Earnings call transcript: West Fraser Timber Q1 2025 misses EPS forecast

West Fraser Timber Co Ltd reported its Q1 2025 earnings, showing a mixed financial performance. The company posted an EPS of $0.46, falling short of the forecasted $0.4126. Revenue also came in below expectations at $1.46 billion, against a forecast of $1.52 billion. The stock reacted modestly in after-hours trading, declining by 0.38% to $74.55. According to InvestingPro analysis, the stock is currently trading near its 52-week low and appears undervalued based on its Fair Value metrics. The company maintains a strong financial health score of 2.72 (GOOD), supported by its solid balance sheet position.

Key Takeaways

• EPS of $0.46 missed the forecast of $0.4126.
• Revenue fell short at $1.46 billion, compared to the expected $1.52 billion.
• Stock price decreased by 0.38% in after-hours trading.
• Ongoing challenges include tariff uncertainties and transportation disruptions.
• Strong liquidity position with $1.5 billion available.

Company Performance

West Fraser Timber’s performance in Q1 2025 reflected both achievements and challenges. The company reported an adjusted EBITDA of $195 million, representing a 13% margin, with the lumber segment showing significant improvement. However, external factors such as transportation disruptions and tariff uncertainties have posed challenges. Despite these hurdles, the company’s balanced production between the US and Canada, along with its strong liquidity, positions it well for future growth.

Financial Highlights

• Revenue: $1.46 billion, below the forecast of $1.52 billion.
• Earnings per share: $0.46, missed the forecast of $0.4126.
• Adjusted EBITDA: $195 million, with a 13% margin.
• Cash balance: $390 million, down from $641 million last quarter.
• Lumber segment EBITDA: $66 million, up from $21 million in Q4.

Earnings vs. Forecast

West Fraser Timber’s earnings per share of $0.46 missed the forecast of $0.4126 by approximately 11.4%. The revenue of $1.46 billion also fell short of the anticipated $1.52 billion, marking a notable miss in top-line expectations. This performance reflects challenges in meeting market forecasts, partly due to ongoing tariff uncertainties and transportation issues.

Market Reaction

Following the earnings announcement, West Fraser Timber’s stock experienced a slight decline, dropping by 0.38% to $74.55 in after-hours trading. This movement reflects investor concerns over the missed revenue expectations and ongoing external challenges. The stock remains within its 52-week range, which saw a high of $102.4 and a low of $69.48.

Outlook & Guidance

West Fraser Timber maintains a cautious outlook due to uncertainties surrounding tariffs and trade policies. The company expects volume normalization despite a slow start to the year and continues to focus on long-term value creation. Future EPS forecasts suggest fluctuations, with projections of $1.71 for Q2 2025 and $1.63 for Q3 2025. InvestingPro forecasts indicate net income growth this year, with analysts maintaining a positive consensus. The company’s strong liquidity position is reflected in its current ratio of 1.97, indicating ample coverage of short-term obligations.

Executive Commentary

CEO Sean McLaren emphasized the company’s resilience, stating, "We aim to deliver strong financial results through the business cycle." He also highlighted the strategic focus on low-cost production and a diverse product mix as key strengths. CFO Chris Frostic noted, "We have the full suite of things in front of us that we can do," underscoring the company’s proactive approach to navigating market challenges.

Risks and Challenges

• Tariff uncertainties: Potential impacts on cost structure and pricing.
• Transportation disruptions: Affecting shipment volumes and timelines.
• Market demand: Subdued repair and remodeling demand could impact sales.
• Regulatory changes: Ongoing tariff and trade policy shifts pose risks.
• Log inventory challenges: Particularly in British Columbia operations.

Q&A

During the earnings call, analysts raised questions about the impact of tariffs and potential M&A opportunities. The company reiterated its disciplined approach to acquisitions and highlighted ongoing efforts to manage tariff-related risks. Additionally, concerns about SPF/SYP substitution and log inventory challenges were addressed, with management expressing confidence in their strategic responses.

Full transcript - West Fraser Timber Co Ltd (WFG) Q1 2025:

Joelle, Conference Call Operator: Good morning, ladies and gentlemen, and welcome to the Wes Fraser Q1 twenty twenty five Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, 04/23/2025. During this conference call, West Fraser’s representatives will be making certain statements about West Fraser’s future financial and operational performance, business outlook and capital plans.

