West Fraser well-positioned for total market recovery

AUTUMN MacDONALD

Observer Reporter

West Fraser chairman, president and CEO Hank Ketcham says the company is well-positioned to benefit from a total market recovery.

The company reported earnings after discontinued operations of $39 million or $0.89 per share on sales of $719 million in the fourth quarter of 2010 and earnings after discontinued operations of $166 million or $3.84 per share, on sales of $2,886 million for 2010.

In the quarter the company’s lumber operations generated operating earnings of $20 million (third quarter, $22 million) and EBITDA (operating earnings, plus amortization and asset impairments) of $39 million ( third quarter, $49 million).

The company’s lumber operations benefited in 2010 from improved prices supported by continuing constrained supply and increased Chinese demand for (spruce, pine fir) SPF lumber.

The panel segment, which includes plywood, laminated veneer and medium density fiberboard generated operating earnings in the quarter of $2 million (Q3 – $14 million) and EBITDA of $6 million (Q3 – $20 million) as plywood prices came under downward pressure as a result of increasing supplies of U.S. plywood into the Canadian market.

Pulp and paper operations generated operating earnings in the quarter of $30 million (Q3 – $41 million) and EBITDA of $44 million (Q3 – $55 million).

Pulp prices weakened during the quarter with the northern bleached softwood kraft benchmark averaging three per cent lower than in the third quarter.

Although 2010 results represented a significant improvement to those achieved in 2009, the absence of a meaningful recovery of the U.S. housing market and continuing threats to global economic recovery leads the company to a cautious outlook for 2011.

West Fraser anticipates SPF lumber and pulp prices are likely to be positively influenced by continuing strong demand from Asia while SYP (southern yellow pine) lumber and panel markets will continue to struggle until a turnaround in U.S. housing occurs.

Although many analysts expect some improvement in U.S. housing there are a number of factors, notably high rates of foreclosures and significant shadow inventories, that could undermine any meaningful recovery.

“Markets are still somewhat uneven, reflecting the fragile nature of the recovery,” Ketcham said.

“However, our mills ran well despite some challenging weather conditions and we are generally pleased with the results.

“Despite some market uncertainties, we are well positioned to benefit from the eventual recovery. Our low-cost, highly-efficient facilities allow us to operate at high rates and generate value for our shareholders throughout the recovery cycle.”