West Fraser(US:WFG)2021-05-07 20:23Financial Data and Key Metrics Changes - West Fraser generated record consolidated adjusted EBITDA of $1 billion in Q1 2021, up from $453 million in the previous quarter, partly due to the addition of Norbord's results [19] - The first quarter EBITDA was reduced by $93 million due to acquisition-related noncash purchase price accounting impacts [20] - The company exited the quarter with $2.55 billion of available liquidity and total debt of $1.3 billion, with net cash of $164 million [28] Business Line Data and Key Metrics Changes - The Lumber segment reported adjusted EBITDA of $646 million in Q1 2021, compared to $425 million in Q4 2020, driven by higher pricing despite lower shipments and higher fiber costs [21] - The North American Engineered Wood Products (EWP) segment's adjusted EBITDA grew to $353 million from $48 million in the prior quarter, primarily due to the addition of OSB results and higher plywood pricing [22] - The Pulp and Paper segment's adjusted EBITDA increased to $11 million from negative $20 million in the previous quarter, attributed to higher pulp pricing and reduced maintenance downtime [23] Market Data and Key Metrics Changes - U.S. home construction activity continued to recover, with new home starts reaching levels not seen since 2006, driving demand for wood building products [11] - The OSB market experienced stronger-than-expected demand recovery, leading to the restart of the Chambord mill in Quebec [14] - The company noted that the European EWP segment reported adjusted EBITDA of $11 million, reflecting Norbord's results for February and March [24] Company Strategy and Development Direction - The company plans to invest an additional $180 million across several projects through 2023, focusing on increasing capacity and reducing production costs [35] - West Fraser aims to achieve targeted annual synergies of $61 million from the integration of Norbord over the next 18 to 24 months [37] - The company emphasizes organic growth as a primary focus for capital allocation, while remaining open to other opportunities [56] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about favorable market fundamentals, supported by low mortgage rates and a trend towards remote work driving demand for single-family homes [31][33] - The company acknowledges potential external factors that could influence markets but maintains a positive outlook on the underlying demand for wood products [33] - Management is focused on creating shareholder value and will be patient and thoughtful in capital allocation strategies [34] Other Important Information - Capital expenditures were $62 million in Q1 2021, with plans to invest approximately $450 million on capital projects throughout the year [25] - The company repurchased $102 million worth of shares at an average price of CAD82.86, indicating a belief that shares are trading below intrinsic value [26] - The company plans to redeem Norbord's 2023 notes, which will reduce annual interest costs by approximately $40 million [29] Q&A Session Summary Question: What is the anticipated CapEx number for 2022? - Management indicated that the 2022 CapEx number is expected to be in the same range as 2021, with potential for additional high-return capital projects [42][43] Question: Are there any cost inflation concerns for capital projects? - Management noted ongoing pressures on costs and productivity, which have been present for several years, but did not indicate a material change recently [44][45] Question: Will the company be able to move the built-up lumber inventory into the market? - Management observed improvements in shipping early in Q2 and expressed optimism about moving inventory, but acknowledged the need for continued effort [46][48] Question: What are the expected shipment levels for 2021? - Management provided guidance of approximately $3.3 billion for SPF and $3 billion for SYP, expecting to ship all production subject to seasonal fluctuations [50][51] Question: How does management view the sustainability of current lumber pricing? - Management acknowledged strong underlying demand but indicated that high prices may not last indefinitely [54] Question: Is the company considering greenfield projects? - Management stated that while they are always looking for growth opportunities, they primarily focus on organic growth and consider greenfield projects lower on their capital allocation strategy [56] Question: What is the outlook for lumber and OSB imports? - Management noted limited import opportunities for OSB and a reduction in exports on the lumber side, with stronger European markets impacting supply responses [65][68] Question: How is the trade dialogue evolving regarding U.S. trade cases? - Management expressed hope that current market conditions might change the dialogue but noted that no significant changes have occurred yet [70] Question: What is the outlook for Norbord's specialty OSB business? - Management indicated that pricing in the industrial business is improving, albeit at a slower pace than commodity pricing [72]