Resolute Reports Preliminary Third Quarter 2016 Results
(Montréal, Canada, Nov. 3, 2016) Resolute Forest Products Inc. (NYSE: RFP) (TSX: RFP) today reported net income for the quarter ended September 30, 2016, of $14 million, or $0.15 per share, compared to a GAAP net loss of $6 million, or $0.07 per share, in the same period in 2015. Sales were $888 million in the quarter, down $17 million, or 2%, from the third quarter of 2015. Excluding special items, the company reported net income of $19 million, or $0.21 per share, compared to net income of $14 million, or $0.15 per share, in the third quarter of 2015.
“Our wood products segment had record results this quarter, one example that our long-term transformation strategy is on track. In our tissue segment, the consolidation of our acquisition of Atlas continues, and our tissue project in Calhoun now has one converting line on two shifts and another being commissioned, while the tissue machine is on-target for startup by the end of the first quarter of next year,” said Richard Garneau, president and chief executive officer. “However, we also recognize the significant challenges we are facing in our pulp and paper segments, which remain critical to delivering overall value. Our quarterly results in those businesses were handicapped by rising input prices, additional maintenance, and continued excess supply dynamics.”
Operating income in the market pulp segment was $5 million in the third quarter, $7 million lower than the second quarter. The overall average transaction price rose by $3 per metric ton, with gains in softwood more than offsetting declines in hardwood and fluff grades. The operating cost per unit (the “delivered cost”) rose by $17 per metric ton, to $592 per metric ton, owing mostly to lower productivity, higher chemical costs related to lime kiln failures at Saint-Félicien (Quebec) and Catawba (South Carolina) and rising recovered fiber costs. Lower shipments, which fell by 22,000 metric tons over the quarter, also had a significant impact on results and originated mostly from operating difficulties and an annual outage at Thunder Bay (Ontario) combined with maintenance challenges at Saint-Félicien during the quarter. The output at Calhoun (Tennessee) fell short of expectations, as peripheral equipment performance had to be corrected.
The tissue segment incurred an operating loss of $5 million for the quarter, $1 million more than the previous quarter. Although volumes sold to retail customers increased by 4%, an unfavorable change in customer mix for converted product sales combined with lower pricing for parent rolls translated into an overall reduction in pricing of $11 per short ton. The delivered cost increased by $86 per short ton compared to the second quarter, as we continue to deploy optimization measures. EBITDA was negative $3 million in the period, $1 million worse than the second quarter of 2016.
The newsprint segment incurred an operating loss of $8 million in the quarter, compared to an operating loss of $3 million in the second quarter. Pricing for the segment continued its steady increase, rising by $11 per metric ton when compared to the previous quarter, to $515 per metric ton. The delivered cost, on the other hand, was unfavorably impacted by lower contribution from cogeneration facilities, as well as higher energy and recovered fiber costs and therefore increased by $20 per metric ton, to $531 per metric ton. Shipments declined by 40,000 metric tons, or 8% as we shut down capacity at Augusta (Georgia) and took market downtime at Thorold (Ontario) and Mokpo (South Korea) to balance declining demand in overseas markets. EBITDA was $9 million for the quarter, equivalent to $19 per metric ton, compared to $16 million in the previous quarter. Finished goods inventory rose by 9,000 metric tons to 105,000 metric tons, an increase of 9%.
The specialty papers segment recorded an operating loss of $2 million in the third quarter, a decline of $18 million from the $16 million of operating income recorded in the second quarter. The average transaction price was higher by $4 per short ton, as our grade mix shifted to higher value products. However, revenue gains were more than offset by an increase in delivered costs per short ton of $52. Increases in costs were mostly the result of lower production volumes, higher power and maintenance costs and lower hydro and cogeneration contribution owing mostly to a damaged water wheel requiring replacement in one of our hydro operations. Shipments were seasonally higher by 2,000 short tons during the quarter. EBITDA for the segment fell by $17 million, reaching $9 million, equivalent to $23 per short ton, $45 per short ton lower than the second quarter. Finished goods inventory declined by 15%, reaching 75,000 short tons.
Consolidated Quarterly Operating Income Variance Against Year-Ago Period
The company recorded operating income of $10 million for the third quarter, including an operating loss of $5 million for tissue, compared to operating income of $6 million in the year-ago period. Reductions in cost of sales, depreciation and amortization, and distribution expenses totaled $48 million, more than offsetting a decline in sales of $40 million, excluding tissue.
The average transaction price for market pulp and specialty papers fell by 5% and 3% respectively, while wood products rose by 5% and newsprint increased by 3%, resulting in an overall favorable variance of $1 million on pricing, excluding foreign exchange, when compared to last year.
Shipments decreased by 10% in market pulp, mostly as a result of the timing of the annual outage and operating issues at Thunder Bay. Volumes also declined in newsprint and specialty papers, by 9% and 7%, respectively, reflecting structural market declines across printing paper. On the other hand, shipments of wood products rose by 20%, owing to higher productivity and a reduction of rough lumber inventories, as well as improving demand in the U.S. housing market. Inventories have increased in market pulp (30%) and newsprint (4%), while declining in specialty papers (26%) and wood products (10%). (Source: press release)
Pictured Above: Resolute’s Catawba (South Carolina) pulp mill