WFSTF - Earnings call transcript Q4 2020 | Western Forest Products Inc.

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Operator

Good morning, ladies and gentlemen. Welcome to the Western Forest Products Fourth Quarter 2020 Results Conference Call.

During this conference call, Western's representatives may make forward-looking statements within the meaning of applicable securities laws. These statements can be identified by words like anticipate, plan, estimate, will and other references to future periods.

Although these forward-looking statements reflect management's reasonable beliefs, expectations and assumptions, they are subject to inherent uncertainties and actual results may differ materially. can that factors actual uncertainties the described company's MD&A, factors different, to in company's many SEDAR annual those on including under which quarterly are MD&A. could supplemented outcomes cause be the and There is accessed by be risks and

listeners statements. Forward-looking in turn based law, to I made. meeting Demens, are Except information Accordingly, caution required by please only currently and obligation to Western they would now statements Western only over Don go statements. exercise upon forward-looking Demens, on as of should relying forward-looking Mr. which Products. CEO like the undertakes are President Mr. Western update no ahead. speak Forest of on available to and the date as to

Don Demens

I'd Laurie, welcome Quarter Conference you, and to Western Products everyone. morning, good XXXX like Forest thank Call. Fourth to you Well,

fourth Chief results some President questions. Joining industry. We issued me comments, then to discuss Executive through our introductory on Vice XXXX our of recent and the summary outlook Williams, call Financial you with Officer. Steve then take I'll in you results. provide is Steve quarter full I'll and developments today our our and a yesterday. financial share your and you take with then year ask our We'll

by operations we this investments for margin our markets leveraging to North effectively successfully supported significant strike. management in strike, relatively into me in continuing marketing our us our fourth let product to USW lines pandemic first and responded strong the due in safe the successful managed our higher capital while restart challenges these mills, the we is sales We our We the America. weak Western. The in begin. pricing in the of from $XXX of a year, divergent seasonally our EBITDA largely million overcame the performance to of in North markets. year, And $XX in in lengthy the quarter, improved the quarter all So XXXX operations our to our traditionally strategy. COVID-XX the markets export curtailed challenges was for an for levered workforce. capitalizing year and being a BC our operations recovery, Through in the our delivering safety after did deliver including quarter us. delivering We operations advance lines, and EBITDA American million what extraordinary for redirecting duty slower on product successfully reengaging production of markets repositioned despite past

So I'd a of USW strike, like reengagement operations, our to including restart as team restrict positive executing operations successfully employees after our the safe our as recognize with long for well a in there to adherence operations XXXX. I'm say our to no COVID-XX impact new in pleased our COVID safety of were the to of related our in transmissions manage protocols operations. any

as we to pandemic. we the year, XXXX, long sustainability with interest agreements tenure adjusted term disclosure from key our First expectations ESD Japanese during We We continue of an a coastal our labor we the levels systems our its for Vista expanded in market. and benefited are higher First Huu-ay-aht one in collective of despite of sustainable with work a to the reposition successfully continued the and exceed release providing to unions, concluded weaker assets And several which the to advanced strategic generating years. XXXX, trend long the During in Nations. our Nations certainty next home ESG division, above from in in core a support XX defining our sale announced our to TFL partnership We additional limited sustainability with in latest our Columbia report. operating seamless our EBITDA And the investments our term building transition partnerships acquired world to products with reporting. we most committed provide labor the standard practices also

reestablished together markets we and of Our review confidence with turn earnings the have view results Steve sheet, us company, to on to financial results. and our new the dividend. successfully our strong provided key over capacity has reinstate it our I'll confirm now that the balance to

