Cascades Announces Second Quarter 2017 Results
Aug. 10, 2017 - Cascades Inc. (TSX: CAS) reports its unaudited financial results for the three-month period ended June 30, 2017.
Mr. Mario Plourde, President and Chief Executive Officer, commented: "We have made significant progress on our strategic objectives in recent months with the Greenpac transaction, the inauguration of the new state of the art tissue converting plant in Scappoose, Oregon, the sale of our equity interest in Boralex and, more recently, the announcement of the construction of a new ultra-modern containerboard converting plant in Piscataway, New Jersey. To this end, our second quarter results provide a more comprehensive picture of our North American Containerboard business following the consolidation of the results of the Greenpac Mill at the beginning of the quarter. This acquisition resulted in a gain of $281 million on net earnings, and added $219 million to our total net debt levels. However, on a pro-forma basis including Greenpac's results for the last twelve months, our leverage ratio stood at 4.2x as of the end of the second quarter, essentially unchanged from the previous quarter.
“That said, our second quarter results fell short of expectations, most notably in our Containerboard segment. On a consolidated basis, the benefits realized year-over-year as a result of Greenpac and implementation of price increases in Containerboard, were limited by higher raw material costs, slightly lower volumes in Tissue, and higher operational costs primarily in Containerboard and Corporate activities.
“Looking more specifically at our Containerboard business, the addition of Greenpac increased quarterly sales and operating income both sequentially and year-over-year. On a year-over-year basis, results were impacted by higher raw material costs, most notably OCC, which exceeded the benefits being realized from recent price increases which have yet to be fully implemented. Sequentially, the increases in price that have already been realized and a favourable product mix offset the incremental higher raw material cost during the second quarter. Higher operational, logistics and some unusual costs also tempered Containerboard operating income performance during the current period.
“Second quarter results in our Tissue business decreased year-over-year as the benefits of higher realized average selling prices and favourable sales mix were more than offset by lower sales of jumbo rolls in the current period, as well as costs related to brand repositioning and the start-up of the new Oregon converting plant. On a sequential basis, Tissue results increased as a result of better seasonal volumes and improvements in average selling price, the benefits of which were partially offset by higher raw material costs.
“As was the case in the first quarter, higher recycled fibre prices benefited results in our Specialty Products business in the second quarter. In addition, higher selling prices in the Industrial and Consumer Products packaging sectors similarly contributed to the improved results. Our Boxboard Europe segment improved results both sequentially and on a year-over-year basis. This reflects improved pricing, and strong order intake levels, which are attributable to a continued strengthening of market fundamentals. These improvements, along with lower energy prices, mitigated the impact of higher raw material prices on both a sequential and year-over-year basis.
“Finally, the sale of our equity position in Boralex announced on July 27th will provide us with the means to improve our positioning within our core markets and strengthen our balance sheet. Proceeds from this transaction were used to repay the borrowings under our credit facility and to reduce our net debt leverage ratio, which, including this transaction, now stands at 3.5x on a pro-forma basis.
“We are similarly pleased that Cascades was added to the S&P/TSX Composite Index effective June 19, 2017, as this provides increased exposure to a wider base of investors, and supports our efforts to deliver on our commitments to shareholders."
Analysis of results for the three-month period ended June 30, 2017 (compared to the same period last year)
Sales of $1,130 million increased by $132 million or 13% compared to the same period last year, reflecting growth and favourable exchange rates in all four of the Corporation's business segments. Sales in the Containerboard business increased by 25% compared to the prior year, driven by the inclusion of the Greenpac Mill sales in the current period, in addition to an improved sales mix and higher average selling price when excluding Greenpac. Specialty Products generated a 20% sales increase, driven primarily by additional sales from our recovery and recycling activities due to higher recycled fibre pricing. In Boxboard Europe, better volumes and selling prices in Canadian dollars generated an 8% increase in sales. Finally, in Tissue, a 2.5% increase in sales reflected improvements in sales mix and selling prices, the benefits of which were partially offset by lower jumbo roll sales volumes.
