Earnings call: West Fraser optimistic despite mixed Q1 2024 results

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Earnings call: West Fraser optimistic despite mixed Q1 2024 results
Credit: © Reuters.

West Fraser Timber Co. Ltd. (NYSE: WFG ) reported a mixed financial performance in its first quarter of 2024, with a $200 million adjusted EBITDA and a 12% margin. Despite challenging market conditions, the company saw strong performance in specific segments and maintained a robust balance sheet. Still, soft demand in certain lumber products and European markets, along with market uncertainties, are points of concern.

The company remains confident in its strategy for sustainable wood products and is actively managing its operations to navigate the current economic landscape.

Key Takeaways

  • West Fraser generated $200 million in adjusted EBITDA with a 12% margin in Q1 2024.
  • The North American Engineered Wood Products and SPF lumber markets showed strength.
  • Soft demand was experienced for SYP lumber products and in the European business.
  • The company's balance sheet remains strong with $1.8 billion in total liquidity.
  • West Fraser completed the sale of its Hinton pulp mill and two BCTMP mills.
  • Market uncertainties persist, but the company is optimistic about future demand.

Company Outlook

  • West Fraser expects ongoing market challenges but is confident in its ability to execute its strategy.
  • The company is focused on improving asset quality and reducing costs across its platform.
  • Organic projects like the Henderson project are on schedule and within budget.
  • West Fraser is open to M&A opportunities, with a focus on high-quality assets that complement its business.

Bearish Highlights

  • Demand for SYP lumber products and performance in Europe were weaker than other segments.
  • The company is facing market uncertainties and challenges ahead.
  • Lower prices in the Southeast region have impacted operating costs and necessitated curtailment actions.

Bullish Highlights

  • The company has seen strong performance in the North American Engineered Wood Products and SPF lumber markets.
  • West Fraser's sales team has successfully strengthened relationships with key customers.
  • The company has performed better than expected despite supply concerns.
  • There is some improvement in European market volumes and inflation rates.

Misses

  • The company did not provide specific guidance on future earnings or revenue expectations.
  • There was no mention of the performance of other individual product segments outside of those highlighted.

Q&A highlights

  • Sean McLaren discussed the company's response to low prices, including curtailment actions like the closure of Maxville and the indefinite curtailment of Huttig.
  • The Cariboo Pulp mill is not expected to require significant capital investment beyond regular maintenance.
  • Discussions included log inventories, production disruptions, OSB ramp-up progress, and a slowdown in R&R demand.
  • The company is selective in its approach to mergers and acquisitions, looking for assets that support its existing business.

In conclusion, West Fraser's first quarter of 2024 reflects a company navigating a complex market environment with strategic asset management and a commitment to operational excellence. While certain segments show promise, the company acknowledges the challenges ahead and is taking a cautious yet optimistic stance on future demand and market conditions.

InvestingPro Insights

West Fraser Timber Co. Ltd. (WFG) remains a topic of interest for investors, especially in light of its recent financial performance and the broader economic context. To provide a deeper understanding of the company's financial health and stock performance, here are some key insights from InvestingPro:

InvestingPro Data:

  • Market Cap (Adjusted): 6430M USD
  • P/E Ratio (Adjusted) last twelve months as of Q1 2024: 54.72
  • Dividend Yield as of the latest data in 2024: 1.53%

InvestingPro Tips:

  • WFG's management has been actively buying back shares, indicating confidence in the company's value and future prospects.
  • The company has a track record of raising its dividend for 3 consecutive years, showcasing its commitment to returning value to shareholders.

