Matthew McKellar

Matthew McKellar inquired about the potential impact of Lenzing's production scale-up at the Trevis textile facility on Sylvamo's Nymölla operations and fiber costs. He also asked for details on the scope and expected benefits of the lean management and digital transformation initiatives, including required investments and the rationale for starting in Latin America. Additionally, McKellar questioned the pause in share repurchases during the quarter.

Answer

SVP and CFO Don Devlin clarified that Lenzing's project will not impact Sylvamo's fiber costs at Nymölla. CEO John Sims described the lean transformation as an employee-driven initiative aiming to double continuous improvement in cost reduction and customer satisfaction, focusing on loyalty, flexibility, and reduced lead times, with high expectations for impact, though not yet quantified in dollars. Latin America was chosen to lead due to its past success with lean tools. Don Devlin explained the pause in share repurchases was a prudent decision given anticipated 2026 cash flows, capital intensity, and inventory build, noting $155 million was returned to shareholders in 2025.

Matthew McKellar asked about the potential impact of Lenzing's scaled production at the Trevis textile facility on Sylvamo's fiber costs and operations at Neenah. He also sought to understand the scale of opportunity for Lean management and digital transformation in terms of profits or capital efficiency, the required investments, and the rationale for initiating these efforts in Latin America. Finally, he questioned the decision to pause share repurchases in the quarter.

Answer

Senior Vice President and CFO Don Devlin clarified that Lenzing's project would not impact Sylvamo's fiber costs at Neenah. SVP and CFO John Sims explained that the Lean transformation aims for employee-driven continuous improvement, targeting a doubling of cost reductions and enhanced customer satisfaction through increased flexibility, reduced lead times, and improved order delivery. While specific dollar quantification is difficult, expectations are high. Latin America was chosen as the starting region due to its historical success in utilizing Lean tools. Don Devlin addressed the pause in share repurchases, stating it was a prudent decision given the anticipated cash flows, capital intensity, and inventory build planned for 2026, noting that $155 million was returned to shareholders in 2025, representing 350% of free cash flow.

Matthew McKellar from RBC Capital Markets asked for details on the capability upgrades at the Saillat mill, the levers available to reduce wood costs at the Nymolla mill, the expected financial impact and timeline for these European improvements, and observations on shifts in global trade flows.

Answer

Chairman and CEO Jean-Michel Ribiéras stated the Saillat upgrade is a new winder to increase specialty roll sales. COO John Sims added that levers to reduce wood costs at Nymolla include direct sourcing, importing lower-cost wood, and improving yield, with a target of at least a 10% reduction. Ribiéras noted a plan for significant improvement in European profitability by 2026. Regarding trade flows, Sims mentioned pre-buying in North America ahead of potential tariffs and lower pulp prices in Europe due to reduced demand from China.

Matthew McKellar inquired about the upgrades at the Saillat mill, the levers for reducing wood costs at the Nymolla mill, the expected financial impact and timeline for European improvements, and the specific shifts in trade flows that are materializing.

Answer

Chairman & CEO Jean-Michel Ribiéras detailed that a new winder at Saillat will enable a shift to higher-value specialty rolls. He also stated the goal for the European business is to return to its cost of capital by 2027. SVP & COO John Sims added that levers to reduce Nymolla's wood costs include direct sourcing, importing cheaper wood, and improving yield, with a target of at least a 10% reduction. Regarding trade flows, Sims noted increased pre-buy imports into the U.S. and falling European pulp prices due to lower demand from China.

Matthew McKellar from RBC Capital Markets inquired about the potential impact of hypothetical U.S. tariffs on Canadian and Mexican goods, Latin American demand trends for 2025, the nature of the Q4 slowdown in North American commercial printing, and the operating cost impact of the new woodyard partnership.

