Canfor's Q2 Was Better-But the $65 Million Hit Means Don't Celebrate Too Early

Canfor Q2 improved, but it was a turnaround quarter, not a reset

Canfor's second quarter was clearly better than the first, but it still looks more like operational recovery than a clean balance-sheet reset. The main question now is whether the company can convert that operating improvement into cash before the cleanup costs hit.

The numbers improved sequentially

Canfor posted adjusted operating income of $24 million in Q2, versus an adjusted operating loss of $93 million in Q1. In lumber, adjusted EBITDA in lumber was $145 million, up $116 million from the prior quarter. That improvement was backed by improved North American pricing, better volumes, and cost gains. Lumber EBITDA rose to CAD 145 million in Q2, including CAD 37 million of EBITDA from Europe.

Liquidity improved, but the cleanup is still coming

The quarter also improved the cash position. Available liquidity improved by $215 million in Q2. That is helpful, but it does not erase the planned write-downs and restructuring costs. If the cash benefits from Q2 continue, the recovery case gets stronger. If they fade, this was a better quarter rather than a durable reset.

The rebound looks grounded in demand, not accounting

This quarter improved for reasons that matter. The lumber segment did not just look better on paper; the operating mix suggests real demand and better utilization.

Better pricing, shipments, and costs across regions

The rebound came from improved North American pricing, higher shipments, and cost improvements. In practical terms, that points to firmer demand, better plant performance, and improved throughput.

Europe adds useful confirmation. Adjusted EBITDA (European Lumber): $37 million, helped by moderately higher pricing, increased shipments, and modest log cost relief. Seeing improvement across multiple markets makes the operating bounce look more credible.

Tighter supply and seasonal demand supported modest improvement in lumber benchmark prices, and management said results were solid across all lumber operating regions. That broad-based improvement is a good sign that the quarter reflected real operations rather than a narrow accounting effect.

PinkWood and pulp kept the picture balanced

The PinkWood acquisition adds value-added products that are not subject to current tariffs. That does not rescue a weak core business, but it can improve earnings quality if the main lumber business keeps improving.

Pulp and paper still weighed on the results, posting a CAD 12 million adjusted EBITDA loss because of weak global pulp pricing, elevated inventories, and maintenance downtime. That kept the quarter from looking artificially clean and reinforced the view that the recovery is still centered in lumber.

Canfor is becoming smaller in some places while the core stabilizes

The cleanest way to describe Canfor right now is smaller, not fixed.

Closure decisions are arriving now

Canfor said it will close Northwood Pulp Mill later this year, and management had earlier announced the permanent closure of the Urshult and Orrefors sawmills in southern Sweden. Fox Creek is also part of that rationalization. In other words, Canfor is still cutting broken assets rather than completing a tidy restart.

The costs are close to hand. Management expects about CAD 30 million in Northwood restructuring costs and a CAD 35 million Fox Creek impairment charge in Q3. Taken together, that is roughly $65 million of hit before the benefits are fully visible.

Why the benefits likely arrive later

Management expects the Northwood closure to reduce costs, lower capital intensity, and improve Intercon's long-term positioning, with benefits expected primarily from 2027 onward. That timing matters. The near-term story is still about execution and balance-sheet management, not an immediate rerating.

What to watch in Q3

The balance sheet still looks workable. Canfor ended Q2 with approximately $1.2 billion in liquidity and net debt excluding duty loan of $316 million. That is not a pristine position, but it gives the company room to navigate the cleanup.

What would confirm or weaken the view

Confirms - Lumber demand remains broad-based, with CAD 37 million of EBITDA from Europe still contributing. - Cleanup costs stay contained and broadly in line with expectations. - Capital spending remains disciplined at about CAD 210 million for 2026.

Weakens - Pulp keeps underperforming after its CAD 12 million adjusted EBITDA loss. - Liquidity stops improving as cleanup costs rise. - The operating bounce fades as improved North American pricing and higher volumes weaken.