What Western Forest Products (WEF) Said on Its Q3 Earnings Call

Key Points

• Western Forest Products reported CAD 1.9 million in adjusted EBITDA for Q3 2026, versus a CAD 65.9 million loss a year earlier. Higher log shipments and lumber prices helped, though lumber shipments fell 11% and duties and tariffs weighed on results.
• The company moved into a net cash position after selling its Stillwater Forest operation for about CAD 80 million. Management plans to prioritize financial flexibility in the near term while evaluating investments and growth opportunities over the longer term.
• The market outlook is mixed: management expects some fourth-quarter price improvement and stable Japanese demand, but sees weak pricing in several cedar and construction product segments. Winter seasonality and adverse weather could also limit harvesting and raise costs.

Western Forest Products TSE: WEF reported positive adjusted EBITDA for the third quarter of 2026, benefiting from higher realized lumber prices and stronger log shipments as it continued to navigate softwood lumber duties, tariffs and uneven demand.

The company also moved into a net cash position after the quarter through the sale of its Stillwater Forest operation for approximately CAD 80 million. Management said it plans to preserve financial flexibility in the near term while considering investments and potential growth opportunities over a longer horizon.

Higher Log Shipments Support Results

Third-quarter adjusted EBITDA was CAD 1.9 million, compared with a loss of CAD 65.9 million in the same period a year earlier, Chief Financial Officer Glen Nontell said. The 2026 result included CAD 7.7 million in business interruption insurance recovery related to the former Columbia Vista operation, CAD 3.9 million in non-cash duty expense and CAD 1.2 million in share-based compensation expense.

Favorable harvesting conditions helped drive a 71% increase in log shipments, while lumber shipments fell 11%. Higher softwood lumber duties and tariffs also partly offset the benefits of higher prices and log shipments, Nontell said.

President and CEO Steven Hofer said harvest volumes rose 92% from the year-earlier quarter, supported by better weather and the earlier restart of the La-kwa sa muqw Forestry Limited Partnership. Western ended the quarter with approximately 64 million board feet of lumber inventory and 697,000 cubic meters of log inventory.

Nontell said the company’s net debt fell by CAD 17.5 million during the quarter, while its net debt-to-capital ratio declined to 3% from 6% at the end of the second quarter. The subsequent Stillwater sale brought the balance sheet into a net cash position.

Capital Spending and Balance Sheet Priorities

Western expects 2026 capital spending of CAD 45 million to CAD 50 million, including approximately CAD 23 million for completed kiln investments at its Value-Added Division and ongoing upgrades to the Duke Point autograder. Hofer said the AI-enabled autograder is expected to be commissioned in early 2027.

The new kilns are operating in line with expectations, Hofer said. They are expected to increase kiln-dried lumber production, which carries higher margins than green lumber, and help expand the company’s global customer base.

Hofer said Western has generated approximately CAD 180 million in gross proceeds over the past 24 months from monetizing private timberlands, tenure and other non-core assets. The company has used the proceeds to repay debt, navigate difficult market conditions and fund targeted investments and operational improvements.

Western also completed the insurance process and property sale for its former Columbia Vista sawmill, generating $48 million through the process. It expects to pay approximately CAD 1.7 million in income tax on those proceeds in the fourth quarter and CAD 9.1 million in tax on the Stillwater transaction in the first quarter of 2027.

Asked about deploying capital, Nontell said Western may retain excess financial flexibility over the next 12 months amid uncertainty over duties and tariffs. Longer term, the company will evaluate opportunities that could include reinvestment in its business or complementary external growth, he said.

Mixed Market Outlook

Hofer expects industrial product lines to remain stable through the fourth quarter, with some improvement in matting products following announcements of major Canadian capital projects. He said North American cedar demand and pricing have softened in certain knotty product segments, and pricing for decking, trim and fencing is expected to remain weak as supply exceeds demand.

Despite recent declines in North American commodity markets, Hofer expects prices to improve in the fourth quarter, supported by a focus on higher-value customers. He expects Japanese lumber demand to remain stable through the fourth quarter and into the first quarter of 2027, while Chinese demand could strengthen toward year-end as inventories are drawn down and customers replenish ahead of Lunar New Year.

Western’s fourth-quarter order file stood at approximately 114 million board feet. Nontell cautioned that winter typically brings lower North American lumber consumption and reduced harvesting hours, while adverse weather can further constrain production and increase harvesting costs.

About Western Forest Products (TSE:WEF)

Western is an integrated forest products company building a margin-focused log and lumber business to compete successfully in global softwood markets. With operations and employees located primarily on the coast of British Columbia and Washington State, Western is a premier supplier of high-value, specialty forest products to worldwide markets. Western has a lumber capacity of 785 million board feet from five sawmills, as well as operates four remanufacturing facilities and two glulam manufacturing facilities.

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