Q3 2025 Canfor Corp Earnings Call
Speaker #3: Good morning . My name is Constantine , and I will be your conference operator today . Welcome to camphor and camphor pops . Third quarter analyst .
Speaker #3: Call . All lines have been placed on mute to prevent any background noise during this call . Camphor and camphor pops chief Financial officer will be referring to a slide presentation that is available in the Investor Relations section of the company's website .
Speaker #3: Also , the companies would like to point out that this call will include a forward looking statements . So please refer to the press releases for the associated risks of such statements .
Speaker #3: I would now like to turn the meeting over to Susan Yurkovich Kent , your corporation's president and Chief Executive Officer . Please go ahead .
Speaker #3: Susan .
Speaker #4: Thanks , Constantine , and good morning , everybody . Thanks for joining the camphor and camphor pulp Q3 2025 results conference call . I'm going to start off with a few comments before turning it over to Stephen MacKie .
Speaker #4: Camphor . Chief Operating officer and CEO of Camphor Pulp and Pat Elliott , chief Financial officer of Camphor Corporation and Camphor Pulp . Kevin Pancratz , our senior vice president of sales and marketing , would normally be with us as well , but he's traveling in the market today with customers .
Speaker #4: And so we will do our best to handle your lumber market . Questions . But of course , if there's any that need follow up , we can do that after the call .
Speaker #4: However , we do have Brian Yuen , our vice president of sales and marketing for Camphor Pulp , with us , and he can take any questions related to the pulp market .
Speaker #4: As we've indicated in previous calls over the last several years , camphor has taken significant actions to further diversify our portfolio , improve our underlying cost structure , and prepare for the challenging duty environment that our industry is facing .
Speaker #4: And this is included making difficult decisions to permanent , permanently close some of our higher cost operating assets , including the recent closure of our Estelle and Darlington sawmills and South Carolina .
Speaker #4: This last quarter, at the same time, we've largely completed a significant modernization of our fleet in the U.S. South and expanded our presence in Sweden with the acquisition of three additional sawmills from Carl Hedin, a transaction that closed in September.
Speaker #4: As a result , while global lumber markets conditions remain very challenging , we have better aligned our production capacity with market demand and significantly improved our cost competitiveness and leveraged our balance sheet strength to opportunistically acquire strategic assets .
Speaker #4: This transaction has been hard work . However , we now have a diverse portfolio of assets that are better positioned to both serve our customers and withstand these difficult market conditions .
Speaker #4: And with approximately 70% of our business located out of Canada , we are also able to mitigate some of the impacts of the punishing duty environment we are currently facing .
Speaker #4: While we expect the economic uncertainty is likely to persist in the near term , camphor is well positioned to navigate these turbulent times and importantly , our balance sheet remains strong and with over $1.2 billion of available liquidity , we have significant financial flexibility to withstand current market conditions while also pursuing opportunistic strategic investments at the bottom of the cycle .
Speaker #4: I'd now like to turn it over to Steven to provide an overview of camphor pulp .
Speaker #5: Thanks , Susan , and good morning , everyone . Camphor pulp continues to be impacted by challenging global pulp markets with elevated inventories and weak demand weighing on our financial results in the third quarter .
Speaker #5: While our paper business continued to perform well , we also experienced subdued demand for bleached kraft paper with challenging market fundamentals and current economic uncertainty .
Speaker #5: Camphor pulp continues to focus on achieving targeted cost reductions and improving our operating performance . We've made progress on several operating initiatives in recent quarters , including sourcing additional fiber supply to support our current operating footprint , enhancing reliability , and productivity , and improving our cost structure .
Speaker #5: Notwithstanding recent operational improvements results in the fourth quarter will continue to reflect the impact of weak global pulp markets , and results will also be impacted by a scheduled maintenance outage at Northwood .
Speaker #5: This outage was recently completed and the Northwood operation is currently in the process of restarting . As a management team , we remain focused on mitigating the impacts of global trade and economic uncertainty as we closely manage factors within our control .
Speaker #5: Given the challenging financial position of camphor pulp management has introduced additional cost saving measures . Working capital reductions and the deferral of some capital expenditures in 2026 , as we continue managing our financial covenants , debt levels and available liquidity .
Speaker #5: We'll now turn it over to Pat to provide an overview of our financial results .
Speaker #6: Thanks , Steve , and good morning , everyone . In my comments this morning , I'll speak to our third quarter financial highlights .
Speaker #6: A summary of which is included in our overview slide presentation located in the Investor Relations section of Canfor Corp website . Our lumber business generated an adjusted EBITDA loss of $2 million in the third quarter , which was $70 million lower than the prior quarter .
