VANCOUVER – BUSINESS – Canfor Corporation (TSX: CFP) today reported net income attributable to shareholders (“shareholder net income”) of $29.3 million, or $0.22 per share, for the first quarter of 2015, compared to$29.9 million, or $0.22 per share, for the fourth quarter of 2014 and $45.5 million, or $0.33 per share, for the first quarter of 2014.
The following table summarizes selected financial information for the Company for the comparative periods:
| Q1 | Q4 | Q1 | |||||||||
| (millions of Canadian dollars, except per share amounts) | 2015 | 2014 | 2014 | ||||||||
| Sales | $ | 930.0 | $ | 860.4 | $ | 741.9 | |||||
| Operating income before amortization | $ | 133.0 | $ | 108.9 | $ | 128.9 | |||||
| Operating income | $ | 83.7 | $ | 62.0 | $ | 84.4 | |||||
| Net income attributable to equity shareholders of the Company | $ | 29.3 | $ | 29.9 | $ | 45.5 | |||||
| Net income per share attributable to equity shareholders of the Company, basic and diluted | $ | 0.22 | $ | 0.22 | $ | 0.33 | |||||
| Adjusted shareholder net income | $ | 45.7 | $ | 35.1 | $ | 46.4 | |||||
| Adjusted shareholder net income per share, basic and diluted | $ | 0.34 | $ | 0.26 | $ | 0.34 |
After adjusting for items affecting comparability with the prior periods, the Company’s adjusted shareholder net income for the first quarter of 2015 was $45.7 million, or $0.34 per share, compared to an adjusted shareholder net income of$35.1 million, or $0.26 per share, for the fourth quarter of 2014. Canfor’s adjusted shareholder net income for the first quarter of 2014 was $46.4 million, or $0.34 per share.
The Company reported operating income of $83.7 million for the first quarter of 2015, up $21.7 million compared to operating income of $62.0 million for the fourth quarter of 2014. Current quarter results include the consolidation of the Company’s recent US South acquisitions of Beadles Lumber Company Inc. & Balfour Lumber Company (“Beadles & Balfour”) and Scotch & Gulf Lumber, LLC (“Scotch Gulf”), which were considered to be controlled by Canfor for accounting purposes on January 2, 2015 and January 30, 2015, respectively.
Increased operating income in the lumber segment primarily reflected the Company’s recent acquisitions in the US South, and to a lesser extent, a modest increase in lumber sales realizations. With respect to productivity performance, gains at many of the Company’s Western Canadian sawmill operations largely offset higher unit log costs in the current quarter. In the Company’s pulp and paper segment, operating income also increased due to a weaker Canadian dollar which more than offset a modest reduction in US dollar market prices, and to a lesser extent, reduced pulp unit manufacturing costs which were mostly attributable to a scheduled maintenance outage in the previous quarter.
Abnormally severe winter weather across Eastern North America hampered home building activity during the first quarter, with US housing starts down 9% from the fourth quarter of 2014, averaging 969,000 units on a seasonally adjusted basis for the first quarter of 2015. In Canada, housing starts were down 5% compared to the fourth quarter of 2014, to 177,000 units in first quarter of 2015 on a seasonally adjusted basis. Offshore lumber consumption was lower than the previous quarter reflecting higher-than-normal inventory levels and lower real estate development activity in offshore markets.
The Company’s lumber sales realizations in the current quarter reflected the favourable impact of a 9% weaker Canadian dollar and, to a lesser degree, a higher-value sales mix which more than offset lower US dollar lumber prices. The average Random Lengths Western Spruce/Pine/Fir (“SPF”) 2×4 #2&Btr price decreased by 9%, or US$32per Mfbm, to US$308 per Mfbm in the current quarter, while price decreases in lower grade products were somewhat less pronounced. The average Random Lengths Southern Yellow Pine (“SYP”) 2×4 #2 price also experienced a decline compared to the fourth quarter of 2014, down US$14 per Mfbm, or 3%. Offshore lumber sales realizations also benefitted from the significantly weaker Canadian dollar during the first quarter of 2015.
Compared to the previous quarter, lumber production was up 15% reflecting the Company’s expansion in the US South, improved productivity at the Western SPF operations and additional operating hours in the first quarter of 2015. Lumber shipments were up 7% in the current quarter with higher lumber production offset in part by delayed offshore shipments as a result of a US West Coast port strike (which was resolved at the end of February 2015) and lower shipments during the Chinese Lunar New Year holiday. Overall total lumber unit manufacturing costs were marginally higher than the previous quarter with decreases in Western SPF cash conversion costs largely offsetting continued log cost pressures in Western Canada and weather-related disruptions at the US South operations.
Softwood pulp markets weakened somewhat in the first quarter of 2015, for the most part reflecting strong industry operating rates and increased inventory levels in the marketplace. Reflecting the global softwood pulp market conditions, average list prices for Northern Bleached Softwood Kraft (“NBSK”) pulp, as published by RISI, were down in all regions, with the North American average NBSK pulp list price declining US$30 per tonne, or 3%, to US$995 and the list price to China seeing a larger decline, down US$52 per tonne, or 7%. Despite this, the Company’s NBSK pulp sales realizations showed a modest increase from the prior quarter, largely as a result of the sharp deterioration of the Canadian dollar (down 9%) and increased shipments to higher-margin regions in the current quarter.
Pulp shipments were down 8% from the previous quarter with increased demand from North America more than offset by reduced shipments to Asia, in part reflecting the traditional Chinese Lunar New Year holiday in the current quarter. Pulp production levels were up 4% reflecting increased NBSK pulp production following a scheduled maintenance outage at the Northwood Pulp Mill in the previous quarter. Pulp unit manufacturing costs in the first quarter of 2015 were down moderately compared to the fourth quarter of 2014, principally attributable to the maintenance outage in the previous quarter.
On April 1, 2015, Canfor completed the acquisition of Southern Lumber Company located in Mississippi, further expanding the Company’s presence in the US South.
Commenting on the Company’s first quarter results, Canfor’s President and Chief Executive Officer, Don Kayne, said, “Our lumber operations showed solid productivity gains through the quarter following the ramp-ups of several major capital upgrades completed in 2014. Our recent US South acquisitions are having an increasingly positive impact on our results.”
After the challenging weather in many regions of North America in the first quarter of 2015, the North American lumber market is off to a slow start in the second quarter with benchmark lumber prices having continued to trend downward. A modest improvement for the North American market is anticipated towards the middle of the year as the US housing market gains momentum. Offshore markets are forecast to be flat in the second quarter of 2015 with a modest improvement in the second half of 2015 as inventory balances gradually return to more normalized levels. NBSK pulp markets are projected to stabilize somewhat during the industry’s annual spring maintenance period in the second quarter of 2015.