For investors looking for more detailed analysis and additional InvestingPro Tips, including insights on earnings revisions and stock volatility, visit https://www.investing.com/pro/WFG. There are 10 more tips available, which could provide further clarity on whether West Fraser's stock aligns with your investment strategy. To enhance your investing experience, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

Full transcript - West Fraser Timber Co Ltd (WFG) Q1 2024:

Operator: Good morning, ladies and gentlemen. Welcome to West Fraser Q1 2024 Results Conference Call. Please note that all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] During this conference call, West Fraser's representatives will be making certain statements about West Fraser's future financial and operational performance, business outlook and capital plans. These statements may constitute forward-looking information or forward-looking statements within the meaning of Canadian and United States securities laws. Such statements involve certain risks, uncertainties and assumptions, which may cause West Fraser's actual or future results and performance to be materially different from those expressed or implied in these statements. Additional information about these risk factors and assumptions is included both in the companion webcast presentation and in our 2023 annual MD&A and annual information form, which can be accessed in West Fraser's website or through SEDAR+ for Canadian investors and EDGAR for United States Investors. Please note that today's call is being recorded. I would now like to turn the call over to Mr. Sean McLaren, President and Chief Executive Officer. Please go ahead.

Sean McLaren: Thank you, Lara. Good morning, everyone, and thank you for joining our first quarter 2024 earnings call. I am Sean McLaren, President and CEO of West Fraser. And joining me today in our Quesnel office on the day of our Annual General Meeting, are Chris Virostek, our Senior Vice President and Chief Financial Officer; Matt Tobin, our Senior Vice President of Sales and Marketing; and other members of our leadership team. As just mentioned, later today, we will be holding our AGM or among other things, we plan to discuss our progress with sustainability initiatives, some of the broader challenge that the North American lumber industry continues to face adding meaningful supply, our recent track record, allocating capital, including capital returns through buybacks and dividends and the attractive long-term total returns realized by West Fraser stockholders. On the earnings call this morning, I will begin with a brief overview of West Fraser's Q1 2024 financial results and then pass the call to Chris for additional comments before I share some thoughts on our outlook and offer concluding remarks. West Fraser generated $200 million of adjusted EBITDA in the first quarter of 2024, representing a 12% margin. We experienced mixed results across our business again in Q1 with strength in our North American Engineered Wood Products segment, as well as SPF lumber markets, partially offset by continued soft demand for SYP lumber products and in our European business. While new home construction in the U.S. remained resilient through the quarter, supporting demand for OSB and to a large extent, SPF lumber, continued elevated mortgage rates appear to be constraining existing home sales activity and tempering repair and remodeling spending, which had a greater impact on SYP lumber demand. On a trailing four quarter basis, adjusted EBITDA was $703 million, up from the $561 million we reported for fiscal 2023. On a pro forma basis, with the inclusion of Norbord (NYSE: OSB ) this level of trailing four quarter adjusted EBITDA is approximately $460 million higher than that of the down cycle in 2019, reflecting synergies from the Norbord transaction, the benefits of our capital investment program as well as the acquisitions and strategic initiatives we've undertaken in recent years. Finally, our resilient balance sheet and $1.8 billion of total liquidity at quarter end remained strong, offering the financial flexibility with which to support our capital allocation strategy. With that overview, I'll now turn the call to Chris for additional detail and comments.

Chris Virostek: Thank you, Sean, and good morning, everyone. And a reminder that we report in U.S. dollars and all my references are to U.S. dollar amounts, unless otherwise indicated. The Lumber segment posted $10 million of adjusted EBITDA in the first quarter, improving from negative $51 million in the fourth quarter. Our North American EWP segment generated $188 million of adjusted EBITDA in the first quarter, up from $143 million in the fourth quarter. The Pulp & Paper segment generated $3 million of adjusted EBITDA in the first quarter, similar to the $2 million reported in the fourth quarter, while in Europe, adjusted EBITDA was a negative $1 million in the first quarter versus $3 million in the fourth quarter. Higher prices were the largest driver for the sequential EBITDA increase across our North American lumber and engineered wood products businesses, while increased shipments of SPF products also contributed meaningfully to the sequential improvement. Further, our lumber business benefited from the actions we took in January to curtail production at two higher cost mills. In effect, we replaced that volume with production from other lower cost mills. Cash flow from operations was negative $41 million in the first quarter, with our cash balance net of debt still at a healthy $174 million versus $361 million last quarter. The relative decrease in our cash balance reflects a combination of the typical seasonal build in working capital. $122 million of capital expenditures plus the approximate $31 million of cash deployed towards share buybacks and dividends. With that brief financial overview, I will pass the call back to Sean.

