Q4 2019 Earnings Call
Good day, everyone and welcome to Norbord Inc.'s fourth quarter, and you're an earnings conference call. As a reminder, today's call is being recorded webcast Norbords website at www Dot Norbord Dot com Norbords discussion today may include certain projections and forward looking statements regarding norbords business.
Future actions and expected results. These statements are subject to known and unknown risks and future results may differ materially.
For further information on known risks. Please see the caution regarding forward looking information statement and Norbords February 4th 20, <unk> annual information form and the cautionary statement contained in the fourth looking statements section of Norbords management's discussion.
This is dated February 4th 2020, and now I'll turn the call over to Peter Weinberger, President and Chief Executive Officer. Please go ahead Sir.
Thank you Brian Good morning, everyone walk them through our Q4 and you're around 29 team conference call.
I'm joined today by Robin line partnership all.
Other corporate chart director of corporate Affairs, Robert when slow, our Vice President Investor Relations or corporate development.
This morning, I'll comment briefly on 29 trained on the markets.
Robin will review the financials before we're sure our outlook for 220 and take your questions.
29 trend was a challenge in Europe for Norbord.
Our financial results were disappointing gosh, you as housing activity like prior year levels.
True most of your.
Only turning positive in November.
And the slowdown was reflected in lower North American Olean free them out.
Further the slower and industrial sector in Germany put downward pressure on the very hard panel prices for your feet on drawings and our European markets.
In Q4, we delivered adjusted EBITDA was 27 garden bar, so not addressed with lost shelf working both 13 cents for sure.
Leaving full year results.
Hello.
No I am.
I'm not 37 cents loss per share respectively.
In North America read through <unk> decisive action during the year.
To align our production work with weaker housing related demand.
Definitely curtailing or 100 miles speech female.
Line won at our Georgia for core deal, Georgia Mill.
Well I'm attitude of maintenance work, we typically schedule across our mills during the slower winter months.
This resulted in 222 mill days of downtime in Q4.
Which represents almost 20% so far available production data.
It was compressed.
70 mill days of downtime in Q3.
I'm not 31 days in Q4 22.
I want to flush side.
The consolidation of downtime allowed us to more efficiently allocate production volumes up to your progress.
Resulting in record I know production, that's true mills and lower units manufacturing cost.
Our European business, another solid year youve enough power prices weakened.
The underwriting adjusted EBITDA up 64 million bars about because people are trying to ballpark 15, your average representing the third best ever year for this segment of our business.
Our experience is that there isn't much stronger link 16 crisis and costs in Europe.
The fractional shoveling rolled over from the peak, we expect I would cross to follow suit.
And I've already seen some improvement during Q4.
Yeah, I've also seen in the past that lower overseas crush on Europe drive foster substitution against important fly with.
We are in the early innings shut off ramping up production on ARX found that they went up Scotland mill.
I've enough somebody that's for your pipeline of growth ahead of us to meet increase customer.
I'll talk about our outlook in a moment put first.
Robin for work for you for some financial covenants.
Thanks, Peter This morning, I'll provide some quick and just some color on our Q4 North American segment results.
Well listen guidance on a few items I know you're looking to up 23 models.
I'm seeing our result was below the consensus that's corridor.
Peter already highlighted you could tell significant production volume in Q4.
Fine with the six Youre, hoping this resulted in 17% lower year over year shipping volume in North America.
Im sorry, 29 seems difficult quarter reset is now behind us we won't have to talk about fiscal they found different so for the next several years.
Looking forward to 2020 other line or at least typically had significant seasonal catch up in Q1 50 or some of the cash outflow from our usual seasonal work.
Ill ongoing capex investments and the $12 million dividend. The board just declared will be offset by a significant tax refund in New York seconds before so I would point you feel sachs's receivable number on our balance sheet at year end.
In terms of 2020 Capex all comes on the guidance the days last quarter.
Her dockside sub $100 million.
This will be allocated across I know, but normal maintenance work as well lets you know just satisfaction cost and then surely some continues to support so far sessions on itself.