Answer

CEO Jean-Michel Ribiéras stated that the impact of potential tariffs is difficult to assess and depends heavily on unknown retaliatory measures. CFO John Sims noted that Latin American demand, particularly for textbooks in Brazil, is improving and will follow typical seasonal strengthening. Sims characterized the North American commercial printing slowdown as temporary, not systemic. Ribiéras clarified the woodyard deal's main benefits are capital avoidance and improved reliability, with a minor direct impact on operating costs.

Matthew McKellar of RBC Capital Markets asked for details on the 2025 European maintenance schedule, the potential market impact of the EU Deforestation Regulation (EUDR), and the company's capital allocation strategy regarding share buybacks versus special dividends.

Answer

CEO Jean-Michel Ribiéras explained that European mills have outages scheduled for the first half of 2025, costing around $40 million. Regarding the EUDR, he stated that while details are pending, it could be a net positive for European producers. Ribiéras reiterated the capital allocation strategy of maintaining a strong dividend, with share repurchases remaining an attractive option.

Matthew McKellar asked about the conditions, such as lumber price increases or sawmill demand, needed to create significant tension and price movements in Western sawlog markets. He also inquired about the expected impact of expanding buffer zones around non-fish-bearing streams in western Washington on log markets, and how current elevated log inventories in Southern mills compare to normal levels.

Answer

CEO Devin Stockfish explained that Western log markets are fundamentally tensioned, and log prices will follow lumber prices with a short lag. He stated that Weyerhaeuser's scale and expertise would allow it to navigate Washington state regulatory changes without meaningful impact. He described Southern mill log inventories as slightly elevated (e.g., 8-10 days vs. 7-8 normal), which can be quickly worked through.

Matthew McKellar asked about the specific conditions or price increases in Western lumber markets needed to create significant tension and price movements in Western sawlog markets. He also inquired about the expected impact of expanded buffer zones around non-fish-bearing streams in Western Washington on log markets. Additionally, he sought clarification on how current elevated log inventories at Southern mills compare to normal levels for this time of year.

Answer

CEO Devin Stockfish stated Western log markets are fundamentally tensioned, and log prices strongly react to lumber price increases, with a potential 1-2 month lag. Regarding Washington state regulatory changes, he expects no meaningful impact on Weyerhaeuser due to its scale and expertise, noting ongoing lawsuits. He clarified that 'elevated' Southern mill inventories mean 8-10 days instead of the typical 7-8 days, noting they can be worked through quickly with weather events or increased lumber demand, primarily impacting near-term pricing aggression.

Matthew McKellar questioned the potential medium-term impact of Section 232 tariffs on timberland valuations and asked if the planned Q2 maintenance for the OSB business was pulled forward from later in the year due to market conditions.

Answer

CEO Devin Stockfish responded that he does not expect Section 232 tariffs to have a meaningful near-term impact on timberland valuations, as they are long-term assets valued over decades, not short-term policy shifts. He also clarified that the Q2 OSB maintenance was part of the original annual plan and was not pulled forward, as such activities are scheduled well in advance.

Matthew McKellar of RBC Capital Markets asked about the drivers for the expected higher unit manufacturing costs in OSB for Q1, despite higher sales volumes. He also requested details on the portfolio integration benefits of the new Timberstrand (LSL) facility.

Answer

CFO David Wold explained that the higher Q1 OSB costs are due to anticipated upticks in input costs like energy and resins. CEO Devin Stockfish detailed the new LSL facility's integration benefits, which include creating more tension in the local fiber market (as 80% of feedstock will come from Weyerhaeuser timberlands) and generating logistics savings by optimizing log flow within that specific wood basket.

Matthew McKellar asked about the potential role of European lumber imports in 2025 if U.S. demand increases and about the potential for a lithium mining revenue stream from company land in the U.S. South.

Answer

CEO Devin Stockfish acknowledged European imports are a variable but noted that reduced Russian supply and dwindling salvage wood in Central Europe might limit the magnitude of future inflows compared to pandemic levels. Regarding lithium, he confirmed a significant overlap between Weyerhaeuser's land base and known deposits and that conversations are ongoing, but stated it is too early to quantify the opportunity.