These statements may constitute forward looking information or forward looking statements within the meaning of the Canadian and United States securities laws. Such statements involve certain risks and uncertainties and assumptions which may cause West Fraser’s actual or future results and performance to be materially different from those expressed or implied in these statements. Additional information about these risk factors and assumptions is included both in the accompanying webcast presentation and in our 2024 annual MD and A and annual information form, which can be accessed on West Fraser’s website or through CEDAR Plus 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, President and Chief Executive Officer, West Fraser: Thank you, Joelle. Good morning, everyone, and thank you for joining our first quarter twenty twenty five earnings call. I am Sean McLaren, president and CEO of West Fraser, and joining me today in our Cornell office on the day of our annual general meeting are Chris Frostic, Senior Vice President and Chief Financial Officer, Matt Tobin, Senior Vice President of Sales and Marketing, and other members of our leadership team. On the earnings call this morning, I will begin with a brief overview of Wes Fraser’s Q1 twenty twenty five financial results and then pass the call to Chris for additional comments before I share some thoughts on our outlook and offer concluding remarks. West Fraser generated $195,000,000 of adjusted EBITDA in the first quarter of twenty twenty five, representing a 13% margin and a meaningful improvement over last quarter.

Of particular note, our lumber segment had its best result in more than two years on the back of better SPF demand and pricing. New home construction continued to show signs of stabilization with annualized US housing starts averaging nearly 1,400,000 units in the first quarter, as elevated mortgage and interest rates continued to challenge housing demand. Similarly, repair and remodeling demand is also relatively stable, though remains somewhat subdued. Complicating matters, we are now dealing with the uncertainty of tariffs and their potential inflationary effects that have the potential to affect future demand for our wooden building products. We’ll continue to watch these developments closely.

Over the trailing twelve months, we generated $668,000,000 of adjusted EBITDA, representing an 11% margin, a meaningful improvement from the $561,000,000 reported during the most recent trough year of 2023. This level of trailing EBITDA, while still well below our view of mid cycle economics, is largely sufficient to cover our capital allocation priorities, including key capital expenditures, our quarterly dividend and opportunistic share repurchases. In terms of our balance sheet, we had nearly $1,500,000,000 of available liquidity exiting Q1 and a healthy cash position even net of debt. Strong balance sheet and liquidity profile, along with our investment grade rating, remain key elements of our capital allocation strategy that allows us to invest in our business counter cyclically and take advantage of growth opportunities if and when they arise. With that overview, I’ll now turn the call to Chris for additional detail and comments.

Chris Frostic, Senior Vice President and Chief Financial Officer, West Fraser: Thank you, Sean. And a reminder that we report in U. S. Dollars and all my references are to U. S.

Dollar amounts unless otherwise indicated. The lumber segment posted adjusted EBITDA of $66,000,000 in the first quarter compared to $21,000,000 adjusted EBITDA in the fourth quarter. This improvement is mainly explained by higher product pricing and higher SPF shipment volumes, offset in part by lower SYP shipment volumes that were impacted by weather related transportation disruptions in The U. S. South.

Our North America EWP segment continued to lead the business in EBITDA generation with $125,000,000 adjusted EBITDA in the first quarter, similar to the $127,000,000 adjusted EBITDA reported in the fourth quarter. The Pulp and Paper segment generated $7,000,000 adjusted EBITDA in the first quarter, compared to a $10,000,000 adjusted EBITDA loss in the fourth quarter. This had been impacted by a major maintenance downtime event at Carrapate Hall. Our European business realized negative $2,000,000 adjusted EBITDA in the first quarter versus positive $2,000,000 in the fourth quarter, with a slight decrease driven mainly by pricing. In terms of our overall results, higher product prices for our lumber business and lower costs for lumber in North American OSB were the largest contributing factors to the sequential EBITDA improvement in Q1 versus Q4.

We continue to see the financial benefits of the portfolio optimization initiatives that we’ve undertaken and that allows us to shift select production to our lower cost operations. Cash flow from operations was negative $75,000,000 for the first quarter, with our cash balance at $390,000,000 down from $641,000,000 last quarter. The relative decrease in our cash balance reflects increased earnings in Q1 being more than offset by the seasonal build of working capital from winter logging operations, 104,000,000 of capital expenditures and approximately $72,000,000 of cash deployed towards share buybacks and dividends. In terms of our guidance for 2025, both our lumber and North American OSB segments have experienced a slower than expected start to the year, owing primarily to transportation and weather related challenges that temporarily disrupted shipments. While we expect to catch up on these delayed shipments, we are conservatively reducing the top end of our 2025 shipments guidance ranges for SPF, SYP and OSB.