Sean McLaren: Thank you, Chris. We are proud of the company we have built with the geographic and product diversification that has allowed us to weather what has been a period of challenging markets, particularly in our lumber business. As seen in the right side figure on Slide 6, our North American EWP segment has generated nearly $750 million of adjusted EBITDA over the last four quarters, which has been a period of tougher cyclical conditions for our other segments. It is this diversity in our wood building products offering that's allowed us to generate more than $700 million of adjusted EBITDA on a consolidated basis over the last four quarters, representing a meaningful improvement from the down cycle of 2019. As an update to our ongoing portfolio optimization strategy, we recently completed two important transactions, namely the disposition of our Hinton pulp mill in February and more recently, the disposition of our two BCTMP mills which we disclosed earlier this week. We also announced in April the dissolution of our 50-50 joint venture at Cariboo Pulp & Paper where we are now the sole owner and operator of the mill, which better positions us to support the mill's needs as well as its talented workforce. On balance, we believe the sale of the three pulp mills along with many other recent adjustments to high grade our mill portfolio will allow us to reduce the variability of our earnings stream, while also improving a higher EBITDA floor through the cycle. Shifting to our outlook and concluding remarks. We expect to continue to face a number of market uncertainties over the near term. Having said that, we remain encouraged that inflation expectation and mortgage rates in the U.S. are below the highs of last year. Inflationary cost pressures have largely stabilized across much of our supply chain and we do not expect to see any meaningful upward cost pressures over the near term. Further, constraints to new supply are very real, particularly for the North American lumber industry, where net new supply growth has been essentially nil over the last several years despite a number of strong up cycles. Of modest concern, as we are suggested on our Q4 2023 earnings call in February, unusually warm weather in Western Canada hampered our winter logging activities, limiting the accumulation of log inventories at some of our mills, which required us to take downtime at select SPF mills in the first quarter. The impact of weather on our log decks remains a risk factor to our near-term ability to manufacture and ship SPF lumber in Western Canada, and we continue to monitor the situation closely. For our lumber operations in the U.S. South, persistently weak market conditions are a challenge, and have increased the downside risk to our near term production and shipments of SYP in the region. In conclusion, while demand markets remain mixed early in 2024 and there are near-term challenges across our business, we continue to be pleased how our teams are performing all across West Fraser. We remain confident that we have the right people, processes and foundation to execute on challenges and opportunities as they unfold. As always, we remain optimistic about the continued growth in future demand for the types of sustainable and renewable wood products that West Fraser manufacturers and for which the company is known. With that, we'll turn the call back to the operator for questions.

Operator: Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Ben Isaacson from Scotiabank. Please go ahead.

Apurva Kilambi: Good morning. This is Apurva on for Ben. Congrats on the quarter, folks. My first question is whether you can give us a sense of how customer buying patterns have -- sorry, customer buying patterns have evolved over the quarter. I think last quarter, you mentioned that things looked stable. So wondering, if there's been any evolution there?

Sean McLaren: Yeah. Good morning, Apurva. Sean here. I'll make a couple of comments then and ask Matt Tobin to fill in what I miss. I guess from our perspective, we started the year stable and expected some more activity out of our R&R segment and our treaters in particular, which really has been slower than I would say we would typically expect for the spring kind of season. And as a result, we've seen price pressure, in particular in Southern Yellow (OTC: YELLQ ) Pine. Maybe I'll just stop there and ask Matt to weigh in with anything I missed there.

