Interfor Faces Negative EBITDA, Aims for a Brighter 2025

Interfor Corporation (IFP), a prominent lumber producer, faced a difficult second quarter, reporting a negative adjusted EBITDA of $17 million due to declining lumber prices. Nonetheless, the company is implementing strategic measures to better position itself for a more favorable market in the years ahead. As of the end of the quarter, Interfor maintained a net debt-to-invested-capital ratio of 35% and available liquidity of $331 million, reflecting a robust financial health. During the earnings call, management highlighted several operational adjustments and discussed current market conditions, underscoring a cautious capital allocation strategy and a commitment to operational efficiency.

### Key Takeaways
– Interfor’s adjusted EBITDA was a negative $17 million for Q2.
– The company is reducing log and lumber inventories while curtailing low-margin mills.
– A net debt-to-invested-capital ratio of 35% and liquidity of $331 million emphasize the company’s financial stability.
– Anticipated tax refunds of $59 million and expected net proceeds of $70 million from asset sales are on the horizon.
– Planned capital expenditures have been reduced to $70 million.
– Management highlighted the negative effects of increased logging duties and the potential for market supply shortages.

### Company Outlook
– Interfor aims to enhance operations with an optimistic outlook for 2025.
– The plan includes curtailing production at low-margin mills, which will account for approximately 15% of its total volume.
– Executives anticipate industry supply reductions and a rebalancing of supply and demand.

### Bearish Highlights
– The lumber market remains weak, negatively affecting financial results.
– Capital expenditure projects are curtailed due to unfavorable market conditions.
– Log costs may be impacted by weather events, such as Tropical Storm Debbie.

### Bullish Highlights
– Industry inventory levels are at the lower end of historical ranges, indicating a market ready for restocking.
– A market shift is expected to facilitate restocking as customer inventories align more closely with demand.
– Stability in interest rates could boost consumer confidence and demand.

### Misses
– Repair and remodel sales declined, with non-treating down by 4-6% and treating down by 5-7%.
– Multifamily construction starts have decreased, influenced by sensitivity to interest rates.

### Q&A Highlights
– Executives discussed how increased duties on Canadian lumber affect pricing.
– Production curtailments are primarily occurring in the U.S., with one-third happening in Canada.
– Demand remained stable in Q2, with strong single-family housing starts.
– The company is focused on reducing financial leverage and maximizing cash flow.

Overall, Interfor Corporation is navigating a challenging market while maintaining a long-term perspective aimed at improving its standing. Through prudent financial management and strategic operational modifications, the company is preparing to emerge stronger as market conditions evolve. Despite facing current challenges, management remains dedicated to aligning supply with demand and harnessing market shifts to secure future success.