Matthew McKellar asked if the projected 2% outperformance against the North American industry in 2026 is based solely on customer wins from H2 2025, or if it includes further anticipated gains. He also inquired about potential upside to this number given improved service quality.

Answer

Chairman and CEO Andy Silvernail confirmed that the 2% outperformance is based on business with line of sight today, specifically customer wins secured in 2025 that will impact 2026. He noted that major incremental wins are not required to meet this target. Mr. Silvernail added that any additional local business wins throughout the year would represent an upside opportunity.

Matthew McKellar asked if the expected 2% outperformance versus the North American industry in 2026 is based solely on customer wins secured in the second half of 2025, or if it includes further anticipated share gains. He also inquired about potential upside to this outperformance figure.

Answer

Chairman and CEO Andy Silvernail confirmed that the outperformance expectation is based on business with clear line of sight today, primarily from wins secured in 2025 that will impact 2026. He noted that national business operates on contract cycles, while local business is more day-to-day. He added that any incremental business won throughout 2026 would represent an upside to the current projections.

Matthew McKellar requested details on the anticipated CapEx and return profile for the new Waterloo greenfield box plant and asked if the productivity improvements from the initial 'lighthouse' plants are expected to be replicated as the program scales.

Answer

Executive Andrew Silvernail said that while specific CapEx for the Waterloo plant will be detailed at the upcoming Investor Day, he expects cash-on-cash returns of around 20%. He affirmed his expectation for similar productivity results as the lighthouse program scales, noting the gains are driven more by optimizing the volume-mix matrix and isolating complexity than by heavy initial capital investment.

Matthew McKellar asked if the box plant specialization strategy exists within the DS Smith system and about the opportunity to apply it there. He also inquired about the strategic review of the Global Cellulose Fibers (GCF) business, including options other than a sale, valuation thoughts, and the process timeline.

Answer

Chairman and CEO Andy Silvernail praised DS Smith's commercial capabilities and noted that while productivity opportunities exist, they will be different from those at IP, partly due to Europe's market structure. Regarding GCF, he confirmed that while all options are being evaluated, a sale is the most likely outcome given robust interest. He declined to speculate on value but emphasized that GCF is a strong business whose performance will improve regardless of ownership.

Matthew McKellar asked if the box plant specialization strategy could be applied to the DS Smith system and inquired about the strategic review of the Global Cellulose Fibers (GCF) business, including options beyond a sale, valuation, and timeline.

Answer

Chairman and CEO Andy Silvernail stated that while DS Smith is commercially advanced, there are opportunities to apply these principles, though likely fewer 'density plays' exist in Europe. Regarding GCF, he confirmed that while all options are evaluated, a sale is the most likely outcome due to robust interest. He declined to speculate on value but emphasized that GCF is a strong business with a leading position in fluff pulp, and its performance will improve significantly regardless of ownership.

Matthew McKellar asked about the evolution of conditions in Canadian markets, including demand differences between the U.S. and Canada, and competitor behavior following higher U.S. duties and tariffs. He also inquired about future CapEx projections beyond 2025 and the current state of the Cowie facility after the fire incident.

Answer

SVP of Sales and Marketing Matt Tobin described the Canadian market as competitive but smaller than the U.S., with no unusual changes in competitor behavior. EVP and CFO Chris Virostek stated that 2026 CapEx guidance would be provided in February, noting that significant capital has been spent on major projects, with a current focus on operationalizing them. Chris Virostek confirmed that the Cowie facility has been repaired and is back up and running, with some "green shoots" of improvement in the European segment.

Matthew McKellar asked about the evolution of Canadian market conditions, demand differences between the U.S. and Canada, and competitor behavior post-U.S. duties/tariffs. He also inquired about the CapEx outlook for 2026, considering the Henderson project, and the current state of the Caribou Pulp facility after the fire.