Matt Tobin: Thanks, Sean. So I think that's correct. I mean as the R&R markets have slowed down, demand has slowed a little bit down from our customers, particularly in SYP. But we think long-term R&R is going to be -- we're in a strong position with the age of housing stock and it will bounce back with affordability.

Apurva Kilambi: Perfect. Thank you. And a quick follow-up to that. So when we consider R&R and I know long term, you expect that the R&R segment will continue to push strong demand. So when we do see some weakness in that segment, do you view that as demand deferral or demand destruction? So is it just pushing out -- someone is pushing out a remodel a couple of quarters or is it they're no longer pursuing that? Any thoughts there?

Chris Virostek: I think we would consider that demand deferral. I think like say, with the age of housing stock, we believe that R&R is well positioned for the long term. And right now, it's just around the affordability and market dynamics.

Apurva Kilambi: Thank you.

Operator: Our next question comes from the line of Hamir Patel from CIBC Capital Markets. Please go ahead.

Hamir Patel: Hi. Good morning. Sean, given how low prices have fallen in the Southeast, are you surprised we haven't seen more curtailments in the region from some of your peers that are perhaps higher cost and what do you think has been holding producers back from announcing shuts?

Sean McLaren: Yeah. Good morning. Good morning, Hamir. Again, not a lot of visibility to what everybody is doing in the South. I can only speak to what we're doing. Of course, as we announced early in the year, we took pretty strong action with the curtailment of -- indefinite curtailment of Huttig and the closure of Maxville, and we continue to run to first our economics; secondly, our customer needs. And when those things line up, we operate and when they don't fit, we take action. And I think in the South, I can't speak to what others are doing, but you don't really have the ability to build big inventories in the south. So I think probably people would behave like we are, which is reacting to what your inventories are doing and what you can move into the market.

Hamir Patel: Fair enough. And so I wanted to ask about on the pulp and paper side. You've taken full ownership now the Cariboo mill, how big a CapEx investment in coming years, would you expect to need to commit there to keep that mill viable over the long term?

Sean McLaren: Well, what I would say there, Hamir, is Cariboo Pulp is, as we've talked about multiple times on these calls and the capital that needs that were required at Hinton, Cariboo Pulp in a very different place. I mean the asset is approximately 20 years newer. It's been well maintained over the years. Saying that craft mills require a meaningful shutdown every couple of years and every year, some level of shutdown. But we don't -- things can always happen, but we don't foresee any major capital needs outside of what I would call ongoing regular maintenance at a kraft mill.

Hamir Patel: Great. Thanks, Sean. That's all I had [indiscernible] on the pulp side. And just a final question for Matt. It looks like your lumber realizations fared quite a bit better than the benchmarks and at least what one of your peers have been pointing to any thoughts on what kind of drove the relative strength?

Matt Tobin: I guess I'll probably just maybe get down to mix or I can't really comment on what our peers are doing, but they might just deal with mix in the quarter that we'll average out over time.

Hamir Patel: Okay. Fair enough. Go ahead. I’ll turn it over. Thanks.

Matt Tobin: Thank you.

Operator: Our next question comes from the line of Ketan Mamtora from BMO Capital Markets. Go ahead, please.

Ketan Mamtora: Thank you and good morning, everyone. First question, maybe to your earlier comments, Sean, around SPF inventories being below normal levels on the log side, to be clear, is there any way to sort of quantify where your log inventories are versus sort of typical levels for this time of the year? Just sort of rough order of magnitude.

Sean McLaren: Yeah. Good morning, Ketan. I guess the way I would quantify it is we've got a couple of places where we came in below what our targets would have been. And what really that means we've just flagged it as a risk. It means we need to have a little earlier start to our delivery season. We typically wouldn't be expecting to bring logs in, in Western Canada till the second half of June or late June. We've got a few sites where we're going to need to start hauling wood earlier than that. And I think our team has done an excellent job of staging product roadside and having us in position to be able to haul that. But we are going to need some support from, conditions are very dry, there's fire risk in both provinces. So we're going to need things to kind of align for us to be able to do that. I wouldn't view it though, as we're talking a couple of mills in our portfolio of a dozen mills here.

