West Fraser Timber Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 27, 2023

There are 8 speakers on the call.

Operator

Morning, ladies and gentlemen. Welcome to West Fraser Second Quarter 2023 Results Conference Call. Please note that all lines have been placed on mute during this conference call. West Fraser's representatives will be making certain statements about West Fraser's future financial and operational performance, Business Outlook and Capital Plans. These statements may constitute forward looking information or forward looking statements within the meaning of Canadian in United States Securities Laws.

Operator

Such statements involve certain risks, uncertainties and assumptions which may cause West Fraser's actual or future results and performance to be materially different from those expressed or implied in these statements. Additional information about these risk factors and assumptions is included both in the accompanying webcast presentation and in our 2022 annual MD and A and annual information form, which can be accessed on Wes Fraser's website or through SEDAR for Canadian investors and EDGAR for United States investors. Thank you. I will hand the call over to Mr. Chris Buristek.

Operator

You may begin your conference.

Speaker 1

Thank you, Hilda. Good morning, everyone, and thank you for joining our Q2 2023 earnings call. I'm Chris Virostek, Chief Financial Officer of West Fraser. And joining me today are Ray Farris, our President and CEO and Sean McLaren, our Chief Operating Officer and other members of the executive team. I'll begin with a brief overview of West Fraser's Q2 2023 financial results and then pass the call to Ray, who will give an update on the business as well as provide a few concluding remarks before we transition the call to Q and A.

Speaker 1

As a reminder, we report in U. S. Dollars and all my references today will be in the U. S. Dollar amounts unless otherwise indicated.

Speaker 1

West Fraser generated $80,000,000 of adjusted EBITDA in the 2nd quarter, improving from the $58,000,000 of adjusted EBITDA reported in the Q1. Our North American EWP segment generated $126,000,000 of adjusted EBITDA, up from $31,000,000 in the prior quarter, a period that and included a $15,000,000 inventory breakdown. OSB prices that began to rise strongly midway through the quarter drove the majority of the sequential EBITDA improvement. The lumber segment posted $10,000,000 of adjusted EBITDA this quarter, up from nil the prior quarter with lumber demand showing signs of improvement as the 2nd quarter came to a close. The Pulp and Paper segment struggled in the 2nd quarter with negative $74,000,000 of adjusted EBITDA versus $7,000,000 in the prior quarter.

Speaker 1

The 2nd quarter included a $24,000,000 inventory write down as a result of significantly declining pulp prices through the quarter. It's worth noting that this quarter was marked by considerable disruption within the pulp segment, with all 4 of our pulp mills taking downtime. In particular, Caribou Pulp and Paper was down for a month in response to fiber availability constraints. Slate Light Pulp took intermittent downtime due to energy Pulp segment challenges notwithstanding, the mill shots are now behind us and we have been especially pleased with In Europe, Adjusted EBITDA was $19,000,000 in the 2nd quarter as demand showed signs of weakness later in the period. These results were in line with $20,000,000 in the Q1.

Speaker 1

In summary, lower prices and maintenance downtime at our pulp business created a headwind this quarter, while improving pricing across our North American EWP business was the largest positive contributor to the company's sequential EBITDA improvement. In addition, continued strong contributions from our non OSB panels businesses also helped. Cash from operations was $272,000,000 for the quarter, in part owing to a reversal of the Seasonal working capital build in Q1. Cash net of debt increased to $449,000,000 from $309,000,000 last quarter as our cash flow more than $25,000,000 of dividends paid and $106,000,000 invested in capital expenditures. Subsequent to quarter end, we renewed and extended the maturities on both our revolving line of credit and our term loan providing us with even further financial flexibility to execute on our corporate strategy.

