Morning, ladies and gentlemen, welcome to the West Fraser Q1 2026 results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Thursday, April 30, 2026. During this conference call, West Fraser's representatives will be making certain statements about West Fraser's future financial and operational performance, business outlook, and capital plans. These statements may constitute forward-looking information or forward-looking statements within the meaning of Canadian and U.S. securities laws. Such statements involve certain risks, uncertainties, and assumptions which may cause West Fraser's actual or future results and performance to be materially different from those expressed or implied in these statements.
Additional information about these risk factors and assumptions is included both in accompanying webcast presentation and in our 2025 annual MD&A and annual information form as updated in our quarterly MD&A, which can be accessed on West Fraser's website or through SEDAR+ for Canadian investors and EDGAR for U.S. investors. I would now like to turn the conference over to Sean McLaren. Please go ahead.
Thank you, Ina. Good morning, everyone, and thank you for joining our first quarter 2026 earnings call. I am Sean McLaren, President and CEO of West Fraser, and joining me on the call today are Chris Virostek, Executive Vice President and Chief Financial Officer, Matt Tobin, Senior Vice President of Sales and Marketing, and other members of our leadership team. On the earnings call this morning, I will begin with a brief overview of West Fraser's first quarter and then pass the call to Chris for additional comments before I share some thoughts on our outlook and offer concluding remarks. As we entered 2026, we saw a seasonal improvement in the lumber market. Southern Yellow Pine, in particular, saw a better balance between available supply and seasonal demand.
While underlying demand for new residential construction and repair and remodel remained subdued, we experienced healthier market conditions compared with the second half of 2025. In OSB, Q1 market conditions remained challenging, though modest signs of improvement began to appear toward the end of the quarter as seasonal demand increased. Against this backdrop, West Fraser saw a positive sequential turnaround in first quarter results, led by stronger lumber pricing and operational progress. We generated negative $66 million of Adjusted EBITDA, this result includes $114 million of prior period duty adjustments, which Chris will get into shortly. Removing the impact of these adjustments, the underlying business generated $48 million, with all three of our segments, lumber, North American Engineered Wood Products, and Europe, contributing to the positive results.
This reflects a significant improvement from the $79 million loss in the fourth quarter, representing a turnaround of over $120 million. We continued to high-grade our portfolio during the quarter. We have completed production activities at our High Level OSB mill in Alberta and are four months into the production ramp-up at our new Henderson lumber mill in Texas. Our U.S. lumber portfolio optimization continues to lower our cost structure with five mill closures and two brownfield modernizations over the past five years. Our balance sheet remains strong, providing us with the flexibility through the cycle and optionality for the future. We ended the quarter with liquidity close to $900 million. The change in Q1 reflects the normal seasonal buildup of log inventory in Western Canada, which is consistent with our typical working capital cycle.
We expect this inventory investment to reduce in the second and third quarters as our mills work through their log inventories. We continue to operate with a strong balance sheet, allowing us to execute our capital allocation strategy. Our financial position also provides optionality for value-creating opportunities should they arise. As always, we will be disciplined on execution and returns. With that high-level overview, I'll now turn the call to Chris for additional detail and comments.
Thank you, Sean, and good morning, everyone. A reminder that we report in US dollars and all my references are to US dollar amounts unless otherwise indicated. In Q1, we generated negative $66 million of Adjusted EBITDA. As Sean discussed, we had two large softwood lumber duty-related adjustments in Q1 totaling $114 million. Both adjustments are non-cash in nature. The first is based on preliminary rates released by the U.S. Department of Commerce for the 2024 calendar year, and the second due to a change in our estimate of amounts recoverable and payable as a result of the liquidation process covering the last half of 2017. I would point you to our news release of April 16 and our first quarter MD&A and financials for further details.
