Norbord (TSE:NBD) shares fell hard in early deals Tuesday after the company's third quarter profit fell sharply to miss analysts' estimates amid challenging North American OSB (oriented strand board) market conditions.
Net earnings in the third quarter were $5 million, or 9 cents per share, compared to $27 million, or 50 cents per share, in the same quarter of 2013. The average estimate by analysts polled by Thomson Reuters was for earnings of 12 cents per share.
The company said that in response to difficult North American OSB market conditions, it moved most of its annual maintenance shutdowns forward to the third quarter, and curtailed additional production at several of its mills.
"Despite this downtime, our mills ran very well - producing at stated capacity and holding onto manufacturing cost improvements achieved in the first half of the year," said president and chief executive officer, Peter Wijnbergen.
"We generated $12 million in margin improvement gains so far this year and our recent capital investments are starting to pay back."
The chief executive said that in the near term, he expects North American OSB pricing to continue to move sideways with the slower demand the company traditionally experiences at the end of the year, but he remained optimistic that its OSB sales would improve in 2015 as the US housing recovery continues to unfold.
So far this year, housing starts in the US were 10 percent higher than the same period in 2013, while permits were up 6 percent. US single family housing starts, which are more important for the OSB industry, were 4 percent better versus last year.
But pricing still has a long way to go, with the North Central benchmark averaging $216 per thousand square feet (Msf) compared to$252 per Msf in the same quarter last year.
In North America, Norbord's OSB shipments were in line with both the prior quarter and the same quarter last year and increased 7 percent year-to-date. Its cash production costs in North America during the third quarter increased by 3 percent from a year earlier due to the impact of annual maintenance shutdowns and higher raw material prices.
In Europe, Norbord's shipments increased 10 percent versus the prior quarter, 13 percent versus the same quarter last year and 6 percent year-to-date. The company said its European performance was helped by demand growth in its core UK, German and Benelux markets. OSB prices were also under pressure in the region as eastern European supply is being redirected toward the west due to the ongoing conflict in Ukraine.
"While OSB prices have been under pressure this year, we did not see any significant impact on our overall results in the third quarter," said Norbord's CEO. "Our mills continue to perform well and are producing above stated capacity, a trend I expect will continue into next year."
At quarter end, Norbord had $54 million in cash and $342 million in unused credit lines, with its capital investments totaling $24 million in the latest period.
Shares tumbled 5.3 percent in Toronto on Tuesday, to sit at C$23.85 as of 10:03am ET. Year-to-date, the stock has dropped nearly 30 percent.