West Fraser(WFG) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - West Fraser generated $70 million of adjusted EBITDA in Q4 2022, down from $3.2 billion of adjusted EBITDA for the full year, representing a 33% margin [7][8] - The company reported diluted earnings per share of $20.86 for the full year 2022 [8] - Cash from operations for Q4 was $147 million, with a cash balance net of debt decreasing from $789 million to $625 million [13] Business Line Data and Key Metrics Changes - The North America Engineered Wood Products (EWP) segment generated $109 million of adjusted EBITDA, down from $215 million in the prior quarter [11] - The Lumber Segment posted negative $77 million of adjusted EBITDA, declining from $160 million in Q3, which included an $81 million recovery of export duties [12] - The pulp and paper segment generated $15 million of adjusted EBITDA in Q4, down from $29 million in the prior quarter [13] Market Data and Key Metrics Changes - Demand conditions in North America are showing early signs of improvement, with mortgage rate increases easing [16] - The North American lumber industry has faced supply challenges, with growth in lumber supply effectively at zero over the past six years [17][18] Company Strategy and Development Direction - The company remains committed to a long-term investment strategy, particularly with the Allendale OSB mill restart expected by the end of Q2 2023 [28][29] - West Fraser aims to be a low-cost producer and is focused on financial discipline and reinvestment in operations [19][20] Management Comments on Operating Environment and Future Outlook - Management anticipates continued challenges in the near term due to inflationary pressures and labor constraints [15] - The company is optimistic about the long-term prospects for its lumber business despite current market challenges [19][25] Other Important Information - The company has a strong track record of return on capital employed (ROCE), exceeding 15% in six of the last seven years [21] - West Fraser is committed to sustainability and has made progress in its environmental, social, and governance (ESG) efforts [22][23] Q&A Session Summary Question: Timing of restart of the Allendale OSB mill - Management indicated that the restart is expected by the end of Q2 2023, primarily delayed by supply chain issues [28][29] Question: Current demand perspective - Demand is reportedly better than expected, with homebuilders seeing improved conditions [30][31] Question: R&R channel demand expectations - Management noted that demand is holding up better than expected, but they do not provide specific forecasts [32][33] Question: Capacity adjustments in BC - Management stated that adjustments depend on policy decisions and available timber supply [35] Question: Mass timber market expectations - Management acknowledged a reduction in the 2035 demand base case but remains optimistic about the market's growth potential [36] Question: Carbon allowance gain context - Management indicated that the carbon allowance gain is not expected to be a recurring item [37] Question: Earnings impact from Caribou curtailments - No specific context was provided regarding the expected earnings impact [38] Question: M&A opportunities - Management stated they are always looking at opportunities but did not provide specifics [39] Question: Equipment availability in the industry - Management noted that while supply chain issues are improving, equipment availability remains constrained [40][41] Question: Fiber costs outlook - Management indicated that fiber costs are moderating but did not provide specific percentages [42]