West Fraser(WFG) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - West Fraser generated consolidated adjusted EBITDA of $2.16 billion in Q2 2021, up from $1 billion in the previous quarter, largely due to the addition of Norbord's financial results and higher lumber and panel prices [13] - The company exited the quarter with $3.39 billion of available liquidity, up from $2.55 billion last quarter, with total debt of $500 million and net cash of $1.7 billion [16] Business Line Data and Key Metrics Changes - The Lumber segment reported adjusted EBITDA of $994 million in Q2 2021, compared to $646 million in Q1 2021, driven by higher pricing and shipments [14] - The North American Engineered Wood Products (EWP) segment saw adjusted EBITDA increase to $1.106 billion from $353 million in the prior quarter, primarily due to the addition of Norbord results and higher OSB and plywood pricing [14] - The Pulp & Paper segment's adjusted EBITDA increased to $25 million from $11 million in the previous quarter, attributed to higher pulp pricing [14] - The European EWP segment reported adjusted EBITDA of $39 million, up from $11 million in the prior quarter, reflecting recent market strength in Europe [14] Market Data and Key Metrics Changes - US home construction activity continued to strengthen, with new home starts reaching levels not seen since 2006, although there was a short-term pullback in repair and remodeling activity [10] - The company noted that the repair and remodeling market was more affected for lumber and plywood compared to engineered wood products [10] Company Strategy and Development Direction - The company is focused on sustainability, having planted its 2 billionth tree as part of its reforestation program, emphasizing its commitment to environmental stewardship [9] - West Fraser is optimistic about market fundamentals, driven by low mortgage rates and a housing formation deficit, which supports demand for single-family homes [18] - The company is actively managing its capital allocation strategy, including a substantial issuer bid to repurchase up to CAD1 billion of its common shares [20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of wildfires in Western Canada on production and transportation, which may affect operations in the second half of 2021 [19] - The company remains constructive about the long-term outlook despite short-term challenges, emphasizing the environmental benefits of building with wood [18] Other Important Information - Capital expenditures were $66 million in Q2 2021, with an updated target for 2021 capital expenditures now expected to be in the range of approximately $400 million to $450 million [15] - The company has retired an aggregate $665 million of high-yield Norbord debt, which will reduce annual interest costs by approximately $40 million [16] Q&A Session Summary Question: Thoughts on the speed and magnitude of the lumber price correction - Management expressed surprise at the rapid price correction but noted it was expected after the previous increase, indicating a stabilization in the lumber market [29] Question: Expectations for BC fiber cost movements - Management indicated a significant increase in stumpage costs expected in October, which will impact fiber costs [33] Question: Lumber inventories at mill and customer levels - Management noted a disparity between the DIY/R&R market and new housing, with inventories for new housing being relatively low [36] Question: Non-fiber cost inflation - Management clarified that while wage inflation is a factor, the bulk of cost pressures are from non-wage inflation, including transportation and supply chain costs [39] Question: Capital expenditures being back-end weighted - Management explained that the timing of capital expenditures is influenced by the completion of major acquisitions and projects, leading to a back-end weighted capital program [44] Question: Interest in cross-laminated timber and engineered wood products - Management indicated openness to exploring opportunities in engineered wood products, including cross-laminated timber, as part of their growth strategy [50]