Second quarter operating income stood at $48 million, down from $65 million last year. Despite the inclusion of Greenpac in this quarter, the decrease reflects higher raw material costs, which were partially offset by price increases in Containerboard, Tissue and Boxboard Europe. Higher production costs in Containerboard, Tissue and in Corporate activities related to the continuing business transformation, also negatively impacted operating income. Specific items recorded in the current period (please refer to the ''Supplemental Information on Non-IFRS Measures'' section for more details) decreased operating income by $3 million. On an adjusted basis, first quarter operating income stood at $51 million, down from $65 million in the prior year period.
The main specific items, before income taxes, that impacted our second quarter 2017 operating income and/or net earnings were:
- a $219 million gain on fair-value revaluation of investment and income tax recovery of $70 million related to the consolidation of Greenpac (net earnings)
- a $7 million gain related to the sale of real estate (operating income, net earnings)
•an $11 million decrease of value of assets following the consolidation of Greenpac (operating income, net earnings)
- a $4 million unrealized gain on derivative financial instruments (operating income, net earnings)
- an $11 million gain on foreign exchange on long-term debt and financial instruments (net earnings)
For the second quarter of 2017, the Corporation posted net earnings of $323 million, or $3.41 per common share, compared to net earnings of $36 million, or $0.38 per common share in the same period of 2016. On an adjusted basis, the Corporation generated net earnings of $24 million during the second quarter of 2017, or $0.25 per common share, compared to net earnings of $35 million or $0.38 per common share in the same period of 2016. Please see the "Supplemental Information on Non-IFRS Measures" section for reconciliation of the amounts detailed above.
Discussing the outlook for Cascades, Mr. Plourde commented: "Looking ahead, we remain cautiously optimistic. While raw material pricing fluctuations will persist, we believe that the embedded cost increases will be offset by the continued implementation of the announced price increases, thereby easing pressure on margins going forward. That said, we expect our average OCC cost in the third quarter to be stable to slightly above second quarter levels, as both domestic and export-related demand remain robust.
“On a segmented basis, near-term performance from our Containerboard activities should benefit from the favourable North American industry demand trends, the seasonally strong summer season, the addition of Greenpac results, and the full roll-out of the price increases throughout our customer base.
“More specifically, with the Fall 2016 US$40 s.t. price increase fully implemented as of the end of the second quarter, additional benefits will be realized as the February 2017 US$50 s.t. increase is rolled-out and fully implemented as of the end of the third quarter. In addition, fulfillment of the additional US$20/s.t. increase in medium prices is expected to be positive for results as of the end of the third quarter.
“In Boxboard Europe, results are expected to continue to reflect the more favourable market dynamics including stronger order inflow and backlog trends, and the continued implementation of the announced €20 per ton price increase and subsequently announced €40 per ton price increase, the latter of which is effective in September.
“Performance in the Specialty Products segment is expected to include variances in its recovery and recycling activities that mirror changes in market pricing, and continued positive momentum in its other activities.
“Finally, near-term results from our Tissue activities are expected to reflect a combination of the seasonally stronger summer season, benefits from the ramp up of the new converting facility in Oregon, offset by higher raw material prices and continued pricing pressure in the jumbo roll segment.
"Going forward, we remain committed to our stated objectives. In the near-term, we are focused on completing the implementation of the announced price increases in our Containerboard segment to offset the recent raw material cost inflation. In addition, we are intent on finalizing our ERP implementations and our internal business process reorganization by the end of 2017, after which efforts will be refocused on optimization. While these transformation initiatives are expected to remain demanding at the operational level through the end of 2017, the resulting internal transformation will contribute to our efforts to strengthen our market positioning and increase our operational flexibility.
“In the mid to longer-term, we remain committed to continuing to reduce our debt levels to increase our financial flexibility and enhance our ability to pro-actively deliver on our strategic objectives and create long-term value."
Cascades' full second quarter report can be found on the company's website: www.cascades.com.
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.