Resolute Reports Preliminary Second Quarter 2013 Results
Aug. 1, 2013 - Resolute Forest Products Inc. (NYSE: RFP) (TSX: RFP) today reported a net loss of $43 million for the quarter ended June 30, 2013, or $0.45 per share, on sales of $1.1 billion. This compares with a net loss of $17 million, or $0.17 per share, on sales of $1.2 billion in the second quarter ended June 30, 2012.
- Reports Q2 net income of $18 million / $0.19 per share, excluding special items
- Continues to reduce newsprint cost
- Reduces annual cash interest burden by $16 million with refinancing
Excluding $61 million of special items described below, net income for the quarter was $18 million, or $0.19 per diluted share. Excluding special items of $50 million, net income in the second quarter of 2012 was $33 million, or $0.33 per diluted share. Adjusted EBITDA was $90 million in the quarter, compared to $124 million in the year-ago period.
"We faced softer pricing conditions overall in the second quarter, but we preserved margin with efficiencies and cost reductions," said Richard Garneau, president and chief executive officer. "Our continued focus on operational excellence in our streamlined asset base makes us competitive even in environments like those facing our industry today."
Non-GAAP financial measures, such as adjustments for special items and adjusted EBITDA, are reconciled below.
OPERATING INCOME VARIANCE
The Company recorded operating income of $3 million in the second quarter, a $35 million improvement over the second quarter of 2012. Overall sales were down by 5%, or $61 million, to $1.1 billion. Continued cost reductions helped lower manufacturing costs by $23 million, mainly due to lower labor costs and operating efficiencies, in addition to benefits from external power sales from new cogeneration facilities. Higher pricing for wood products mostly offset lower pricing in paper grades, including a $24 million unfavorable change in newsprint pricing.
Compared to the second quarter of 2012, the Company took 85,000 metric tons less downtime in its pulp and paper segments. Shipments were down $32 million, in line with its efforts to streamline and adapt to changing market dynamics by focusing production in the most cost-effective mills. The Company now operates four fewer machines overall compared to the year-ago period, excluding the three pulp mills acquired with Fibrek Inc. Closure costs associated with these asset optimization initiatives were $76 million higher in last year's second quarter.
Operating income in the newsprint segment was $10 million in the second quarter, a $12 million improvement over the first quarter. The 7% drop in operating cost per unit ("delivered cost"), or $42 per metric ton, more than offset the 3% reduction in average transaction price, or $21 per metric ton, the steepest price drop in three consecutive quarters of declines. Newsprint production costs touched record Company lows in the quarter due to lower labor and seasonal steam costs, and the favorable full-quarter contribution of power sales from the new Thunder Bay cogeneration assets. The Gatineau, Québec, mill began making newsprint in May, and its cogeneration facility made its first sale of power on June 15. Despite lower overall pricing, newsprint sales in the quarter rose by 2% to $364 million because of a 6% increase in shipments. Consistent with the prior quarter, export sales were 45%.
The coated papers segment reported operating income of $2 million in the second quarter, up from breakeven in the first quarter. Sales fell by 6% to $96 million as a result of a 4% drop in average transaction price, or $36 per short ton, and a 2% reduction in volume in a lower-demand environment. Delivered cost, however, dropped by 5%, or $44 per short ton, falling below the trailing twelve month average for the first time since the second quarter of 2011. The improvement in manufacturing costs demonstrates the Company's progress toward operating its Catawba, South Carolina, facility more profitably on only two machines.
Operating income in the specialty papers segment dropped $8 million from the first quarter to breakeven in the second quarter. Sales rose by 2% to $242 million on a 4% seasonal increase in shipments, partially offset by a 2% reduction in average transaction price, or $15 per short ton. Delivered cost increased by 2%, or $14 per short ton, primarily because of a cold outage at the Calhoun, Tennessee, mill.
The market pulp segment generated operating income of $10 million in the second quarter, $15 million higher than in the previous quarter. Sales increased by 10% to $263 million on a 4% increase in average transaction price, or $27 per metric ton, and a 5% increase in shipments as the Company reduced inventory by 13%. Delivered cost was down 2% as a result of lower wood, labor and maintenance costs, and the favorable full-quarter contribution of power sales from the new Thunder Bay cogeneration assets.
Operating income in the wood products segment was $16 million in the second quarter, unchanged from the prior quarter. Sales increased by 3% as shipments rose by 2% and average transaction price improved by 1%, or $4 per thousand board feet. The higher sales were offset by a 1% increase in delivered cost, most of which was due to higher stumpage fees, which are linked to selling prices. The Company scheduled downtime at most of its sawmills during peak vacation periods in the third quarter to reduce the buildup in inventory as a result of lower than expected demand in May and June.
ORPORATE & FINANCE
On May 8, the Company completed the private offering of $600 million of 5.875% unsecured senior notes due 2023, using the proceeds to repurchase $496 million of 10.25% senior secured notes due 2018. Refinancing the secured notes with unsecured notes also reduces the annual cash interest burden by $16 million and adds five years to maturity.
As will be more fully described in the quarterly report on Form 10-Q for the period ended June 30, during the second quarter, the Company changed its accounting policy from the direct expensing of costs associated with planned major maintenance activities to the deferral method. The change in accounting policy was applied retroactively by adjusting comparative consolidated financial statements for the new policy, including the information presented in this earnings release, as applicable.
Mr. Garneau added: "Domestic newsprint prices have stabilized but the markets remain fragile as North American exports gradually improve. As some international markets are showing, however, conditions can change with currency fluctuations against the U.S. dollar. We expect relatively stable market conditions in market pulp for the balance of the year, and modest seasonal improvements in coated and specialty papers during the third quarter. Except for scheduled maintenance, we plan to run our pulp and paper assets to capacity for the balance of the year to satisfy customer requirements. Our lean and efficient operating platform is our key advantage to compete, even in unstable pricing environments.
"Conditions in the lumber market are uncertain, as demand improves but pricing fluctuates with mixed signals on U.S. consumption and rapid changes in production capacities. The timing of falling lumber prices late in the second quarter may impact third quarter price realization, as a result of the lag between pricing and delivery."
SOURCE: Resolute Forest Products Inc.