Cascades Reports Solid Results for the Third Quarter of 2018
Cascades reported strong quarterly performance in the third quarter of 2018 was driven by record containerboard results, and solid containerboard fundamentals support a favourable near-term outlook.
Nov. 9, 2018 - Cascades Inc. on Nov. 8 reported its unaudited financial results for the three-month period ended September 30, 2018.
Mario Plourde, President and Chief Executive Officer, commented, "Strong fundamentals in Containerboard Packaging were the driving factor behind our solid third quarter performance. This was reinforced by successful margin realignment in Recovery activities, which contributed to improved quarterly earnings in Specialty Products.
“Results in the Tissue division continued to be impacted by rising raw material and logistics costs, in addition to the capacity-driven competitive reality. While margins in this division were below expectations as a result of these factors and weather-related events, the solid quarterly sales performance highlights the underlying strength of our tissue platform, and supports the strategic investments being made to propel long-term competitive positioning.
“Finally, the European Boxboard segment, via our 57.8% equity position in Reno de Medici S.p.A., announced solid results in the seasonally softer third quarter that delivered a marked improvement in profitability year-over-year.
“On the strategic front, ramp-up of the new containerboard converting facility in Piscataway, New Jersey progressed very well, and production from the Maspeth, New York has been transferred to the new facility earlier than expected. Engineering work and project analysis continue to be advanced for the Bear Island project in Virginia, with scope and plans expected to be finalized in the first half of 2019. Reno de Medici S.p.A. announced that it had received the necessary approval from the Spanish Antitrust Authority and closed the acquisition of Barcelona Cartonboard SAU on October 31, 2018."
Analysis of results for the three-month period ended September 30, 2018 (compared to the same period last year)
Sales of $1,172 million increased by $69 million or 6% compared to the same period last year. This was driven by a 12% increase in the Tissue segment, reflecting volume improvements, a more favourable sales mix, exchange rate and higher average sales prices during the period. An 8% increase in the Containerboard Packaging division similarly benefited sales, and was driven by higher sales prices and the acquisition of Ontario converting facilities at the end of 2017.
Sales generated by the European Boxboard segment were up marginally compared to the prior year, as lower shipments were offset by improvements in both pricing and sales mix, and a favourable Canadian dollar — euro exchange rate.
Finally, third quarter sales in the Specialty Products division were below prior year levels, reflecting the lower sales in recovery activities following the significant decrease in year-over-year prices of brown recycle fibres.
Third quarter operating income stood at $78 million, a notable improvement from the $51 million generated last year. This increase was driven primarily by the Containerboard Packaging segment, where strong results reflect the improved raw material pricing environment and implementation of the industry-wide US$50/st price increase.
Operating income similarly benefited from improved results generated by the European Boxboard segment, reflecting lower raw material pricing and higher average selling prices. As was the case in the second quarter, the contribution from the Specialty Products division decreased slightly compared to last year as a result of the impact of lower raw material prices on recovery activities.
Lastly, results in the Tissue division reflected higher raw material and transportation costs, the effects of which mitigated the benefits derived from a more favourable pricing and sales mix, and higher volumes.
On an adjusted basis1, third quarter operating income stood at $76 million, versus $53 million in the prior year.
The specific items, before income taxes, that impacted our third quarter 2018 operating income and/or net earnings were:
- a $2 million unrealized gain on financial instruments (operating income and net earnings)
- a $1 million restructuring charge related to the forthcoming closure of two sheets plants in Ontario (operating income and net earnings)
- a $1 million gain related to a plant closed in a previous year (operating income and net earnings)
- a $3 million foreign exchange gain on long-term debt and financial instruments (net earnings)
For the three-month period ended September 30, 2018, the Corporation posted net earnings of $36 million, or $0.38 per common share, compared to net earnings of $33 million, or $0.35 per common share in the same period of 2017. On an adjusted basis1, the Corporation generated net earnings of $38 million in the third quarter of 2018, or $0.40 per common share, compared to net earnings of $19 million, or $0.20 per common share, in the same period of 2017.
Near-Term and Strategic Outlook
Discussing short-term expectations, Mr. Plourde commented: "We expect solid market conditions to continue to drive results in the Containerboard business within the framework of the softer seasonal demand typical of the fourth quarter. While recent announcements regarding future capacity additions have led to some concern about longer-term demand-supply balance in the containerboard market, current data suggests that the market will remain well balanced over the medium-term. Given this, the containerboard division is expected to continue to be an important contributor to our business performance over this timeframe.
Turning to Tissue, capacity additions and elevated raw material costs will continue to impact the performance of this segment in the near-term. As such, we remain focused on realizing recently announced price increases, maximizing efficiency, optimizing our operational performance, and we remain committed to strategically investing in the modernization of our asset base to reinforce our market positioning.
Strategically, we are focused on successfully carrying out our 2018 investment program, ramping up production at our recently opened containerboard converting facility, broadening our tissue sales penetration in Oregon, and completing engineering analysis for the Bear Island project in Virginia. On a broader scale, our daily operational focus and our longer-term strategic plans continue to be driven by our commitment to be meticulous with our capital allocation practices, to diligently manage our leverage, and to successfully position our asset base for long term success."
1 For further details, please refer to the "Supplemental Information on non-IFRS Measures" section which can be found within Cascades' full third quarter report 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.