CFP Canfor Corporation

VANCOUVER, BC, July 25, 2024 /CNW/ - Canfor Corporation ("The Company" or "Canfor") (TSX: CFP) today reported its second quarter of 2024 results:

Overview.

• Q2 2024 operating loss of $251 million, shareholder net loss of $191 million, or $1.61 per share.
• After taking into consideration adjusting items¹ of $83 million as well as restructuring costs of $39 million, Q2 2024 operating loss of $129 million, compared to a similarly adjusted operating loss of $116 million in Q1 2024.
• Sustained weakness in North American lumber markets with continued downward pressure on benchmark pricing, particularly for Southern Yellow Pine ("SYP").
• Solid earnings from Europe; persistently weak SYP pricing negatively impacted results for the US South; Western Canadian results remained challenging.
• Announced permanent closure of Polar and Jackson sawmills and suspension of planned reinvestment in Houston.
• Strong global pulp pricing and moderate improvement in NBSK pulp unit sales realizations.
• Announced indefinite curtailment of one production line at Northwood NBSK pulp mill.
• Ongoing constraints accessing economically viable fibre in BC impacting lumber and pulp operating rates in the near-term and through the balance of the year.

Financial results.

The following table summarizes selected financial information for the Company for the comparative periods:

The Company reported an operating loss of $250.8 million for the second quarter of 2024, compared to an operating loss of $85.8 million in the first quarter of 2024. After accounting for adjusting items totaling $83.0 million (consisting of an inventory write-down as well as an asset write-down and impairment charge), the Company's operating loss was $167.8 million for the current quarter. In addition, when taking into consideration $38.5 million in restructuring costs recognized this period, correlated with the permanent and indefinite curtailments in the lumber and pulp businesses, the Company's operating loss for the second quarter of 2024 was $129.3 million, compared to a similarly adjusted operating loss of $116.0 million in the prior quarter. These results were primarily driven by a decline in lumber segment results, offset to a degree by improved pulp and paper segment earnings.

Commenting on the Company's second quarter results, Canfor's President and Chief Executive Officer, Don Kayne, said, "This quarter posed considerable challenges for our lumber business. While our European operations delivered solid earnings, North America continued to face a persistently weak pricing environment.

During the quarter, we made some difficult decisions, including the permanent closure of our Polar sawmill and the suspension of plans to invest in Houston. Operating conditions in BC remain extremely challenging as we continue to face significant constraints accessing economically viable fibre. With the high-cost operating environment in BC, depressed North American lumber markets and expected increases in duty deposits next month, we will continue to evaluate and adjust our BC operating rates to mitigate ongoing losses."

"For our pulp business" added Kayne, "despite strong global pulp pricing and improved NBSK pulp unit sales realizations experienced during the current quarter, fibre supply constraints in BC led to the announcement of an indefinite curtailment of one production line at our Northwood NBSK pulp mill."

Second quarter lumber segment highlights.

For the lumber segment, the operating loss was $230.5 million for the second quarter of 2024, compared to the previous quarter's operating loss of $57.1 million. In the current quarter, these results include adjusting items consisting of a $51.4 million inventory write-down and an asset write-down and impairment charge of $31.6 million. These results also include $32.6 million in restructuring costs associated with changes in the Company's operating footprint, noted below, in both British Columbia ("BC") and the US South.

After taking into consideration these adjusting items and restructuring costs, the lumber segment operating loss in the second quarter of 2024 was $114.9 million, compared to a similarly adjusted operating loss of $87.3 million in the prior quarter. These results reflected another period of solid earnings from the Company's European operations, largely tied to improved market pricing in that region, which was significantly overshadowed by the persistently challenging results from the Company's North American operations, primarily associated with the ongoing weakness in North American lumber benchmark pricing.

