Earnings call transcript: Interfor beats Q1 2025 EPS forecast, stock falls

Interfor Corp reported its first-quarter 2025 financial results, showcasing a significant earnings beat with an actual EPS of $0.0058, surpassing the forecast of -$0.2202. Despite this positive surprise, the company’s stock fell by 4.62% in post-earnings trading, closing at $14.06. The revenue came in at $735.5 million, slightly below the forecast of $781.6 million, contributing to the downward pressure on the stock. According to InvestingPro data, the stock is currently trading near its 52-week low, with a beta of 2.5 indicating significant volatility compared to the broader market.

Key Takeaways

• Interfor exceeded EPS expectations, reporting $0.0058 against a forecast of -$0.2202.
• Revenue fell short of projections, achieving $735.5 million versus the expected $781.6 million.
• The stock declined by 4.62% following the earnings release.
• The company reported an adjusted EBITDA of $49 million.
• Interfor’s operations are diversified, with 60% of its asset base in the U.S.

Company Performance

Interfor’s performance in Q1 2025 was marked by a notable earnings beat, although revenue did not meet expectations. The company achieved an adjusted EBITDA of $49 million and reported a net loss of $35 million, largely due to a $29 million non-cash loss related to its Quebec operations. Despite the challenges, Interfor’s diversified operations, particularly in the U.S., helped mitigate some of the adverse effects.

Financial Highlights

• Revenue: $735.5 million, below the forecast of $781.6 million.
• Earnings per share: $0.0058, significantly above the forecast of -$0.2202.
• Adjusted EBITDA: $49 million.
• Net loss: $35 million, including a $29 million non-cash loss.

Earnings vs. Forecast

Interfor’s EPS of $0.0058 was a surprise against the forecasted -$0.2202, representing a significant positive deviation from expectations. However, the revenue shortfall of $46.1 million compared to the forecast likely contributed to the negative market reaction.

Market Reaction

Following the earnings announcement, Interfor’s stock decreased by 4.62%, closing at $14.06. This reaction can be attributed to the revenue miss and ongoing market volatility in the lumber sector. The stock’s performance is within its 52-week range, with a low of $12.84 and a high of $21.44.

Outlook & Guidance

Interfor maintains a conservative outlook for 2025, anticipating continued volatility in the lumber market. The company is monitoring potential duty increases on Canadian lumber and is prepared for possible Section 232 tariff investigations. Future guidance suggests cautious optimism with projected EPS improvements by FY2026.

Executive Commentary

Bart Bender, SVP Sales and Marketing, stated, "We are well positioned to take advantage where opportunity presents itself." CEO Ian Fehlinger emphasized the company’s strong foundations and diversification, while CFO Rick Posbon noted that the 37% leverage at the end of Q1 is viewed as temporary.

Risks and Challenges

• Potential increases in duties on Canadian lumber.
• Market volatility due to tariff uncertainties.
• Economic pressures affecting housing starts and remodel markets.
• Ongoing wind-down of BC Coast operations.
• Tight inventory levels and fluctuating European lumber imports.

Q&A

Analysts inquired about production responses and inventory levels, with management indicating tight inventories aligned with internal thresholds. Questions also focused on the potential monetization of duty deposits and government interventions in the softwood lumber dispute.

Full transcript - Interfor Corp (IFP) Q1 2025:

Chloe, Conference Operator: morning. My name is Chloe, and I will be your conference operator today. At this time, I would like to welcome everyone to the Intercor Analyst Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

Thank you. Mr. Philinger, you may begin your conference.

Ian Fehlinger, CEO, Interfor: Thank you, operator, and thank you, everyone, for joining us this morning. With me on the call, I have Rick Posbon, Executive Vice President and Chief Financial Officer and Bart Bender, Senior Vice President of Sales and Marketing. I’ll start off by providing a brief recap of our first quarter before passing the call on to Rick and Bart. Adjusted EBITDA was $49,000,000 in Q1, and despite weather challenges and tariff uncertainties, all of our operating regions were EBITDA positive. This result was largely driven by higher sales realizations across all regions.

