West Fraser Timber Co. Ltd. (WFTBF)

Q2 2010 Earnings Call

July 23, 2010 11:30 am ET


Henry H. Ketcham (Hank) – Chairman, President and CEO

Gerry Miller - Executive Vice-President, Finance & Chief Financial Officer

(Unidentified Company Representative) [Ted]


Paul Quinn – RBC Capital Markets

Pierre Laquerre – Dasar Dan Securities

Daryl [Schefasof] – Raymond James

Jonathan Lethbridge – CIBC

Sean Stewart – TD Newcrest

Richard Skidmore – Goldman Sachs



Good morning Ladies and Gentlemen. Welcome to the West Fraser Timber Company Limited Second Quarter 2010 Results Conference Call.

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During this conference we will be making certain statements about potential future developments. These forward-looking statements are intended to provide reasonable guidance to investors, but the accuracy of these statements depends on a number of assumptions and a subject to various risks and uncertainties.

Actual outcome with depend on a number of factors that could affect the ability of the company to execute its business plan. Including those matters described under risks and uncertainties in our annual MDNA, which can be accessed on our website or through [inaudible] as – and as also by our quarterly MDNA’s.

Accordingly, listeners should exercise caution in relying upon forward-looking statements.

I would now like to turn the meeting over to Mr. Hank Ketcham, Chairman, President, and Chief Executive Officer. Please go ahead Mr. Ketcham.

Henry H. Ketcham

Thank you, Operator, and good morning. And thanks for joining us. Welcome to West Fraser Second Quarter Conference Call.

Gerry Miller our Executive VP and CFO, and I will go over our second quarter results. We also have certain members of our senior management team joining us on the call this morning.

We’ve posted a summary of our Q2 highlights and financial results to our website, which you can access at your convenience.

Earnings for the second quarter were $63 million compared to $20 million in the first quarter of 2010, and a loss of $39 million in the second quarter of 2009.

EBITDA was a $151 million which resulted in a 20% EBITDA margin. All segments contributed to our earnings in the quarter. The significant improvement in our results can primarily be attributed to relatively strong pricing for virtually all of our products in the first half of the year.

In addition, we ran our Canadian saw mills at 98% of capacity throughout the first half of the year, allowing us to benefit fully from the short-but strong rally in lumber prices in the past two quarters.

As a result of our strong cash flow in the quarter totaling $207 million, we were able to significantly reduce our net debt, renew our capital spending program and pay our regular quarterly dividend.

West Fraser is the only publically-traded Canadian forest product company that has paid consecutively-quarterly dividends since we went public in 1986.

Our lumber operations performed well during the quarter. Lumber production at our Canadian mills was up 4%, versus Q1. Production at our U.S. division improved by 32%, versus the first quarter due to dryer weather, which improved log availability throughout our operating areas. This division ran at about 75% capacity in the quarter.

Our lumber division EBITDA was $75 million compared with $66 million in Q1. Our EBITDA margin was 16%. SPF lumber prices were actually down 2% in the second quarter versus Q1, but up 52%, versus the same quarter in 2009. Southern Yellow Pine prices were up 17% in the quarter versus Q1, and up 53%, versus Q2 ’09.

Even with sharply declining lumber prices towards the end of the quarter, we were still able to maintain our inventories close to our desired levels. As a result of relatively high lumber prices in Q1 and early in Q2, the BC lumber export tax rate declined to 10% in May and to 0 in June, versus 15% in the first four months of the year.

In Alberta the tax dropped from 22 ½% in April to 15% in May and 0% in June.

Lumber shipments from our Canadian mills to China increased by 31%, versus last quarter. In the second quarter we shipped 18% of our Canadian lumber off shore, primarily to Japan and China. This compares to 15% in Q1 and 12% in Q2 ’09.

The mountain pine beetle continues to be a very serious issue for our industry in the interior BC. The quality of timber continues to decline, which has an affect on both great outturn and lumber recovery.

The beetle is established itself in certain parts of Alberta as well. Industry and Provincial government are working together to aggressively to fight the spread of the attack in that Province. It’s too early to predict whether our efforts to retire the spread of the beetle in Alberta will be successful.

Our panel operations also ran well in the quarter. EBITDA for this division was $20 million, and the EBITDA margin was 19%, versus 11% in the previous quarter.

Ply wood production was up 8% in the quarter, and prices increased 14%. We experienced a fairly serious fire at of our MDF mills in the quarter, which resulted in a 23 days of down time at that facility. As a result MDF production was down by 2% for the quarter. MDF prices were up by 13% in the quarter.

In our Purple Popham Paper Division, EBITDA was $49 million, versus $40 million in the first quarter. Our EBITDA margin was 22%, versus 19% in Q1.

Pulp production was down 9% in the quarter. We lost 36,000 tons of production due to regularly scheduled maintenance downtime at three of our pulp mills. Benchmarked pulp prices were up 13% in the quarter and 54% versus Q2 ’09.

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