Selective Cuttings

Third Quarter (2013) financial results of Canadian forest companies continue to be solid

January 8, 2014

The quarterly results of the 10 largest publicly traded Canadian forest sector firms1 indicate that the financial performance of the sector continues to be solid. In the third quarter of 2013, these companies reported a positive operating income of $372 million. Though it was down 28% from last quarter, it actually rose 5% compared to the $353 million operating income reported in the third quarter in 2012. All these companies reported positive operating income, compared to only 8 firms reported positive operating income in previous quarter.

Financial results of the 10 largest Canadian publicly traded forest companies

This chart shows the quarterly financial results of ten largest Canada-based publicly traded forest products companies, including the comparison of Q3 2012, Q2 2013and Q3 2013. All of these companies posted positive operating income in Q3 2013. Together the ten largest publicly traded Canadian forest companies reported an operating income of $ 372 million.

On a sub-sector basis, the financial results in third quarter reversed the trend of the first half year, when profitability was concentrated in the solid wood sector. Operating income of companies with major exposure to wood products slowed down due to weaker average lumber prices; together they recorded $174 million operating income over the third quarter of 2013, down 56% compared to the second quarter. Financial performance of companies with more exposure to pulp and paper products improved significantly over the same period. Operating income of companies with more exposure to pulp and paper products was up 68% to $198 million, mainly thanks to the stabilizing pulp markets and Northern Bleached Softwood Kraft (NBSK) pulp price increases.  

Going forward, North American lumber demand is expected to modestly improve before an anticipated seasonal slowdown late in the fourth quarter. Offshore markets are projected to remain fairly stable. Meanwhile NBSK pulp markets are projected to improve modestly over this period. Considering all of these factors and the (slight) depreciation of the Canadian dollar, the financial results of forest companies will likely improve in the fourth quarter.

With improved financial results and relatively strong balance sheet, as well as increased confidence in global forest products markets, Canadian companies have also started to renew their interests in capital investments, particularly in international markets. Recent investment activities include Domtar’s expansion of their personal care business in Europe with the acquisition of Indas, and Canfor’s planned investment in China’s wood industry.

1These are: Domtar, Resolute, Cascades, West Fraser Timber, Canfor, Tembec, Norbord, Mercer, Catalyst, and Western Forest Products