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Western Forest Products Inc (WEF.TO) reported its Q2 2025 earnings, highlighting significant challenges in the lumber market. The company faced a substantial decline in adjusted EBITDA, dropping to $500,000 from $9.4 million in the same period last year, primarily due to lower lumber shipments and increased softwood lumber duties. Despite these hurdles, the company maintained a strong balance sheet with a net debt to capitalization ratio of 5% and available liquidity of $190 million. According to InvestingPro data, the stock currently trades at a Price/Book ratio of just 0.23, suggesting potential undervaluation despite falling by 1.89% to $12.44, closer to its 52-week low of $7.85.
Key Takeaways
- Adjusted EBITDA fell sharply to $500,000 from $9.4 million last year.
- Stock price decreased by 1.89%, trading near its 52-week low.
- Increased softwood lumber duties and volatile markets pose challenges.
- Strong balance sheet with $190 million in liquidity.
- Capital expenditure reduced to $35-40 million for 2025.
Company Performance
Western Forest Products experienced a tough quarter, with significant declines in financial performance compared to the previous year. The company attributed this to reduced lumber and log shipments, increased duties, and a weaker USD/CAD exchange rate. InvestingPro analysis reveals concerning metrics, including weak gross profit margins of 9.49% and negative returns on equity. Despite these challenges, the company focused on maintaining a strong financial position and managing its working capital efficiently, maintaining a healthy current ratio of 2.71. For deeper insights into Western Forest Products’ financial health and future prospects, investors can access comprehensive analysis through InvestingPro’s detailed research reports.
Financial Highlights
- Adjusted EBITDA: $500,000, down from $9.4 million YoY.
- Net debt to capitalization ratio: 5%.
- Available liquidity: $190 million.
- Lumber inventory: 69 million board feet.
- Log inventory: 698,000 cubic meters.
Outlook & Guidance
The company anticipates continued market volatility, with increasing softwood lumber duties now at 20.6%, up from 7.7%. This is expected to result in a non-cash export tax expense of approximately $44 million. With a beta of 1.34, InvestingPro data indicates the stock’s higher sensitivity to market movements compared to its peers. Western Forest Products plans to reduce its lumber production by 25 million board feet in Q3 and may implement further curtailments if labor strikes persist. InvestingPro subscribers have access to 8 additional key insights about WEF’s market position and future outlook.
Executive Commentary
Stephen Hoefer, President and CEO, remarked, "Despite challenging markets, we were successful in generating positive EBITDA in 2025." Glenn Montal, CFO, emphasized the company’s focus on managing working capital and improving inventory turnover.
Risks and Challenges
- Increasing softwood lumber duties significantly impacting costs.
- Volatile market conditions in North America affecting demand.
- Economic uncertainty and elevated interest rates.
- Potential production curtailments due to labor strikes.
- Permitting challenges in British Columbia.
Q&A
During the earnings call, analysts inquired about federal government support mechanisms for the lumber industry and the insurance claim process for the Columbia Vista sawmill. Executives also discussed the potential rebuilding of the sawmill with more automation and ongoing permitting challenges in British Columbia.
Full transcript - Western Forest Products Inc (WEF) Q2 2025:
Patrick, Conference Call Moderator: Good morning, ladies and gentlemen. Welcome to Western Forest Products Second Quarter twenty twenty five Results Conference Call. During this conference call, Western’s representatives may make forward looking statements within the meaning of applicable securities laws. These statements can be identified by words like anticipate, plan, estimate, will and other references for future periods. Although these forward looking statements reflect management’s reasonable beliefs, expectations and assumptions, they are subject to inherent uncertainties, and actual results may differ materially.
There are many factors that could cause actual outcomes to be different, including those factors described under risks and uncertainties in the company’s annual MD and A, which can be accessed on SEDAR and is supplemented by the company’s quarterly MD and A. Forward looking statements are based only on information currently available to Western and speak only as of the date on which they are made. Except as required by law, Western undertakes no obligation to update forward looking statements. Accordingly, listeners should exercise caution in relying upon upon forward looking statements.
