GreenFirst Forest Products Inc. reported net sales of $214.6 million during Q2 2022, an improvement of $33.7 million, or 21%, compared to Q1 2022. This increase was primarily due to higher volumes for lumber and paper sales as some of the logistics disruptions seen in Q1 2022 began to subside.
During Q2 2022 the Company recorded net earnings of $29.5 million ($0.15 per share, diluted) and Adjusted EBITDA of $54.3 million. This was a decline of 13% and improvement of 21%, respectively, compared to Q1 2022.
“We were pleased to see positive lumber markets in Q2 which contributed to strong earnings,” said Rick Doman, CEO of GreenFirst. “Our earnings reflect the favourable pricing in lumber and improved transportation logistics, as we expect sales volumes to remain strong and inventory levels to continue to drop in the coming quarter. We continue to focus on investing in our operations to improve productivity and recovery.”
Outlook
During the Q2 2022, rising interest rates in response to higher inflation represented a head wind to lumber demand. This was evidenced by a decline in lumber market prices during the middle of Q2 2022 although prices recovered in June. Throughout the quarter, there was some offsetting impact to these pressures driven by tightening lumber supply including the effects of international sanctions on Russia, barring Russian forest products from European markets.
COVID-19 continues to remain a concern through the remainder of 2022, while disruptions to modes of transportation used by the industry may also continue to be a factor that tightens the supply of lumber to the North American market, similar to what the market experienced during the first half of 2022.
The combination of macro supply tightening and the risk of disruptions to lumber supply within North America underlies our expectation of continued volatility in lumber prices. However, with further interest rate increases expected in 2022, the Company expects that the price levels will continue to be pressured.
Lumber prices have a material impact on the operating earnings of the Company and in the second quarter of 2022, a US $10/Mfbm difference in lumber prices would have impacted the Company’s operating earnings by approximately $1.5 million, assuming everything else remained constant. The Company currently does not have any hedges in place for lumber prices.
Inflationary pressures in North America have increased the cost of many inputs required for our operations. Furthermore, shortages of people, materials and equipment could negatively impact the Company, as well as the industry. Many of these pressures have been linked to the COVID-19 pandemic, which may still be a significant factor for the remainder of 2022.
GreenFirst Forest Products is a significant lumber producer in Canada having an annual lumber production capacity of 905 MMfbm, with a goal to increase. The Company owns 7 sawmills and 1 paper mill across Ontario and Quebec.
