Q3 2024 Western Forest Products Inc Earnings Call

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Speaker Change: Once again, please continue to stand by. We thank you for your patience. Nous vous remercions de bien vouloir patienter. La conférence débutera sous peu. Nous vous prions de bien vouloir attendre quelques instants et nous vous remercions.

This conference is being recorded.

Speaker Change: All participants, please stand by. Your conference is ready to begin.

Speaker Change: Good morning, ladies and gentlemen. Welcome to Western Forest Products third quarter 2024 results conference call

Speaker Change: During this conference call, Western's representatives may make forward-looking statements within the meaning of applicable security laws.

These statements can be identified by words like anticipate, plan, estimate, will, and other references to future periods.

Speaker Change: There are many factors that could cause actual outcomes to be different.

Speaker Change: including those factors described under risk and uncertainties and the company's annual MDNA, which can be accessed on SEDAR and is supplemented by the company's quarterly MDNA.

Forward-looking statements are based only on information currently available to Western and Speak Only as of the date on which they are made.

Speaker Change: Accordingly, listeners should exercise caution in relying upon forward-looking statements. I would now like to turn the meeting over to Mr. Stephen Hoffer, President and CEO of Western Forest Products. Mr. Hoffer, please go ahead.

Stephen Hoffer: Thank You LaTanya and good morning everyone. I'd like to welcome you to Western Forest Products 2024 third quarter conference call.

Stephen Hoffer: Joining me on the call today is Glenn Nontell, our Chief Financial Officer, and Bruce Alexander, our Senior Vice President of Sales, Marketing, and Manufacturing.

Stephen Hoffer: We issued our 2024 third quarter results yesterday. I will provide you with some introductory comments and ask Glenn to take you through our financial results.

Stephen Hoffer: I'll then follow Glenn's review with our Outlook section before we open the call to your questions.

Stephen Hoffer: Earlier this year all members of the Western team were invited to share their thoughts on the company's values.

Stephen Hoffer: With this feedback, Western has recently introduced three evolved value statements which are One, build a better world. We invest in safety, people, stewardship, and community. Number two, be entrepreneurial.

We generate human ecological and customer value and three lead by example

Stephen Hoffer: We grow and adapt, operate with integrity, and are accountable for our actions.

Stephen Hoffer: We are very excited to have these new value statements guide our future success.

Stephen Hoffer: Turning to our third quarter, we continue to face softer market conditions in the third quarter of 2024.

Stephen Hoffer: Despite this, we remain focused on executing on our strategic priorities to position the business for success.

Stephen Hoffer: In the quarter, this included our sales and marketing team continue to focus on our customers and growth across key strategic accounts. This included over 20 customer groups visiting our facilities this quarter.

Speaker Change: I apologize for the interruption. We appear to be having a technical difficulty. Please stand by.

Speaker Change: The conference will begin shortly. We kindly ask that you wait a few moments and we thank you for your patience.

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Speaker Change: Thank you all for waiting. Mr. Thiel, you may go ahead.

Speaker Change: Go ahead, Glenn. Thanks, Stephen. Third quarter of JETC Vida was negative $10.7 million, as compared to negative $11.6 million in the same period last year.

Speaker Change: Results in the third quarter benefited from higher log and lumber shipments, which were partially offset by a weaker log and lumber sales mix, higher stumps expense, and increased softwood lumber duty rates.

Speaker Change: During the third quarter, the U.S. Department of Commerce released its final determination for countervailing and anti-dumping rates resulting from its fifth administrative review.

Speaker Change: As a result of this review, combined softwood lumber duty rates were increased from approximately 8% to 14.4%.

Speaker Change: This new rate will remain in effect until the finalization of the 6th Administrative Review, which is anticipated in the second half of 2025. We close the third quarter with approximately 71 million board feet of lumber inventory and 793,000 cubic meters of log inventory.

Speaker Change: Turning to CapEx and cash flow, our 2024 total CapEx spending is expected to be approximately $35 million.

Speaker Change: From a balance sheet perspective, we ended the third quarter with liquidity of approximately $137 million and a net debt-to-cap ratio of 13%.

Turning to fourth quarter seasonality.

Speaker Change: Typically in fourth quarters, lumber consumption declines in North America as construction slows with the onset of winter.

Speaker Change: In our timberlands, harvest volumes decline as we lose daylight operating hours. In addition, winter weather can negatively impact operations and further limit production.

Speaker Change: As previously announced, we expect to take approximately 30 million bore feet of lumber production curtailments in the fourth quarter. We will continue to manage our manufacturing operating schedules to match production to market demand and log supply. Stephen, that concludes my remarks.

Stephen Hoffer: Thanks Glenn and apologize for the interruption there we lost connectivity.

Speaker Change: Turning to our market outlook, cedar demand and prices for timber and products are expected to remain stable as buyers begin to build inventories for the spring season, while demand for decking products has started to seasonally slow.

Speaker Change: Repair and renovation spending is expected to improve gradually in 2025 but to remain below peak levels experienced over the over the last few years.

Speaker Change: In Japan, continued weakness in wooden home starts, well-stocked inventories, and a weaker Japan yen to U.S. dollar exchange rates are anticipated to impact lumber demand and prices in Japan into the first half of 2025.

Speaker Change: For industrial lumber products, current improved demand and pricing is expected to continue through the first quarter of 2025.

