Limited impact of US tariffs on wood producers
The series of new US tariff announcements include 50% tariffs on ~5% imports from Canada, a 25% tariff on Brazilian imports and 10–12.5% tariffs on virtually all trading partners. The new tariff suites apply to more categories, with the latest possible impact on Canadian exports appearing to be in paperboard and plywood. Although plywood will see some direct impacts (table), public companies in Canada have little exposure. US plywood producers should benefit from lower Brazilian uncoated woodfree imports, although the team expect incremental impact on the names in their coverage universe. Given the inflationary impact on freight/personal transportation from the Iran war, persistently high rates, and escalating domestic energy costs, the team are cautious on the housing market outlook and underlying consumer demand. They see limited benefit to US producers from these latest tariff machinations, with some producers benefiting from one category but hurt by another (e.g., Sylvamo Corp, Rayonier Advanced Materials Inc).
Materials
SLVM's singular focus on the uncoated freesheet market positions it to gain from capacity rationalisation while strengthening its competitive edge through high-return capital projects. In the 3 years of operations since its spinoff from International Paper, SLVM has generated a total shareholder return of 150% and adjusted FCF of $920m, while debt has fallen $725m. The company has a top-tier management team driving its long-term strategy and despite the secular decline in UFS, Sidoti expects SLVM will continue to reinvest in its business to grow cash flow and earnings. TP $93 (45% upside).
Materials
Spun-out from International Paper Company last month, John Sims (CFO) and Gregory Gibson (Senior VP) have wasted no time in materially boosting their stakes - John Sims purchased $646,000 of stock at $30.46, increasing his holding by 44%. He previously made six non-option sells of IPC in the four years prior to the spin-out and never made a purchase. Gregory Gibson purchased $574,000 of stock on the same day, increasing his holding by 80%. These large purchases shortly after the spin-out are very encouraging. Stock Ranking +1 (highest rating).
