West Fraser Timber Co. Ltd. Q3 FY2024 earnings call

• Sean provided an overview of Q3 2024 financial results, noting $62 million adjusted EBITDA with 4% margin, impacted by $32 million lumber export duty. Segment performance varied with strength in North American Engineered Wood Products and SPF lumber, offset by SYP lumber softness.
• Trailing 4-quarter adjusted EBITDA was $630 million, up from $561 million at year-end 2023. Balance sheet had over $2 billion total liquidity at quarter end.
• Chris detailed financials, including lumber segment loss, EWP segment EBITDA, pulp & paper, European business. Mentioned softwood lumber duties, cash flow from operations, and net cash balance.
• Sean emphasized strategy, diversification, balance sheet strength. Outlook on interest rates supportive of wood building products demand. Progress in optimizing lumber operations, SPF and SYP shipments, and North American OSB mill ramp.

Lumber segment posted an adjusted EBITDA loss of $62 million in Q3 compared to a $51 million adjusted EBITDA loss in Q2; excluding the $32 million export duty expense related to the 2022 calendar year, lumber adjusted EBITDA would have been a loss of $30 million. North American Engineered Wood Products segment generated $121 million of adjusted EBITDA in Q3 versus $308 million in Q2. Pulp & Paper segment generated $2 million of adjusted EBITDA in Q3, below the $9 million in Q2. European business had adjusted EBITDA of $1 million in Q3 versus $6 million in Q2. Lower prices impacted North American Engineered wood products and lumber businesses, partially offset by higher North American OSB shipments. Lumber business benefited from curtailment of higher-cost mill production.

• SPF shipments expected to slightly exceed previous 2024 guidance range of 2.6-2.8 billion board feet.
• Reiterated 2024 guidance for SYP shipments in 2.5-2.7 billion board feet range.
• 2024 North American OSB shipments expected closer to top end of 6.3-6.6 billion square feet range.
• 2024 capital expenditures guidance narrowed to $475 million to $525 million.

• Softwood lumber trade uncertainties, including impact of duty rates and political/market factors affecting trade file resolution.
• Market conditions for SYP lumber, with mortgage rates constraining existing home sales and repair/remodeling, impacting SYP demand.
• European business challenges due to economic conditions affecting profitability.

Q: Can you give additional color on how R&R demand is trending as we think about lumber?

A: Sean noted better demand on SYP side as quarter progressed, with supply adjustments helping pricing. Matt added R&R is GDP-like grower long term.

Q: Chris, as you think about CapEx for next year, how would you have us think about it?

A: Chris said guidance on CapEx for next year will be out around year-end, with projects like Henderson wrapping up and focus on completing ongoing projects.

Q: On capacity closures in the South, how much of initial price momentum is actual market tightening vs speculative buying?

A: Chris said in the South, inventory is exhausted quickly, like at Lake Butler, inventory was off very quickly.

Q: On softwood lumber trade file, any updated thoughts on path forward?

A: Chris said liquidity is strong with $200 million gross debt and Moody's upgrade, Sean mentioned focus on controlling costs and litigating for duty refunds.

Q: On closures in the South, how much is dismantled vs cold idled?

A: Sean said West Fraser's closures are nuanced, with decisions to restart mills dependent on wood supply, market, and competitive reinvestment plan.

Q: On European panels business, what's needed to restore profitability?

A: Sean said European business needs general economic improvement, with OSB seeing price and volume improvement but reliant on economic recovery.

Q: On Caribou, what drove the change in shutdown duration?

A: Sean said additional 2 weeks for Caribou shutdown due to need for adequate fiber supply through cold months and completing additional projects.