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High lumber prices net West Fraser big Q1 returns

Forestry giant announces $180 million in capital spending, mostly in U.S.
lumber_truck
While lumber prices are high, so are operating costs in Canada, West Fraser says in first quarter financials. | Shutterstock

West Fraser Timber Co. (TSX, NYSE: WFG) raked in $2.4 billion in the first quarter of 2021, thanks largely to record high lumber prices – an 81% increase over the previous quarter.

In first quarter financials published today, West Fraser reported $1 billion in earnings before interest, taxes, depreciation and amortization (EBITDA) in the first quarter, compared to $453 million in the previous quarter.

The increased profits are driven in part by record high North American lumber prices. Canfor Corp. (TSX: CFP) likewise recently reported record quarterly profits, due to high lumber prices.

West Fraser ended Q1 with $2.5 billion in liquidity.

“This balance sheet improvement has afforded us greater flexibility to undertake strategic capital investments, repay debt and repurchase shares,” the company said.

The company said it will use some of the windfall to move forward with $180 million of additional capital projects. Most of it will be spent improving its U.S. sawmills.

“In the lumber segment we expect to invest approximately $150 million at five of our U.S. South lumber mills under the strategic capital program,” the company said.

The company noted that, though lumber prices are high, so are its operating costs in Canada.

"Fibre costs for our B.C., Alberta, and Ontario lumber and EWP (engineered wood products) operations are expected to remain elevated as long as lumber, and EWP prices remain high and demand exceeds the available log supply in B.C.," the company said.

"A strengthening Canadian dollar and stresses across the company’s supply chain, owing in part to a strong global economic recovery, are also expected to contribute to inflationary pressures on our input costs in the coming quarters."

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