Resolute reports record preliminary Q3 results
Nov. 1, 2018 – Despite weaker lumber markets, Resolute Forest Products’ overall operating income in Q3 2018 increased by $14 million compared to Q2 2018, supported by higher pricing and improved productivity in their pulp and paper operations. Higher manufacturing expense, mostly associated with rising fibre costs, were mitigated by the favourable impact of the weaker Canadian dollar and improved freight costs.
The company reported a net income for the quarter ended September 30, 2018 of $117 million, or $1.25 per diluted share, compared to $24 million, or $0.26 per share, in the same period in 2017.
Sales were $974 million in the quarter, an increase of $89 million from the year-ago period.
"Our best pulp quarter combined with continued positive market dynamics for paper helped offset the effects of a weaker lumber market, leading to another quarter of record results and a further reduction in leverage. Our continued focus on improving operational performance also resulted in a notable increase in the profitability of our specialty papers business," said Yves Laflamme, Resolute’s president and chief executive officer.
"We recently entered into an agreement to sell the Catawba paper and pulp mill for $300 million, and today, we will complete the previously announced sale of the Fairmont recycled pulp mill for proceeds of $62 million, subject to final working capital adjustments. These transactions allow us to maximize the value of these assets and redeploy capital to increase shareholder value. We remain focused on growing our core businesses in line with our transformation strategy, reducing debt and returning capital to our shareholders."
Operating income in the market pulp segment was $57 million, $16 million higher than the second quarter. The average transaction price continued to rise, up another $37 per metric ton to $784. Shipments also increased by 14,000 metric tons, largely due to improved productivity. Despite higher recovered paper prices and extended downtime planned at the Saint-Félicien mill (Quebec), the operating cost per unit (the "delivered cost") decreased to $629 per metric ton, mostly due to higher volume. Consequently, record EBITDA of $64 million or, $174 per metric ton, was realized this quarter.
A significant portion of the strategic project at the Saint-Félicien mill to increase production capacity, decrease costs and further reduce greenhouse gas emissions was completed, as planned. Production at the mill restarted in mid-October.
Compared to the second quarter, operating income in the wood products segment dropped $34 million, to $45 million, largely due to weaker pricing. Our average transaction price retreated from record levels in the second quarter, to $457 per thousand board feet this quarter, down 11 per cent, or $57 per thousand board feet. Shipments also decreased by 49 million board feet, pushing finished goods inventory up to 162 million board feet.
Despite higher log costs and lower sales volume, the delivered cost remained unchanged at $355 per thousand board feet, mainly due to the favourable effect of the weaker Canadian dollar, and lower freight costs as shipments to the U.S. decreased. EBITDA for the segment decreased to $53 million, compared to $86 million in the second quarter.
"Our view on pulp markets remains positive through the fourth quarter, supported by continued market supply disruptions and steady demand growth. For lumber, the recent price declines are expected to negatively impact our results in the fourth quarter. In the medium to long term, we believe that the ongoing recovery in U.S. housing starts and the growth in the repair and renovation segment should improve demand. While paper markets continue to be impacted by the structural decline in demand, we expect the implementation of previously announced price increases for some of our paper products to continue to favourably impact our results in the fourth quarter. For tissue, we continue to focus on operational improvements to support our sales growth," added Laflamme.
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