Resolute Forest Products Inc. invested $52 million in fixed assets during the second quarter, $30 million of which was dedicated to its Calhoun tissue project in Tennessee.
The company reported yesterday that no drawdown was made on the asset-based credit facility in the quarter, maintaining the $20 million drawn on the facility as of June 30. Resolute’s cash and cash equivalents increased by $3 million, and total liquidity increased by $9 million to $452 million.
Resolute reported a GAAP net loss for the quarter of $42 million, or $0.47 per share, compared to a GAAP net loss of $4 million, or $0.04 per share, in the same period in 2015. Sales were $891 million in the quarter, down $35 million, or 4%, from the second quarter of 2015. Excluding special items, the company reported net income of $6 million, or $0.07 per share, compared to net income of $7 million, or $0.07 per share, in the second quarter of 2015.
“Despite challenging market conditions in certain of our business segments, we recorded a solid performance this quarter,” Richard Garneau, president and CEO of Resolute, said in news release. “Our wood products segment has delivered significant improvements as markets continued their slow recovery. In our paper segments, we continue to demonstrate our ability to generate consistent value despite structurally challenging market conditions, while annual maintenance-related declines in pulp production more than offset benefits of rising market prices. Although our tissue operations continued to underperform and remain a key focus for the year, we are excited by the advancement of our Calhoun tissue project, as we achieve a key milestone this month with the commissioning of our first converting line.”
The company recorded an operating loss of $18 million for the second quarter, compared to operating income of $16 million in the year-ago period. Key to the quarter’s reported performance was a non-recurring $37 million closure and impairment related charge, almost all of which resulted from the permanent shutdown of a newsprint machine at the Augusta facility during the quarter. A decline in sales arising mostly from comparatively weaker prices was almost entirely offset by reductions in costs and the weaker Canadian dollar.
The average transaction price for market pulp fell by 8%, newsprint by 5%, and specialty papers by 5%, but rose by 2% in wood products, resulting in an overall unfavourable variance of $38 million on pricing, excluding foreign exchange, when compared to last year.
However, the delivered cost also declined, by 2% for pulp, 15% for wood products, 2% for newsprint, and 5% for specialty papers, mainly due to favourable foreign exchange and lower manufacturing costs, including a reduction in the non-operating pension and OPEB expense resulting from the lower net balance sheet pension liability as of December 31, 2015. The lower manufacturing costs also reflect lower commodity prices and stronger internal hydroelectric generation, which were offset in part by higher maintenance costs. The delivered cost was also favourably impacted by a reduction in depreciation and amortization related to the periodic review of the estimated economic useful life of our machinery and equipment conducted in the first quarter, as well as the impairment of the Catawba (South Carolina) assets taken in the fourth quarter of 2015.
Shipments decreased 2% in market pulp as well as by 7% and 2% in newsprint and specialty papers respectively, reflecting structural market declines across printing paper grades. On the other hand, shipments of wood products have risen by 6%, supported by firmer demand in the U.S. housing market. Overall inventories have declined in all segments compared to the year-ago period, except in wood products, where stocks increased by 10%.
Outlook
“Our views on pulp markets remain unchanged, with near-term perspectives still positive but deteriorating as incremental supply creates unfavourable pressure on prices,” Garneau said in the release. “In wood products, on the other hand, we believe market conditions will continue to improve, diminishing the potential impact of trade restrictions in 2017. We believe paper grades will see a seasonal uptick in the short-term, with newsprint prices continuing to rise while coated and supercalendered grades see sustained downward pressure. Our tissue segment will remain a focus as action plans are executed and profitability improves over the next two quarters. Our greenfield tissue project in Calhoun continues to advance as planned and on budget. The two remaining conversion lines will be commissioned in the next few months, ahead of our tissue machine startup, scheduled for the first quarter of 2017.”