Interfor Corporation Q2 Earnings

Positive Earnings Result Amid Mounds of Macro Headwinds

Earnings Summary

Revenue: $567.55M

Net Income: $8M

Price P/Thousand Board Feet: $497

Debt/Invested Capital: 35.6%

See our Full Thesis Here on Interfor

Commentary

It has been a long time since we have seen profitability for Interfor or the lumber market broadly and we were pleased to see some positive momentum. This is, by all measures a “value trap” with many claiming that because this downturn has persisted for so long, and they do not know when the turn will come, they simply will not own it or sell it at the first sign of troubles. Today Interfor trades at $0.15/$1 and you do not get those kinds of opportunities when things are easily predicable and look promising. It turns out that when you buy assets for as cheaply as we are accumulating Interfor’s, you can look “wrong” for a while and still make substantial returns on capital as the latent earnings power manifests and those assets are valued appropriately.

Production

One of the things we watch with a number of industries we invest in is the willingness to tighten supply further. North American lumber as a whole has been reducing supply over the last number of years with Interfor shipping 978M board feet in the quarter and reducing inventory volumes by 37M in the quarter. When lumber shipments exceed production that is a tea leaf we like to see when thinking about when the turn might begin. We expect to see flat to declining production with more curtailments overtime industry wide as North American lumber remains difficult amid a host of macro headwinds.

Balance Sheet + Tenure Sales