Canfor Corp

TSX:CFP

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen. Welcome to the Canfor and Canfor Pulp Second Quarter Analyst Call. A recording and transcript of the call will be available on Canfor's website. During this call, Canfor and Canfor Pulp's Chief Financial Officer will be referring to a slide presentation that is available in the Investor Relations section of each company's website. Also, the companies would like to point out that this call will include forward-looking statements so please refer to the press releases for the associated risk of such statements.I would now like to turn the meeting over to Mr. Don Kayne, Canfor and Canfor Pulp Chief Executive Officer. Please go ahead, Mr. Kayne.

[Donald B. Kayne, President, CEO & Director]

Thanks, operator, and good morning, everyone. Thanks for joining the Canfor and Canfor Pulp quarter 2 2018 results conference call this morning. I'll make a few comments before I turn things over to Alan Nicholl, our Chief Financial Officer for both Canfor Corporation and for Canfor Pulp. Alan will provide a more detailed overview of our performance in Q2. Joining Alan and I today are Peter Hart, our Vice President of Pulp and Paper Sales and Marketing; Kevin Pankratz, Senior Vice President of Lumber Sales and Marketing; and Stephen Mackie, our Senior Vice President of Canadian Operations. Beginning with Canfor Pulp, the company generated another record high quarterly operating income of $85 million in the quarter, just slightly higher than the prior record set in Q1 of this year. The company also set a record for sales with net $396 million recorded in the quarter.Pulp demand and pricing continued to be strong globally and we had a strong operational quarter and strong shipments as we reduced inventory levels that built up in Q1. Looking towards the back half of the year, we see markets as balanced with some seasonal summer weakness in China potentially impacting pricing. We continue to expect good pricing levels through the remainder of the year. In the operations, we are planning for a 28,000 tonne outage at our Northwood mill for scheduled maintenance, which will be started in late September. Moving to our lumber business, we also set historical records for operating income and revenue at $203 million and $1.1 billion, respectively. The quarter saw significantly higher production and sales revenues compared to a very challenging Q1 as weather conditions improved and pricing moved sharply higher.Transportation network slowly returned to normal service levels and some of the inventory built up in the prior quarter was released. We anticipate the remaining inventory will be liquidated by the end of the third quarter. North American demand remained strong and combined with some constrained shipments, we realized significant pricing increases throughout the end of May before seeing some expected reductions in June. Demand for offshore markets continue to be solid. However, they have not achieved North American price levels due to the typical lag we experience in those markets. Our outlook for the remainder of 2018 is a continuation of strong markets although we do expect to see a moderation in pricing over the summer in the typically slower period and our supply networks normalize.Our 350 million board foot organic capital program remains on track to be completed by the end of 2019. The spending includes large sawmill rebuilds at Camden and Moultrie, a new planer at Fulton and a continuous dry kilns at Darlington and Urbana. In regard to our previously announced greenfield mill, we continue to work to resolve the contractor issue and we believe we are close to resolving this issue and we'll update again when we are able to. Finally, in regards to the softwood lumber agreement, there have been no significant developments on the negotiation of a settlement since last quarter as Canada works through its appeals with the ITC and the WTO.I will now turn it over to Alan to provide an overview of our financial results.

[Alan R. Nicholl, CFO & Executive VP of Finance]

