Resolute reports $6M net income in Q2 2020
By Resolute Forest Products
By Resolute Forest Products
Resolute Forest Products Inc. (NYSE: RFP) (TSX: RFP) today reported net income for the quarter ended June 30, 2020, of $6 million, or $0.07 per diluted share, compared to net income of $25 million, or $0.27 per diluted share, in the same period in 2019. Sales were $612 million in the quarter, a decrease of $143 million from the year-ago period. Excluding special items, the company reported a net loss of $22 million, or $0.25 per share, compared to net income of $11 million, or $0.12 per diluted share, in the second quarter of 2019.
“The Covid-19 pandemic and ensuing economic slowdown have brought with them unprecedented challenges and business uncertainty,” said Yves Laflamme, president and chief executive officer. “I am grateful for the commitment of our employees, contractors and suppliers, and their loyalty and hard work: they pulled together, allowing us to operate as an essential business, true to our commitment to world-class safety while remaining committed to a job well done. Despite the challenging business environment, except for the low-interest term loan used to finance the acquisition of the U.S. sawmills, we repaid all of the borrowings we drew in Q1, and our liquidity improved to nearly $400 million. On the business side, we’ve seen stronger pulp pricing and higher lumber shipments in the second quarter, offset by a weaker paper segment, which reflects lower demand levels since the onset of the pandemic and our resulting capacity adjustments. We’re pleased with the integration of our recently-acquired U.S. sawmills and we’re excited about their prospects.”
Operating Income Variance Against Prior Period
The company reported operating income of $6 million in the second quarter. The $14 million improvement over the previous quarter reflects the favorable impact of the weaker Canadian dollar ($11 million), stronger pulp pricing ($9 million) and higher lumber shipments ($9 million), offset by lower paper and pulp shipments ($18 million) and softer quarter-over-quarter lumber pricing ($5 million), despite a late quarter increase in pricing.
Segment Operating Income Variance
As of the second quarter, the company’s results from the newsprint and specialty papers segments have been combined into one paper segment. Comparative information, including the information in this earnings release, has been modified to conform with this revised segment presentation.
Operating income in the wood products segment was $15 million in the quarter, a $10 million improvement from the first quarter. Shipments rose by 78 million board feet due to added capacity for a full quarter of the U.S. sawmills acquired on February first, as well as the impact of Canadian railroad blockades in the first quarter. The average transaction price slipped by $9 per thousand board feet, or two per cent, compared to the first quarter, due to market uncertainty around the unfolding pandemic. Accordingly, excluding the U.S. sawmills, the company reduced production at several sites, leading to downtime of approximately 70 million board feet in the quarter. The delivered cost improved by $25 per thousand board feet, or seven per cent, to $355 per thousand board feet, reflecting better productivity. EBITDA in the segment improved by $9 million, to $25 million.
Corporate and Finance
The company generated $125 million from operating activities in the quarter, due largely to a $92 million reduction in working capital, including a seasonal decrease in roundwood inventory. It made capital expenditures of $16 million and softwood lumber duty deposits of $17 million. As of the end of the quarter, the cumulative total of softwood lumber duty deposits was $194 million.
On financing activities, the company reduced borrowings under its credit facilities by $191 million in the quarter, leaving outstanding from its first quarter draws only a $180 million low-interest 10-year term loan used to finance the acquisition of the U.S. sawmills. Liquidity improved by $47 million from the end of the first quarter, to $396 million.
“We continue to focus on the short-term priorities we communicated after the first quarter, including: operating under rigorous protocols around the health and safety of our employees, contractors and suppliers; disciplined liquidity management; monitoring customer credit risk; and controlling spending around SG&A and capital expenditures,” says Laflamme.
“The significant slowdown in economic activity due to the pandemic will continue to impact demand for paper products, and we will continue to adjust our capacity as conditions evolve. Pulp has benefitted from higher demand for higher-quality tissue despite lower printing and writing shipments, but there could be short-term pressure as those markets stabilize in the ongoing pandemic economy.
“We continue to drive for customer portfolio optimization in the tissue business, particularly in the retail segment where we continue to make inroads as we place volume with new customers and demonstrate the quality of our products. We expect to continue to gain momentum in the coming quarters. The lumber market lately has been a bright spot against what were pessimistic expectations in April, driven by the strength of the repair and remodelling market and stronger housing starts, giving us the opportunity to bring back to production some of the sidelined Canadian capacity.
The integration of the U.S. lumber assets is progressing well, as they have also benefitted from an above-seasonal surge in demand for decking. As lumber demand remains promising, we are pursuing our plan to bring the El Dorado facility online in early 2021.”