Speaker 1

In terms of our operational outlook for 2023, we are reiterating our guidance for lumber and European OSB shipments, but given the stronger than expected North American demand for OSB, we are increasing the guidance range for North American OSB shipments. We now expect this year's OSB shipments to be in the range of $6,100,000,000 to $6,400,000,000 board feet on a 3eight inches basis, up from our original guidance of $5,900,000,000 to 6,200,000,000 square feet. We're also modifying our expectations for capital expenditures. While we still expect capital investments to be in the range of $500,000,000 to $600,000,000 in 2023, given delays in equipment deliveries and the rate of expenditures year to date, We now expect this year's CapEx will be closer to the lower end of the guidance range. With that overview, I will now pass the call to Ray.

Speaker 2

Thank you, Chris. And look, just to know, usually, Chris and I are side by side on the calls and he can Keep an eye on each other. I'm calling in from our Armore Sawmill located just outside of Wilmington, North Carolina today. So we'll see how this goes. And before I reflect on our financial performance in the Q2, I'd just reinforce some of Chris' comments around the disruption we experienced in Q2 and primarily in Western Canada.

Speaker 2

I can't or won't I'm not really able to add anything on the pulp performance or characterization of that, but just glad the major shuts are behind us. I would reinforce the impact of Alberta wildfires. So for much of this, the first quarter or sorry, Q2 of that quarter. Multiple evacuations in a number of communities, power outages, employee disruptions And our Wood's team fighting fires and protecting our log inventories isn't a great Recipe to lead to great and efficient performance out of that really important sector for us. So saying that, really very pleased with how our Alberta team Considering the environment that they worked so hard to operate in.

Speaker 2

And of course, conditions late in the second quarter and early in Q3 Have returned to a normal cadence. So we're happy about that. With that comment, I'd shed some light on both an outlook and A little bit about our sustainability and the recent release of our 2022 sustainability report. Very proud to report today that last month West Fraser released its 2022 sustainability report. And we did this a month earlier than last year.

Speaker 2

And it's not a Very proud of the achievement of the team and very proud to recognize that the many people who worked so diligently for West Fraser to make this happen. As everyone knows, a company that was founded nearly 70 years ago, we truly understand the importance and necessity of doing the right thing for the environment, our communities and our employees, while sustainably and profitably growing our business. In 2022, we took important steps towards achieving our goal of being a sustainability leader, including planting an additional 66,000,000 seedlings in our Western Canadian Managed Foresters, on top of the 2,000,000,000 trees that we've planted in the history of the company. We continue to invest in the local communities in which our people Work and live, enhancing our diversity, equity, inclusion, policy and strategy. Building on these foundations, we very much continue to work to advance credible environmental sustainability and social goals and targets to guide the company's next chapter.

Speaker 2

Earlier this month, we announced the planned sale of our Hinton Alberta Pulp Mill to a key strategic partner Mondi Group, a global leader in sustainable packaging and paper manufacturing. With this transaction, Mondi has announced intentions to invest some €400,000,000 or CAD575 1,000,000 in the expansion of the mill over the next few years, primarily for the installation of a new kraft paper machine. The transaction with Mondi is anticipated to close by year end subject to the normal completion of customary regulatory approvals. West Fraser will continue to supply fiber to the Hinton Mill under a long term contract from West Fraser's Alberta Sawmills. We are very pleased with the outcome of this transaction.

Speaker 2

It creates a sustainable long term future for the pulp mill, which we think is the best outcome for our employees, the community of Hinton and frankly the province of Alberta. This puts the Hinton Mill in the hands of a global and proven leader with the expertise, the vision and market strategy to maximize the potential of the mill, while maintaining an integrated fiber supply chain that is so important to West Fraser's operations in that region. As many are aware, the Hinton Pulp Mill has at times been a challenge for us, and the next steps would have required significant capital and the market strategy for West Fraser to continue to operate effectively. Once the transaction completes later this year, the mill will get the investment it requires and allow West Fraser to focus on key growth areas, while benefiting from a long term fiber supply agreement and expectedly more stable future cash flows out of that area. Now shifting back to my thoughts on the Q2.

