Operator: Additional information about the risk factors and assumptions is included both in the accompanying webcast presentation and in our 2025 annual MD&A and annual information form as updated in our quarterly MD&A, which can be accessed on West Fraser's website or through SEDAR+ for Canadian investors and EDGAR for United States investors. I would now like to turn the conference over to Sean McLaren, President and Chief Executive Officer. Please go ahead.
Sean McLaren: Thank you, Joelle. Good morning, everyone, and thank you for joining our Q3 2026 earnings call. I am Sean McLaren, President and CEO of West Fraser. Joining me on the call today are Chris Virostek, Executive Vice President, Chief Financial Officer, Matt Tobin, Senior Vice President of Sales and Marketing, and other members of our leadership team. On the call this morning, I will begin with a brief overview of West Fraser's Q3, then I will pass the call to Chris for more detail before I share some thoughts on our outlook and offer concluding remarks. Our Q3 results reflect varying demand conditions and a mixed pricing environment across our product portfolio. We generated $38 million of adjusted EBITDA. Chris will walk through the financial drivers in more detail shortly. Operationally, our teams continued to focus on the things within our control.
Sean McLaren: In the US South, our operations continued to benefit from completed capital investments and improved operating performance year-to-date, despite challenging market conditions. In Canada, higher SPF pricing contributed positively to results in the quarter. Subsequent to quarter end, as outlined in our announcement last night, we have taken steps to better align our operations with customer demand, with the indefinite curtailment of our Huguley OSB mill in Lanett, Alabama, and our lumber mill in Leola, Arkansas. These decisions are a response to evolving conditions and demand for wood products within new home construction and repair and renovation markets. These mills will be wound down by the end of this year. Our Huguley OSB mill has annual capacity of 500 million square feet on a three-eighths basis, and our Leola lumber mill has annual Southern Yellow Pine capacity of 225 million board feet.
Sean McLaren: I want to thank all of our employees and their families for their hard work and contributions. We are committed to supporting them through this transition. Our focus remains on operating safely, serving our customers, improving the competitiveness of our assets, maintaining a strong balance sheet, and allocating capital with discipline. With that high-level overview, I will now turn the call to Chris for additional detail and comments.
Chris Virostek: Thank you, Sean, and good morning, everyone. A reminder that we report in US dollars and all my references are to US dollar amounts unless otherwise indicated. In Q3, we generated sales of $1.36 billion and adjusted EBITDA of $38 million for an adjusted EBITDA margin of approximately 3%. This compares with sales of $1.43 billion and adjusted EBITDA of $59 million in Q2. The lumber segment generated $34 million of adjusted EBITDA. We recorded a favorable adjustment to our estimated anti-dumping rate this quarter. That adjustment added $12 million to our results. Pricing was roughly neutral overall. Higher SPF prices were offset by lower SYP prices. Total costs were lower, primarily reflecting lower production and shipment volumes, while total costs on a per unit basis were roughly in line with Q2.
Chris Virostek: In SYP, fluctuations in diesel prices influenced log haul costs and unit manufacturing costs increased. In SPF, unit manufacturing costs increased due to higher labor and energy costs. These pressures were partially offset by lower SPF log costs as logging resumed after spring breakup. There was also a $5 million favorable swing in inventory valuation in our lumber segment. SPF shipments were in line with our expectations for the quarter and about 5% less than Q2. SYP shipments were up slightly, also in line with slightly higher production. The North America EWP segment reported an adjusted EBITDA of -$4 million, primarily due to lower OSB prices as our realizations were influenced by significant regional pricing fluctuations during the quarter. Higher resin costs also weighed on the quarter. However, these were partially offset by lower fiber costs and a $7 million favorable inventory valuation impact as prices rose in September.
Chris Virostek: In Europe, we generated $4 million of adjusted EBITDA. The change from last quarter was mainly volume-related. Higher scheduled maintenance reduced OSB and MDF output, and pricing was modestly lower. Our other operating segment, which includes Cariboo Pulp and our 50% interest in Alberta Newsprint, delivered adjusted EBITDA of $5 million, representing a $13 million improvement from Q2. The improvement was driven by reduced fiber and unit manufacturing costs, as well as the impact of a planned maintenance shutdown at Cariboo Pulp in the second quarter. Bridging Q2 to Q3, lower prices reduced adjusted EBITDA by approximately $23 million, mostly in North America EWP. Releases of inventory valuation reserves across lumber, North America EWP, and pulp added approximately $25 million and broadly offset the price impact. Higher costs in lumber and North America EWP, including resin, labor, and diesel-related log haul, contributed $13 million to higher costs.