Steve Williams

Thanks, comparisons for results our of to Don. with My the financial this comments will third XXXX of fourth focus year. quarter primarily the quarter on

quarter quarter production million fourth expenses in $XX.X improved incremental this USW shipment We tax due volumes, the a finalization to offset XXXX due the benefited a Cedar and lower quarter due in impacts platform, of to of markets XXXX lumber incremental the and volumes lumber mix our export third from by XXXX. COVID-XX, and sales the dollar costs as improved softwood sales compared associated lumber $XX.X health, noncash markets US Specialty operating redirecting margin. comparable results North to compared weighting in IT compared $XX.X strong shipments our North less reported related third flexible price to with million million by XX% the production to lower XX% related to strong fourth weaker incentive lumber We manufacturing quarter as to for and products our redirecting on and compared strike. of costs, higher stronger associated of duty shipments volumes, to revenue are volumes harvesting and the increased represented EBITDA quarter to with pricing. of of XX% expense Lumber and year. safety leverage export during and appreciation price. of capture due the costs a higher and period the A slightly Western American as the share lumber Our compensation fourth by advantage to selling processing markets. in commodity to took financial higher shipment of traditionally realized dollar of North higher administrative were of Results American well reduced market average to quarter our and XXXX from certain the greater from quarter costs third third of XXXX Results the rates destined continuing maintaining related lumber improved capitalize our Canadian pricing and secondary recovery slower and performance of Red volume American the to quarter. adjusted

third Log compared XXXX to pricing trends. million an container due majority markets. the export the expense capacity. with and 'XX in included quarter balanced to the $X.X a Fourth quarter XXXX. log products of improved $XX.X directed We the quarter XXXX Lumber of to increased of lumber as consistent we export quarter majority the by for $XX.X the quarter, American as softwood benchmark revenue We finalization of However, fourth to quarter, production of export of approximately of remanufacturing byproduct rise. increase the continued to seasonal our in chip third the with on to the capitalize our in of was of to third million the the and sawmills rates. our lower volumes compared had to 'XX million related due higher to inventory million higher North strong compared decreased we duty to deposits. lumber on of Byproduct third end $XX recovery to the duty XXXX lumber production rates. Freight X% moderately of quarter million compared increased duty as $XX quarter in and million recognized XXXX pricing. results fourth shipping volumes shipment duty the compared quarter third of $X.X XXXX At revenue

We year, the in as of the $XX.X XX% in market. in have American the continued fourth typical as to In third of seasonal profit to platform of lever million was quarter operating quarter markets From production Ladysmith loss conditions. increase was destined by improve, early North quarter than in with strong American XXXX. market. a fourth markets for to $XX.X our income our production third from began added North February, to second this as production of we quarter redirecting the products China compared lumber the perspective, operating XXXX Log export net well as flexible and consistent million a weak sawmill relatively to lower shift

XXXX quarter partly were by noncore of as million year. our successfully sale operating $X.X assets. on compared million in operating of management. in proceeds from million fourth our to used was $XX.X the offset during strength this working quarter by in million to year. quarter million fourth flow the the $XX.X results. noncash capital by activities net debt compared the as in $X.X quarter capital fourth quarter the the XXXX in Cash fourth quarter in after $X.X Looking in fourth provided was of and quarter changes at cash million of expenditures cash $XX.X Capital reduced Cash investing activities of the third during third We this

to of end ratio was at the the $XXX.X quarter net million, at XX%. fourth and debt was capitalization liquidity Our approximately our

We be ongoing expect my sufficient Don, available liquidity to meet will that obligations. comments. concludes our

Don Demens

Well, thanks, Steve.

start me weather. off of skewed quarter. winter accelerate quarter support weather the section typically first market interrupted Harvest end touching activity. quarter on by periodically the In greater the through timber our perspective, and light are our when sales can harvesting activity outlook quarters, conditions seasonality. let first typical to a by So be From volumes typically the

America, middle to our and XXXX. markets, positive very As fundamentals weeks with we repair strong of market to encouraged seen In Unseasonably demand pricing. we've through by rally led the North export our from of segments, construction higher in and began the lumber the new price of and that both renovation the fourth supply, first have in the I'm late. combined markets quarter American has six constrained home look continued North improvement the the

markets segment. the to pricing to both our to lines container Japan we we increase we markets. improve continue the and shipping as business, export Repair That remain competition while product for benefit in Renovation And we our log our support the improvement constraints. strength American to export Demand said, volatility we the further building pulp lumber greater we markets pulp from enter look season, quarters. due the lumber faced strong In products by improved rebalanced log spring inventory and expect be rise, in and may and prices Improving which linger, markets the niche of our and North term, a commodity pricing some sawlog prices may in cedar customers we our fundamentals China higher some levels and to challenges, chip and expect prices. to log for should slight with are have getting to domestic logistics have from should coming supported to continue in expected as expect near the As strong support to lumber as pricing. demand

antidumping Department and complete moving rates So duty XX.XX% part were softwood countervailing on from lumber last The continue determination to December Effective duty Xst the dispute. year, to X.XX%. a of as XX% final of review. apply will by the to administrative new the for second of is Commerce's combined Western rate combined until reduced