Answer

Matt Tobin, SVP of Sales and Marketing, noted the Canadian market remains competitive but is smaller and doesn't drive demand, with no unusual competitor behavior. Chris Virostek, EVP and CFO, stated that with major projects wrapping up, the focus shifts to operationalizing them, with 2026 CapEx guidance due in February. Chris Virostek, EVP and CFO, confirmed the Caribou Pulp facility was repaired, back up and running, and is showing signs of improvement in the European segment.

Matthew McKellar from RBC Capital Markets asked if West Fraser is observing any pre-buying or inventory accumulation of SPF lumber in the U.S. in anticipation of higher duty rates and, if not, when such activity might begin.

Answer

SVP of Sales and Marketing Matt Tobin responded that the company has not seen a noticeable change in customer purchasing patterns. He noted that uncertain economic outlooks typically do not lead to increased buying, and it is difficult to speculate on how customers will react to new duties as they are currently focused on meeting immediate demand.

Matthew McKellar from RBC Capital Markets inquired whether there were signs of pre-buying or inventory accumulation of U.S. SPF lumber ahead of anticipated higher duty rates and when such activity might begin.

Answer

SVP of Sales and Marketing Matt Tobin responded that the company has not observed a noticeable change in customer purchasing patterns. He noted that in uncertain economic environments, customers are typically focused on meeting immediate demand rather than building inventory, making it difficult to speculate on future buying behavior related to duties.

Matthew McKellar sought more detail on the 'subdued' demand in the repair and remodeling (R&R) market during Q1 and into early Q2. He also asked for an update on the status of SPF log inventories following weather-related disruptions.

Answer

SVP of Sales and Marketing, Matt Tobin, explained that the company's best view into R&R is through its treated lumber customers, and demand there has been subdued for several quarters with no significant shift to start Q2. President and CEO Sean McLaren addressed log inventories, acknowledging that warm weather in Western Canada resulted in lower-than-expected log deliveries. He noted the impact was managed between Q1 and Q2 and was not material to the company's overall results.

Matthew McKellar from RBC Capital Markets inquired about West Fraser's expectations for British Columbia's timber sales program review, sought a cost breakdown for the Q4 headwind in lumber and EWP, and asked for reasons behind the increased CapEx forecast for the Henderson project.

Answer

President and CEO Sean McLaren expressed hope for improved fiber access and stability from the BC government's review, highlighting West Fraser's own initiatives. CFO Christopher Virostek detailed the Q4 cost headwinds, attributing them to a one-time pension adjustment, silviculture costs in lumber, and planned maintenance in EWP. McLaren explained the Henderson CapEx increase was due to unexpected civil work from heavy rains and higher electrical installation costs.

Matthew McKellar asked if big-box customers are seeking to secure larger lumber volumes for 2025, requested more detail on cost-saving initiatives in the U.S. South, and inquired about the extended shutdown at the Caribou pulp mill.

Answer

SVP and CFO Christopher Virostek indicated that while 2025 planning with customers is ongoing, volumes remain adjustable based on market conditions. President and CEO Sean McLaren elaborated that cost savings in the South are driven by shifting volume to modernized mills and projects focused on improving recovery, grade, and productivity. He explained the Caribou mill shutdown was extended by two weeks to complete additional capital projects and to manage fiber supply through the winter months amid regional sawmill curtailments.

Matthew McKellar from RBC Capital Markets asked about the competitive landscape for Siding, questioning if vinyl is still the primary source of share gains or if other materials like brick are now under more pressure. He also asked if higher lumber prices could meaningfully benefit LP's ability to compete against sawn wood siding.

Answer

CEO Brad Southern responded that while there is an opportunity to convert from brick, the biggest opportunity for share gain remains vinyl siding conversion across all end markets. He agreed that higher prices for solid sawn lumber would be an advantage for LP's trim business, but noted that contractors who switch to their engineered wood trim rarely convert back, regardless of price.

Matthew McKellar of RBC Capital Markets asked about LP's competitive positioning against other substrates. He questioned if vinyl siding remains the primary source of market share gains or if materials like brick are now under more pressure. He also asked if higher lumber prices could benefit LP's competition against sawn wood siding.