Speaker 2

This quarter we experienced somewhat soft demand early in the quarter as last year's relatively rapid increase in mortgage rates seemingly continued to impact overall consumption. However, as the Q2 progressed, we saw demand improve for some of our key products, particularly in OSB and to some extent Canadian lumber. This demand improvement allowed us to continue to run more normalized lumber and EWP operations when compared to production downtime that we took late last year. With respect to outlook, the Wood Building Products industry may continue to face challenges from everything from rate hikes to labor constraints and potential for slower demand due to the constraints of housing affordability. That said, inflationary cost pressures have continued to moderate across our supply chain for raw materials such as energy, resin and chemicals, and we believe this trend will continue through the remainder of 2023.

Speaker 2

On the new home construction front, we continue to see positive demand signals carried over from the Springs key building season and the strong upward trend in mortgage rates that we experienced through much of last year appears to have eased. Both of these factors are helping for driving consumption of our wood building products, in both new housing starts and repair and remodel activity. We continue to believe the North American market is structurally underbuilt and significant longer term demand remains. In closing, while near term uncertainties exist across the industry, including our business, we remain confident in our geographic Product diversity we have built and in our operating and growth strategy. We have navigated many industry cycles in the past and we have the people, assets and financial flexibility to allow us to capitalize on additional opportunities as the demand environment becomes more favorable in the years ahead.

Speaker 2

We have been disciplined in our capital allocation strategy and have preserved capital in the event that we have a down market like the one we are currently experiencing, and we plan to remain steadfast in this approach. This discipline has positioned West Fraser to be able to execute on our operating strategy by investing in and improving our assets through various market conditions, while poised to take advantage of growth opportunities if and when they unfold. As we look ahead, we'll continue to focus on our core strengths of being low cost, remain committed to our capital allocation strategy, And we look forward to a future with the growth and demand for the types of sustainable and renewable building products for which Fraser is known. With that, operator, I'll turn it back to you for Q and A.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer star followed by the one on your touchtone phone. You will hear a 3 tone prompt acknowledging your request. Questions will be taken in the order received.

Speaker 3

On the market. Ray, given the strength we're seeing in the OSB market, How much potential does West Fraser have to debottleneck some of your existing OSB mills? And can you give us a sense as to where Allendale is operating at today.

Speaker 2

Good morning, Hamir, and I'll do my best there. So First, I may want to talk about Allendale. I think And we've got a group heading up there to visit that mill here very short well today actually. So Yet we've been very pleased with our execution that the team has done there on the capital side and Including debottlenecking in the front end of that mill where we spent about $75,000,000 to do that. And so The ramp up is going.

Speaker 2

It's early stages, but it's gone very well. I think we may have noted in the MDA that They've already certified for 716s. And so we're in some ways ahead of Slightly ahead of where we'd like to be, but I think it's just gone very well and kudos to the team there. I don't I still think that production of the Allendale won't be that significant Through the year, it is in a ramp up stage and really be over the next couple of years that we receive volume come on there. And I would just say, look, I think it's I don't think it's new.

Speaker 2

I think we continue to Execute on what I would call low risk, high return profit improvement projects throughout the company, but particularly also in our OSB. So I really can't I'll give you too much guidance there because I mean, but I think we're pleased with kind of what our position is, and I think we're In a great spot to meet the market as it grows.

Speaker 3

Fair enough. And right, just turning to the pulp and paper side with the Hinton sale, are you considering some other potential opportunities to shrink your

Speaker 2

Well, Hamir, integration The integration strategy we have in Western Canada has been absolutely critical to our success to date, including Hinton. And that remains so, which is I think so key to how we were able to structure the Mondi transaction. So, how I would answer that, Hamir, there isn't a day where we aren't sitting back and looking at our business and trying to determine how to make it better. And so that's every corner of our business, whether it's lumber, Plywood, OSB or Pulp. And so, that's our job and we're going to continue to look for areas to make the company stronger.