Thanks, Don, and good morning, everyone. As usual, my comments this morning will focus principally on our financial performance for the second quarter of 2018 by reference to the previous quarter and full details of our results are contained in the Canfor and Canfor Pulp news releases, both of which were issued yesterday afternoon. As always, you will find an overview slide presentation on both the Canfor and Canfor Pulp websites in the Investor Relations section under webcasts. The presentation highlights consolidated and segmented results and I will be referring to this presentation during my comments., For the second quarter of 2018, Canfor reported shareholder net income of $170 million or $1.32 a share, up from net income of $112 million or $0.87 a share reported for the first quarter of 2018 and up from net income of $81 million or $0.61 a share reported for the second quarter of 2017.On Slide 3 of the presentation, we highlight various non-operating items net of tax and non-controlling interests, which affected comparability of the results between the quarters. In the second quarter, these items totaled $44 million, the largest being expense relating to countervailing and anti-dumping duty deposits of $38 million compared to $26 million recorded in Q1. After adjusting for these items, shareholder net income for Q2 2018 was $214 million or $1.66 a share compared to $145 million or $1.13 a share for the first quarter. As highlighted on Slide 4 of the presentation, the lumber segment reported operating income of $203 million for Q2, up $78 million from the previous quarter. After adjusting for the CVD and ADD expense, lumber operating income for Q2 was $255 million, up $94 million from a similarly adjusted operating income of $161 million in Q1.As Don noted, North American lumber demand was solid across all segments of the market in the second quarter. Shipments were up 13% quarter-over-quarter reflecting the strong demand as well as the draw-down of inventory as transportation networks improved following the weather-related challenges that we saw in the previous quarter. Lumber sales realizations in the second quarter were higher for both Western SPF and Southern Yellow Pine with average benchmark 2x4 prices up USD 85 and US 23 respectively with the aforementioned solid demand and supply constraints earlier in the year contributing to sharp price increases in the first part of the quarter. Realization also benefited from the weaker Canadian dollar. Lumber production was 6% higher than the previous quarter, largely reflecting productivity gains in Western Canada following the Q1 weather-related challenges as well as the benefit of recent capital investments in the U.S. site.Unit manufacturing costs in the current quarter were slightly higher with stable log costs and productivity gains at our Southern Pine operations largely offsetting higher market-based stumpage and purchase wood costs in Western Canada. For the remainder of the year, we expect to see continued price pressure on lower cost in this region. Canfor's pulp and paper segment comprises the results of Canfor Pulp Products Inc. As highlighted on Slide 6 of our presentation, the company reported record high net income of $63 million or $0.97 a share for Q2. This compares to net income of $64 million or $0.99 a share for the first quarter. As Slide 6 highlights, Canfor Pulp's Q2 financial performance reflected the continued strength of global softwood pulp markets with pricing holding at near record highs. Pulp shipments were up 6% from the previous quarter reflecting the strong market demand and an easing of transportation issues through the second quarter.Our NBSK pulp mills had another solid quarter. Overall pulp production in Q2 was down 5% reflecting completed scheduled outages at our PG pulp mill and our Taylor BCTMP mill. The latter included extended down time associated with the startup of the previously announced energy project. Unit manufacturing costs were modestly higher than the previous quarter with seasonally lower energy prices and usage more than offset by market-driven increases in fiber costs and costs relating to our scheduled outages. Operating income for the paper segment in Q2 was $2 million, down $1 million from the previous quarter as higher slush pulp costs driven by the stronger NBSK pulp prices more than offset improved unit sales realizations that we saw in the quarter. Capital spending in the second quarter totaled approximately $88 million with $62 million in the lumber business and $25 million in Canfor Pulp.The company continues to execute on this USD 125 million organic growth program in the U.S. site and, as Don mentioned, remains on schedule to be completed by the end of next year 2019. For 2018, our forecast of capital spend for lumber is approximately $260 million for lumber and $90 million for pulp. Consistent with the prior quarters, Canfor Pulp's Board of Directors approved the continuation of a quarterly dividend of $0.625 per share for the second quarter. And at the end of Q2, Canfor excluding Canfor Pulp had net debt of $40 million with available liquidity of $354 million. Canfor Pulp had net cash of $188 million with available liquidity of $99 million. Net debt-to-total capitalization, excluding Canfor Pulp, was just under 1%. And on a consolidated basis, net cash-to-total capitalization was almost 8% as cash balances exceeded outstanding debt.And with that, Don, I'll turn the call back to you.

[Donald B. Kayne, President, CEO & Director]

Thanks, Alan. And operator, we are now ready to take questions from the analysts.