We expect second new into from year. effect later this the the review rates to administrative come

strong key over in and far million. demand position the US product been the exchange to approximately has have and our capture our deposit Treasury, current which CADXXX is realizations. we the reduced thus on rate of in leading at lines duties able Western Given $XX the million with for markets, sawmill Currently, benefit

initiatives. allocation to a conservative growth balanced to the and capital while balance committed sheet approach allocation, to maintaining to to returning priorities. shareholders, flexibility our a We support Turning cash remain capital

of through dividend. We fourth Our first of reinstatement of is results. operating shareholders dividend regular our of quarterly a cash quarterly the priority our quarter portion a part payment announced return flows to the as our to

constraints BC will value, focused long to is that targeted costs manufacturing invest reducing grow secondary growth desired support Coast thresholds. and to of capital lines. our product term discretionary shareholder return and the or and priority strategic may capacity process be second Near addressing term in Our opportunities meet our on jurisdictions on

to excess opportunities deploy, internal maintain are disciplined capital course we bid. In term and normal additional ensure with look acquisition also under we investment focus. shareholders repurchases we To and return limited there in our at priority addition, third appropriate our through share to external extent returns cash complement available is plan to our our products growth to We approach flexibility. financial allocation that may have capital opportunities issuer remain and near the current specialty

Looking to what's next.

necessary to our top communities. continue the and keep of safety We'll our to priority employees, health the procedures contractors Our as we and safe. adapt and protocols remains ensure people

our on building repositioning to With excited growth our made Longer new capitalize now capacity, wood growth of the product opportunities of the and term, look and our products continue technologies. we the sheet, for balance successful to mass forward strategy, line timber while resuming we're we've we'll reestablishment in investments our about potential earnings brands.

demand products, building solidify wood mass In increasing for of world's help the further most sustainable to as the timber addition wood will one materials.

how We continue potential participate in to we growth best this opportunity. evaluate may

policies remain and operate, XXXX. in we to with shareholders. jobs communities report in working mutually we'll and sustainability support ensuring practices, Nations, value to So committed publish develop engage and annual which beneficial and our for employees, strong long creating First ESG We'll third our to to we we're government together relationships also our continue while stakeholders, term

questions. to that, Our strategic deliver base, sustainably initiatives our operator, and successfully grow long value. can our up our term term to business foundation, and we open same; grow to implement focus remains the the shareholder With long call strengthen our

Operator

question is Hamir the Patel. And Instructions] [Operator from first

Hamir Patel

Yellow do into about there an see there that milled you Cedar with Western as And we've for being well? you going fashion is hearing Don, in opportunity forward? maybe competing to Alaska participate Red How more decking. some there been Cedar

Don Demens

may of about you Cedar. some So talking kind our We're noticed changed of more recently. have has commentary

we Cedar but products, softwood premium the think rotor goes just Cedar. when knows, Red Cedar product look is that Yellow at as not for I everyone applications Cedar

Alaskan kind think supplier promoting decking we the seeing Yellow a in Red be probably have so of largest market line probably uptick largest And have of last instituted we And We'll the about is supply. I and interest year, into where the Yellow. limited you're great because recently of more hearing one launched trim Cedar program suppliers, it. as I the think Cedar and and we're really we're late

fence and Cedar, which also mostly continuing absolutely an Yellow includes directed Again, products short, also Cedar, the we to had and uses, to are that add market that we provide Cedar and long So specie and business. promote Japanese the the durable Red it with suit launched. end

company. So the really that we're I about the think excited Alaskan Yellow opportunity supply affords

Hamir Patel

the you kind just of categories how speak considering? changes, sheet, to related in stronger M&A you Could And this this given has cycle? that. of at the some Don, you balance And are to think given about the what point how,