Chris Virostek: This also includes the outgoing freight costs, which are charged back to our customers. The majority of the balance was influenced by reduced volumes in Europe and changes in duties and tariffs within the lumber segment. While we continue to experience the effects of elevated oil-based input costs, particularly in diesel, resin, and wax. Resin and wax costs increased by approximately $3 million sequentially, on top of the $13 million impact we identified in the second quarter. Our long-term supplier contracts continue to protect supply at an advantage cost relative to the spot market. Diesel costs have increased by approximately 80% year-to-date, which represents an increase of approximately $15 per thousand board feet on our lumber's log costs in both SPF and SYP. We are managing these impacts on a mill-by-mill basis, and in some areas, we have reduced our logging operations in response to these higher costs.
Chris Virostek: Pulpwood prices have declined significantly, offsetting much of the higher oil-related input costs in OSB. We generated $72 million of cash from operations in the quarter. The quarter saw continued inventory reduction, resulting in a working capital release. We invested $53 million in capital and paid $25 million in dividends. In September, we successfully refinanced our $300 million term loan into a new $500 million term loan maturing in September 2029. This maintains largely consistent terms while expanding our financial flexibility. We exited the quarter with just over $200 million of cash, an undrawn $1 billion revolver, giving us liquidity of approximately $1.2 billion and a net debt to capital ratio of only 6%. This flexibility enhances our capacity to effectively navigate the current phase of the cycle. Turning to duties.
Chris Virostek: On 14 October, the US Department of Commerce released final AR7 results, setting our countervailing duty rate at 15.31% and our anti-dumping rate at 4.71%. Our combined cash deposit rate has fallen to 20.02% from 26.47%, effective 19 October. This rate is currently the lowest in the industry and is below both the AR6 and preliminary AR7 rates. We expect North American product shipments, including SPF and SYP lumber, to be toward the lower end of our guidance range of 2.4 to 2.7 billion board feet, and North American OSB shipments to be toward the lower end of the 5.9 to 6.3 billion square feet range on a three-eighths basis. European OSB guidance of 1 to 1.25 billion square feet remains intact. Our capital expenditure range of $300 to $350 million is also unchanged, with $212 million spent year-to-date.
Chris Virostek: On fiber, we expect BC stumpage to remain in line with Q3, while Alberta rates are expected to decrease in Q4 given their quicker link to lumber prices. In the US South, we expect elevated diesel costs and harvesting and hauling constraints to continue affecting regional log costs. North America EWP, we expect fiber costs to remain relatively stable near term. Higher diesel costs are offset by lower pulpwood prices, while resin costs remain exposed to global energy developments. With that financial overview, I'll pass the call back to Sean.
Sean McLaren: Thank you, Chris. I'll now shift to our general outlook and offer some concluding remarks. Demand remains challenging. US housing starts are running at about 1.22 million units annualized. Mortgage rates remain at higher levels, affordability conditions are more constrained, and higher inflation has impacted consumer and builder confidence, all of which are contributing to near-term demand remaining challenged. But the medium-term drivers remain in place. An aging US housing stock, first-time buyers waiting to enter the housing market, and renewed policy focus on affordability. We continue to align production with market conditions while focusing on the competitiveness of our mill network and the things within our control. SYP pricing softened in the quarter and continues to trend down so far in Q4. Log haul costs have risen as a result of increased diesel prices. Our response is to focus on what we can control.
Sean McLaren: As Henderson advances through its 18 to 24-month ramp-up, we expect to see ongoing operating improvements over the period, and the indefinite curtailment of our lumber mill in Leola will allow us to focus our operating footprint more effectively. In Canada, the lower AR7 cash deposit rate will reduce the duty deposits we pay on US shipments and further support our ability to serve US customers. Combined with the operating leverage across our lumber platform, we are well-positioned to benefit when prices improve. In OSB, prices improved toward the end of the quarter. How quickly the market absorbs expected new supply will depend in part on the pace of recovery in residential construction. We acted quickly and decisively in making the decision to curtail our Huguley OSB mill, helping to focus on our most competitive operations.
Sean McLaren: Our priority is to keep lowering our cost base, run our mills to demand, and manage working capital. The remainder of our EWP portfolio continues to perform consistently well. In Europe, our business has performed well year-to-date. While we are navigating similar consumer challenges as in North America, we are leveraging sizable cost advantages. Over the longer term, we continue to see tailwinds from wider adoption of OSB and timber frame construction.