The Lumber segment posted Adjusted EBITDA of negative $84 million in the first quarter, but removing the duties impact results in positive $30 million compared to negative $57 million in the fourth quarter, an improvement of $87 million. This improvement is largely a result of higher SYP and SPF pricing. North America EWP segment delivered $11 million of Adjusted EBITDA in the first quarter, an improvement from the prior quarter's negative $24 million. This $35 million improvement is due largely to better OSB pricing in the quarter. In Europe, we generated $10 million of Adjusted EBITDA in the first quarter, more than doubling the $4 million we generated in the fourth quarter, and we've seen an improved environment in Europe with better demand and higher prices. This marks the highest level of Adjusted EBITDA in Europe since the second quarter of 2023.
We have moved our previously named Pulp and Paper segment to Other in the first quarter as the business has become a less significant part of our total operations and will no longer be specifically addressing the results of that segment. Bridging our results from Q four to Q one, a majority of the improvement came from higher prices in lumber in North American EWP. In addition, higher volumes in U.S. lumber in Europe and a favorable inventory adjustment represented the biggest variances. Costs were flat relative to Q four. Lower SYP costs were offset by repair costs due to the fire at Blue Ridge, and in North American OSB, we saw higher costs from resin and energy-related inputs.
Resin plays a significant role in our panel cost structure, and the recent rise in methanol-based resin pricing is a factor we anticipate will be more visible in our Q2 results. Our U.S. lumber business continues to show improved operating efficiency stemming from the actions we have taken. In the U.S. South, total cost per 1,000 board feet have reduced by approximately 6% in the last 2 years. During this period, we have closed 5 lumber mills, completed a full brownfield modernization, and successfully completed a number of smaller but significant capital projects and cost reduction initiatives. This better enables us to react to changes in the external environment and improves our ability to compete more effectively and help provide low-cost supply to our customers. In Q1, our SYP shipments were 4% higher than Q4 on better operating efficiencies.
Excluding the impact of the downtime at Blue Ridge in Q1, our overall shipment volumes remained consistent with expectations. We saw higher shipments in both OSB and in both North American OSB and European OSB. North American volumes increased due to the normal seasonal patterns, and in Europe, we increased shipments to meet higher demand. Cash flow from operations was impacted by the seasonal builds in working capital, resulting in negative $170 million in the first quarter and a net debt position of $457 million. We expect this working capital position to reverse in the second and third quarters. Net debt was influenced by two dividend payments made during the quarter, which occurred as a result of our fiscal quarter ending on April third rather than March thirty-first.
Our net debt to capital ratio remains in single digits, and our balance sheet is robust. With respect to share repurchases, we did not repurchase shares in the first quarter as we prioritize liquidity through the cycle. Our commitment to returning capital to shareholders through a combination of both dividends and tactical share repurchases has not changed. Regarding our operational outlook for 2026, we have made no changes to our shipment guidance across our main products as well as our capital expenditure range. Transportation and resin costs have been influenced by evolving geopolitical dynamics, and we expect these factors to be more fully reflected in our second quarter results as we manage through the current environment. Due to the fluidity of the situation, it is hard to quantify what that impact may be, but we are actively managing where we can.
With that overview, I'll pass the call back to Sean.
Thank you, Chris. I'll now shift to our general outlook and offer some concluding remarks. Our first quarter results showed a solid improvement relative to the last half of 2025. The $120 million turnaround relative to Q4 shows what the underlying potential of our business is. Our strong balance sheet and a well-invested, diversified portfolio positions us well to adapt to changing market conditions and capitalize on operating leverage while also mitigating downside risk. We manage for the long run by reinvesting in our business and are improving our operating efficiency. In the first quarter, we continued to advance our heat energy and dryer project at Bemidji, a project that, when complete, will improve safety, increase throughput, lower costs, and lower energy usage and emissions.
For our lumber assets in the U.S. South, as Chris discussed, we are seeing the results of the continued portfolio optimization work we are doing by removing costs, increasing margins, and repositioning our production to lower cost and more efficient mills. We continue to ramp up our modernized Henderson Mill, which we believe is positioned to be one of the lowest-cost mills in our fleet once it achieves full operating rates. In Canada, production at Blue Ridge was temporarily paused due to a fire, and the mill has since resumed full operational capacity. We have also seen preliminary duty rates poised to come down later this year by approximately 6% with the release of the proposed AR7 rates. We continue to hold a cost advantage in SPF relative to other Canadian exporters.
