West Fraser Timber Co Ltd (WFG) 2025 Q4 法說會逐字稿

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was largely owing to the major maintenance shutdown at the mill in the third quarter.

In our Europe segment, adjusted EBITDA was $4 million in the fourth quarter versus $1 million in the third quarter as that business experienced a moderately improved business environment.

In terms of our overall Q4 results, the sequential EBITDA improvement was supported by reduced SPF log costs, lower Southern Yellow Pine manufacturing costs, and lower OSB labor costs as well as the absence of the $67 million out-of-period duty expense that we reported last quarter, partially offset by lower lumber and North American OSB prices.

Our lumber business continued to benefit from the portfolio optimization actions we have taken in recent years. In some instances, we have been able to replace output from now closed mills with production from our more modern, larger scale, and lower-cost mills, helping to enhance the overall cost structure of the operation. For instance, in the US South, our Q4 2025 Southern Yellow Pine shipments were 6% lower quarter-over-quarter, while SYP unit manufacturing costs were also lower.

Cash flow from operations was negative $172 million in the fourth quarter, with net debt at $131 million compared to a net cash position of $212 million reported last quarter. This change in our net debt is attributed to a normal seasonal build in working capital, $139 million of capital expenditures and $32 million of cash deployed towards share buybacks and dividends.

With respect to our operational outlook for 2026, we have reiterated previously released guidance for the year, as shown on slide 8 and is detailed further in our earnings release. Note that if and as the US administration's tariffs and other policies evolve, we will evaluate the impact of the tariffs on our operations and determine revisions to our 2026 forecast as appropriate.

With that financial overview, I will pass the call back to Sean.

Thank you, Chris. Before I shift to concluding remarks, I'd like to make a few comments on our liquidity. As you can see on slide 9, we had a healthy balance sheet and total liquidity exceeding $1.2 billion as we exited 2025.

While our liquidity has trended lower over the last few years during this extended down cycle, our financial position remains strong, providing us with sufficient flexibility to navigate further economic challenges should they unfold. I think it's also important to reflect upon the history of attractive returns West Fraser has generated for our shareholders.

As you can see in the figure at bottom of slide 10, our shareholders have been rewarded for their patients as we have continued to execute on our plans to grow the business, optimize our portfolio through dispositions and/or closures of highly variable or uneconomic assets and return surplus capital through dividends and buybacks.

With the total annualized return approaching 9% since the beginning of 2006, a which includes share-based appreciation and reinvested dividends, we remain proud of what the West Fraser team has been able to accomplish. I'll now shift to our general outlook and add some concluding remarks. There's no avoiding the fact that we face difficult end markets in 2025, but we manage our business for the long run. We have not been resting waiting for a market recovery.

We've been actively investing in and improving the business. And because of that, we remain optimistic about West Fraser's future. For our lumber assets in the US South, we continue to refine and optimize our operations by removing costs and looking for additional margin opportunities. We are also ramping up our modernized Henderson mill, which we believe is positioned to be one of the best mills in our fleet once it achieves full operating rates.

In Canada, the supply and demand for SPF products continues to show relative advantages compared to SYP as the US South absorbs the new capacity introduced in the region in recent years. We continue to execute on our portfolio optimization strategy, which includes the reduction of higher cost capacity across our lumber platform.

Since 2022, we have removed over 1.1 billion board feet of capacity through mill closures and permanent shift reductions, representing a 16% decrease in the company's lumber operating capacity. We've also reduced a number of shifts or hours of operations at various lumber mills across our platform as a means to manage cost.

At the same time, we have invested nearly $1 billion of capital into our lumber business over the last four years, modernizing assets, adding flexibility to our production platform, removing costs, implementing margin expansion projects and making our mills safer for our employees. Specifically with the startup of Henderson, we are nearing completion of the major US lumber investment we have made over the past number of years with our focus increasingly turn towards operationalizing the capital we have invested in the region.

Taking such a proactive approach to portfolio management has further strengthened our cost position and competitiveness. In our North American EWP business, we largely completed the ramp-up of our Allendale OSB mill, while more recently, we announced the planned indefinite curtailment of our high-level OSB mill this spring, which will move 860 million square feet of currently uneconomic capacity in an effort to balance our production with customer demand.