Ketan Mamtora: Understood. No. That's helpful. And just one follow-up on that. Have those production disruptions are those two mills still continued into Q2 or into April at this point or you guys have been able to manage it.

Sean McLaren: No. We've been able to manage it. We took some forward action in Q1 to ensure that we had log inventories to at least get us to the early part of June. And we have plans in place whether permitting to be able to operate normal through the period. We flagged it as a risk if weather conditions change or we have disruption in the forest, it's going to impact a couple of our plants.

Ketan Mamtora: Got it. No, that's helpful. And then switching to OSB. Can you just update us as to kind of where Allendale is with the ramp-up and where you expect that mill to be by the end of this year in terms of rate of production? I know you flagged kind of a pretty extended ramp-up period in your release. But just curious kind of what you're seeing -- what you're expecting for '24.

Sean McLaren: Yeah. No, the first thing I would say there, Ketan, is very pleased with the progress that we're making at Allendale and the team we have in place there, that mill started in July of last year and so we're 10 months later. The mill is going to take two to three years to ramp up. And I would say when you look at the capacity of the mill and sort of look out three years from when we started. If you drew a line, a start-up line, that would probably – you probably end up pretty close in terms of where we'd expect to be by the end of this year. Saying that, we're happy with the progress. It's going to lower our cost footprint in our OSB business, which is the reason we bought Allendale and we're well on track to deliver that.

Ketan Mamtora: Understood. And just one final question from my side before I turn it over to an earlier question around R&R demand. Have you seen outside of seasonality, obviously, as we move through April and May and June activity picks up. But outside of seasonality, have you seen any change in the demand pattern, whether sort of any slowdown or has it kind of largely been stable with this recent uptick in interest rates. Just curious about that.

Matt Tobin: I think we've seen a slowdown in R&R demand across our different products. Like I said, I don't think we think it's a long-term issue. We think that we're well positioned for R&R in the long term. But certainly, this quarter, we've seen across our segments, just weakened customer demand around R&R.

Ketan Mamtora: Okay. That’s helpful. I’ll jump back in the queue. Good luck. Thank you.

Matt Tobin: Thank you.

Operator: Our next question comes from the line of Sean Steuart see from TD Cowen. Go ahead, please.

Sean Steuart: Thank you. Good morning, everyone. Matt, I just want to follow up on the last point. When you talk about a slowdown in R&R volumes, can we put some percentage numbers around that quarter-over-quarter? Are we talking mid-single digit volume declines? Just trying to get better granularity on what's happening across various demand channels.

Matt Tobin: I would say, we don't have perfect visibility to the end markets around that, but there are customer segments, anecdotally is what we're reporting, and that's what we're seeing through the typical channels that we see those products move for R&R. So I can't give you an exact percentage because we don't have that visibility, but we certainly feel that slowness through the channels that we typically move our products to support R&R.

Sean Steuart: Okay. And on lumber with respect to finished goods inventories through the distribution channel, you guys and comps the last few quarters have pretty routinely positioned it as lean. But I'm hoping you can reconcile that characterization with prices sort of spinning their wheels here, looking for traction. Any updated thoughts on finished product inventories. It feels like it's pretty low at the mill level, but what you guys are seeing through the supply chain and the end markets?

Sean McLaren: Yeah. Good morning, Sean. Sean here. I'll make a comment on that and then ask Matt to pitch in anything I missed. Really tough for us to speak to what's happening. It is difficult to see what it is across the supply chain. We can only speak to our inventories and our customer buying patterns. Our inventories are normal and our customers appear to buy when they need it. So nobody seems to be under a lot of pressure to buy. So there's not -- at least we're not feeling anybody building inventory because they're concerned about supply. So anyways, I would just leave it at that, but hard for us to really give you a sense on what it is across the whole system.