Although the pace of single family starts remain somewhat resilient year to date in the context of interest rate environment and associated affordability challenges, the geopolitical situations remain uncertain, and the aggressive US trade policy has significantly increased the possibility of slowing demand. Therefore, we’re maintaining a conservative outlook for 2025. We have geographically diversified our company to weather these type of uncertain periods. Our US platform represents 60% of our asset base, spanning both The US South and the Pacific Northwest. Approximately 76% of our total production is not subject to duties or US trade actions, and our available liquidity of over $300,000,000 is strong.

In closing, our outlook is mixed. However, our foundations are strong. We’re diversified, and we continue to see opportunities for efficiency costs and margin improvements across all of our regions. I’ll now pass the call over to Rick.

Rick Posbon, Executive Vice President and Chief Financial Officer, Interfor: Thank you Ian, and good morning all. Please refer to cautionary language regarding forward looking information in our Q1 MD and A. Overall, our Q1 results were a significant improvement year over year, reflective of stronger lumber prices across all key products and the steps taken to optimize our sawmill portfolio. With respect to earnings, Interfor generated adjusted EBITDA of $49,000,000 on total revenue of $736,000,000 Total revenue remained relatively flat quarter over quarter, with an 8% increase in the average realized lumber price, offset by an 8% reduction in the volume of lumber shipped. Lumber price improvements were supported by the substantial production curtailments across the industry in 2024, as well as seasonal demand.

Lumber shipments were slowed by tariff driven customer uncertainty and constrained truck availability in The US South. Fortunately, we’re now seeing more consistent truck availability and expect to catch up on shipments in the second quarter. On the cost side, reported production cost per unit of lumber increased 9% quarter over quarter, reflective of operational disruptions from harsh winter weather conditions in several regions and the constrained shipment volume. Ultimately, a net loss of $35,000,000 was recorded in the quarter, which includes a $29,000,000 non cash loss on disposition of our Quebec operations. From an operating cash flow standpoint, the $49,000,000 of adjusted EBITDA in Q1 was more than offset by a $54,000,000 build in working capital and $12,000,000 of income tax instalments.

Working capital build was mostly driven by seasonal build of log inventories in Canada, and the tariff driven delays in lumber shipments, which accounted for 44,000,000 of the total build. On a positive note, these inventory increases are temporary and expected to reverse over the course of Q2 to support cash flow. Beyond operations, we invested $17,000,000 in capital projects, raised $19,000,000 from the sale of assets. Sales of assets included $3,000,000 of net proceeds from the ongoing wind down of our BC Coast operations. Over the remainder of this year, ten year sales are estimated to generate additional net cash flow in the ballpark of 15,000,000 to $20,000,000 Ultimately, financial leverage as measured by net debt to invested capital ticked up to 37% at the end of the first quarter.

While we remain focused on closely managing our financial leverage, we are well positioned with more than sufficient available liquidity at over $300,000,000 To wrap up, Interfor’s Q1 financial results were another step in the right direction for our business, despite the various disruptions. Looking ahead, we anticipate continued lumber market volatility, considering duty rates are set to rise substantially later this year, combined with the looming threat of tariffs. Fortunately, Interfor is well positioned to navigate successfully through this volatility with its high quality and geographically diverse operations. That concludes my remarks. I’ll now turn the call over to Bart.

Bart Bender, Senior Vice President of Sales and Marketing, Interfor: Thanks Rick. So I’ll provide some market outlook comments. It’s hard not to look back at what transpired in Q1 when we think about what Q2 and beyond could look like. This past quarter we saw a series of events that were impactful to our lumber markets and leave us with a level of uncertainty as we navigate incoming increases in duties on Canadian lumber shipments to The U. S, continued threats of tariffs and demand that reflects the lack of confidence in the North American economy.

