Resolute Forest Products Reports First Quarter 2013 Earnings
April 30, 2013 - Resolute Forest Products Inc. today reported a net loss of $5 million for the quarter ended March 31, 2013, or $0.05 per share, on sales of $1.074 billion. This compares to net income of $23 million, or $0.23 per diluted share, on sales of $1.054 billion in the first quarter ended March 31, 2012.
Excluding $33 million of special items, net income for the quarter was $28 million, or $0.30 per share. Excluding special items of $16 million, net income in the first quarter of 2012 was $7 million, or $0.07 per diluted share. Non-GAAP financial measures, such as adjustments for special items and adjusted EBITDA, are reconciled below.
"Our efforts to restructure mills and machines during the last two years will lower our manufacturing costs, which will help to mitigate the challenges facing the North American forest products industry," said Richard Garneau, president and chief executive officer.
Concerning the status of the funding relief measures related to the material Canadian registered pension plans, he added: "On April 26, we reached an agreement in principle with Company stakeholders in Quebec, the provincial government, and its pension regulator to replace the significant uncertainty associated with potentially material corrective measures in favor of more stable, predictable and balanced pension funding we need to run our business. Under this agreement, we would make reasonable incremental contributions in order to secure longer-term funding stability. With this significant progress in Quebec, we look forward to meeting very soon with the provincial government of Ontario and its pension regulator, and our Ontario stakeholders."
Operating Income Variance
In the first quarter of 2013, the Company recorded an operating loss of $50 million, compared to $46 million in the fourth quarter of 2012. The $4 million unfavorable change reflects a $54 million reduction in sales, due to lower shipments of newsprint and specialty papers due to seasonality and market conditions, and capacity reduction initiatives. Overall pricing contributed $4 million, as higher transaction prices in wood products more than offset declines in newsprint. Cost of sales was down $19 million, due mainly to the lower volume, offset in part by costs associated with the annual outage at the Catawba, South Carolina, mill, higher mill start-up costs and increases in certain other manufacturing costs. The change in operating results was also favorably affected by a $42 million reduction in closure costs.
The newsprint segment reported an operating loss of $2 million in the first quarter, compared to operating income of $18 million in the fourth quarter of 2012. Average transaction price was down $17 per metric ton as a result of capacity pressure within North America. Overall shipments were down 6% in the seasonally slower quarter, but export volume rose to 46% of total shipments, compared to 37% in the fourth quarter, as a result of a gradual improvement in overseas markets. Finished goods inventory was 20,000 metric tons higher at the end of the quarter. Operating costs per unit rose 3% as a result of the lower volume, higher steam costs because of higher natural gas prices and seasonally higher consumption, and the timing of payroll benefits. The Company expects to restart its lower-cost Gatineau, Quebec, facility in early May to offset the recent machine closure at its Calhoun, Tennessee, mill.
The coated segment generated an operating loss of $3 million during the quarter, compared to operating income of $3 million in the previous quarter. Shipments rose 6% from the fourth quarter, in which the Company experienced equipment failures at the Catawba mill. Average transaction price was unchanged but operating costs rose $40 per short ton owing to the mill's annual outage.
Operating income increased by $1 million, to $9 million, in the quarter. Shipments were down 10%, reflecting seasonality and market conditions. During the fourth quarter, the Company implemented asset optimization initiatives, closing two machines and restarting the lower-cost Dolbeau, Quebec, facility. Operating costs in the segment improved by $14 per short ton as the Dolbeau mill, including its cogeneration facility, reached full production and the Company made efficiency improvements at its Laurentide, Quebec, mill. Costs were unfavorably affected by higher steam costs from higher natural gas prices and seasonally higher consumption. Average transaction price was down $8 per short ton in the quarter.
Operating loss in the market pulp segment was $4 million in the first quarter, compared to breakeven in the previous quarter. Average transaction price rose $7 per metric ton, but shipments were down 2%, due mainly to the annual outage at the Catawba mill. Operating cost per unit were $19 per metric ton higher, due to the annual outage at Catawba, higher wood costs in the U.S. southeast due to heavy rain and higher steam and chemical costs. Cost performance at the Saint-Felicien, Quebec, mill improved significantly following the costly catch-up maintenance and environmental work during the third and fourth quarters of 2012.
The wood products segment generated operating income of $16 million during the quarter, up $2 million from the fourth quarter. Average transaction price improved $36 per thousand board feet, but shipments were down 3% as a result of limited rail car availability. Operating costs per thousand board feet were 8% higher in the quarter because of higher wood costs - mainly increases in stumpage fees, which are linked to lumber selling prices - lower wood chip selling prices and a $4 million favorable inventory adjustment in the fourth quarter.
Corporate & Finance Initiatives
On April 26, the Company announced the pricing of its $600 million senior notes due 2023 offering at 5.875%, to be issued at 99.062% of par value. Net proceeds from the offering will be used to repurchase, repay or otherwise discharge all, or substantially all, of its $501.2 million outstanding 10.25% senior secured notes due 2018.
"With our strong balance sheet, we are able to take advantage of very attractive financial markets" said Jo-Ann Longworth, senior vice president and chief financial officer. "We are refinancing our high-coupon, secured debt with unsecured debt at an interest rate that is more than 40% lower and adds five additional years to maturity. Consistent with our strategy of acting opportunistically to continuously enhance our competitive position, it's the right time to lock in these attractive terms, which will reduce our annual interest burden by $15 million and improve our financial flexibility."
The offering of the 2023 notes is expected to close on May 8, subject to customary closing conditions.
Mr. Garneau added: "While we are encouraged with the incremental progress we are seeing on newsprint export markets, we expect domestic pricing to remain under pressure until more tonnes produced in North America are shipped offshore. With markets for specialty papers strongly influenced by advertising spending, demand may remain sluggish as customers are cautious based on recent U.S. economic data. Recent demand and pricing trends in the pulp market are giving us reason for cautious optimism that it is gaining momentum after its prolonged slump. Finally, lumber pricing has been strong, and we expect it to remain at or near current levels, as shipments from Canadian producers continue to be limited by strained supply chains from the increase in demand."
Resolute Forest Products is a global leader in the forest products industry with a diverse range of products, including newsprint, commercial printing papers, market pulp and wood products. The Company owns or operates over 40 pulp and paper mills and wood products facilities in the United States, Canada and South Korea, and power generation assets in Canada. Marketing its products in close to 90 countries, Resolute has third-party certified 100% of its managed woodlands to at least one of three internationally-recognized sustainable forest management standards, including 65% certified to the Forest Stewardship Council® (FSC®) standards. For additional information, visit: www.resolutefp.com.
SOURCE: Resolute Forest Products Inc.