Canfor TSE: CFP reported stronger second-quarter lumber earnings as improved pricing, higher shipments and cost-structure gains offset continued weakness in pulp markets. Management said the company is continuing to reshape its operating footprint through mill closures, capital projects and the acquisition of PinkWood, an Alberta-based I-joist business.
President and Chief Executive Officer Susan Yurkovich said the lumber business benefited from leaner inventories, industry capacity rationalizations in recent years and transportation constraints 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 pressures.
“While we’re encouraged by our second quarter results, we remain focused on strengthening our platform and positioning the business to navigate the challenges facing our industry,” Yurkovich said.
Lumber EBITDA Rises as Pricing and Volumes Improve
Chief Financial Officer Pat Elliott said Canfor’s lumber segment generated adjusted EBITDA of C$145 million in the second quarter, up C$116 million from the prior quarter. The result 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.
Canfor’s European lumber operations contributed C$37 million in adjusted EBITDA. Elliott attributed the performance to moderately higher lumber prices, increased shipments and modest relief in log costs. He said rapidly rising log costs in Sweden had begun to moderate, and he expects second-quarter conditions to be a reasonable indicator for the remainder of 2026, though seasonal downtime is expected to reduce third-quarter volumes.
In North America, improved lumber prices, increased production volumes and cost improvements supported earnings, particularly in the U.S. South. Senior Vice President of Sales and Marketing Kevin Pankratz said pricing strength was especially evident in wider lumber dimensions, including six-inch, 10-inch and 12-inch products, across species.
Pankratz said the unusually wide price spreads could moderate, but he expects the trend to continue through the third quarter before typically easing in the fourth quarter.
Management said transportation constraints were mainly a U.S. South trucking issue, while Canadian operations did not experience material transportation problems. Elliott said tight trucking capacity and elevated fuel surcharges helped support southern yellow pine pricing, while increased rail shipments enabled Canfor to reach additional markets and customers. He said trucking conditions had moderated somewhat but remained tight and were not expected to change fundamentally through the end of the year.
Pulp Losses Continue as Canfor Plans Northwood Closure
Canfor’s pulp and paper segment posted an adjusted EBITDA loss of C$12 million, C$4 million worse than the previous quarter. Elliott said planned maintenance downtime and weak global pulp markets affected the segment.
Yurkovich said elevated pulp inventories and a structural change in market dynamics have pressured pricing for several quarters. Canfor recently announced it will close its Northwood Pulp Mill later in 2026, citing the changing pulp-market environment and challenges obtaining economically viable fiber supply.
The company expects to record approximately C$30 million in restructuring costs related to Northwood during the third quarter. Elliott said the closure should materially improve the cost structure of Canfor’s Intercon specialty paper operations by reducing the need for more distant fiber supplies and allowing the company to focus on a smaller operating site.
Chief Operating Officer Stephen Mackie said the decision will also materially alter Canfor’s pulp-and-paper product mix, increasing its exposure to the specialty paper business while reducing its exposure to market pulp. He described the paper business as solid, stable and a generator of positive returns over a number of years.
When asked about longer-term environmental liabilities at the Northwood site, Elliott said it was too early to provide details. He said the company is currently focused on safely winding down the mill and that future obligations will depend on the site’s longer-term outcome.
Additional Sawmill Closures and Investment Plans
In addition to Northwood, Canfor announced plans to close its Fox Creek sawmill in Alberta and two sawmills in Sweden, Urshult and Orrefors. The company expects to record an approximately C$35 million asset write-down and impairment charge related to Fox Creek in the third quarter.
Yurkovich said the closures are difficult decisions for employees, their families and local communities, but are intended to create a more sustainable operating platform. She said consolidating production into fewer, more productive facilities should improve fiber procurement, cost structure and profitability.
Mackie said there are no other Alberta assets currently considered at risk. He said the Fox Creek decision reflects recent wildfire impacts on fiber supply as well as regulatory constraints on the land base, and management believes remaining Alberta facilities have adequate fiber supply.
Elliott said benefits from footprint rationalization and operating upgrades should continue into 2027, clarifying that he was referring to savings and improved results rather than additional closures. Canfor is completing upgrades at its Bruza sawmill in Sweden and Iron Mountain sawmill in Arkansas.
Balance Sheet, Capital Spending and PinkWood Acquisition
Canfor ended the second quarter with approximately C$1.2 billion of available liquidity and net debt of C$316 million, excluding the duty loan. 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 balance is primarily associated with the Bruza and Iron Mountain projects. Elliott said capital spending is expected to moderate after those projects are completed.
Earlier in the month, Canfor completed its acquisition of PinkWood, which Yurkovich said will strengthen the company’s Western Canadian asset base and diversify earnings through greater exposure to value-added products. She said Canfor already supplies substantial furnish to the business and sees opportunities to grow it. Yurkovich also said PinkWood’s I-joist products are not subject to tariffs discussed during the call.
While management said it will remain prudent, Yurkovich said Canfor’s balance sheet gives it flexibility to evaluate additional opportunities, both organically and through acquisitions. She said the company has no plans to move its corporate office from British Columbia.
About Canfor (TSE:CFP)
Canfor Corp is a global leader in the manufacturing of high-value low-carbon forest products including dimension and specialty lumber, engineered wood products, pulp and paper, wood pellets and green energy. Proudly headquartered in Vancouver, British Columbia, Canfor Corp produces renewable products from sustainably managed forests, at more than 50 facilities across its diversified operating platform in Canada, the United States and Europe. Canfor Corp has a 77% stake in Vida AB, Sweden's largest privately owned sawmill company and also owns, approximately, a 54.8% interest in Canfor Pulp.
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