In spite of higher market based stumpage and increased log hauling costs in Western Canada, Canfor reports a 43.3 million increase in operating income in Q3 compared to the same period last year, due mainly to improved lumber segment results driven largely by higher Western Spruce/Pine/Fir and Southern Yellow Pine unit sales realizations and solid productivity gains in the US South.
According to the company's press release, Canfor Corporation reported net income attributable to shareholders of $50.9 million, or $0.38 per share, for the third quarter of 2016, compared to shareholder net income of $36.0 million, or $0.27 per share, for the second quarter of 2016 and a net loss attributable to shareholders of $17.3 million, or $0.13 per share, for the third quarter of 2015.
For the nine months ended September 30, 2016, the company's shareholder net income was $112.9 million, or $0.85 per share, compared to $23.1 million, or $0.17 per share, for the nine months ended September 30, 2015.
Canfor's adjusted shareholder net income for the Q3 of 2016 was $51.7 million, or $0.39 per share, compared to an adjusted shareholder net income of $26.5 million, or $0.20 per share, for the second quarter of 2016, and an adjusted shareholder net income of $6.4 million, or $0.05 per share for the third quarter of 2015.
For the nine months ended September 30, 2016, the company's adjusted shareholder net income was $99.1 million, or $0.75 per share, compared to $50.9 million, or $0.38 per share, for the nine months ended September 30, 2015.
Canfor reported operating income of $97.4 million for the third quarter of 2016, up $43.3 million from adjusted operating income of $54.1 million for the second quarter of 2016.
Adjusted operating income in the second quarter of 2016 excluded a one-time pre-tax gain of $15.5 million related to the settlement of a legal claim with respect to logistics services for the Company's pellet business.
Higher earnings in the third quarter of 2016 reflected improved lumber segment results driven largely by higher Western Spruce/Pine/Fir ("SPF") and Southern Yellow Pine ("SYP") unit sales realizations and solid productivity gains in the US South, offset in part by higher market based stumpage and increased log hauling costs in Western Canada.
North American lumber demand was steady in the third quarter of 2016, with US housing starts broadly in line with the previous quarter, averaging 1,138,000 units on a seasonally adjusted basis. Canadian housing starts were in line with the previous quarter, at an average of 199,000 units on a seasonally adjusted basis. Offshore lumber demand was consistent with the previous quarter.
Lumber unit sales realizations showed a moderate improvement compared to the previous quarter largely reflecting higher average Western SPF lumber prices and a 1% weaker Canadian dollar, as well as a modest increase in average SYP lumber prices.
The average benchmark North American Random Lengths Western SPF 2x4 #2&Btr price was up US$11 per Mfbm, or 4%, compared to the second quarter of 2016, with more pronounced price increases seen across most other dimensions. While the SYP East 2x4 #2 price declined US$23 per Mfbm, or 5%, compared to the prior quarter, with larger price decreases in 2x10 and 2x12 dimensions, this effect was more than offset by improved pricing for premium SYP products, which represent a significant portion of the company's product mix in the US South, and price increases in 2x6 and 2x8 dimensions.
Total lumber shipments and production were in line with the second quarter of 2016 with increased planer production at the Houston sawmill, following a kiln fire in the previous quarter, and improved productivity in the US South, offsetting planned capital related downtime at Canfor's Polar sawmill in British Columbia and Fulton sawmill in Alabama in the current quarter.
Discussions between the Canadian and US Governments regarding the Softwood Lumber Agreement continue following the expiry of the one-year stand-still period on October 12, 2016. In the event no agreement is reached, there is a material risk of US trade action being initiated against Canadian lumber producers which could result in the imposition of duties on lumber shipments to the US.
Looking ahead, the US housing market is forecast to continue its gradual recovery through the balance of 2016.
North American lumber consumption is forecast to improve reflecting steady demand in the residential construction market and continued strength from the repair and remodelling sector. There remains a risk of market place volatility absent a new Softwood Lumber Agreement. For the company's key offshore lumber markets, demand is anticipated to show a modest improvement through the fourth quarter. In the pulp and paper segment, with new pulp capacity forecast to come on line, there is risk of downward pressure on pricing.
Outlook
Looking ahead, the US housing market is forecast to continue its gradual recovery through the balance of 2016. North American lumber consumption is forecast to improve reflecting steady demand in the residential construction market and continued strength from the repair and remodelling sector. There remains a risk of market place volatility absent a new Softwood Lumber Agreement. For the company's key offshore lumber markets, demand is anticipated to show a modest improvement through the fourth quarter.