Its budget includes the completion of that and we're not saying two investments.
Let's see thinking investments that are chambord, 'cause that's mountain separation flooring events that inside.
How about you made a restart segments onboard and we will only be so when it is professional fair that's customizable firewall thought.
We continued to take a balanced approach to capital allocation 29 thing.
We invested more than $140 million in or no.
Returned $130 million attached to our shareholders through a combination of dividends and share buyback, including $5 million during Q4 under our one year normal course issuer bid.
As of today, we have 3.8 million shares remain room under CRB.
We will continue to look for opportunities to buy back softened the prices significantly below ours.
Italian.
Our balance sheet remains solid at some head into 2020.
You'll recall that last summer you termed out our 2020 senior secured notes to 2027 and Upsized principal by $110 million seems seems high liquidity.
You finished 29, saying a few hundred 72 million up a Saturday and that's the SAP ratio of 40%, it's the name well below our revolver covenant.
We remain committed to returning excess cash to shareholders and our variable dividend policy gives us the flexibility certainly balanced capital allocation decision.
Inherent cyclicality of our business.
As you know a thing I board maintain the variable dividend and 20 cents per share for the quarter payable on March 20, Sir.
And with that succeed.
Thank you Roland.
So looking ahead I.
Underlying U.S. Holden.
From a muscles are encouraging.
You as housing starts continue to improve for exports current forecast.
Averaging 1.33 million starts the fun it's funny.
Represents a throughput something increase over time actually.
Further.
The seasonally adjusted annual Crazy so pretty much.
But more forward looking indicator.
Well, it's up nearly 6% year over year, one important 14 million seemed to show.
Builders have seen early successes that thing, they're all French [laughter] growing demand for lower cost entry level homes [noise].
Mortgage interest rates for nine year multiyear lows.
These factors.
ARX <unk>.
Also definitely impacts.
Housing activity and old Freedom Bob.
Should we answered the farm spring building truth.
And as of yesterday.
Lunch regional flashes her up between seven and thinking for shots for work for average level.
Yep.
Upside potential in I'm, Susan Collins markup.
I'm increasingly encouraged partly also.
Outside of new home construction.
She continued solid growth in older or see untrue shows.
Big box for him to remain strong.
And we continue to focus on our official Wells Fargo for Walter.
In Europe.
Donald questions as far as.
Europe, a fault I worked results.
<unk> costs should start to all shop climbing fell far so field ramps up well continue to wrap up.
Fair enough for me is flowing over [laughter].
Combined with our solid balance sheet on liquidity.
[noise] Norbords is well positioned for Europe.
With us well move onto a question I'm sure I'll turn things back from the operator, we'll open up their launch.
Thank you if you'd like to ask wash them see signal by pressing star one on your telephone keypad, if you're using the speakerphone. Please make sure. Your mute function is turned off to a lot of your signal the retry equipment again press star one to ask a question well pause for just a much hello, everyone and opportunity to signal for questions.
[laughter].
Well take our first question from John Babchuk with Bank of America [laughter].
Morning.
I guess I just wanted to start out and you mentioned that there were 222 mill down days during the quarter or you could you give us a sense as to whether that was any more weighted towards the front or back half of the core.
Oh good morning, John.
No I mean, we for I mean, I'm, sorry, I'm here I was going to say, though the one thing that we've been it's obvious is that we closed down corneal line one halfway through the quarter. So obviously that list.
The weighted into the back half of the floor.
And then typically our maintenance I couldn't be more weighted towards the end of the player.
Oh.
And also.
Thanks for that and then also you know with regards to always be prices I was worried could kind of provide you know your own commentary on what's driving prices lately. If this is kind of more demand driven or if you're also seeing.
You know kind of tightness on the supply side I mean generally wanted to get your views on it.
Yeah, well I mean, obviously, it's difficult for me to comments on the supply side, it's all done lot wrong operations.
Bob.
There will be a talk foster over about the fact that live stream continued very low inventory levels throughout the show some really for most of last year.
