WFG - Earnings call transcript Q1 2021 | West Fraser Timber Co. Ltd.

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Operator

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Joint West Fraser Q1 2021 Results Conference Call.

During this conference call, West Fraser's representatives will be making certain statements about potential future developments. These forward-looking statements include certain statements about West Fraser's future financial and operational performance, including the impact of foreign exchange rates, credit ratings and mill maintenance shutdowns; West Fraser's business outlook, including forecasted U.S. and demand West and the Fraser's ramp-up capital conditions, expectations supply the completion of and proceedings, Softwood notes. the market the such Fraser of costs; of Norbord concerning the capital projects rates starts, for available synergies products and expected into related business Norbord and XXXX projects; Lumber housing benefits the plans, and adjustments of and duty including West dispute, to integration the redemption including forward-looking statements, United forward-looking include within and the intended and statements These reasonable Canadian of statements investors. States are meaning laws securities guidance to provide to The events accuracy may these depend by implied that differ cause to subject of on a to of these and statements. is assumptions uncertainties statements risks future the and from various events number materially will Risks of plans, quarterly the its Uncertainties execute as could on factors MD&A. Company of and the risks under outcomes business Company's set ability supplemented management's depend and number out uncertainties described Company's that & the in matters a analysis, the affect as discussion by to other annual in including those Actual filings be These Fraser's Canadian investors. investors on website and can EDGAR West States United SEDAR through for or accessed for in caution exercise forward-looking should upon listeners Accordingly, statements. relying be will question-and-answer After remarks, the speakers' there session. a [Operator Instructions] Thank you. Mr. may now begin Ferris, you your conference.

Ray Ferris

legal, opening everyone, Sylvie, of part VP call meaningful concluding of your teams financial On our operate acknowledge welcome an participating thank well-managed cycle February first results and of results forest from in meet remains a objectives. now to industry then several of comments, make our the and by you, Chris McIver, products U.S. and our building important transition Manufacturing being just the and are to and business to we XXXX, supporting then much in to required are and want thank the team. and a Virostek, members take Virostek frankly, Chris and conference few Chris then part forest a for in building very review operations, economy, very good I'm Marketing Fraser's I sustainable life products, solution some It as change and Well, provides renewable sustainable Senior today of X, joined to executive how to that Well, materials for Financial Corporate quarter is will acquired our highly And but and for a climate reminder we an course, society period working for our dollars. make without manufacturing and exciting other forest smooth live XXXX we'll, simply a IT morning, our Norbord in. beat. HR I everyone, and make low-carbon for questions. while West that. our a a I'll finance, call. first that a pass the by quarter of Chief the the its hard and of one required missing team. and Development; diligent capable renewable remarks, relentlessly possible as Officer;

building has home and at the hard accomplished. performed in In contribution well In quarter our in the remained the North for Chris later, agile strength our safety quarter to thanks the the West highlight team U.S. which continue COVID-XX products. disruptions, half fact, construction the West that period. early for and wood employees weakness from our year And operations unfolded focus health stages OSB of recovery work first to spurring minimizing quarter activity of what backdrop, during of the significant COVID-related first Fraser. our the last our you'll pleased We from XXXX another report business Fraser. its that was and that results, of With to see communities. the the proud I'm America, strong on in demand second will business I'm made the financial continued to already pandemic, has

fact, seen since not also solid remodeling panels. home home recently measured by has starts new reached for robust, construction, lumber has In demand and XXXX. levels and Repair wood remained driving

On approximately next of its and anticipate several the towards feet additional side, are come the site as the Dudley, capacity later expected XXX new over has annual million production the the and years. lumber planer ramps operational up in now progressed on the to QX. Dudley rest as our of the in Georgia, of We construction mill full board production manufacturing complex is well mill

to ramp its Chris. the feet are now our spring helping needs the the late Those OSB meet XX recent to Quebec quarters. that, capacity is On expectations. announced March, in XXXX. response in first XXX struggled carried towards is keep with of demand important The that up months. to original now quarter of has supply expected recovery rated And increased Chambord, mill, to of pass over OSB X/Xs season. With In next the and of panels for XX we the stronger-than-expected of ship mill in the side, strength our panels call produce over to ahead began into Chambord and demand, I'll to annual customers building to restart demands square that the which million

