West Fraser Earnings: Robust OSB Growth Offsets Lackluster Lumber Demand

No-moat-rated West Fraser reported solid second-quarter earnings despite mixed end market demand. Net sales climbed 6% year over year as robust gains in its North American engineered wood products, or EWP, business were more than enough to offset revenue declines in its other three segments. Strength in the North American EWP business also drove a 7.7% consolidated operating margin in the quarter, up substantially from the $196 million loss a year ago. While the EWP business was driven by robust OSB demand and pricing, the remainder of West Fraser’s portfolio did not fare nearly as well, as none of the other three segments reported an operating profit in the quarter. Stagnant housing markets and tepid repair and remodel demand continue to weigh on dimensional lumber demand end markets. Nevertheless, we've increased our fair value estimates for New York Stock Exchange- and Toronto Stock Exchange-listed shares to $94 from $90 and to CAD 129 from CAD 124 per share, respectively.