So I thought the remains unchanged.
No I think building conditions have been very favorable because we haven't had a lot of bad weather compared to previous years, something so far this year.
Or even into the fall.
And Oh, showing that combines with I think very strong outlook for housing that's not that's enough.
Pretty good.
On the show where should have shaving that's your fixed through their supply chain.
Thank you and then what drives to a Europe here quickly yeah, I mean, it looks like shipments were down a fair bit during the quarter or maybe maybe I missed this from your commentary, but you know was that primarily demand driven or were there any issues that that Inverness, which I know you had talked a little bit about last quarter.
You know what can you kind of add to that.
Farmington in Europe, we have a little bit the same thing that you know we do here you know we tried to self load and some downtime I think that's your rounds.
Typically all show you know a lot of our.
European customers check that sort of fear around Christmas new year Shaw.
That's sort of a much more baked in I think couldn't you have done a fish typically in North America charters, all that sort of a slow fewer at for about a couple of weeks terawatts the around.
Beyond that I wouldn't read too much awesome towards longer if I would also just lost so about the typical day count that friends. So I'm sick fewer days in Q4 hundred 19 versus Fourq financing.
Filled out about.
Hi, there.
Okay.
You've seen any signs of a pricing turning the corner in Europe.
Well.
Early going it and that sort of price adjustments, but no doubt really sort of started I think they started not should end up.
Three of loss last year.
So far we're we're pleased with it should have the demand up ticks up there were shooting.
You know over true typically which could affect effects or you know after Christmas break.
I'm sure I'm current outlook at the moment.
Thank you.
It sounds like true.
I got press Star one to ask a question did you find your question has been answered you may remember yourself from the Q by pressing star too.
Well take our next question from Paul Quinn with RBC capital markets. Please go ahead.
Yeah, Thanks, very much good morning, guys.
All right Paul I thought it started in Europe. Your Ah Peter you mentioned that the ramp in Inverness is going to be four years, which specific markets are you targeting what that extra volume.
And then the lumber guys are all talking about the European spark beetle and the impacts there just wondering if that.
Lowered cost for some of your European competitors in that and that might be a little bit of a headwind for us for data troubling from Inverness.
Hi, Good question, Yeah. So first of all our I think you know if that's your friendship over the past no more than 70% of our European shales are focused Sunday UK.
No. That's it's also the case, Florida FFO across the additional volumes up we expect to produce from are able to Nashville.
It's a shame times I've noticed now capable of supporting Uh huh.
You know that are growing demands on the continent in our in our typical continental markets.
I I would say that.
You know for sure there's definitely been pressure in the middle Eastern Europe dealt with this cross a there's pine beetle thing out off and you're still here.
Yep.
Okay, sorry, <unk> electronic nurse.
And you know what we have seen so far is you know harvest levels in central Europe that are more than double what they typically are as people try to cropped up.
At September but for this destroyed.
I'm trying to see you know what I've touched by them in Fracs on cost I'll start with San availability, no plenty of availability and that probably house left or some downward price price movements in industry. That's a couple contributor to that downward price movement. There are proceeding on the continent.
For our products.
Here over the last six months.
Sure the flip side I know you know certainly [noise].
We're not in the middle of Oh sub markets.
We are no we are sort of under fringe with our with our Belgium Mill for example in drunk I'm sure all right up to see I would caution, though you know trending down there as well.
You know the flip side is that Oh, that's got harvest volumes others for their show significant so clearly decline within probably about a year.
I'm sure all over the long term.
Or longer term.
Right.
There will be a significant constraint on books for Florida Central Europe.
That will help the opposite effect.
So it sounds like a minor headwind in the short term, but a very favorable in the medium to long term.
Yeah, that's certainly I'm thinking about as right now.
Okay, and then on your Capex plans, you mentioned a investments to support production of specialty products in export just wondering if you're going to help us understand what some of those investments would include.
Yeah, I remember you have talked recently or the last year, we've talked about investments in our finishing challenge.
No or Trump particular, one thing I mentioned stuff.
