Financial Reports & Markets
Resolute Forest Products posts net income of $57M in Q3 results
November 5, 2020 By P&PC Staff/Resolute Forest Products
Resolute Forest Products has reported net income for the quarter ended September 30, 2020 of $57 million, or $0.66 per diluted share, compared to a net loss of $43 million, or $0.47 per share, in the same period in 2019.
Sales were $730 million in the quarter, an increase of $25 million from the year-ago period. Excluding special items, the company reported net income of $62 million, or $0.72 per diluted share, compared to a net loss of $34 million, or $0.37 per share, in the third quarter of 2019.
“We took advantage of the rally in lumber prices to further deleverage the balance sheet and drive shareholder value by opportunistically repurchasing 5% of outstanding shares,” said Yves Laflamme, president and chief executive officer.
“While the pulp and paper segments continue to suffer from pandemic economics, we used part of the cash we generated with our lumber business to fully repay all revolving borrowings under our credit facilities, except for the low-interest term loan used to finance the acquisition of the U.S. sawmills, which have generated $38 million of EBITDA under our ownership this year. The tissue business is also picking up steam: with $6 million of EBITDA in the quarter, it has generated $19 million of EBITDA in the last 12 months.”
Resolute also announced the appointment of Remi G. Lalonde as the company’s next president and chief executive officer, succeeding Yves Laflamme, who is retiring as of March 1, 2021.
Consolidated against prior period
The company reported operating income of $97 million in the quarter, compared to $6 million in the second quarter. The $91 million improvement over the previous quarter reflects the favourable impact of higher lumber pricing ($117 million), offset by higher stumpage fees with the increase in lumber pricing ($5 million) and lower market pulp prices ($7 million).
As of the second quarter 2020, the company’s results from the newsprint and specialty papers segments have been combined into one paper segment. Comparative information has been modified to conform with the revised segment presentation.
The market pulp segment recorded an operating loss of $4 million in the quarter, compared to operating income of $10 million in the previous quarter.
The change reflects a $26 per metric ton, or four per cent, slip in the average transaction price on softer market conditions and an increase of $27 per metric ton, or five per cent, in the operating cost per unit (the “delivered cost”) due mostly to higher planned maintenance costs.
Shipments improved by 15,000 metric tons and finished goods inventory fell to 71,000 metric tons at quarter-end. EBITDA in the segment was $2 million.
The company reported operating income of $2 million in the tissue segment in the quarter, $4 million better than the previous quarter.
The average transaction price rose by four per cent, or $71 per short ton in the quarter, primarily as a result of the company’s ongoing progress around customer and product mix.
But shipments slipped by 3,000 short tons in the quarter as a result of increasingly challenging conditions in away-from-home end-markets due to the effects of the pandemic.
Delivered cost per unit fell by $55 per short ton, or three per cent, as a result of lower maintenance costs compared to annual outages in the previous quarter. Finished goods inventory at quarter-end was 6,000 short tons. Quarter-over-quarter segment EBITDA improved by $3 million, to $6 million.
The company generated an operating loss of $12 million in the paper segment in the quarter, unchanged from the previous quarter.
Despite the challenging market conditions for marketing-dependent products like newspapers, inserts, flyers and commercial papers, the average transaction price improved slightly in the quarter, to $594 per metric ton, or one per cent, and inventory fell by five per cent.
Shipments were unchanged, at 351,000 metric tons, reflecting the company’s leaner production footprint implemented to cope with the dramatic reduction in economic activity during the pandemic. The delivered cost was stable. EBITDA in the segment improved by $2 million, to $6 million.
The wood products segment reported operating income of $128 million in the quarter, an improvement of $113 million compared to the previous quarter.
The significant improvement is due to the $217 per thousand board feet, or 57 per cent, increase in average transaction price, reflecting strong market conditions, particularly from the repair and remodelling market and U.S. housing starts.
The delivered cost rose by $6 per thousand board feet, or two per cent, to $361 per thousand board feet, mostly due to higher stumpage fees, which track lumber market prices.
Shipments rose by 16 million board feet and inventory was unchanged, at 121 million board feet. EBITDA in the segment improved by $114 million, to $139 million, with the recently-acquired U.S. sawmills contributing $31 million to our EBITDA in the quarter.
Consolidated against year-ago period
The company reported operating income of $97 million in the third quarter, compared to an operating loss of $18 million in the third quarter of 2019.
The $115 million increase reflects the favourable impact of higher selling prices for wood products ($104 million), contribution from the recently-acquired U.S. sawmills ($26 million), lower maintenance costs ($22 million), and the weaker Canadian dollar ($8 million).
These items were partly offset by the effects of lower selling prices and fewer shipments in the market pulp and paper segments ($52 million) due to softer market conditions. Adjusted EBITDA of $140 million was $117 million higher than the third quarter of 2019.
Looking ahead, Laflamme says, “Together with our strong Canadian lumber business, the well-timed acquisition of U.S. sawmills positioned us well for the recent spike in lumber prices. Although market prices have come off their highs in recent weeks, the demand from the repair and remodeling sector as well as robust U.S. housing starts speak to strong market fundamentals.
“Accordingly, we are preparing our El Dorado, Arkansas sawmill to be restarted in the next few months. Following a very difficult stretch of over six months, there are signs that paper markets activity is slowly and gradually starting to recover, but we expect that the pandemic will have caused some measure of step-change in the secular demand decline trend.
“In the last quarter, pulp markets were also affected by the pandemic, but we are already seeing global inventories stabilize around balanced levels, and we are cautiously optimistic that markets will recover with overall economic conditions.
“In regards to tissue, we will continue to focus on customer portfolio optimization and productivity improvements. While retail end-market conditions remain strong, the away-from-home space, which represents about a third of our business, is under pressure due to the drop in commercial activity.”
Read the full Q3 2020 Resolute Forest Products financial report.
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