Answer

CEO Brad Southern stated that while there is an opportunity to convert from brick, the most significant opportunity remains taking share from vinyl siding. He also noted that while higher solid sawn lumber prices would be an advantage for LP's trim business, contractors who have already converted to their engineered wood trim rarely switch back, regardless of price.

Matthew McKellar asked for an update on how margins for the ExpertFinish product line are trending relative to the rest of the Siding business. He also inquired about the potential impact on the competitive landscape from a competitor's merger with a composite decking manufacturer.

Answer

CFO Alan J. Haughie acknowledged that ExpertFinish margins are currently a 'slight drag' on the segment but views this as a future opportunity for improvement as the product line matures. CEO William Southern expressed confidence in LP's product quality and value proposition, stating he sees no new competitive risk from the transaction and that the company has a long runway for growth.

Matthew McKellar from RBC Capital Markets asked about the timing of the next Siding capacity expansion after Houlton, the potential margin trough during this investment cycle, and other improvements sought from capital investments.

Answer

CEO William Southern confirmed plans for parallel expansion projects. CFO Alan Haughie suggested that due to LP's increased scale, margins are unlikely to see a significant trough. Southern also highlighted that future projects, potentially designed as greenfield Siding mills, offer opportunities for step-changes in manufacturing efficiency.

Matthew McKellar noted the Q4 Siding revenue guidance implies a sequentially weaker quarter than historical trends and asked for clarification. He also inquired about the materiality of the South American modular housing investment.

Answer

CFO Alan Haughie explained the Q4 guidance reflects a return to more normal pre-COVID seasonality and active management of demand ahead of the January price increase, contrasting with 2023's abnormal patterns. CEO Brad Southern added that the South American investment is a long-term strategic play to drive wood-frame construction and will not have a material near-term volume impact.

Matthew McKellar of RBC Capital Markets inquired about the timeline for approving the new dissolving wood pulp fluff product in China, its potential EBITDA impact, the spending and timing for the $30 million structural cost reduction initiative, and the execution timeline for the turnaround plan at the Temiscaming facility.

Answer

President and CEO De Lyle Bloomquist explained that the new fluff product is currently undergoing customer trials in China, with commercialization expected in 2026 to recapture market share lost to tariffs. He clarified that the $24 million in capital for cost savings will be spent mostly in 2025 to realize the full $30 million benefit in 2026. For the Temiscaming facility, he detailed that new product qualifications are underway and expects to realize the 'lion's share' of the $35 million benefit in 2026.

Matthew McKellar asked for details on the fluff pulp market amid Chinese tariffs, including customer cost absorption and diversification potential. He also inquired about the evolution of Cellulose Specialties (CS) volumes after recent trade announcements and the outlook for the paperboard segment's 2025 guidance, pricing, and Q1 mix impacts.

Answer

President and CEO De Lyle Bloomquist explained that the fluff pulp market is dynamic, with RYAM pivoting sales to non-tariff regions like India and the Middle East, while considering shifts to viscose or paper pulp if necessary. He noted that CS volumes were impacted by customer pre-ordering and a pause in April, but orders have resumed, suggesting an exemption from tariffs, though destocking may affect Q2. For paperboard, the initial tariff risk did not materialize, but pricing is expected to decline about 5% due to new market capacity, and the Q1 mix was hurt by a loss of share in the high-margin lottery business.

Matthew McKellar asked for more color on the 2025 outlook for Cellulose Specialties (CS) volumes, including acetate destocking and ethers demand drivers, trends in other CS grades, and the strategy for mitigating paperboard tariffs by shifting sales to Canada.

Answer

President and CEO De Lyle Bloomquist stated that global acetate destocking continues with an unclear timeline, impacting volumes by a mid-single-digit percentage. Ethers demand is improving, driven by food and pharma. He also noted strength in nitrocellulose and filtration grades. To mitigate tariffs, RYAM aims to convert 30,000 tons of paperboard to Canadian domestic sales in 2025, focusing on quick wins in commercial print while pursuing longer qualifications for packaging grades.