Last quarter, the long before let's say a state of the arts.
Finding lined up maybe there's something that's in our Alabama mill, that's shut those kind of investments I feel continue to focus on fast free or grow into that.
For better understanding of what's industrial customers who require.
And no its shape, which opens up a new revenue of.
Potential shales.
For people, who are looking at very tightly control sickness variance.
Well I was much better surface qualified.
Okay. They just lastly, just on repair remodel shipments were up 19% year over year, just what's driving that strain.
Well, it's very interesting question right because you know I think overall home depot and lows garden off shoring dramatic Ah Ah.
Dramatic.
Total sales increases show certainly enough 19%.
Hey, you know we are always aware that there is some price sensitivity at the retail level.
Ah show always be fracture, that's you know last year, where particularly low.
As a result, you know there's probably some extra volume that got sold because you know over the years, probably bus problem or the low fives panels in the store.
But even if I compare our sales last year at a 27 team, we're still seeing significant growth, there, probably not quite 19%, but more like or slightly over 10%.
And that comparison.
You know one I think your old particular home depot or seems very focus on.
Growing.
Growing there.
There are a total volume shales in our or something or a with related or building materials related products as they try to penetrate more strongly.
With the larger renovating retailer.
Alright, thanks for that.
Yeah, sorry pardon.
Renovating.
Contractor enough we've had.
Right Okay.
There is like.
That's all.
Well take our next question from Jon Stewart with TD Securities. Please go ahead.
Thanks, Good morning, everyone.
Uh huh.
A couple of questions.
It feels like North American or U.S. demand in particular is [noise].
He is picking up a more quickly now.
And question with respect to capacity management decisions in the past you you reference capacity additions and you're thinking around that are more closely tied to.
I guess underlying demand trends and then it must be prices any updated context on what type of demand backdrop, you would need to see to restart.
Chambord and and I guess potentially line one at core deal as well and and thoughts on sequencing of those potential restarts.
Yeah. Thank you Sean.
I'm glad that we're actually able to talk about.
This challenge now rather than the other way ramp up.
We've typically talk about BTIG your six months lead times are starting to occur chills mill.
That's the remains the case for both Chambord I'm hundred mile House.
So it's really the 2021 demand outlook stuff, we're looking at.
It makes that decision.
Yeah, we could be more nimble with the Georgia aligned one operation because you know like to wish to fully operational and the sentiment team as a result is still in place.
Sure I appreciate the man sustained above expectations this year.
The other show.
More short term option.
However.
Late the labor markets in the U.S. shelf remains very tight.
Every node at all or at least most off the 50 plus on for use rats are laid off have fallen thought are important.
Okay.
Thanks for that detail.
Question on input prices you you gave some context in Europe, but in the quarter. It looks like input prices were a modest headwind both year over year end quarter over quarter any detail you can give us but with respect to cost trends in North America early in 2020.
Yeah, I mean, it's only been next week, so far Sean but.
It's easy [laughter] last year in the parents sales in the ending Yang from fee, then or something small on the input price fun.
I thought that consolidated so we really haven't seen a lot of movement, one way or another in the book.
And then in anything Sinclair so.
I guess your guess finish line going forward Thats, a really hasn't been much faster.
But I would that North America, you know, we've we've really on wood costs, our most important input price no real tough for years now about the fact that stuff clashes Ondeck fund in the aggregate Aggrastat have remained fairly easily.
You know, though we will continue to see you know fluctuations here and there I I don't really want at the moment on average for a significant change there.
Resin prices.
Just sort of our second most important cost input.
You'll have seen fairly flat.
No there isn't directly driven by.
Hi, yes oil prices through.
On June nothing in particular.
[laughter] Bungie price, which has been fairly.
There are relatively weak so there's no forecast of any significance moved there are they're the ones.
The one thing to look for as long term the in fact off.
What happened judgment was old stuff.
This total quarantining for lack of about a description of what's happening in China.
You know as a result of this virus.
You know obviously, none of our suppliers come from there, but there's another service has traditionally been a significant short list than that.
