Resolute Forest Products releases fourth quarter results

By Katie Fletcher | February 08, 2016

Resolute Forest Products Inc. recently released its fourth quarter financial results, reporting its wood products segment generated an operating loss of $8 million in the quarter, compared to operating income of $9 million in the third quarter. The company attributes the difference to the $18 per thousand board feet decrease in average transaction price, or 6 percent, and an unfavorable variance due to the recognition of additional tax credits in connection with infrastructure investments in quarter three. This caused a 5-percent increase in the delivered cost to $310 per thousand board feet.

Shipments rose by a further 25 million board feet, or 6 percent, to 446 million board feet, including production improvements at the Atikokan and Ignace sawmills in Northern Ontario. 

Segment adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $3 million in the quarter, for a margin of $7 per thousand board feet, or 2 percent, compared to $43 in the previous quarter and a trailing 12-month average of $23 per thousand board feet. Finished goods inventory was slightly lower at quarter-end.

Operating income for the year was $2 million in the wood products segment, $67 million lower than in 2014. RFP said the drop is almost entirely due to the significant fall in average transaction price, down by $65 per thousand board feet, or 17 percent, which was only partially offset by the favorable effect of the weaker Canadian dollar and the 93 million board feet increase in shipments, or 6 percent. The increase in shipments follows the company’s capacity enhancement initiatives, including better productivity at the Comtois, Quebec, and Thunder Bay, Ontario, sawmills, the start-up of the Thunder Bay wood pellet facility, and also shipments from the new Atikokan and Ignace sawmills.  Adjusted EBITDA for the segment was $39 million in 2015, compared to $102 million in 2014, a 62 percent decrease, reflecting margins of 7 percent and 17 percent, respectively. 

On the investor call, RFP president and CEO, Richard Garneau, reported that the company’s continuous pulp digester in Calhoun is operational, which the company announced was its focus during its quarter three financial results. “Our continuous pulp digester in Calhoun is now running and making good progress towards reaching its normal operating efficiency,” Garneau said. “It should reach that level by the end of this quarter which will give us additional capacity and lower mill wide costs.”

Overall, for the quarter ended Dec. 31, 2015, the company reported a net loss of $26 million (excluding special items), or 29 cents per share, compared to net income of $35 million (excluding special items), or 37 cents per share, in the same period in 2014. For the year, the company reported a net loss of $24 million (excluding special items), or 26 cents per share, compared to net income of $39 million (excluding special items), or 41 cents per share, in 2014. 

Sales were $894 million in the quarter, down $161 million, or 15 percent, from the fourth quarter of 2014. GAAP net loss was $214 million, or $2.39 per share, compared to a net loss of $109 million, or $1.15 per share, in the fourth quarter of 2014. Annual sales were $3.6 billion, down $613 million, or 14 percent, from 2014. GAAP net loss for the year was $257 million, or $2.78 per share, compared to a net loss of $277 million, or $2.93 per share, in 2014. According to the company, almost all the special items in the periods covered are made up of non-cash impairment or closure-related costs and non-cash non-operating pension expenses.

"Even as we continue to make progress lowering our costs, the price deterioration we experienced in the fourth quarter and for all of 2015 demonstrates that the forest products industry has not been spared from the cyclical downturn in global commodities," Garneau said. "With our financial strength, our competitive position and our focus on operational excellence, we are well positioned to weather this storm and to sustain our growth initiatives in wood products, market pulp and tissue.”

Currently, the company is focused on its Calhoun tissue expansion as it enters the critical construction stages, and is also focused on: gaining efficiency with its two new Northern Ontario sawmills, quickly ramping up the Calhoun continuous pulp digester, and smoothly integrating Atlas Paper after its recent acquisition in November. “This transaction not only gives us an immediate tissue presence and allows us to capture unique synergies, but the Atlas management team also adds a key success factor in the execution of the Calhoun tissue expansion,” Garneau said.

Garneau also commented on the pressure of North American lumber markets as a result of lower North American lumber and log exports to Asia, but he said the company is confident that they’ll see through this dip in the cycle. “We remain optimistic longer term with the progressive recovery of U.S. housing starts and tightening Canadian log supply over time,” he said on the earnings call. 

Garneau added, “We share the concerns of many, however, around the state of free trade for North American softwood lumber following the expiration of the 2006 Softwood Lumber Agreement last October. We believe in free trade, including open and unencumbered access to the U.S. markets for all our products, including softwood lumber, because everyone benefits from open and fair market-driven competition.”