VANCOUVER, BC, April 29, 2021 - Canfor Corporation ("The Company" or "Canfor") (TSX: CFP) today reported its first quarter 2021 results:
- Record quarterly reported operating income of $603 million driven by historically high lumber prices and improved global pulp market conditions; record-high quarterly sales of $1.94 billion
- Shareholder net income of $428 million, or $3.42 per share
- Net debt of $85 million at March 31, 2021; $225 million repayment of term debt in the current quarter
- Cumulative cash deposits of $615 million on countervailing and anti-dumping duties at March 31, 2021
The following table summarizes selected financial information for the Company for the comparative periods:
For the first quarter of 2021, the Company reported operating income of $602.6 million, $183.0 million higher than operating income of $419.6 million reported for the fourth quarter of 2020, reflecting record results for the lumber segment and improved results in the pulp and paper segment.
In the lumber segment, earnings increased $145.7 million quarter-over-quarter, to an all-time high $606.7 million. These results largely reflected continued strength in global lumber market fundamentals, with demand continuing to outpace available supply and driving global benchmark lumber prices to new historical highs. This unprecedented pricing substantially outweighed the impacts of higher market-related log costs in Western Canada, combined with moderately lower North American shipment volumes stemming from transportation constraints, and a 2 cent, or 3%, stronger Canadian dollar.
Global lumber market fundamentals remained exceptionally strong in the first quarter of 2021, principally driven by sustained high levels of North American demand. The North American market continued to benefit from new home construction activity that reflected the ongoing urban-to-suburban shift, strong demand in the repair and remodeling sector and lean inventory in the supply chain.
For the current quarter overall, US housing starts averaged 1,613,000 units on a seasonally adjusted basis, up 2% from the previous quarter, and in March approached a fifteen-year high of 1,739,000 units. In Canada, housing starts were up 28% from the previous quarter, averaging 308,000 units on a seasonally adjusted basis in the first quarter of 2021, largely reflecting a significant up-tick in the Western Canadian market, and reaching an all-time record of 335,000 units in March.
Offshore lumber demand in Asia was relatively stable in the current quarter, with increased consumption in the industrial and construction sectors offset by lower imports as Asian-Pacific markets continue to adjust to the record North American pricing environment.
Western Europe and Scandinavian lumber demand strengthened further in the first quarter of 2021 largely due to increased residential construction activity and sustained growth in the repair and remodeling sector.
The average North American Random Lengths Western Spruce/Pine/Fir ("SPF") 2x4 #2&Btr price of US$972 per Mfbm was up US$272 per Mfbm, or 39%, from the previous quarter, as downward pricing pressure in January was followed by five consecutive weeks of gains mid-quarter before stabilizing in March, ending the month at an all-time high of US$1,045 per Mfbm. The Company's Western SPF unit sales realizations substantially increased quarter-over-quarter, primarily reflecting the notable uptick in benchmark pricing and, to a lesser extent, a reduction in countervailing ("CVD") and anti-dumping ("ADD") duties, which more than offset the stronger Canadian dollar and relatively unchanged offshore unit sales realizations.
The Southern Yellow Pine ("SYP") East 2x4 #2 price remained above US$1,100 per Mfbm for most of the current quarter, and reached a new record of US$1,200 per Mfbm mid-March. As a result, the North American Random Lengths SYP East 2x4 #2 price averaged US$1,160 per Mfbm, up US$383 per Mfbm, or 49%, compared to the previous quarter. The material increase in the Company's SYP lumber unit sales realizations quarter-over-quarter reflected the uplift in the SYP East 2x4 #2 price, combined with more pronounced pricing increases for wider-width dimension products.
The Company's European lumber unit sales realizations also experienced a substantial uplift compared to the previous quarter, albeit less pronounced than the increases seen in both Western SPF and SYP lumber unit sales realizations to North America. The current quarter's European lumber unit sales realizations principally reflected strengthening European market demand, combined with a favourable geographic sales mix and the significantly higher North American US-dollar benchmark pricing.
Total lumber shipments, at 1.45 billion board feet, were 7% lower than the previous quarter principally driven by a decline in North American shipments, while European shipments were comparable quarter-over-quarter. Lower shipments in the US South for the most part reflected reduced trucking availability due to unseasonably cold weather. Reduced shipments in Western Canada reflected transportation constraints, combined with a rebuild of finished lumber inventory significantly drawn down during the fourth quarter of 2020.
Total lumber production, at 1.47 billion board feet, was broadly in line with the prior quarter as modestly higher production at the Company's European operations, tied to fewer statutory holidays in the current period, and slightly higher Western SPF production, was offset by capital-related downtime at the Company's Camden and Estill mills reducing SYP production in the current period.