All of these have a profound impact on North American lumber markets. This past quarter, the impact of both the prospect and ultimately implementation of tariffs and prompt reversal left our markets without direction. It was very interesting to see the responses that did occur with PNW, Eastern Spruce, and Western Spruce markets quickly increasing prices to reflect the changes the competitive landscape. Interestingly, the Senyil pine markets saw a delayed response, but ultimately that region saw increased demand and higher prices as well. We believe we’ll continue as our customers address risk and supply.

Q2 and Q3 were expecting volatile pricing environments. The competitive landscape is going to shift as the markets make room for significant duty increases and potentially tariffs on top of that. The markets will ultimately pay for those cost increases, we’re just not sure to what degree of supply we’ll need to respond to achieve that. There will be winners and losers, with US lumber producers likely winning and consumers footing the bill. Impacts on Canadian producers are less known and will be influenced by operating regions, products produced and proximity to key markets.

All things considered, the volatile markets we saw in Q1 were favorable overall. Pricing was elevated for most of the quarter. On the demand side, our customers are reporting declines in activity due largely to the uncertain economic backdrop. We still believe strongly in the underlying fundamentals and we’ll look to see deferred projects step back in when confidence increases. This will be an area to watch as manufacturers, builders, and end users navigate negative sentiment and risk.

Turning to logistics. This area has not been immune to the impacts of the tariffs. We are seeing US South trucking capacity tighten as other commodities change their patterns and shipping lanes. This will settle down in Q2. Aside from some weather events in Q1, the other regions have been stable on both rail and truck capacity.

In summary, we expect volatility in the markets for all operating regions for InterForm. We are well positioned to take advantage where opportunity presents itself. That’ll turn it back to you, Ian.

Ian Fehlinger, CEO, Interfor: Thanks, Bart. Operator, we’re ready to take questions.

Chloe, Conference Operator: Thank you. Ladies and gentlemen, we will now conduct a question and answer session. If you have a question, please press star key followed by one on your touch tone phone. You will hear a one tone pop acknowledging your request. Your request will be pulled in the order they are received.

And if you you would like to decline from the polling process, please press the pound key. One moment for your first question. Our first question comes from the line of Matthew MacKellar from RBC Capital Markets. Your line is open.

Matthew MacKellar, Analyst, RBC Capital Markets: Good morning. Thanks for taking my questions. First for me, it looks like Southern Yellow Pine prices have been having a decent couple of months here. At an industry level, are you seeing any kind of meaningful production response on that combination of stronger pricing and maybe wanting to position for what the market looks like after higher duties come into effect?

Ian Fehlinger, CEO, Interfor: Not that we’re aware of. Matt, this is Ian, by the way, thanks. No, we haven’t really seen any moves in Southern pine production trying to capture that. I think mills are running fairly steady, and as you know, adding hours is a little bit challenging in the South for a variety of reasons, but no, we’re not seeing anything from our end.

Matthew MacKellar, Analyst, RBC Capital Markets: Okay, thanks for that. And then what kind of finished good inventories, I guess, are you carrying at your mills today? Would they be above seasonally typical levels? And then with the comments around tariffs maybe delaying some shipments, do you think channel inventories or maybe SPF in The U. S.

In particular are positioning differently than they typically would be at this time of year?

Ian Fehlinger, CEO, Interfor: Yeah, I think on the inventory side, I don’t think I know during the quarter when tariffs were in and out, there was a bit of a delayed response. Inventory, I think we grew up to a maximum of three days over the previous quarter, but toward the end of the quarter, inventories really came down. Our inventory thresholds, the internal numbers that we manage are very in line with where we want them. So we don’t see any inventory in our yards that’s concerning. And then the channel inventories are really hand to mouth.

Everybody’s keeping an eye on the risks and trying to mitigate any kind of downside on that. But in short, Matt, our belief is it’s extremely tight right now.

Matthew MacKellar, Analyst, RBC Capital Markets: Thanks very much for the detail. I’ll pass it back.