[Operator]

[Operator Instructions] Your first question is from Hamir Patel from CIBC Capital Markets.

[Hamir Patel]

Don, there's been some talk in the press about a potential strike by sawmill workers in the BC Interior. Could you maybe just comment how you're feeling about the labor situation there and how much of the BC Interior capacity is potentially affected?

[Donald B. Kayne, President, CEO & Director]

I don't for sure, Hamir. We've been working on that for some time here of course. And maybe Stephen, you can give an update because I know you're real close to that, to Hamir.

[Stephen MacKie, Senior Vice President of Canadian Operations]

Yes, the -- as we've seen in the press, we've got 4 of our operations that are participating through the Association of Conifer in the negotiation process with USW. And as reported there, the USW has chosen to go to their membership and seek a strike mandate and take a strike vote. It's a normal part of the bargaining process from our perspective and we remain confident that we'll be able to reach an agreement ultimately that will be fair and reasonable in terms of -- for our employees that are represented by the USW and the Association of Conifer.

[Hamir Patel]

And maybe just a question for Peter on the pulp side. Given the strong market conditions, I was curious are you seeing any of your customers seeking to accelerate their 2019 contract negotiations? And how do you feel about discounts for next year? It seems like that they'll be going up every year. Just wondering if you think next year may be different?

[Peter Hart, Vice President of Pulp & Paper]

To answer your first question, we are seeing some negotiations earlier than in the past. So, already in May and June we started to have initial discussions for 2019 with some customers. As it pertains to discounts, don't think it's really appropriate for me to signal whether or not I think they'll be going down or not.

[Hamir Patel]

And maybe just a final question on the lumber side. We're hearing some reports of Chinese environmental restrictions coming, which may encourage more of their manufacturing capacity to move further inland closer to the Russian border. Are you seeing customers shift away from Canadian SPFs?

[Donald B. Kayne, President, CEO & Director]

Kevin, why don't you comment on that?

[Kevin Pankratz, Senior Vice President of Sales & Marketing]

Hamir, no, we haven't seen that and those environmental reports for sure have been noted. But for SPF production, our demand from China remains intact and pretty solid and we have a pretty positive outlook for the balance of the year.

[Donald B. Kayne, President, CEO & Director]

We put a significant increase, Hamir, in Q2 even over Q1 shipments to China. And I think the other encouraging thing, which we've talked about several quarters now, is not only are we -- we're much more focused now in terms of the quality of the products that we're shipping there as opposed to the volume of the products and we've been successful -- quite successful actually in terms of making some solid inroads in terms of more specialty products from certain number of our mills that are able to produce the kind of high quality and some of the industrial applications that are required there. So, quite the opposite.

[Operator]

Your next question is from Sean Steuart from TD Securities.

[Sean Steuart, Research Analyst]

I'll start with capital allocation and I feel like we go through this every call, but your approach has differed from your largest competitor. You guys haven't bought back any stock at either the parent or Pulp company level this year. Can you give us an update on how you're thinking about discretionary capital allocation and the lack of activity on buybacks versus an aggressive CapEx plan? How you're thinking about prioritizing your balance sheet and your capital structure over the mid-term?

[Donald B. Kayne, President, CEO & Director]

