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Canfor Corp. (CFPZF.PK)

Q2 2012 Earnings Call

July 27, 2012 11:00 am ET


Don Kayne - President & CFO

Alan Nicholl - SVP, Finance & CFO


Daryl Swetlishoff - Raymond James

Mark Kennedy - CIBC World Markets



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Good morning, ladies and gentlemen. Welcome to the Canfor Corporation second quarter results 2012 conference call. A recording of the call and a transcript will be available on the Canfor’s website. During this call, Canfor’s Chief Financial Officer will be referring to a slide presentation that is available in the Investor Relations section of their website. Also the company would like to point out that this call will include forward-looking statements, so please refer to the key press release for the associated risks of such statements.

I would now like to turn the meeting over to Mr. Don Kayne, President and CEO of Canfor Corporation. Please go ahead Mr. Kayne.

Don Kayne

Thank you, operator. Good morning everyone and welcome to Canfor’s conference call to discuss the company's second quarter results for 2012. I will speak briefly about our Q2 highlights before passing the discussion to our CFO, Alan Nicholl to discuss our financial results. Wayne Guthrie, our Senior Vice President of Sales and Marketing and [Tom Lewis], our Vice President of Woodlands are available today as well to answer any questions you may have related to their responsibility areas.

We are seeing some strengthening in the lumber segment with strong global markets supporting some higher price levels. Housing starts in the US are continuing to rise at a modest, but steady pace and Canadian starts are up 12% over quarter one. Both these markets have helped to generate some positive, upward movement on North American lumber prices over the quarter.

Lumber shipments were up 18% over quarter one reflecting volume additions from our recently acquired Canal Flats and Elko mills and continued productivity improvements from our capital investment program. Our targeted capital expenditures and strong focus on continuous improvement are generating steady gains in productivity and reductions in conversion costs at our lumber operations.

We’re also encouraged earlier this month with The London Court of International Arbitration ruling in favor of Canada and British Columbia with respect to the United States claim that Grade 4 log pricing in BC breached the Softwood Lumber Agreement.

Although a growing share of our production is now marketed in Asia and the Middle East, the US market will always remain significant for us. We remain committed to the Softwood Lumber Agreement and its dispute settling mechanisms as well as to our US customers.

We initiated capital improvements during the quarter at our Radium Hot Springs and Canal Flats operations in British Columbia. A $39.5 million capital upgrade project is underway at Radium which includes significant sawmill upgrades and a new planer and a biomass energy system that will heat our lumber dry kilns.

At Canal Flats, we’re in the process of implementing kiln improvements and a cut to length conversion in the saw mill. We also continue to evaluate strategic capital investment opportunities at our Elko sawmill near (inaudible).

Overall, Q2 showed steadily improving operating performance and market conditions for lumber and panels. While persistent challenges in Europe continue to create some global economic uncertainty, we’re cautiously optimistic in light of the gradual increase we see in North American construction activity and the continued growth taking place in Asia.

I will now turn things over to Canfor’s Chief Financial Officer, Alan Nicholl to provide more details concerning our Q2 financials.

Alan Nicholl

Thanks Don and good morning everyone. My comments will be principally focused on our financial performance for the second quarter of 2012 referenced to the previous quarter. And in my comments I will be referring to our second quarter overview slide presentation which you will find on our website in the Investor Relations section of the website. Full details and undermines are contained in our news release that was issued yesterday.

For the second quarter of 2012, we reported an equity shareholder net income of $5 million or $0.03 per share. This compares favorably to shareholder net loss of $16 million or $0.11 per share for the first quarter of 2012 and shareholder net income of $2 million or $0.01 per share for the second quarter of 2011.

On slide three of the presentation, we highlighted various non-operating items matter of fact non-controlling interest, which affects variability of the results between the first and second quarters.

The net negative impact of these items in the second quarter was approximately $7 million or $0.05 a share and related to foreign exchange losses on long-term debts as well as losses on various financial derivatives.

After taking a kind of these non-operating items, the second quarter adjusted net income was $11 million or $0.08 a share. This compares to similarly adjusted net loss of $22 million or $0.16 a share for the first quarter of 2012 and improvement of $33 million or $0.24 per share.

With respect to the second quarter operating performance you’ll see on slide four of our presentation, the reported operating income was $26 million, an increase of $48 million from the prior quarter. Excluding quarter-over-quarter inventory value adjustments, adjusted operating income for the second quarter was $19 million compared to negative $26 million in the first quarter comes of $45 million. For the most part this reflected the increase was slightly stronger in some of wood markets and higher lumber shipment volumes. I will speak more on our operating performance in a few minutes when I will discuss the individual segment performances.

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