Cascades Reports Solid Results for the First Quarter of 2020
"First quarter sales increased 7% from the prior quarter. This reflected improvements in all business segments, most notably in Tissue, European Boxboard and specific Specialty Packaging products . . ." – Mario Plourde, President and Chief Executive Officer
May 7, 2020 - Cascades Inc. (TSX: CAS) reports its unaudited financial results for the three-month period ended March 31, 2020.
Q1 2020 Highlights
Sales of $1,313 million(compared with $1,227 million in Q4 2019 (+7%) and $1,230 million in Q1 2019 (+7%))
As reported (including specific items)
- Operating income of $90 million (compared with an operating loss of $1 million in Q4 2019 and an operating income of $72 million in Q1 2019 (+25%))
- Operating income before depreciation and amortization (OIBD)1 of $161 million (compared with $76 million in Q4 2019 (+112%) and $139 million in Q1 2019 (+16%))
- Net earnings per share of $0.24 (compared with net loss per share of $0.27 in Q4 2019 and net earnings per share of $0.26 in Q1 2019)
Adjusted (excluding specific items)1
Exercised option to acquire the Caisse de dépôt et placement du Québec's ("CDPQ") 20.2% interest in the Greenpac Mill, increasing the Corporation's ownership to 86.3%; Transaction was settled January 3, 2020 for a total purchase price of $121 million.
Net debt1 of $2,212 million as at March 31, 2020 (compared with $1,963 million as at December 31, 2019) reflecting FX impact ($140 million) and the acquisition of CDPQ's interest in Greenpac Mill ($121 million); Net debt to adjusted OIBD ratio1 at 3.5x.
- Operating income of $90 million (compared with $75 million in Q4 2019 (+20%) and $68 million in Q1 2019 (+32%))
- OIBD of $161 million (compared with $152 million in Q4 2019 (+6%) and $135 million in Q1 2019 (+19%))
- Net earnings per share of $0.42 (compared with $0.30 in Q4 2019 and $0.14 in Q1 2019)
1For further details, please refer to the "Supplemental Information on non-IFRS Measures" section.
Mr. Mario Plourde, President and Chief Executive Officer, commented: "Our first quarter results are a testament to the dedication and hard work of every one of our employees during these challenging times. We are very proud of their commitment to support our customers and communities by ensuring that our facilities meet the heightened demand for the essential tissue and packaging products we produce. Within this difficult context, first quarter sales increased 7% from the prior quarter. This reflected improvements in all business segments, most notably in Tissue, European Boxboard and specific Specialty Packaging products as a result of consumer buying patterns related to Covid-19 and strategic actions taken in recent quarters.
Sales growth of 7% year-over-year was largely driven by increases in Tissue, which benefited from higher volumes and favourable average selling price, sales mix and exchange rate. Containerboard sales also increased year-over-year, as higher volumes and a beneficial exchange rate offset the impacts from a less favourable sales mix and lower average selling price. Sales in European Boxboard decreased slightly year-over-year largely due to lower average selling prices, while lower sales in Specialty Products reflect a business divestiture and mill closure in 2019.
First quarter adjusted OIBD of $161 million, which is net of a $10 million expected credit loss provision taken against accounts receivable amounts across our business segments, increased 6% sequentially and 19% compared to the prior year period. The sequential performance was driven by improved results in Tissue that reflected volume growth combined with a higher average selling price. Stronger sequential performances from the European Boxboard and Specialty Packaging segments also benefited from volume growth. European Boxboard results also reflected lower raw material pricing and lower average selling prices, while the reverse was true for Specialty Packaging. The year-over-year growth was entirely attributable to the improved performance in the Tissue segment.
Discussing near-term outlook, Mr. Plourde commented, "At this time we expect second quarter performance to be the result of a combination of tailwinds and headwinds in our different business segments. Specifically, Tissue results will reflect elevated raw material prices due to higher white recycled grade fibre costs and a greater use of virgin pulp due to lower levels of available recycled material. Containerboard margins are also expected to be impacted by higher OCC prices. Volumes in both Tissue and Containerboard are also forecasted to slow sequentially following an easing of the Covid-19 related pantry stocking trends seen in the first quarter and lower demand levels following business closures. Near-term Specialty Product performance is expected to reflect stronger consumer packaging trends, the effects of which should offset softness in industrial packaging. Boxboard Europe results are expected to increase slightly, supported by steady demand and announced industry price increases.
