Release Date: October 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Canfor Corp (CFPZF, Financial) is expanding its operations in Alberta, the US South, and Europe, which supports its globally diversified operating platform.
- The Kootenay operations in British Columbia continue to perform well, focusing on high-margin specialty products.
- The new sawmill in Axis, Alabama, has begun production, with an expected annual capacity of 250 million board feet.
- The Urbana upgrade project is nearing completion, which will increase capacity to 285 million board feet.
- Despite challenges, Canfor Pulp's financial results improved in the third quarter, supported by higher sales realizations.
Negative Points
- Canfor Corp (CFPZF) announced the closure of its Plateau and Fort St. John operations in Northern BC, removing about 1 billion board feet of annual production capacity.
- The lumber business in North America recorded significant losses in the third quarter due to weak lumber prices and increasing duties.
- The company faced an asset write-down and impairment charge of $100 million, along with noncash duty-related adjustments of $121 million.
- European operations are challenged by increasing log costs, although they generated positive operating income.
- The pulp business recorded an operating loss of $209 million, including a $211 million asset write-down and impairment charge.
Q & A Highlights
Q: We've seen a slowdown in European lumber imports. Can you comment on Canfor's volume from the region and the impact of North American imports versus domestic demand in Europe?
A: Kevin Pankratz, Senior Vice President of Sales and Marketing, explained that European imports are down due to slumping North American pricing, making it less competitive. However, Canfor's volume from Vida into North America remained stable, largely due to committed program business, including home center business.
Q: Can you provide an update on the Urbana modernization and the greenfield project in Axis? How much incremental capacity do you expect this year, and are you considering delaying any ramp-up due to market conditions?
A: Donald Kayne, CEO, stated that Urbana will be commissioned in Q4 2024, with 93% of the spend completed, adding 115 million board feet of capacity. The Axis facility is starting up with a capacity of 250 million board feet.
Q: Your release and comments seem cautious about near-term lumber demand. Can you comment on repair and remodeling demand and new residential demand trends?
A: Donald Kayne noted that while they are cautious, demand appears stable. Kevin Pankratz added that interest rate drops could improve affordability, potentially unlocking demand. Multifamily demand, which has been underperforming, is showing signs of bottoming out.
Q: Can you explain the rationale behind the loan against the duty receivable, given your strong balance sheet?
A: Patrick Elliott, CFO, explained that with over USD 725 million on deposit and increasing rates, it made sense to take some money off the table. The loan provides flexibility, and while there is no specific use of funds, it was a prudent move given the opportunity.
Q: Can you discuss the European fiber cost environment and your ability to recoup costs in local lumber prices?
A: Donald Kayne acknowledged that fiber costs have increased significantly in Europe, particularly in Northern Europe. However, Canfor benefits from high-value product opportunities and market flexibility, allowing them to manage these cost increases effectively.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
