Canfor Pulp Products (TSX:CFX) shares dropped 10% on Wednesday after the lumber company announced its earnings results that fell below estimates.
What happened?
Canfor stock reported fourth-quarter earnings fell far below estimates as the pulp business continues to meet challenges. Operating income for 2021 reached $32 million, with adjusted net income at $25 million, or $0.38 per share. The fourth quarter hit an operating loss of $41 million and a net loss of $32 million for the quarter, or $0.49 per share.
The news caused shares to drop 10%, with analysts already weighing in on the stock. Some have already cut their price targets as earnings fell below estimates. This came from severe challenges to the pulp business that are likely to continue. That includes transportation challenges, operation upsets, and the scarcity of fibre supply in British Columbia.
So what?
This is a major shift from the strength in the pulp and lumber industry during the pandemic. There continues to be major demand for product, but supply, transportation, and inflation all seem to be hitting Canfor stock hard. And it’s likely not going to be alone.
And unfortunately, it doesn’t look like this may end anytime soon. Severe weather continues to hurt pulp supply, and there has been a decrease in sales quarter after quarter. Pulp production fell by 23% quarter over quarter, severely affected by flooding and harsh winter conditions in BC. Shipments fell by 10% from the previous quarter, and there remains uncertainty about the future.
Now what?
It’s been a long drop from the highs of 2018 near $30 per share. Shares of Canfor stock now trade at about $5 as of writing. In the last year, shares have dropped by 48% including the 10% happening today. While the company may rebound eventually, it’s unclear about the future of 2022 or 2023 for that matter. So, it might be a good time to take a step back and add this to a watchlist for now.