Matthew McKellar of RBC Capital Markets asked for a holistic view of the demand environment for acetate and other cellulose specialties (CS) heading into 2025. He also inquired about the implementation of announced CS price increases and the potential magnitude of future capitalized repair spending at the Jesup facility.

Answer

President and CEO De Lyle Bloomquist described acetate as a stable business and noted that while other CS products have some softness, the shutdown of a competitor's plant has significantly boosted RYAM's sales. Regarding 2025 pricing, Bloomquist stated it was too early to provide specifics but reiterated the company's 'value over volume' strategy. On the Jesup repairs, he explained that it's too early to estimate costs as investigations are ongoing. CFO and Senior VP of Finance Marcus Moeltner added that pricing discussions often culminate during London pulp week.

Matthew McKellar of RBC Capital Markets asked about catalysts for a pulp price recovery later in the year and the potential financial impact and capital commitment for the Peace River carbon capture project. He also inquired about the wood products business, including Torgau's US market capabilities, the sales mix impact from Canadian duties, and the expected timeline for a mass timber revenue rebound.

Answer

CEO Juan Carlos Bueno projected a pulp price recovery in late 2025 driven by restocking and tight softwood supply. He detailed the Peace River carbon capture project could generate over $100 million in annual revenue with a net capital outlay for Mercer under $100 million after grants and JV structure. He also confirmed Torgau is supplying the US market, which benefits from Canadian duties, and noted the mass timber order book is growing with smaller projects, with a significant rebound expected in 2026.

Matthew McKellar of RBC Capital Markets asked about the expected evolution of the lumber market and potential mitigation strategies if significant Section 232 tariffs are introduced. He also sought perspective on which end markets have seen the most softwood-to-hardwood pulp substitution.

Answer

Executive Juan Bueno explained that rising countervailing duties on Canadian lumber will already make German lumber more competitive in the U.S., mitigating potential tariff impacts. He added that the Torgau mill is increasing its U.S.-bound lumber production. On substitution, Bueno stated that based on customer feedback in tissue and specialties, most possible substitution has already occurred over many years, and any further shifts are marginal and not game-changing.

Matthew McKellar of RBC Capital Markets asked for the longer-term (2-3 year) outlook for fiber costs in Germany and inquired about the strategy for the mass timber business given the muted 2025 outlook and the potential impact of steel tariffs.

Answer

Juan Bueno (Executive) stated that over a 10-year horizon, German fiber supply is expected to be sufficient, with the main change being a shift in tree species rather than a reduction in overall volume. For the mass timber business, he projected 2025 sales would be similar to 2024 at around $100 million, but likely less profitable due to a higher mix of smaller projects. Bueno also detailed a tariff mitigation strategy, which involves dedicating specific North American facilities to serve U.S. and Canadian markets independently, thereby avoiding cross-border tariffs.

Matthew McKellar inquired about the competitive environment for mass timber projects amid high interest rates and the outlook for the North American supply-demand balance in the space. He also asked what level of interest rate relief would be the tipping point to move stalled projects forward.

Answer

Executive Juan Bueno explained that the mass timber market is growing over 20% annually and remains competitive against concrete and steel. While high interest rates are delaying some projects, the company's order book is growing, and they anticipate a boom in 2026. Bueno suggested that mortgage rates falling to the 4% range would likely be the tipping point to unlock financing for these projects, with a noticeable impact on construction activity expected in the second half of 2025.

Matthew McKellar of RBC Capital Markets inquired about the top integration priorities for the AZEK acquisition within the first 6 to 12 months to ensure the successful achievement of targeted commercial synergies.

Answer

CEO Aaron Erter emphasized that the most critical priority is people. He stated the focus will be on putting the right people in the right positions, ensuring high retention, and clearly communicating priorities to them. He expressed high confidence in the combined talent of the James Hardie and AZEK teams.

