Interfor Q1 Earnings Call Highlights

Key Points

• Interfor posted a strong Q1 turnaround, with EBITDA rising to CAD 31 million from a negative result in the prior quarter. The improvement was driven by higher lumber prices across all regions and lower conversion costs.
• The company is making progress on major cost cuts, targeting CAD 80 million in earnings improvement over two years through a manufacturing cost reduction program. Management said early results are already helping reduce costs and improve productivity.
• Interfor’s new Thomaston, Georgia mill is ramping ahead of plan and is expected to become a top performer in the portfolio. The company also expects working capital to unwind and leverage to improve as capital spending falls and divestiture proceeds come in later this year.

Interfor TSE: IFP reported a sharp sequential improvement in first-quarter 2026 results, with management pointing to higher lumber prices, lower conversion costs and early benefits from a company-wide cost reduction program.

President and CEO Ian Fillinger said the lumber producer generated EBITDA of CAD 31 million in the quarter, up CAD 60 million from the fourth quarter of 2025. He said the improvement was driven by lumber price gains across all five regions, ranging from 5% to 20%, as well as lower conversion costs despite winter weather.

“Q1 delivered a meaningful improvement compared to the back half of 2025,” Fillinger said, while noting that duties, tariffs and logistics constraints, particularly in the U.S. South, remained elevated.

Higher Prices and Better Costs Lift Results

Executive Vice President and Chief Financial Officer Mike Mackay said Interfor posted positive adjusted EBITDA of CAD 31 million after two consecutive quarters of negative EBITDA. He said realized selling prices, after duties and tariffs, were about 8% higher than in the fourth quarter, with gains in all regions partially offset by a full quarter of Section 232 tariffs that took effect last October.

Production costs per unit improved by about 2.5% from the prior quarter, continuing cost gains recorded in the fourth quarter. Mackay said the improvement reflected higher production volumes, reduced market downtime and productivity gains tied to Interfor’s manufacturing cost reduction initiatives.

Production volumes increased by just over 100 million board feet, or 14%, from the fourth quarter. Mackay said much of that increase came from the U.S. Northwest, where operations had taken significant market downtime in the previous quarter.

Shipments, however, were essentially unchanged from the fourth quarter because of logistics constraints, especially trucking availability in the U.S. South. Mackay said those constraints increased lumber inventory levels compared with year-end, though the situation has since stabilized. He said Interfor expects it could take the rest of the second quarter and possibly early third quarter to fully unwind the inventory build.

Thomaston Ramp-Up Ahead of Expectations

Fillinger said Interfor completed its Thomaston, Georgia, project in the first quarter and that the mill started up during the quarter. He said the ramp-up is ahead of expectations and the company remains on track to achieve full pro forma performance across key performance indicators within the next four months.

“We expect Thomaston to be a top performer in our portfolio,” Fillinger said, adding that the mill strengthens Interfor’s U.S. footprint and improves its cost position in key markets.

In response to a question from Scotiabank analyst Ben Isaacson, Fillinger said Thomaston’s expected top-tier status is based largely on margin potential. He cited stable log costs in the South, operating performance, conversion costs, proximity to the Atlanta market, strong log quality, product quality and a strong residual market.

“I expect it’ll be top decile in the industry, no doubt,” Fillinger said.

Cost Reduction Program Targets CAD 80 Million Improvement

Interfor is targeting CAD 80 million in earnings improvement over the next two years through manufacturing cost reductions, representing about a 5% reduction in total manufacturing costs compared with 2025. Fillinger said the program is designed to be capital-light and not dependent on market conditions.

During the analyst question-and-answer session, Fillinger said the initiative includes better alignment of incoming log profiles with mill capabilities, clearer operating targets down to the mill and shift level, benchmarking across regions, management changes to improve communication, and efforts to eliminate nonproductive work.

“These actions, we think, well, we know are already paying dividends and improving our cost position,” Fillinger said.

He said the program is being tracked weekly, monthly and quarterly through scorecards visible across the organization. Interfor did not provide a specific target for how much of the CAD 80 million improvement will be realized in 2026, though Fillinger said first-quarter progress was encouraging.

Balance Sheet, Capital Spending and Divestitures

Mackay said working capital used about CAD 23 million in the quarter, reflecting seasonal logging activity, higher lumber prices and logistics-related inventory increases. The working capital build, combined with capital spending to complete Thomaston, led to a modest increase in net debt.

Interfor ended the quarter with a net debt-to-capitalization ratio of 38.3%, up from 36.5% at year-end, and available liquidity of CAD 386 million. Mackay said financing transactions completed during the quarter bolstered liquidity and flexibility.

Looking ahead, Mackay said Interfor expects a working capital release and a wind-down in capital expenditures. He said current order files extend through April and into May, and based on current conditions, the company expects leverage and net debt to invested capital to decline in the coming months. Mackay clarified that this near-term expectation does not assume asset divestitures.

Interfor also expects proceeds from divestitures later in the year. Mackay said the company completed about CAD 10 million of proceeds related to its B.C. coast forest tenures in the first quarter and expects another CAD 20 million to CAD 25 million over the next 12 to 18 months. He also guided to roughly CAD 40 million in net proceeds from real estate sales tied to former Summerville and Meldrim facilities in the U.S. South, weighted toward the back half of the year.

Capital spending is expected to decline after several major investments. Mackay said Interfor continues to estimate 2026 capital spending at about CAD 80 million and preliminary 2027 spending at about CAD 60 million, focused almost entirely on maintenance. He said any free cash flow will be directed solely toward reducing leverage, with a target net debt-to-invested-capital ratio of 20% or below.

Market Conditions Remain Volatile

Fillinger said near-term markets remain volatile, citing elevated interest rates, trade uncertainty, fuel price volatility and geopolitical developments. He said single-family construction and repair-and-remodel demand remain challenged, though Interfor saw seasonal price improvement during the first quarter that continued into early second quarter.

While pricing in the South softened in recent weeks, Fillinger said Interfor remains profitable. He said industry curtailments this year have been significant, at roughly four times the pace of 2025, while landed costs for third-country imports into the U.S. have risen materially.

On operations, Fillinger said the company is prioritizing mills and regions that generate the highest profitability. In Ontario, he said Gogama and Nairn Centre remain indefinitely curtailed, while the Sault Ste. Marie I-joist business continues to fit well within the portfolio and has not been affected by reduced hours. For the second quarter, Fillinger said production should improve in the U.S. South and Pacific Northwest, while some hours come out of Ontario.

Fillinger also addressed softwood lumber trade discussions, saying Interfor remains engaged with both Canadian and U.S. governments. He said the company believes a negotiated agreement between Prime Minister Mark Carney and President Donald Trump is achievable, though he did not offer specific insight into whether lumber would be addressed through CUSMA/USMCA discussions or separately.

About Interfor TSE: IFP

Interfor Corp produces and sells lumber, timber, and other wood products. The company operates sawmills to convert timber into lumber, logs, wood chips, and other wood products for sale. The firm also harvests timber for its sawmills on forest land owned by the Canadian government. Interfor pays the Canadian government stumpage fees based on the number of trees it harvests. The company's primary customers are in the construction and renovation industries. The majority of revenue is generated from the sale of lumber.

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