Q2 2025 Canfor Corp Earnings Call
I have been placed on mute to prevent any background noise. During this call Canfor and Canfor pulp Chief financial officer will be referring to a slide presentation that is available in the Investor Relations section of the Companys website also the companies would like to point out that this call will include forward looking statements. So please refer to the press releases.
For the associated risks of such statements I would now like to turn the meeting over to Susan Yurkovich, President and CEO of Canfor Corporation. Please go ahead.
Thanks, Joelle and good morning, everyone.
Thanks for joining the Canfor and Canfor pulp Q2, 2025 results conference call I'm going to open up with a few remarks, then I'll turn it over to Stephen Mackie, <unk>, Chief operating officer, and CEO of Canfor pulp followed by Pat Elliott, Our Chief Financial Officer of <unk> Corp, and Canfor pulp we've also got Kevin.
Perhaps Ken <unk> senior Vice President of sales and marketing and Brian Yuen, Vice President sales and marketing for Canfor pulp, who are here with us and available to take questions.
Well the market remained conditions remained really challenging we continue to see improvements in our underlying business supported by our geographic diversification the capital investments that we've completed over the last few years and our ongoing commitment to optimizing our portfolio of assets to enhance our financial performance.
To that end as you know we made some very tough decisions to close a number of facilities in British Colombia since 2023, due to high costs and ongoing fiber challenges and in addition, this quarter, we announced the closure of our <unk> in Darlington facilities in South Carolina due to persistent weak market conditions and a sustained loss that those.
<unk> in combination these closures of our moved more than 2 billion board feet better aligning our production capacity with market demand, while extremely difficult for our people and communities. These decisions will enhance <unk> ability to withstand significant trade headwinds challenging market conditions and the general uncertainties.
That are impacting our business at this time and transforming our business and leveraging across our globally diversified lumber platform. We believe we will be able to generate more stable cash flow and enhance our competitiveness over the long term.
Despite the challenging market dynamics, we're facing right now our balance sheet remains strong and it's allowing us to pursue strategic growth at the bottom of the cycle and this quarter. We were very pleased to announce the pending acquisition of three small saw mills from Carl hitting in Sweden.
These sawmills have exceptionally high quality fiber in central Sweden, which is a new operating region for Ken for Vita and will enhance our ability to access global markets and further reduce our reliance on the U S market.
Supported by recent capital investments and a strong cultural alignment with the identified synergies. These sawmills will complement VITAS operating platform once the acquisition, which is subject to normal closing conditions is completed later this year.
Following this acquisition our lumber platform will include approximately 35% of our lumber production based in the U S. South 35 in Sweden, and 30% in Western Canada, providing meaningful geographic product and market diversification for the company.
With respect to duties and tariffs we have of course been expecting the increase in duty rates that come into effect. This week and have been adjusting our sales strategy. Accordingly, however, there remains significant uncertainty regarding tariffs and the ongoing section 232 investigation in the U S as well as the broader trade environment.
We continue to monitor these developments closely and will adjust our plans to mitigate the impacts to the greatest extent possible. Notwithstanding this uncertainty we are well positioned to navigate these challenges supported by the actions that we've taken over the last several years to build out our low cost globally diversified lepper platts.
<unk> and <unk>.
I would like to turn it over to Stephen Mackie to provide an overview of canfor pulp. Thanks.
Thanks, Susan and good morning, everyone Canfor pulp generated modest EBITDA in the second quarter with results, reflecting the impact of lower sales realizations due to persistent economic and global trade uncertainty as well as a 4% stronger Canadian dollar.
Weak demand and elevated global pulp inventories contributed to a sharp decline in pricing, particularly in China, where prices fell 7% in the quarter. However, the full impact of these price declines will not be evident in our sales realizations until the third quarter.
While pulp pricing in China have stabilized recently, we anticipate weak market fundamentals to persist through the third quarter.