Sean McLaren: Stepping back, we believe West Fraser is navigating this part of the cycle from a position of strength. We are nearing the end of a significant investment cycle, with many projects now complete or ramping up and further benefits still to be realized. At the same time, we are taking decisive actions to strengthen our portfolio and maintain financial flexibility. As demand improves, we are confident these initiatives will drive a meaningful performance improvement. Summarizing our discussion today, this was a quarter where pricing was softer in OSB in Southern Yellow Pine. Our teams responded to this by focusing on what we can control, managing costs, inventory, and other working capital, and taking difficult but necessary actions to align our portfolio with current demand. We remain focused on disciplined execution through the cycle and continue to strengthen the long-term competitiveness of West Fraser.
Sean McLaren: Thank you again for your time and continued interest. We look forward to updating you next quarter. With that, we will turn the call back to the operator for questions.
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the 1 on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys. 1 moment, please, for your first question. Your first question comes from Ben Isaacson with Scotiabank. Your line is now open.
Ben Isaacson: Thank you very much, and good morning, everyone. Just two questions from me. Chris, the first question is: what is the purpose of the increase in debt to expand flexibility? You had about $1 billion of liquidity. Now you have $1.2 billion. Why was there a need to increase that?
Chris Virostek: Well, thanks, Ben, and good morning. I think as we navigate through the uncertainty in this market, we want to make sure that we are prepared for all eventualities, whether that is the market stays how it is, or it improves, or it gets worse, and whether there are growth opportunities that present themselves there. So this is really around making sure that we have got full optionality as a management team and as a company to execute on the strategic things that may come our way as the cycle evolves here. And to make sure we can focus on running the business as our number one priority and extracting the most value from the business as opposed to a primary consideration being liquidity or debt management.
Chris Virostek: We have a very supportive bank group and in fact, going back to $500 million on the term loan, it just takes us back to where we were in 2024. And 6% net debt to capital is an extremely low level, very manageable for us. And so we tend to manage the balance sheet pretty conservatively. It is a very small increase in debt, and it gives us the ability to continue to execute our strategy almost agnostic to market conditions.
Ben Isaacson: That is perfect. Then just a follow-up question, maybe for you as well, Chris. When you think about all the closures that you have announced this year, and then when you think about the Henderson ramp and your continued efforts on cost optimization, if there was no change to cost structure or pricing, would there be an earnings lift or decline in 2027? I am just trying to understand the magnitude or the offsets with what has been taken out and what has been added.
Chris Virostek: Well, I think you can see in our numbers, and I think we have talked in some of our earlier presentations, for instance, and I would not isolate it to the journey of one particular asset here or there or decisions that have been made in the current year. If you look at our timeline over the last three to four years around optimizing this portfolio, we can produce basically the same amount of SYP today as we could two or three years ago, but with four or five less sites because we have invested capital in sites that have attributes that make them strong performers over the long term.
Chris Virostek: I think you can see in our OSB results the impact year-over-year of we have had all this cost inflation, we have had pricing pressure in OSB, but with the decision that we had to take on High Level last year, we have more than mitigated a lot of those challenges on the inflation and other front, right? And so at the same time as we have reduced the footprint and capacity and reduced cost, we still maintained a high degree, I will say, of optionality to participate in upside when there is a market recovery. Now, I do not really want to speculate on what 2027 looks like at this point in time. I think we will be out later this year with shipment guidance and CapEx guidance.
Chris Virostek: But if there is a market recovery here, we have tremendous ability through operating schedules, through small capital in some of our sites to expand capacity further to capitalize on what is out there. So this has really been a journey for three or 4 years of really preparing the company to weather the downside but capitalize on the upside when it comes.
Ben Isaacson: That makes sense. Thanks so much.
Operator: Your next question comes from Sean Steuart with TD Cowen. Your line is now open.
Sean Steuart: Thanks. Good morning, everyone. Sean, I will start with the capacity closure announcements first. Encouraged to see that. At Huguley, I think I understand the context there. With respect to the Arkansas sawmill, maybe some detail on why that asset versus others. It is our understanding the fiber basket in Arkansas is attractive for this industry, and I know it is very site specific, but any context you can give on why that sawmill as opposed to others?
Sean McLaren: Yeah, you bet, Sean. Good morning. I think similar to Huguley, and Chris's comments on the previous question, we are very focused on optimizing our portfolio from a competitive position to meet the demand that we see out there. When we look at Leola, which is in central Arkansas, and really that area services the Texas market, it services west, maybe a little bit to the north too, but it primarily goes west. We have made significant investments in East Texas. We have got, of course, our new mill ramping up in Henderson. We have got additional capacity available at New Boston, and then we have got our modern asset down in Lufkin at Angelina. We are allocating what we see as the available demand to that platform and enabling those mills to run at higher levels, which overall brings our cost down and to service that region.