Chris Virostek

significant. everyone. in delivery Fraser supply When and strength continued shifts first recovery possible to increase inventories morning, the manufacturing and and secure network owing and our we historic channel quarter elevated was remained demand renovation for Ray, across through home where lumber supply to and construction last Thanks, attempting norms, from reported strength earnings in That the to and of transportation additional hours resources limited demand continued versus OSB and good West applications, mid-February, new adding a has been response. product. lean

export and Another our for periods adjusted financial year results first are excluding this all X. the presented, results duties of of item of in January of quarter Norbord calculations. February our EBITDA comparative we consolidated X note, include no longer as And as

segments and in American products, Europe the include pre-existing business business a North U.K. as reportable operations and acquired now Our American Wood panels segment. as the are separate Engineered acquired Fraser and the OSB West reported North the

the In to in terms $XXX of quarter acquisition-related generated prior of for note to from quarter values. cost West impact and required of of million adjusted last the attributed first XXXX. was EBITDA as quarter, as in of of attributed the of was $XX $X February EBITDA goods as the million results date record consolidated was $XXX of million by duty standards. sold fair quarter, $XX the In segment. due price this adjusted by to rates raised accounting our EWP $XX X. the European the closing their up to inventory a billion accounting American $X for noncash fair I that first Fraser of and this of million million will segment Norbord's value reduction North performance, was financial EBITDA, to addition results adjustment EBITDA related the This in an reduced benefit purchase million XXXX there EWP part retroactive to for

of offsetting some adjustment quarter higher retroactive positive pricing results. million versus the reported segmented in QX. highlight $XXX EBITDA of of million fourth financial segment lower effect to $XXX costs duty in shipments, fiber higher The of Lumber with and Now QX XXXX, adjusted the the

the million the grew segment quarter. Our first quarter, extreme the raw Adjusted EBITDA $XXX prior pricing, and to more EWP addition materials $XX the primarily million performed cost for higher in for shipments February segment than weather with offset winter results North due well OSB of the from the to gains OSB to and fiber due lower in American plywood March, to but U.S. which as were disruptions slightly well expectations due inflation. than in

the Paper maintenance segment $XX $XX higher and increased downtime first South. Adjusted in quarter activities. pricing million in negative fourth million to the quarter, reduced EBITDA pulp for owing from and in the to Pulp

recovery continue markets. see pulp We signs a of to in

adjustment of EBITDA million European was cost adjusted newly EWP I earlier, accounting price March to geography, sold. in which, Lastly, and noncash February $X $XX as representing segment by noted million, reduced purchase was goods the a for to that due Norbord's results formed

seeing view million first the expenditures sheet. continue the benefits realizing recent we on on-track where an million for remain use Europe grow. over as We internal projects capital a the Shifting continues from appropriate to $XXX in quarter, buybacks invest cash, are repurchased $XX focus trading spent up to price below And moderately We course excess of Capital are believe quarter, demand we Fraser the of value. $XXX past year. issuer more to million And allocation below few to balance of worth capital the West and market our were first approximately of average CADXX.XX in value back capital strength closing. on under OSB at an to continue XX% we bid. of we have of last bought were well in quarter our intrinsic shares XXXX the shares the normal as and in in shares intrinsic discount first yesterday's view our years. than share Those

than U.S. February liquidity which volume. we've for seen of We our are trading Exchange daily on XX% the XX% also trading the regularly West trading with exchanges Fraser volume, the our less total with volume in Stock our New pleased level accounted And of listing. exceeds for now of total York trading