In our North American EWP business, the indefinite curtailment of our High Level, Alberta OSB mill is complete. Our wind down of High Level, a less competitive and higher-cost mill representing approximately 860 million sq ft, will allow us to focus our operations on our most efficient production. In Europe, we are encouraged by the progress achieved in Q1 and continue to navigate market dynamics, including managing energy and fiber costs. We are focused on operational improvements and cost reduction and expect our European operations to continue to be competitive through the cycle. Of course, this takes place in a dynamic environment influenced by developments in the Middle East. Against this backdrop, global market conditions remain fluid, and we continue to assess how broader trends may influence end market demand and energy-related cost inputs across our business.
In the near term, we expect costs to be influenced by inputs linked to energy prices, and we are adapting our logistics approach to reflect the current operating environment. We continue to closely monitor these developments and remain focused on managing controllable costs, maintaining operational flexibility, and supporting our customers as conditions evolve. We are realistic about the demand environment. Housing remains challenged in the near term. We believe the longer-term demand drivers remain favorable. Since the start of the conflict, long-term mortgage rates have moved above 6% and gas prices have risen, reflecting current economic conditions that continue to shape consumer sentiment. Despite ongoing macroeconomic and affordability pressures, lumber pricing improved modestly on a sequential basis in Q1. While uncertainties remain, the seasonally better supply-demand balance combined with our cost reduction focus gives us cautious confidence as we navigate near-term uncertainties.
To summarize, first, our Q1 results demonstrate the operating leverage in our business as markets improve. Second, our balance sheet and diversified portfolio are strengths that continue to differentiate us in this environment. Third, we are focused on lowering costs and investing in capital projects that improve the quality of our portfolio. Thank you again for your time and continued interest. We look forward to updating you next quarter. With that, we will turn the call back to the operator for questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the 1 on your telephone keypad. Should you wish to cancel your request, please press star followed by the 2. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Thank you. Your first question comes from the line of Sean Steuart from TD Cowen. Please go ahead.
Thanks. Good morning, everyone. A few questions. Sean, hoping we can pull apart the costs inflation piece a little bit. You know, the freight part I think I understand, but I'm hoping you can give a little bit more perspective around the magnitude of resin cost pressure and how that flows through and how higher diesel will feed into delivered wood costs as well.
Okay. Good morning. Good morning, Sean. I'm gonna make a few comments here then ask Chris to add anything more, fill in what I miss. First off, on the magnitude, you know, I would say, you know, a few comments here. First off, I would talk geographically that it's different in Europe than it is in North America. We saw the impact more quickly in Europe, but our team in Europe, you know, quickly began navigating through that. Hard to really have a lot of exact visibility on Q2, other than the pressure continues to build and our team continues to react and kinda navigate through that cost structure.
Our assets in Europe are, all of this affects everybody. Our assets are well-positioned to compete in this environment of higher costs. In North America, I think we're still seeing that evolve. We've got, you know, obviously, large relationships with our suppliers. We're working with them to navigate the impact of that. You know, again, difficult to quantify for Q2. Resin is a significant component of, you know, of OSB costs. To date, we've been able to navigate it effectively and to be determined to see how significant that is in the coming months.
You know, on diesel pricing, again, in Western Canada, our wood supply is delivered, you know, this will be a Q3 issue as we begin to replenish log inventories. We'll see where things are at at that moment. In the South, I think so far, we've been able to navigate that through and have not seen a material change in our cost structure yet, but it's something we're monitoring and watching closely. Chris, anything to add to that?
No, that's a great summary. Thank you.
Okay. Thanks for those details. Second question I have is around chip offtake for your sawmills. We saw a recent announcement of a sawmill closure in the South, and I'm not asking you to speak to that initiative specifically, but Sean, can you give us general comfort with respect to the strength of your wood chip offtake agreements across your sawmill system?
