Norbord, Inc. (NYSE:OSB) Q3 2018 Earnings Conference Call - Final Transcript
Nov 01, 2018 • 11:00 am ET
Good day, everyone and welcome to Norbord's Inc Third Quarter Earnings Conference Call. As a reminder, today's call is being recorded and webcast on Norbord's website at www.norbord.com.
(Forward-Looking Cautionary Statements)
And now I'd like to turn the call over to Mr. Peter Wijnbergen, President and CEO. Please go ahead, sir.
Thank you, John, and good morning everyone. Welcome to our Q3 2018 conference call. I'm joined today by Robin Lampard, our CFO; and Heather Colpitts, our Senior Manager of Corporate Affairs. This morning, I'll take a moment to highlight our Q3 results, review our key markets and share our outlook before we take your questions.
This was another excellent quarter for Norbord, in fact one of our best ever. We delivered adjusted earnings of $1.41 per diluted share and adjusted EBITDA of $211 million representing a return on capital employed of 51% more than double our long-term goal. This strong performance follows our record Q2 results, which were the best in Norbord's 30-year history.
Our mills ran well, we saw continued improvement in our European business and made good progress on our North American specialty product strategy. And after paying out most of our cash on our Q2 balance sheet as dividends and investing $39 million in capital projects, we generated $189 million in free cash flow.
However, I know the most pressing issue on investors' minds is the recent downturn in North American OSB prices and Norbord stock price. There has been a noticeable shift in U.S. housing sentiment in the past six weeks fueled by a barrage of negative media headlines despite the continued positive direction of the housing recovery. This has put significant negative pressure on the broader North American wood product sector and product prices including OSB.
North American benchmark OSB prices in all regions began pulling back in July after reaching exceptionally high levels in June. For context the bellwether North Central benchmark price has declined from a high of $445 in June to $245 on Tuesday, according to Random Lengths latest report. While this is a significant drop, the current spot price is in line with the 15-year average.
There are times when markets appear to overreact and we believe this is one of those times. Despite having paid out $5.70 per share in dividends so far this year and having declared another $0.60 dividend this morning our stock is down over 40% from its 52 weeks high in June and is now trading at about 60% of replacement costs.
As a result, we have just renewed our Normal Course Issuer bid and are actively planning to repurchase our stock. The renewed bid allows us to buy back up to 5.2 million shares over the next 12 months. Our balance sheet is stronger than it has been in over two decades and we have almost $550 million liquidity at our disposal including $193 million in cash.
For our part, we see fundamentals continue to be supportive of our business. Many forward-looking macroeconomic indicators are