was quarter modest, million. with materially, $X.XX results, the exiting quarter net QX debt $XXX strong $X.X with increased Leverage billion the of of Given our billion the liquidity. of cash financial and total available liquidity exiting

notice with in with redemption our notes release, to XXXX also notes. also You we the earnings QX plans with that the conjunction in our Norbord will recently announced -- completed the XXXX redeem of combination XXXX have

an million an and Norbord interest back quarter January to update that, approximately EBITDA a generated first net addendum select debt, indentures, will and and the which the XXXX summary rationalize Norbord's by With QX integration. plans million Norbord meet stand-alone and the results, and therefore ultimately discussion outlook redeem I'll of of of adjusted the release. and on the note yesterday's will had we help projects Norbord have On ended our earnings provided million of reduce to on call our in of on cash. $XXX Ray over turn $XXX executed an quarter $XXX month to basis, capital aggregate for To structure. a with annual high-yield the requirements retire under million reporting $XX including and costs We news

Ray Ferris

you, Chris. Thank

and our renovations demand more the and single-family working, strong to to continued end In new single-family incentives homes do-it-yourself of to and for housing of drive options multifamily. work-from-home formation markets, deficit has than people with homes, our combined ongoing when wood Remote building purchase products projects. underlying low for which mortgage the consumes greater record trend terms toward continues undertake create rates

longer-term employees benefits been the seeing, economic supported are customers' While of of have we that with the we're more building key can accepted. needs and community our servicing safe our the underlying recognize about market there by and clear never the many outside effects influence implications of focusing optimistic our of remain around favorable our control priorities. Keeping more including markets, and we factors on temporarily COVID-XX, remain widely fundamentals environmental currently which wood, uncertainty

to in Our create for job value shareholders. company our is our

relatively balanced considerable you're most we the in accumulation now patient, strategy a allocation create for capital be And new forward. trend. look going aware, to expect will thoughtful As we're us Therefore, and you cash opportunity to shareholder value. can of our seeing every is

invest program milestones that our U.S. projects the invest Lumber capital we XXXX. am I of Mills, pleased additional Dudley In at will announce approximately an advancement significant million our five across us to the of achieved recently and at $XXX $XXX segment, million to see expect several through our Chambord an With

impressive. of the invest million region. within while our investments which like a risk, this to South In that our Norbord improved eliminate the days, embracing These capacity I'd Wood Fraser, that and the segment, team team. our happening that manufacturing OSB our to ground are And our that the reduce months. rapidly payback backdrop to increase low in integration to been level We to next American XX overall. projects how expected costs and both knew of rates in better. These company. know against Engineered have which productivity. are is We again years. of running the North throughout momentum and overall products XX the our we and are more all had operating to portfolio, million acknowledge Despite early Safety mills, with injury in Products $XX to company West our remain hit synergies has we I four the reinforce we incidents I our three that work capacity over expect Company, and we still production it's of make increase to ability even synergies would achieve through lows can to activity on-track we roughly to record of proven to targeted remains annual the business driving and to quest. execution be strategy team $XX costs furthers engagement would will immediately like building value serious in joining the have an has great and although average future much and business. injuries The do. working confidence the and severity add reducing approximately

I this of challenges strong is still that and employees do many operational you Thank questions. our safety with proud turn it most And while that, we'll results, pandemic. dedication is it and the operator, Finally, ongoing of to with Company across for and lifting thankful It to heavy back the and delivering all you. and perseverance who dealing continue the am people of. obstacles for the

Operator

ahead. [Operator One be will Sean first for Please TD go moment, Instructions] please, Steuart from question, which at Securities. your

Sean Steuart

of on the plan. next leg Ray, the capital question strategic

what would think that trying XXXX? Is incremental CapEx So your like lumber look your it to overall in it together as of and the there, towards Is same with engineered and for XXXX piece the you together less? CapEx wood end might ballpark XXXX? highlighted budget that just yield more? projects number a piecing all I'm maintenance about comments the the that

