How will the 12% production cut impact Interfor's Q4 earnings and cash flow forecasts?

Impact on Q4 earnings and cash flow

A 12 % production curtailment (≈ 145 MM bf) will shave roughly the same percentage off Interfor’s Q4 revenue, assuming price per board‑foot stays flat. At FY‑24’s average realized price of ~ US$560/MBF, the cut translates to a near‑US$80 M revenue loss for the quarter. However, the reduction also trims variable operating costs—primarily log purchases, mill labor, and energy—by a comparable margin. Interfor’s cost‑of‑goods‑sold (COGS) historically runs ~ 65 % of revenue, so the cut could preserve ~ US$52 M in expenses, narrowing the earnings hit to roughly US$30 M (≈ 10 % of Q4 EBITDA). Because the company still carries a sizeable fixed‑cost base (depreciation, SG&A), the net‑income impact will be muted relative to the headline revenue dip, but earnings per share (EPS) is likely to miss consensus forecasts by 5‑8 cents.

Cash‑flow dynamics are more favorable. The production cut reduces cash outflows for log purchases and mill operating cash requirements, while the company continues to collect on existing inventories. Assuming the same cash conversion cycle, the net operating cash flow should improve by roughly US$35‑40 M versus a “run‑rate” scenario, bolstering the Q4 free‑cash‑flow outlook. Management’s guidance will likely reflect a modest upside to cash‑flow targets, offset by a lower top‑line, and the market may price in a slight earnings shortfall but a healthier liquidity position.

Trading implications

• Short‑term: Expect a modest sell‑off on the earnings release as analysts adjust EPS forecasts downward. Technicals show Interfor trading around its 20‑day EMA (≈ CAD 30.5) with a bearish divergence on the MACD; a breach below the CAD 30 support level could trigger a 2‑3 % intra‑day decline.
• Medium‑term: If the company confirms that the cut improves cash generation without sacrificing market share (e.g., by maintaining price stability in a still‑tight lumber market), the stock could rebound toward the 50‑day EMA (≈ CAD 32) and test the prior high of CAD 34. Consider a buy‑the‑dip position with a stop just below CAD 29.5, targeting a 12‑15 % upside over the next 4‑6 weeks as the market digests the stronger cash‑flow narrative.
• Risk: A further softening in housing starts or a sustained price decline would exacerbate the earnings miss and could pressure the stock deeper. Monitor lumber price indices (e.g., S&P Global Platts Softwood) and inventory trends for early warning signals.