Earnings call transcript: Canfor reports Q2 2025 earnings, misses EPS forecast

Canfor Corporation reported its Q2 2025 earnings, revealing an earnings per share (EPS) of -$0.56, significantly missing the forecast of -$0.1981. Despite this, the company achieved a slight revenue surprise, reporting $1.38 billion in revenue against a forecast of $1.37 billion. According to InvestingPro analysis, the company’s current Fair Value indicates it is slightly undervalued, while maintaining a "Fair" overall financial health score. Following the earnings announcement, Canfor’s stock showed minimal movement, closing at $13.58, a 0.07% decrease.

Key Takeaways

• Canfor’s EPS missed expectations by a wide margin.
• Revenue slightly exceeded forecasts, providing a modest positive.
• The company is expanding its geographic footprint with acquisitions in Sweden.
• Lumber business EBITDA improved, while pulp business faced challenges.
• Market reaction was muted, with a slight decline in stock price.

Company Performance

Canfor’s performance in Q2 2025 highlighted mixed results across its business segments. The lumber business showed improvement with an adjusted EBITDA of $62 million, up from the previous quarter, while the pulp business saw a decline in EBITDA. The company is focusing on geographic diversification and cost management to navigate challenging market conditions.

Financial Highlights

• Revenue: $1.38 billion, slightly above forecast
• Earnings per share: -$0.56, below forecast
• Lumber EBITDA: $68 million, up $8 million from Q1
• Pulp EBITDA: $6 million, down $15 million from Q1
• Capital expenditures: $51 million in Q2

Earnings vs. Forecast

Canfor’s EPS of -$0.56 was significantly below the forecast of -$0.1981, representing a surprise of -182.69%. The revenue, however, slightly exceeded expectations with a $1 billion surprise.

Market Reaction

Following the earnings release, Canfor’s stock price experienced a slight decline of 0.07%, closing at $13.58. This movement reflects investor concerns over the significant EPS miss, despite the positive revenue surprise. InvestingPro data shows the stock has declined 10.54% year-to-date, with a beta of 1.99 indicating higher volatility than the market. The stock trades at 0.48x book value, suggesting potential value opportunity for investors willing to weather near-term challenges. Get access to Canfor’s detailed Pro Research Report, part of InvestingPro’s coverage of 1,400+ top stocks, for comprehensive analysis and actionable insights.

Outlook & Guidance

Canfor anticipates continued market challenges in the coming quarters, particularly in the global lumber and pulp markets. The company is planning capital expenditures of $240 million for the lumber business and $45 million for Canfor Pulp in 2025. Additionally, Canfor is monitoring trade developments and exploring strategic growth opportunities, including potential acquisitions in Europe.

Executive Commentary

"We continue to see improvements in our underlying business supported by our geographic diversification," said CEO Susan Yerkovich. COO Stephen Mackey emphasized, "Our cost structure is competitive when we run and run well." These comments underscore Canfor’s focus on operational efficiency and strategic expansion.

Risks and Challenges

• Weak demand in the new home construction market could impact lumber sales.
• Trade uncertainties and tariff challenges pose risks to international operations.
• Elevated global pulp inventories and price declines in China may pressure margins.
• Potential supply chain disruptions could affect production capabilities.
• Fluctuating foreign exchange rates may impact financial performance.

Q&A

During the earnings call, analysts inquired about Canfor’s approach to the U.S. market amid changing duties and the potential for further mergers and acquisitions in Europe. Executives highlighted their flexible sales strategy and ongoing assessment of growth opportunities.

Full transcript - Canfor Corporation (CFP) Q2 2025:

Joelle, Conference Operator: Good morning. My name is Joelle, and I will be your conference operator today. Welcome to Canfor and Canfor Pulp’s Second Quarter Annual All lines have been placed on mute to prevent any background noise. During this call, Canfor and Canfor Pulp’s Chief Financial Officer will be referring to a slide presentation that is available in the Investor Relations section of the company’s 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 Yerkovich, President and CEO of Kensler Corporation. Please go ahead. Thanks, Joelle, and good morning, everyone. Thanks for joining the Kemper and Kemper Pulp Q2 twenty twenty five results conference call.

