Resolute reports lower sales, net loss in 2019 year-end results
By P&PC staff
By P&PC staff
Resolute Forest Products has released its Q4 and year-end 2019 results, reporting a Q4 net loss of $71 million, or $0.79 per share.
The loss was compared to net income of $36 million, or $0.38 per diluted share, in the same period in 2018.
Sales were $668 million in the quarter, a decrease of $264 million from the year-ago period. The fourth quarter of 2018 included sales from the Catawba, South Carolina and Fairmont, West Virginia facilities, which were sold in that period.
Excluding special items, Resolute reported a net loss of $53 million, or $0.59 per share in Q4 2019, compared to net income of $4 million, or $0.04 per diluted share, in the fourth quarter of 2018.
For the year, the company reported a GAAP net loss of $47 million, or $0.51 per share, compared to net income of $235 million, or $2.52 per diluted share, in 2018.
Sales were $2.9 billion, down by 22 per cent from the previous year, or 11 per cent after removing sales from disposed assets. Excluding special items, the company reported a net loss of $46 million, or $0.50 per share, compared to net income of $183 million, or $1.96 per diluted share, in 2018.
“Our fourth quarter results reflect bottom-of-the-cycle conditions in market pulp, ongoing pricing pressures in paper grades and the slow pricing recovery in lumber,” says Yves Laflamme, president and chief executive officer, in a statement.
“The pending acquisition of three sawmills in the U.S. South is an important step in our transformation strategy; it will give us immediate scale in an attractive region, with quality assets in a rich fibre basket, close to growing end-markets. Our financial position will remain strong after this acquisition, and will support us as we continue to progress with our transformation strategy.
“We’re pleased with the quarterly improvement in tissue EBITDA and the progress around sales growth and productivity gains. We’re also excited about our recently-announced project to modernize the paper machine at Kénogami to produce high-grade SCA+ supercalendered paper and our plans to grow in biomaterials with the construction of a cellulose filament plant at that mill, in both cases taking advantage of synergies within our network of operations in the Saguenay-Lac-Saint-Jean region.
“While the paper project is focused on nearer-term competitiveness, the cellulose filament project highlights the added value we can bring to fiber through our role in its transformation as we look to build the forest products industry of the future.”
Resolute Forest Products reported an operating loss of $69 million in the quarter, compared to $18 million in the third quarter.
Most of the change was attributable to costs associated with the indefinite idling of the Augusta, Georgia mill ($31 million) and lower selling prices ($17 million). Net of the costs associated with the Augusta idling, manufacturing costs were lower in the quarter ($8 million), due largely to favourable timing of outages, despite production disruptions at the Calhoun, Tennessee mill.
Volumes were lower ($4 million), with most of the impact in wood products (9%).
For all of 2019, the company generated operating income of $17 million, compared to $379 million in 2018.
The largest difference was selling prices ($240 million), particularly for wood products and pulp, followed by: higher manufacturing costs ($128 million, net of the costs associated with the Augusta idling) due mostly to higher fibre costs and additional maintenance; an unfavourable variance ($47 million) related to gains on divestitures, impairments, write-downs and closure costs, including Augusta; lost contribution from the divested assets ($46 million); and a decrease in overall shipments ($27 million), with drops in the wood products and paper segments.
The unfavourable items were partially offset by: lower depreciation and amortization ($45 million); the favourable impact of the weaker Canadian dollar ($43 million); lower selling, general and administrative expenses ($29 million) due to lower variable compensation; and favourable freight costs ($11 million).
“Our average transaction price in market pulp is down by over $200 per metric ton from its peak about one year ago, but we believe the cycle reached bottom in the fourth quarter,” says Laflamme.
“Indeed, we see stronger operating rates, especially in softwood pulp, as indicators of long-term demand growth for quality market pulp, which is consistent with the recently-reported steps the industry has taken toward pricing recovery. With our existing tissue footprint, we expect progressive earnings growth for 2020 in the business as we continue to build on recent improvements around sales growth and productivity gains.
“We’re excited with the prospects around the pending acquisition of three U.S. sawmills, as our timing allowed us to achieve an attractive price. The upside will come with the turnaround plan for the assets and continued momentum in market conditions from their recent soft levels. We will continue to maximize the earnings power and cash generation of our paper segments, although we have modest expectations when it comes to this year’s earnings as there are limited catalysts to support a material improvement in the near term.”