Resolute reports Q1 2019 results with decrease in sales
April 30, 2019 – Resolute Forest Products has released its first-quarter 2019 results, citing net income for the quarter ended March 31, 2019, of $42 million, or $0.45 per diluted share, compared to $10 million, or $0.11 per diluted share, in the same period in 2018.
Sales were $795 million in the quarter, a decrease of $79 million from the year-ago period. The first quarter of 2018 included sales from the Catawba (South Carolina) and Fairmont (West Virginia) facilities, sold in the fourth quarter of 2018. Excluding special items, the company reported net income of $30 million, or $0.32 per diluted share, compared to $17 million, or $0.18 per diluted share, in the first quarter of 2018.
The company reported operating income of $64 million in the quarter, compared to $75 million in the fourth quarter of 2018. The operating results reflect higher average transaction prices for wood products, lower depreciation expense, the favorable effect of the weaker Canadian dollar and fewer production outages.
These elements were partly offset by lower volumes, mainly attributable to the Catawba mill divestiture at the end of the fourth quarter and softening newsprint market conditions, as well as an increase in wood fiber costs and seasonally higher energy expenses. The operating results in the fourth quarter of 2018 included a $141 million gain on disposition of assets and a non-cash impairment charge of $120 million. Adjusted EBITDA in the quarter was $104 million, essentially unchanged from $105 million reported in the fourth quarter, which included $15 million from the Catawba facility.
Operating income in the market pulp segment was $42 million, relatively unchanged compared to the previous quarter. The average transaction price remained at $808 per metric ton, while shipments declined by 56,000 metric tons due to a reduction in pulp capacity following the divestiture of the Catawba and Fairmont facilities. On a pro forma basis, sales volume rose by 26,000 metric tons because of less scheduled downtime and production disruptions this quarter. The operating cost per unit (the "delivered cost") decreased by $24 to $664 per metric ton as higher fiber costs were more than offset by improved productivity, increasing EBITDA per metric ton to $162. Accordingly, despite the sale of the Catawba mill, EBITDA was relatively unchanged at $47 million.
The tissue segment incurred an operating loss of $8 million in the quarter, an improvement of $1 million compared to the fourth quarter of 2018. Overall sales increased by 11%, reflecting improved product mix, price increases for away-from-home products, and higher shipments. Delivered cost remained unchanged, as lower freight expenses associated with our new distribution center were offset by higher pulp costs following the divestiture of the Fairmont mill. EBITDA improved to negative $3 million, from negative $5 million in the first quarter.
At $28 million in the first quarter, newsprint's operating income was unchanged compared to the previous quarter. Sales declined by 14%, driven by a 53,000 metric ton decrease in shipments, while the average transaction price remained at $634 per metric ton. The reduction in sales volume reflects seasonality, the timing of export sales and softening market conditions. As a result, finished goods inventory rose to 135,000 metric tons at quarter-end. The delivered cost decreased by $12 per metric ton, largely attributable to lower depreciation expense, as certain assets are fully amortized. Higher contribution from the Thunder Bay (Ontario) cogeneration assets, following a turbine failure in the previous quarter, and overall lower maintenance costs were largely offset by higher fiber and energy costs. Consequently, EBITDA decreased by $10 million to $35 million for the quarter, equivalent to $106 per metric ton, or 17% EBITDA margin.
The specialty papers segment generated operating income of $15 million in the quarter, compared to $17 million in the previous quarter. Pricing rose by $12 per short ton to $768, while shipments fell by 88,000 short tons with the sale of the Catawba mill at the end of 2018. Despite the exit from higher-cost coated mechanical grades, delivered cost remained unchanged at $695 per short ton, reflecting continued higher wood costs in the U.S. Southeast due to abnormally wet weather, unfavorable energy expenses and scheduled maintenance costs. While segment EBITDA decreased by $3 million to $25 million this quarter, EBITDA per short ton rose by $30 to $125, due to the sale of the Catawba mill, equivalent to a 16% margin.
"While we expect lower price realizations in the second quarter, limited capacity additions and growing demand will continue to support favourable market dynamics over the medium term," says Yves Laflamme, president and CEO of Resolute Forest Products. "While our near-term outlook is more uncertain, our medium to long-term outlook remains positive. With ongoing global demand declines and currently low operating rates, we expect lower pricing for our paper grades in the second quarter."
Read the full Q1 2019 Resolute financial report.
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