As the US Administration’s tariffs and other trade policies evolve, including the Section two thirty two investigation into US lumber imports, we will revisit the impact of the tariffs on our operations, and consider whether any further revisions to our 2025 guidance forecasts are required. Regarding softwood lumber duties, on 04/04/2025, the U. S. Department of Commerce released preliminary CVD results for AR6, based on the year 2023. Our preliminary CVD rate for AR6 is 16.57%, combined with our preliminary ADD rate for AR6 of 9.48%, our preliminary combined rate for AR6 is 26.05%, which is in fact the lowest preliminary rate in the Canadian industry.

Final rates are expected to be released in the second half of this year. With that financial overview, I’ll pass the call back

Sean McLaren, President and Chief Executive Officer, West Fraser: to Sean. Thank you, Chris. Looking forward, we see considerable macroeconomic uncertainty, particularly stemming from the US administration’s evolving tariff policies. However, we want our employees and shareholders to recognize that despite many unknowns, West Fraser is well positioned to navigate challenging business environments like those we face today. Our focus on low cost, combined with a broad mix of product segments and a wide geographic operating footprint, has been built to help provide us with a strong foundation that supports resilience.

Such financial resilience is no more evident than what we see in our quarterly segmented results, as shown on slide nine. Our lumber segment improved dramatically in Q1, posting the segment’s best result in two and a half years and making a significant positive contribution to overall profitability. As we have said many times since the Norbord acquisition in 2021, while OSB and lumber share many end use markets, their demand drivers are not perfectly correlated and their supply fundamentals are materially different. Shifting briefly to tariffs. At this time we are unable to provide much in the way of commentary related to the potential impacts on our business from tariffs or the Section two thirty two investigation that is currently underway.

We will continue to monitor the situation closely and prepare to respond as needed. As we noted last quarter, we are being proactive and preparing by: Remaining policy current, and maintaining close communications with our provincial and federal governments. Actively scenario planning in our business to prepare for a range of outcomes. Preparing our business operations and updating our operational plans so that they can be quickly aligned to various scenarios. And lastly, preparing and engaging our employees, our communities and our customers for what may lie ahead.

In closing, at West Fraser we aim to deliver strong financial results through the business cycle. We achieve this by leveraging our product and geographic diversity, low cost assets, and the dedication of our people and culture that is rooted in cost discipline and a commitment to operate responsibly and sustainably. And this fundamental strategy will not change even in a world with significant policy uncertainty. Although our near term outlook is admittedly cloudy, given the broad implications of a potential global trade war, we remain optimistic about the longer term prospects for our industry and for West Fraser, and we look forward to continuing to build one of the world’s leading building products companies. Thank you, and with that, we’ll turn the call back to the operator for questions.

Joelle, Conference Call Operator: Thank you ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Ketan Mamtora with BMO Capital Markets. Your line is now open.

Ketan Mamtora, Analyst, BMO Capital Markets: Good morning and thanks for taking my question. You know, perhaps to start with, in your prepared remarks, you talked about, you know, a slow start to the year, but that was driven mainly by kind of weather transportation challenges. I’m curious as we, you know, we move through April, we’re getting into the busiest time of the year, What kind of demand trends you are seeing, both in lumber, which has got more repair and remodeling, and OSP, which has got more new residential exposure? Can you provide us some sort of, you know, some color, some context in terms of kind of demand trends today?

Sean McLaren, President and Chief Executive Officer, West Fraser: Yeah, good morning, Keaton. I’m going

Matt Tobin, Senior Vice President of Sales and Marketing, West Fraser: to turn that question to Matt Tobin. Good morning. I’d say, you know, lots of uncertainty over the quarter. So, you know, I think customer purchasing and commentary has been somewhat subdued, like somewhat cautious, I would say, and about normal demand drivers and not seeing any significant changes from what we have the last couple of quarters.

Ketan Mamtora, Analyst, BMO Capital Markets: Understood. So is it fair, how would you sort of, in terms of expectations, you know, as you guys kind of plan for the year, are you still sort of looking at kind of flattish kind of a year in terms of volume and we just keep the tariff side, you know, tariff point aside at this point, or is there any change in view there?

Sean McLaren, President and Chief Executive Officer, West Fraser: No, I’ll make a comment and Mac can fill in what I miss here. You know, I think, Keaton, you know, was a it was a slow start for weather, of on both sides of the border and transportation issues, saying that our inventory still remain in reasonable shape and and we expect, barring kind of noise around tariffs, which are really difficult to predict, the kind of volumes kind of normalizing going forward, we drop the top end of our guidance, but still expect to fall within that.

Matt Tobin, Senior Vice President of Sales and Marketing, West Fraser: Agree. Got

Ketan Mamtora, Analyst, BMO Capital Markets: it. Okay. And then switching to capital allocation, obviously, balance sheet is still in a very good shape after a very difficult 2024 in lumber. As you sit here today, can you talk about, you know, sort of one kind of, you know, how’s the M and A pipeline looking? And if you see kind of more interesting values today you know, versus kind of, you know, share repurchases.

