Company Reports

No-moat-rated West Fraser reported first-quarter results that were largely in line with our expectations. West Fraser continues to navigate a challenging operating environment as tepid lumber demand weighs on results. Net sales in the first quarter were flat year over year as continued strength in oriented strand board, or OSB, offset declines in lumber, pulp, and paper. While we expect West Fraser to face some challenges in the year, we are encouraged by the continued strength in its OSB operations and expect growth in single-family housing starts to drive additional sales in 2024. We've increased our fair value estimate for New York Stock Exchange- and Toronto Stock Exchange-listed shares to $90 from $89 and to CAD 124 from CAD 120 per share, respectively, due to the time value of money.

West Fraser is one of the largest softwood lumber and oriented strand board, or OSB, producers in the world, with significant production capacity in Canada, southeastern United States, and Europe. New construction and remodeling are the main uses of softwood lumber and OSB products in North America. West Fraser is closely tied to the North American market as it accounts for roughly 85% of sales (70% in US and 15% in Canada). As price-takers, West Fraser 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.

No-moat-rated West Fraser reported lackluster fourth-quarter earnings that came with few surprises. Lumber markets remained constrained amid stalled housing markets and ample supply in North America. Net sales fell over 6% year over year in the fourth quarter as housing markets and repair and remodel activity remained muted. Pricing continues to be a headwind for West Fraser as it saw declines in both lumber and oriented strand board, or OSB, during the quarter, a trend that has persisted for much of the year. Nevertheless, we are maintaining our fair value estimates for New York Stock Exchange- and Toronto Stock Exchange-listed shares of $89 and CAD 120 per share, respectively.

West Fraser is one of the largest softwood lumber and oriented strand board, or OSB, producers in the world, with significant production capacity in Canada, southeastern United States, and Europe. New construction and remodeling are the main uses of softwood lumber and OSB products in North America. West Fraser is closely tied to the North American market as it accounts for roughly 85% of sales (70% in U.S. and 15% in Canada). As price-takers, West Fraser and its peers see dramatic profit variations depending on the health of housing markets and overall economic conditions.

West Fraser is one of the largest softwood lumber and oriented strand board, or OSB, producers in the world, with significant production capacity in Canada, southeastern United States, and Europe. New construction and remodeling are the main uses of softwood lumber and OSB products in North America. West Fraser is closely tied to the North American market as it accounts for roughly 85% of sales (70% in U.S. and 15% in Canada). As price-takers, West Fraser and its peers see dramatic profit variations depending on the health of housing markets and overall economic conditions.

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.

West Fraser is one of the largest softwood lumber and oriented strand board, or OSB, producers in the world, with significant production capacity in Canada, southeastern United States, and Europe. New construction and remodeling are the main uses of softwood lumber and OSB products in North America. West Fraser is closely tied to the North American market as it accounts for roughly 85% of sales (70% in U.S. and 15% in Canada). As price-takers, West Fraser and its peers see dramatic profit variations depending on the health of housing markets and overall economic conditions.

West Fraser reported third-quarter results that came with few surprises as the company continues to navigate softening lumber demand and lower prices. Net sales declined over 18% year over year as all four primary segments posted declines, with the pulp and paper business faring worst in the group. Wood product markets have experienced little respite from housing market pressures as lower housing starts and higher interest rates constrain wood product demand. That said, the strength in West Fraser’s North America EWP business led to a $185 million consolidated operating profit, the first quarterly profit for the company in a year. Nevertheless, we've decreased our fair value estimate for New York Stock Exchange to $89 from $92 due to lower near-term revenue in our forecast but increased our fair value estimate for Toronto Stock Exchange-listed shares to CAD 123 from CAD 121 per share due to an increase in the USD/CAD exchange rate.

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 West Fraser reported second-quarter results that were largely in line with our expectations. Revenue decreased roughly 44% year over year as all four primary segments saw substantial double-digit declines. Wood product markets continue to face a challenging operating environment in North America as higher interest rates and persistent inflation weigh on lumber demand. Additionally, lumber prices have remained well below pandemic-era highs and have shown few signs of improvement through the first half of the year. Nevertheless, we are maintaining our fair value estimate for New York Stock Exchange listed shares of $92 but decreasing our fair value estimate of Toronto Stock Exchange-listed shares to CAD 121 from CAD 125 per share due to a decrease in the USD/CAD exchange rate.

West Fraser is one of the largest softwood lumber and oriented strand board, or OSB, producers in the world, with significant production capacity in Canada, southeastern United States, and Europe. New construction and remodeling are the main uses of softwood lumber and OSB products in North America. West Fraser is closely tied to the North American market as it accounts for roughly 85% of sales (70% in U.S. and 15% in Canada). As price-takers, West Fraser 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-rated West Fraser reported first-quarter results that were largely in line with our expectations as low lumber prices weighed on results despite relatively stable lumber shipments. Revenue declined 47% year over year as West Fraser's lumber and EWP (engineered wood products) businesses both saw steep declines. Additionally, West Fraser posted an $84 million operating loss, continuing the trend from the fourth quarter even though lumber prices rose slightly sequentially. We've decreased our fair value estimate for New York Stock Exchange and Toronto Stock Exchange-listed shares to $92 from $104, and CAD 125 from CAD 139 per share, respectively, due to our expectation of lower lumber prices through 2023 than we had previously anticipated.

West Fraser is one of the largest softwood lumber and oriented strand board, or OSB, producers in the world, with significant production capacity in Canada, southeastern United States, and Europe. New construction and remodeling are the main uses of softwood lumber and OSB products in North America. West Fraser is closely tied to the North American market as it accounts for roughly 85% of sales (70% in U.S. and 15% in Canada). As price-takers, West Fraser 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.

West Fraser is one of the largest softwood lumber and oriented strand board, or OSB, producers in the world, with significant production capacity in Canada, southeastern United States, and Europe. New construction and remodeling are the main uses of softwood lumber and OSB products in North America. West Fraser is closely tied to the North American market as it accounts for roughly 85% of sales (70% in U.S. and 15% in Canada). As price-takers, West Fraser and its peers see dramatic profit variations depending on the health of housing markets and overall economic conditions.

No-moat-rated West Fraser reported fourth-quarter results that were largely in line with our expectations. Lower lumber prices and softening housing demand in the United States led to a decline in West Fraser’s financial results. Revenue declined 21% year over year, with all three wood products segments posting double-digit declines. West Fraser posted a $130 million operating loss in the quarter, largely due to lower lumber prices and slowing housing demand. While raw material cost inflation continues to moderate, rising operating costs weighed on results.

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.

West Fraser reported third-quarter results that were largely in-line with our expectations. While wood product companies have enjoyed record lumber prices and sky-high demand over the last few years, the party is coming to an abrupt, but expected, end. Softening housing demand in the United States and falling lumber prices in the third quarter led to a steep decline in West Fraser’s financial results. Net sales decreased almost 12% year over year (down 27% sequentially) while consolidated operating margins fell over 1,300 basis points to 13.5%, the lowest level since the second quarter of 2020.