HispanicBusiness

Overview

Operating income for the lumber segment was $88.4 million for the first quarter of 2013, an increase of $45.9 million compared to operating income of $42.5 million in the immediately preceding quarter, and a $108.7 million improvement from the operating loss of $20.3 million reported for the first quarter of 2012. The fourth quarter of 2012 results included a gain resulting from amendments to the Company's salaried post retirement plans while the comparable period in the prior year included a $10.2 million recovery of previously recorded inventory write-downs and $2.5 million in costs related to the acquisition of the Kootenay area sawmills.

The stronger results compared to the fourth quarter of 2012 reflected continued strong lumber markets and improved lumber sales realizations. Both North American and offshore markets experienced solid increases in sales realizations compared to the previous quarter. Canadian dollar sales realizations were positively impacted by a 2% weaker average Canadian dollar compared to the fourth quarter of 2012.

Unit manufacturing costs were in line with the prior quarter reflecting reductions in unit conversion costs offset by increased unit log costs. The reduction in conversion costs was driven by increased production levels, reflecting both a full quarter of production from the recently restarted Radium sawmill and productivity gains, as well as the Christmas period in the previous quarter. Log cost increases were predominantly the result of market-related stumpage and hauling costs, driven in part by higher fuel costs.

Significantly improved market prices and sales realizations coupled with a 14% increase in lumber shipments, mainly attributable to additional production from the Kootenay areas mills, contributed to the increase in operating income compared to the first quarter of 2012. Partially offsetting these gains were increased unit manufacturing costs largely reflecting market-related stumpage and higher hauling costs.

Markets

During the first quarter of 2013, the lumber market continued its momentum from late 2012, with the continuing recovery of the U.S. housing market and strong offshore lumber demand from all major consuming regions. U.S. housing activity continued to reach levels not seen in over five years. Total U.S. housing starts averaged 969,000 units(13) SAAR, up 7% from the previous quarter, and ended the quarter at 1,036,000 units(13) SAAR in March, the highest monthly and quarterly starts since mid-2008. Single-family starts, which consume a larger proportion of lumber, were 628,000 units(13) SAAR in the first quarter of 2013, a 6% increase from the fourth quarter of 2012. The repair and remodeling sector also gained from the overall increase in housing activity during the quarter.

After several years of strong growth, Canadian housing starts were down 26,000 units, or 13%, from the fourth quarter of 2012 to 178,000 units(14) SAAR in the first quarter of 2013.

Canfor's offshore lumber shipments were relatively flat compared to the last quarter of 2012, but were up 8% compared to the first quarter of 2012.

(13) U.S. Census Bureau

(14) CMHC - Canada Mortgage and Housing Corporation

Sales

Sales for the lumber segment for the first quarter of 2013 were $542.3 million, compared to $469.9 million in the previous quarter and $343.7 million in the first quarter of 2012. Increases from both comparative periods reflected the impact of improved pricing. The improvement from the first quarter of 2012 also reflected a 140 million board feet, or 14%, increase in shipments largely related to incremental production from the Kootenay region and improved productivity. Current quarter sales realizations were also favourably impacted by a weaker Canadian dollar compared to the US dollar.