So rather than on the old shut the photo products.
Maybe will slow down diary temporarily anyways.
Your initial occur.
That's a that's useful context, thanks very much.
[noise] well take our next question from Mark Weintraub with Seaport. Please go ahead.
Thank you and I apologize I missed the first couple of minutes, but the you mentioned the fewer fiscal day. So I'd just trying to incentive shipments were down.
17% is get can you attribute 6% of that too just you were school days in Philadelphia, where apples to apples basis. It would be down 11 or is that not outside the right way Yep Yep, that's exactly the right I think landmark.
Oh, Okay. Good income presumably production also on an apples to apples basis was down some more on the order up 11% for you.
Ah, Yes, that's why I on the number absolutely end of it yes, they always have almost exactly in lockstep.
Okay and you referenced in your in your commentary.
That.
<unk>.
Pointing to an 83% operating rate.
For a let's be during 2019 do you happen to know, it's though if the capacity number use there is adjusted for the closure or is that.
Place towards the end of the year.
Yeah, So that would have taken all mills that started out with the you're running.
As the denominator.
And taking the things before action volume over that denominator.
Okay very good so you can get bigger capacity number effectively yeah, that's right basically everything except some more.
Either way to think about that.
Okay, Great and then its been notable in the last couple of weeks that western delivered prices in particular have really been moving and I think that there have also been some changes in in that they go to market strategies in western markets delivered market.
Can you maybe help us a little bit Oh, I understand what.
What might be happening in those markets specifically.
Yeah, that's a good technical question.
Mark show.
Yeah, So mentioned I think in the fast in past conversations stuff.
We have been concerned about the relationship between these restaurants deliberate crunch numbers.
Random lengths reported numbers.
A versus b either.
Southwest or western Canadian.
Mill levels, including Frank.
Revolvers.
Research.
I'm concerned around you know that there should there there seems to be a very significant their friends at least away.
So what we experienced in terms afraid rights plus our flush or.
Or supplying mill.
You know.
No not.
And show you know rehab.
Indicated through our customers out there.
This is not sustainable we don't shoot out that's sustainable.
And Oh, you know, we need to find different whereas.
To come through a supplier arrangement.
For that part of the markets.
And I I don't know of course, how does this interpreted or how random lengths sports and that's that's kinda stuff.
Good.
Certainly the movement, that's me something a short term basis would suggest.
You know maybe to the market is more closely with things like me she has to reality.
For our shift much introductory.
And in order of magnitude what percentage of your product would fall under kind of get delivered western market.
Oh, I don't know for sure.
So I accept or get back through about stuff, but bad shape, you know principle that market, we supply out of our Alberta mills, although that out of our southwest Mills.
Right right, that's exactly how much off the total I don't know fab.
And then lastly, just trying to understand a little bit more on the European spruce.
My understanding is that <unk> that you know what's be doesn't take share during these.
These types of environments and presumably from plywood tickets first question is whether or not is that European spruce usable for their manufacture of plywood.
You're having bought or it's not very strict there's not a significant there I mean.
Plywood industry domestic plywood industry at least on the continent.
Using software.
Oh, I think see entre there I can say fairly safe to say there if not.
So and the Vic Challenge is no doubt wood.
Needs to be come true and a reasonably fast timeframe. There. So there's the ability to store some of it in.
Lakes, and Oh behind Hydro dams.
Plus others fairly limited so.
So you know the expectation this RVR expectation is.
Oh operations that's come come soon this would they're running has hurt us I found the right now to confuse them as much as possible. There's some volumes on the same store what they're real probably also be a significant volume, but will never be musical from a commercial for success.
And I'm like that gets right to the heart of questions are basically though we are all these mills already running full out that that could be using the Europeans Bruce.
Your knowledge and LSB.
I want to always be side, especially as we can tell which you know like we have even less information in Europe every half over here in terms of what our competitors do with her operations for us as best we can tell from Columbia available shifting of information snowmelt mills are running flat out.