And maybe I'll speak about Canfor for sure and then maybe, Alan, you can speak a little bit more specifically about Canfor Pulp because we spent quite a bit of time on that as well. But just on the -- as you said and mentioned, Sean, accurately, we think we've been pretty consistent and have a pretty balanced strategy in terms of capital allocation on the Canfor side for starters. And recognizing your comments there on one of our competitors' activity on buybacks. But in terms of ourselves from Canfor's point of view here, we still focus as a priority on the sustaining capital and we're continuing to do that and making sure that both in Canada as well as in the U.S. that the mills that we've spent capital on that we're continuing to keep them in the top quartile. As you know, we were quite far behind 7, 8, 10 years ago in that respect. And we spent a lot of time, a lot of effort, a lot of money to get us to where we are today. So we'll continue to do that across the fleet of mills, no question. Secondly is in terms of organic growth, we're looking at continuing to do that, Alan mentioned in his comments of the USD 125, 350 million organic program in the south and we're also looking at some opportunities elsewhere as well. Particularly in BC, we've got some areas that we need to do some things on over the next while here and we'll be -- stay tuned on that because we will be speaking more about that over the months and quarters to come here. In addition to that is the buybacks and we continually look at that. We were pretty active last year as you know, but we're not going to chase it either and so -- but it's definitely something that we look at on a regular basis and compare in terms of when it's worthwhile doing that. And then the last thing is M&A and again, we've been consistent there and we talk about that and it's been a valuation issue for a while now. However, that being said, it's still something that is on the drawing board and it's something that we've said before that in our strategy we want to -- we would like to have a larger footprint and a bigger foot -- or a bigger footprint in the U.S. particularly and that's still the case today. So that in terms of Canfor, that's pretty consistent and we know clearly our balance sheet's in good shape and we've got some flexibility, but that's frankly what we've been trying to achieve. So in terms of Canfor Pulp because that's got -- a few more wheels are turning. So maybe, Alan, you can talk a bit about that.

[Alan R. Nicholl, CFO & Executive VP of Finance]

Listen, clearly a lot of what happens at Canfor Pulp reflects similar thinking to Canfor. We have the luxury of a very strong balance sheet as everybody sees. And as I think I mentioned last quarter, we're very focused on how we might capitalize on balance sheet strength. We have lots of effort in undertaking and looking at internal organic opportunities, a lot are in the fiber optimization side of things as well so looking at external growth and diversification opportunities, traditional energy related as well. Probably won't have clarity on that until close to the end of the year, Sean, as far as that goes. In terms of our other capital projects, as you may recall, we announced close to $40 million water treatment project that will really kick in next year as well. And then in terms of share buyback, dividends; l I think the dividend as you've seen, it continues to be at $0.0625 level. Clearly, we'll have to factor in all options available to us by the end of the year as we look at that capital allocating effort. And then in terms of share buyback, just very quickly, clearly we've been quite consistent until last quarter or 2. We're taking a bit of a pause there, but always keep an open door to looking to extract value for shareholders when the opportunity provides.

[Sean Steuart, Research Analyst]

I guess the broader question is, Alan, you referred to it as a strong balance sheet. Some will call it an inefficient balance sheet. I guess the question is how long are you comfortable sustaining overcapitalized balance sheets for both companies?

[Alan R. Nicholl, CFO & Executive VP of Finance]

So in terms of Canfor Pulp, I mean, I think -- again, it's a little bit more of the same message coming from us here, Sean. I mean I think we don't apologize for maintaining a very strong balance sheet given that we still are very much participating in a commodity market, commodity play clearly. But at the same time, we do recognize that it's important we try and make that cash work. We just want to be patient and diligent around how we look to optimize that cash.

[Donald B. Kayne, President, CEO & Director]

Maybe just to add a little bit, Alan, to that too, Sean, is we work several years and it's hard to get to this stage in terms of having a fairly strong balance sheet. And with valuations where they're at, we also want to make sure that we have cash available when things do start -- valuation start to make more sense from an M&A standpoint as well and have that cash available. So, we're not maybe as concerned as some around that, frankly. And the other -- the one thing I didn't touch on too and I should have was around Washington. That's another area that we committed -- that we are committed to as well and we [indiscernible] on that because that's another several million dollars. We hope that we'll have -- as we move through this quarter. By the end of this quarter Q2, we are expecting to have a decision in terms of timing on that and so forth. But we do expect to start construction sometime towards the end of the second quarter in 2019 -- early summer of 2019. That's the plan today and we expect that that's what we'll be able to deliver on.