Ian Fehlinger, CEO, Interfor: Thanks, Matt.

Chloe, Conference Operator: Our next question comes from the line of Ketan Nontora from BMO Capital Markets. Your line is open.

Ketan Nontora, Analyst, BMO Capital Markets: Good morning, and thanks for taking my question. Perhaps to start with, can you talk a little bit about what you are seeing in demand right now, both on the repair and remodeling side and also on the new residential construction side?

Ian Fehlinger, CEO, Interfor: Sure. On the repair and remodel, the drivers, aging, housing stock, rising equity, good employment gains are all there, but softening consumer sentiment is I think really kind of mitigating all of those and weighing on the outlook a bit. And on the new residential, as in my comments, as you know, Ketan, the housing starts have actually held in there pretty well, even given the mortgage rate situation, but the housing affordability and the new home traffic that the industry is not seeing or declining is concerning, but we’re pleasantly surprised with how it’s hanging in right now on the new home.

Ketan Nontora, Analyst, BMO Capital Markets: Again, I’m just curious on

Ian Fehlinger, CEO, Interfor: the builder incentives, I I would say that. They’ve done a good job of doing that and keeping that volume up there.

Ketan Nontora, Analyst, BMO Capital Markets: Yeah, no, that’s fair. On the R and R side, Ian, are you seeing sort of volumes flattish Are things a little bit slower? Are things up a little bit? How would you characterize that?

Ian Fehlinger, CEO, Interfor: Yeah, mean, Ketan, another way to look at that would be how is inventory and our production rates. So our operating rate in Q4 I think was around 78%. We increased it to 82% in Q1 and we’re able to move our product. So I think things are tight, but our operating production and our sales numbers are in sync. So at this point, we’re not seeing a risk.

Are we concerned? You bet. For sure, we’re monitoring every day. But operating rate up 4% in Q1 versus Q4 and inventory is largely in sync with the production levels.

Ketan Nontora, Analyst, BMO Capital Markets: Got it. And then, just last one from me. We’ve seen a pretty meaningful pullback in Western SPF prices. You know, we also have duties which are, you know, going to go up at some point, you know, in the back half of this year pretty meaningfully. I’m curious to see, and as you look at, you know, kind of what’s going on in housing, we’ve seen Western SPF prices come down, you’ve got duties going higher.

What is your sort of philosophy or your approach to production in this backdrop?

Ian Fehlinger, CEO, Interfor: Yeah, I think this plays to the diversity and kind of where we’re located. And with 75 plus percent not subject to duties or US trade action, gives us comfort that our portfolio is strong to weather this type of storm that may come. I think that when you look across Canada and you think about our operations in the Southern Interior, which cut five different species and are fairly diversified, that there’s good strength there. And then when you kind of turn to Ontario and New Brunswick, and you think about that SPF volume, could it be displaced by Southern Yellow Pine? Possibly, but there’s a strong need for SPF stud volume into the market, and that’s the majority of our product in Eastern Canada.

So I I think there’s going to be puts and takes, but for our company, we feel good about the growth that we’ve done and the type of growth and the type of products that we have to weather these type of situations.

Ketan Nontora, Analyst, BMO Capital Markets: Got it. That’s helpful. I’ll jump back in the queue. Good luck. Thanks, Ketan.

Chloe, Conference Operator: Our next question comes from the line of Ben Isaacson from Scotiabank. Your line is open.

Ben Isaacson, Analyst, Scotiabank: Thank you very much, and good morning, everyone. Three quick questions, if that’s okay. Ian, the on the last call, which was mid February, you said that you you weren’t counting on any support from federal and provincial governments in your business planning. A lot has changed in the last three months on both sides of the border. Can you just give us an update in terms of what is Interfor or the industry looking or hoping for from the federal or provincial governments?

Or have there been any pivots in the past three months given all that’s happened?

