Western Forest Products Inc. (WEF) Earnings Call Transcript
November 6, 2026
Earnings Call Speaker Segments
Good morning, ladies and gentlemen, and welcome to Western Forest Products Third Quarter 2026 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] 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 to 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&A, which can be accessed on SEDAR and is supplemented by the company's quarterly MD&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 forward-looking statements. I would now like to turn the meeting over to Mr. Steven Hofer, President and CEO of Western Forest Products. Mr. Hofer, please go ahead.
Thank you, Danielle, and good morning, everyone. I'd like to welcome you to Western Forest Products 2026 Third Quarter Conference Call. Joining me on the call today is Glen Nontell, our Chief Financial Officer. We issued our 2026 third quarter results yesterday. I will provide you with some introductory comments and then ask Glen to take you through our financial results, and then I will follow Glen's review with our outlook section before we open the call to your questions. We continued our momentum in executing our strategic priorities, which will position the business well as the sector continues to face high softwood lumber duties, tariffs and market volatility. Over the last 24 months, this has included monetizing private timberlands, tenure and other noncore assets at premium valuations to their current public trading value. Overall, this process, we have generated gross proceeds of approximately $180 million. We have strategically utilized these proceeds into repaying debt and bring the balance sheet into a net cash position, navigate challenging market conditions and high duties and tariffs and completed targeted capital investment and make operational improvements to position the business for long-term success. These capital investments include commissioning 2 new continuous dry kilns and 1 thermal kiln at our value-added facility. These kilns have been achieving uptime and operational targets in line with our expectations and will result in more kiln-dried lumber production generating higher margins than green lumber and enabling the expansion of our global customer base. We also continue to advance the upgrade of our autograder at Duke Point, which will utilize AI technology and is anticipated to be commissioned in early 2027. We have also successfully transferred our Western Red cutting -- our Western Red Cedar cutting programs that were at our curtailed Chemainus and Cowichan Bay sawmills to our more efficient Duke Point and Saltair sawmills, resulting in greater outturns, recovery and margin. From an operational perspective, we continued our focus on creating a safe work environment with our year-to-date medical incident rate down 30% compared to 2025. In our Timberlands Group, we continue to manage costs and log margin opportunities, increasing harvest volumes by 92% compared to the same quarter last year. This was supported by more favorable weather conditions and the restart of our La-kwa sa muqw Forestry Limited Partnership earlier this year. In our manufacturing and sales group, we continued our operational focus on uptime reliability and on-time shipping performance, achieving 87% and 86%, respectively. Looking ahead, we remain focused on continuing to demonstrate evidence of progress in executing our strategic priorities. We look forward to engaging with the newly elected BC provincial government and have been very encouraged by the consistent pro-forestry comments from Premier-elect Doerkson made throughout the election campaign. I will now turn it over to Glen to review our key financial results.
Thanks, Steven. Third quarter adjusted EBITDA was positive $1.9 million as compared to negative $65.9 million in the same period last year. Third quarter EBITDA in 2026 included $7.7 million in business interruption insurance recovery related to our former Columbia Vista operation, $3.9 million in noncash duty expense and $1.2 million in share-based compensation expense. As compared to the prior year, results in the third quarter of 2026 benefited from higher realized lumber prices and favorable harvesting conditions leading to a 71% increase in log shipments. This was partially offset by an 11% reduction in lumber shipments and higher softwood lumber duties and tariffs. We closed the third quarter with approximately 64 million board feet of lumber inventory and 697,000 cubic meters of log inventory. Turning to CapEx. Our 2026 total CapEx spending is expected to be between $45 million to $50 million, which includes approximately $23 million related to our completed kiln investment at our Value-Add division and ongoing upgrades to the autograder at Duke Point. From a balance sheet perspective, our third quarter ending net debt declined by $17.5 million and liquidity improved compared to the end of the second quarter. We ended the third quarter with a net debt-to-cap ratio of 3% compared to 6% at the end of the second quarter. We finalized the insurance process and property sale at our former Columbia Vista sawmill in the third quarter. Between the insurance process and property sale, we have generated USD 48 million through the process. We expect to pay approximately $1.7 million in income tax related to the proceeds in the fourth quarter of 2026. Post quarter end, we completed the sale of our Stillwater Forest operation for approximately $80 million, further bolstering our available liquidity and bringing our balance sheet into a net cash position. We expect to pay approximately $9.1 million in income tax related to the transaction in the first quarter of 2027. Turning to fourth quarter seasonality. Typically in fourth quarters, lumber consumption declines in North America as construction slows with the onset of winter. In our timberlands, harvest volumes decline as we lose daylight operating hours. In addition, winter weather can negatively impact operations and further limit production. The combination of weather-related curtailments and reduced operating hours can put upward pressure on harvest costs. I will now turn it over to Steven to go through the market outlook.
Thanks, Glen. Turning to our market outlook. Industrial product lines are expected to be stable through the fourth quarter with some improvements in matting products following the announcement of significant capital projects here in Canada. In North America, cedar demand and pricing has softened in certain knotty product segments, primarily due to affordability pressures from elevated interest rates and higher fuel costs. We expect pricing in decking, trim and fencing products to remain soft as supply continues to outstrip demand in these categories. While North American commodity markets have recently declined, we expect prices to improve in the fourth quarter of 2026, supported by a focus on higher-value customers, such as our treating and mat stock customers. Housing activity in Japan remained resilient throughout the summer. Lumber demand in Japan is expected to be stable in the fourth quarter of 2026 and into Q1 2027. Market inventories in China have built over the past few months, reflecting a seasonal slowdown in consumption during the summer. Demand is expected to strengthen towards the end of the year as inventories are drawn down and customers look to replenish stock prior to the 2027 Lunar New Year. Overall, we currently have a current fourth quarter order file of approximately 114 million board feet. That concludes my remarks. With that, operator, we can open the call up to questions.
