Why Canfor Pulp Stock Dropped 10% on Wednesday

Canfor (TSX:CFX) stock fell 10% after the company reported earnings that fell far below estimates and doesn’t expect the future to be much better in the short term.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published March 2, 2022 3:00 pm EST

| More on: CFX

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.