Ian Fehlinger, CEO, Interfor: Yeah, Ben, I would say that from our view, and can’t comment on others, but we’re not facing government support in any kind of incentives or anything like that at all. But I would say the industry as a whole, given the trade action by The US against Canadian producers, there’s an incentive for the Canadian producers to engage at a deeper level with the federal government in Canada around the softwood lumber dispute and resolution on that. But at the end of the day, it’s president to prime minister, and the best that our industry can do and Interfor can do is get aligned with solutions that work for North America. And I would say that there’s discussions on that, but really it comes down to having our prime minister in Canada early in his job and making sure that industry is educating him and our president or a president in The US around what a negotiated settlement might look like.

Ben Isaacson, Analyst, Scotiabank: Thank you for that. My second question for you or for Rick. In the current environment, can you just talk about that 37% net debt to capitalization rate? Is it stable at current pricing? If not, can you remind us what non operational cash flow levers there are to pull to keep that stable?

Thank you.

Rick Posbon, Executive Vice President and Chief Financial Officer, Interfor: Ben, good morning, it’s Rick speaking. We do view the 37% leverage at the end of Q1 as temporary, just given that inventory build that we’ve spoken about that caused a slight uptick in our leverage. We’re confident given the progress we’ve made here in Q2 on inventory shipments and also working through our seasonal build of log inventories that leverage will come down at the end of Q2. So we feel really good and have confidence going forward that we can maintain stable leverage and keep lower covenant levels. Out beyond Q2 here, we do have other levers to consider.

We’ve always been prudent in adjusting our operating rates going forward to match demand, that’s an important lever for us to adjust to this uncertainty going forward as needed. We obviously have the tenure sales, which I mentioned already, that’s something that will provide cash flow both in 2025 and all the way into 2026 as we work to substantially complete the sale of our tenures. We also have significant value in our duties. There’s been several transactions in the marketplace in the 30 to 35¢ in the dollar range. Just a reminder, we’ve got over $600,000,000 US of duties on deposit.

We view that as a substantial store of value if and when needed. And then we always have the ability to adjust our CapEx. We’ve been very prudent in planning our CapEx out to maintain flexibility, so that’s a lever we always seem to have and can pull.

Ben Isaacson, Analyst, Scotiabank: That’s great, thank you. And then just last question is on SPF in particular. Can you just give some color or context in terms of how is the best market doing right now versus the worst market? Whether you define that on a regional basis or on an end use basis. I’m just trying to get an understanding in terms of kind of where SPF has come from and what kind of volatility is it facing right now?

Thank you.

Ian Fehlinger, CEO, Interfor: Yeah, Ben, that’s a tough one to answer on this type of call. Would say in Q1, in my comments, that all of our operating regions were EBITDA positive, and we continue to monitor all those, there’s puts and takes, but being diversified, I mean, often I think the Pacific Northwest gets overlooked in The US for us. We do have the South, Eastern Canada, and then Western Canada, so depending upon the market dynamics, we have a lot of levers and a lot of diversification in both species and geographical areas. So I would say we always monitor that. We have a three month rolling outlook that we look at every week, and we’re positive at this point that all regions are running at the run rates that we need.

Ben Isaacson, Analyst, Scotiabank: Perfect, appreciate the comments. Thanks so much.

Chloe, Conference Operator: Our next question comes from the line of Hamir Patel from CIBC Capital Markets. Your line is open.

Ben Isaacson, Analyst, Scotiabank: Hi, good morning. Bart, I was just wondering with respect to European imports. I know they’ve been quite volatile. Do you have a sense as to if Section two thirty two tariffs did come in and they also applied to European supply, at what level would that sort of cut off European imports?

Bart Bender, Senior Vice President of Sales and Marketing, Interfor: It’s a tough question, Hamir, because it really comes down to their cost structure and where that actually goes. I think it’s fair to say if you look at any producing region right now for lumber, the margins are pretty tight. And so if you introduce an additional cost, whether it’s a duty or a tariff, I mean, there’s really not a capability of any producing region to absorb that. And so, it’s either going to be an exercise of prices moving up or supply being rationalized and most likely a combination of the two of them, frankly. What I keep hearing from the European side is that they are challenged with their log costs.