Sean Steuart: Okay. Thanks for that Sean. Just one last question maybe for Chris. The $11 million quarter-over-quarter decline in operating costs that was referenced in the waterfall slide in the deck, how much of that is tied to the U.S. South optimization initiatives? And can we expect follow-on progress on that front in the coming quarters or is that a step function change and a new level, and you should just expect that same level going forward?

Chris Virostek: Well, I'd say here's kind of how we're thinking about it as we look at the next several quarters. We've seen a little bit of -- with the lower prices we've seen a little bit of stumpage relief in Canada that's been a tailwind for us that's benefited us on the cost side there. As you know, we said the Fraser Lake, the impact of that won't really be felt until the third quarter or fourth quarter as that mill winds down through the balance of this quarter and the inventory gets liquidated there, and we wind up operations there. The closure of the two mills in the U.S. South was a much more expeditious process, given how lean the inventories are typically in the South and those mills wound down operations quite quickly. But what we did there was, as you can tell from the shipments is we effectively replaced that volume at our other newer, lower cost mills. And so we had effectively internal cost arbitrage by moving that production and keeping our shipping pace where it was, but with an overall lower cost platform. So those are the things I would say that we're laser focused on doing every day. We've spent a lot of capital in the last several years and continue on our capital program. And I think that's one of our differentiators is we're spending the capital and trying to improve the quality of the assets in the businesses and how they run even through the bottom of the cycle. So we're going to keep pushing on that cost lever as much as we can to keep driving costs down across the platform in lumber and in fact, in all the businesses. And we saw some great results on that in the first quarter and certainly, the teams are working on that every day.

Sean Steuart: Okay. Thanks a lot, Chris. Appreciate it.

Operator: Thank you. [Operator Instructions] We have our next question coming from the line of Matthew McKellar from RBC Capital Markets. Go ahead, please.

Matthew McKellar: Hi. Good morning, and thanks for taking my questions. First, I'd like to ask, I think you talked about having a few more organic projects in the queue for your U.S. lumber platform. Is the softness we're seeing in Southern Yellow Pine today changing your view at all on whether those projects pencil out over the longer term or potentially changing the timing of when you may move forward with some of those new investments in the U.S. South?

Sean McLaren: Good morning, Matthew. Sean here. I think when we refer to that, it's projects we have in motion and which the largest is our Henderson project, and that one project, we're not slowing down there. It's on schedule, on budget. It is a strategic investment that we think will be well positioned whatever the market cycle is once we get it up to rate and integrate it in our full lease Texas platform. I think for future projects, we are very focused on ramping up what we have in motion and executing on the capital we've spent and finishing the capital we have underway. So even though we are doing planning for the future, I think new projects, we're going to pick our time. When we do that, focused job one today in West Fraser is delivering on what we've -- projects we already have in motion and in start-up.

Matthew McKellar: Great. Thanks very much for that. The next question, you've been pretty clear on outlining what factors you consider when pursuing M&A. And with that as a background, can you describe what the pipeline of opportunities you see in the market looks like today?

Sean McLaren: Maybe I'll make a comment or two and ask Chris to just weigh in here. But I would say, our view in West Fraser is and has been for an M&A opportunity. It needs to be high quality, immediately make us stronger, support our existing business. It needs to tick all of the boxes like Angelina did, like Allendale did, like Spray Lakes or Cochrane did. I would say those opportunities are pretty few and far between today and people with high quality assets. The odd one might come to market, but tough to find them. So that would be my perspective and who knows, but I think we're well positioned to react to anything that we're interested in that comes on the market, but the bar is pretty high in West Fraser.