While our paper business performed reasonably well, we also saw a sharp decline in sales realizations in the second quarter, reflecting the stronger Canadian dollar weaker pricing in North America, due to ongoing tariff and economic uncertainties and weaker demand driven by the aforementioned economic uncertainties.
Notwithstanding the current macroeconomic challenges Canfor pulp continues to focus on areas within our control as an organization. We are adapting to align with current market conditions. We have made progress on improving our productivity and reliability. We currently have an adequate chip supply to support our operating footprint and we are intently focused on improving our cost structure.
While market fundamentals are challenging in the short term, we believe our specialty product focus and unique fiber characteristics combined with an enhanced focus on operational execution and disciplined cost management will allow us to navigate the current market dynamics I will now turn it over to Pat to provide an overview of our financial results.
Thanks, Steven and good morning, everyone. In my comments. This morning, I'll speak to our second quarter financial highlights a summary of which is included in our overview slide presentation located in the Investor Relations section of <unk> website.
All of our business generated adjusted EBITDA of $62 million in the second quarter $1 million higher than the prior quarter.
Adjusted EBITDA includes restructuring charges following the announced closures <unk> Darlington that Susan mentioned earlier, excluding these onetime items, our lumber business generated EBITDA of $68 million in the second quarter up approximately $8 million from Q1 supported by solid earnings in Europe.
<unk> low cost capacity in the U S south.
While global lumber markets remain challenging in the short term the transformation of our lumber business. In recent years has supported an improved cost structure and improve profitability.
Lumber business generated EBITDA, excluding onetime items of approximately $130 million in the first half of 2025.
While market conditions appear challenging through the balance of the year, our lumber platform is well positioned to capitalize on stronger lumber prices over the medium to long term supported by our geographic diversification and low operating costs.
Turning to our pulp business Canfor pulp generated adjusted EBITDA of $6 million in the second quarter down $15 million from the prior reflecting the impact of lower pulp and paper sales realizations and to a lesser extent an uplift in pulp manufacturing costs at.
At the end of the second quarter Canfor pulp had net debt of $74 million and $80 million of available liquidity and forward excluding canfor pulp in the duty loan ended the second quarter with net debt of approximately $87 million and available liquidity of $1 3 billion.
On a consolidated basis capital expenditures were approximately $51 million in the second quarter, including approximately $5 million for Ken for pulp.
Following completion of several major capital investments in recent years, we are anticipating significantly lower capital spending starting this year with approximately $240 million projected in our lumber business of.
Of this amount approximately $160 million was spent in the first half of the year for Canfor pulp currently forecasting capital spend of $45 million in 2025, including capitalized statements.
Following completion of our recently announced acquisition in Sweden later this year, our balance sheet remains solid supported by our improved operating platform, our seasonal working capital reduction in Sweden, and an expected tax refund in Canada. In addition, we anticipate <unk> will continue to allocate a modest amount of capital to Opportunistically repurchase shares.
Throughout the year under its normal course issuer bid.
And with that we're now ready to take questions from analysts.
Thank you we will now take questions from financial analysts. If you have a question. Please press star one on your telephone keypad, if you're using a speaker phone. Please lift your receiver and then press star one if at any time you wish to cancel your question. Please press star two.
Please press Star one now if you have a question there will be a brief pause while participants register for questions. Thank you for your patience.
Your first question comes from Keaton Montara with BMO. Your line is now open.
Thank you and good morning.
Maybe to start with can you talk about.
It goes for any pre buy ahead of kind of beauty is going higher.
On the Western SPF side.
Kevin you want to take that sure.
We actually the buying behavior is actually been relatively steady by through June and July and there might be a little bit of a pre positioning but quite frankly customers are more or less keeping inventories.
Adequately stocked in order just to meet there Justin.
Just in time demand, so I haven't seen any material volume increases.
And Mississippi, I mean is it fair to say that.
Inventory, you don't see kind of any material.
In inventory.
I think our customers' inventory positions are actually relatively balanced and like I said with all the uncertainty that they are facing I think theyre, just going to be buying as they need an adjusted time basis.