Our priority is the health and safety of our employees, ensuring the continuity of our production to meet the needs of our customers, supporting community initiatives and working in partnership with customers impacted by the current business environment. We will remain vigilant in our cash flow management, and expect our projected available liquidity levels to meet future requirements. We will adjust investment plans further should they be required while continuing to manage our debt level. Given the uncertainty regarding the potential impact from the Covid-19 pandemic over the coming months, we are focused on prudent cash flow management, and have therefore reduced planned capital expenditures to a range of $175 to $200 million for the year, down from $250 million previously, but are maintaining our current dividend policy. Analysis of our Bear Island conversion project has continued at a slower pace given current circumstances, and as such we will not be providing any updated specifics or schedule at this time."
Analysis of results for the three-month period ended March 31, 2020 (compared to the same period last year)
Sales of $1,313 million grew by $83 million, or 7%, compared with the same period last year. This reflected increases in all segments with the exception of Specialty Products, but was largely driven by the Tissue segment, where sales grew $98 million, or 28%, compared to the prior year. Specifically, sales in the Tissue segment reflected increased consumer demand in light of Covid-19, higher average selling price, more favourable sales mix and foreign exchange impact, and the addition of Orchids assets in the second half of 2019.
European Boxboard sales decreased by $7 million, or 3%, compared with the previous year. This was largely driven by lower average selling prices in both recycled and virgin boxboard and a less favourable Canadian dollar — euro exchange rate, the effects of which were partially offset by higher volumes.
Sales in the Specialty Products segment decreased 12% or $16 million year-over-year, reflecting the divestiture of the European activities and closure of the felt vinyl backing mill during the second half of 2019, the impacts of which outweighed the benefits from higher volume in Consumer packaging and favourable exchange rate.
Lastly, sales in the Containerboard Packaging group increased by 4% or $17 million year-over-year, due primarily to higher volume and, to a lesser extent, by a more favourable exchange rate. These benefits were partially offset by a lower average selling price and less favourable sales mix year-over-year.
The Corporation generated an operating income before depreciation and amortization (OIBD) of $161 million in the first quarter of 2020, which is net of a $10 million expected credit loss provision taken on accounts receivable amounts across the Corporation's business segments in relation to the current uncertainty caused by the pandemic. This compares with the $139 million generated in the same period last year, an increase of $22 million. The annual improvement was driven by the Tissue segment, where results benefited from lower raw material prices, volume gains, and more favourable average selling price and sales mix.
European Boxboard results also improved slightly year-over-year, as benefits from lower raw material costs and higher volumes offset the impacts from lower average selling prices and higher production costs.
The decrease in Containerboard results reflect a lower average selling price, higher operational and freight costs and less favourable sales mix, the effects of which mitigated the benefit from lower raw material costs.
Specialty Products performance reflect higher operating and maintenance costs, partially offset by volume gains and improved realized spreads in some sub-sectors.
On an adjusted basis1, first quarter 2020 OIBD stood at $161 million, versus $135 million in the previous year. The main specific items, before income taxes, that impacted our first quarter 2020 OIBD and/or net earnings were:
- $1 million charge related to an environmental provision for a Specialty Products plant in Québec that was closed in a prior year (OIBD and net earnings)
- $1 million unrealized gain on financial instruments (OIBD and net earnings)
- $17 million foreign exchange loss on long-term debt and financial instruments (net earnings)
For the 3-month period ended March 31, 2020, the Corporation posted net earnings of $22 million, or $0.24 per share, compared to net earnings of $24 million, or $0.26 per share, in the same period of 2019. On an adjusted basis1, the Corporation generated net earnings of $39 million in the first quarter of 2020, or $0.42 per share, compared to net earnings of $13 million, or $0.14 per share, in the same period of 2019.
Founded in 1964, Cascades produces, converts and markets packaging and tissue products that are composed mainly of recycled fibres. To learn more, please visit: www.cascades.com.
SOURCE: Cascades, Inc.