Resolute reports $52M net loss in Q4 2020 due to weak pulp and paper market
By Resolute Forest Products
By Resolute Forest Products
Resolute Forest Products Inc. has reported a net loss for the quarter ended Dec. 31, 2020, of $52 million, or $0.63 per share, compared to a net loss of $71 million, or $0.79 per share, in the same period in 2019. Sales were $769 million in the quarter, an increase of $101 million from the year-ago period. Excluding special items, the company reported net income of $45 million, or $0.55 per diluted share, compared to a net loss of $53 million, or $0.59 per share, in the fourth quarter of 2019.
For the year, the company reported GAAP net income of $10 million, or $0.12 per diluted share, compared to a net loss of $47 million, or $0.51 per share, in 2019. Sales were $2.8 billion, down by four per cent from the previous year. Excluding special items, the company reported net income of $56 million, or $0.65 per diluted share, compared to a net loss of $46 million, or $0.50 per share, in 2019.
“We’re pleased with the performance of our wood products segment and its ability to drive bottom-line impact from strong end-markets like what we’ve seen in the second half of 2020 with the rebound in U.S. housing starts and robust demand for repair and remodeling activity,” said Yves Laflamme, president and chief executive officer. “The strong pricing for lumber and a release of working capital allowed us to generate almost $160 million of cash from operations in the quarter and helped to make up for challenging conditions in our pulp and paper segments, which are still recovering from the economic effects of the pandemic. Last quarter we took advantage of our strong financial performance to repurchase an additional 2.1 million shares of our common stock, for a total of eight per cent this year, and we recently refinanced our $375 million of outstanding 5.875 per cent notes due 2023 with $300 million in new 4.875 per cent notes due 2026 on very favourable terms and conditions.”
Operating income variance against prior period
The company reported operating income of $4 million in the quarter, compared to $97 million in the third quarter. The quarterly results reflect a sequential increase in shipments ($14 million), mostly paper, offset by an increase in costs ($23 million) due to higher maintenance and log costs and lower internal power generation, as well as the impact of the stronger Canadian dollar ($8 million). The lower operating income includes non-cash charges related to the temporary idling of the Baie-Comeau and Amos, Que., newsprint mills ($80 million) in response to the effects of the pandemic. The operating income also includes a credit of $10 million under the Canada Emergency Wage Subsidy (CEWS) program, based on the significant drop in revenues in the company’s pulp and paper segments through the end of October. The CEWS support partially offset the costs associated with keeping the two mills in “hot idle” mode.
For all of 2020, the company generated operating income of $99 million, an $82 million improvement over 2019. It reflects the favourable impact of the increase in market prices in the wood products segment ($239 million) and tissue segment ($10 million), the added contribution from the 2020 acquired U.S. sawmills ($45 million), an overall reduction in manufacturing costs ($84 million), including lower maintenance and energy costs, the fourth quarter CEWS credit, dispute settlements and other items, as well as the favourable impact of the weaker Canadian dollar ($15 million). The operating income variance also reflects the unfavourable effect of lower pulp and paper pricing ($219 million), lower paper shipments ($75 million) and the net unfavourable impact of charges and assets disposition gains related to newsprint capacity reduction initiatives ($26 million).
The wood products segment generated operating income of $128 million in the quarter, unchanged from the previous quarter. The average transaction price improved by $8 per thousand board feet, to $608, and the delivered cost rose by $12 per thousand board feet, or there per cent, on higher stumpage fees for Canadian operations, which generally track lumber prices, and higher maintenance costs. Shipments rose by five million board feet compared to the previous quarter, as robust market conditions carried through the quarter due to strong U.S. housing starts and repair and remodeling activity. Finished goods inventory dropped to 97 million board feet, which is a historical low. EBITDA was unchanged at $139 million.
In 2020, the wood products segment recorded operating income of $276 million, compared to an operating loss of $6 million in 2019. The improvement reflects a $146 per thousand board foot, or 41 per cent, increase in the average transaction price and a 312 million board feet improvement in shipments. The higher shipments reflect the volume from acquired U.S. sawmills and better productivity at Canadian sawmills. The delivered cost rose slightly year-over-year, mostly reflecting higher stumpage fees for our Canadian operations. EBITDA for the segment was $319 million, with the U.S. sawmills contributing $55 million to annual segment EBITDA.
“We are weathering the COVID-19 storm with remarkable strength, and I am proud of our commitment to health and safety as well as support for the communities in which we work and live. We continue to enhance the already meaningful relationships across our operating communities. As I head into retirement, I do so with confidence in Resolute. Together, we have taken important steps in our transformation and built a more sustainable and competitive organization,” said Yves Laflamme.
Remi G. Lalonde, senior vice-president and chief financial officer, and, as of March 1, president and chief executive officer, added: “Following the uncertainty of 2020 and its pandemic-induced challenges, there have been key developments in our business to carry momentum into 2021. There are signs in support of the tailwind in lumber markets, with impressive levels of U.S. housing starts and healthy repair and remodeling activity. We’re also lately seeing a marked pick-up in market pulp demand against more balanced global inventories after a prolonged lag. With the quality of our remaining paper assets, there is room to build on the fourth quarter volume gains as end-markets gradually rebalance after the steep pandemic-induced demand drop of 2020. We will continue to drive performance improvements in our tissue business with better portfolio mix and operating efficiency to build on the $17 million of EBITDA in 2020.”
Lalonde continued: “I’m excited to assume the leadership of this company: I’ve spoken with many stakeholders since my nomination and I’m encouraged by their response, the energy around the Resolute story and the talented team that will move this business forward by accelerating our evolution to generate long-term value for shareholders and to drive sustainable economic activity in the communities where we operate.”