West Fraser increased operating earnings in Q1 2018 by 44.8% YoY to $265 million, company reported. The sales have grown up 14.8% to $1,364 million.
The lumber segment generated operating earnings of $189 million (Q4-17 – $232 million) and Adjusted EBITDA of $282 million (Q4-17 – $258 million). According to company, Q1 2018’s results were unfavourably impacted by severe winter weather, significant transportation challenges and a full quarter of export duties. Both SPF and SYP production were higher than the prior quarter, but SPF production was slightly lower than the prior year.
The panels segment generated operating earnings in the quarter of $25 million (Q4-17 – $20 million) and Adjusted EBITDA of $28 million (Q4-1 7 – $24 million). The plywood market was strong throughout the quarter with pricing well ahead of 2017 levels. Plywood shipments were held back by transportation challenges as well.
The pulp & paper segment generated operating earnings of $58 million (Q4-17 – $48 million) and Adjusted EBITDA of $70 million (Q4-17- $60 million). The major factors contributing to the increase in operating earnings were – 2-higher Canadian dollar pulp prices and an increase in NBSK shipments offset by lower BCTMP shipments, again due to transportation headwinds.
“This was a challenging quarter operationally. Weather and transportation challenges were significant headwinds to production and shipments. I also want to congratulate Ray Ferris on taking on the role of President and Chief Operating Officer. I look forward to working even closer with Ray as we continue to build upon the great efforts of all our employees,” said Ted Seraphim, Chief Executive Officer.
The company will continue to focus on operational improvements which should contribute to growing production in lumber and MDF versus the prior year. In the first quarter, results were adversely affected by transportation service disruptions resulting in a substantial increase in finished good inventory levels. “We are uncertain when the backlog of shipments will be cleared and we will likely incur additional storage, freight and other distribution costs.
Our pulp mills do not have any scheduled major maintenance shutdowns during the balance of 2018,” company said in a statement.
During the first quarter of 2018 company incurred duty deposits of $34 million related to CVD and $11 million related to ADD. Company continues to recalculate the ADD rate for the current period of review using its reported results and the same calculation methodology as the U.S. Department of Commerce (“USDOC”). Based on its current data, company determined that the expected ADD rate will be substantially lower than the current ADD deposit rate and as such, company has recorded a long-term duty deposit receivable related to ADD for the difference.
During the quarter, the USDOC and U.S. International Trade Commission completed a preliminary investigation and assigned company’s jointly-owned newsprint mill a CVD rate of 6.53% and an ADD rate of 22.16%. This resulted in an expense of $2 million in the quarter for its pulp & paper segment.
Photo: Ray Ferris President and Chief Operating Officer West Fraser