Matthew McKellar from RBC Capital Markets asked about the trend in trim attachment rates in North American new residential construction. He also questioned if the threat of U.S.-Europe tariffs would accelerate plans for building fiber cement capacity in Europe.

Answer

CEO Aaron Erter stated that the focus on 'full wrap' solutions in new deals with large homebuilders is inherently increasing trim attachment rates. Regarding Europe, he explained that the company must first prove its new high-value product strategy is successful before substantiating a major capital investment like a new fiber cement plant.

Matthew McKellar of RBC Capital Markets asked about the key strategies for deepening relationships with homebuilders in North America and for accelerating material conversion in the Repair & Remodel (R&R) market, particularly in the Northeast and Midwest.

Answer

CEO Aaron Erter highlighted the importance of delivering value to homebuilders, citing the new exclusive agreement with Meritage Homes as a prime example of their successful partnership strategy, supported by a robust local manufacturing network. For R&R, Erter pointed to investments in the contractor alliance program and targeted branding to simplify the homeowner's journey, noting that leading indicators for brand awareness and contractor engagement are positive.

Matthew McKellar from RBC Capital Markets inquired about the significance of logging and hauling labor constraints, the relative attractiveness of using New Zealand sale proceeds for share repurchases, and the specific drivers of non-timber income in the South for 2025.

Answer

Douglas Long, Executive Vice President and Chief Resource Officer, explained that while labor is a constant concern, productivity improvements have kept pace and companies with strong logger relationships would have an advantage in a demand surge. He also affirmed that share buybacks remain a compelling use of capital, noting the company's recent activity under a 10b5-1 plan and significant remaining authorization. Regarding non-timber income, he clarified that the expected year-over-year decline is primarily due to exceptionally strong pipeline easement revenue in the prior year, with hunting licenses and land-based solutions being other key components.

Matthew McKellar of RBC Capital Markets inquired about the impact of Hurricane Helene-related salvage timber on market pricing and Rayonier's harvest volumes, and also asked for the company's outlook on the 2025 timberland M&A market.

Answer

EVP & Chief Resource Officer Douglas Long explained that salvage volume from the hurricane has created significant pricing headwinds expected to persist through the first half of 2025. President & CEO Mark McHugh added that this is the primary factor muting the 2025 price outlook for the U.S. South. Regarding M&A, Mr. McHugh stated that demand outstrips supply, but given Rayonier's cost of capital, the company views buying back its own stock as a more compelling way to acquire timberland assets.

Matthew McKellar asked for an update on the strategic review of Rayonier's New Zealand business and the company's approach to further dispositions to meet its $1 billion target. He also inquired about the 2025 outlook for the Chinese log market, specifically regarding European supply and Chinese stimulus measures.

Answer

President and CEO Mark McHugh stated that the evaluation of the New Zealand joint venture is an ongoing and lengthy process with no new updates. He added that with 75% of the disposition target met, the company will be opportunistic about any further sales. Executive Vice President and Chief Resource Officer Douglas Long commented on the China log market, noting that reduced European supply has increased New Zealand's share, but higher shipping costs have been a headwind. He described the demand outlook as 'steady as she goes,' with some potential from government stimulus.

Matthew McKellar of RBC Capital Markets inquired about the impact of potential tariffs on imports, the quarterly shift in paperboard sales mix, the company's strategy for expanding into new substrates like CRB, and the progress on cost savings and Augusta acquisition synergies.

Answer

Arsen Kitch (executive) explained that while import data is dynamic, the company could be a net beneficiary of tariffs due to its domestic focus and that the quarterly sales mix shift was likely due to normal customer shipment timing. Regarding expansion, he outlined criteria for potential M&A and noted that new lightweight product development would be a mix shift on existing assets. Sherri Baker (executive) detailed the expected ramp-up of cost savings in Q2 and clarified that achieving the full Augusta synergy target is dependent on both volume and a return to normalized market margins.

