West Fraser Announces Fourth Quarter 2022 Results

West Fraser Timber Co. Ltd. (“West Fraser” or the “Company”) reported the fourth quarter results of 2022 (“Q4-22”). All dollar amounts in this news release are expressed in U.S. dollars unless noted otherwise. 

Fourth Quarter Highlights

• Sales of $1.615 billion and earnings of $(94) million, or $(1.13) per diluted share 
• Adjusted EBITDA1 of $70 million, representing 4% of sales 
• Lumber segment Adjusted EBITDA1 of $(77) million, including $39 million of inventory write-downs  
• North America Engineered Wood Products (“NA EWP”) segment Adjusted EBITDA1 of $109 million
• Pulp & Paper segment Adjusted EBITDA1 of $15 million 
• Europe Engineered Wood Products (“Europe EWP”) segment Adjusted EBITDA1 of $30 million
• Repurchased 1.557 million shares for aggregate consideration of $117 million

Annual Highlights

• Sales of $9.701 billion and earnings of $1.975 billion, or $20.86 per diluted share 
• Adjusted EBITDA1 of $3.212 billion, representing 33% of sales 
• Lumber segment Adjusted EBITDA1 of $1.328 billion 
• NA EWP segment Adjusted EBITDA1 of $1.677 billion 
• Pulp & Paper segment Adjusted EBITDA1 of $26 million 
• Europe EWP segment Adjusted EBITDA1 of $186 million 
• Repurchased 22.373 million shares for aggregate consideration of $1.990 billion

“In the fourth quarter of 2022, we faced a challenging demand market as rising interest rates dampened new home construction activity in the U.S., most acutely impacting our Lumber business. Despite these market conditions, West Fraser delivered another strong year of performance in 2022, recording more than $3.2 billion of adjusted EBITDA for the period and returning nearly $2.1 billion of capital to shareholders through share repurchases and dividends. We continued to benefit from our product and geographic diversification, particularly in the fourth quarter when our North American and European Engineered Wood Panels and Pulp & Paper segments each made significant positive EBITDA contributions,” said Ray Ferris, West Fraser’s President & CEO.

“Over the near term, we anticipate that the business will continue to experience moderating costs, although we expect continued labour constraints and potentially muted product demand as housing affordability and demand find a new equilibrium. Importantly, the West Fraser team has a proven track record of effectively managing through market cycles while maintaining a strong balance sheet, reinvesting in our operations and returning capital to shareholders. As we execute on our core strategy of being a low-cost producer in the key wood building products markets we serve, we will continue to prioritize financial discipline to ensure we capitalize on the favourable demand environment we expect over the medium and longer term.”

Results Summary

Fourth quarter sales were $1.615 billion, compared to $2.088 billion in the third quarter of 2022. Fourth quarter earnings were $(94) million, or $(1.13) per diluted share, compared to $216 million, or $2.50 per diluted share in the third quarter of 2022. Fourth quarter Adjusted EBITDA¹ was $70 million compared to $426 million in the third quarter of 2022. 

Full year sales were $9.701 billion, compared to $10.518 billion in 2021. Full year earnings were $1.975 billion, or $20.86 per diluted share, compared to $2.947 million, or $27.03 per diluted share in 2021. Adjusted EBITDA¹ was $3.212 billion in 2022 compared to $4.569 billion in 2021. 

Liquidity and Capital Allocation

Cash and short-term investments decreased to $1.162 billion at December 31, 2022 from $1.568 billion at December 31, 2021. 

Capital expenditures in the fourth quarter were $149 million. Full year capital expenditures were $477 million in 2022 and $635 million in 2021. The 2021 capital expenditures included $276 million for the asset acquisition of the idled oriented strand board (“OSB”) mill near Allendale, South Carolina.

We paid $25 million of dividends in the fourth quarter, or $0.30 per share, and declared a $0.30 per share dividend payable in the first quarter of 2023. We paid $99 million of dividends in 2022. 