I know you all did repurchase in Q1. Can you talk about sort of those two options that you all have in front of, you know, the two options? And then sort of within M and A, kind of how you’re thinking about sort of lumber versus OSB?

Sean McLaren, President and Chief Executive Officer, West Fraser: Yeah, maybe I’ll touch on growth opportunities and then turn it over to Chris. So, and I know we’ve maybe commented on this, you know, over the last number of corner quarters, you know, the the bar remains quite high in West Fraser for what growth looks like. You know, we’ve worked hard to to to get our portfolio in a place where we feel like we can compete through the cycle. And so anything we add to the portfolio is gonna have to meet a level of, you know, of quality that’s going to compete all the way through. And so, you know, I would say from from my perspective, that’s the backdrop.

So there there probably is opportunity, but very few that fit that. And and you can look at our history with, you know, with Allendale, with Angelina, with Spray Lakes, you know, all those all those acquisitions either immediately made us stronger or had a very clear path to making us stronger. And if those present themselves, we’ve got all options open to us to be able to take advantage of that. You know, Chris?

Chris Frostic, Senior Vice President and Chief Financial Officer, West Fraser: Yeah, I think just to round it out a bit on capital allocation, you know, we’ve positioned ourselves financially that we can maintain a durable capital allocation strategy that’s fairly well cycle agnostic. When we look at the last couple of years, what we’ve been able to do, we’ve been able to buy back shares, we’ve paid down debt, we’ve raised the dividend, we did the Spray Lakes acquisition, we’ve invested in our business, I think we’ve done all those things that generate returns for shareholders and make the company stronger over the long term. So I think the great thing is that we don’t find ourselves in a position that options are removed from us. You know, we have the full suite of things in front of us that we can do and the things that add the most value are the ones that we’re going to choose and we’re going to prioritize and that that we think over the long term is the strategy that creates real value and we’re not pivoting strategies, you know, cycle dependent on whether the market is robust or the market is weak and we’re building the company for the long term. On the M and A front, think Sean covered it well, quality is really important.

I think the other thing to consider right now too is with the macro backdrop and the uncertainty that exists relative to tariffs, it’s a pretty difficult time to price assets when you have this kind of uncertainty overhanging things. So it makes that situation a bit more challenging to figure out how you price things over the longer term.

Ketan Mamtora, Analyst, BMO Capital Markets: Thank you. That’s very helpful. I’ll jump back in the queue.

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

Sean Steuart, Analyst, TD Cowen: Thanks. Good morning, everyone. A couple of questions. Shawn, I know you mentioned reluctance to talk about the Section two thirty two investigation, but I guess if you have perspective on timing for resolution there, I think it’s a November deadline, but it sounds like things are progressing quickly. And if you or your lawyers have any perspective on OSB potentially getting wrapped up in this investigation in addition to lumber?

Any perspective there?

Sean McLaren, President and Chief Executive Officer, West Fraser: Yeah, good morning, Sean. Not a lot to comment there. We really don’t know. We really don’t have visibility to what will be included, what won’t be, what the timing is. We probably hear some of the same commentary, but really nothing to add to what you may have heard.

And the only other thing I would, which I touched on in my comments, is that I think and of course, we have you know, a long history dealing with lumber duties and reacting our, you know, our kind of business our operations and operational plans accordingly. And I think we’re and we also have a long history on on in OSB of of flexing our production relative to demand. And I think all those that’s really where we’re focused, whatever comes down in the in the next number of months here.

Sean Steuart, Analyst, TD Cowen: Okay. And that and that, Sean, is, I guess, adding any incremental production to the South of the at the expense of Canadian production at the margin to to mitigate any incremental impact?

Sean McLaren, President and Chief Executive Officer, West Fraser: Yeah. And I think, you know, you look at our platform and we’re we’re split evenly on our major products between the two countries. You can see where our investments have been, you know, as we, you know, strengthened and positioned our assets in The US and we have a good Canadian platform that we think competes well in Canada. So I think all of those things put us in gives us gives us lots of options to navigate through whatever comes.

Sean Steuart, Analyst, TD Cowen: Thanks for that. And the question on the CapEx guidance, which you’ve reiterated here, I guess with inflation risks back on the radar here, I would assume all your discretionary projects this year are sort of locked in with respect to costs. Maybe confirm if that’s the case. And if inflation is an issue over the midterm, you have perspective on how discretionary CapEx returns might trend into 2026 and beyond. Is that a is that a concern for the company?

