Wood Business

New Gear Equipment Sawmilling
Weather cost Resolute $55 million

May 1, 2014 - Resolute Forest Products reported a net loss for the quarter ended March 31, 2014, excluding special items, of $26 million, or $0.27 per share, down from net income, excluding special items, of $28 million, or $0.30 per share, in the first quarter of 2013. GAAP net loss was $50 million, or $0.53 per share, compared to $5 million, or $0.05 per share, in the first quarter of 2013. Sales were $1.0 billion in the quarter, down by $58 million from the first quarter of 2013.

"Operating costs ordinarily peak in winter, but this year has been extremely cold, and its effects weighed heavily on our quarterly results," said Richard Garneau, president and chief executive officer. "The abnormally cold winter caused a material increase in energy costs, production disruptions, equipment failures and distribution constraints. Though some of these effects will carry into the second quarter, we're focused on moving beyond this disappointing quarter, committed to maximize our competitive advantage in this challenging industry and improve our earnings power."

The company recorded an operating loss of $33 million in the first quarter, compared to $49 million in the year-ago period. The seasonal effect of winter was significantly more severe in 2014, adversely affecting operating income by $55 million, and outweighing the favorable effect of the weaker Canadian dollar ($32 million). The effects of the abnormally cold winter included:

Higher steam costs because of higher fuel energy pricing throughout most of the network and an increase in usage, particularly at the U.S. southeast mills, which are not designed for sustained freezing conditions;

High electricity costs at the Ontario mills because of volatility and sharp increases in that province's market-based power rates;

Approximately 30,000 metric tons of lost production due to natural gas curtailments, electricity costs or other process limitations and distribution constraints for lack of carrier availability; and

Additional costs of freight, fiber in the U.S., labour, chemicals and maintenance.

The company also experienced a greater than expected level of operational disruptions in the quarter, including mechanical failures in Catawba, the failure of the bleaching tower and a turbine valve at Saint-Félicien, and a failure in a machine's vacuum blower at Augusta. Operational disruptions accounted for approximately 25,000 metric tons of lost production in the quarter, and $7 million of additional costs.

Overall pricing was lower this quarter ($15 million) because of lower average transaction prices in newsprint, specialty papers and wood products, more than offsetting the 8% increase in market pulp prices. In a segment facing secular decline, newsprint shipments were 3% higher, despite the effects of the abnormal weather and operational disruptions. Wood products shipments also rose by 4%. But shipments fell by 7% in specialty papers due to the abnormal weather and operational disruptions, and by 10% in market pulp for the same reasons, plus an increase in inventory as a result of timing and distribution constraints for lack of carrier availability. Manufacturing costs increased largely because of the effect of the abnormal winter and the operational disruptions, but also because of higher stumpage fees and other costs associated with the comprehensive modification of the forest tenure system in the province of Québec. These increases were only partly offset by the absence of start-up costs, lower pension and other postretirement benefit expenses, the addition of electricity cogeneration production at Thunder Bay and Gatineau, and lower labour costs from restructuring initiatives. Selling, general and administrative expenses were $8 million lower in the quarter. Because of the timing of asset optimization and mill restructuring initiatives, closure costs, impairment and other related charges were $30 million lower in the first quarter of 2014.

Wood Products
Compared to the fourth quarter, operating income in the wood products segment rose by $3 million, to $12 million. The average transaction price rose by 2% but shipments dropped by 7% and inventory rose significantly, mostly due to softer demand as a result of the abnormal winter and distribution constraints for lack of carrier availability. The delivered cost fell by 2%, reflecting the weaker Canadian dollar and the retroactive reversal of certain export duties, despite an increase in log costs.

Mr. Garneau added: "The costs of natural gas and Ontario power normalized through April, but distribution constraints will likely continue through the second quarter, which will weigh on shipments as well as freight and warehousing costs. Despite that, we expect to reduce inventory and increase shipment volumes across all segments. Recent industry conversion announcements suggest higher newsprint operating rates toward the later part of the year. The coated papers portion of our specialty papers segment is expected to remain under pressure as a result of lower demand. Market prices for lumber have been trending down until recently due to the cautious recovery in U.S. housing starts."

May 1, 2014  By CNW Telbec

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