Speaker #6: These results reflect weak lumber market conditions , particularly for southern yellow pine . In addition to seasonal downtime in Europe . In the quarter .
Speaker #6: Notwithstanding current market conditions and the impact of elevated duties and tariffs , we've seen a notable improvement in our underlying cost structure in recent quarters .
Speaker #6: While markets are expected to remain challenging in the near term , our lumber platform is well positioned to navigate the current market dynamics , supported by a solid balance sheet and actions taken in recent years to transform our operating platform .
Speaker #6: As Susan mentioned during the third quarter , we completed the acquisition of three sawmills in Sweden . Total consideration of $171 million , which included $22 million of cash and $44 million of non-cash net working capital with the completion of this acquisition , diversification of our portfolio and optimized sales strategy , approximately 15% of our production capacity is currently exposed to duties and tariffs .
Speaker #6: Turning to our pulp business , camphor Pulp reported an adjusted EBITDA loss of $2 million in the quarter , which was $9 million lower than the prior quarter , reflecting the impact of lower pulp and paper sales realizations , which more than offset a modest reduction in pulp manufacturing costs and improved productivity .
Speaker #6: Camphor pulp ended the third quarter with net debt of $89 million and $64 million of available liquidity , while Canfor Corp , excluding camphor pulp and the duty loan , which we completed in 2024 , ended the third quarter with net debt of approximately $247 million and available liquidity of $1.2 billion .
Speaker #6: On a consolidated basis , capital expenditures were approximately $40 million in the third quarter , of which $4 million was for camphor pulp .
Speaker #6: We anticipate capital spend of approximately $240 million in our lumber business for 2025 , with approximately $45 million remaining to be spent in the fourth quarter .
Speaker #6: For Canfor Pulp, we anticipate capital spending, including capitalized maintenance, of approximately $45 million in 2025. Of that, $27 million remains in the fourth quarter.
Speaker #6: As Steven mentioned , given current pulp market conditions , operational downtime at Northwood due to its scheduled maintenance and remaining capital spend in the fourth quarter , camphor pulp is implemented .
Speaker #6: Several cost saving measures to improve its financial position . We have noted in our financial statements the material uncertainty that exists in the current business , given the significant debt load , remaining capital spend for the year and market conditions .
Speaker #6: As we have disclosed , we are in active negotiations with our lenders around additional covenant relief . Looking ahead to 2026 , we anticipate capital spend of approximately $175 million in our lumber business and approximately $35 million for Canfor Corp pulp , including capitalized maintenance .
Speaker #6: In addition , we anticipate camphor will continue to allocate a modest amount of capital to opportunistically repurchase shares throughout the year under its normal course , issuer bid .
Speaker #6: And with that , Constantine , we're ready to take questions from analysts .
Speaker #7: Thank you .
Speaker #3: 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 speakerphone , please lift your receiver and then press star one .
Speaker #3: If at any time you wish to cancel your question , please press star two . Please press star one now , if you have a question .
Speaker #3: There will be a brief pause while participants register for questions . Your first question comes from the line of Keith Mamtora from BMO .
Speaker #3: Please go ahead .
Speaker #8: Thank you . And thanks for taking my question . Maybe to start with , can you talk a little bit about sort of European performance in Q3 ?
Speaker #8: If I'm reading this correctly , to me it seemed like there was an EBITDA loss in Europe in Q3 . Can you just talk about some of the sort of the big moving pieces there ?
Speaker #6: Sure . Caden , it's Pat , thanks for the question . Yeah , you're right . We've had , you know , great performance in Europe the whole time since we've owned them back in 2019 .
Speaker #6: So it's a little surprising to see the situation . I would note that there's an inventory d-val in in Vita , which is about nine of the 10 million .
Speaker #6: So it's the vast majority. But your point is correct. We're continuing to see log cost pressure in Europe. We think that's going to moderate as we move into next year.
Speaker #6: But it has been significant over the last number of quarters . I think additionally , we've seen inventory levels in Europe building and pricing as as a result has been , you know , depressed .
Speaker #6: And so I think the the operating conditions in Europe are the most challenging we've seen since we've owned Vita . But , you know , we continue to be encouraged by how well they perform on a relative basis .
Speaker #6: And we think as we move into next year and we see some of the downtime that's happening , start to take hold , we'll see better results .
Speaker #6: But but you're right , this is sort of a first of a kind since we've owned Vita .
Speaker #8: In that side, I was looking at my model, and I don't think I've seen a negative EBITDA. So, got it.
Speaker #8: Okay . So as when do you expect sort of things to start getting better in Europe at .
