The second quarter proved to be another dismal period for lumber manufacturers and timber harvesters as weak lumber pricing and a lagging housing industry continued to take its toll. Of the companies we covered, all but one managed to improve its operating income and only one improved its earnings for the April-June period. The poor economy has left an uneasy feeling around the industry regarding when things will pick up and how to best react to the slowdown.
"The U.S. economy remains in an unsettled state that requires companies to be extremely agile to respond to wide swings in demand," said Louisiana-Pacific Corp. CEO Rick Frost. "For housing, there is growing agreement that the timing and strength of the recovery will be determined by the change in the inventory of vacant homes for sale and household formations enabled by job recovery."
While lack of residential construction activity did major harm to those in the lumber manufacturing industry, offshore demand for logs and lumber did help provide some cushion.
"Offshore markets remained strong," said Canfor in a statement with its quarterly results. "In China, the concrete forming, remanufacture and wood frame construction sectors continued to increase their consumption of [British Columbia] lumber." While Canfor suffered an 18.9% decline in net earnings, to finish at C$26.2 million (US$27 million) it was among the lowest declines seen. The company also recorded a 2.5% decline in sales.
Among the companies covered, West Fraser Timber took the biggest hit with an 85% decline in net earnings, while Ainsworth saw sales plummet 24.4%. Five companies reported operating income swung into the red, while two more remained in the red.
So, what does the future hold for the industry? Companies are not optimistic about the remainder of 2011 and beyond, and it's all tied to residential construction activity.
"For the remainder of 2011, we expect the demand for residential construction to remain depressed as excess housing inventory levels, a weak labor market, competition from distressed home sales, and restrictive lending conditions for both home buyers and builders persist," said Boise Cascade in a press release with its earnings report.
Here's a rundown of those quarterly earnings reports:
- Interfor remained in the red during the second quarter as its net loss widened to C$5.3 million (US$5.5 million), compared to a C$3.5 million (US$3.6 million) loss during the same period a year ago. This is the second straight quarter the company has been in the red.
- Net sales at Ainsworth Lumber Co. fell 24.4% during the second quarter to finish at C$80.5 million (US$81.6 million). The company did manage to shrink its net loss, however, by almost C$5 million to C$13 million (US$13.2 million).
- Boise Cascade Holdings swung into the red with a $9.9 million net loss, compared to a $4.3 million net income during the same period a year ago. Total sales at the company fell 9.5% to $589.4 million.
- Weyerhaeuser Co.'s wood products segment plunged to an operating loss of $61 million in the second quarter from a loss of just $4 million a year earlier and expects weak earnings in the current quarter. Net sales and revenues for the segment dropped 10.3% to $726 million.
- Louisiana-Pacific Corp. (LP) swung to a net loss of $35.5 million in the second quarter from a $22.3 profit a year before on a 19% drop in sales to $362.4 million.
- Driven by a swing to a loss in its lumber segement, Canfor Corp.'s overall net income fell 18.9% in the second quarter from the year-earlier period to reach C$26.2 million (US$27 million) on a 2.5% drop in sales to C$619.1 million (US$637.7 million).
- Tembec'ss forest products segment fell into the red during its fiscal third quarter with a C$20 million (US$20.7 million) operating loss after posting a C$2 million (US$2.1 million) operating profit during the same period a year ago. The segment's sales fell 10% to C$113 million (US$116.7 million).
- Net income at Plum Creek Timber Co. increased 26% in the second quarter from the year-earlier period to hit $44 million. Revenues at the timber harvester and lumber manufacturer increased 10% to $284 million.
- Second-quarter earnings at Potlatch Corp. fell 29% from he same period a year ago to $8.4 million due to decreases in both sawlog and pulpwood volume. Sales declined 13% to $112.4 million.
- West Fraser Timber saw its earnings after discontinued operations plummet 85% to finish at C$10 million (US$10.3 million). Sales fell 6.7% to C$720 million (US$758.6 million) at the Vancouver, British Columbia-based timber company.
- Net earnings at Universal Forest Products Inc. (UFPI) fell 69% to finish at $4.3 million. Net sales dropped 15% to $544.1 million.