Matthew McKellar of RBC Capital Markets inquired about several key areas, including the potential volume and ramp-up timeline for a new long-term supply agreement. He also sought clarification on the 2025 outlook, specifically the timing of cost-saving benefits and how improved operating performance would offset headwinds. Additionally, McKellar asked about the potential market impact of U.S.-Canada tariffs, the company's appetite for more aggressive share repurchases, and current demand trends across different product categories to start the year.

Answer

Executive Arsen Kitch explained that the new supply agreement is factored into 2025 assumptions and is expected to fill the 150,000-200,000 tons of open capacity at the Augusta mill over several years. He detailed that 2025 improvements will come from operational performance, fewer weather disruptions, and $30-$40 million in cost reductions. On tariffs, Kitch noted the main impact would be higher input costs, which Clearwater would aim to pass through to customers. He described the share repurchase program as opportunistic, with the primary focus remaining on asset investment and balance sheet strength. Kitch also confirmed that customer demand conversations are positive, with food service demand currently more robust than folding carton. Executive Sherri Baker added that cost savings would be modest in Q1, ramping up in Q2 and realizing the bulk of the benefit in the second half of the year.

Matthew McKellar inquired about the potential investments in lighter-weight paperboard, the strategy for an unbleached product to compete with CUK, details on the fixed cost reduction plan, the success of recent pricing actions, and the financial impact of Hurricane Helene on Q4 guidance.

Answer

Executive Arsen Kitch explained that investments to use more mechanical and recycled pulp are small to medium-sized projects aimed at creating a lighter-weight product while maintaining SBS quality. He noted that exploring an unbleached product is a way to diversify and serve the independent converter market. Regarding costs, Kitch outlined a plan to achieve over $50 million in annualized savings by reducing fixed costs by 10% and targeting SG&A at 6% of sales, with $30-40 million expected in 2025. He declined to comment on specific pricing but pointed to the forecasted $40-50 million negative price/cost impact in 2025. Executive Sherri Baker added that an additional $2-3 million hurricane impact is embedded in Q4 guidance and confirmed no impact from port strikes.

Matthew McKellar requested color on the cedar log markets in Idaho and asked for the company's view on the potential medium-term impact of Section 232 tariffs on timberland valuations.

Answer

Executive Wayne Wasechek explained that higher cedar prices in Idaho are being driven by specific regional demand from customers who are short on cedar inventory. President and CEO Eric Cremers commented that the impact of potential Section 232 tariffs on timberland valuations is difficult to speculate on, as it would depend heavily on the size and duration of any implemented tariff.

Matthew McKellar from RBC Capital Markets requested more detail on the company's forest carbon initiatives, including project design and sales timeline, and asked for an update on when to expect clarity on lithium royalty rates in Arkansas.

Answer

Executive Wayne Wasechek explained that the company is developing a high-quality carbon project, but its complexity means a market launch is not expected until late 2026. Regarding lithium, he stated that the timeline for a decision on royalty rates from the Arkansas Oil and Gas Commission remains uncertain, though a resolution is hoped for by year-end. The opportunity's value is highly dependent on both the final rate and volatile lithium prices.

Matthew McKellar of RBC Capital Markets inquired about the company's capital spending plans for 2025. He asked about priorities for other potential high-return projects in the Wood Products portfolio now that the large-scale Waldo project is concluding.

Answer

President and CEO Eric Cremers explained that PotlatchDeltic is continuously evaluating ways to improve its P&L through high-return capital projects, which could include both large-scale initiatives and smaller, discrete equipment replacements. However, he stated that it was too early to comment on specific plans for 2025 as the budgeting process has not yet been completed.

Matthew McKellar of RBC Capital Markets requested more detail on what specific quality and service improvements entail. He also asked about the timing of cost savings from the recently announced headcount reductions.

Answer

CEO Tony Smurfit defined service improvement by specific metrics: achieving nearly 100% on-time-in-full (OTIF) delivery and a defect rate below 500 parts-per-million (PPM). CFO Ken Bowles clarified that the financial benefit from the recent 800-person headcount reduction was mostly captured in 2024, with minimal carryover into 2025.