Yeah, you bet, Sean. I know we've maybe spoke about this on prior calls, but, you know, clearly over the last several years, both in the U.S. and in Canada, you know, the restructuring of the pulp industry has implications not only on sawmills, but on landowners, but in any number of areas where they operate and those closures happen. From a West Fraser perspective, I'd maybe leave you with a few comments. One is our diverse portfolio, not only geographically between Western Canada and the U.S. South, but across both of those regions, and particularly in Western Canada as we're integrated in British Columbia with Cariboo Pulp.
You know, we've got lots of optionality depending on where the impacts happen on how we reposition our production or our residuals and react to that. In the South, we have a number of long-term relationships as well as a number of other kind of offtake agreements that we look to, and we've been successfully able to navigate each of these changes. Does it create pressure and pinch points? Absolutely. Our team's doing a terrific job navigating that. Finally, just as a reminder that as pulp mills restructure our OSB business also purchases pulpwood, so we have an offset or a hedge in our system that allows us to press on costs where those opportunities present themselves.
Okay. That's great detail. That's all I have for now. Thanks very much, Sean.
Thank you.
Thank you. Your next question comes from the line of Ketan Mamtora from BMO Capital Markets. Please go ahead.
Good morning, thanks for taking my question. Maybe to start with, not trying to put too fine a point on the resin issue. Sean, to the extent it's possible, can you talk about sort of how you all are navigating this dynamic environment? Is it using different types of resins in manufacturing OSB? If it is possible at all to maybe just give us some rough sensitivity in terms of what it means for, I don't know, like a 10% move in resin cost. Is there a way for us to think about it?
Yeah. Good morning, Ketan. This might again be a little repetitive from the last question. There's a lot of moving parts, as you can imagine within this. You know, resin, I think, is roughly 25% of the cost structure of an OSB mill. Saying that, there are different types of resins, there are different ways for the team to be able to build the board. First and foremost is us working with our resin suppliers to navigate through this period. This is an issue that affects sort of everybody, you know, the same. Like, it's not a unique West Fraser issue. I think it all comes back to how we feel our assets are positioned on the cost curve, and we feel like they're positioned pretty well, and we're gonna be able to navigate this and compete through.
Understood. Okay. Just maybe looking back at Q1, the price differential or not just the price differential, but the change in prices in Southern Yellow Pine versus SPF that we saw in Q1, can you talk about sort of what drove that particularly against the backdrop of what's going on with supply cuts? I'm curious whether you are seeing any signs that Southern Yellow Pine is gaining share in the new residential market.
I'm gonna turn it over to Matt to make a few comments on that, Ketan.
Sure. Good morning. Yeah, we saw Southern Yellow Pine prices rise off a low point from Q4. This has been a, you know, pretty typical, I'd say, seasonal uplift with tree activity picking up in their 1st quarter. It's something we've seen, I'd say, the last few years, is that rise in 1st quarter demand. You know, I think that watching it and talking to customers, we don't see a structural shift in demand. I'd say it's just typical seasonal activities in the 1st quarter around SYP.
Understood. Okay. Then just last question from me. Chris, you talked about on the repurchase side, you know, prioritizing liquidity. How should we think about sort of your approach over the next and the coming quarters, against the backdrop of, you know, kind of weaker than expected housing demand? Should we expect that in the near term this is on pause, or is it sort of something that you are evaluating every quarter?
I think, Ketan, the best guide would be, you know, to look at what we've done historically, right? We take a lot of pride in having a durable capital allocation strategy. You know, throughout this cycle, which, you know, we're 3 years in lumber now, we've been very disciplined in what we've done, right? With whether that's share repurchases or the level of the dividend or the management of the debt, the debt load and the cash balance. Look, we came through 2 negative quarters in the back half of last year. First quarters turned positive the way that we look at it, excluding this $114 on the duties. Clearly there's a lot of uncertainty out there. You know, how we look at the intrinsic value of the company hasn't changed.
You know, we're not a buyer necessarily at all times, but we're a buyer opportunistically when the flexibility is at a level on our balance sheet that we think is right and the shares are priced attractively. I think you can count on us to continue to operate that way, no differently today than over the past two or three years.
Got it. No, that's helpful perspective. I'll turn it over. Good luck.
