Resolute Forest Products releases third quarter financial results

By Katie Fletcher | October 29, 2015

On Oct. 29, Resolute Forest Products Inc. released its third quarter financial results, reporting that building on the integration of the two sawmills this year, the company is focused on completing the Calhoun continuous pulp digester project.

"The project remains on track for a late-December startup,” said Richard Garneau, president and chief executive officer.  Once fully operational, we expect that it will grow our market pulp capacity by 100,000 metric tons and will reduce our mill-wide costs.  It will also provide enough slush pulp capacity to meet all of our fiber needs for the next phase in our transformation: the integration of our pulp assets to produce high-quality tissue and towel products.  We will compete in that market as one of only a few integrated producers, using the latest technology.  This repositioning is crucial as we address the challenges facing the paper industry, where we continue to add value because of our focus on costs and operational excellence."

The company reported net income of $14 million (excluding special items), or 15 cents per share, for the quarter ended Sept. 30, compared to net income of $15 million (excluding special items), or 16 cents per share, in the same period in the prior year.  Sales were $905 million in the third quarter, down $191 million, or 17 percent, from the comparable period in 2014.  GAAP net loss was $6 million, or 7 cents per share, compared to a net loss of $116 million, or $1.23 per share, in the third quarter of 2014.  

The company reported operating income of $6 million in the quarter, compared to $16 million in the second quarter. The $10 million difference reflects lower selling prices ($25 million), particularly for newsprint and market pulp, and a $4 million increase in manufacturing costs, offset by the favorable effect of the weaker Canadian dollar ($12 million) and lower selling, general and administrative expenses ($6 million). The company attributes the change in manufacturing costs to higher scheduled maintenance, increased costs for chemicals and seasonally higher power costs, partially offset by lower fiber costs, a property tax adjustment and the recognition of additional tax credits in connection with infrastructure investments. 

Operating income in the wood products segment for the quarter was $9 million, compared to an operating loss of $4 million in the second quarter. The improvement reflects mainly a 10-percent improvement in the operating cost per unit, or $33 per thousand board feet, as a result of the favorable effect of the weaker Canadian dollar, lower fiber costs and the recognition of additional tax credits in connection with infrastructure investments. 

Shipments rose incrementally, including some additional production from the Atikokan and Ignace sawmills in Northern Ontario, but the company also took downtime in Québec due to fiber shortages.  After a 9-percent drop in the second quarter, the average transaction price was a further 2 percent lower in the quarter, or $6 per thousand board feet. Segment adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $18 million in the third quarter despite soft market prices for lumber, for a margin of $43 per thousand board feet, or 14 percent, compared to $12 in the prior quarter and a trailing 12-month average of $39 per thousand board feet. 

In regards to Resolute Forest Products wood products line of business, Garneau mentioned that the company has had some difficulties in finding skilled employees to work at the Atikokan and Ignace sawmill sites. “We’re still working on the production ramp up, so the challenge that we have presently, that we didn’t expect to have, is having enough people to run the Atikokan sawmill and even the Ignace sawmill. Two weeks ago, we started the second shift at Atikokan, but realized we didn’t have enough people to run the second shift so we are in the process of trying to hire people.”

Garneau added that the Atikokan sawmill is overall ramping up well, but was experiencing some equipment difficulty, which he said should be resolved in the fourth quarter.

The newsprint segment generated an operating loss of $10 million in the quarter, compared to income of $3 million in the second quarter.  The average transaction price continued to decrease this quarter, falling another 6 percent, or $30 per metric ton, to $498 per metric ton.  The company stated on the call, selling prices are down over $90 per metric ton since the same quarter of 2014, reflecting the continuing challenges for North American producers in the global newsprint business.

The delivered cost of newsprint was essentially unchanged, reflecting the effect of the weaker Canadian dollar, a favorable property tax adjustment and higher contribution from the Thunder Bay power cogeneration facility, offset by higher maintenance and seasonally higher power costs. Shipments were 6 percent lower, or 31,000 metric tons, mostly due to strategic Ontario mill downtime to avoid coincidental peaks under that province's electricity rules, which, according to the company, saved millions on its annual Ontario electricity bill.  The lower pricing reduced the EBITDA margin to $12 per metric ton, compared to $35 per metric ton in the previous quarter and a trailing 12-month average of $31 per metric ton.

Earlier this year in Thorold, Ontario, Walker Environmental Group announced it eliminated the need for more than 200 million cubic meters of natural gas since 2002 by providing landfill gas to nearby Resolute Forest Products, where 100 percent recycled newsprint is manufactured. At its Niagara landfill, WEG processes the gas and pipes it to Resolute's nearby paper mill, reducing the mill's dependence on non-renewable fuel sources.