarter and EBITDA of $32 million.West Fraser credits the improvement from the previous quarter to a weaker Canadian dollar and improved operating rates at their mills.

“During the quarter, much of Canada and the U.S. experienced severe winter conditions and significantly restricted railcar availability, which impaired the transport of our products to market,” the release states.

“Shipments were further adversely affected by a 28-day trucking strike at the port of Vancouver during March. As a result, our finished-goods inventories at the end of the quarter were at unusually high levels.

“We expect that as the weather improves and the building season progresses, inventories will decrease to more normal levels.”

West Fraser expects volatile lumber prices  over the balance of 2014 as the supply chain adjusts to more normal shipping flows and the weather-delayed building season progresses.

The recovery of the U.S. housing market continues to be the greatest uncertainty that will affect lumber prices.

Pulp prices are under pressure as new global hardwood pulp supply entered the market in the quarter.

“We continue to be confident about the long-term recovery of the U.S. housing market although we do expect that it will be bumpy,” West Fraser’s President and CEO Ted Seraphim said.

“Our purchases of three sawmills, two in Arkansas and one in northern Alberta reflects our positive view of the future.

“The current combined capacity of these mills is 380 million board feet and with some additional capital investment, we expect to increase capacity to 485 million board feet.”