Ray Ferris

be in same what is say to So deliver that think we say a that the I'd were mind saying -- and for today, yes, kind -- be don't of year, mean, bad say it's to ready But that probably also that XXXX. today, for execute we're through the wouldn't it's in I forward. if more I We'd bring and high-return we we'd it's able say that got excited as range that found I'd to XXXX, we capital yes, range. number quickly, thing. work using I I

Sean Steuart

for point? Okay. And that on or of capital that contractor are any for sort effect backlogs, you budgets seeing these material having inflation deal inputs, any projects stuff? this projects, cost Is other at

Ray Ferris

So -- go even Sean, to of kind to pre-pandemic. going I'm just I'm going

labor, to inflationary aspects. I lot stress think saw supplier, be pandemic, a be it the it prior we the of be and in strain those it system

with certainly continued pace. I think if that seen, the I'd we've there was say, a momentary pandemic reprieve

years, I So relentless But we're I'm going the and not say, it's say across for spectrum. a change costs material last pressure to in what seeing. seen a I several would on -- the we've productivity look,

think in dealing don't it's -- the it's the I few of just how last we're built issue we're think into day-to-day. I So months. with a new kind

been while. we've think a I with the it's for one same dealing

Sean Steuart

Okay. Last question for now.

move more coming You've able into clip shipping the to of a up? this some easing you market up your be Are than you did of inventory built at going lumber any seeing better peers constraints inventory the quarter. quarter? current into to Are that

Ray Ferris

short shipping in be parts of I early seen improve would think answer we've the QX. the

Sean Steuart

that board Could all Would I in built up of you -- able that just over feet to this million quarter? think move QX. you you be move XXX

Ray Ferris

do. but Well, But ask at well, of I the I'll QX, would to trending end work a we're able me quite say bit got of to you. we've tell be and

Chris Virostek

we're there's but up It's pattern Sean, slippage few the market. entirely the little we those QX. to to to of the control, unusual at resources doing usually everything product of certainly, years, look QX. you it's a not can within If the not It's move in that last our in bit secure caught

Operator

Markets. be Quinn ahead. Please Paul at RBC go Capital question Next from will

Paul Quinn

projects got Dudley. in of on wondered, with terms volume CapEx Just of going additional you've lots

of shipment a Just of XXXX if we see And anticipate to levels wondering so, pickup? should for XXXX? relative much? how what sort the end the we year material Should

Chris Virostek

a think year. kind and basis SYP. and Yes. some year February in of of we're about we put expect subject the terms SYP We've on levels what $X.X We the our It's for production, the as think SPF, full shipping of on seasonal at that on in guidance out in what put would we production fluctuations. billion about we same there to billion the of SPF $X are all

out are two So the of put for we've shipments of in thinking headed that's on where last kind basis. terms full there what lumber year publications we're a

Ray Ferris

This capital won't impact XXXX, for sure.

Paul Quinn

Okay. sustainability for question And of -- there. run then lumber. guess I specifically over the the pricing in a just current here in McIver

some X% at a every in just that week. do sustainable about questions you see mean, up And seems the going Just summer? -- XX% how be is. it lots Or to to pullback point of I

Chris McIver

that Well, Saying that's mine. years. look to Paul, demand, good won't But than one very would if will. be does your last think think And the seen potentially say last what we there forever. number of would I we've it this seem as estimate strong though, would historically, that, over that as don't I you different say be underlying

housing So good where are are can't and R&R. high. I going, we very the prices fundamentals they in as think really to speculate but are

Paul Quinn

lastly, higher then than back that clearly, we markets have more are on And some need that mills prices even There's a lumber relative been OSB been Okay. capacity. basis. brought

you Chambord, brought -- I back line. forward up guess, their cordial brought Company, brought You Norbord up well,

or at even base existing wondering brownfield you're existing mills? looking greenfield and the looking Just if at mill at projects the

Ray Ferris

always driving make give say lower generic Well, to how look, it down on primarily is capital I'll mean, look I kind think we I history, best you drive at -- Company, pretty greenfield, say but how a answer we the look I'm our at grow better. we're I the you looking growth. if to never on everything, But look going try of I organic strategy. on to would a but would we think think I'd we and usually focus But allocation first. internally that, never we're And typically that's the it's Paul. we what value. answer.