In May 2024, after a thorough analysis of the persistent shortage of economically available timber and challenging operating conditions in BC, the Company announced the permanent closure of its Polar sawmill in Bear Lake, BC and suspension of its planned reinvestment in Houston, BC. Also during the second quarter, in the US South, the Company announced the permanent closure of its Jackson, Alabama facility effective June 2024, concurrent with the expansion of its Fulton, Alabama facility. In connection with these announcements, the Company recorded asset write-down and impairment charges totaling $31.6 million and restructuring costs of $32.6 million in the second quarter of 2024.

Throughout the second quarter of 2024, North American lumber markets faced sustained downward pressure. Despite strong underlying fundamentals, persistent affordability constraints continued to discourage potential homebuyers and lowered US residential construction activity during the quarter. The repair and remodeling sector also saw reduced activity quarter-over-quarter, largely due to lower disposable household income levels. These demand trends, coupled with increased available supply led to a notable drop in North American benchmark pricing compared to the previous quarter.

US housing starts averaged 1,348,000 units on a seasonally adjusted basis for the current quarter, down 4% from the previous quarter, reflecting a 5% decrease in single family homes and a 1% decrease in multi-family starts. In Canada, housing starts averaged 249,000 units on a seasonally adjusted basis in the second quarter of 2024, up 1% from the previous quarter, primarily driven by an 4% increase in the construction of multi-family homes, with a consistent level of activity seen for single-family homes.

Offshore lumber demand and pricing in Asia remained relatively steady during the second quarter of 2024. In China, the real estate market and the broader economy continued to encounter challenging conditions despite ongoing government stimulus measures and gradual balancing of inventory levels in the region. In Japan, however, an improvement in the rental housing market gave rise to a modest uplift in demand and pricing during the current quarter.

In Europe, persistently low levels of residential construction were more than outweighed by relatively solid activity in the do-it-yourself sector and led to improved lumber pricing quarter-over-quarter, particularly in Central Europe.

Lumber segment outlook.

Looking ahead, North American lumber market conditions are forecast to experience continued weakness in the third quarter of 2024 and through the balance of the year. Residential construction activity is anticipated to be challenged by ongoing affordability headwinds in the near-term, especially in the multi-family segment. Demand in the repair and remodeling sector is also projected to trend downwards through the balance of the year.

Offshore lumber demand and pricing in Asia is projected to be relatively flat through the third quarter of 2024, as steady demand in Japan attributed to solid housing sector activity, is offset by continued challenges in China, as the region struggles to realize the benefit of government incentives, coupled with ongoing weakness in the Chinese real estate market.

European lumber pricing is anticipated to come under some modest pressure in the third quarter of 2024 as a seasonal slow-down in the do-it-yourself space and ongoing low levels of residential construction activity are combined with continued log supply constraints associated with reduced log availability and increasing costs in the region.

In the US South, the Company's ongoing capital investments in its new greenfield sawmill in Axis, Alabama, as well as in the upgrade and expansion of its Urbana sawmill in Arkansas, are progressing well and are forecast to commence production later in 2024. In addition, results in the third quarter of 2024 will reflect the acquisition of Resolute Forest Products Inc.'s El Dorado lumber manufacturing facility located in Union County, Arkansas, for US$73 million, including working capital. This transaction is anticipated to close in August 2024, following the completion of customary closing conditions.

In BC, there remains significant ongoing uncertainty with regards to the availability of economically viable fibre. The Company continues to anticipate sustained log cost pressures and persistent constraints accessing economically viable fibre in BC for its sawmills, as well as a challenging fibre environment for Canfor Pulp Products Inc.'s ("CPPI") pulp mills. With these ongoing fibre-related pressures and persistently depressed lumber prices, the Company continues to evaluate its options and will adjust its operating rates in BC to align with demand and economically available timber supply in the near-term and through the balance of 2024.

Second quarter pulp and paper segment highlights.

