Release Date: October 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Canfor Pulp Products Inc (CFPUF, Financial) has successfully transitioned the Northwood mill to a one-line operation, improving operational efficiency.
- The company's Kootenay operations continue to perform well, supporting high-margin specialty products.
- Despite weak North American lumber pricing, Canfor Pulp Products Inc (CFPUF)'s Alberta operations provided positive earnings in Q3.
- The new sawmill in Axis, Alabama, began production, with an expected annual capacity of 250 million board feet.
- The Urbana upgrade project is in its final phase, expected to increase capacity to 285 million board feet, indicating growth potential.
Negative Points
- Canfor Pulp Products Inc (CFPUF) announced the closure of Plateau and Fort St. John operations in Northern BC, reducing production capacity.
- The company recorded significant losses in the lumber business due to weak lumber prices and increasing duties.
- Persistent challenges in accessing economically viable fiber in Northern BC continue to impact operations negatively.
- The pulp business generated an operating loss of $209 million, including a significant asset write-down and impairment charge.
- European operations face increasing log costs, which continue to pressure financial performance.
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: European imports are down due to slumping North American pricing, making it less competitive. Our volume from Vida into North America remained stable, largely committed to program business, particularly with home centers. However, transactional volumes did see a shift. - Kevin Pankratz, Senior Vice President - Sales and Marketing
Q: Can you provide an update on the modernization of Urbana and the greenfield in Axis? How much incremental capacity do you expect this year, and are you considering delaying any ramp-up given market conditions?
A: Urbana will be commissioned in Q4 2024, with 93% of the spend completed, adding 115 million board feet. Axis is starting up with a capacity of 250 million board feet. We are proceeding as planned without delays. - Donald Kayne, President, Chief Executive Officer, Director
Q: Your release and comments suggest a cautious tone on near-term lumber demand. Can you comment on repair and remodeling demand and new residential demand trends?
A: Demand appears stable, and we are cautiously optimistic. Interest rate drops are expected to improve affordability, potentially unlocking demand. Multifamily demand, which has been underperforming, seems to have bottomed, which could help future demand. - Donald Kayne and Kevin Pankratz
Q: You mentioned a significant reduction in 2025 CapEx for lumber. What is the expected reduction magnitude?
A: We anticipate a reduction to $250 million to $300 million from the $450 million spent this year. - Patrick Elliott, Chief Financial Officer, Senior Vice President - Sustainability
Q: Can you discuss the rationale behind the loan against the duty receivable, given your strong balance sheet?
A: With over USD 725 million on deposit and increasing rates, we saw an opportunity to take some money off the table. There's no specific use of funds, but it provides flexibility. - Patrick Elliott
Q: Can you comment on European fiber costs and your ability to recoup these in local lumber prices?
A: Fiber costs have increased significantly, especially in Northern Europe. However, we have a high percentage of high-value product opportunities and market flexibility, which helps offset these costs. - Donald Kayne
Q: How much of the capacity removed this year is permanently gone versus temporarily idle, especially in the US South?
A: It's hard to determine, especially with independents not reporting. However, given the pressure on southern yellow pine operations, some capacity is likely permanently down. - Donald Kayne
Q: How do you view European exports to the US given the rationalization of your BC platform?
A: Our diversification strategy allows us to supplement Alberta and BC production with European exports. This is already underway, and we see it as a strategic advantage. - Donald Kayne
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