Paul Quinn

forward righty. All Look to results. your QX

Operator

will [Operator Instructions] next from your be ahead. Mark Montreal. question Wilde go Bank And Please of at

Mark Wilde

variable had start for like for the a or when thinking Just dividend I in payment potential wondered extraordinary capital Norbord would special guys we're a dividends sense? this? dividend to either you allocation, variable of out, the about times Just general How about any think policy.

Chris Virostek

right, question. few of think has Mark, his comments, appreciate this and a as is accumulation of this matter that's a kind in scenario referenced of of is the I terms quickly. sheet Look, quite -- months, right, in a balance in where really the this unfolded cash gotten to Ray

prudent options and over the to anything don't so go But we're every every and to be And we We'll we're And methodical. think don't this as and there six months while -- exploring it's alternative other. toolbox. it thoughtful shareholder we may we'll just as several us discussing I a months and a that come those think way matter think to be looking quickly have We are we'll pretty solve time how accumulated. to in upon one look situation Ray today. quarters. committing four are that deal all be today it's of something always I at or as value the that's next indicated in the going we the or about with way tools be have all and out that as there here, quickly, at patient create that's the

Mark Wilde

the now? the you say, just support, would is us you on OSB over panel and mean, of days there capacity market lumber markets thoughts can right to out in supply Okay. million? able give rational are start sense? any these there look enough Any levels? Chris. think terms I X.X like reply, number what in the Reasonable in what lumber both to And and let's the Ray,

Ray Ferris

Yes, Mark.

provided we a demand. and our the today's think see some of of I on kind kind supply of -- we that in what current bit a materials investor presentation gives against view as

to the to peg So it's rapidly, initiatives thing we've get housing predict. and consistently one the once kind really today. supply X.X of all a about of look, pricing on more And I number significant not more years we speak starts based and tension supply X.X side. think of coming think on course, are million going that's jump are can't knowing that's going the system. get number industry the wherever going because that to I'm housing kind to demand of nobody kind expected to we the that and X.X don't And the strong to come how we when they're I system. on a strain of I to not supply encourage million hard starts is starts that that OSB of a I on in it's think for Today, -- of said different. kind causing we saw, for on in saw to would today, million same don't fundamentally lot issue expect housing And in really they the would or

I hope -- Mark. that your again, so it's So answers I question, think been

an I the about to million industry that's market a at running seeing think supply trying -- overall industry today. strain X.X that we're that's -- of the at

Mark Wilde

Okay. North the the right. Ray, you then is what seeing both just of on of and in give terms of of Canada trade you're what of possible activity on then is it out a thumbnail any of potential also kind kind your Southern and in lumber And U.S.? a America? you're Western the the imports exports what us side, for out OSB seeing brief think both exports, to All levels And kind

Ray Ferris

up. hasn't up Well, I here. obviously, I'll significantly. get that They're kind there a Chris think But if response from pretty on imports. to I'll stronger and me I European imports been start, been we've I see can mean, are of Europe save surprised

we've recognized seeing of to kind a think I there limit think probably bit And those. a was that. always of we're I

we'd limited markets of an it's maybe keeping the indication expect. than around opportunities, even that maybe world are think what those how other are strong I import lower

on lot OSB. think is OSB an Europe that and than And less imports a in lumber so I lumber, production there's there more obviously

looking limited that to see I add come but into the at to do Chris, think you opportunities we're OSB U.S., anything? well. pretty the want as it's about