In conclusion, while we rise to meet the needs of our customers every day, we are also dealing with limited macro visibility. In response, we have been actively managing our portfolio to be low cost and diverse by both geography and product to mitigate uncertainties.

We remain optimistic about our longer-term prospects and we'll continue to focus on operational excellence, creating a leading wood building products company that is resilient and sustainable through the cycle. And we will do all this while maintaining the type of financial strength that gives us the flexibility to be able to take advantage of growth opportunities as they arise. Thank you.

And with that, we'll turn the call back to the operator for questions.

(Operator Instructions)

Ben Isaacson, Scotiabank.

Just two questions for me. The first question, can you give a little bit of qualitative color as to how balanced or imbalanced margins were between SPF and SYP in Q4? And how does that look right now?

Ben, we don't specifically call out our different cements saying that as we saw through the quarter, you've watched the spreads start to close between the pricing between the products. So I think that's reflective of things kind of moving as customers adjust their needs and demand patterns, depending on the end users of the products. Saying that, I think as we look to this year on both sides of the border, both products we're actively looking to make cost rising costs, as you saw with both 100 Mile and Augusta in Q4. And we believe both those businesses are positioned to operate through the bottom of the cycle here.

Great. And then I think you mentioned lower log costs for SPF, lower manufacturing for SYP and lower labor for OSB. Among those three, how much of that is sustainable going forward versus a one-off for Q4?

Ben, I'd say we've been very active across all three segments on not only adjusting capacity on uneconomic assets. but modernizing assets through investment as well as reducing costs through flexible operating schedules. And I think the trends you are seeing in our cost structure are really the result of the work we've done over the last several years to lower cost.

Ketan Mamtora, BMO Capital Markets.

Maybe to start with Sean, can you talk about sort of the M&A opportunities that you are seeing right now, given how depressed lumber prices have been for the last couple of years. Would that be an area of interest at this point, it certainly looks like bottom of the cycle? And related to that, any interest in growing outside of North America in lumber?

Yes, I'll make a couple of comments here. And Chris, please add anything I miss. And I think we maybe talked about this a few times over the quarters. For us, it's really about how do we make the company stronger at the bottom of the cycle and the current conditions we're in. So asset quality is very important.

And over the last number of years, we've action a few things, but not very many. And every one of those things has been designed to make us stronger at the bottom. We have a balance sheet to be able to react to anything of quality that presents itself saying that typically, the stronger assets are going to wait for a better time to be available. So those would be the only comments that I would say on M&A.

Chris, anything to add there?

No, that's a great point. Thanks, Sean.

Yes. And then in terms of any outside of North America, of course, even though the macro environment in Europe continues to be slow, we are pleased with our team pleased with our assets over in Europe, and they're performing well at the bottom of the market. we continue to work with them to look at how we make our European business stronger. I think I would just leave it there, there would be nothing in front of us today that we would talk about OSB the same conditions we would look at in North America makes us stronger at the bottom of the cycle, and it's a good return, and our team is ready to take it on. We've got the flexibility to be able to consider it.

Understood. Now that's helpful. And then just one more from me. How should we think about ramp-up of the Henderson mill in the context of demand environment, which is quite muted.

Yes. And so it's very early days in Henderson. The mill began commissioning at the end of Q4. So we're in the early stages of startup. And as a reminder, it replaces an existing mill. So that volume had been in the market, and we expect through the year to be ramping up to replace that volume. And I think we will continue to look at our customer needs as we move beyond that. And this just gives us another low-cost asset to be able to adjust our full platform with.

Sean Steuart, TD Cowen.

A question for Sean or for Matt. We've seen a good lift in North American lumber and OSB prices the past couple of months, interested in your perspective on how much of that you attribute to seasonal activity picking up in advance of the spring building season versus maybe the initial stages of the cyclical recovery as supply is rationalized in the market.

Maybe, Matt, I'll hand that one over to you.

Sure. I think what we've seen is just from what we hear from our customers is just a little bit more difficult to get what they're looking for, the time they're looking for it. And so just as I think supply shrinks and demand stays relatively steady over the last couple of quarters, just a little bit harder for a customer to get the product they're looking for when they're looking for it, and it's had an impact on pricing. And as far as spring, I would say, probably a little early to say today. I said, you usually see a bump in buying in the spring.