[Sean Steuart, Research Analyst]

Okay. One other quick question, guys. I was surprised by the magnitude of the drop in pulp inventories this quarter and in the preceding quarters, it didn't look like you built up that much inventory. Can you speak to how tight things are for you or were for you at the end of the second quarter? I presume there will be an inventory build ahead of the shut in September this year, but maybe just speak out to how your supplies are on the pulp side right now?

[Donald B. Kayne, President, CEO & Director]

Maybe Peter or Alan can talk a bit about that.

[Peter Hart, Vice President of Pulp & Paper]

So certainly our second quarter, we had excellent sales volumes. We had virtually no slippage out of the month. In most months, you get some slippage from quarter-to-quarter. We had virtually no slippage and at the same time, we were able to invoice and ship all of the pulp that was slowed down from Q1 due to transportation issues.

[Alan R. Nicholl, CFO & Executive VP of Finance]

And Sean, just to add to that. Clearly shipments were higher in Q2. And in terms of looking forward, I would say to your point, Q3 will reflect the downtime that we talked about. So if you -- as some guidance if you average Q2 and Q3, you're going to get to kind of a more normal shipment level for 2018.

[Sean Steuart, Research Analyst]

And Alan, just finally, that maintenance shut that starts in September, does it carry into October as well?

[Alan R. Nicholl, CFO & Executive VP of Finance]

No, it should be done by the end of September.

[Operator]

Your next question is from Paul Quinn from RBC Capital Markets.

[Paul C. Quinn, Analyst]

A question, I know you haven't tied down everything on this greenfield expansion, but it's been 5 months since you announced it and in the interim, we've had duties coming on steel and aluminum, which probably is going to affect the CapEx. So, just wondering if you can confirm that it's still going to be $120 million and whether it's going to take place in Georgia?

[Donald B. Kayne, President, CEO & Director]

I know for sure and I mean clearly as you outlined there, there's definitely some inflation there for sure. We haven't -- I think safe to say it's going to be higher first of all. No question about that. The degree that it's going to be higher though, we haven't got that nailed down yet and that's part of the work that we're actually undertaking right now with the firm that we've engaged to help us with that. And that's part of why it's taken a little bit longer than we expected is from some of the delivery times and some of that inflation that you speak about. But I think it's absolutely safe to say it's going to be higher than $120 million.

[Paul C. Quinn, Analyst]

Okay. And then just it's taken you guys 5 months to renegotiate that and you're still not done. There's lots of people that believe that capacity adds in the industry are pretty easy right now. Maybe you could talk to you've been dealing with just about all the equipment manufacturers, their lead times and how easy it is to bring on capacity?

[Donald B. Kayne, President, CEO & Director]

I'm not sure. Can you -- maybe I missed on the last part, Paul, I apologize.

[Paul C. Quinn, Analyst]

Just wondering from your perspective, you've obviously talked to all the equipment vendors. What's your sense of their order files? How easy it is for somebody to do a greenfield project in North America right now?

[Donald B. Kayne, President, CEO & Director]

Maybe I'll get Stephen to comment on that because I know you're working on that with a bunch of those suppliers already.

[Stephen MacKie, Senior Vice President of Canadian Operations]

So I think, I mean it sounded like you're maybe suggesting that capacity adds are relatively easy. I'm not sure I would -- maybe I misheard you there, but not sure I would really agree with that. I think that the industry is very busy. Obviously we've talked about, Don outlined our organic growth plans and all the sustaining CapEx work that we're doing both in Canada and in the U.S. We are seeing vendor lead times getting quite extended out there. I think suppliers in the industry are all very busy and there's limited options on good equipment suppliers and installation contractors. So I think that the capacity additions, seen a lot of announcements out there and we're seeing some challenges in having that capacity added come on in the industry. So, I think the lead times are north of 12 months. If you're talking about a greenfield project, it'd be 12 to 18 months.

