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Cascades’ third quarter results for 2022 as expected, as per company leadership

Cascades reported its unaudited financial results for the three-month period ended September 30. 

The highlights from the quarter are as follows.

• Sales of $1,174 million, compared with $1,119 million in Q2 2022 and $1,030 million in Q3 2021
• As reported, including specific items
  • Operating income of $25 million, compared with $32 million in Q2 2022 and $73 million in Q3 2021
  • Operating income before depreciation and amortization (OIBD) of $92 million, compared with $95 million in Q2 2022 and $136 million in Q3 2021
  • Net loss per common share of $0.02, compared with net earnings per common share of $0.10 in Q2 2022 and net earnings per common share of $0.32 in Q3 2021
• Adjusted excluding specific items
  • Operating income of $44 million, compared with $28 million in Q2 2022 and $44 million in Q3 2021
  • Operating income before depreciation and amortization (OIBD) of $111 million, compared with $91 million in Q2 2022 and $107 million in Q3 2021
  • Net earnings per common share of $0.20, compared with net earnings per common share of $0.10 in Q2 2022 and a net loss per common share of $0.01 in Q3 2021
• Net debt of $2,011 million as of September 30, 2022, compared with $1,712 million as of June 30, 2022. Net debt to adjusted OIBD ratio of 6.2x, up from 5.4x as of June 30, 2022.
• Total capital expenditures, net of disposals, of $121 million in Q3 2022 and $333 million in the first nine months of 2022. Forecasted 2022 net capital expenditures of $450 – $470 million, including $310 – $330 million for the Bear Island containerboard conversion project in Virginia, USA.
• On October 19, 2022, the corporation announced that it had successfully amended its existing credit facility to reinforce its financial flexibility. The updated agreement increased the authorized term loan to US$260 million from US$160 million while extending the maturity by two years to December 2027. Concurrently, the term of the corporation’s revolving facility was extended by one year to July 2026.

Mario Plourde, president and CEO of Cascades, commented, “Our third quarter performance was in line with expectations notwithstanding the fact that our tissue segment continued to face unprecedented cost inflation and reduced productivity due to labour scarcity and inefficiencies. Company-wide, improvements in volume, pricing and sales mix mitigated continued cost headwinds on a sequential and year-over-year basis. Importantly, the profitability initiatives that have been deployed throughout our tissue business absorbed this segment’s higher costs during the quarter. While these measures trailed the cadence of cost headwinds in the first nine months of the year, we are encouraged with how they are now tracking, and continue to expect additional benefits going forward.

The Bear Island project advanced well during the quarter and we are preparing the commissioning of certain key equipment. As we pointed to in our second-quarter release, supply chain constraints in 2022 slowed the delivery of some materials which delayed certain construction milestones. These conditions continued in the third quarter and as a result start-up of the facility will occur in the first quarter of 2023. The capital investments for this project totalled $83 million in the third quarter and $228 million year-to-date. These elevated investment levels underline the environment of high cost inflation, and have resulted in an important increase in our leverage, a trend we expect to reverse in 2023 with improved business performance and the contribution from this facility following its start-up. A prominent FX impact and higher working capital requirements, driven by inflation, were similarly important factors in the increase in our debt levels in the third quarter.”

Discussing the near-term outlook, Mr. Plourde commented, “In view of the persistent inflationary pressures on costs and the current macroeconomic environment, we are taking a conservative approach to our near-term outlook. Accordingly, we expect sequentially stable results in our packaging businesses, with lower raw material cost tailwinds projected to counterbalance lower volumes. For our Tissue segment, we anticipate improved sequential results driven by accruing benefits from profitability initiatives and stable demand levels. Our initiatives have delivered according to expectations thus far, despite certain timing delays in their implementations. The exception to this is meeting our production targets, where we continue to put in place additional measures to narrow the shortfall. The temporary shutdown of one of the machines at our St. Helen’s facility in Oregon has not impacted our annualized longer-term Tissue profitability objectives. Production is expected to resume by mid-December, and costs associated with the shutdown will total approximately six million dollars.

As we have highlighted previously, our tissue business performance has been impacted by persistent cost inflation this year. The effect on results is immediate, whereas the roll-out of corrective pricing and other commercial initiatives takes time to be implemented and generate benefits. Given the significant impact that this interval has had in the current year, our Tissue segment is expected to generate $8 to $12 million of adjusted OIBD in the fourth quarter of 2022 and, as such, will not achieve the $25 to $40 million adjusted OIBD¹ target in the calendar year 2022. More importantly, notwithstanding these challenging conditions, our tissue segment remains on track to deliver on its long-term objectives.”