[Operator Instructions] The first question comes from Sean Steuart from TD Cowen.
Steven, I want to start with capital allocation or Glen, I suppose. You touched on the transition to net cash after the Stillwater sale. We've seen this coming for a while now. I think the prior messaging has been there's further opportunities to optimize the current coastal footprint before you would think about broader growth initiatives, whether it's outside the coast or into new product lines. Can you give us a perspective on how you're thinking about that opportunity set now? How quickly or not quickly you might start to deploy some of this excess capital you've built on the balance sheet?
Sure, Sean. It's Glen. Maybe I'll start and then I'll have Steven chime in also. I think in the near term, we remain focused on a strong balance sheet and navigating sort of the sector uncertainty given the elevated levels of duties and tariffs. I'd say probably over the next 12 months, we might look to maintain excess dry powder to retain that flexibility. That said, when we look to the mid- to long term, we remain committed to executing on our strategic priorities, and we'll continue to evaluate opportunities that create shareholder value, which could include reinvesting in our business or pursuing external growth opportunities that are complementary to our business. Obviously, you would have seen the federal budget come out yesterday, and maybe I'll let Steven provide some remarks on some of the pools of money that have been directed to the forest sector that we could potentially look to access as part of that optimization of our business.
Sure. Just to build on Glen's comments, and Sean, thanks for the question. I'm very proud of the effort and the execution that our team has made on getting our balance sheet to where it's at today. And it took a great deal of time and effort by our team, and we've executed at a very high level in this strategy. And so we -- now that we're in this position, we also want to be very mindful of what lays ahead here in the next 12 to 24 months from a macro economy standpoint. And we don't want to jeopardize or do anything that would undermine all the great work that we've done to get us to this point. I am very encouraged, though, by what was released yesterday by the federal government. And this really builds on some previous announcements that we've been participating in, in terms of EDC and BDC opportunities. But the government presents forestry as both a traditional economic strength and a future-orientated manufacturing sector with a strong emphasis around innovation, engineered wood products, investment attraction and improved competitiveness. And so when I look at Western's strategy and I look at what the federal government has announced as their strategy through this forest sector transformation strategy, there's almost 100% alignment. And so we will be exploring these opportunities that have just been announced. And I think we'll be able to do some fun, exciting things as we go forward in our company and continue to position Western as a premium manufacturer of specialty building materials.
That's great detail. One follow-on. Cedar markets are relatively weak. You guys are a big part of that market. You've rationalized a lot of supply in recent years. Historically, through commodity lumber market troughs, your specialty and cedar business has held up relatively well at supported margins. That's been less the case this cycle. You guys have done a lot. Perspective on opportunities or expectations that others -- there's room for more capacity rationalization across the cedar and specialty industry, not just the coast, but I suppose into the Pacific Northwest as well. Do you expect more can happen on that front?
Well, look, I think the cedar business as a whole, it had a big impact as a result of this additional increase in duty and tariffs here in 2026. When you go out into the marketplace and you look at and you discuss the role of cedar with builders and with developers and with retailers, cedar is still very much a very desirable product line. Now it does come down to affordability. And I think certainly in the knotty categories, affordability, especially in some of the Southern U.S. markets, had a big impact on takeaway at the shelf level. So as we see a reduction in duties here in Q4 and into 2027, we're anticipating a little bit more takeaway in some of these key markets. The industrial component of our cedar business, so that's the shop and better grades, the clear grades, very resilient and continued very strong global demand for that. So we're fortunate that we're able to have both a combination of the smaller tight knot product lines as well as the clear fiber that we're able to recover to supplement the overall cedar program. So overall, I'm a little bit more optimistic as we go into 2027 on where cedar will position itself in the overall supply chain. As far as rationalization or further rationalization, I can't comment on what other organizations are planning to do. I just know that for Western, our team has done an excellent job at positioning cedar inside of our Duke Point sawmill, positioning cedar inside of our Saltair sawmill as well as our small log facility at Ladysmith. And we found a way to be successful at cutting cedar inside those 3 facilities at higher productivity rates, higher recovery rates and higher product values. And it's a huge success for our manufacturing team to be able to do this and to ensure that we have this continuous supply for our global customer base across all of our cedar SKUs.
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Hofer for closing remarks.
Well, thanks, everyone, for joining our call today. We certainly appreciate your continued interest in our company, and we look forward to our next call in February. Have a great Friday. Thank you.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation today. Thank you.
Read the full transcript via the API
You're viewing the first half of this call. Get the complete Western Forest Products Inc. transcript - plus 260,000+ transcripts from 13,000+ companies, speaker segments and full-text search - through the EarningsAPI REST API or hosted MCP server.
Get an API key View API docs →For developers and AI pipelines
Programmatic access to Western Forest Products Inc. earnings transcripts and 260,000+ others is available through the
EarningsAPI REST API and the hosted MCP server.
Quarterly plans from $145 - full transcripts, speaker segments, full-text search,
and the /api/v1/transcripts/recent polling endpoint for ETL pipelines.