Thank you, Ketan.
Thank you. Your next question comes from the line of Ben Isaacson from Scotiabank. Please go ahead.
Thank you very much, good morning, everyone. I just wanted to extend Ketan's question. You talked about SYP didn't talk about SPF. Can you talk about whether you were surprised at the relative underperformance of SPF to SYP, or was it kind of consistent with your thinking and why?
Good morning. I would say in the SPF, I mean, we saw steady markets, you know, some slight price improvement over the quarter. I would say seasonally kind of normal tightening of those spreads in the first quarter, like I said, more to do with trader activity. You know, I think we see those dislocations and price changes change, you know, relative to their kind of regional supply or their end user supply demand structure. I would say, you know, not necessarily unexpected to see, you know, a pickup in SYP and SPF just to be continued to be steady.
Thank you for that. My second question is, coming back to this cost pressure. I was just hoping you could frame it, or provide some goalposts. If nothing were to change from today, can you give some magnitude in terms of the goalposts for cost? I mean, should we expect a CAD 30-CAD 50 per MBF change or CAD 0-CAD 10? I mean, how should we be thinking about it?
Yeah, you know, I'll make a few more comments here then Chris Virostek, please fill in if we can add more. You know, again. You know, I know the conflicts few months here. You know, we've been able to navigate these pressures so far, you know. The pressure is building, and it's hard to predict, you know, where energy fuel prices might go. I'm very reluctant to kind of, you know, speculate on magnitude because we just don't know, so we won't do that. What I would say is we've been so far able to navigate through the cost pressure. Chris Virostek, would you add anything to that?
Yeah, not really. You know, I think as Sean indicated, you know, resin is about 25% of the input cost in OSB manufacturing. I think the other factors that he's raised that, you know, look, this isn't something that uniquely affects West Fraser. It affects the entire industry because everybody uses resin to make OSB. There's not, you know, in our view, a disproportionate impact in any you know, in one aspect, right? Like our fleet of assets and how they exist in different markets and make different products gives us a degree of flexibility that operators with smaller fleets may not have in order for us to mitigate more of this impact, you know, as we navigate this.
I think very difficult to speculate when you see oil price moving around the way that it's moving around on a day-to-day, week-to-week basis. You know, trying to pin a number on this and say, "This is discreetly what it's gonna be in Q2," there's as much likelihood that we're wrong as we're right in trying to give that guidance. I think it goes back to, look, we've throughout this cycle, we've made investments to lower costs consistently, which gives us more headroom to deal with these shocks when they happen. We like how we're positioned to be able to deal with this.
Thank you. My final question, Sean, can you just give a quick outlook for OSB as it relates to North America versus Europe? How are you feeling about kind of each of those regions? Thanks.
Yeah. No, no. Thank you. Thank you, Ben. Yeah, maybe just a few comments. You know, first off, in Europe, as Chris mentioned in his comments, our best quarter since mid 2023. It's been 3 years. The macro in Europe continues to be difficult like North America. Saying that, you know, our 2 OSB assets over in Europe are pretty well positioned. We have a terrific management team. We're located in good markets, good raw material areas. You know, so our cost position, we feel quite good about. At the same time, you know, there's cost pressure in other regions, you know, that have resulted, we believe, in better market conditions over in Europe.
The macro continues to be challenging over there, but some good sequential improvement in those markets over the last, you know, 12 to 18 months. Then in North America, you know, a lot of uncertainty, and I can tell you again from West Fraser's perspective, you know, we are just leaning into the things that we can control. You know, our, you know, our asset ramp up at Allendale, the work we've done at Chambord, the adjustments we made at High Level, all those things make our platform in OSB stronger and continue to push down costs, continue to give us the ability to navigate, you know, like Chris talked about the spike in resins costs or whatever comes our way. Hard to say on the market.
All I would say is, without any change, we're putting ourselves in a better position to compete.
Great. Thank you very much.
Thank you. Once again, should you have a question, please press star followed by 1 on your telephone keypad. Your next question comes from the line of Nikolai Goropich from CIBC Capital Markets. Please go ahead.