[Paul C. Quinn, Analyst]

To clarify, I actually think it's going to be very difficult to add capacity. Maybe just moving on to pricing realizations and the lag, Don, you were talking about with Asia. Now that we've got North America prices falling, is Asia going to catch up and surpass North American pricing?

[Kevin Pankratz, Senior Vice President of Sales & Marketing]

I mean we've had some quite inflationary pricing in North America, which we alluded to that the Asian markets have been lagging on that capacity there. But it's -- when you start getting down to the product mix as we talked about, more higher value products there, it's sort of delinks a little bit from the core and better product, but we do see a lot of the low grade that's been going there. That's going to be in line with the -- with our price projections and I think we're -- I think that come into play there so. But then the other big part there to, there's other parts in Asia like Japan where we see material quarter-over-quarter price improvements that are consistent with the North American price growth. So there's lots of different moving parts there, but overall we're going to see I think a positive trend moving forward.

[Donald B. Kayne, President, CEO & Director]

One thing, Paul, I might add. And Kevin, you've talked about this before too and we've seen it more than we've usually seen it, is a really positive and consistent reaction in Japan, which continues to surprise us in terms of how strong it's been on the volume side, Paul. But I think more importantly, what we're more concerned about is on the price lag that you speak to and we've seen some significant support with our Japanese customer base, which is mostly a direct customer base in terms of wanting to get more J grade and are prepared to step up and pay the price. And so we've really seen some -- really encouraged actually by the reaction by some of our Japanese customers and the progress that we've made there and we worked hard at it over many years, but starting to see that there. And to some degree even in China too, but not to the same degree as what we've seen in Japan and some other emerging markets.

[Kevin Pankratz, Senior Vice President of Sales & Marketing]

Yes, some of the Southeast Asian markets.

[Donald B. Kayne, President, CEO & Director]

So for what that's worth, that might be helpful.

[Paul C. Quinn, Analyst]

And just lastly, I mean if North America continued to get sloppy here, do we have the ability or do you guys have the ability specifically to move more volume into Asia, is the demand is quite strong there?

[Donald B. Kayne, President, CEO & Director]

On a SPF standpoint?

[Paul C. Quinn, Analyst]

Yes.

[Donald B. Kayne, President, CEO & Director]

I think so I mean without question and that's our focus. I mean maybe we've shared this number before, but it's a critical number and a key number and it's one we've worked on a long time is this year will probably be less than 50% of our production going into the United States. So, that's the type of diversification that we've been working on for several years and this will really be the first year that will be under 50% and that's with less low grade as well. So it's not like this increase in overseas is coming and the low grade is coming with products that are more higher value and ones that we've really been focused hard on to get recovery out of an improving log mix that we're getting.

[Operator]

Your next question is from Mark Wilde from BMO.

[Mark William Wilde, Senior Analyst]

Let me just start off on this capital allocation issue by saying given the volatility in your end markets and given the volatility in stock prices, I don't mind you guys having an inefficient balance sheet for a while. Very tricky to always have a perfectly efficient balance sheet in this kind of a business. But moving from there...

[Donald B. Kayne, President, CEO & Director]

So, you can stop right there if you want.

[Mark William Wilde, Senior Analyst]

I first would like to kind of continue on Paul's questions around Asia. Is it possible to get a little update on what you're doing on these Asian imports out of the Southern U.S. because this is really a pretty important fundamental development if you can keep this going?

[Donald B. Kayne, President, CEO & Director]

And I'll let Kevin talk specifically because we've been putting a lot of effort into that and just -- but just to frame it is we're looking at Yellow Pine and the opportunity in export. We talked about this for many quarters and our view actually has been pretty consistent that we think we can get up to close to 20% or more in the offshore markets and we've typically been sitting at 1% or 2% as everyone was down in the U.S. But opportunities are increasing for sure and not just in China, but in several areas and I'll let Kevin speak to it because it's a pretty exciting area of growth opportunity because the quality of fiber down there continues to improve with the money that everybody's invested particularly on the drying side and the finishing side. But Kevin, why don't your update Paul -- sorry, Mark, some of the things that you've been working on?

