Morningstar | Robust European Growth Somewhat Offset Weakness in North America for Norbord During 1Q
On the heels of a challenging fourth quarter, North American benchmark prices for oriented strand board fell another 8% to start 2019. Last year's capacity growth by industry participants suppressed prevailing prices, compounded by slower homebuilding as we entered the new year. One offset was robust demand growth in Europe, which drove volumes higher by 15% versus the fourth quarter. We've modestly lowered our production outlook for 2019 in North America to reflect the likelihood of curtailments, although this was partially offset by a weaker Canadian dollar. Our fair value estimate falls slightly to CAD 38 per share from CAD 39, and our no-moat rating is unchanged.North American OSB production fell just over 2% from the fourth quarter, due to both maintenance downtime and harsh winter conditions. Benchmark prices for both lumber and panel products remain depressed by both recent and historical standards, leading to narrow profit margins. Norbord eked out a 7% EBITDA margin in the quarter, a far cry from last year's average of 30%. Though homebuilding has been disappointing thus far in 2019, we still expect activity to rise based on robust wage, employment, and economic data. Not only do we think this will result in sequential improvement throughout 2019, but we expect household formation to be a tailwind over the next five years.
Brexit concerns didn't materialize in Norbord's Europe results, with volumes up 15% sequentially. Margins contracted slightly, due in part to the installation of a new finishing line at its Inverness location. While Europe isn't the true profit driver for Norbord, we see upside as OSB gradually takes share in the European panel market.
Norbord is a producer of wood-based panels with 17 plant locations in the U.S., Europe and Canada.
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