But as you know, spring is usually defined by that warmer weather. And so just coming out of a couple of weeks of freeze in the US, I would say, we're still a little early to see there. And once the weather turns, we'll have a better idea of what spring looks like.

And Matt, any perspective on the relative strength we've seen for US South pricing of late versus Canada?

Like I say, I think from what we hear from our customers, it's a little harder for them to find a product to need when they need it. I think a lot of curtailment as Sean talked about, and the industry has taken that makes it a little hard find the product. And so just reflecting on the pricing based on that available supply.

Okay. Chris, I wanted to follow up on the prior question around M&A. And I appreciate you guys aren't -- you don't want to tip your hand too much in terms of kill of what you'd be looking at or specific area products. But I know the priority here is sort of sustaining a balance sheet that's flexible. Can you give us any perspective on how thoughts are evolving around minimum liquidity thresholds or maximum leverage targets that the company might be comfortable with as acquisition opportunities are considered in the initial stages of that turn.

Thanks, Sean. I think there's a lot of latent financial flexibility in the business on the leverage side. I think anything that we would consider on leverage we'd have to see a very clear path to getting leverage metrics and interest burden to a level that's very manageable through the cycle. So I wouldn't say that we would rule out putting leverage on to do something, but there'd have to be a pretty clear path through that to a deleveraging quickly afterwards, through value creation and that really translates to quality assets, right, is, as Sean said, things that make us better, generate cash flow, there's a synergy opportunity. And if we incur some leverage to do something, a path to quickly pay that down to metrics that are very durable through the cycle for us and maintain that flexibility for us. So it's not off the table, but it have to be a very clear path.

Okay. Understood. And then I guess just following on that, when you talk about anticipation of more opportunities on acquisitions coming to the table and the initial stages of an upturn. Is that you need to see that initial upturn to get comfortable that there will be a deleveraging path? Or is it in anticipation of more potential sellers looking to take advantage of a better valuation environment in the initial stages of an upturn. I'm just trying to sort of split that up and how you think about the timing?

Sean, maybe I'll jump in on that one. Again, you never know what might be available when I think our comments around quality every one of our assets gets pressure tested at the bottom of the market. So we have an opportunity to see what the level of quality is of an asset. And it's hard to say when those assets become available, whether it's in the early stages of recovery or whatever is happening. I think that is the criteria for us.

I think we have a balance sheet that regardless of timing, we'll be able to consider and look at it. And it's just hard for us when those opportunities may present themselves. I would say for us, we are focused on operationalizing what we've invested inside West Fraser and ready if something presents itself that makes us stronger.

Hamir Patel, CIBC Capital Markets.

Sean, there's been a lot of discussion around potential housing measures. The Trump administration may implement to boost affordability what do you think would be the most meaningful initiatives that they could bring about? And how soon could that translate into real-world incremental lumber demand?

Well, first off, Hamir, we would like all of them. So it's hard to pick and choose which ones would be the best, but we are pleased to see attention, the administration is paying to housing affordability and the different ideas that are being talked about and the different measures that are being taken. Anything that allows homebuyers to be able to get into a single-family or multifamily home and improves demand, and that is good for our industry and obviously, good for West Fraser. So hard to predict how quickly what will happen, when it will happen, how long will take effect. I would say from our perspective, we're just pleased. It's been talked about quite a bit with the administration on both sides of the border, frankly.

Fair enough. And Sean, it sounded like from your outlook a bit more cautious on the demand outlook for the year ahead for OSB versus lumber. Can you speak to maybe what drives the difference there and maybe what you're hearing from your customers for growth on the R&R side?

Yes. Maybe before I answer that, I might just ask Matt to maybe a few comments on the R&R side.

Sure. I'd say kind of mix from our customers. I mean some projecting low growth, others flat. So I'd say we're seeing a mix of sentiment on the year, but I don't know, consensus on a shift from what we've seen recently in the R&R markets.

And in terms of our outlook, Hamir, again, I think we would always take a cautious view because we really don't know, and we are going to manage our business to be competitive at the bottom of the market. And if it lasts, we're going to continue to look to take out remove costs and make ourselves more competitive. And I really think that's been our focus for the last three years and will continue to be our focus.

Fair enough.

Thank you. That ends our question-and-answer session. I will now hand the call back to Sean McLaren for any closing remarks.

Thank you, Mina. 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.

This concludes today's call. Thank you for participating. You may all disconnect.