Resolute Forest Products CEO Richard Garneau is optimistic about the company’s future.
In releasing the company’s latest report on Wednesday, Garneau said the company “is executing our strategy toward the Resolute of the future; building on the integration of two sawmills (in Ignace and Sapawe near Atikokan) this year. We’re focused on completing the Calhoun continuous pulp digester project (a mill in Tennessee).
“The project remains on track for a late-December start-up. Once fully operational, we expect that it will grow our market pulp capacity by 100,000 metric tons and will reduce our mill-wide costs. It will also provide enough slush pulp capacity to meet all of our fiber needs for the next phase in our transformation: the integration of our pulp assets to produce high-quality tissue and towel products.
“We will compete in that market as one of only a few integrated producers, using the latest technology,” Garneau said, adding that “this repositioning is crucial as we address the challenges facing the paper industry, where we continue to add value because of our focus on costs and operational excellence.”
The company reported net income of $14 million (excluding special items), or $0.15 per share, for the quarter ending Sept. 30, compared to net income of $15 million, or $0.16 per share, in the same period in 2014.
Sales were $905 million in the quarter, down $191 million, or 17 per cent, from the third quarter last year.
Garneau noted that the third quarter took into account lumber prices dropping to levels not seen since the first quarter of 2012 before bottoming last month then starting to recover in October.
“Markets continue to reflect lower North American lumber exports to Asia, but it appears that the mid-October expiration of the Canada-U.S. Softwood Lumber Agreement is not having a significant impact on supply so far,” he said. “As our newest Northwestern Ontario sawmills continue to increase and optimize production, they will help to improve our competitiveness as U.S. housing starts progress along their measured recovery and western Canadian log supply begins to tighten over time.
“We plan to start-up the new Calhoun pulp digester by late December, with the goal of realizing normal operating efficiency — and higher output of market pulp — toward the end of the first quarter. We continue to believe in the underlying fundamentals and the growth prospects for market pulp, but our near-term outlook for pricing remains cautious, considering the uncertainty around macro-economic factors and global commodity prices.
“The accelerating pace of demand decline in North America and the increase of currency-driven imports will continue to play a role in specialty paper markets in North America, with additional uncertainty resulting from the market access hurdles imposed by the U.S. Department of Commerce in connection with its investigation of imports of supercalendered papers from Canada,” Garneau said.
“Consumption of newsprint shows no sign of improvement, but we still expect to run all of our newsprint machines, as we believe that our asset base gives us a competitive edge to weather the accelerating pace of North American and global decline, and the effect of very low operating rates outside North America and Western Europe,” Garneau added.
The company reported operating income of $6 million in the quarter, compared to $16 million in the second quarter. The $10 million difference reflects lower selling prices ($25 million), particularly for newsprint and market pulp, and a $4 million increase in manufacturing costs, offset by the favorable effect of the weaker Canadian dollar ($12 million) and lower selling, general and administrative expenses ($6 million), the third quarter report said.
The change in manufacturing costs is due to higher scheduled maintenance, increased costs for chemicals and seasonally higher power costs, partially offset by lower fiber costs, a property tax adjustment and the recognition of additional tax credits in connection with infrastructure investments, the report said.