Speaker 3

Great. That's all I had. I'll turn it over.

Speaker 2

Thanks, Sameer.

Operator

Thank you. Our next question comes from Sean Steuart from TD Securities. Please go ahead.

Speaker 4

Thanks. Good morning, everyone. Couple of questions. I want to follow-up on Hamir's question with respect to Paul,

Speaker 5

can you

Speaker 4

give us a sense if we exclude the inventory write downs, how concentrated were Q2 segment losses towards Hinton specifically if we exclude that asset.

Speaker 2

Mr. Virostek, do you want to take a shot at that?

Speaker 1

Yes, sure. Thanks, Sean. I would say, as we've said a number of times, when we look at our segment, Our pulp and paper segment, right? And I think Ray's direct quote previously has been We got 3 assets that we really like and one that we struggle with. And so we think we found a way here to kind of clear that out.

Speaker 1

In the quarter there, we had a shot that was much bigger there, I would say the price than we anticipated. The price declines really affected all the different grades of pulp, NBSK, UVK, BCTMP. But consistent with kind of what we said all along is that the BCTMP mills, even in the top markets, Outperformed reasonably well. I think probably fair to say a big piece of That inventory write down was not Hinton, but Hinton did contribute a significant portion of the overall results in pulp in the quarter because of the extended shut And because UKP on a relative basis, I think struggled more than the other grades in terms of pricing realization. So It was a more than proportionate contributor to the results in pulp in the quarter ex the inventory reserves.

Speaker 4

Okay. That helps. Thanks for that detail, Chris. Second question is on the CapEx guidance. You're indicating it will be towards the bottom end of the range.

Speaker 4

And I guess that relates to slower than expected pace in the first half of the year. And I'm wondering if you can qualify that as company specific delays versus Broader industry backlogs, how has that affected it? And then I guess more broadly speaking, If I think about Henderson specifically, you're still talking about a Q2 next year start up. Is there any potential risk to that project

Speaker 2

timeline. Well, Sean, anyway, good morning. And look, I'll take a try at that and Chris can jump in. And Look, it's hard to comment on what others are seeing in the industry. And I think it's Against the backdrop that we actually do see improving.

Speaker 2

So we continue to see improvements on the supply chain And more access and availability to Different pieces of whether it's mobile or hard equipment for an OSB or sawmill. But so that is improving. But I think that's kind of more future going. I would say we typically have had an aggressive capital strategy. I would say there's 2 things.

Speaker 2

1, certainly access to skilled labor and contractors and the timing of that Still remains probably the key part of that equipment side improving, But still very difficult skilled contractor labor market that I think is probably the biggest outlier. I would think that that kind of delays these things. The other aspect I would say our team has kind of taken A bit of a strategic, I wouldn't call it strategic, but being very prudent on making sure that We're not taking on more than we can start up. And so there's been a few operating decisions which have contributed to that to say we're going to Hold off on this while we execute on this part of it. But I would say 3 quarters of it, Sean, is related to mostly on Labor constraints and just being prudent, making sure we get the contractors that we want helping us with our projects.

Speaker 4

Okay. And no specific concerns with respect to the Henderson project timeline being compromised at all?

Speaker 2

Well, I'm going to be there later this week, Sean. But at this point, I mean, we're a ways away here. But At this point, we're I've got the same concerns anyone have, but I'm more concerned about high quality good start up than the exact timing, but right now we're still planning for Q2 of next year.

Speaker 4

That's great detail. Okay. Thanks, Ray. Appreciate it, guys.

Speaker 2

Thanks, Sean.

Operator

Thank you. Your next question comes from Ketan Mamtora from BMO Capital Markets. Please go ahead.

Speaker 6

Good morning, Ray and Chris, and thanks for taking my question. Perhaps first one, either for Chris or Ray, you give us a quick update on kind of your log decks in Alberta? And if you can give us a quick update, if you can, if you are Able to go into the forest and kind of get logs, what is the situation right now?

