Interfor posts net income of $1.5 million

International Forest Products Limited (Interfor) has posted a net income of $1.5 million in their third quarter of 2010.

Included in Interfor's accounts for the quarter was a gain of $4.8 million representing the company's share of the gain on the sale of two vessels by the Seaboard Partnership net of associated costs. Also included was a tax valuation allowance of $1.6 million and $0.7 million in other one-time costs.

If these items are excluded from the results, then Interfor recorded a loss of $1.0 million.

EBITDA for the quarter (adjusted to exclude one-time items and "other income") was $10.6 million, compared to $13.1 million in the second quarter and $3.6 million in third quarter of 2009.

"Positive results from the start-up of our Castlegar sawmill and higher sales to China helped to offset the impact of lower prices in North America during the quarter," said Duncan Davies, Interfor's President and CEO.

"The results from Castlegar were particularly encouraging," said Davies, "and are similar to those achieved at Grand Forks last year."

The Castlegar mill, which had been curtailed since it was acquired in 2008, resumed operations in early July. Changes in the mill's operating configuration, achieved with the support of the mill's employees and other local stakeholders and without the benefit of any significant capital additions, have contributed to a marked improvement in the mill's cost structure.

"It has taken some time to reach this point," said Davies. "The gains that have been made are consistent with those we expected when we acquired the two mills and set the stage for a very positive future for our Company in the Kootenay Region."

In addition to the gains at Castlegar, Interfor continued to increase sales into China in the third quarter, with positive results as well.

Total sales for the quarter, including wholesale volumes, were 277 million board feet an increase of 7 million board feet versus the second quarter. On a volume basis, excluding wholesale programs, sales to North American markets accounted for 66% of shipments in the third quarter versus 78% in the second quarter while Pacific Rim markets including Japan and China accounted for 32% compared to 21% in the second quarter.

The gains made at Castlegar and in China helped to offset lower prices in the North American market. In the quarter, SPF 2X4 averaged US$223, down US$44 versus the second quarter and Hem-Fir studs were down US$79 to US$213. Cedar prices were mixed with downward pressure on a number of high value product lines. Prices for the Company's key Japanese product lines were stable or up slightly from second quarter levels.

Lumber production fell slightly to 272 million board feet in the third quarter, representing approximately 68% of rated capacity, in spite of a number of curtailments taken at the Company's U.S. operations which have been impacted by reduced log availability and higher prices in recent quarters.

In the quarter Interfor generated $3.8 million in cash from operations after working capital changes were considered and received $6.9 million from Seaboard by way of an advance. Capital spending totalled $7.5 million including $3.5 million on maintenance and high return capital projects.

Net debt, excluding the Seaboard advance, closed the quarter at $151 million or 30% of invested capital, compared with $155 million at the end of the second quarter.

Business conditions remain uncertain. The North American market is showing positive signs as Interfor and other companies focus on expanding sales to China and to other offshore markets. SPF 2X4, as reported by Random Lengths closed Friday last at US$233 and Hem-Fir studs at US$220. While consumption in North America is expected to remain weak as normal seasonal conditions impact the market, commodity prices are expected to remain firm as supply and demand remain in reasonable balance. Cedar is expected to remain soft through the balance of the year as buyers look for direction before positioning for 2011. Japan is reasonably stable. In the face of these conditions, Interfor will continue to balance operating rates against sales activity.

As announced at the end of the second quarter, Interfor is moving forward with the $24 million capital plan approved in July. A number of small projects have been completed to date while others are in the early stage of development. Total capital spending in the fourth quarter is expected to be in the range of $10 - $12 million.

Read more:

Mill Start-up, China Sales Boost Interfor's Q3 Results (Interfor)