That's helpful and then.
Just one other question.
Do these going higher and I'm curious kind of as to you all.
Oil production.
Particularly in light of kind of closing demand kind of being softer.
<unk>.
Especially if its startup.
Is your approach to foster will be entirely.
With beauty increase can you just give us color.
Some sense of how you're approaching that.
Yes, good morning, Kay tenants, Stephen Mackie, just I think from a production perspective.
We obviously made some very difficult decisions over the last couple of years and we've rationalized our some of the higher cost capacity that we had in Canada and so our expectation is to run them. That's certainly our plan is to operate through the cycle. We think we're well positioned with limited exposure overall, but if you look broadly across our global platform to the U S.
So obviously there is lots of volatility and things can change and we will be responsive to the market dynamics that we see out there, but our plan is to operate.
Understood that's very helpful I'll jump back in the queue. Good luck.
Your next question comes from Sean Stewart with TD Cowen. Your line is now open.
Thank you and good morning, everyone.
I want to start with Europe.
The pending acquisition there looks like attractive terms in the margin profile there remains really resilient.
I guess I'd be interested in your perspective on other M&A opportunities in Europe.
Is the interest still specific to Sweden.
Is there any opportunity to maybe expand.
Jan Scandinavia for for growth opportunities there.
Yeah, Thanks, Sean it's Susan.
Yes, we really like this we like the <unk> acquisition other really good mills, they fit well into the beta platform and there is a lot of opportunity for us, it's mostly going into the European market and some into Japan. So it's really good for us will be looking at integrating those.
Three facilities into our operations of course, we're always keeping our eye open but this does open up really another region for us because these assets are located in central Sweden, which is a different sort of operating area for Caf arvida.
And any.
Read that as I guess, the appetite for further growth initiatives there your balance sheet still in relatively strong shape.
Are you.
Intend to integrate this deal and.
Tight or if other opportunities would come would come forward would you consider them at this point well, we're always looking for things. We're looking for things all the time, we're looking at opportunities across our platform but.
We've got we right now we've got a job to do to integrate these assets into our into our.
The <unk> platform, and we're going to do that and but we will keep our eyes open.
Okay. Thanks.
Thanks for that and then Susan maybe question you want to answer but just wanted to.
To get your thoughts on.
Trade evolution here on Canada U S lumber.
How is your optimism that lumber can be included in a broader U S, Canada and negotiation.
And do you have any thoughts that you would share on quota being a potential facet of of a potential deal.
Yeah sure I mean.
I think what we've heard of signals from the.
The federal government important signals that lumber is a priority out there along with steel and aluminum and auto and a couple of other sectors and so I think we appreciate that this is a really important industry to Canada. I think these are incredibly complex multilateral discussions and I think.
My strong hope is that lumber is included in this if we can achieve an agreement I would very much like for leverage can be included in that resolution. As you know this is a really long standing agreement as farmers the form of that agreement I think there.
We leave it to our very competent negotiators, including.
The chief negotiator for Canada, Christian <unk>, who is a very seasoned.
Negotiator, our ambassador in the U S and.
I think there'll be theyre going to need some flexibility to try and reach resolution. So im not sure what form that resolution will take but certainly we've been working across working with the industry and are ready to support the federal government in finding a resolution on this file for lumber.
Thank you for that detail that's all I have for now thank you.
Your next question comes from Amir <unk> with CIBC capital markets. Your line is now open.
Hi, good morning.
Kevin I was wondering if you could give us a sense how lumber demand has fared with your key R&R customers. This year, both in North America and in Europe.
Yeah, great. Thanks for the question actually aren't in our for our our experience here has been actually relatively steady and I would say year to date compared to last year relatively flat. However, we did see a little bit of a slowdown in the summer, but then since then or sorry like into early July but have seen.
Since it pick up.
Pick up so I think thats been a positive in the marketplace and then as far as Europe I think they are experiencing the same thing that DIY segment has been performing relatively steady and then keeping pace with the relatively year over year comps.
