Western Forest Products (TSE:WEF) reported modestly improved lumber pricing and seasonal demand in the second quarter of 2026, while adjusted EBITDA remained largely unchanged from a year earlier as lower shipment volumes and sharply higher duties and tariffs offset operational and sales-mix gains.
President and CEO Steven Hofer said the company continued to advance strategic investments, improve manufacturing performance and strengthen its balance sheet. However, he said persistently weak market conditions, high softwood lumber duties and tariffs, and British Columbia operating conditions will lead Western to curtail its Cowichan Bay sawmill for the rest of 2026.
Second-Quarter Results and Balance Sheet
Results benefited from improved lumber prices across multiple product lines, a stronger specialty-lumber sales mix, favorable harvesting conditions and a strong mix of external log sales, Nontell said. Those gains were primarily offset by a 25% reduction in lumber shipments, reflecting softer demand and sales lost following the Columbia Vista division disruption.
The company also faced substantially higher softwood lumber duties and tariffs. The combined duty and tariff rate was 45% in the second quarter, compared with 14% a year earlier.
- Specialty products represented 57% of second-quarter sales, up from 52% in the prior-year period.
- Manufacturing uptime reached 88%, compared with 87% in both the first quarter of 2026 and the second quarter of 2025. Hofer described the result as an all-time high for the company’s manufacturing operations.
- Harvest volume rose 35% from a year earlier, supported by improved permit approvals and favorable weather.
- Western ended the quarter with about 67 million board feet of lumber inventory and 622,000 cubic meters of log inventory.
Western collected C$22.8 million in Columbia Vista property insurance proceeds during the quarter and sold the Columbia Vista sawmill site for C$14.7 million in July. Nontell said the combined property insurance proceeds and site sale are expected to create approximately C$5 million in tax impact, payable in 2027.
Quarter-end net debt declined C$14.4 million from the end of the first quarter, while the net debt-to-capitalization ratio improved to 6% from 9%. The company continues to advance the planned C$80 million sale of its Stillwater Forest Operations, which it expects to close in the second half of 2026. Assuming completion of the remaining insurance and asset-sale items, management expects Western to end the year in a net cash position.
Cowichan Bay Curtailment and Production Outlook
Hofer said Cowichan Bay, which primarily produces Western Red Cedar products, will remain curtailed through the remainder of 2026. He said the mill’s principal market for knotty cedar products is the United States, where Western has reached what he characterized as a ceiling in its ability to raise prices enough to offset the current 45% combined duty and tariff burden.
Hofer said a meaningful reduction in duties and tariffs, including a negotiated settlement involving the softwood lumber agreement and Section 232 tariffs, would be needed to make the mill competitive in its core market for cedar decking, soffit and siding products.
The company has also had its Chemainus sawmill curtailed since early 2025, while Cowichan Bay was curtailed for most of the second quarter. Hofer told analysts that lumber shipments in the third and fourth quarters are expected to be broadly consistent with the first half. He added that Western can restart facilities quickly or add incremental hours at operating sites if market opportunities improve.
Capital Projects Target Kiln Capacity and Automation
Western expects total capital spending of C$45 million to C$50 million in 2026. That total includes about C$20 million for two continuous dry kilns, one thermal kiln at the company’s value-added division, and an auto-grader upgrade at the Duke Point planer facility.
Hofer said Western has completed commissioning its second continuous dry kiln and thermal kiln. The company now operates three modern continuous dry kilns on the British Columbia coast with combined capacity of 206 million board feet. The investments are intended to support higher-margin kiln-dried lumber production, reduce drying costs and expand the company’s global customer base.
Senior Vice President of Sales, Marketing and Manufacturing Bruce Alexander said the kiln projects provide enough capacity to dry all of the company’s dryable fiber, a capability it did not have before the investment. He also said improved control over the drying process has increased product outturns and added value to the company’s product mix.
Nontell said Western uses internal return thresholds above 20%, and that the kiln projects are expected to exceed 40% internal rates of return relative to their capital costs.
At Duke Point, Western is investing C$4.1 million in a new AI-enabled auto-grader at its planer facility, with commissioning expected in early 2027. Hofer said the technology will provide more precise grading than manual processes and complements automated grading technology already installed at the Duke Point sawmill. The company expects the project to improve grade recovery, productivity and costs.
Market Conditions and Timberlands Operations
Alexander said North American lumber markets are expected to remain relatively stable through most of the third quarter. Housing affordability, elevated interest rates, higher fuel costs and broader economic uncertainty have weighed on consumer confidence and housing demand, he said. Reduced lumber supply across North America has helped offset weaker demand and supported price stability in key categories.
Japan’s lumber demand improved as housing starts gained momentum in the second quarter and port inventories declined, with the market expected to remain stable in the third quarter. In China, softwood lumber demand is expected to soften during the third quarter as seasonal weather and high temperatures reduce construction activity.
Western entered the third quarter with an order file of approximately 118 million board feet. Nontell cautioned that hot and dry weather can constrain logging activity during the third quarter, affecting harvest levels and costs. While Western had not experienced significant forest fires in its operating areas, he said summer conditions could still affect harvesting.
Hofer said improved permitting reflected the company’s work on long-term relationships with First Nations and integrated resource-management planning. He said the company has gained better visibility into its permit outlook, though further work remains.
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.
