Financial Reports & Markets
Cascades announces record sales for Q2 2019
August 9, 2019 – Cascades Inc. has reported its second-quarter financial results, citing an increase in sales and operating income over both Q1 2019 and the year-ago period.
Sales were $1.27 billion, compared to $1.23 billion in Q1 2019 and $1.8 billion in Q2 2018. Operating income was $82 million, compared to $72 million in Q1 2019 and $73 million in Q2 2018.
“Cascades delivered record quarterly sales and adjusted OIBD that were in line with expectations in the second quarter. All our segments executed well,” says Mario Plourde, president and chief executive officer of Cascades, in a release. “Tissue results were supported by favourable input costs and selling prices and better operational performance, notably at the St. Helens mill in Oregon, containerboard packaging performance reflected lower OCC prices and good operational flexibility within a context of softer demand and pricing pressure, while European Boxboard and Specialty Products results benefited from recent business acquisitions.
“On the strategic front, we announced the acquisition of substantially all of the Orchids Paper Products assets in early July. This move provides compelling optimization opportunities for our tissue platform while reinforcing the operational foundation of this segment’s U.S. consumer product business. Furthermore, the addition of these assets accelerates our ongoing tissue modernization plan.”
Analysis of results
Sales of $1,275 million increased by $95 million, or eight per cent, compared to the same period last year, attaining a record level for the second quarter. Specifically, tissue sales increased by $34 million or 10 per cent, reflecting a higher average selling price, a more favourable sales mix and exchange rate, partially offset by slightly lower volume following the previously announced closure of two paper machines in Ontario.
European boxboard sales increased by $38 million, or 16 per cent, compared to the prior year. This was largely driven by the business acquisition in Spain at the end of 2018, which served to more than offset less favourable selling price and mix and Canadian dollar-euro exchange rate. The specialty products segment generated an 18 per cent or $29 million sales improvement year-over-year, reflecting 2018 acquisitions and improved pricing, sales mix and volumes on the packaging side. Combined, these benefits more than offset lower results from the recovery and recycling sub-segment due to price erosion of recycled material.
Sales in the containerboard packaging group decreased by $13 million or three per cent year-over-year. This was entirely driven by lower volume, which more than mitigated the benefits of a more favourable exchange rate and sales mix, while average selling prices were stable year-over-year.
“On the containerboard side, analysis of the Bear Island conversion project in Virginia is advancing, with added time being taken to determine the optimal structure to successfully execute the project and to minimize risk,” says Plourde. “We expect to provide additional information by the end of the year.”
Cascades generated an operating income before depreciation and amortization (OIBD) of $154 million in the second quarter of 2019. This compares to the $131 million generated in the same period last year. This reflects higher average selling prices, a more favourable sales mix and lower raw material prices in the tissue and containerboard segments. In the case of both segments, these benefits were partially offset by lower volumes during the period.
Tissue results also benefited from ongoing efforts to realign the financial performance by reducing costs and improving execution. This segment also recorded $4 million of prior-year U.S. tax credits during the second quarter. Business acquisitions completed in the last 12 months contributed to the year-over-year improvements generated by specialty products and European boxboard. Results in the specialty products segment also benefited from volume and selling price improvements in packaging sub-segments compared to the prior year, the benefits of which offset lower recovery results attributable to raw material pricing erosion.
On an adjusted basis, second-quarter 2019 OIBD stood at $156 million, versus $134 million in the prior year.
Near-term and strategic outlook
Discussing the outlook for Cascades, Plourde says, “Near-term results in the containerboard business segment are expected to improve both sequentially and year-over-year, following usual seasonal trends and current market dynamics, while tissue performance is expected to continue its positive trend in the third quarter. European boxboard performance is expected to benefit from its recent acquisition on a year-over-year basis, while sequential performance is expected to moderate as a result of lower seasonal demand following holiday-related closures in the third quarter, and lower pricing. We anticipate stable near-term results in the specialty products segment both year-over-year and sequentially, as the impact of ongoing lower recycled fibre pricing on the recovery operations is expected to be offset by stable pricing and volumes in packaging. On a consolidated basis, third-quarter performance is expected to improve year-over-year and be moderately higher on a sequential basis.”
Read the full Q2 2019 Cascades financial report.