Forest product companies report widely-varied earnings
Verso, which recently announced the closure of mills, reported major declines
MADISON, Wis. -- Forest product companies reported widely varying results for the third quarter of 2020, including Verso, whose sales were down 50% from its two remaining functioning mills.
Factors impacting different businesses included plant closures, dramatic increases in lumber prices, forest fires in the western U.S. and a continuing decline in graphic paper demand.
Verso’s decrease in the number of active mills led to a reduction in sales of more than 50% from the prior year. But revenues increased by 14% from the second quarter. Some progress in efforts to sell the mill in Duluth has been reported by the company.
In a presentation on results to analysts, Randy Nebel, interim CEO of Verso, said: “Duluth has some people interested and that is ongoing”.
Verso had invested more than $5 million in the last year to begin producing kraft paper at a modest scale of about 90,000 tons per year in the plant, according to a report in the Duluth News Tribune.
Packaging paper products including kraft paper have been in high demand due to increased online retail sales. This trend was reflected in positive results from other forest products companies.
Efforts to sell the Wisconsin Rapids mill through an investment banking firm have been suspended because “interest was not what we had expected,” according to a Verso spokesman. Verso reported a small loss for the quarter in contrast with a $30 million profit in 2019. Meanwhile, the company has no debt and paid a special dividend of $100 million in the quarter.
U.S. housing trends continue recent growth
New building permits authorized in the U.S. continued their growth trend in October, according to statistics released by the U.S. Census Bureau--- a healthy indicator of demand growth for lumber and forest products in general. Building permits in October were flat with September and increased 2.8 % from October, 2019.
Economists credit low mortgage interest rates and pent up demand from Millennials for this growth in the face of economic headwinds from the Covid pandemic. Both single family homes and multiple units buildings were strong, according to Census Bureau statistics.
Wisconsin and Minnesota statistics showed very strong growth from 2019 in September statistics (the most recent month available). Wisconsin showed a 32.6% increase for the month and Minnesota’s starts increased by more than 50% Michigan showed a decrease of almost 8% in September from the prior year.
Weyerhaeuser, the largest private forest landowner in the U.S., resumed profitability in the quarter and resumed paying dividends (that had been suspended on May 1).
Weyerhaeuser’s revenues grew 29% from the second quarter amidst a boom in lumber prices due to home improvement projects and new home sales that caught most industry analysts by surprise.
Weyerhaeuser projected that this trend will continue in the final quarter of 2020 as harvests that had been suspended due to forest fires in Oregon resumed.
Louisiana Pacific also showed the impact of a strong construction market with strong sales of oriented strand board and home siding. The OSB increases was based on an increase in prices of more than 80%.
Rayonier, a timber REIT with a strong presence in the U.S. Southeast region and also in New Zealand, showed solid results despite casualty losses of $7.9 million in the quarter in tropical storm damage from Hurricane Laura in the Southeast, and from the Beachie Creek fire in Oregon.
International Paper, a giant in the packaging paper world, reported an 8% sales decline from 2019, but an increase of 5% from the second quarter. Packaging paper sales were flat from 2019, but cellulose fiber sales declined from both the prior year and in the second quarter of 2020.
Mercer, a Vancouver, BC company that sells wood products plus pulp to paper makers in North America, Europe and Asia reported record wood products results based on sales from its wood products operations. Pulp sales were “steady,” according to the company.
The company’s sales growth was due to forest products. “The historic increase in lumber prices in the U.S. were reflective of the solid housing market and home renovation related demand combined with reduced supply”. The company sells wood products to construction firms, secondary manufacturers, retail lumber yards and home centers.