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Resolute reports Q3 income up

Operating income for the third quarter was $26 million, compared to $72 million in the third quarter of 2011. The most significant components of the $46 million variance include: a volume decline for $51 million as a result of the Company reducing its exposure to newsprint export markets pressured by the strong U.S. dollar, its ongoing asset optimization efforts and a temporary but unexpected drop in September lumber shipments. The lower average Canadian dollar this quarter provided a $7 million cost advantage. The Company’s asset optimization and restructuring initiatives, as well as more favorable pricing for recovered paper, power and natural gas, led to savings of $13 million in overall input costs, despite $6 million of costs associated with the annual outage at our Fort Frances pulp mill, last taken in the second quarter of 2011. In addition, there was a $10 million unfavorable impact for the annual maintenance and necessary work to improve the operational and environmental performance of the recently acquired St. Felicien mill. While the stronger pricing in wood products offset weak conditions in the market pulp segment, price eroded $9 million of operating income in paper grades, mostly in the coated papers segment.

“We’re pleased with these results, considering the specific challenges we faced in the quarter and the unexpected extent of the maintenance required to bring our recently acquired St. Felicien mill up to par,” said Richard Garneau, president and chief executive officer. “Our cost-focused strategy allowed us to maintain attractive margins in the paper and wood products segments despite lower shipments overall. This is the direct result of our focus on the items we control: selling only profitable tons and maintaining world-class operational standards.”

Mr. Garneau added: “we expect North American newsprint pricing to remain stable in the near term, as we’ve yet to feel the impact of capacity restarts. We will, however, continue to manage our exposure to export markets where the relative strength of the U.S. dollar has created difficult conditions for North American producers. We are making concrete progress toward our goal of generating more profit from the coated papers segment by optimizing the Catawba assets. We expect the results to start showing in the coming quarters, as we plan to run full on the remaining capacity. While demand in the specialty segment is under pressure, we believe that our Dolbeau facility will improve our overall competitive position. With our focus on running for profit and not for tons, we will continue to manage our capacity as we’ve done in the last 12 months, assessing our network of mills to ensure that we produce only the tons our customers order. As challenging conditions persist in the pulp segment, the timing of any meaningful improvement continues to be uncertain. We will nonetheless benefit from growing external power sales at the St. Felicien facility, though the effects may not be fully seen until we complete the balance of needed repairs over the next two quarters. We expect pricing in the wood products segment to remain near the higher levels we experienced recently as a result of positive momentum building in U.S. housing starts.”

SEGMENT DETAILS
Newsprint
The newsprint segment generated operating income of $26 million, a $6 million decrease from the second quarter of 2012. Average transaction price remained stable, but there was a 3% reduction in shipments as the Company continued to minimize its exposure to certain challenging export markets and took an outage for a capital improvement project. Continued asset optimization efforts kept operating costs per unit in line, despite the stronger Canadian dollar and lower volume.

Coated Papers
Operating income in the coated papers segment was $1 million lower in the third quarter than the second, at $3 million. Average transaction price rose $10 per short ton, but shipments were down over 10% as a result of the June 30 idling of a paper machine at the Catawba mill, part of the Company’s ongoing asset optimization efforts. The lost volume was largely offset by labor cost reductions from these restructuring initiatives, as well as lower maintenance and chemical costs.

Specialty Papers
The specialty papers segment generated operating income of $26 million, a $1 million decrease from the previous quarter. Improvements to input costs, mainly lower labor costs from various mill efficiency initiatives, largely offset the stronger Canadian dollar and a 4% reduction in shipments, the result of softer demand and a capital improvement project outage. Pricing remained stable, helping to deliver the second consecutive quarter of adjusted EBITDA of approximately $100 per short ton shipped.

Market Pulp
Operating loss in the market pulp segment was $22 million, compared to $7 million in the previous quarter. Fibrek’s results decreased by $17 million compared to the second quarter, mainly as a result of lost production and costs associated with the St. Felicien mill’s previously announced five week outage for annual maintenance and necessary work to improve its environmental performance. Average transaction price remained weak, falling another 1%, but shipments climbed 12%, reflecting three months of volume from Fibrek’s two recycled bleached kraft pulp mills, compared to only two months in the previous quarter, and a 10,000 metric ton improvement in Resolute shipments as a result of less maintenance. The Company took 109,000 metric tons of downtime during the quarter, including the St. Felicien outage, a cold outage at Thunder Bay, market slowback at the two recycled bleached kraft pulp mills and extended downtime at the Coosa Pines fluff pulp mill.

Wood Products
The wood products segment reported operating income of $6 million in the third quarter, $6 million lower than the second. Continued improvements to North American housing starts led to a 9% increase to average transaction price, but shipments fell 11% as a result of a drop in September lumber shipments. Costs increased because of higher log costs and higher transportation costs.