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Cascades reports continued strong sales in Q2 2020 as COVID-19 demand eases

Cascades has reported strong sales in its second-quarter 2020 financial results, seeing a one per cent improvement over the year-ago period.

Sales for Q2 2020 were $1,285 million ($1.285 billion), compared with $1,313 million in Q1 2020 and $1,275 million in Q2 2019.

Cascades posted net earnings of $54 million, or $0.57 per share, in Q2 2020 compared to net earnings of $31 million, or $0.33 per share, in the same period of 2019.

On an adjusted basis, the corporation generated net earnings of $58 million in the second quarter of 2020, or $0.61 per share, compared to net earnings of $26 million, or $0.28 per share, in the same period of 2019.

“Our operations executed and adapted well during the second quarter, delivering improved consolidated results on both a sequential and year-over-year basis,” says Mario Plourde, president and CEO of Cascades, in a statement.

“The ability of our business segments to successfully navigate through the challenging second quarter business environment is a testament to the commitment and hard work of our dedicated employees, and a measurable indication of the operational improvements and cost reduction initiatives being generated by our strategic investments of the past few years.

“Sales in the second quarter decreased by two per cent since Q1 2020 as the elevated COVID-19 related demand levels present in the first quarter eased.

“As expected, this resulted in lower volumes in all segments with the exception of specialty products. Sales increased modestly when compared to the comparable period last year, supported by a 12.5 per cent growth in tissue.

“Second quarter adjusted OIBD of $186 million, representing a 14.5 per cent margin, was a quarterly record for the corporation, and was 16 per cent above the prior quarter and 19 per cent over the prior year period.

“The sequential performance was driven by improved results in all segments except containerboard. Results of both the tissue and containerboard segments were negatively impacted by slightly lower volumes and higher raw material costs compared to the prior quarter. As mentioned at the end of the first quarter, the corporation viewed the sharp increases in prices of recycled fibres as temporary.

“Pricing has since decreased and is expected to remain within these more normalized levels. The year-over-year adjusted OIBD increase of $30 million was largely driven by the tissue segment and, to a lesser extent, boxboard Europe. Specialty products results were stable year-over-year, while those of containerboard decreased mainly due to higher raw material costs and less favourable selling price and mix.”

Analysis compared to year-ago period

Sales of $1,285 million grew by $10 million, or one per cent, compared with the same period last year. This was largely a reflection of the volume-driven 12.5 per cent increase in the tissue segment, favourable foreign exchange impacts for all business segments and a positive contribution from recovery operations as a result of higher raw material prices.

These benefits were partially offset by lower average selling prices and/or less favourable sales mix in all business segments except specialty products, in which year-over-year sales performance levels were nonetheless negatively impacted as a result of the mill closure and business divestiture completed in 2019.

The corporation generated an operating income before depreciation and amortization (OIBD) of $169 million in the second quarter of 2020, down from $154 million in the second quarter of 2019.

On an adjusted basis, second quarter OIBD totaled $186 million in the current period, a new quarterly record for the corporation. This compares with the $156 million generated in the same period last year, an increase of $30 million, or 19 per cent. The annual improvement in adjusted OIBD reflects increases of $36 million from tissue and $13 million from boxboard Europe and stable results in the specialty products segment.

These benefits were partially offset by a decrease of $19 million from the containerboard segment, largely due to higher raw material costs and a less favourable selling price and sales mix year-over-year.

On a consolidated basis, higher raw material costs, a less favourable average selling price and sales mix negatively impacted adjusted OIBD performance compared to the prior year period.

These effects were more than offset by lower production costs, lower energy costs, beneficial foreign exchange impact and a favourable contribution from recovery operations as a result of higher raw material pricing. Research and development tax credits of $9 million were recorded in the current quarter.

Near-term outlook

“Looking ahead, we are cautiously optimistic regarding our operational performance given the weighting of our production that falls within essential tissue and packaging segments, and the adaptability demonstrated by our business segments within the challenging business environment,” says Plourde.

“In the near-term, this is counterbalanced by the ongoing potential economic impact related to COVID-19, and evolving consumption trends in end markets that have resulted from the pandemic.

“With this in mind, we are expecting consolidated results to decrease sequentially, as benefits from favourable raw materials pricing are anticipated to be offset by lower expected volumes, notably in the away-from-home tissue business and the usual lower seasonal third quarter volumes in Europe.

“Given continued uncertainty around COVID-19, we are focused on the health and safety of our employees and maintaining flexibility in our operations to meet the evolving product needs of our customers.

“We are committed in our support of community initiatives helping people navigate the current environment, and continue to work closely with our suppliers and customers being impacted.

“As always, management of our cash flow remains a priority along with reducing operational and SG&A costs. We continue to expect our projected available liquidity levels to meet future requirements including management of our debt level, and will readjust our investment plans should the need become apparent.

“At this time, we do not have any update on our Bear Island conversion project, for which analysis has continued at a slower pace given current circumstances.”

Read the full Q2 2020 Cascades financial report.