Don Demens

focused I desire, we've you about QX. our think getting by foremost, achieved So million our out, down And growth talked mean, I remain our at the that we sheet. and strategy. done And pointed we've to in to $XX as first We balance on of reposition about that. debt end

Our to really to had pleased million the and opportunities. about I'm now suspended. able It potential to between for the excited were And target $XXX $XX was take we million. time growth and reinstate opportunity look we're we dividend that the is

continue and to term opportunities our long about are the that think complement business. We grow going to

be to opportunities our an that in value from remain Pacific to the US want that add M&A think or perspective, I is focus in other Northwest product going lines to we in.

create Our been in our and differentiate to products undifferentiated focus has to market. an differentiation

product focus new lines capacity is adding going we're or core to where that And our adding so product efforts. whether that's we lines our can, business anywhere in support

Operator

question Steuart. Sean from is next The

Sean Steuart

I expectations on other A getting context this your guess, for can profile XXXX this first us Duke I It sounds lumber or Point, on give you expectation questions, full back volumes? you're couple closer stage. guidance like at production than suppose, the speed year. Any overall to of

Don Demens

right, up previous you're ramp back to starting we levels. So are to

at to constraints us Point to you look our start going think with hours to getting targeting potentially to I of can back expect balance forward, the do some production. and Probably in up. Going capacities. Duke this Saltair processing have We're add and

think that can us level. million around of overall you think XXX I somewhere at foot

can to cut we'll custom opportunities position production. more try our doing are the add lever that to to do and in and we what additional leverage currently, will we business shifting We

I probably XXX So good the of year. is think million pretty for to think a number

Sean Steuart

some you and long piece on take and of that us market ultimately you like could look time like long been mass a that clearly, and run? in it And MD&A, broader But for feels give now timber ESG opportunity the Don, referenced industry tailwinds. set. over in thoughts comments, talking up your this what your business And the about what can the could the has

Don Demens

there's So of as of lots on pointed trying publications be. out, lots been of of analysis how analysis articulate market I done -- and might you quality and really think lots big good there's to the

see that I think forward. we'll how unfolds going

Some people say potential. or is billion X X the billion feet

And the people think For Western, is being perspective appearance think perspective. to on best hemlock. it fit mass out to Hemlock and I in technologies. an from the strength where timber underutilized production or I think got building try opportunity focus about we -- talk is to products to our that's would figure I recognize of it mostly

will which create technologies mass and qualities focus appearance where in potentially characteristics on is timber can lumber, lever value. leveraging strength most to a be of we the the and our So of laminated strength inherent visual component product the building key the qualities and

I therefore, more because could are back think But term, wood. going this and lot probably some has want be going, growing more gets a projects there think a some -- COVID itself pains with I up I think building of the taken sector may build just think in of bit that to be and to here. people challenges rectifies there and in near has and I delayed as little

So it's of a be side bright in the glulam participation future. likely And the business. our really will

Operator

next Instructions] Paul is Quinn. question [Operator from The

Paul Quinn

through mix? do Yes, I we drop What guess, mix seasonally your in expect your maybe going on 'XX mix. start did QX. with here

Don Demens

to volumes the I increased did that as of course, is, we in And lumber. drop mix So treating segment, mean, commodity the the our commodity you're production of right. there segment.

going XX%, year. lumber is mix the the between probably may operate that can through think we're XX-XX, somewhere oscillate XX% I specialty between consider that you it to and of So

Paul, when get into lumber a cutting aware, North perspective. from we American nominal the well you're a obviously we As net markets benefit start

I maybe to million point because America. outdoor in So it our think, we over about not commodity I'd lumber. treated make on like think to we're did picking other is about one XX% growth treating our the We're And We focused go hand-in-hand And it's represents lumber up kind now some in for volume saw there. we lumber really I typically for North segment. XX And Western, in probably lumber talk great and QX. applications. commodity segment. treated in construction And of just treating when XX% cedar of it's feet,

So pretty we're I it. think excited about

think we're last is is. with toggle I maybe our from one differentiate commodity, specialty, have, leave of depending the may you to to peers. and point back of that's And to going continue the on we lumber where the opportunities forth, sort us which margin

Paul Quinn

on just Maybe to or producer? expected Are be timber supplier mass a of mass you timber.