In the fourth quarter of 2022, we repurchased 1,557,136 shares under our current Normal Course Issuer Bid (“NCIB”) for aggregate consideration of $117 million. For the full year, we repurchased 10,194,000 shares under the current NCIB for aggregate consideration of $859 million, plus an additional 281,115 shares acquired under our previous NCIB for a total repurchase of 10,475,115 shares in 2022. As of February 13, 2023, there are no further shares available to purchase under the current NCIB. A further 11,898,205 shares were repurchased under our substantial issuer bid (“SIB”) in 2022 for aggregate consideration of $1,130 million.

As of February 13, 2023, we have repurchased for cancellation 39,741,794 of the Company’s Common shares since the closing of the Norbord Acquisition on February 1, 2021 through the completion of the 2021 SIB, the 2022 SIB and normal course issuer bids, equalling 73% of the shares issued in respect of the Norbord Acquisition.

Outlook

Markets 

Several key trends that have served as positive drivers in recent years are expected to continue to support medium and longer-term demand for new home construction in North America.

The most significant uses for our North America lumber, OSB and wood panel products are residential construction, repair and remodelling and industrial applications. Over the medium term, we expect that an aging housing stock, the backlog of homes to be built due to lagging completions of previously started new home construction and greater entrenchment of work-from-home flexibility will help to offset near-term headwinds and spur repair and renovation spending that supports lumber, plywood and OSB demand. Over the longer term, growing market penetration of mass timber in industrial and commercial applications is also expected to become a more significant source of demand growth for wood building products in North America.

The seasonally adjusted annualized rate of U.S. housing starts averaged 1.38 million units in December 2022, with permits issued averaging 1.33 million units, according to the U.S. Census Bureau. Demand for new home construction and our wood building products may decline in the near term should interest rates remain elevated or continue to rise and consequently impact consumer sentiment and housing affordability.

The demand for our European products is expected to remain robust over the longer term as use of OSB as an alternative to plywood grows. Further, an aging housing stock supports long-term repair and renovation spending and additional demand for our wood building products. Near-term challenges, including relatively high and rising interest rates, ongoing geopolitical developments and inflationary pressures, are expected to cause a temporary slowing of demand for our products in Europe, however, we are confident that we will be able to navigate through these periods and respond to opportunities for long-term growth ahead. 

Operations

The Company is providing the following operational guidance for 2023:

• Spruce-pine-fir (“SPF”) shipments are expected to be 2.6 to 2.8 billion board feet
• Southern yellow pine (“SYP”) shipments are expected to be 2.9 to 3.1 billion board feet
• NA OSB shipments are expected to be 5.9 to 6.2 billion square feet (3/8-inch basis)
• Pulp & Paper segment shipments are not expected to increase from 2022 levels
• Europe OSB shipments are expected to be 1.0 to 1.2 billion square feet (3/8-inch basis)
• Costs and availability constraints for transportation, raw materials such as resins and chemicals, and energy are expected to continue to moderate near term, while labour availability is expected to remain challenging
• Capital expenditures² are expected to be $500 million to $600 million

Dividend Declared

The Board of Directors of the Company has declared a dividend of $0.30 per share on the Common shares and the Class B Common shares in the capital of the Company, payable on April 4, 2023 to shareholders of record on March 17, 2023. Dividends are designated to be eligible dividends pursuant to subsection 89(14) of the Income Tax Act (Canada) and any applicable provincial legislation pertaining to eligible dividends. Dividends are declared and payable in U.S. dollars. Shareholders may elect to receive their dividends in Canadian dollars. Details regarding the election procedure are available on our website at www.westfraser.com in the “Investors/Stock Information/Dividends” section.

For the full fourth quarter results, click here.

1.	Adjusted EBITDA is a non-GAAP financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure.

2.	This is a supplementary financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure.

About West Fraser

West Fraser is a diversified wood products company with more than 60 facilities in Canada, the United States (“U.S.”), the United Kingdom (“U.K.”), and Europe. From responsibly sourced and sustainably managed forest resources, the Company produces lumber, engineered wood products (OSB, LVL, MDF, plywood, and particleboard), pulp, newsprint, wood chips, other residuals and renewable energy. West Fraser’s products are used in home construction, repair and remodelling, industrial applications, papers, tissue, and box materials.

Contact:

Robert B. Winslow – Investor Relations & Corporate Development – shareholder@westfraser.com – (416) 777-4426

Source: West Fraser Timber Co. Ltd.