Company Reports

No-moat-rated Canfor posted first-quarter results that surpassed consensus estimates, driven partially by stronger pricing conditions in Europe. Pricing pressures in the North American lumber markets were steadfast, however, most notably the effects of a higher-for-longer interest rate environment and pronounced weakness in multifamily construction activity. Canfor’s reported operating loss for the quarter dropped to CAD 86 million from CAD 208 million a year ago, but sales were roughly flat year over year. This represents the sixth consecutive quarter of operating losses amid challenges in the lumber market. We've decreased our fair value estimate to CAD 23 per share from CAD 25 due to our expectation for softer near-term lumber pricing in North America.

Canfor is one of the largest softwood lumber producers in the world, with over 6 billion board feet of production capacity in western Canada, the Southeastern United States, and Sweden. Homebuilding and remodeling are the main uses of softwood lumber in North America, although Canfor does sell significant volume in Europe and Asia, with both making up roughly 30% of sales in recent years. As price-takers, Canfor and its peers see dramatic profit variations, depending on the health of housing markets and overall economic conditions.

No-moat-rated Canfor reported fourth-quarter results that were largely in line with our expectations. The company capped off a challenging year as weak housing markets and stagnant lumber prices weighed heavily on financial results. In the fourth quarter, net sales fell almost 7% and Canfor reported a CAD 191 million operating loss; this marks the fifth consecutive quarter the company has reported an operating loss. Canfor reported a full-year 2023 operating loss of CAD 532 million after posting over CAD 1 billion in operating profit in 2021 and 2022. The pandemic-era lumber boom has gone bust, and dimensional lumber producers like Canfor are experiencing the brunt of the pain. Canfor has taken steps to mitigate the damage, including taking significant production curtailments to balance supply with demand and removing higher-cost capacity. While this will benefit the company over time, we expect some recovery in lumber markets through the year and into 2025. This provides some optimism that there is light at the end of the tunnel for Canfor. We've decreased our fair value estimate to CAD 25 per share from CAD 27 due to our expectation of softer lumber markets through 2024 than we had previously anticipated.

Canfor is one of the largest softwood lumber producers in the world, with over 6 billion board feet of production capacity in western Canada, the Southeastern United States, and Sweden. Homebuilding and remodeling are the main uses of softwood lumber in North America, although Canfor does sell significant volume in Europe and Asia, with both making up roughly 30% of sales in recent years. As price-takers, Canfor and its peers see dramatic profit variations, depending on the health of housing markets and overall economic conditions.

New single-family home sales increased 4% in 2023 to 666,000 units, as homebuilders capitalized on a dearth of existing for-sale inventory while also offering more sales incentives, cutting base home prices, and building smaller homes to improve affordability. By the fourth quarter of 2023, homebuilders began to pull back on sales incentives as the average 30-year fixed mortgage rate retreated from 7.62% in October 2023 to 6.64% in January 2024. However, mortgage rates have trended higher recently, and we now forecast the average 30-year fixed rate will be 6.50% in 2024, up from our previous forecast of 6.10%. Even so, that’s lower than the 2023 average of 6.81%, and we think homebuilders won’t hesitate to increase sales incentives if needed; they still enjoyed above-average gross profit margins last year with elevated incentives. As such, in 2024, we think new-home sales will increase 9% to 730,000 units and single-family housing starts will increase 4% to 985,000 units. However, we expect total housing starts will decline roughly 5% to 1,345,000 units due to a 23% decline in multifamily starts to 360,000 units, as there’s currently approximately 1,000,000 multifamily units under construction—the largest backlog in at least 50 years.

New-home sales have rebounded since the spring of this year as sales incentives and price reductions have attracted buyers who have fewer options in the supply-constrained existing-home market. That said, homebuilder sentiment data tells us that smaller builders remain cautious. Even so, we forecast single-family starts to increase by 3% in 2024, to 0.92 million units. However, we project this increase in single-family starts will be more than offset by a 24% decline in multifamily starts, to 0.36 million units. Multifamily construction has been robust for the past three years, but a record construction backlog and higher construction and financing costs have tamed developers' appetite for new multifamily projects.

No-moat-rated Canfor Corporation reported lackluster operating results for the third quarter. Net sales fell 21% year over year as lumber markets remain pressured amid a slowdown in new residential construction. Canfor's operating results were also constrained by persistent weakness in its pulp and paper business during the quarter. Despite some marginal improvements, we expect lumber markets to remain pressured for much of next year as higher interest rates constrain new residential construction and freeze existing home sales. As such, we maintain our CAD 27 fair value estimate.

Canfor is one of the largest softwood lumber producers in the world, with over 6 billion board feet of production capacity in western Canada, the Southeastern United States, and Sweden. Homebuilding and remodeling are the main uses of softwood lumber in North America, although Canfor does sell significant volume in Europe and Asia, with both making up roughly 30% of sales in recent years. As price-takers, Canfor and its peers see dramatic profit variations, depending on the health of housing markets and overall economic conditions.