Sean Steuart: Okay. Thanks for that, Sean. Second question. Curious on your thoughts with respect to the BC election outcome. The company hasn't put a lot of discretionary or much at all towards the province in recent years. Does this change any perspective on regional capital allocation for the company going forward with respect to investment in BC?
Sean McLaren: Yeah. Again, obviously very early, and we do not comment on any particular platforms. I would say, when I think about British Columbia, we are very pleased with our group of assets here in BC. They are modern, they are integrated. We have a tremendous workforce. Regardless of the government, we continue to work with our landowner, if you will, to make sure that access to affordable, available timber is not a barrier to operations. There are enough challenges with market and border measures. I guess we will see. We are pleased with the early comments from the newly elected government to continue the journey to bring more wood to market and make sure that is not one of the things that prevents BC from being a competitive jurisdiction.
Sean McLaren: Saying all of that, we continue to improve our competitive position in BC and feel good about our collection of assets and our integrated model.
Sean Steuart: Okay. Thanks for that detail. That is all I have for now.
Sean McLaren: Thanks, Sean.
Operator: Your next question comes from Ketan Mamtora with BMO Capital Markets. Your line is now open.
Ketan Mamtora: Good morning, and thanks for taking my question. Maybe just on the markets here a little bit. Sean or Chris, can you talk a little bit about what trends you are seeing here exiting Q3, particularly with mortgage rates moving up here? Are you seeing any signs of impact on activity levels? Not asking for specific numbers, just trying to gauge sort of just the market backdrop.
Sean McLaren: Yeah, I might make just a couple of comments and then maybe ask Matt here to fill in what I miss and add in anything else. From our perspective, I think our customers are sort of reacting the way we are. Supply is readily available, and so the sense of urgency to meet the needs of their customers, I think they are able to do that. So I think there is a tone of caution similar to obviously our tone of caution and our adjustments that we are making. So I think everybody is in a bit of wait and see, but clearly the affordability issues around high mortgage rates along with the other things that are impacting the consumer are clearly a weight on how it might look going into 2027. I don't know, Matt, what more would you add to that?
Matt Tobin: I think that covers it. I think the affordability remains a headwind and the high rates and the high diesel rates puts customers in a more cautious mode, and they are managing their working capital and servicing their customers as they need, just like we are.
Ketan Mamtora: Understood. That is helpful. Just switching to transportation and freight cost. I understand that while just the fuel cost is a component, it also seems like just the available capacity and other things are also having a meaningful impact. Can you talk to what you are seeing at the moment and if things are starting to get better, or is that still a headwind as we move into Q4 and into 2027?
Matt Tobin: Oh, sure. I can take that one. I would say that we have seen some easing of availability in Q3. Usually that Q2 period is a seasonally tight period for trucking in the US. A lot of product starts moving then, produce, et cetera. Seasonally, I would say, it is always a bit of a tighter quarter. This year, we had a few extra cost pressures on top of it with high diesel rates that increased the pressure in Q2. I would say despite cost remaining high, availability has improved in Q3, and usually we expect that to maintain for Q4. Despite the cost pressures, we think that we are over the worst of it, I would say, for availability.
Ketan Mamtora: Understood. That is helpful. I will jump back in the queue. Good luck.
Sean McLaren: Thanks, Ketan.
Operator: Your next question comes from Hamir Patel with CIBC Capital Markets. Your line is now open.
Hamir Patel: Hi, good morning. Sean, for the indefinite curtailments that you announced, are you planning on dismantling any of the sites or will they both be potential restart candidates when housing eventually recovers?
Sean McLaren: Hey, Hamir, we've not made any plans to do anything with the sites other than curtail them at this point. Like our other indefinite curtailments, though, for us to contemplate a restart, the assets that we'd have available, you really need a number of things in place. First off, you need a demand environment that would support that additional volume. You need the right fiber supply and residual market conditions, and then really you need a view that in the next down cycle, what are the things that would be different? What investment's needed? What would you do differently? I would say, really against that backdrop, Chris kind of covered this early on one of the questions, we would be looking for less expensive ways to reinforce existing assets first.
Sean McLaren: Again, no plans to change anything in the short term, but the bar is pretty high for a restart.
Hamir Patel: Fair enough. Sean, just turning to your European panel business, any granularity you can give on how the demand conditions there vary by some of the key geographic or product end markets?
