3Q23 Company Results

2023 Blog_pic company results 3Q23

1. Results Overview

The third quarter results published by companies in the sector overall reaffirmed the current cyclical headwinds in the construction market and this continues to negatively affect timber and construction-related businesses in the short and medium term. Nordic markets, such as Sweden, are particularly weak in terms of construction activity. At the same time, robust timber prices in the region support forest owners while putting pressure on sawmills’ margins. The U.S. continues to be the most resilient market despite a cyclical slowdown there as well. Some healthy degree of pessimism is already priced in by the market and several companies managed to beat expectations.

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2. Timber Construction

There continue to be strong regional differences, with the U.S. showing more resilience than European markets such as Sweden. While overall results are down YoY, several companies managed to deliver positive bottom lines and beat expectations, in particular in the U.S. The tone continues to be more upbeat in the U.S. than in Europe, where the outlook for construction and wood products is facing continued headwinds. The most upbeat notes in Europe come from Nordic forestry, where prices remained strong on continued lack of supply from Russia.


North America

Weyerhaeuser, the largest Timberland REIT, reported revenues down -11% YoY and EBIT down -23%, highlighting a relatively stable market in terms of volumes, while pricing was generally softer except for OSB that recovered from the lows earlier in the year. The company’s outlook for Q4 was cautious. Rayonier reported growing sales YoY, as a softer market with lower volumes and prices was offset by increased harvesting thanks to previous acquisitions and by increased carbon credits sales in New Zealand. Rayonier also announced an adjustment to its leverage targets, as it plans to deleverage in the current high-rate environment; the company will sell some timberlands and it points out that there is a significant spread between the valuation on the private market relative to the public market: they are selling timberland in Oregon at ca. $4’400 per acre, while the market is trading at an EV of $5.3bn, which divided by 2.8m acres of forestland, leads to an average value per acre of less than $2’000; while the timberland portfolio is not uniform, this rough estimate suggests that there is indeed a significant disconnect between public and private markets, with public Timber REITs discounting a good amount of pessimism.

UFP Industries’ strongest and weakest segments were retail solutions (railing & decking, treated lumber, etc.) with sales down -16%, respectively construction with sales down -25% on lower construction activity. Composite products manufacturer TREX, which transforms reclaimed wood and plastic waste into decking and railing products, delivered a very strong result, although the YoY basis is not comparable due to large distribution channel inventory effects; if we take the 9M23, sales were down -2% while EBIT was up +7%. TREX also slightly improved its FY guidance despite expecting lower inventory levels at its distribution channels. Louisiana Pacific matched consensus on sales (down -15% YoY) while the bottom line was better, helped by higher OSB pricing and lower input costs, despite macro challenges in South America. The earnings call suggested that inventory levels and destocking by distributors have normalised. Builders FirstSource’s revenues were down -21% YoY, below consensus, but the bottom-line beat. The company highlighted a weak single-family housing market, a stable repair & remodel market, while they did well in multi-family thanks to a strong backlog.

Canadian lumber manufacturers including Interfor, Canfor, leader West Fraser and Western Forest Products reported overall weak results, with revenues down between -18% and -35% YoY and all except for West Fraser (who outperformed in both top and bottom line) reporting an operating loss. Overall, they noted a resilient U.S. market, despite the well-known macro headwinds, but continued to highlight the challenges for timber sourcing in Western Canada, especially due to wildfires and regulatory uncertainties with regards to the relationships with First Nations. Companies also reported weak Japanese and Chinese market dynamics due in part to increased competition from European and Russian exporters.



In Europe, companies reported weak results in general, although some delivered quarterly numbers above expectations. The integrated forestry and wood-based products companies reported revenues down between -6% and -28% YoY, and EBIT down strongly. Holmen’s operating profit was down -39%, with Wood Products particularly weak while the forest business was strong on robust pricing. Stora Enso’s results were weaker, approximately breaking even at EBIT level, highlighting weak wood products, pulp and paperboard markets, while timber prices in the Nordic region stayed strong. Bergs Timber also reported weak results, breaking even at EBIT level, and pointing to the very weak construction industry as a main driver, with high raw material prices additionally putting pressure on margins. The day following the earnings report, Bergs’ largest shareholder, Norvik, made a public takeover offer to bring the company private at SEK 44.50 per share, a 10% discount to the last reported book value per share of SEK 49.66. German wood-fiber insulation specialist STEICO reported 9M revenues down -19% and EBIT -55% YoY. The company highlighted a stabilization of demand in the 3rd quarter. YoY, 3Q revenues were down -17% and -49%. While it is not strictly related to timber construction, Norwegian construction company Veidekke, with operations also in Sweden and Denmark, provides useful insight into the underlying construction market in the Nordics: it beat consensus and delivered overall strong results, helped by strong 2022 order intake, while at the same time it warned about decreasing orderbooks and the challenging economic environment that are expected to affect revenues later in 2024.


3. Paper & Packaging

Nordic Integrated forestry companies reported weak results in pulp, paper and packaging. SCA indicated that pulp prices have been decreasing and inventory levels for hardwood pulp have improved (decreased) while for softwood pulp they have increased. There was a notable merger in the packaging sector during the 3rd quarter: the Irish Smurfit Kappa and the American Westrock merged to create a global paperboard packaging leader. Mercer International, the Canadian pulp company increasingly diversifying into durable wood products including mass timber, reported revenues down -12% YoY, with the pulp business delivering an operating profit while the solid wood segment produced a loss – overall, however, the company managed to beat a more pessimistic market consensus, on both top and bottom line.


 4. Equipment Manufacturers

Nordic forestry equipment manufacturers Husqvarna and Ponsse surprised the market negatively. Husqvarna reported sales down -14% YoY while operating income fell -28%, significantly below expectations; on top, the company provided cautious guidance for Q4. The company’s forest & garden division was the weakest YoY (although it grew the fastest over the first 9M23). Ponsse also surprised market consensus negatively, to an extent similar to Husqvarna. Ponsse highlighted company-specific issues in its Latin American and discontinued Russian operations, but also pointed to broader issues including cost inflation and weakening business cycle.


5. Disclosures and Conflicts of Interest

Some or all the companies mentioned in this report may be included in the Timber Finance Forest-Based Construction Basket tracker and are part of the Timber Finance Carbon Capture & Storage Index. Timber Finance Management and/or the Timber Finance Initiative may have commercial relationships or be in discussions with some of the companies mentioned in this report. Specifically, Stora Enso is a member of the Timber Finance Initiative association.

Please note that this research is prepared for information purposes and targeted to institutional investors in Switzerland. They do not represent investment advice and do not take into consideration the individual requirements, risk tolerance and goals of an investor. Recipients who are not Swiss institutional investors should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents.

The information presented in this report is obtained from several different public sources that we consider to be reliable. Nevertheless, we cannot guarantee the accuracy of the presented information. The information used may change quickly and we are not committed or obliged to modify the reports base on new information. The opinions and views expressed in this report reflect those of the author at the point in time of its compilation and may vary at any time. Valuation methods like DCF and any other analysis or expert judgement do not provide any guarantee that the target price or fair value will be reached, for example because of unforeseen changes in financial or economic conditions.


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