Hi. Good morning. Given the attractive margin dynamics for lumber in the U.S. South, do you suspect that meaningful production has already come back online across the industry in the region?
Good morning, Nikolai. You know, again, hard for, you know, for us to speculate on what others are doing. I'll only maybe speak to our platform and, you know, and we were navigating to the demands of our customers the last 2 quarters to the second half of last year. You know, as Matt touched on, things improved seasonally. We were able to respond to that. Saying that, our ability to add other than the ramp-ups we're in, the capital execution we're in, our operating excellence focus, you know, our ability to quickly react, you know, I think you saw that in Q1. You know, if you look compared to Q3 and Q4, you see the difference there.
You know, others may be in a little different spot, hard for me to speculate on that, but, you know, I know from our perspective we're gonna continue to be cautious and we, you know, haven't seen a fundamental change in the underlying fundamentals, so we'll continue to manage our business against that backdrop.
Great. I see. Any more color you could provide what you're hearing from customers regarding the health of our demand?
Might ask Matt to maybe comment on that.
Sure. I'd say, you know, customers, you know, are mixed. You know, I'd say you get some customers, thinking it's gonna be flat, others are more positive. I would say, you know, across the, the customer base, really kind of mixed visibility there. From what we see with our treated customers that we think are a decent lens into that market, you know, it remains subdued.
Okay, I see. Thanks. I'll turn it over.
Thank you.
Thank you. Your next question comes from the line of Matthew McKellar from RBC Capital Markets. Please go ahead.
Good morning. Thanks for taking my questions, and thanks to you for all the details so far, particularly on costs. I'd like to, I guess, follow on that theme just a little bit, but from a slightly different angle, and ask about capital equipment. Can you provide any perspective on if or how capital costs to build, or even maintain lumber and OSB mills in the U.S. specifically, may have evolved over the past few quarters, what with new tariffs and tariffs that have changed in scope and magnitude? Thanks.
Yeah. Good morning, Matthew. Maybe just a few comments on that. You know, first comment I would make is, you know, we've done a lot of work, a lot of capital work the last 3, 4 years, and we're really in the mode of operationalizing that capital and start up getting the benefit from all the money we've spent. Our exposure to some of those costs today are considerably less than they've been the last 2 years. You know, the 1 big project we have underway is Bemidji, and that equipment is largely delivered. You know, we're again, our exposure there is, we've very little exposure left on that project.
Saying that, I don't, I don't think it's fundamentally different today if you were gonna do a major project and then you add on the potential of steel and other tariff issues for equipment that comes from outside of the U.S. Pressure's probably higher, but we're largely into the operational phase of our capital program.
Great. Thanks. Thanks very much. Just one more from me. Appreciate I guess that diesel's pushing transportation costs higher pretty generally and that the impact remains hard to quantify. Are you seeing any actual scarcity of capacity beyond that that would potentially create any bottlenecks for you or your customers? Thanks.
Maybe I'll turn that one over to Matt.
Sure. Good morning. Yeah, I would say, you know, it's been a challenging market in freight market and I think if we look back to the end of last year, you know, there's been, you know, quite a few publications talk about, you know, the uptick in bankruptcies in trucking companies to end 2025. You know, I'd say logistics, you know, will always kind of correct to the size of the demand. You know, we've definitely seen a little bit more tightness and when you layer on top of as well, you know, end of Q1, early Q2 is a seasonally tight period for trucks anyway. You get uptick in produce and other things.
You know, you layer on a spike in fuel, and it's certainly created tightness in the market. You know, we're working with our vendors and our customers to try to continue to provide on-time shipments of our products every day.
Thanks very much for the color. I'll turn it back.
Thank you.
Thank you. There are no further questions at this time. I will now hand the call back to Mr. Sean McLaren for any closing remarks.
Thank you, Ina. As always, Chris and I are available to respond to further questions, as is Anil Aggarwala, our new Director of Treasury and Investor Relations. Thank you for your participation today. Stay well, and we look forward to reporting on our progress next quarter.
This concludes today's call. Thank Thank you for participating. You may all disconnect.