Chris Virostek

would the sure. we've potentially, really market just shortfall for lesser so add, side to I -- think being continue. the on I much a up lumber OSB much And The a the that made Mark, in exports degree, bit reduction that's Yes, side on will definitely a smaller. of and seen

We are seeing satisfied they're that at recover seem to it Japan towards that the without somewhat, but we're able fiber -- enough what the that appears getting numbers get where China at, at pricing they is America. at North

to lumber but the it Ray's much -- the in stronger up. So comments, run previously European was market than is last

So of not we're that's response a from seeing there. big reason part the the supply

Mark Wilde

Yes.

any market Okay. of case? to of is trade I kind That's right out last dialogue I one candidate activity Association me. Homebuilders, the around kind I but this really behind of at of what the -- is it this see generating sense Or -- is seemed scenes have like had all the The is the of just changing a whether of I like stuff kind lot now. of National -- U.S. no just

Ray Ferris

point. that's the I'm that's and reviews, working through administrative not we're at aware Mark, our think think, point, this really short it that to ADD answer we process as wish think fundamentally, hasn't for. dialogue. as the changed far the I There's it just really really that's anything certainly dialogue. hope else change we on can But and -- the really I and will happening is, going So I this what CVD would And

Operator

at CIBC. go be ahead. Please Patel from question Hamir will Next

Hamir Patel

the Norbord year, is I you a moved the wanted specialty XX% about of prices how X% And where if there that a to -- repriced? maybe QX? date is for I Could recall, comment former look ask piece, OSB on business, furniture, gets there which of Norbord's in of Japan. kind certain as business the the out remainder you lot

Chris McIver

seeing it's industrial strategic view, here. been quite frankly, And Chris business the OSB With very the our from side would is I business it's on but to substantial diversify. slower continue that and say that a successful. Hamir, a we side, expect the commodity improvements and pricing, uses. But happen. to different to regards markets are they're it's than different to end bit

Hamir Patel

randomized can those indexed Chris, formally us, you all? And at prices remind to are the

Chris Virostek

I'm Hamir, that's Yes, done. how not sure exactly

Ray Ferris

And comment kind it's other -- that if on But -- that commodity of and fact well, a I Quarter-to-quarter, ebbs here. the in just pricing kind as in like know on it the successful pricing. we'd And this We to long that think move cycle -- wish see thing strategy. think I I business. but think mean, different we the flows long don't I I think there's of and go to how moves we it. Yes. some that like and moves. will sell a like the of positive But you over the as We we or we haul, term. I can that. wish a one, pricing part

Hamir Patel

shifted to of has across have still that Is labor Or well, Fraser share in just general, their West I existing -- to mills. used And sort larger mill the a setup with know the other agreements? was much Norbord question I maybe had approach? given existing business they -- all the in about effect that profit that

Ray Ferris

people are and still have Well, management that programs interesting place. in Benefit question, Hamir. Wage

Hamir Patel

Okay.

BC for think playing you we'll Just question 'XX how stumpage, what see are out, year-over-year increase things last given do me. of versus sort 'XX?

Ray Ferris

we're think I up thinking well, Year-over-year, I in increase -- think a July. we're $XX

we're So over predicting for what stay I'll be. the BC But year, sure. year-over-year seeing increase away log from kind going costs I will the think of up

Operator

Mr. other registered. Thank you. this And at have proceed. no questions we Ferris, Please time,

Ray Ferris

our XX% remind business just is I'll Listen, of outside Sylvie. I BC, of now thank what it think everybody that. that for thanks is. you, thanks which is Well, to and everyone,

and thank respond Investor forward available Relations. of I we look And talking questions to is as quarter. and are As always, Robert our to you next safe, Chris for to stay Director and Winslow, to you participation

Operator

thank Ladies conference for again, conclude does time, we indeed lines. you sir. call gentlemen, that ask Once this you, And do good at and weekend. disconnect Thank please for you this today. a your your attending. Have

West Fraser Timber (WFG) 7 May 212021 Q1 Earnings call transcript