Speaker 1

Dave, do you want to take that?

Speaker 2

Well, I'll take it. So look, I don't think I'd comment Too specific on that. So to be very general, Ketan, I mean, look, I mean, Every region and every operation is different, so it's very hard to just generalize. But look, But in Alberta, typically we bring all of our log inventories in most of our inventories in through the winter. And then there's we're generally not delivering many logs in most of our divisions through the summer.

Speaker 2

But look, we're and so I wouldn't say it's had a big impact on our inventories at all. But look, what we're more concerned about is having our Woods groups been able to do good forestry to be planting trees and to be making good plans for next year. So they're pivoting to try and figure out And work with government and others on essentially moving to salvage operations around Burnt timber in the areas that we can. So look, it's not I would say Yes. Look, Heather, I'm sure there's been some impacts, but I don't think it's anything that we're laying awake about On the inventories that we have in our yard or in the bush at this point.

Speaker 6

Got it. No, that's helpful. And then Chris, On the capital allocation side, can you just remind us as we sit here today, you've got a strong balance sheet And demand so far, it's at least in the new residential side has held up Better than what a lot of people were expecting. We are seeing a pretty nice rally in OSB prices. Can you talk about kind of appetite for or approach towards share repurchases at this juncture given kind of where the balance sheet is?

Speaker 1

Yes, sure. Happy to. I would say as we entered the year, given the macro uncertainty, we felt it was Prudent to be just a touch more conservative with our repurchase activity, especially given the drawdown in the cash balance that typically happens in the 1st quarter with the working capital build. I think as the macro environment begins to clarify, We'll continue to look for those opportunities to return surplus cash to investors through share repurchases. I think it's been as you noted despite what's happened with interest rates, The new construction side of things has been a lot more resilient than folks had anticipated and demand has been more resilient in the face of those higher interest rates.

Speaker 1

I don't think anybody would have imagined kind of 6 or 8 months ago, we'd be Sitting here with interest rates where they are and seeing the kind of OSB prices and that we're seeing now and the demand for now. So I think it was really tough to see what's coming here and to see this upside. But we've got lots of financial flexibility, we think most importantly to just continue to execute the strategy, right? And I think that's One of the things that we've been most pleased that we've been able to do here over the last three quarters, which have been a bit tough, is Not straight from that capital plan and stay the course on the strategy. And when those opportunities are there to deploy the capital and to share buybacks and we think that we're trading at the right level relative to intrinsic, I think there's no reason why we wouldn't be there.

Speaker 6

Got it. No, that's helpful perspective. I'll turn it over. Good luck.

Speaker 1

Thanks.

Operator

Thank you. Our next question comes from Paul Quinn from RBC Capital Markets. Please go ahead.

Speaker 4

Yes. Thanks very much. Good morning, guys. So maybe start with Ray, because

Speaker 7

I think, Ray, you're the one that mentioned Europe, Especially being weaker towards the end of Q2. Just wondering if you could give us more color on that and then remind us what your European OSB capacity Yes, relative to the shipping guide of $1,000,000,000 to $1,200,000,000 what's the operating rate and what are you doing for shifting?

Speaker 2

Well, good morning, Paul. And those are very good and very specific questions. And so I think When we're if we need to change our guidance, I think it will change our guidance. And one thing I would say is that The operating what we see in Europe is certainly it's been softer than we've seen in North America Without a doubt. And So on how we quite frankly, our operating strategy is really just to meet the existing order files.

Speaker 2

And but look, we are operating at reduced schedules and at times. And We're optimistic as we look forward, but there's when it comes to visibility in Europe, it's higher inflation, Other issues going on in that region with political conflict and others. I would say we're just being taken very much like our position, but taking a very cautious approach to how we operate and not getting ahead of the market And realistic that Europe could lag kind of North America and that's our approach. But look, I don't have the guidance open in front of me. Chris might want to comment on that or correct something.