Lumber unit manufacturing and product costs were moderately higher than the previous quarter, largely reflecting higher log costs in Western Canada and a more modest increase at the Company's European operations. In British Columbia ("BC"), log costs were up in the current quarter principally as a result of higher market-based stumpage costs stemming from record pricing in the prior quarter (due to the traditional quarterly lag in the stumpage rate reset). A modest uplift in log costs at the Company's European operations primarily reflected market-related increases in the region, correlated in part to the rise in European lumber prices. Log costs in the US South were broadly in line with the prior quarter. Unit manufacturing costs also reflected slightly higher conversion costs in the current quarter, particularly for the Company's European operations, mostly due to seasonally higher energy costs and planned maintenance.
Looking ahead, global lumber market fundamentals are anticipated to remain solid, with ongoing strength in new home construction and steady repair and remodeling activity projected to continue through the second quarter of 2021.
For offshore lumber markets in Asia, demand is anticipated to strengthen, particularly in Japan, as the material pricing pressures and lean inventories experienced in North America impact the region. Demand in Europe is projected to continue to improve through the second quarter of 2021, driven by an anticipated seasonal increase in the residential and construction sector, as well as ongoing strength in the "do-it-yourself" sector. As a result, pricing in Europe in the second quarter of 2021 is forecast to exceed pricing levels seen in the current quarter, reflecting similar trends to the North American market combined with the traditional lag in contract pricing.
Results in the pulp and paper segment reflected improving global pulp market conditions, combined with a 25% increase in production at Canfor Pulp Products Inc.'s ("CPPI") pulp mills quarter-over-quarter.
During the first quarter of 2021, global pulp markets experienced a surge in US-dollar list prices in response to an uptick in demand, particularly from China, combined with ongoing global logistic constraints and supported by strong price increases on the Shanghai Futures Exchange. As a result, Northern Bleached Softwood Kraft ("NBSK") pulp list prices on orders from China saw sharp increases throughout the period, reaching a high of US$973 per tonne in March, to average US$883 per tonne for the current quarter, up US$246 per tonne, or 39%, from the previous quarter. Prices to North America also saw sharp increases, although not at the same levels as those in China, up US$164 per tonne, or 14%, quarter-over-quarter, to US$1,302 per tonne (before discounts). Reflecting the lag between orders and shipments, the significant majority of these price gains will be realized in the second quarter.
In the pulp and paper segment, global softwood kraft pulp markets are projected to remain well positioned through the second quarter of 2021, driven by both continued solid demand and tight supply arising from the current global supply chain challenges, as well as the traditional spring maintenance period. Reflecting this ongoing positive pricing momentum, CPPI announced increases to its NBSK pulp list prices to China and North America for April 2021 to US$1,010 per tonne and US$1,565 per tonne, respectively. High yield markets are anticipated to see continued improvement through the second quarter of 2021, largely driven by strong demand for board products, especially in Asia, tempered somewhat by available supply.
Commenting on the Company's first quarter results, Canfor's President and Chief Executive Officer, Don Kayne, said, "As the world continues to deal with the impacts of the COVID-19 pandemic, we want to thank our employees for their unwavering commitment to safety along with their determination and resilience. They have continued to maintain our standards for producing high quality products for our global customers. Following the significant volatility experienced last year as a result of the pandemic, we are very pleased to see the sustained strength in global lumber markets continuing into 2021, as well as a welcome improvement in pulp market conditions. Our solid operating performance across all our regions enabled us to capitalize on these favourable market fundamentals and set record-high operating earnings. With the pricing outlook in the second quarter looking very positive across all of our businesses, we will be looking to take full advantage of these favourable market conditions."
Additional Information and Conference Call
A conference call to discuss the first quarter's financial and operating results will be held on Friday, April 30, 2021 at 8:00 AM Pacific time. To participate in the call, in North America please dial Toll-Free 1-888-390-0546. For instant replay access until May 14, 2021, please dial 1-888-390-0541 and enter participant pass code 772487#. 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 https://www.canfor.com/investor-relations/webcasts.
Non-IFRS Measures and Forward Looking Statements
Operating Income before Amortization, Adjusted Operating Income (Loss) and Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Share are not generally accepted earnings measures and should not be considered as an alternative to net income (loss) or cash flows as determined in accordance with IFRS. Refer to the Company's Management's Discussion and Analysis for a reconciliation of Operating Income before Amortization and Adjusted Operating Income (Loss) to Operating Income (Loss) and Adjusted Net Income (Loss) to Net Income (Loss) reported in accordance with IFRS.
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 Canfor 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, BC with interests in BC, Alberta, North and South Carolina, Alabama, Georgia, Mississippi and Arkansas, as well as in Sweden with its majority acquisition of the Vida Group. Canfor produces primarily softwood lumber and also owns a 54.8% interest in Canfor Pulp Products Inc., which is one of the largest global producers of market Northern Bleached Softwood Kraft Pulp and a leading producer of high performance kraft paper. Canfor shares are traded on the Toronto Stock Exchange under the symbol CFP. For more information visit canfor.com.
Source: Canfor Corporation