Stephen Hoefer, President and CEO, Western Forest Products: I would now like
Patrick, Conference Call Moderator: to turn the meeting over to Mr. Stephen Hoefer, President and CEO of Western Forest Products. Mr. Hoefer, please go ahead. Thank you, Patrick,
Stephen Hoefer, President and CEO, Western Forest Products: and good morning, everyone. I’d like to welcome you to Western Force Products twenty twenty five second quarter conference call. Joining me on the call today is Glenn Montal, our Chief Financial Officer and Bruce Alexander, our Senior Vice President of Sales, Marketing and Manufacturing. We issued our twenty twenty five second quarter results yesterday. I will provide you with some introductory comments and then ask Glenn to take you through our financial results.
I will follow Glenn’s review with our outlook section before we open the call to your questions. Despite challenging markets, we were successful in generating positive EBITDA in the 2025. We continue to focus efforts on our operational efficiency and recovery while also managing working capital and our costs to ensure we maintain a strong balance sheet. In our Timberlands Group, this included a continued focus on cost and inventory management despite ongoing permitting challenges in BC and a strike at the La Clausamouche Limited Partnership. In our manufacturing group, we adjusted to evolving markets, proactively staging lumber products in The U.
S. Ahead of duty increases and focusing on working capital and cost management. In our sales and marketing group, we continue to focus on growing key strategic customers and advancing opportunities to grow our domestic and international customer base. At the same time, we are proactively adjusting our operating schedules to align production with market demand as well as deferring and reducing our planned capital spending for 2025. This included deferring one of our new continuous kilns at our value added division to mid twenty twenty six.
Site preparation work for the kilns has completed and construction is commencing on kiln one. These kiln investments will increase the production of value added kiln dried lumber products and help support the diversification of our global customer base. Unfortunately, during the quarter, our Columbia Vista saw our Columbia Vista sawmill sustained extensive damage in a fire, rendering the mill inoperable. We are thankful there were no injuries, and we are working with our insurer to determine available proceeds related to the damage and business interruption. We are in the process of evaluating all future options for the site, including the potential for rebuilding, but no decisions have been been made.
With significant increases in softwood lumber duties commencing in the third quarter and US trade uncertainty, we expect more challenging market conditions in the 2025. However, we are well positioned to navigate the near term uncertainty with our strong balance sheet. I will now turn it over to Glenn to review our key financial metrics. Thanks, Stephen. Second quarter adjusted EBITDA was $500,000 as compared to $9,400,000 in the same period last year.
As compared to the prior year, results in the second quarter were negatively impacted by lower lumber shipments, increased softwood lumber duties, a weaker U. S. Dollar to Canadian dollar exchange rate and lower external log shipments and prices. This was partially offset by a higher lumber prices in most markets and a higher specialty lumber sales mix. We closed the second quarter with approximately 69,000,000 board feet of lumber inventory and 698,000 cubic meters of log inventory.
We continue to be focused on managing working capital and improving our inventory turnover, with log and lumber turnover ratio is improving 211%, respectively, compared to the same period last year. Turning to CapEx. Given the near term market outlook and in support of maintaining a strong balance sheet, we’ve reduced our planned 2025 capital expenditure spending to between $35,000,000 to $40,000,000. This is a reduction of approximately $25,000,000 from our prior estimate of $60,000,000 to $65,000,000 provided in May. From a balance sheet perspective, we ended the second quarter with a strong balance sheet with a net debt to capitalization ratio of 5% and available liquidity of $190,000,000 Combined with successfully extending our $250,000,000 credit facility to July 2028, we expect sufficient liquidity to navigate near term market conditions.
With respect to softwood lumber duties, the U. S. Department of Commerce announced its final determination for antidumping duty rates related to the sixth administrative review. The rate applicable to Western increased to 20.6 effective July 28 compared to the prior rate of 7.7%. The final determination of the countervailing duty rates for the sixth administrative review are expected in the 2025.
Based on the final antidumping duty rate and preliminary countervailing duty rate, Western will record a noncash export tax expense of approximately $44,000,000 plus accrued interest of $7,000,000 in the 2025. These amounts will reduce the current long term duty receivable of $58,900,000 on our balance sheet. Turning to third quarter seasonality. Typical third quarters can be challenging operationally as hot, dry weather can restrict logging activity, reducing harvest volumes and impacting costs. While we’ve yet to experience any significant forest fires in our areas of operation, hot and dry conditions may impact harvest levels through the summer.
