Canfor Corp. New (CFPZF.PK)

Q1 2010 Earnings Call

July 30, 2010 10:00 am ET

Executives

Jim Shepard - President and CEO

Tom Sitar - VP Finance & CFO

Don King - VP, Wood Products Marketing and Sales

Mark Feldinger - VP, Wood Products Manufacturing

Analysts

Stephen Atkinson - BMO

Darrel Switzerloft - Raymond James

Jonathan Lethbridge - CIBC

Sean Steuart - TD Newcrest

Paul Quinn - RBC Capital Markets

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to the Canfor Corporation second quarter results 2010 conference call. A recording of the call and a transcript will be available on Canfor's website. During this call, Canfor's Chief Executive Officer and 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 press release for the associated risks of such statements. I'll now like to turn the meeting over to Mr. Jim Shepard, the President and Chief Executive Officer of Canfor Corporation. Please go ahead, Mr. Shepard.

Jim Shepard

Thank you, operator. Good morning everybody and welcome to Canfor's conference call to discuss the company's second quarter results for 2010. I'm joined here today by Tom Sitar, Vice President of Finance and CFO; Don Kayne, Vice President of Marketing and Sales; and Mark Feldinger, Vice President of Manufacturing.

I will give a brief overview of the quarter and then Tom will speak to our financial results. During our last call, we commented that the price of lumber was very solid and the industry as a whole was breathing a sigh of relief. This quarter we are once again reporting a profit.

For the second quarter we had a net income of $18.1 million or $0.13 per share, showing an improving trend over the $15.6 million or $0.11 per share in the first quarter. Early in the quarter, the price of 2x4 SPF lumber was above $300 per thousand board feet. But by end of the quarter, it had fallen below $200.

Higher lumber prices we experienced caused export prices on Canadian lumber shipped to the US decline to 10% from 15% on BC shipments in May and to zero in June. NBSK pulp prices benefited from a tight global supply, with list prices in the US market exceeding $1,000 per tonne for the first time on record.

The high lumber price we saw earlier in the year was in part related to inventory replenishment and increasing offshore demand rather than any sustainable demand increase in the United States. And consequently, we didn't rush to increase our production as we wanted to see evidence of real improvement of demand.

As it turned out, prices did drop quite sharply. That said, we are moving ahead in our determination to produce more prime grade lumber. This has resulted in our investment in those mills with the green timber supply. As a result, we started up our Chetwynd on one ship during the quarter.

Much like the restart of our Mackenzie division last year, this was achieved through the engagement of our workforce and their commitment to operating as cost effectively as possible. This startup was announced last year and based on demand numbers, we rejected that at that time. And it was not tied to any of the price increase we saw this spring. We also restarted our Quesnel sawmill in June. The product produced by this sawmill is dedicated entirely to the Chinese market and that is a first for our company.

We've never before dedicated an entire sawmill for one country. This not only demonstrates the confidence we have in the future of China, but also is part of our strategy to diversify our markets.

During the first half of 2010, 24% of our SPF lumber sales went to offshore markets, with half of that going to China. That represents a one-third increase in our offshore compared to 2009.

Finally, recently we announced the agreement for the sale of Howe Sound Pulp and Paper to Paper Excellence. This decision involves a non-core asset and reflects our strategy to focus on lumber of production.

Now for more details of our financial results in the second quarter, I'll now turn the call over to Tom Sitar.

Tom Sitar

Thank you, Jim. My comments this morning will focus on our financial results for the second quarter of 2010 and identify those items that affect comparability with other quarters and those factors that contributed significantly to our results. In my comments I will refer to the second quarter overview slide presentation which is on our website.

Also note that for ease of reference, I will be referred to all dollar amounts rounded to the nearest million, except of course for the per share amount and the full details and amounts are shown in our news release.

As Jim said, the second quarter equity shareholder net income which includes our 50.2% share of earnings from Canfor Pulp Limited Partnership with $18 million or $0.13 per share. This compares to a net income of $16 million or $0.11 per share for the first quarter and a net income of $11 million or $0.07 per share for the second quarter of 2009.

On slide three of our presentation, we have highlighted the current quarters' non-operating items that affect comparability and these are: A loss of $9 million or $0.06 per share due to the effect of the translation of our US dollar denominated debt, net of investments, as the Canadian dollar weakens over $0.04 compared to the prior quarter end.

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