Sean McLaren: Yeah. Of course, it is a wide diverse market over there. First off, I would say, as we looked at Q3 versus Q2, we had a number, every one of our mills had their annual maintenance shutdown through that period. So there was some extraordinary things that impacted volume. Beyond that, over the summer, the weather was extremely hot over there. We think that had some impact on demand. As we see things kind of move into Q3, moving into Q4, I would say it is kind of a mix across Europe. Probably the area where we are seeing some structural change is the UK with more conversion to timber frame, and that is using some incremental OSB. Saying that, I think it is a pretty mixed, difficult macro outlook over in Europe as well.
Sean McLaren: Our assets, as I have mentioned on previous calls, we have good assets and we are well-positioned from a raw material base in terms of supporting those markets as we kind of work through uneven demand conditions.
Hamir Patel: Okay, great. Thanks, Sean. That is all I had. I will turn it over.
Sean McLaren: Thanks, Hamir.
Operator: Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Matthew McKellar with RBC Capital Markets. Your line is now open.
Matthew McKellar: Hi. Good morning. Thanks for taking my question. I think you noted that you're at the end of an investment cycle here, and with that, how would you have us think about the outlook for capital spending over the next couple of years if this environment persists? It sounds like you have some opportunities to deploy capital in maybe smaller increments to expand some capacity. I wouldn't maybe think you need that today, but is there any more significant projects that could still make sense if we're stuck here for, say, another couple of years? Thanks.
Chris Virostek: Yeah. Thanks, Matthew. I think, as Sean and I both have mentioned, there's been a lot of projects that have been on the go, and frankly, our ability to invest counter-cyclically here through the downturn, I think has, well over the much longer term, proved to be an advantage for us is that we're not sitting on a bunch of deferred maintenance or anything like that. We've been able to maintain our assets quite well, invest where it makes sense, and then it also, where difficult decisions are required, like they were yesterday, we're able to sort of mitigate the impact on our customers through that capital spend. That being said, a lot of those projects have either wound down or are in the process of winding down and we're turning up the operationalization of those.
Chris Virostek: That's also been a little bit of a drag on us as we go through this process of all these startups on the things that we've spent. That does have an impact. I think going forward, as I mentioned, I think we'll be out here before the end of the year with some guidance on capital and shipments as we contemplate next year and things come into focus. I would expect that you'll see us CapEx come down fairly significantly next year. As I said, we'll be out with that probably before the end of the year for you. It's largely going to be focused on maintaining the platform. I just don't think there's huge strategic capital things that are in the hopper that are imminently going to be executed here.
Matthew McKellar: Great. Very helpful. Thanks for the detail there. Second for me, there was a comment in the MD&A about less competition for logs in the south in your procurement regions, but also that you saw limited availability of harvesting crew and hauling capacity with some suppliers parking their equipment, which I guess was largely due to high diesel prices and other inflationary operating cost pressures. Could you maybe just provide a bit more perspective there? Were those contractors who parked equipment not able to pass along the changes in their diesel prices fast enough, and this is essentially transitory, or is there some risk here of some kind of more structural attrition of capacity that could be a constraint down the road? Thank you.
Sean McLaren: Yeah, you bet, Matthew. I'll take that one. Maybe just a few comments. Your first comment there on some of the structural kind of changes, I think that's largely related to OSB pulpwood, if you will. As pulp mill closures happen, markets for pulpwood are reduced, and so as costs increase, there's somewhat of an ability for stumpage to adjust and can help control that cost on a delivered basis. I would say that the other comment on contractors parking and that type of thing, that is very regionalized. I think there was a couple of examples of that, and it's not widespread, and it really depends on alignment of that regional market demand, in this case, for sawmills and what landowners are prepared to sell that timber for.
Sean McLaren: When those things don't align, contractors that don't have the ability to pass on fuel costs and mills are not prepared to buy at elevated prices because of the lumber market, then you do have a period where there is some supply disruption. I think that, again, when the right set of conditions are in place, that sorts itself out. I think contractors ebb and flow like our sawmills do, like our customers do, depending on market conditions.
Matthew McKellar: Really helpful. Thanks for the perspective. I will turn it back.
Sean McLaren: Thanks, Matthew.
Operator: There are no further questions at this time. I will now turn the call over to Sean for closing remarks.
Sean McLaren: Thank you, Joelle. As always, Chris and I are available to respond to further questions, as is Anil Aggarwala, our Director of Treasury and Investor Relations. Thank you for your participation today. Stay well, and we look forward to reporting on our progress next quarter.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