Don Demens

trying I product. to think a I be the answer, be mostly to mean is initially, we'd hemlock said hemlock, supplier this think our in not mix. going we're fir and a products than lever as focus think or I of like rather doesn't But in Cedar. last be to Yellow the I to going supplier our And the doing product into

Paul Quinn

trying the weeks of the 'XX seen you log six what you've in your of could inventories if here, end at And year the then flexibility the first and just got here? to understand describe you've

Don Demens

and of logs you of fourth good shape can small the We a XXX,XXX well over on mean, bit pretty log the pretty side challenge. out meters, I number quarter coast. I was in log as Large the the in a positioned be know, were coming are the business. of inventories variable think,

right that to And so through trying we're now. work

quarter. this challenge are you the early first of quarter into going well always the large and are As a year logs second familiar, at time

in market to log participants it's more available nothing the in some unusual. be market supply there's mills. open our We log and in got ensure we've of volume we'll the So active think front

Paul Quinn

regulation in that here. of of is terms you're to of some BC having around that the then these some some pay you're government contemplating of the and decisions? projects CapEx And seeing facilitating mean, taxes. Is the CapEx that I

Don Demens

of million and volumes. $XX mean, business we strategic upwards year go million amount in just to $XX our be target through mills. an maybe about adding mean, I incremental looking timberlands We'll I million of typically, to our capital, payback $XX Well, a quick maybe to more CapEx at in back. that, maintenance

Does reducing that think I our processing government is direct think what it will I driving on probably the a and market BC target have We're costs improving Is this? that Not doing? impact in operations we into really. our us our to driven. capacity.

the of and challenges to chain. value share we value we've the I government's think and increase got going production added desire up one the

And specific that just ways that to figure we do we're aligned continually good with out well for at these the so working government. and of how do lines It working we're targeted is we to the can happens investments government so are that. with ways a example product

Paul Quinn

on, just Northwest M&A sounded that the to BC. in the Pacific were on then Is saying And guess, you It potentials. pretty like you're I true? opposed guys focused as US

Don Demens

US the think you have Pacific final the the valuable can lines, qualities in on differentiate you within customer. specialty can differentiate BC become the and some in Northwest products more products, the I product if you to more the and that Well, which can same opportunities provide coast, make of we

Pacific for probably not focused lines I on that. away Northwest. the answer, That think BC, yes, there's more and from in opportunities US investments if yes, short So shy specific product said, long we're we'd in

Paul Quinn

then lastly, And total understand size cedar the market and this just just to what is. trying potential

to is this I mentioned harvest, ability in How guess You relative stuff Yellow you've that but Red Cedar Red you're to Cedar relative to Cedar that is the opportunity opportunity that's big and bringing the from Cedar. new Yellow Japan? in limited, got

Don Demens

to Japan, is creates as of for and we a a us North of as redirect it Coastal, three and opportunity Yellow logs Cedar, for component Well, business northwest inventory of be our that regions in the BC X% BC an which certainly, being is and supplying not Red. about that's growth the in then the opportunity America. combination US, much Interior the of are kind standing largest into Western have us will cedar Red any Yellow used of for

work trying So I use hard think we're expand of the going to at to really Cedar. Yellow

opportunity. said, of lines the what determine we're We've is and how into got we can this Yellow. uptick that distribution. excited the I And pretty about already see as get some well centers quarter over the big As kind product in home we'll going will as

I think we're cedar a marketing, and only our production in the part business. company investing increased Cedar, expect Yellow we have, become the at branding bigger to it of and

Operator

are [Operator to this further no I'll Demens. Instructions] registered Mr. time. questions at There turn the over meeting back

Don Demens

Laurie, Well. time this continued We going We call I results first Great. that, Thank up a in with you. Thanks, May. Steve in and to our interest you for sharing quarter and you questions. thanks, company great if be With the have available your support. day. forward look follow have appreciate your everyone, our on are to your morning. and

Operator

The disconnect and participation. your you. time, conference we Thank has you now your thank ended. at Please for this lines

Western Forest Products (WFSTF) 19 Feb 212020 Q4 Earnings call transcript