For the pulp and paper segment, the operating loss was $5.6 million for the second quarter of 2024, compared to an operating loss of $15.7 million for the first quarter of 2024. These results largely reflected an uplift in global pulp pricing, primarily in response to global pulp supply disruptions, and the correlated improvement in CPPI's average Northern Bleached Softwood Kraft ("NBSK") pulp sales unit realizations. These factors were offset in part, however, by a decline in CPPI's pulp production and shipments quarter-over-quarter, driven by extended downtime at its Intercontinental NBSK pulp mill ("Intercon") to address unforeseen recovery boiler repairs identified during the scheduled maintenance in May.

In May 2024, CPPI announced the decision to indefinitely curtail one production line at its Northwood NBSK pulp mill ("Northwood") also as a result of the continual decline in the availability of economic fibre in the northern BC region. CPPI anticipates winding down this production line in August 2024. In connection with this indefinite curtailment, CPPI recognized restructuring costs of $5.9 million during the current quarter. 

Although global pulp producer inventories remained relatively balanced throughout the current quarter, the uplift in global softwood kraft pulp markets experienced at the end of the first quarter continued well into the second quarter, as global supply disruptions gave rise to an uptick in global pulp pricing. As a result, NBSK pulp list prices on orders from China, the world's largest consumer of pulp, saw steady increases throughout most of the period, reaching a 15-month high of US$825 per tonne in May, before declining in June, to end the quarter at US$810 per tonne. For the current quarter overall, average US-dollar NBSK pulp list prices to China were US$811 per tonne, an increase of US$66 per tonne, or 9%, from the previous quarter.

Pulp and paper segment outlook.

Looking forward, global softwood kraft pulp market conditions are anticipated to soften through the third quarter of 2024 as global softwood pulp supply stabilizes, following disruptions in the first and second quarters of 2024, and as new hardwood capacity in China and Brazil is projected to come online. On the demand side, purchasing activity during the third quarter of 2024 is projected to dampen as the traditionally slower summer period is forecast to combine with reduced demand for paper products, particularly in China, further weakening pulp demand.

As a result of the aforementioned decision to wind down one production line at CPPI's Northwood pulp mill in August 2024, the indefinite curtailment will result in the reduction of approximately 300,000 tonnes of market kraft pulp annually. Consequently, CPPI's results in the third quarter of 2024 will reflect the impact of this wind down on production, shipments and cost structure. Looking forward, while CPPI is focused on optimizing a sustainable operating footprint, improving operational reliability and closely managing manufacturing and fibre costs, it will continue to evaluate its operating conditions and will adjust operating rates at its pulp mills to align with economically viable fibre supply. These factors could also affect CPPI's operating plan, liquidity, cash flows and the valuation of long-lived assets.

Additional information and conference call.

A conference call to discuss the second quarter's financial and operating results will be held on Friday, July 26, 2024, at 8:00 AM Pacific time. To participate in the call, please dial Toll-Free 1-888-390-0546. For instant replay access until August 9, 2024, please dial Toll-Free 1-888-390-0541 and enter participant pass code 931655#.

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 www.canfor.com/investor-relations/webcasts.

Non-IFRS financial measures.

Throughout this press release, reference is made to certain non-IFRS financial measures which are used to evaluate the Company's performance but are not generally accepted under IFRS and may not be directly comparable with similarly titled measures used by other companies. The following table provides a reconciliation of these non-IFRS financial measures to figures reported in the Company's condensed consolidated interim financial statements:

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 Canfor assumes no obligation to update such information to reflect later events or developments, except as required by law.

About Canfor Corporation.

Canfor is a global leader in the manufacturing of high-value low-carbon forest products including dimension and specialty lumber, engineered wood products, pulp and paper, wood pellets and green energy. Proudly headquartered in Vancouver, British Columbia, Canfor produces renewable products from sustainably managed forests, at more than 50 facilities across its diversified operating platform in Canada, the United States and Europe. The Company has a 70% stake in Vida AB, Sweden's largest privately owned sawmill company and also owns a 54.8% interest in Canfor Pulp Products Inc. Canfor shares are traded on The Toronto Stock Exchange under the symbol CFP. For more information visit canfor.com.

SOURCE Canfor Corporation