Western Forest Products Q4 Earnings Call Highlights

Western Forest Products (TSE:WEF) used its fourth-quarter 2025 earnings call to outline the impact of weaker markets and sharply higher U.S. softwood lumber duties, while emphasizing progress on operational initiatives, strategic capital projects aimed at higher-value products, and a stronger balance sheet entering 2026.

Operational and strategic highlights

President and CEO Steven Hofer said the company entered 2026 with “a significantly improved balance sheet” despite what he described as more challenging markets and higher duties and tariffs in 2025. Hofer said the company continued executing strategic priorities focused on transitioning toward higher-value product offerings.

Hofer highlighted several operational metrics and initiatives discussed on the call:

• Safety performance: The company reported a 2025 medical incident rate (MIR) of 2.7, beating its target of 2.87 and improving from 3.84 in 2024. Hofer said several operations achieved zero recordable incidents in 2025.
• Timberlands and inventory management: Western said it has focused on improving log sort stratification and maintaining disciplined log inventory management, resulting in an 11% improvement in log inventory turnover since 2023.
• Manufacturing execution: Western reported operational uptime of 86% in 2025, up from 85% in 2024, with the Duke Point facility reaching 92% in the fourth quarter. Hofer also cited a 9% year-over-year improvement in lumber inventory turnover.
• Product mix and service: Specialty products represented 52% of sales in 2025. The company increased kiln-dried sales to a record 41% of total sales, up from 37% in 2024. On-time shipping performance improved to 88% from 84% in 2024.

Hofer said Western is advancing strategic capital investments in kiln capacity, with two continuous kilns and one thermal kiln at its value-added division expected to be commissioned in 2026. He said the investments are intended to support more kiln-dried lumber production, which he characterized as higher margin than green lumber.

On labor, Hofer said the company completed a six-year collective agreement covering U.S. Steelworkers (USW) hourly employees, describing it as one of the longest-term agreements in the history of the B.C. coastal forest sector.

Fourth-quarter results pressured by volumes and duties

Chief Financial Officer Glen Nontell reported fourth-quarter adjusted EBITDA of -CAD 6.2 million, compared with CAD 14.4 million in the same period last year. Nontell attributed the year-over-year decline primarily to lower shipment volumes and higher duties and tariffs.

Compared to the prior-year quarter, Western reported:

• 26% lower lumber shipments
• 34% lower log shipments, tied to lower harvest volumes
• Higher softwood lumber duties and tariffs, with a combined duty and tariff rate of 45% versus 14% in the prior-year quarter

Nontell said results were partially offset by higher log prices for cedar and fir saw logs and lower stumpage expense. The company ended the quarter with approximately 50 million board feet of lumber inventory and 649,000 cubic meters of log inventory.

Western guided 2026 capital expenditures to CAD 45 million to CAD 50 million, including about CAD 16 million related to the two continuous kilns and one thermal kiln at the value-added division.

On liquidity and leverage, Nontell said Western finished the quarter with approximately CAD 212 million of liquidity and a net debt-to-cap ratio of 7%. Hofer also pointed to CAD 76 million in non-core asset sales and the extension of the company’s CAD 250 million credit facility to July 2028 as balance sheet and liquidity improvements completed during the year.

Columbia Vista: property listed for sale

Nontell said Western made the decision not to rebuild its Columbia Vista sawmill and listed the property for sale in December at an asking price of $10.6 million. He said the company has received multiple offers above the asking price and expects to finalize a sale late in the first quarter or early in the second quarter of 2026.

Nontell added that Western is working with its insurance adjuster to finalize available property insurance proceeds, and that proceeds from the sale and insurance are expected to be used initially to repay debt and further deleverage the balance sheet.

In response to an analyst question, Hofer said the decision not to rebuild does not require capital spending to reconfigure other mills. He said Western has been able to add supply from its Saltair facility in Canada to maintain market share in Douglas Fir and Hem-Fir kiln-dried squares to Japan, effectively reallocating the product line to an existing facility.

Market outlook and operating considerations heading into 2026

Hofer said lumber markets remain challenged entering 2026, and that customers do not expect a significant improvement in demand in the first half of the year. However, he noted that operating curtailments taken by lumber producers in 2025 are expected to reduce available supply toward the end of the first quarter, which could create upward price pressure as demand improves.

Hofer also said U.S. 30-year mortgage rates are at three-year lows, which he believes may support improved housing affordability and modestly stimulate housing demand this year.

On end markets, Hofer said demand for Western Red Cedar remains slow, tracking with other building products. In Japan, he said the yen has further weakened against the U.S. dollar and housing starts remain below 800,000 on an annualized basis. He said Western is focused on the competitiveness of Hemlock and Douglas Fir to maintain market share, but noted first-quarter 2026 demand is lower than the fourth quarter of 2025. The company reported a first-quarter order file of approximately 78 million board feet.

On seasonality, Nontell said first-quarter timber harvesting can be periodically interrupted by winter weather and that harvest volumes are typically weighted toward the end of the quarter. He added that sales typically accelerate through the quarter and that the company plans to manage production to market demand and available log supply.

Labor dispute in TFL 64 and potential supply impacts

Hofer discussed the La-kwa sa muqw Forestry Limited Partnership in TFL 64, noting that employees represented by the USW began a strike in the second quarter of 2025. He said USW members voted in January to reject a new collective bargaining agreement.

Hofer warned that if there is no near-term resolution, additional operating curtailments may be required at the Saltair and Duke Point sawmills near the end of the first quarter due to log supply constraints. He said both parties have agreed to a mediation process that is occurring this week.

Product development: thermal modification and engineered wood investments

During Q&A, Hofer said Western is “really excited” about its thermally modified Hemlock initiative, describing it as a way to add incremental value and margin to Hemlock products. He said the first thermally modified kiln is expected to become operational toward the end of the year, with initial volumes kept relatively small.

Hofer said initial applications are expected to include exterior decking, siding, soffit, and fascia, and that the product will be marketed as a niche specialty offering rather than a commodity product, using targeted distribution partners focused on specialty building materials.

On kiln-dried capacity, Hofer said each continuous dry kiln is expected to provide annual capacity of roughly 80 million board feet, allowing investors to estimate the incremental impact from the new kilns planned for commissioning in 2026.

Hofer also discussed investments in Western’s engineered wood products group, including a planned investment in a new CNC fabrication machine at the company’s Fruit Valley manufacturing site in Vancouver, Washington. He said procurement is being finalized, with delivery and installation anticipated toward the end of the year. In parallel, he said Western is evaluating opportunities to modernize and consolidate its existing glulam facilities in the region at Fruit Valley, with project planning continuing through 2026.

About Western Forest Products (TSE:WEF)

Western Forest Products Inc is a Canada-based softwood forest products company. The company’s principal business activities include timber harvesting, reforestation, forest management, sawmilling logs into lumber and wood chips, and value-added lumber remanufacturing. Its operating business segment comprised of Timber harvesting, Log sales, and Lumber manufacturing and sales. The firm purchases and harvests logs which are then manufactured into lumber products at its sawmills, or sold. Canada and the United States, represent the company’s largest markets and contribute the vast majority of its total revenue.