I’m going to open up with a few remarks, then I’ll turn it over to Stephen Mackey, Kemper’s Chief Operating Officer and CEO of Canfor Pulp, followed by Pat Elliott, our chief financial officer of Canfor Corp. And Canfor Pulp. We’ve also got Kevin Muthankrat, Canfor’s senior vice president of sales and marketing, and Brian Ewan, Vice President of Sales and Marketing for Camper Pulp, who are here with us and available to take questions. While the market remains conditions remain 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 Columbia since 2023 due to high costs and ongoing fiber challenges.

And in addition, this quarter, we announced the closure of our Essel and Darlington facilities in South Carolina due to persistent weak market conditions and sustained loss at those facilities. In combination, these closures have removed more than 2,000,000,000 board feet, that are aligning our production capacity with market demand. While extremely difficult for our people and communities, these decisions will enhance Cantor’s 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 sawmills from Carlsbadin in Sweden.

These sawmills have exceptionally high quality fiber in Central Sweden, which is a new operating region for Cancor Vida 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 Vida’s 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 base in The US 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, 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 two thirty two investigation in The U. S. As well as the broader trade environment. We continue to monitor these developments closely and will adjust our 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 lumber platform. I’d now like to turn it over to Stephen Mackey to provide an overview of Campford Pulp.

Susan Yerkovich, President and CEO, Canfor Corporation: Thanks, Susan, and good morning, everyone. Campford 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 has stabilized recently, we anticipate weak market fundamentals to persist throughout 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 tariffs and economic uncertainty and weaker demand driven by the aforementioned economic uncertainty. Notwithstanding the current macroeconomic challenges, CamperPulse 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 intensely 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’ll now turn it over to Pat to provide an overview of our financial results. Thanks, Stephen, 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 the Canfor website. Our lumber business generated adjusted EBITDA of $62,000,000 in the second quarter, dollars 1,000,000 higher than the prior quarter.

Adjusted EBITDA includes restructuring charges following the announced closures of Esco and Darlington that Susan mentioned earlier. Excluding these onetime items, our lumber business generated EBITDA of $68,000,000 in the second quarter, up approximately $8,000,000 from Q1, supported by solid earnings in Europe and continued ramp up of 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 improved profitability.

Our lumber business generated EBITDA, excluding onetime items, of approximately $130,000,000 in the 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 $6,000,000 in the second quarter, down $15,000,000 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 the end of the second quarter, Canfor Pulp had net debt of $74,000,000 and $80,000,000 of available liquidity, while Canfor, excluding Canfor Pulp and the duty loan, ended the second quarter with net debt of approximately $87,000,000 and available liquidity of $1,300,000,000 On a consolidated basis, capital expenditures were approximately $51,000,000 in the second quarter, including approximately $5,000,000 for Canfor Pulp. Following completion of several major capital investments in recent years, we are anticipating significantly lower capital spending starting this year with approximately $240,000,000 protected in our lumber business.

Of this amount, approximately $160,000,000 was spent in the first half of the year. For Canfor Pulp, we are currently forecasting capital spend of $45,000,000 in 2025, including capitalized maintenance. Following completion of our recently announced acquisition in Sweden later this year, our balance sheet remains solid, supported by our improved operating platform, a seasonal working capital reduction in Sweden and an expected tax refund in Canada. In addition, we anticipate Camfor 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.

Joelle, Conference Operator: 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 are using a speakerphone, please lift your receiver and then press star one. If at any time you wish to cancel your question, please press 2.

Please press 1 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 Mantora with BMO.

Susan Yerkovich, President and CEO, Canfor Corporation: Maybe to start with, can you talk about if you also any pre buy ahead of, you know, kind of beauty is going higher, you know, on the Western SPS side?

Joelle, Conference Operator: Kevin, you wanna take that?

Susan Yerkovich, President and CEO, Canfor Corporation: Sure. Yeah. We actually the the buying behavior has actually been relatively steady, like, through June and July, and there might be a little bit of a prepositioning. But quite frankly, customers are more or less keeping inventories adequately stocked in order just to meet their just in time demand. So I haven’t seen any material buying increases.