Matthew McKellar: Great. Thanks very much. One last kind of cleanup for me. On Hinton, I know you have a long-term contract with [indiscernible] to supply residuals into that facility. My question is whether you expect any significant downside of that mill between now and 2027 as they work through their paper machine investments. It would mean you have to find a home for those residuals on an interim basis? And if so, how should we think about the financial significance of that?

Chris Virostek: I think what -- how they're going to execute their capital is really a question for them. But we feel very good about our ability to dispose of our residuals in Alberta that's a low cost region for us that we want to make sure operates. And we think we’ve definitely taken all the right steps with that transaction to provide us the comfort that we can continue to do that over a very long extended period of time.

Matthew McKellar: Great. Thanks a lot for the color. I’ll take a back.

Chris Virostek: Thank you.

Operator: We have a follow-up question coming from the line of Sean Steuart from TD Cowen. Go ahead, please.

Sean Steuart: Thanks. Just one follow-up, guys. OSB in North America, it looks like prices are starting to crack after really surprising run over the last several months. Can I get your perspective on downside risk to that market? How far do you expect prices could fall before downtime kicks in? And I appreciate you're taking a slow and steady approach with Allendale, but broader thoughts on managing supply as prices potentially correct here over the next little bit?

Chris Virostek: I'll make maybe a comment or two here, Sean, and then get Matt to fill in here. I guess from my perspective, our OSB sales team and the entire team has done a very good job. I think we've strengthened relationships with key customers, built programs that both are supported by OSB and lumber. And I think that's given us an ability to ramp up Allendale into those programs. In terms of what it's going to happen really tough for us. We know supply is coming on saying that, the business has consistently held up better than our expectations, which we've been pleased by, and our team has done an excellent job of strengthening relationships with our key customers for both products. Matt, anything to add?

Matt Tobin: No, that's perfect. We're really focused on supporting our key customers to meet their demand and supply them through all markets.

Sean Steuart: Okay. That’s it for me. Thanks, guys.

Operator: We have a follow-up question coming from the line of Ketan Mamtora from BMO Capital Markets. Go ahead, please.

Ketan Mamtora: Thanks for taking my follow question. Question on kind of what you're seeing in Europe in terms of activity level. Are you still seeing kind of activity under pressure or are you seeing things stabilize?

Sean McLaren: Yeah. Hi, Ketan. Europe is slow, has been slow for a number of quarters now. What I would say, as we come into Q2 is that we've seen -- even though prices really haven't materially improved, we have seen some volume improvement. Rate inflation seems to be coming down a little quicker over there. Saying that, I'm still really slow in Europe. We have really good assets, a strong team. We'll see when things improve, but we're pretty -- we feel pretty good about operating even in this environment and keeping -- moving our -- all of our operational excellence and business goals forward even though pricing is tough.

Ketan Mamtora: Got it. And then just one related question to that. If Europe remains weak, and it sounds like it is fairly weak. What is the risk that we start to see an uptick again in imports of lumber into the U.S. from Europe. I mean it's been coming down here in the last little bit. But just curious how you see that potentially shaping out as we move through Q2 and into Q3?

Sean McLaren: Again, we don't have lumber assets in Europe. So our visibility is not as good as maybe some others. But I mean, I guess our view is that there's been a lot of investment by European producers opening up those supply chains they're unlikely to let those supply chains close. So we likely will continue to see volume flowing. Saying that, as things improve in other markets that they normally go to, we'll see that volume go to those markets. So we view it could be up and down, but we view it long term likely volumes going to stay in their more traditional markets.

Ketan Mamtora: Got it. That’s helpful. Thank you.

Operator: Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. McLaren for final closing comments.

Sean McLaren: Thanks, Lara. As always, Chris and I are available to respond to further questions as is Robert Winslow, our Director of Investor Relations and Corporate Development. Thank you for your participation today. Stay well and we look forward to reporting on our progress next quarter. Thank you.

Operator: Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.

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