Sean McLaren, President and Chief Executive Officer, West Fraser: Yeah. No. Good question. So, yeah, so a large part of our guidance for this year is is finishing up Henderson. We’re in the final stages of that product.

The the team’s in place. We’re getting ready, ready for that start up this summer. You know, I look at Dudley, Allendale, Chambord and the success we’ve had in our recent start up. So we’re we’re pretty excited to get going at Henderson and, you know, having a new scale sawmill in in East Texas and that location is we think is a good place to be. We don’t major projects beyond that.

A lot of the projects are minor in nature and they need to stand on their own at the time we make those commitments, given what the pricing will be of that equipment. And so even though we haven’t seen material changes in those in that pricing, if we do, those products are still going to need to be able to stand on their own, given that additional cost.

Sean Steuart, Analyst, TD Cowen: Understood. That’s all I have for now. Thanks very much.

Sean McLaren, President and Chief Executive Officer, West Fraser: Thanks, Sean.

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

Amir Patel, Analyst, CIBC Capital Markets: Hi, good morning. Sean, we’ve seen at least one OSB project in the industry stall due to tariff related cost escalation. Do you expect the tariff uncertainty to slow some of the other OSB projects that are underway?

Sean McLaren, President and Chief Executive Officer, West Fraser: Really, really tough for me to speak to that. Hamir, I can only speak to how we look at it in West Fraser, you know, and what I would say is our two most recent projects, Allendale and Chambord are up, they’re running, they’re progressing well. And any kind of future projects, major projects we look at in OSB, you know, we’ll be taking the cost of that equipment and any inflationary changes into account before we make make those decisions.

Amir Patel, Analyst, CIBC Capital Markets: Thanks Sean, that’s helpful. And just a question for Matt, I’m curious if you’re seeing signs of more builders substituting SPF with Southern Yellow Pine, and if you’re noticing any maybe differences there between builders across regions or public private builders?

Matt Tobin, Senior Vice President of Sales and Marketing, West Fraser: I would say too early to say today as to substitution. I think what we see over the quarter has been normal purchasing from our customers and you know I think we’re it’s something we’re monitoring over time for that substitution, but up to date we haven’t seen any significant shifts.

Amir Patel, Analyst, CIBC Capital Markets: Okay, fair enough. That’s all I had. I’ll turn it over. Thanks.

Sean McLaren, President and Chief Executive Officer, West Fraser: Thanks, Sameer.

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

Matthew McKellar, Analyst, RBC Capital Markets: Hi, good morning. Thanks for taking my questions. You talked about demand for your products using R and R remaining somewhat subdued in Q1. Could you maybe just expand on that comment talking about how demand has trended so far just into the first few weeks of Q2 and how that progression demand into the spring would maybe compare to what you see in a typical year?

Matt Tobin, Senior Vice President of Sales and Marketing, West Fraser: Sure. I’d say, you know, we don’t have a great view into R and R. So while an imperfect view, we think, you know, our best lens is really into R and R is our treated customers. And so we’ve seen that demand subdued the last several quarters. And I would say we haven’t seen a meaningful shift in that demand to date.

So you know, I think with the hedge of housing housing stock, we believe there’s lots of long term demand for R and R. But it’s remained subdued the last several quarters and we haven’t seen significant shift to start this quarter.

Matthew McKellar, Analyst, RBC Capital Markets: Okay, thanks for that. And then last for me, you talked a bit about log shortages in your SPF business in the quarter. Can you give us a sense of how those log inventories look today as we kind of sit here in mid Q2?

Sean McLaren, President and Chief Executive Officer, West Fraser: Yeah, I would say generally, I mean, was a, know, the weather was warm here in Western Canada. So particular in parts of our BC operations, log deliveries were were less than we we were expecting. Saying that, I think it’ll be similar to Q1. You know, we kind of balanced out managing that inventory disruption between Q1 and Q2. So not material in the whole scheme of things, but an impact in SPF.

Matthew McKellar, Analyst, RBC Capital Markets: Great. Thanks very much. I’ll turn it back.

Sean McLaren, President and Chief Executive Officer, West Fraser: Thanks, Matthew.

Joelle, Conference Call Operator: There are no further questions at this time. I will now turn the call over to Sean for closing remarks.

Sean McLaren, President and Chief Executive Officer, West Fraser: Thank you, Joelle. As always, Chris and I are available to respond to further questions, as is Robert Winslow, our Director of Investor Relations and Corporate Development. Thank you for your participation today. Stay well, and we look forward to reporting on our progress next quarter.

Joelle, Conference Call Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.