Understood. So, I mean, is it fair to say that inventory you don’t see kind of any material buildup in in inventory? I think our customers’ inventory positions are actually relatively balanced. And like I said, with all the uncertainty that they’re facing, I think they’re just gonna be buying as they need in the trusted time base. That’s helpful.

And then just one other question, you know, with with our duties, you know, going higher here, I’m curious kind of as to your sort of approach to production, you know, particularly in light of kind of causing demand kind of being softer. If especially if if sort of, you know, if your approach to pass through the entire price, the duty increase, Can you just give us sort of some sense of how you all are approaching this? Yes. Good morning, Tate. Dennis, Steven.

I can just I think from a production perspective, you know, 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, and that’s certainly our plan is to operate through the cycle. We think we’re well positioned with limited exposure overall if you look broadly across our global platform to The US. So, obviously, there’s lots of volatility and things can change, and we’ll be responsive to the market dynamics that we see out there, but our our plan is to operate. Understood.

That’s very helpful. I’ll jump back in the queue. Good luck.

Joelle, Conference Operator: Your next question comes from Sean Stewart with TD Cowen. Your line is now open.

Susan Yerkovich, President and CEO, Canfor Corporation: Thank you. Good morning, everyone. I want to start with Europe. The pending acquisition there looks like attractive terms and the margin profile there remains really resilient. I guess to be interested in your perspective on other m and a opportunities in Europe, is the interest still specific to Sweden?

Is there any opportunity to maybe expand beyond Scandinavia for for growth opportunities there?

Joelle, Conference Operator: Yeah. Thanks, Sean. It’s Susan. Yeah. We we really like this.

We like the Hadeem acquisition. They’re really good mills. They fit well into the beta platform, and there’s a lot of opportunity for us. It’s it’s mostly going into the European market and some into Japan. So it’s it’s really good for us.

We’ll 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 apps are located in Central Sweden, which is a a different sort of operating area for Campo Vita.

Susan Yerkovich, President and CEO, Canfor Corporation: And any so I should read that as I I guess, the appetite for further growth initiatives there. Your your balance sheet is still in relatively strong shape. Are you intent to integrate this deal and fit tight? Or if other opportunities were come would come forward, would you consider them at this point?

Joelle, Conference Operator: Well, Sean, you know, we’re always looking for things. We’re looking for things all the time. We’re looking at opportunities across our platform, but, you know, we’ve got we right now, we’ve got a job to do to integrate these assets into our into our in the platform, and we’re gonna do that. And but we’ll keep our eyes open.

Susan Yerkovich, President and CEO, Canfor Corporation: K. Thanks for that. And then, Susan, maybe a question you you don’t wanna answer, but I just wanna get your thoughts on trade evolution here on Canada US lumber. How is your optimism that lumber can be included in a broader US Canada negotiation? And do you have any thoughts that you would share on quota being a potential facet of of a potential deal?

Joelle, Conference Operator: Yeah. Sure. I mean, I think what we’ve heard is signals from the federal government, important signals that, you know, lumber is a priority out there along with, you know, steel and aluminum and auto and 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, you know, my strong hope is that lumber is included in this. If we can achieve an agreement, I would very much like for lumber to be included in that resolution. As you know, this is a really long standing agreement. As far as the form of that agreement, I think they’re you know, they’ll we we leave it to our our very competent negotiators, including the chief negotiator for Canada, Kristen Hillman, who’s a very seasoned negotiator, our ambassador in The US. And I I think they’ll be they’re gonna need some flexibility to try and reach resolution.

So I’m not sure what form that resolution will take, but, certainly, we’ve been working across, you know, working with the industry and are ready to support the federal government in in finding a resolution on this file for lumber.

Susan Yerkovich, President and CEO, Canfor Corporation: Thank you for that detail. That’s all I have for now. Thank you.

Joelle, Conference Operator: Your next question comes from Amir Patel with CIBC Capital Markets. Your line is now open.

Susan Yerkovich, President and CEO, Canfor Corporation: Hi. Good morning. Kevin, I was wondering if you could give us a sense how lumber demand has fared with your key R and R customers this year, both in North America and Europe? Yes. Great to have here.

Thanks for the question. Actually, R and R for 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 in early July, but that’s been since the pickup. So I think that’s been a positive in the marketplace.

