West Fraser Timber reports third-quarter net loss of US$204 million

Logs are piled up at West Fraser Timber Co. Ltd. in Quesnel, B.C. Photo by Jonathan Hayward/The Canadian Press files

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Shares of West Fraser Timber Co. Ltd. dipped Thursday after the Vancouver-based company posted a third-quarter net loss of US$204 million, or US$2.63 per diluted share, as the forestry sector continues to navigate what its chief executive called an “extended cycle trough.”

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Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to a loss of US$144 million in the third quarter, down from US$62 million a year earlier.

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On a call with analysts, West Fraser chief executive Sean McLaren said mortgage and interest rates continue to weigh on U.S. housing demand and affordability, along with “uninspiring” levels of new home construction south of the border and subdued demand for home repairs and remodelling.

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West Fraser reported sales of US$1.3 billion in the third quarter, down from US$1.43 billion a year earlier.

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Despite a “tough” quarter, McLaren said West Fraser finished the period with nearly US$1.6 billion of available liquidity. The company reported a net cash balance of US$212 million, down from US$310 million in the previous quarter, based on “softness” in its lumber product portfolio as well as lower earnings, which was partially offset by a reduction of working capital.

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“We continue to monitor macroeconomic conditions complicated by shifting trade policies. Despite such a backdrop, the company remains well positioned to navigate the dynamic and difficult business environment we face today, backed up by a strong financial position,” said McLaren.

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In its lumber segment, the company said operating losses totalled US$169 million, or an adjusted EBITDA loss of US$123 million. This included US$67 million of export duty expenses related to the finalization of AR6, the U.S. Commerce Department’s sixth administrative review of countervailing and anti-dumping duties on imports of certain softwood lumber products from Canada.

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As a result of the review, final combined duty rates for most Canadian producers rose from around 14.40 per cent to as high as 35.19 per cent. Chief financial officer Chris Virostek said West Fraser’s combined rate is 26.5 per cent, “the lowest duty rate in the Canadian industry.”

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In addition to those levies, the U.S. administration imposed a 10 per cent tariff on softwood timber and lumber imports effective Oct. 14 under Section 232 of the U.S. Trade Expansion Act.

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West Fraser’s North American engineered wood products segment had a loss of US$88 million, or an adjusted EBITDA loss of US$15 million, largely driven by lower pricing on oriented strand board (OSB).

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The company’s pulp and paper segment posted a loss of US$10 million, or an adjusted EBITDA loss of US$6 million, which it attributed to the annual maintenance shutdown at its Cariboo Pulp & Paper facility in Quesnel, B.C., during the quarter.

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Despite a fire at West Fraser’s Cowie mill in Scotland in August, which cast a shadow over the company’s progress across the pond, McLaren sees “green shoots” in its European business, which generated US$10 million in income, or adjusted EBITDA of US$1 million, in the third quarter.