Canfor swings to C$16.2M net loss in Q1 from net income of C$7M a year earlier; weaker Chinese market for lower-grade lumber products offsets gains from improved North American prices
VANCOUVER, British Columbia
April 25, 2012
– Canfor Corporation (TSX:CFP) today reported a net loss attributable to shareholders ("shareholder net loss") of $16.2 million, or $0.11 per share, for the first quarter of 2012, compared to a shareholder net loss of $44.1 million, or $0.31 per share, for the fourth quarter of 2011 and shareholder net income of $7.0 million, or $0.05 per share, for the first quarter of 2011.
The shareholder net loss for the first quarter of 2012 included various items affecting comparability with prior periods, which had an overall net positive impact of $6.1 million, or $0.05 per share. After adjusting for such items, the Company's adjusted shareholder net loss for the first quarter of 2012 was $22.3 million, or $0.16 per share, compared to an adjusted shareholder net loss of $32.1 million, or $0.22 per share, for the fourth quarter of 2011, and effectively breakeven on an adjusted basis for the first quarter of 2011.
The Company reported an operating loss of $21.5 million for the first quarter of 2012, compared to an operating loss of $63.1 million in the fourth quarter of 2011. Excluding inventory valuation adjustments and one-time restructuring costs, as well as impairment costs in the previous quarter, Canfor's operating loss was $26.2 million in the current quarter compared to $20.5 million in the prior quarter. The adverse variance of $5.7 million primarily reflected weaker results in the pulp and paper segment.
The following table summarizes selected financial information for the Company for the comparative periods:
(millions of dollars, except for per share amounts)
Operating income (loss)
Net income (loss) attributable to equity shareholders of Company
Net income (loss) per share attributable to equity shareholders of Company, basic and diluted
Adjusted shareholder net income (loss)
Adjusted shareholder net income (loss) per share
Lumber markets were mixed in the first quarter of 2012, as a modest improvement in North American market conditions contrasted with a weaker market for lower grade products in China, where the effects of a significant inventory build ahead of the Lunar New Year and slower demand weighed heavily on prices through much of the quarter. U.S. housing activity saw a small increase, in part due to unseasonably mild weather, with housing starts for the quarter averaging 687,000 units (seasonally adjusted annual rate), up 3% from the previous quarter. Canadian housing starts also saw a modest increase from the previous quarter.
Despite an increase in North American prices, overall lumber sales realizations were largely unchanged from the previous quarter due to lower offshore realizations, particularly for low grade products. The average North American benchmark Western SPF 2x4 #2&Btr price increased US$28, or 12%, to US$266 per Mfbm, although increases for most other widths and dimensions were less marked. Prices for most SYP products saw solid increases. For Northern Bleached Softwood Kraft ("NBSK") pulp, weak global demand saw prices fall from the previous quarter, with U.S. prices down US$50 per tonne. Compounding challenges for Canadian producers, sales realizations were negatively impacted by a stronger average Canadian dollar which was up over 2 cents, or 2%, from the previous quarter.
Lumber shipments were in line with the previous quarter at just under one billion board feet, while production was up 17%, reflecting continued improvements in productivity in the current quarter as well as downtime taken over the Christmas period in the previous quarter. Lumber unit manufacturing costs saw a decrease compared to the previous quarter, reflecting reductions in unit cash conversion costs, largely resulting from the increased production levels, and a reduction in unit log costs. However, results in the lumber segment were negatively impacted by lower prices for residual fibre products, reflecting lower prices for sawmill residual chips (related to lower NBSK pulp sales realizations).
Pulp shipment and production levels were well up from the previous quarter, mostly reflecting downtime taken in the prior quarter at Canfor Pulp's Northwood pulp mill for capital upgrades. Improved pulp unit manufacturing costs in the current quarter reflected the higher production levels as well as lower residual chip costs.
The Company completed further capital projects in the quarter as part of its $300 million, three-year strategic capital investment program at its lumber operations, including a planer upgrade at its Grande Prairie sawmill. This project was completed on time and on budget and is exceeding pro forma targets.
Looking ahead, the North American lumber market is projected to continue its modest recovery, while low grade prices to China are projected to see a marked improvement in the second quarter. The global softwood pulp market is anticipated to improve modestly through the second quarter.
Commenting on the quarter, Canfor's President and CEO, Don Kayne, said, "While it was encouraging to see improved lumber prices in North America in the first quarter, the effect of weak low grade prices in China offset some of these gains. With inventories in China returning to more normal levels, we are anticipating an improvement in low grade lumber prices to China in the second quarter." Mr. Kayne added that progress continued to be made with respect to improving the Company's cost performance, "We continue to see a trend of steadily improving productivity and unit conversion costs at our lumber operations, which reflects both our targeted strategic capital investments and a strong focus on continuous improvement."
The Company completed the acquisition of Tembec Industries Ltd.'s southern British Columbia Interior wood products assets late in the first quarter. Commenting on the purchase, Mr. Kayne said, "This is a key acquisition that supports our long term strategy, particularly with respect to increasing our long term supply of high quality green fibre."
Additional Information and Conference Call
A conference call to discuss the first quarter's financial and operating results will be held on Friday, April 27, 2012 at 8:00 AM Pacific time. To participate in the call, please dial 416-340-8527 or Toll-Free 877-440-9795. For instant replay access until May 31, 2013, please dial 905-694-9451 or 800-408-3053 and enter participant pass code 7168261#. The conference call will be webcast live and will be available at www.canfor.com. This news release, the attached financial statements and a presentation used during the conference call can be accessed via the Company's website at http://www.canfor.com/investor-relations/webcasts.
Forward Looking Statements
Certain statements in this press release constitute "forward-looking statements" which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. Words such as "expects", "anticipates", "projects", "intends", "plans", "will", "believes", "seeks", "estimates", "should", "may", "could", and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are based on management's current expectations and beliefs and actual events or results may differ materially. There are many factors that could cause such actual events or results expressed or implied by such forward-looking statements to differ materially from any future results expressed or implied by such statements. Forward-looking statements are based on current expectations and the Company assumes no obligation to update such information to reflect later events or developments, except as required by law.
Canfor is a leading integrated forest products company based in Vancouver, British Columbia (BC) with interests in BC, Alberta, Quebec, Washington state, and North and South Carolina. The Company produces primarily softwood lumber and also produces oriented strand board (OSB), remanufactured lumber products, specialized wood products and bleached chemi-thermo mechanical pulp (BCTMP). Canfor also owns a 50.2% interest in Canfor Pulp Products Inc., which is one of the largest producers of northern softwood kraft pulp in Canada and a leading producer of high performance kraft paper. Canfor shares are traded on the Toronto Stock Exchange under the symbol CFP.