VANCOUVER – Major lumber producer Canfor Corporation (TSX:CFP) saw its net profits cut sharply in the latest quarter as revenues fell on weak lumber prices.
The Vancouver company said Thursday its earnings dropped to $26.2 million for the second quarter, down from $43.7 million for the second quarter of 2010.
Sales fell to $619.1 million from $634.7 million, the Vancouver company reported after markets closed.
In another development, Canfor said its board had approved capital improvement projects totaling $46.7 million at its Grande Prairie, Alta. operation and at the Prince George sawmill in British Columbia.
In its earnings report, Canfor said it saw little change in the underlying factors hurting the recovery of North American lumber markets.
The U.S. economy continued its painfully slow recovery, with no significant improvement in the housing sector. In addition to poor demand, rising inventory of lumber due in part from weather-related issues in the first quarter contributed to a steep drop in North American lumber prices early in the quarter.
Prices bottomed out in May and were followed by a modest recovery before the end of the quarter as lumber inventories became more balanced.
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“We are seeing several positive indicators in lumber markets, especially Asia where we shipped record high volumes in the quarter,” president and CEO Don Kayne said in a release after stock markets closed.
“That said, a sustained recovery of lumber markets and prices will not begin until there is a turnaround in the U.S. economy, and particularly the housing sector.”
In the financial report, Canfor noted that the average price for spruce, pine and fir lumber fell 19 per cent, although decreases for wider dimensions were less significant.
Canfor’s lumber shipment volumes rebounded after weather-related transportation constraints in the first quarter, increasing by 14 per cent to nearly one billion board feet. Higher demand from China was a major contributing factor.
Meanwhile, lumber production rose four per cent in the quarter, with productivity improvements at various mills having a positive impact.
In Grande Prairie, Canfor said its investments include the purchase of a cogeneration power plant from TransAlta (TSX:TA) and other upgrades, while the Prince George sawmill will see its planer upgraded.
The projects are part of a three-year strategic plan to spend $300 million on sawmill improvements to reduce costs and improve operating efficiency.
“We are continuing to invest significantly in modernizing our Canadian facilities,” added Kayne
“Going forward, our capital investment program will continue to enhance productivity and cost performance.”
Canfor has operations in B.C., Alberta, Quebec, Washington state, and North and South Carolina. The forestry company produces softwood lumber, plywood substitute oriented strand board, remanufactured lumber and specialized wood products.
The company also owns 50.2 per cent of Canfor Pulp Limited Partnership, one of the largest producers of northern softwood kraft pulp in Canada and a leading producer of kraft paper.