Forest Product Sector Poised for Earnings Season Amidst Shifting Market Dynamics Analysts at RBC Dominion Securities and TD Cowen offer insights into the upcoming first-quarter earnings season for North American paper and forest products companies. RBC highlights a preference for containerboard names due to rationalized capacity and projected high operating rates, while acknowledging favorable lumber price momentum driven by supply-side factors. TD Cowen anticipates a mixed earnings season, with a focus on cost inflation trends, particularly freight and chemical inputs, and their impact on demand throughout the year. Both firms adjust earnings estimates and provide outlooks on specific company performances and sector-wide themes, including geographic diversification and balance sheet management. As North America's paper and forest products companies gear up for their first-quarter earnings season, analysts are providing a nuanced outlook, with RBC Dominion Securities maintaining a positive stance on containerboard stocks. Analyst Matthew McKellar believes these names present attractive investment opportunities at current valuations. This optimism is underpinned by significant rationalization of North American containerboard capacity, with over 8% of capacity removed in 2025, predominantly in the latter half of the year. Consequently, RBC projects North American operating rates to remain robust, hovering in the mid-90s percentage range. McKellar anticipates healthier market conditions in North America overall and sees compelling setups across the sector, with reasonable valuations and ongoing self-help initiatives enhancing company performance. His preferred order within the coverage group is CAS, IP, and SW. The analyst also noted the strong performance of softwood lumber (SYP) prices, which averaged $433 per thousand board feet in the first quarter of 2026, a 13% year-over-year increase and significantly above RBC's initial estimate. Current SYP prices have reached $515 per thousand board feet, marking the highest level since April 2023 and considerably exceeding industry breakeven points. This price surge is primarily attributed to supply-side factors, including production curtailments, plant closures, and transportation challenges. Despite the current strength, producers are expected to exercise caution regarding incremental production increases after several challenging years, leading to an expectation of a modest easing in prices from their peak. McKellar's analysis extends to specific companies, with CAS's packaging business being highlighted for its direct exposure to the attractive North American market. He also views lumber price momentum positively, although his top picks in this segment remain large, liquid, North American-focused companies like WFG and WY, whose valuations reflect the prevailing demand uncertainty. In a notable shift, McKellar has downgraded Canfor Corporation to sector perform from outperform. This adjustment is based on the company's shares approaching his unchanged price target of $15 and the emergence of more attractive investment opportunities elsewhere in his coverage universe. LSEG data indicates the Street's average target for Canfor is $15.66. McKellar points out that Canfor's geographic diversification into the U.S. South and Europe could benefit its lumber segment, especially as British Columbia faces ongoing supply and demand imbalances, which are expected to persist as a difficult operating environment. While Canfor has rationalized less competitive facilities in BC, the long-term housing fundamentals are viewed as supportive for the company. The pulp business is also seen as well-positioned to meet Chinese demand for softwood pulp, leveraging its mills in Western Canada, though operating conditions in BC are anticipated to remain challenging. A potential relative scarcity of softwood pulp compared to hardwood pulp could offer pricing advantages, although substitution possibilities may limit the spread between the two. McKellar's top recommendations include CAS, DBM, and WFG in Canada, and IP, WY, and SW in the U.S. RBC's first-quarter estimates for 2026 project EBITDA ahead of consensus for CFP, IFP, WFG, and WY, while anticipating lower EBITDA than consensus for CAS, JHX, LPX, MERC, SLVM, and WEF. He suggests that consensus estimates may evolve as analysts incorporate recent market trends. Complementing this, TD Cowen analyst Sean Steuart also foresees a mixed earnings season for forest products companies. His primary focus for investors will be on directional commentary regarding cost inflation for the remainder of the year and its subsequent impact on demand. Steuart has lowered his 2026 and 2027 earnings estimates for most companies to account for higher cost assumptions, particularly in freight and chemical inputs. Key themes for the first quarter of 2026, according to Steuart, include positive quarter-over-quarter earnings momentum for wood-weighted equities, especially those with exposure to the U.S. South, where regional lumber and OSB prices have seen significant increases. IFP and CFP are identified as positive outliers compared to consensus, while MERC is a negative outlier. A crucial element for investors will be guidance related to cost inflation beginning to affect second-quarter 2026 results, with CLW and LPX appearing most vulnerable to higher energy costs. Continued emphasis on balance-sheet preservation, including measured capital expenditures and disciplined capital returns to shareholders, is also anticipated. Steuart's forecast adjustments for 2026 and 2027 include higher lumber price assumptions, with average annual increases of 9% in 2026 and 3% in 2027, driven by supply-related gains that have surpassed early 2026 expectations. He also factors in increased costs for energy and related inputs like freight and chemicals. Lower shipment forecasts for several commodities are projected due to a weakening mid-term demand outlook. Overall, the cumulative expected year-over-year EBITDA growth for TD Cowen's coverage set is estimated to be negative 32% in 2026 and negative 28% in 2027