Which is actually a much better much.
Much better than what we're seeing in new home construction, which is actually off so.
Okay. Thanks, Thanks for that Kevin Susan I had a question for you with.
Assuming the current trade situation continues just given the large reduction that your BC platform over the past year. When you think about the difference between.
Your combined.
Antidumping countervailing rate and the rate for West Fraser will.
Would you expect that spread to really narrow when they are seven preliminary to come out.
Yes.
Okay and.
I mean would that sort of play out over two years it will be a big step down you're thinking they are seven just given.
Geographic that will be a step down.
Yes, there will be a step down but yes, we will we expect that that that spread will be diminished.
Okay.
Thats, all I had I'll turn it over thanks.
Okay.
Your next question comes from Matthew Mckellar with RBC.
Your line is now open.
Matthew Mckellar your line is open.
Hi, good morning, Thanks for taking my questions.
First from me just with the changes to your southern yellow pine portfolio in the current market backdrop, how should we be thinking about FY <unk> shipments in the second half.
And what kind of maybe a reduction in fixed costs associated with those two.
<unk> most recent closures thanks.
Maybe Kevin you want to talk about.
Markets and then Stephen.
Yes, I think our outlook for or for the shipments will be actually pretty pretty.
Flat I think quarter over quarter and then.
Steven Yes, I think our.
<unk>.
What you can expect Matt is it obviously, we've seen the impact or will see the impact of the esol in Darlington closures and those capacity reductions those will be offset to a fairly large degree with the ramp up in capacity of some of our recent capital investments down in the southeast U S with the modernization of our Nevada facility. The construction of our new Greenfield facility.
Access in both of those operations are progressing through their startup curves very well and we're also looking at some potential incremental capacity at a couple of our other facilities. So I think we will largely offset to be reasonably flat on an annualized basis.
Okay, Thanks for that detail.
Next I mean, you talked about mentioning.
Adjusting sort of your sales strategy following the implementation of higher duties.
Things could change here, but based on your expectations of how you would expect demand and pricing to evolve.
What percentage of Canadian produced would we expect to sell into the U S sort of status quo scenario, where higher Doug hi.
Your anti dumping duties remain in place.
Final counter veiling duties are in line with preliminary results that we see.
No incremental section 232 tariffs or.
Maybe it's even reframe it how should we expect your geographic sales mix for lumber to evolve over the next couple of quarters.
Yeah. Thanks, Matt actually the situation is quite fluid. So you can imagine and so a lot's going to depend on how pricing reacts in the U S market versus the Canadian market and we have the flexibility to navigate through that and it's something that we're going to have to monitor and we'll be monitoring on a daily basis, and so it's kind of hard to exactly say because throughout this whole.
<unk> journey and even the last couple of months week to week and has pivoted and changed depending on on demand liquidity and financial results. So I.
I mean, it's kind of hard to say exactly because we're not dealing with a real fixed situation.
Okay. That's fair and then last for me could you just please refresh us on the most impactful initiatives, we have underway to improve the cost structure 10 football. Thank you.
Yes, Thanks, Matt I mean for the most part the single biggest thing that we can do is really improve or continue to improve our reliability and our operational performance uptime and execution. So I think the team. There's team is intently focused on running the facilities with greater stability, we've shored up the fibers.
Why we have got sufficient fiber to support our operating footprint today. So we're in good shape, there and we see continued modest progress downward on that cost curve within the fiber supply and that is really about our operational reliability and stability. Our cost structure is can be competitive when we run and run well and thats the focus of the team, particularly as we head.
Into through the third quarter and into the fourth quarter and the turnaround that we will have it nor put in in Q4. So.
Yes.
What I would say about that Matt.
Thanks, Robert E Mail I'll pass it back.
Thank you there are no further questions I'll now turn it over to Susan for closing comments.
Thanks, very much for joining us we'll see you next quarter.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating in assay. Please disconnect your lines.