Speaker 2

But I think we're I think we think it's going to probably stay in the zone that we're in for a while. And if we're wrong, it'll hopefully

Speaker 1

Definitely. Don't really have anything to add to that. So go ahead, Paul.

Speaker 3

All right. Maybe I'll just

Speaker 4

switch it over to North American lumber. How would you Do you see that balanced? And then what do we need

Speaker 7

to see to be able to return West Fraser's profitability to sort of Trend or

Speaker 1

normalized

Speaker 2

rates. Well, I'll take yes. Look, the British Columbia continues to be a very difficult place to operate, and particularly with respect to costs and access to timber. And so our operating strategy, we'll continue to do what we need to operate responsibly in that region. And then so I think if you look back in the quarter, you can see we continue to take steps to operate our business as prudently as possible.

Speaker 2

Costs are Somewhat improving, but we've got still quite a ways to go. So Alberta, I'd expect us to return to our normal cadence As we go forward, I mean, I can't predict forest fires any better than anyone else. And so, and it's been an unusual year, Although these things seem to happen more regularly, particularly in Canada, but I mean we're somewhat Optimistic that the worst is behind us, but you don't know. But so Alberta is a very important region for us and expect us to kind of return. And in the U.

Speaker 2

S. South, I mean, you've seen SPF come up as we all thought The gap between SYP and SPF seem too big and unsustainable and those things that you don't want to have happen where YP goes down and SPF goes up is not the way you want to close that gap, but that's what's happened. I think much focus has been on European imports, we do don't have great visibility into that, but I mean we track everything that everyone does as well and we do see that alleviating somewhat. So we think That's an important piece. And I do think as we start to think about the North America, really the U.

Speaker 2

S. Economy, starting when we See the 3rd leg of that. You think about housing starts are good. Repair and remodel, not that bad. The 3rd leg of the industrial piece is a key.

Speaker 2

And I do think we've seen after a slow first half, some green shoots That the industrial sector is having a little bit more legs to it. So long answer to a simple question. So we're we'll see where I guess we'll see what Q3 and Q4 have for us. But Chris, anything to add?

Speaker 1

Okay.

Speaker 7

Last question then. Just congratulations on the start up of Allendale. It sounds like Doing well. You've raised your shipment guidance by 200,000,000 square feet or kind of 3.5% overall. Where is that extra volume coming from?

Speaker 7

It doesn't sound like it's coming from Allendale. Are you going to increase shifts at certain mills or How are you getting the extra $200,000,000

Speaker 2

Yes. So thanks, Paul. No, I mean, look, we've There was a question or a comment about debottlenecking. We've had and not unusual, I mean, But we've had some very good capital get behind us and certainly some of that comes from improved Operating efficiency and getting the paybacks of those projects, quite happy with that. You're right, Allendale won't be We don't expect it to be a meaningful contributor to that number, but it's a little bit of debottlenecking, if you will.

Speaker 2

And look, there's an we've we're Across our portfolio, always looking at our operating strategy, including where our maintenance shuts are and how we're going to operate. So there can be sometimes a portion Around shifting. So I'm not going to split it, but it's a little bit of both probably. It's a little bit of both.

Operator

Thank you. And our next question comes from Andrew Kuske from Credit Suisse. Please go ahead.

Speaker 5

Thanks. Good morning. I guess the question is for Ray, and it's really along the lines of making the business better every day and thinking about that. In lumber and OSB, very large businesses, Market leading, big scale. And then when you think about some of the balance of your business, the pulp and paper mills, 1 LVL plant, How do you think about these businesses?

Speaker 5

In some cases, they're nice and supplemental and symbiotic. But are there business areas where you need greater scale? Or there are other opportunities to do things like you did with Hinton where maybe it's just better off in the hands of someone else and you can be creative without being too complicated.

