CANFOR REPORTS RESULTS FOR THIRD QUARTER OF 2022

VANCOUVER, BC, Oct. 27, 2022 /CNW/ - Canfor Corporation ("The Company" or "Canfor") (TSX: CFP) today reported its third quarter of 2022 results:

Overview

• Q3 2022 reported operating income of $108.6 million; quarterly sales of $1.7 billion
• Downward pressure on global lumber market fundamentals and pricing following highs earlier in the year
• Reduced Western Canadian operating schedules & European seasonal downtime led to lower shipments
• Strong global pulp fundamentals & improved pulp production following capital-related downtime
• Shareholder net income of $87.4 million, or $0.71 per share

Financial Results

The following table summarizes selected financial information for the Company for the comparative periods:

		Q3		Q2		YTD		Q3		YTD
(millions of Canadian dollars, except per share amounts)		2022		2022		2022		2021		2021
Sales	$	1,666.4	$	2,173.1	$	6,053.4	$	1,676.6	$	6,113.6
Reported operating income before amortization	$	211.5	$	630.3	$	1,672.5	$	425.4	$	2,256.7
Reported operating income	$	108.6	$	531.6	$	1,382.1	$	331.0	$	1,974.9
Adjusted operating income before amortization^1	$	300.0	$	630.8	$	1,760.4	$	425.1	$	2,254.2
Adjusted operating income^1	$	197.1	$	532.1	$	1,470.0	$	330.7	$	1,972.4
Net income^2	$	87.4	$	373.8	$	995.2	$	210.0	$	1,364.7
Net income per share, basic and diluted^2	$	0.71	$	3.02	$	8.05	$	1.68	$	10.91
Adjusted net income^1,2	$	98.5	$	379.7	$	1,007.2	$	209.0	$	1,364.4
Adjusted net income per share, basic and diluted^1,2	$	0.80	$	3.07	$	8.15	$	1.68	$	10.91

¹ Adjusted results referenced throughout this news release are defined as non-IFRS financial measures. For further details, refer to the "Non-IFRS Financial Measures" section of this document.

² Attributable to equity shareholders of the Company.

For the third quarter of 2022, the Company reported operating income of $108.6 million, down $423.0 million from the operating income of $531.6 million reported for the second quarter of 2022, largely reflecting a decline in lumber segment earnings, slightly offset by improved pulp and paper segment results.

Results in the current quarter include an $88.5 million net inventory write-down, principally driven by the lumber segment, as well as a net duty recovery of $97.6 million (US$73.0 million) resulting from the finalization of countervailing ("CVD") and anti-dumping duty ("ADD") rates applicable to the third period of review ("POR3").

Commenting on the Company's third quarter results, Canfor's President and Chief Executive Officer, Don Kayne, said, "As global lumber market conditions continued to soften from the highs earlier in the year, our lumber business delivered solid results in the quarter, largely reflecting the benefit of our global diversification strategy. However, the steep declines in global lumber pricing, combined with high log costs in British Columbia ("BC"), led to the difficult decision to extend reduced operating schedules at our Western Canadian sawmills. For our pulp business, our focus on enhancing operational performance and improving reliability while managing persistent supply chain and fibre-related challenges allowed us to realize high Northern Bleached Softwood Kraft ("NBSK") pulp list prices and recognize improved results in the quarter. While we continue to monitor the current external challenges facing our lumber and pulp businesses, including the fibre situation in BC, we greatly appreciate our employees' continued efforts in navigating through these difficult conditions."

Reported results in the lumber segment decreased $450.5 million quarter-over-quarter principally reflecting significant Western Spruce/Pine/Fire ("SPF") and Southern Yellow Pine ("SYP") US-dollar benchmark pricing declines in the current period, with the average North American Random Lengths Western SPF 2x4 2&Btr price down US$286 per Mfbm, or 33%, and the average SYP East 2x6 #2 down US$97 per Mfbm, or 17%, and notably lower market pricing in Europe. This downward pricing pressure was coupled with market-related increases in BC log costs as well as substantially lower production and shipment volumes at the Company's Western Canadian and European lumber operations, which contributed to a considerable uplift in unit manufacturing costs.