Stephen, that concludes my remarks. Thanks, Glenn. Turning to our market outlook. Markets in North America are expected to be volatile through the 2025. Increasing softwood lumber duties, elevated interest rates, and general economic uncertainty are expected to impact repair and renovation spending and overall housing activity.
North American lumber markets will be challenged for both commodity and specialty products, with demand and pricing expected to remain weak across most species and product categories. Demand remains strong for specialty products into all export markets with anticipated price increases for Western Red Cedar, Hemlock and Douglas fir in the 2025. In Japan and China, while housing activity continues to trend downwards, low lumber inventories are resulting in stable pricing. Overall, we currently have a third quarter order file of approximately 95,000,000 board feet. From an operational perspective, given current market conditions, combined with harvest permit approval delays and lack of accessible economic fiber in BC, we plan to reduce lumber production by approximately 25,000,000 board feet in the third quarter.
We will continue to align our operating schedules to market demand and available log supply. Should the strike at Laquassum Limited Partnership continue for a prolonged period of time, additional operating curtailments may be required at our Duke Point and Ladysmith sawmills in the 2024. We continue to monitor the situation and hope bargaining between the USW and
Unidentified Speaker: the can resume in order to bring
Stephen Hoefer, President and CEO, Western Forest Products: the work stoppage to an end. Looking ahead, we will remain focused on maintaining a strong balance sheet while also executing on our key strategic priorities. With that, Patrick, we can open the call up to questions.
Patrick, Conference Call Moderator: Thank you. We’ll now take questions from the telephone lines. The first question is from Sean Steuart from TD Cowen. Go ahead.
Stephen Hoefer, President and CEO, Western Forest Products: A couple of questions. Stephen, I’d be interested in your perspective on the recent federal government support mechanisms that were introduced for the lumber industry and thoughts on on timelines to access loan guarantees, grants, and and Western’s potential interest in in using the program.
Unidentified Speaker: Thanks,
Stephen Hoefer, President and CEO, Western Forest Products: Sean. So, you know, the newly announced federal government support, I think it’s a welcome news for the entire forest industry across Canada. The loan guarantees and training dollars are intended to help companies and and people navigate the near term challenges, and the market development funding will will help to build a more diverse trading relationships for lumber across all of our key export markets. Obviously, the specific details of the program, various programs have not been released yet. We will certainly dive into the details when those are presented to us, and where it makes sense, we’ll absolutely, access, those programs.
So, overall, I think, this is a a very favorable announcement. It’s something that we’ve been asking for for the last twelve to fifteen months. And I think most importantly, we now have our prime minister speaking about softwood lumber, and we would view that as a a very significant event compared to the previous administration. So overall, we’re pleased with what was announced this week. K.
Thanks for that. And then with respect to the Columbia, this insurance claims, I guess, for the equipment and business interruption. Glenn, can you give us some perspective on how that process plays out in terms of timing? And I don’t know if you can put a dollar magnitude around anything, but broader perspective on how you expect that’ll evolve over the next next little while. Yes.
Thanks, Sean. Yeah. They’re working through the process with our insurer and the adjuster. You know, that process takes time, but, you know, we’re obviously trying to accelerate that process as much as we can, given the understanding impact it has on people. From an insurance perspective, I think, Sean, that we have adequate coverage both from a an asset perspective and a business interruption perspective.
So we feel quite comfortable that, you know, whatever the termination after the investigation is completed, that we have sufficient coverage for other assets in any business interruption that may may occur. And, Sean, maybe I’ll just add add one more comment in there about Columbia Vista. Obviously, that mill was a key supplier into the Japanese market. We’re very fortunate that we have other sawmill facilities that can take on that order file. So we do not expect any disruption into the Japanese market for our key kiln dried Douglas fir products that Columbia Vista historically made.
So that’s good news for our key long term strategic customers in Japan that, you know, moving forward, there’ll be no supply disruptions there. Understood. Okay. That’s all I have for now. Thanks very much.
Thanks, John.
Patrick, Conference Call Moderator: Thank you. The next question is from Ben Isaacson from Scotiabank. Please go ahead. Thank you very much. Just two questions for me.