And then as far as Europe, I think they’re 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 much better than what much better than what we’re seeing in new home construction, which is actually a loss. So Okay. Thanks thanks for that, Kevin. Susan, I had a question for you with, you know, assuming the current trade situation continues. Just given the large reductions to your BC platform over the past year, when you think about the difference between your combined antidumping kind of railing rate and the rate for West Fraser, would you expect that spread to to really narrow when the AR 7 preliminary rates come up?

Yes. Okay. And any any I mean, would would you would that sort of plan over two years, or it’ll be a big step down you think in AR 7 just given the geographic There’ll

Joelle, Conference Operator: be a step down, and you’ll yeah. There will be a step down, but, yes, we will we’d expect that that that spread will be diminished.

Susan Yerkovich, President and CEO, Canfor Corporation: Okay. That’s that’s all I had. I’ll I’ll turn it over. Thanks.

Joelle, Conference Operator: Your next question comes from Matthew McKellar with RBC. Your line is now open. Matthew McKellar, your line is open.

Stephen Mackey, Chief Operating Officer and CEO of Canfor Pulp, Canfor: Hi. Good morning. Thanks for taking my questions. First, Randy, just with the changes to your Southern Yellow Pine portfolio and the current market backdrop, how should we be thinking about FYP shipments in the second half? And what kind of maybe reduction in fixed costs do you associate with those two most recent oil closures?

Thanks.

Joelle, Conference Operator: Maybe, Kevin, do you wanna talk about the markets and then Steven?

Susan Yerkovich, President and CEO, Canfor Corporation: Okay. Yeah. I think our our outlook for for for shipments will be actually pretty pretty flat, I think, quarter over quarter. And then, Steven? Yeah.

I think our shipments, what you can expect, Matt, is that, you know, obviously, we’ve seen the impact or we’ll see the impact of the Ethel and Darlington closures of 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 Urbana facility, the construction of our new greenfield facility at Axis. And both of those operations are progressing through their start up curves very well.

And we’re also looking at some potential incremental capacity at a couple of our other facilities, but it will largely offset and be reasonably flat on an annualized basis.

Stephen Mackey, Chief Operating Officer and CEO of Canfor Pulp, Canfor: Okay. Thanks for that detail. Actually, you just you talked about mentioning adjusting for your sales strategy following the implementation of higher duties. I guess, you know, things could change here, but based on your expectations and how you’d expect demand and prices to evolve, what percentage of Canadian produced would we expect to sell into The U. S.

In a sort of status quo scenario where the higher dump higher anti dumping duties remain in place, final counter daily duties are in line with preliminary results, and we see no incremental section two thirty two tariffs? Or maybe even refraining it, how should we expect the geographic sales next year to over the next couple of quarters? Thanks.

Susan Yerkovich, President and CEO, Canfor Corporation: Yeah. Thanks, Mac. Actually, the situation is quite fluid as you can imagine. And so a lot’s gonna depend on how pricing reacts in The US market versus the Canadian market. And we have the flexibility to navigate through that, and it’s something that we’re gonna 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 journey, even the last couple of months, week to week, it has pivoted and changed depending on on demand, liquidity, and and financial results. So that’s I think it’s it’s kind of hard to say exactly because we’re not dealing with a real fixed situation.

Stephen Mackey, Chief Operating Officer and CEO of Canfor Pulp, Canfor: Okay. That’s fair. And then and then last for me, could you just please refresh us on the most impactful initiatives you have other ways to improve the cost structure at Canfor Pulp? Thank you.

Susan Yerkovich, President and CEO, Canfor Corporation: Yeah. Thanks, Matt. I 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 fiber supply.

We’ve 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 then it’s really about operational reliability stability. Our cost structure is can be competitive when we run and run well. And that’s the focus of the team, particularly as we head into through the third quarter and into the fourth quarter and the turnaround that we’ll have at Norfolk in in q four.

So that’s that’s what I would say about that.

Stephen Mackey, Chief Operating Officer and CEO of Canfor Pulp, Canfor: Thanks for all the details. I’ll pass it back.

Joelle, Conference Operator: 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 and ask that you please disconnect your lines.

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