Speaker Change: For commodity lumber, North American demand and prices are expected to remain flat with some fluctuations depending on product line.

Speaker Change: In China, despite the weaker housing market, lumber prices have slightly improved on lower channel inventory levels and we expect some modest pricing increases through the end of the year.

Speaker Change: Overall we currently have a fourth quarter order file of approximately 120 million board feet.

Turning to the recent BC election.

Speaker Change: In October, we had a B.C. provincial election which yielded a very close result. The B.C. NDP returned to power, but with a very slim majority.

Speaker Change: We were encouraged to see strong forestry commitments in the B.C. NDP's election campaign as well as that of the B.C. Conservatives.

Speaker Change: We will be working hard to ensure that forestry is top of mind for both the incoming government and the official opposition.

Speaker Change: We will engage with all elected representatives to enact policies and programs that return B.C.'s forced sector to an internationally respected economic powerhouse.

Speaker Change: Looking ahead, we remain focused on executing our strategic priorities and maintaining a strong balance sheet.

Speaker Change: With that, Operator, we can open the call up to questions.

Speaker Change: Thank you. We will now take questions from the telephone lines. If you have a question, please press star 1. You may cancel your question at any time by pressing star 2. Please press star 1 at this time if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience.

Speaker Change: The first question is from Matthew McKellar from RBC Capital Markets. Please go ahead.

Matthew Mckellar: Thanks, good morning. First for me, the manufacturing operations you talked about wanting to drive stronger reliability and uptime at your mills.

Speaker Change: Could you help us understand how your metrics have trended here on the capacity you've been running and then understand what you view as the most important levers for further improvement at least?

Speaker Change: Thanks Matt. You know we measure overall reliability and uptime on a on an hourly shift by shift day by day and report out on it as an executive team on a weekly basis.

Speaker Change: In Q3, we were right around 84.6% uptime across all of our facilities.

Speaker Change: slightly, about 0.3% down from where we were the previous quarter. Functionality of a couple of significant events at our salt air facility.

Speaker Change: But, you know, overall our reliability and uptime has increased significantly in the last two years.

Speaker Change: When I first joined, I think we had a number of mills in the mid-70s.

Speaker Change: So, a really significant gain in overall reliability as a result of some change in management structure and just overall focus.

Speaker Change: I'll say that to move the dial now to, you know, 88 is our next target for all of our facilities, but we are dealing with older facilities that have

Stephen Nontell, Stephen Williams

in positioning those mills for success every day.

medium size and large diameter.

Speaker Change: A facility like Ladysmith is, it's a small log facility there, so uptime productivity per hour is very important. At a place like Duke Point where...

Speaker Change: A larger diameter timber focused on grade extraction, you know, product value and recovery are the main levers there. So each mill is a little bit unique, Matt, in terms of the key levers of profitability, but. [inaudible]

Speaker Change: Our team understands what those levers are on a mil-by-mil basis and are very much focused on them.

Speaker Change: Thank you for the color there. Next for me, I think you provided some commentary on this topic a couple of quarters ago, but with recent developments in the marketplace, can you just provide any updated thoughts around opportunities that may exist to monetize a portion of your duties on deposits and how you would evaluate those?

I'll let Glenn provide some comment on that Matt.

Bye, guys.

Speaker Change: Yeah, I mean, the duties is something we continue to remain open to monetizing, looking at alternatives for that. Obviously, there's an insurance transaction that occurred with a peer during the quarter. I think all I can say is that, you know, it's something we continue to evaluate.

Speaker Change: The proposals we've seen are the cost of capital remains much higher than other alternatives we have available to us, but it's something that we continue to monitor and remain active evaluating.

Thank you very much.

Speaker Change: Great, thanks very much. And if I could just sneak one more in, just touching on your comments around the BC election, you mentioned wanting to engage with representatives to enact positive policy for the sector. What would be your kind of short list of most important kind of recommendations on that front?

Speaker Change: Our interests on the BC coast are a little bit different than perhaps on the BC interior.

Speaker Change: But it's really around, you know, this clarity and certainty of access to fiber.

Speaker Change: You know, we're fortunate that we've spent a lot of time Developing strong relations across all the First Nations on whose traditional territory we operate on but we still have delays on the permitting side that

Speaker Change: I guess some of the roadblocks that are in place for permitting is a key piece and you know policy can dramatically change that.

Speaker Change: So, I would say that the permitting side is front and center. You know, the BCTS system, you know, we fundamentally believe it needs to be dramatically changed and we work to make it efficient both on the coast and on the province.

Speaker Change: And so, it's really ensuring that there's an alignment inside of government and the civil service to recognize the importance of this industry and roll up their sleeves and work with every organization, whether they're on the B.C. coast or in the B.C. interior.

Speaker Change: We're at a bit of a crisis here and there's a another duty that is is coming at us in October of next year and and You know time is limited for action to take place

Thanks for the perspective. I'll turn it back.

Thank you, Matt.

Speaker Change: There are no further questions registered at this time. I would now like to turn the meeting over to

Thank you for watching this video.

Speaker Change: Well thanks everyone for joining our call today. We appreciate your interest in our company and look forward to our next call in February and enjoy the long weekend. Thank you.

Speaker Change: Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.

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Thank you.

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