Speaker #6: Yeah . Well I think it's a , it's a , it's a global story . Right . And I mean I think that we're definitely seeing some retrenchment in Europe and the shipments into North America have , declined somewhat , certainly since the peaks .
Speaker #6: I think they're trending kind of at two and a half billion board feet . And so it's really going to be a question of how quickly that inventory can be run down .
Speaker #6: And I think, as in North America, we're definitely hearing about lots of downtime. Not so many kind of big announcements, but we definitely know that downtime is being taken.
Speaker #6: And so I think as we move into , you know , certainly we're more like into 2026 than in the fourth quarter here .
Speaker #6: You know , we think things will rebalance and we'll start to see improving conditions . And on the log side , we're definitely seeing that stop rising , which is an encouraging sign .
Speaker #6: And the trend is definitely down. But of course, that takes a number of months to work through our system.
Speaker #8: And orders of magnitude what what what kind of log inflation are we talking about here in Europe ? That .
Speaker #6: Well , over the course of the last number of quarters , it's been 30 , 40% . I mean , it's been significant .
Speaker #6: And so that that's really not sustainable . And that's why we're starting to see it turn the other way .
Speaker #8: Understood . And then just switching to to North America , can you just give us sort of your approach to managing production here over the next , I don't know , a couple of quarters , you know , one is of course , the seasonal component in Q4 .
Speaker #8: But just cyclically as well . Things seem to be a little slow . So can you just talk about what trends you are seeing here into October and your approach to managing production ?
Speaker #5: Sure . Kate . And it's Stephen here . Yeah , we're in with respect to the Q4 production levels . You know , our our intent is to run our facilities .
Speaker #5: We have , as you know , we've made a number of difficult decisions and really worked hard to optimize our operating portfolio across North America over the last several years , including the recent closures of our Darlington facilities in South Carolina this past quarter , which removed about 350 million board feet .
Speaker #5: So we're comfortable with where we are . We've got a solid asset base , competitive facilities and our intent is to operate across across North America .
Speaker #5: So, I think you can expect to see that through Q4 and into next year. Now, of course, we're always continuously assessing the situation relative to demand and pricing levels.
Speaker #5: But our but our intent is to run .
Speaker #3: Your next question comes from the line of Sean Stewart from TD Callan . Please go ahead .
Speaker #9: Thanks . Hi , everyone . First question is on . Good , good good morning everyone . First question on Canfor pulp . If you don't get waivers from the lenders , can you give us the path forward for Stanford Pulp as a standalone entity ?
Speaker #9: You know , how might this play out ? I suppose over the next few quarters .
Speaker #6: Sean that feels like a question for me . It's Pat . Certainly hard to , you know , speculating here is a bit dangerous .
Speaker #6: What I would say is that Stephen mentioned , I mentioned we're we've got , you know , significant cash and margin improvement program going inside the business .
Speaker #6: You know , we are certainly not in a place from a liquidity point of view that feels comfortable . But we are really working to do everything we can to kind of get through the near-term challenge that we're in , which is really the market conditions .
Speaker #6: And , you know , I think if we look at going forward , I'm not sure we have prices rocketing up , but certainly the trend line is for improving prices .
Speaker #6: And with sort of some , you know , decent operational performance and improving prices , it puts us in a better position . So we're just we're tighter than we want to be .
Speaker #6: And that's why we've kind of got to go back and deal with our lenders here , particularly at the end of the year .
Speaker #6: But I think that, you know, we'll just have to see how things play out because it'll be very dependent on how markets perform over the next number of quarters.
Speaker #9: Okay . Understood . The second question is on your North American lumber operations this quarter , the price realizations actually surprised to the upside versus what we were expecting .
Speaker #9: And I'm hoping you can sort of connect some dots . Your shipments skewed more heavily to the US south this quarter than they did in Q2 , which I'll else equal .
Speaker #9: I would think would hurt your price realizations . Any context you can give on mix this quarter , certain dimensions outperforming others . Can you explain that at all ?
Speaker #6: Yeah, like I think Sean, there's some, and without Kevin here, it's a bit dangerous for the finance guy to talk about marketing.
Speaker #6: But you know , the the we do have a broader , you know , sort of go to market strategy that , you know , and how we ship to different jurisdictions and the widths that we produce with the new kind of new and improved mills that we have , we have much more flexibility to be , I would say , a bit more dynamic about that .
Speaker #6: And we've been able to sort of optimize our profile. I think additionally, you know, some of the products that we produce in B.C.
Speaker #6: and Alberta are maybe of a higher quality than some of the mills that were further north , that we're more of a call of a standardized profile .
