Western Announces Second Quarter 2019 Results
Press Release
August 1, 2019 – Vancouver, British Columbia – Western Forest Products Inc. (TSX: WEF) (“Western” or the “Company”) reported adjusted EBITDA of $15.1 million in the second quarter of 2019. Results were impacted by challenging markets which led to production curtailments, and higher British Columbia (“BC”) coastal operating costs.
Second Quarter Highlights
- Levered specialty product sales to generate $15.1 million EBITDA despite challenging markets
- Commenced the Arlington planer ramp up to produce more finished products closer to end customers
- Columbia Vista performed in line with our expectations and contributed a full quarter of earnings
- Returned $8.5 million to shareholders via regular, quarterly dividend
- Completed $6.6 million of share repurchases, cancelling 3.8 million common shares
On June 28, 2019, the United Steelworkers Local 1-1937 (“USW”), the union representing a majority of the Company’s hourly employees and employees working for its timberland contractors in BC, served seventy-two hours’ notice of strike action. The strike, which commenced July 1, 2019, is ongoing at all USW-certified Company manufacturing and timberlands operations. Ladysmith sawmill, Value-Added remanufacturing facility and both United States divisions (Arlington and Columbia Vista) continue to operate.
Western’s adjusted EBITDA result of $15.1 million in the second quarter of 2019 compared to adjusted EBITDA of $50.2 million in the second quarter of 2018, and $18.1 million reported in the first quarter of 2019. Operating income prior to restructuring and other income was $1.4 million in the second quarter of 2019, compared to $39.7 million in second quarter of 2018, and $5.7 million reported in the first quarter of 2019.
Net loss of $0.7 million ($nil per diluted share) was reported for the second quarter of 2019, as compared to net income of $27.1 million ($0.07 per diluted share) for the second quarter of 2018 and $1.9 million ($nil per diluted share) in the first quarter of 2019.
| Q2 | Q2 | Q1 | YTD | YTD | |||||||||||
| (millions of dollars except per share amounts and where otherwise noted) | 2019 | 2018 | 2019 | 2019 | 2018 | ||||||||||
| Total revenue | $ | 310.3 | $ | 327.8 | $ | 275.7 | $ | 586.0 | $ | 619.4 | |||||
| Export tax | 9.7 | 11.7 | 9.2 | 18.9 | 21.4 | ||||||||||
| Stumpage | 14.2 | 17.6 | 12.3 | 26.5 | 28.0 | ||||||||||
| Adjusted EBITDA | 15.1 | 50.2 | 18.1 | 33.2 | 93.2 | ||||||||||
| Adjusted EBITDA margin | 4.9% | 15.3% | 6.6% | 5.7% | 15.0% | ||||||||||
| Operating income prior to restructuring items and other income (expense) | $ | 1.4 | $ | 39.7 | $ | 5.7 | $ | 7.1 | $ | 72.3 | |||||
| Net income (loss) | (0.7) | 27.1 | 1.9 | 1.2 | 48.8 | ||||||||||
| Basic and diluted earnings per share (in dollars) | – | 0.07 | – | – | 0.12 | ||||||||||
| Net debt (cash) – end of period | 114.1 | (42.1) | 72.4 | ||||||||||||
| Total liquidity – end of period | 133.9 | 276.1 | 175.7 | ||||||||||||
“Levering investments in our flexible operating platform allowed us to increase specialty lumber shipments and revenue, partly mitigating the effects of challenging commodity markets and higher coastal BC operating costs,” said Don Demens, President and Chief Executive Officer. “Looking ahead, we expect to resolve the ongoing labour strike and move forward with growing our specialty products business.”
The Company generated revenue of $310.3 million in the second quarter of 2019, as compared to $327.8 million in the second quarter of 2018, and $275.7 million in the first quarter of 2019. The Company partially
offset weaker lumber and by-product revenues with increased log revenues, primarily driven by the restart of its export log program.
Summary of Second Quarter 2019 Results
Adjusted EBITDA for the second quarter of 2019 was $15.1 million, as compared to $50.2 million from the same period last year. Results were impacted by weakening markets which led to production curtailments. Operating income prior to restructuring items and other income decreased to $1.4 million, as compared to $39.7 million in the same period last year.
Sales
Lumber revenue of $233.6 million, was 9% lower than the same period last year as the impact of market related curtailments in our Canadian operations more than offset the inclusion of a full quarter of sales from our Columbia Vista division.
Lumber shipment volumes decreased 10% due to weak markets which led to lower production and sales. Despite declining market pricing, our average realized lumber pricing increased 2%, as we increased our specialty product mix and benefited from a weaker Canadian dollar (“CAD”) to United States dollar (“USD”). Specialty lumber represented 57% of second quarter shipments compared to 48% in the same period last year.
Western Red Cedar (“WRC”) lumber shipments declined 8% compared to the same period last year, as poor weather impacted market demand. Japan lumber shipments increased 18%. The addition of Columbia Vista division led to an increase in Douglas fir product sales to Japan which more than offset weakness in sales of British Columbia (“BC”) coastal Hemlock products. Hemlock market share in Japan continues to be challenged by subsidized Japanese domestic species. Niche lumber shipments increased 27% compared to the same period last year through expanded production at our Duke Point sawmill. Commodity lumber shipments declined 26% compared to same period last year as we reduced production due to weaker commodity markets in North America and China. We increased our direct sales of commodity lumber products to China by 31%, which helped mitigate weaker lumber pricing, compared to the same period last year.
Second quarter log revenue was $63.3 million in 2019, an increase of 29% from the same period last year. Log revenue benefited from the resumption of our export log sales program and a stronger domestic log sales mix.
By-product revenue declined $9.8 million compared to the same period last year as a result of lower BC coastal production and a 29% reduction in chip price realizations, due to a steep decline in global softwood pulp pricing. In addition, chip purchase-and-resale volume declined by 69%.
Operations
Lumber production of 206 million board feet was 12% lower than the same period last year. Incremental production from our US-based Columbia Vista division acquisition was more than offset by market related sawmill curtailments in our BC mills during the quarter. We responded to challenging economics resulting from weak commodity markets, high stumpage costs driven by export log prices, and the impacts of US softwood lumber duties by redirecting certain logs to our export log sales program and limiting commodity lumber production.
Second quarter per unit manufacturing costs were 14% higher than the same period last year, due to temporary mill curtailments and mix of operations. Manufacturing costs included $1.7 million arising from temporary mill curtailments, and $0.9 million incurred in the operating ramp-up of our Arlington division.
Log production from our BC coastal operations was 1,250,000 cubic metres, 7% lower than the same period last year. Decreased log production was primarily due to the curtailment of Englewood operations arising from ongoing harvest permitting challenges.
Our BC coastal per unit harvest costs increased by 11% from the same period last year, due to a mix of higher cost operations and increased sorting costs related to the resumption of our export log sales
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