In Western Canada, despite an improvement in transportation networks through the current period, reduced operating schedules across the Company's BC sawmills, which commenced in the second quarter, continued well into the third quarter. In addition, as the third quarter progressed, declining lumber prices and high log costs led to market-driven curtailments at most of the Company's BC sawmills late September. Combined, these capacity reductions reduced production by approximately 200 million board feet during the period. For the Company's European operations, reduced production in the current quarter was attributable to regular summer downtime.

North American market fundamentals continued to trend downwards throughout much of the current quarter, as rising interest rates alongside high levels of inflation weighed on housing affordability and led to an 11% decrease in US new home construction activity during the period, particularly for single-family units. Despite general economic uncertainty and declines in US housing starts, demand in the North American repair and remodeling sector remained strong throughout the quarter supported by lower-cost building materials and an aged housing stock.

Offshore lumber demand and prices in Asia showed continued weakness in the third quarter of 2022. In Japan and Korea, reduced consumption was coupled with increased inventory levels in those regions. In China, a slight pick-up in activity was outweighed by the impacts of a severe summer heatwave which caused factory closures and lowered lumber consumption. In Western Europe and Scandinavia, lumber demand and pricing declined sharply as weakness in the "do-it-yourself" sector late in the previous quarter persisted through the current period as inflationary cost pressures and high energy costs reduced consumer spending.

Results in the pulp and paper segment largely reflected materially higher NBSK pulp unit sales realizations, and to a lesser extent, a 2 cent, or 2% weaker Canadian dollar.

Following the completion of capital-related downtime in the first half of 2022, pulp production was up 4% from the previous quarter, as NBSK pulp productivity steadily improved as the quarter progressed. Consistent with the prior period, however, NBSK pulp production in the current quarter continued to be limited to available transportation. Concurrently, logistics-related downtime at Canfor Pulp Product Inc.'s ("CPPI") Taylor Bleached Chemi-Thermo Mechanical Pulp ("BCTMP") mill ("Taylor"), which commenced in the first quarter of 2022 and continued throughout the second and third quarters, reduced production by approximately 60,000 tonnes in the current period. In addition, NBSK pulp production in the current quarter included the completion in mid-July of CPPI's Northwood NBSK pulp mill's ("Northwood") scheduled maintenance outage (approximately 16,000 tonnes) as well as the commencement in September of CPPI's Intercontinental NBSK pulp mill's ("Intercon") planned maintenance downtime (approximately 6,000 tonnes in the third quarter and a further 6,000 tonnes in October).

Looking ahead, global lumber market fundamentals are anticipated to face significant downward pressure through the balance of 2022. Decreasing housing affordability, tied to persistent inflation and interest rates, is projected to continue to reduce new home construction activity in North America while the repair and remodeling sector is forecast to experience some softness in the fourth quarter, albeit to a lesser extent, driven principally by seasonal impacts. Offshore lumber demand in Asia is estimated to see ongoing weakness as high inventories in the region persist through the balance of the year. European lumber pricing is anticipated to continue to weaken through the fourth quarter, largely driven by subdued activity in the repair and remodeling segment in that region.

As a result of the challenging market conditions, results in the fourth quarter are forecast to reflect the continuation of reduced operating schedules across the Company's Western Canadian sawmills, as well as some reduced shifts at the Company's European operations, which, in the case of Europe, may be less than originally anticipated. The Company will continue to closely monitor the external challenges impacting the business, including global lumber market conditions, supply chain networks, as well as the availability of economically viable fibre in BC, and will adjust operating rates accordingly through the balance of 2022.

Looking forward, global softwood pulp markets are projected to soften somewhat through the fourth quarter of 2022, reflecting tempered pulp demand, particularly from China.

Results in the fourth quarter are also anticipated to reflect the continued uncertainties associated with lingering supply chain challenges and the related pressures on CPPI's operations and shipments. As previously disclosed, it is projected that a restart of Taylor will not be contemplated until such time as there is a return to more normal transportation service levels to all of CPPI's pulp and paper mills. 

