TORONTO, ON – Norbord Inc. (TSX: NBD) today reported EBITDA of $15 million in the third quarter of 2014 compared to $33 million in the second quarter of 2014 and $45 million in the third quarter of 2013. North American operations generated EBITDA of $7 million in the quarter versus $24 million in the prior quarter and $36 million in the same quarter last year. European operations generated EBITDA of $11 million in the quarter versus $12 million in both the prior quarter and the same quarter last year.
“In response to challenging North American OSB market conditions, we moved most of our annual maintenance shuts forward to the third quarter and curtailed additional production at several mills,” said Peter Wijnbergen, President and CEO. “Despite this downtime, our mills ran very well – producing at stated capacity and holding onto manufacturing cost improvements achieved in the first half of the year. We generated $12 million in Margin Improvement gains so far this year and our recent capital investments are starting to pay back.”
“In the near term, I expect North American OSB pricing to continue to move sideways with the slower demand we traditionally experience at the end of the year. However, I remain optimistic that our OSB sales will improve next year as the US housing recovery continues to unfold.”
“Our European performance remains strong, with year-to-date shipments up 6% on demand growth in our core UK, German and Benelux markets. While OSB prices have been under pressure this year, we didnot see any significant impact on our overall results in the third quarter. Our mills continue to perform well and are producing above stated capacity, a trend I expect will continue into next year.”
Norbord recorded earnings of $5 million or $0.09 per share (basic and diluted) in the third quarter of 2014 compared to $11 million or $0.21 per share ($0.20 per diluted share) in the prior quarter and $27 million or $0.51 per share ($0.50 per diluted share) in the third quarter of 2013. Reported earnings in the current and comparative periods included the following one-time items:
|$ millions||Q3||Q2||Q3||9 mons||9 mons|
|Earnings before one-time items||$ -||$ 11||$ 18||$ 18||$ 138|
|Non-recurring income tax recovery||5||-||9||5||9|
|Earnings, as reported||$ 5||$ 11||$ 27||$ 23||$ 147|
In North America, year-to-date US housing starts were 10% higher than the same period in 2013 and permits were 6% higher. US single family housing starts, which are more important for the OSB industry, were 4% better versus last year. The consensus forecast from US housing economists is currently just below 1.0 million starts in 2014, which would still be an 8% improvement over last year.
The North Central benchmark OSB price continued to trade in a tight range in the third quarter, while the South East benchmark OSB price trended lower. The North Central benchmark averaged $216 per thousand square feet (Msf) (7⁄16-inch basis), compared to $219 per Msf in the previous quarter and $252 per Msf in the same quarter last year. In the South East region, where more than half of Norbord’s North American capacity is located, benchmark prices averaged $177 per Msf, compared to $199 per Msf in the prior quarter and $207 per Msf in the same quarter last year.
Norbord’s core European panel markets in the UK, Germany and Benelux (where over 90% of the Company’s panels are shipped) remained strong in the third quarter. Particleboard prices were up and MDF prices held firm. However, OSB prices are under pressure as eastern European supply is being redirected toward the west due to the ongoing conflict in the Ukraine. As a result of the lower OSB prices, third quarter average panel prices were 3% lower than both the prior quarter and the same quarter last year.
In North America, Norbord’s OSB shipments were in line with both the prior quarter and the same quarter last year and increased 7% year-to-date. The North American OSB mills produced at approximately 80% of stated capacity (including the two curtailed mills in Huguley, Alabama and Val-d’Or, Quebec), compared to 85% in the prior quarter and 80% in the same quarter last year. The decrease versus the prior quarter is due to the timing of annual maintenance shuts and additional production curtailments taken during the quarter. Despite this, two of the Company’s North American OSB mills achieved quarterly production records. Norbord’s North American OSB cash production costs per unit (before mill profit share) increased by 3% versus both the prior quarter and the same quarter last year due to the timing impact of annual maintenance shuts and higher year-over-year raw material prices. Unit costs decreased by 1% year-todate.
Excluding the impact of raw material price changes and annual maintenance shuts, unit costs were flat quarter-over-quarter, decreased 3% year-over-year and decreased 4% year-to-date due to lower raw material use and improved mill productivity.
Norbord continues to work on rebuilding the press line at the curtailed Huguley, Alabama mill to prepare it for restart. The Company has not set a restart date and will do so only when it is sufficiently clear that customers require more product. Norbord does not expect to restart its curtailed mill in Val-d’Or, Quebec in 2014, but will continue to monitor market conditions.
In Europe, Norbord’s shipments increased 10% versus the prior quarter, 13% versus the same quarter last year and 6% year-to-date. During the quarter, Norbord completed a dryer upgrade project at the Cowie, Scotland particleboard mill. Despite the downtime associated with this project, the European mills produced at approximately 100% of stated capacity in the quarter, compared to 105% in the prior quarter and 95% in the same quarter last year. The Company’s two European OSB mills achieved quarterly production records.
Norbord’s mills delivered Margin Improvement Program (MIP) gains of $12 million year-to-date from improved productivity, lower raw material use and a richer value-added product mix, partially offset by the timing impact of annual maintenance shuts.
Capital investments totaled $24 million in the quarter and $66 million year-to-date. The full year target is now estimated at $75 million as the Company took the opportunity to complete several strategic projects during the annual maintenance shuts conducted in the third quarter. Key projects this year include the rebuild of the wood handling end at the Joanna, South Carolina mill, the dryer upgrade at the Cowie, Scotland particleboard mill and the fines screening project at the Cordele, Georgia mill. Also included is approximately $10 million for preliminary work to rebuild the press line at the mothballed Huguley, Alabama mill. Further investment to prepare this mill for restart has been deferred to 2015.
Operating working capital was $76 million compared to $96 million in the prior quarter and $66 million in the prior year. Working capital decreased quarter-over-quarter, reflecting lower finished goods inventory in Europe that was built up during the prior quarter in anticipation of the dryer project shut at the Cowie, Scotland particleboard mill. The year-over-year increase was due to higher operating and maintenance supplies inventory as a result of significant capital projects and the ramping up of the Jefferson, Texas mill.
At quarter-end, Norbord had unutilized liquidity of $396 million, consisting of $54 million in cash and $342 million in unused credit lines. The Company’s tangible net worth was $429 million and net debt to total capitalization on a book basis was 48%. Both ratios remain well within bank covenants.
The Board of Directors declared a quarterly dividend of CAD $0.60 per common share, payable on December 21, 2014 to shareholders of record on December 1, 2014.
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