Speaker 2

Well, good morning, Andrew. And look, I'll reiterate, particularly in Western Canada, and look for sure, there's I think there's always opportunities in every corner of our business. There are no there isn't anything that we wouldn't touch or Review our strategy to say is there a different strategy here where we can improve the value of West Fraser, allow us Focus, and so like I think as the company grows, those opportunities don't go away, they grow. And so I think What I would say is it's I think it's a healthy part of our DNA to challenge ourselves on everything we do in every region we operate and every product We make and we're probably pretty tough, tougher than you think on ourselves. So Without a doubt, we think about those things all the time.

Speaker 2

One of the advantages that we have is in Some of these areas that we operate even where we might not have the scale that we ultimately may pursue Is often integrated logging strategy to extract the highest value from that forest. And the LVL plan is a great one. So we have between plywood, LVL and sawmilling, we're able to look at that forest and take advantage of that Extracting the highest value. So sometimes we think the best way to do that is by owning and operating those assets When that isn't the best strategy, owning and operating those assets to extract the greatest value for the company, then we will make a different decision. But I think it's an important question and I would say we expect to be diligent and hold ourselves accountable for making

Speaker 5

I appreciate the color. And then maybe just Switching gears a little bit, if we focused on your OSB business in Europe, are you seeing any sort of fundamentally different drivers and just market behaviors UK versus what you've got in Belgium and really the interplay between the 2 major plants.

Speaker 2

Well, I don't mind telling you that as I think people know on the call, I mean, Europe is completely different than North America. We talk about Regional differences in North America, but it's an order of magnitude different in Europe. I would say Inverness tends to serve a primarily a U. K. Market and the Belgium Our operations serves a number of very specific and unique markets and they have a very As far as interplay, I'm not sure how to answer that.

Speaker 2

But I would say both mills are operating Very well. Really happy with our product and operating strategy there. And but look, there's Germany is so different than France, France is so different than Belgium, Scotland is different than England. And so I'm not sure I'd be able to knowledgeably Tell you the differences between them except that they do there is some overlap, but they're for the most part they operate To a lot of independent merchants.

Speaker 5

Okay. Appreciate that. Thank you.

Speaker 2

Thanks, Andrew.

Operator

Thank you. There are no further questions at this time. I would like to hand the call back to our presenters for any final remarks.

Speaker 2

Well, thank you, Hilda and look everyone, thank you for joining our call today. As everyone knows, Chris, Robert and myself are available, Mostly Chris and Robert to answer questions. And Robert Winslow is our Director of Investor Relations, Look, thank you for calling in today, and we look forward to talking to you next quarter. Thank you.

Speaker 1

Thanks.

Operator

Thank you. Ladies and gentlemen, this concludes your conference. Please disconnect your lines.

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Key Takeaways

  • West Fraser posted $80 million of adjusted EBITDA in Q2, up from $58 million in Q1, driven by a recovery in OSB pricing (North American EWP EBITDA of $126 million vs. $31 million) and a modest lumber rebound ($10 million), while its pulp and paper segment lost $74 million due to price declines, downtime and a $24 million inventory write-down.
  • Operating cash flow was strong at $272 million, boosting net cash to $449 million after dividends and $106 million of capex, and the company extended its credit facilities to maintain financial flexibility.
  • Given robust North American OSB demand, West Fraser raised its 2023 shipment guidance to 6.1–6.4 billion board feet (from 5.9–6.2 billion) and still expects total capex of $500–600 million, though nearer the low end due to equipment delays and labor constraints.
  • West Fraser agreed to sell its Hinton, Alberta pulp mill to Mondi for a transaction expected by year-end, under which Mondi will invest roughly €400 million in expansion, while West Fraser secures a long-term fibre supply contract and refocuses capital on core areas.
  • Q2 results were impacted by Alberta wildfires and pulp-mill outages, and European OSB demand softened late in the period, but management remains confident in its geographic and product diversity, disciplined capital allocation and the longer-term underbuilt North American housing market.
A.I. generated. May contain errors.
Earnings Conference Call
West Fraser Timber Q2 2023
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