And as the markets see higher prices, it seems to me that that just transfers right into log cost. And so the margin for the manufacturer is pretty thin. So I think that a section two thirty two affects not just the Europeans. And I think the bottom line on that is that prices in North America will increase because of it. And the part I said in my opening comment is we just don’t know we just don’t know what the supply side reaction will will need to be to make that happen.

And so, yeah, that’s the way I see that.

Ian Fehlinger, CEO, Interfor: Hamir, that’s probably a question to ask somebody that’s producing in Europe to give you more clarity. We don’t, as you know. But what we do know is that the European imports have moderated since their peak on a trend basis, and they’re stabilizing around 3,000,000,000 board feet, which is probably, in our view, a more sustainable run rate.

Ben Isaacson, Analyst, Scotiabank: Fair enough. Thanks Ian. And just the last question I had for Rick. You highlighted potential opportunity to perhaps monetize duty deposits if you decide to go down that path. From your discussions with the counterparties that might be interested, are they only interested in a transaction involving a portion of your deposits?

Do you see a path to potentially monetize the entire bucket?

Rick Posbon, Executive Vice President and Chief Financial Officer, Interfor: Good morning, Hamir. It’s pretty hard to comment on given a bunch of different factors, but we do see value in the duties to some level, whether it’s all or just a portion to be determined if we went down that path or decided to go down that path.

Ben Isaacson, Analyst, Scotiabank: Yep. Fair enough. That’s all I had. I’ll I’ll turn it over. Thanks.

Chloe, Conference Operator: Ladies and gentlemen, if there are any additional questions at this time, Our next question comes from the line of Sean Steuart from TD Cowen. Your line is open.

Hamir Patel, Analyst, CIBC Capital Markets: Thanks. Good morning, everyone. Ian, on Section two thirty two, I’d be interested to get your perspective on how fast you think this investigation is moving. The deadline for public comments is pretty quick after the investigation started. Perspective on timing, how soon this might happen before November?

And just following up on the previous question, within North America, if there are tariffs supplied, perspective on if there’s enough tension or how much tension there is in this market with respect to being able to pass incremental tariffs along and what sort of supply response might be needed to balance the market?

Ian Fehlinger, CEO, Interfor: Hey, Ian here, thanks. 02:32, timing, no idea. Could it be tomorrow or next week or in the fall? We have no clarity on that. No intel that you don’t have.

So we can’t really give you an answer on that, sorry about that, but that’s what it is. I think for INTERFOR though, this again reinforces the strategic importance of our US platform, both in the South and the Northwest. Any kind of incremental curtailments or supply rationalizations is going to happen in the higher cost regions, for sure. And to the extent of passing on the two thirty two, if demand is where it’s at in Q1 and holds in there, and I mean, inventories are tight. And so I think that’ll determine to the level of what we might be able to pass on, on costs.

But I do see higher cost mills and you’ll recall in 2024, we adjusted our portfolio and we’ve divested of six operations that we did in 2024. So the portfolio for Interfor is substantially repositioned. But at the end of the day, as we get more clarity on how this works, we’ll be able to keep you informed on that. But we’re prepared, we’re expecting it, and we’re expecting it at any time, and we’ll see how the industry adjusts, but we’re prepared to do what we need to do.

Hamir Patel, Analyst, CIBC Capital Markets: Thanks for that, Ian. Rest of my questions have been answered.

Rick Posbon, Executive Vice President and Chief Financial Officer, Interfor: Okay. Thanks, Sean.

Chloe, Conference Operator: There are no further questions at this time. Mr. Fehlinger, please continue.

Ian Fehlinger, CEO, Interfor: Well, thank you everybody for your interest in our company, and feel free to reach out to Bart, Rick, or myself at any time. And this concludes our call. Have a great day. Thank you.

Chloe, Conference Operator: Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may now disconnect.

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