Speaker #6: So I think it's really a little bit of the fruition of all of the changes that we've made in our in our production footprint over the last , you number of years , kind of coming together and particularly in tougher markets , kind of the opportunity to outperform when you have some of that higher value or you're a little more dynamic , is I think is is pretty positive .
Speaker #6: And so I appreciate you noticing it because it certainly something we're working on . But but obviously embedded in that is a bit of our own sort of formula of go to market that we sort of hesitate to get into .
Speaker #6: Beyond that .
Speaker #3: Wait list . And gentlemen , we will be taking one question and one follow up per participants . If you have any follow up questions , please feel free to rejoin the queue .
Speaker #3: Your next question comes from the line of Ben Isaacson from Scotiabank . Please go ahead .
Speaker #10: Good morning and thank you very much for taking my questions . I just have two of them , Susan or Pat . I was hoping you could spend a little bit of time just talking about Canfor Corp portfolio diversification , particularly in Europe .
Speaker #10: Why is the outlook you talked a little bit , or maybe I'll phrase it this way . How disconnected or interconnected is the European business from your North American portfolio ?
Speaker #10: Is the weakness in Europe coincidental to the weakness in the US ? Or are these just global commodities ? And that's having an impact all over .
Speaker #4: So thanks , Ben . I mean , there there is . We see weaknesses in markets across the globe . I think there's a lot of uncertainty .
Speaker #4: I don't have to tell you that. It's a very volatile environment right now, and so we're seeing that in North America.
Speaker #4: And also in Europe . I think the you know , for us , the European piece is it's a business . That business has a lot of market optionality .
Speaker #4: So of course we operate in Sweden , but we have access to many , many markets in Europe , Middle East , North Africa and Australia .
Speaker #4: So we've got a lot of options , options for our products . So when one market is tough , we can we can move to other markets .
Speaker #4: And so there's a lot of optionality and flexibility . We've got very high quality fiber there and that . And we have we've had a very good business .
Speaker #4: I mean you know , we've talked about the fact that this is an anomaly . Normally the European business has been very , very steady .
Speaker #4: And we expect it to come back into that place. That's why we have added to our portfolio with the hidden assets, and was that the new mills a few weeks ago, five weeks ago, I guess now. Those are really good assets to add to our portfolio.
Speaker #4: We like the fiber quality is phenomenal and we've got really good . We've acquired some really capable operators there that share a very similar culture to Vida .
Speaker #4: So we're very happy with that and happy to be able to have that in our portfolio.
Speaker #10: Great . Thank you . Susan , and just a follow up question for you . And perhaps you can think out loud on this .
Speaker #10: And it's not related to Canfor or any company at all. But it's clear to me that all management teams are controlling their controllables as best they can.
Speaker #10: But obviously, external market forces are still a meaningful overhang. So, in your view, does the industry need to see meaningful sector consolidation?
Speaker #10: And is it possible that lumber pricing power can be taken back, or at least improved, even if this is a 510-year process?
Speaker #10: In other words , philosophically speaking , is an industry consolidation path inevitable ? Well , thank you .
Speaker #4: Well , that's a very big question , Ben . Yes , there's a lot of operators in our space and , you know , I might I have my own views about what should or shouldn't happen .
Speaker #4: But I think what you hit the hand , you hit the the nail on the head . And we are focusing on the things that we are can control .
Speaker #4: We're looking at our own portfolio . We want to have we we are working to a place where we have very strong assets that are able to withstand all kinds of market volatility .
Speaker #4: And I think you're seeing , you know , that's that's been a change that's been occurring over a number of years . But I think you're starting to see that play out .
Speaker #4: Would it be possible for us to consolidate to a place where we can have more impact on price, perhaps? But that's a long journey.
Speaker #4: I don't know how many lumber manufacturers there are in the US , but I bet there's 500 plus . So that would be a very long journey .
Speaker #4: So I think , you know what we're really focused on is our portfolio , where we where we want to position ourselves and the growth opportunities that we see .
Speaker #3: Your next question is from the line of Hamir Patel from CIBC. Please go ahead.
Speaker #11: Hi . Good morning . Susan . I imagine you're Alberta operations are always in the black , but just given the large , you know , extended losses , sawmills or experiencing here in B.C.
Speaker #11: and the greater duty headwinds can force contending with . How do you think about whether you'd be better off just shutting all your BC mills until , prices move above , break even ?
Speaker #4: Well , we look , we've , as you know , we've made a lot of changes to our BC portfolio . And , you know , those are really tough changes for us .