Just the first one is on your press release, you give a list of lumber prices, and and a lot of those are actually all but one of those lumber prices increased sequentially quarter over quarter. Your lumber price went down. And and so can you just triangulate that? Was that a mix issue? Thank you.
Stephen Hoefer, President and CEO, Western Forest Products: Yes. Ben, it’s Glenn. Yeah. I mean, obviously, we have a we have many queues of products. The listing we provide in our MD and A is just a a sample of some of the key products.
And to your comment there, you look at this individually and, you know, a lot of them are going up. I think the one that maybe also has weighting is commodity went down quarter over quarter, which is about 50% of our mix. So it’s really a mix driver there, Ben, if you’re looking trying to compare the list of prices relative to the average selling price of our overall mix.
Patrick, Conference Call Moderator: Okay. Thank you. And then back to the Columbia Vista. If
Unidentified Speaker: you
Patrick, Conference Call Moderator: can supply that lumber from another mill, what is the rationale for rebuilding it? Unless the the cost differential is, you
Stephen Hoefer, President and CEO, Western Forest Products: know, quite meaningful. Thank you. Yeah. That’s that’s a very a very good question. And then and certainly something that we think about as we as we contemplate the future of Columbia Vista.
You know, if we think about what a revised operating platform would look like there, it would probably have a little bit more automation in the mill. It would have some greater product flexibility in order to supply some of the key timber markets in North America. And, you know, ultimately, you know, a footprint that would be more automated, lower cost, and greater product flexibility. So it was a very a very compact mill site that had a very specific product line associated with the, you know, with the equipment. So we’d be looking for a little bit more flexibility and probably a higher percentage of the product targeted towards key timber markets in North America.
Great. Of work to do there. Thanks. I’ll I’ll pass it off.
Patrick, Conference Call Moderator: The next question is from Matthew McEller from RBC Capital Markets.
Unidentified Speaker: First for me, I think there had been in DC some discussion about reducing permit time lines. It sounds like you’re continuing to see some delays, but do you have a sense that things are getting any better regarding time lines over the past couple months? Thanks.
Stephen Hoefer, President and CEO, Western Forest Products: Thanks, Matt. That’s a bit of a loaded question. I think, you know, overall, in inside some of our key limited partnerships, the permitting process has improved. And that and that’s really, you know, some of the background motivation for us to to move into these key strategic partnerships on some of the TFLs. But I would characterize the the permitting issue in in British Columbia to still be problematic.
And I don’t think our situation on the coast is much different than what we see up in the BC interior. We do have active conversations and dialogue going on directly with the the minister of force and his key deputy minister and associate deputy ministers and really just trying to drive to a different outcome around the permitting challenge and the time frames associated with having permits approved. So inside the limited partnerships, that’s going pretty well. Outside the limited partnerships, challenges continue to exist.
Unidentified Speaker: Thanks very much for that color. And last for me, looking a little further out, pretty optimistic about what discussions around an energy corridor in Canada could be for your industrial lumber business and maybe mass stock product in particular? Thanks.
Stephen Hoefer, President and CEO, Western Forest Products: Yeah. Well, we like we like the any discussion around, you know, additional pipelines being proposed all across Canada. Or, you know, we we produce a fair amount of material both in in two inch mat stock as well as in six inch and 12 inch, the larger crane mat type product line. So, yeah, today, we have a very solid order file in in all those product categories. We have seen some price appreciation occur as well.
And, yeah, we would take we would take any of those announcements as very favorable to our industrial product lines that we primarily manufacture at the Solfer facility as well as at the Duke Point facility.
Unidentified Speaker: Thanks very much. I’ll turn it back.
Stephen Hoefer, President and CEO, Western Forest Products: Thanks, Matt. Thank you. There are no
Patrick, Conference Call Moderator: further questions at this time. I would like to turn the meeting back over to
Stephen Hoefer, President and CEO, Western Forest Products: mister Hoff. Well, thanks, everyone, for joining our call today. We appreciate your continued interest in our company, and we look forward to our next call in November. Thank you, and have a great weekend.
Patrick, Conference Call Moderator: Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.
Unidentified Speaker: This conference is no longer being recorded.
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