Doctors or other places, where bruce can be or work is being consumed a lot of others pulp mills are close or.
Wood pellets for you know for it for heat energy or these are all industries, if and also come true.
Some of the short term.
And I would assume that all of them are during their very best to try to.
Tried through a to deal with this with this crisis.
Okay Super Thanks, very much.
Thanks Mark.
Once again, if you'd like to ask your question. Please signal by pressing star one well take our next question from Andrew Kuske <unk> with Credit Suisse. Please go ahead.
Thank you good morning, I'd, maybe just continuing on the European trend and the fiber pricing pressure that's happening there.
You know clearly that has their own number of knock on effects.
But do you see this effectively being a positive where maybe for the next year or two it affects every stimulates.
Greater use of LSB and it becomes more of a permanent stable in the ecosystem and then longer term that you see that is being much more beneficial for you.
So I'm wondering on her Dutch at least historically, the others seem to trends.
Show a frito as your are for whatever reason and superior though.
Price relative price weakness, we see just rushing substitution accelerate.
And that mostly it remains there.
Let's see if she might lose forever, either or managed care afterwards for lunch people are covered and over two or three had a shorter domestic supply chain rather than having to rely on import of stuff from Asia or South America North America.
No they don't come for at fast.
Good thinking and sticking with with Europe, or I guess from or Brexit standpoint.
For the next I guess is 10 or 11 months, it's really status quo.
And then.
Are you exposed to new agreements at that point of that and maybe just some color and background or backdrop that your face.
On a go forward basis for you for your mills in the UK.
Yeah, that's a good freshman thanks to show.
There's obviously many facets stirred up question, but that's just focusing on the wrong operations.
First 70% of our shales remain in the UK.
And most of our non UK shows our supply fire mill in Belgium.
<unk> rituals remain in the European Bunions at least for sure.
Yeah, well show, Dan Yoder Shaw, obviously, some volume out of Inverness, that's a moves overseas.
We don't expect that to be significantly hindered going forward.
And Youre done, there's a secondary and stuff.
What happens in the UK is a significant net importer food products, including panels.
From primarily the European Union.
And show what happens throughout the competitors are pressured us we've got those products go show party impact of Brexit has been.
You know.
10% to 20% flow of pound versus the euro which is probably the.
Gordon factory and that's competitive position, we have not changed up to the change significantly not affects other because official.
No time will tell what are you know over time as Craig.
Relationship you'll find their new Robert you brought it up a little change, but that's probably for us.
I feel in the near term, we don't see a significant change that.
Okay. That's very helpful. And then one final question. If I mean is really to Robyn and it's just on the share buyback.
How do you think about intrinsic value of the shares when you're making a buyback decisions versus say the levels of variable dividend.
Okay, well I mean, so in terms of thinking about the attracting Michael share buybacks I mean, we're obviously looking at.
Our expectations and attached on if it doesn't generate having a long term line that's kinda basis.
But I guess simple thing to do it financing activity. We've found on their influence the I mean I so far.
And under though is we were buying back at arrangements call. It you know Canadian dollar terms hearing screening is there anything $7 staff.
So that I would just.
Sorry.
And.
In terms of the variable dividend versus buying back stock and we know that those stations to point to what we did and funny thing playing 19.
You know one.
I mean, you're becoming significant cash the that variable dividend in 2018, when our stock price is trading at its different things high.
No I didn't make sense, that's the buyback stock then.
But when the stock correctly in response to sedan I found building and that's when we became a much more aggressive and any insight and so that I think.
I was thinking that that was that.
The allocation of capital between those two options for accounting cash for Sally.
Okay very good thank you.
Thanks Hunter.
It appears there no further questions Mr. Weinberg and I'd like to turn the conference back to you for any additional or closing remarks.
Thanks, Bryce I.
So let us rather than other.
Robert and I are available to respond to further questions.
Thank you all for participating today and I look forward to reporting on our continued progress next quarter.
Hi, good too.
The.
Today's call. Thank you for your participation you may now disconnect.
[noise].