Speaker #4: We are a BC based company . We've got long we've got a long history here and we've made a lot of we've made a dramatic change here to try and optimize our portfolio .
Speaker #4: What we have in our portfolio now , we like we've got , you know , the we're in the Kootenays , a largely we've of course got our Prince George sawmill , which is really useful in supporting our pulp business and and is a good facility .
Speaker #4: But we also have our mills in the Kootenays, which have a different fiber mix and allow us to make a number of products that our customers are looking for.
Speaker #4: And so we have greater optionality and flexibility there as well . We like Alberta , we've made changes and we like the portfolio we have right now .
Speaker #4: So we don't have any intention to to make further changes at this time .
Speaker #11: Okay . Fair enough . And are you able to kind of comment on maybe how your operating rates have been faring this year ?
Speaker #11: Alberta versus BC ?
Speaker #6: Oh yeah .
Speaker #4: Go ahead .
Speaker #5: Yeah . I Amir , it's Stephen . Yeah . The all of the mills across our operations actually I would say broadly across North America .
Speaker #5: We're again we're pleased with the progress . Susan referenced the modernization capital that we've done down in the US South . Our facilities are running well down in the US .
Speaker #5: And I know your questions about BC and Alberta and and we're running well in Canadian context as well . The mills are doing a great job .
Speaker #5: The teams out there are controlling what they can control, and we're happy with the operating performance across our suite of assets.
Speaker #5: So again , we feel pretty good about not about the market conditions . And obviously the challenges that we're facing from a financial perspective .
Speaker #5: But the teams are performing well and we know how tough it is out there for us and how tough it will be out there for others as well .
Speaker #5: Given our current operating rates and how well our teams are performing .
Speaker #3: Ladies and gentlemen , as a reminder , if you would like to ask a question , please press star . Then the number one on your touch tone phone .
Speaker #3: If you are using a speakerphone , please make sure to lift your handset before pressing any case , your next question comes from the line of Matthew McKellar from RBC Capital Markets .
Speaker #3: Please go ahead .
Speaker #12: Good morning . Thanks for taking my questions . First , it sounds like you're still quite positive on the European opportunity . Do you see further growth in Sweden or the Nordic countries more broadly over the medium term as continuing to be attractive here ?
Speaker #12: And if so , could you maybe remind us what your checklist would be for any further acquisitions ? Thanks .
Speaker #4: Yeah . I mean , we we like Europe and we are continuing to to look , I would say that right now we are razor focused on integrating the the assets that we've just acquired from Carl Hayden .
Speaker #4: And we've got lots of work underway to do that . We're always looking around , whether it's in Sweden or elsewhere in the in the Nordic countries , and we will continue to do that .
Speaker #4: And fortunately , well , as we do in North America and and we're fortunate to be able to do that given the strength of our balance sheet .
Speaker #12: Thanks very much . And then just one high level question on market conditions in pulp , in your view , what is the pathway from here to a healthier pulp market look like either in the near term or the medium term ?
Speaker #12: How do you think about how conditions improve from here ? Thanks very much .
Speaker #6: Good morning Matthew . Thank you . It's Brian here . Well , as Stephen highlighted earlier , we see markets .
Speaker #13: To remain challenged for the balance of the year . Having just returned from overseas seeing our customers at the end of the day , given all the economic uncertainty , the situation right now for the remainder of the year , we see will remain unchanged .
Speaker #13: At the end of the day, there's just simply too much capacity supply in the system, and we all know at current price levels they are not sustainable.
Speaker #13: So we need to see , I guess , material reduction on the supply side to see a change in the market conditions .
Speaker #12: Okay . Thanks . And do you have a sense of the magnitude of response you'd be looking for compared to where we are today ?
Speaker #12: That would maybe catalyze that stronger environment ?
Speaker #13: Yeah for sure . I mean , if we look at the stats right now , rough and dirty in terms of producer stocks on the softwood side , we guesstimate there's roughly about half a million tons of excess inventory in the system .
Speaker #13: If you if you add on top of that , some of the I guess data that that we're picking up out of China , the domestic ramp up of softwood kraft anywhere between 1 million to 1 million and a half tons , I'd have to say you're looking at a million and a half tons out of the system for unless there's a material uptick in demand , there needs to be a million , a million and a half tons of supply .
Speaker #13: That has to be taken out of the system.
Speaker #12: Thanks very much . I'll turn it back .
Speaker #3: Thank you. There are no further questions at this time. I will now turn the call back over to Susan Yurkovich for closing comments.
Speaker #3: Please go ahead .
Speaker #4: Thanks so much for joining us . And we look forward to hearing from you next quarter . Thank you . Operator .