New-home sales have remained resilient despite worsening housing affordability in recent months amid rising mortgage rates, with little relief in home prices in most markets. Year-to-date new-home sales through July were about even with the year-ago period, compared with a 22% decline in existing-home sales. The key to homebuilders’ relative success this year has been their ability to improve affordability by offering sales incentives, lowering base prices, and building smaller homes. According to the National Association of Home Builders, the share of builders offering incentives was 55% in August, up from 52% in July but down from 62% last year. One fourth of homebuilders reported lowering base prices by 6% on average. Homebuilders have also boosted production of speculative homes to capitalize on the tight supply of existing for-sale homes. Spec building also helps builders better manage construction cycle times and costs.

No-moat-rated Canfor reported second-quarter earnings that were largely in line with our expectations. Revenue declined roughly 33% year over year on lower lumber prices and weak pulp demand. Canfor reported an almost CAD 67 million operating loss in the quarter, a significant decrease year over year but an improvement sequentially. Additionally, Canfor’s lumber business continued to be affected by high operating costs in British Columbia that lower lumber prices have exacerbated. Nevertheless, we maintain our CAD 27 fair value estimate.

Canfor is one of the largest softwood lumber producers in the world, with over 6 billion board feet of production capacity in western Canada, the Southeastern United States, and Sweden. Homebuilding and remodeling are the main uses of softwood lumber in North America, although Canfor does sell significant volume in Europe and Asia, with both making up roughly 30% of sales in recent years. As price-takers, Canfor and its peers see dramatic profit variations, depending on the health of housing markets and overall economic conditions.

Through the first four months of 2023 (typically viewed as the “spring selling season” for homebuilders) new home sales significantly outperformed existing home sales. Indeed, April year-to-date new home sales declined roughly 10% year over year compared to over a 26% decline for existing home sales. New home sales improved sequentially during the first four months of the year, and April sales increased 11% year over year, albeit on an easy prior-year comparison (April 2022 new sales were down 24% year over year).

No-moat Canfor reported first-quarter results that were severely affected by ongoing challenges in the lumber market. Revenue decreased roughly 38% year over year as steep declines in lumber prices were met with lower volume. Slowing housing demand in the United States continued to weigh on lumber demand, but a somewhat resilient repair and remodel market provided some relief in the quarter. Canfor reported a $208 million operating loss in the first quarter, compared with a $740 million profit a year ago, as lower volume raised per unit costs. That said, this was a roughly $100 million improvement sequentially due to a modest rise in European demand. We've decreased our fair value estimate to CAD 27 per share from CAD 30 due to our expectation of lower lumber prices through 2023 than we had previously anticipated.

Canfor is one of the largest softwood lumber producers in the world, with over 6 billion board feet of production capacity in western Canada, the southeastern United States, and Sweden. Homebuilding and remodeling are the main uses of softwood lumber in North America, although Canfor does sell significant volume in Europe and Asia, with both making up roughly 30% of sales in recent years. As price-takers, Canfor and its peers see dramatic profit variations depending on the health of housing markets and overall economic conditions.

U.S. home sales slowed significantly in 2022 as rising mortgage rates and elevated home prices made homeownership less affordable for more Americans. By mid-2022, the average 30-year fixed mortgage rate had increased roughly 300 basis points year over year to over 6%. According to estimates from the National Association of Home Builders, this rate increase priced out more than 16 million households. We also think higher rates and general economic uncertainty caused some qualified prospective buyers to move to the sidelines. All told, 2022 new- and existing-home sales declined 17% and 18% year over year, respectively.

No-moat-rated Canfor reported lackluster fourth-quarter results as lower lumber prices and softening demand continued to weigh on the company’s financial performance. Slowing housing demand caused lumber prices to decline in the second half of 2022 and pressured Canfor’s shipments. Canfor reported a $308 million operating loss in the fourth quarter, compared with a $69 million loss a year ago, largely due to lower selling prices and lumber shipments, which led to an increase in per unit costs. We've decreased our fair value estimate to CAD 30 from CAD 35 per share due to reduced near-term revenue growth and profitability in our forecast.

Canfor is one of the largest softwood lumber producers in the world, with over 6 billion board feet of production capacity in western Canada, southeastern United States, and Sweden. Homebuilding and remodeling are the main uses of softwood lumber in North America, although Canfor does sell significant volume in Europe and Asia, with both making up roughly 30% of sales in recent years. As price-takers, Canfor and its peers see dramatic profit variations depending on the health of housing markets and overall economic conditions.

After analyzing recent United States housing market data and industry commentary, we've made downward revisions to our near-term outlook for new residential construction, home prices, and repair and remodel spending.

No-moat Canfor reported third-quarter results that were largely in line with our expectations. Softening housing demand in the United States and falling lumber prices in the third quarter led to a steep decline in the company's financial results. Revenue declined roughly 1% year over year as end-market demand slowed in North America and Europe. Consolidated operating margins dropped over 1,300 basis points from a year ago to 6.5% due to a steep decline in lumber prices, stagnant shipments, and higher unit manufacturing costs.

Canfor is one of the largest softwood lumber producers in the world, with about 7 billion board feet of production capacity in western Canada, southeastern United States, and Sweden. Homebuilding and remodeling are the main uses of softwood lumber in North America, although Canfor does sell significant volume in Europe and Asia, with both making up roughly 30% of sales in recent years. As price-takers, Canfor and its peers see dramatic profit variations depending on the health of housing markets and overall economic conditions.