CPPI's results in the fourth quarter of 2022 will see the continuation of Intercon's scheduled maintenance outage into October, with an estimated 6,000 tonnes of reduced NBSK pulp production. In addition, NBSK pulp production in the fourth quarter will reflect a temporary curtailment at Intercon due to a lack of available economic fibre (approximately 16,000 tonnes). The current weakness in lumber markets may result in extended sawmill curtailments in the BC Interior, with the risk that lower volumes of sawmill residual chips available to pulp mills may cause further downtime at CPPI's operations. CPPI will continue to closely monitor the supply chain challenges as well as the availability of economically viable chip supply, and will adjust future operating plans accordingly, through the balance of 2022.

Additional Information and Conference Call 

A conference call to discuss the third quarter's financial and operating results will be held on Friday, October 28, 2022 at 8:00 AM Pacific time. To participate in the call, in North America please dial Toll-Free 1-888-390-0546. For instant replay access until November 11, 2022, please dial 1-888-390-0541 and enter participant pass code 601480#. The conference call will be webcast live and will be available at www.canfor.com. This news release, the attached financial statements and a presentation used during the conference call can be accessed via the Company's website at http://www.canfor.com/investor-relations/webcasts.

Non-IFRS Financial Measures

Throughout this press release, reference is made to certain non-IFRS financial measures which are used to evaluate the Company's performance but are not generally accepted under IFRS and may not be directly comparable with similarly titled measures used by other companies. The following table provides a reconciliation of these non-IFRS financial measures to figures reported in the Company's condensed consolidated interim financial statements:

(millions of Canadian dollars)						Q3		Q2		YTD		Q3		YTD
						2022		2022		2022		2021		2021
Reported operating income					$	108.6	$	531.6	$	1,382.1	$	331.0	$	1,974.9
Inventory write-down, net					$	88.5	$	0.5	$	87.9	$	3.5	$	1.3
Restructuring, mill closure and other items, net					$	-	$	-	$	-	$	(3.8)	$	(3.8)
Adjusted operating income					$	197.1	$	532.1	$	1,470.0	$	330.7	$	1,972.4
Amortization					$	102.9	$	98.7	$	290.4	$	94.4	$	281.8
Adjusted operating income before amortization					$	300.0	$	630.8	$	1,760.4	$	425.1	$	2,254.2

After-tax impact, net of non-controlling interests				Q3			Q2			YTD		Q3					YTD
(millions of Canadian dollars)		2022					2022			2022		2021					2021
Net income	$		87.4		$	373.8		$	995.2		$		210.0		$		1,364.7
Foreign exchange (gain) loss on term debt	$		10.6		$	4.9		$	12.5		$		2.6		$		(5.7)
(Gain) loss on derivative financial instruments	$		0.5		$	1.0		$	(0.5)		$		(0.8)		$		8.2
Restructuring, mill closure and other items, net	$		-		$	-		$	-		$		(2.8)		$		(2.8)
Adjusted net income^3	$		98.5		$	379.7		$	1,007.2		$		209.0		$		1,364.4

³ Attributable to equity shareholders of the Company.

 

Forward Looking Statements

Certain statements in this press release constitute "forward-looking statements" which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. Words such as "expects", "anticipates", "projects", "intends", "plans", "will", "believes", "seeks", "estimates", "should", "may", "could", and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are based on management's current expectations and beliefs and actual events or results may differ materially. There are many factors that could cause such actual events or results expressed or implied by such forward-looking statements to differ materially from any future results expressed or implied by such statements. Forward-looking statements are based on current expectations and Canfor assumes no obligation to update such information to reflect later events or developments, except as required by law.

Canfor is a leading integrated forest products company based in Vancouver, BC with interests in BC, Alberta, North and South Carolina, Alabama, Georgia, Mississippi, Arkansas and Louisiana, as well as in Sweden with its majority acquisition of the Vida Group. Canfor produces primarily softwood lumber and also owns a 54.8% interest in CPPI, which is one of the largest global producers of market Northern Bleached Softwood Kraft Pulp and a leading producer of high performance kraft paper. Canfor shares are traded on The Toronto Stock Exchange under the symbol CFP. For more information visit canfor.com.

SOURCE Canfor Corporation

Media Contact: Michelle Ward, VP, Corporate Communications, [phone], [email protected]; Investor Contacts: Pat Elliott, CFO and SVP, Sustainability, [phone], [email protected]; Dan Barwin, Director, Corporate Finance, [phone], [email protected]