Canfor Pulp Products Inc. reported net income of $28.0 million, or $0.40 per share, for the first quarter of 2015, compared to $20.7 million, or $0.29 per share, for the fourth quarter of 2014 and $25.7 million, or $0.36 per share, for the first quarter of 2014.
The following table summarizes selected financial information for the Company for the comparative periods:
After adjusting for items affecting comparability with the prior periods, the Company’s adjusted net income for the first quarter of 2015 was $33.3 million, or $0.47 per share, compared to an adjusted net income of $21.3 million, or $0.30 per share, for the fourth quarter of 2014. CPPI’s adjusted net income for the first quarter of 2014 was $26.7 million, or $0.37 per share.
The Company reported operating income of $41.4 million for the first quarter of 2015, an increase of $13.4 million from $28.0 million reported for the fourth quarter of 2014. The improvement in operating income compared to the previous quarter principally reflected increased unit sales realizations for both the pulp and paper segments, driven by a significantly weaker Canadian dollar, which more than offset lower US dollar prices, and reduced pulp unit manufacturing costs primarily attributable to the impact of the scheduled maintenance outage in the pulp segment in the fourth quarter of 2014. The Company’s results for the current quarter also included the recently acquired Taylor Bleached Chemi-Thermo Mechanical Pulp (“BCTMP”) Mill, purchased from Canfor on January 30, 2015.
Softwood pulp markets weakened somewhat in the first quarter of 2015, for the most part reflecting strong industry operating rates and increased inventory levels in the marketplace. Reflecting the global softwood pulp market conditions, average list prices for Northern Bleached Softwood Kraft (“NBSK”) pulp, as published by RISI, were down in all regions, with the North American average NBSK pulp list price declining US$30 per tonne, or 3%, to US$995 and the list price to China seeing a larger decline, down US$52 per tonne, or 7%. Despite this, the Company’s NBSK pulp sales realizations showed a modest increase from the prior quarter, largely as a result of the sharp deterioration of the Canadian dollar (down 9%) and increased shipments to higher-margin regions in the current quarter.
Pulp shipments increased 5% from the previous quarter, reflecting additional shipments from the recently acquired Taylor Pulp Mill. Total NBSK pulp shipments were down moderately quarter-over-quarter, with increased demand from North America more than offset by reduced shipments to Asia, in part reflecting the traditional Chinese Lunar New Year holiday. Pulp production levels were up 19%, reflecting both the contribution of the Taylor Pulp Mill as well as increased NBSK pulp production following the scheduled maintenance outage at the Northwood Pulp Mill in the previous quarter. Pulp unit manufacturing costs in the first quarter of 2015 were down moderately compared to the fourth quarter of 2014, principally attributable to the maintenance outage in the previous quarter.
The Company’s paper segment results were up slightly from the previous quarter, with improved unit sales realizations, resulting principally from the weaker Canadian dollar, partially offset by lower shipments and marginally higher unit manufacturing costs, the latter reflecting market-driven increases in slush pulp costs. Paper production was in line with the previous quarter.
Commenting on the first quarter’s results, CPPI’s Chief Executive Officer, Don Kayne, acknowledged the sharp decline in the Canadian dollar was a significant contributor to the Company’s improved results and in regards to operations, said, “It was encouraging to see solid improvement in our production performance through the quarter.” Kayne added that the Company’s Intercontinental Pulp Mill turbine upgrade was completed on-time and on-budget at the end of March, and that the facility is now selling power externally under an Electricity Purchase Agreement. “This represents another major milestone for our growing energy business,” said Kayne.
As previously mentioned, on January 30, 2015, CPPI completed the purchase of the Taylor Pulp Mill from Canfor for cash consideration of $12.6 million, including final working capital. In addition to the cash consideration paid on the acquisition date, CPPI may also pay contingent consideration to Canfor over a 3 year period, starting January 31, 2015, based on the Taylor Pulp Mill’s annual adjusted operating income before amortization.
NBSK pulp markets are projected to stabilize somewhat during the industry’s annual spring maintenance period in the second quarter of 2015. For the months of April and May 2015, the Company announced NBSK pulp list prices of US$980 per tonne in North America, unchanged from March 2015, and list price increases to China of US$10 per tonne for the month of April 2015, and a further US$20 per tonne for May 2015. Maintenance outages are planned at the Intercontinental and Prince George Mills in the second quarter of 2015, with a projected 10,000 tonnes of reduced NBSK pulp production. The Taylor BCTMP mill will complete a planned maintenance outage in the second quarter of 2015 with a projected 3,000 tonnes of reduced production.
On April 28, 2015, the Board of Directors declared a quarterly dividend of $0.0625 per share, payable on May 19, 2015, to the shareholders of record on May 11, 2015.