Canfor Pulp Products (TSE:CFX) discussed a stronger second quarter for its lumber operations alongside continued weakness in global pulp markets, as management outlined additional mill closures, planned capital spending and efforts to reshape its operating footprint.
During Canfor Corporation’s second-quarter analyst call, President and Chief Executive Officer Susan Yurkovich said lumber pricing improved as inventories remained lean, industry capacity had been reduced over recent years, and transportation constraints persisted in the U.S. South. However, she said the company remains cautious about the near-term outlook because of global economic uncertainty, trade disputes and housing affordability challenges.
Lumber Earnings Improve Sharply
Chief Financial Officer Pat Elliott said Canfor’s lumber business generated adjusted EBITDA of C$145 million in the second quarter, up C$116 million from the prior quarter. The adjusted results excluded C$16 million of one-time items, consisting of restructuring and impairment charges net of a C$7 million recovery of previously recorded inventory write-downs.
European lumber operations generated C$37 million of adjusted EBITDA, supported by moderately higher lumber prices, increased shipments and modest log-cost relief. Elliott said log costs in the company’s Swedish operating region had escalated rapidly in recent quarters but have begun to moderate.
Management expects second-quarter conditions to be a reasonable indicator for European earnings through the remainder of 2026, although Elliott noted that Swedish production volumes typically decline in the third quarter because of July downtime. He said more than 100 million board feet generally comes out of production during that period.
In North America, improved pricing, higher volumes and cost-structure improvements supported earnings, particularly in the U.S. South. Senior Vice President of Sales and Marketing Kevin Pankratz said wider lumber dimensions, including six-inch, 10-inch and 12-inch products, were particularly strong across species during the quarter.
Pankratz said the unusual price spreads for those products could moderate, but the trend is expected to continue through the third quarter before typically easing in the fourth quarter. He also said trucking constraints in the U.S. South remained elevated, while Canfor did not encounter significant transportation issues in Canada. Fuel surcharges were embedded in pricing, and increased rail shipments helped the company reach customers and markets, he said.
Pulp Losses Continue as Northwood Closure Approaches
Canfor’s pulp and paper business reported an adjusted EBITDA loss of C$12 million, compared with a C$8 million loss in the first quarter. Elliott attributed the decline to planned maintenance downtime and continued weakness in global pulp markets.
The company previously announced that it will close its Northwood Pulp Mill later this year, citing structural changes in pulp-market fundamentals and difficulties obtaining economically viable fiber supply. Canfor expects to record approximately C$30 million of restructuring costs related to the closure in the third quarter.
Elliott said management is focused first on safely winding down the Northwood site and that it is too early to determine longer-term environmental liabilities, which will depend on the site’s eventual future.
Management said the closure will reduce pulp capacity, lower capital intensity and improve the cost structure of its Intercon Specialty Paper business. Elliott described the expected cost-structure improvement as material, though the company did not quantify the benefit and said it expects to see the effects in 2027.
Chief Operating Officer Stephen Mackie said the change will alter the pulp and paper business mix by increasing its relative exposure to specialty paper, which he said has produced positive returns for a number of years, while reducing exposure to market pulp.
Additional Sawmill Closures and Investment Plans
Canfor also announced the closure of its Fox Creek sawmill in Alberta, as well as two sawmills in Sweden, Urshult and Orrefors. Elliott said the Fox Creek closure was driven by challenging market conditions, elevated duties and declining fiber availability, and is expected to result in an asset write-down and impairment charge of about C$35 million in the third quarter.
Mackie said no other Alberta assets are currently considered at risk. He said the Fox Creek decision was influenced by recent wildfires and their effect on fiber supply, as well as regulatory constraints on the land base. The closure is expected to strengthen the remaining Alberta portfolio and leave the company with sufficient fiber to support its other facilities, he said.
Yurkovich said the closures are difficult for employees, families and local communities, but are intended to concentrate production in fewer, more productive facilities and improve the company’s long-term competitiveness.
Canfor recently completed its acquisition of PinkWood, an Alberta-based I-joist business. Yurkovich said the acquisition strengthens the company’s Western Canadian asset base, expands exposure to value-added products and is a good operational and cultural fit. She said I-joists are not currently subject to tariffs and are not subject to Section 338 or Section 301 tariffs referenced during the call.
Liquidity and Capital Spending
Canfor ended the quarter with approximately C$1.2 billion in available liquidity and net debt of C$316 million, excluding the duty loan. Available liquidity increased by C$215 million during the quarter, supported by earnings and a seasonal working-capital unwind.
The company expects 2026 capital spending of about C$210 million, including roughly C$35 million for the pulp business. The remaining investment is associated with the Bruza facility in Sweden and the Iron Mountain facility in Arkansas. Elliott said capital spending should moderate after those projects are completed, supported by the company’s lumber platform and a smaller pulp footprint.
While management did not provide a specific estimate for earnings improvements from its restructuring program, Elliott said savings and benefits should continue to emerge in 2027. He clarified that his comments referred to operational and cost improvements rather than additional closures.
About Canfor Pulp Products (TSE:CFX)
Canfor Pulp Products Inc produces and sells northern bleached softwood kraft pulp, or NBSK pulp and paper. The company also generates and sells electricity from biomass out of its pulp plants in Western Canada. The firm organizes itself into two segments based on product: pulp and paper. The pulp segment generates most of the revenue. Canfor Pulp’s NBSK pulp customers are typically manufacturers of tissue paper, specialty paper, and printing and writing paper. Most of Canfor Pulp’s revenue comes from Asia.