[Kevin Pankratz, Senior Vice President of Sales & Marketing]

So actually this year, we've been quite active in the Asian markets on Yellow Pine and really focusing on some of the higher value products there that our profile really help support. And it's not just China, it's a cross section from all the different countries in Southeast Asia, Japan and into China. So, we've got 5 or 6 different new trials that have just been materialized this quarter that we feel quite optimistic on. And I think the customers over there also realize that Southern Yellow Pine is one of the areas in the world where there's going to be a supply response to meet growing demand for lumber. So, we think there's a lot of good traction there. And as we alluded to with new drying technology and with the volume coming on and the quality of the fiber, we think it's a really good fit to expand into the Asian markets and even into India as well.

[Mark William Wilde, Senior Analyst]

Okay. I wondered then just toggling over for a minute to the pulp market. It seems like NBSK and CTMP are kind of moving in opposite directions right now. So I wondered if you could just -- somebody there could give us a little color on the differences between those 2 markets and what you're seeing right now.

[Donald B. Kayne, President, CEO & Director]

Maybe I'll let Peter maybe add some color there.

[Peter Hart, Vice President of Pulp & Paper]

BCTMP, the price reduction in the BCTMP site was actually back in January timeframe. It's been relatively stable since then. On the NBSK side, we're seeing some current summer weakness in Asia, which could potentially impact prices. On the other hand though we're seeing strong demand from other markets, which is balancing out to some degree as we look forward into September when you're already looking at the fall maintenance starting then.

[Mark William Wilde, Senior Analyst]

Okay. And Don, can you talk with us a little bit about just sort of what you're seeing in terms of properties available in the Southern lumber business right now? You mentioned valuations have been very rich. I think everybody agrees on that. But are there many sellers out there right now?

[Donald B. Kayne, President, CEO & Director]

I mean it's hard to know for sure because we haven't been really active out there or looking either. In terms of -- but definitely on -- certainly on a monthly basis, we are getting interest put to us and so we're seeing probably a little bit of an increase there, but not a lot, but a little bit compared to what it was say 12 months ago. But again valuations are still high and so we've looked at a few, but so far we haven't been able to connect there and get anything done here of any magnitude. So far maybe a little bit -- improved a little bit in terms of more interest, but not material.

[Mark William Wilde, Senior Analyst]

And finally, can you talk about whether you would look at investing capital in other regions in the lumber business or in other product areas?

[Donald B. Kayne, President, CEO & Director]

2 questions on the geography part of it first of all. I mean I think that -- yes, I mean I think so. I mean we would look at it and depending on where, the key will be in terms of any decisions that we make to expand outside of North America state for example, I think that's maybe what you're alluding to, would just be -- would have to be a very, very significant strategic fit. In other words, something that could really add complementary product mix and also talent too from a human resource standpoint. Then perhaps we would look at that, but it would have to be something obviously very significant fit with our overall strategy, which is diversification and really focusing on higher value products and getting out of this commodity business, which is as you know so volatile. In terms of product, you mentioned...

[Mark William Wilde, Senior Analyst]

Products, yes.

[Donald B. Kayne, President, CEO & Director]

I think that's a really good question and something that we're always really thinking about, I wouldn't want to comment too much on this call about it. But right now, we preferred to be really the customized suppliers to some of those vertical integrated opportunities that I think you're talking about such as CLT would be one maybe that you're maybe thinking about. So up to now, we've really preferred to be a customized supplier to those ventures. Down the road, is that something we would look into? I'm not sure.

[Operator]

Thank you. There are no further questions at this time. Please proceed.

[Donald B. Kayne, President, CEO & Director]

Thank you very much, operator, and thanks for everyone that was on the call. And we look forward to talking to you at the end of quarter 3, Have a good summer.

[Operator]

Ladies and gentlemen, this concludes your conference call today. We thank you for participating and ask that you please disconnect your line.