MONTREAL — Resolute Forest Products Inc. has reported a net loss for the quarter ended December 31, 2019, of $71 million, or $0.79 per share, compared to net income of $36 million, or $0.38 per diluted share, in the same period in 2018. Sales were $668 million in the quarter, a decrease of $264 million from the year-ago period. The fourth quarter of 2018 included sales from the Catawba (South Carolina) and Fairmont (West Virginia) facilities, which were sold in that period. Excluding special items, the company reported a net loss of $53 million, or $0.59 per share, compared to net income of $4 million, or $0.04 per diluted share, in the fourth quarter of 2018.

For the year, the company reported a GAAP net loss of $47 million, or $0.51 per share, compared to net income of $235 million, or $2.52 per diluted share, in 2018. Sales were $2.9 billion, down by 22% from the previous year, or 11% after removing sales from disposed assets. Excluding special items, the company reported a net loss of $46 million, or $0.50 per share, compared to net income of $183 million, or $1.96 per diluted share, in 2018.

Yves Laflamme, President and CEO (CNW Group/Resolute Forest Products Inc.

“Our fourth-quarter results reflect bottom-of-the-cycle conditions in market pulp, ongoing pricing pressures in paper grades and the slow pricing recovery in lumber,” said Yves Laflamme, president and chief executive officer. “The pending acquisition of three sawmills in the U.S. South is an important step in our transformation strategy; it will give us immediate scale in an attractive region, with quality assets in a rich fibre basket, close to growing end-markets. Our financial position will remain strong after this acquisition and will support us as we continue to progress with our transformation strategy. We’re pleased with the quarterly improvement in tissue EBITDA and the progress around sales growth and productivity gains. We’re also excited about our recently-announced project to modernize the paper machine at Kénogami to produce high-grade SCA+ supercalendered paper and our plans to grow in biomaterials with the construction of a cellulose filament plant at that mill, in both cases taking advantage of synergies within our network of operations in the Saguenay-Lac-Saint-Jean region. While the paper project is focused on nearer-term competitiveness, the cellulose filament project highlights the added value we can bring to fibre through our role in its transformation as we look to build the forest products industry of the future.” 

Non-GAAP financial measures, such as adjustments for special items and adjusted EBITDA, are explained and reconciled below.

Operating Income Variance Against Prior Period


The company reported an operating loss of $69 million in the quarter, compared to $18 million in the third quarter.  Most of the change was attributable to costs associated with the indefinite idling of the Augusta (Georgia) mill ($31 million) and lower selling prices ($17 million). Net of the costs associated with the Augusta idling, manufacturing costs were lower in the quarter ($8 million), due largely to favourable timing of outages, despite production disruptions at the Calhoun (Tennessee) mill. Volumes were lower ($4 million), with most of the impact on wood products (9%). 

For all of 2019, the company generated operating income of $17 million, compared to $379 million in 2018.  The largest difference was selling prices ($240 million), particularly for wood products and pulp, followed by higher manufacturing costs ($128 million, net of the costs associated with the Augusta idling) due mostly to higher fibre costs and additional maintenance; an unfavourable variance ($47 million) related to gains on divestitures, impairments, write-downs and closure costs, including Augusta; lost contribution from the divested assets ($46 million); and a decrease in overall shipments ($27 million), with drops in the wood products and paper segments. The unfavourable items were partially offset by: lower depreciation and amortization ($45 million); the favourable impact of the weaker Canadian dollar ($43 million); lower selling, general and administrative (or, “SG&A“) expenses ($29 million) due to lower variable compensation; and favourable freight costs ($11 million). 

Market Pulp

The market pulp segment recorded an operating loss of $18 million in the fourth quarter, compared to $12 million in the third quarter.  The wider loss reflects a 4% reduction in the average transaction price, to $601 per metric ton, only partially offset by lower maintenance costs due to the timing of maintenance outages. But the operating cost per unit (or, the “delivered cost“) was unchanged, at $663 per metric ton, because of a 27,000 metric ton decrease in shipments due to the scheduled annual outage at the Saint-Félicien (Quebec) mill and production disruptions at the Calhoun mill. Accordingly, EBITDA in the segment fell to negative $12 million in the quarter. Finished goods inventory fell to 68,000 metric tons, its lowest level since 2012. 

In 2019, the market pulp segment reported operating income of $39 million, compared to $172 million in 2018. The change reflects mostly the significant drop in pricing during 2019, down on average by $72 per metric ton, to $690, as shipments rose by 40,000 metric tons after adjusting for the divestitures of Catawba and Fairmont in 2018. The delivered cost rose by $15 per metric ton as a result of higher manufacturing costs, which were affected by higher fibre costs and unfavourable maintenance. The annual operating income variance was favourably affected by the weaker Canadian dollar, favourable SG&A expenses and a lower depreciation expense. EBITDA in the segment was $62 million. 


The tissue segment incurred an operating loss of $1 million in the quarter, an improvement of $2 million compared to the third quarter. Most of the improvement that led to EBITDA of $4 million in the segment largely reflects lower internal pulp costs. Accordingly, the delivered cost dropped by $116 per short ton, or 6%. 

For the year, the tissue segment incurred an operating loss of $16 million, compared to $30 million in 2018. The average transaction price increased by $160 per short ton as a result of better products and customer mix, and price increases. Shipments were also 15% higher, reflecting a full year of Calhoun shipments. The delivered cost also improved by $43 per short ton, on better productivity and lower freight costs due to the new distribution center in Calhoun. EBITDA for the segment was $2 million for the complete year, a $17 million improvement over 2018. 

Wood Products

The wood products segment reported an operating loss of $5 million in the quarter, only slightly wider than the operating loss of $4 million in the third quarter. Quarter-over-quarter pricing improved by $22 per thousand board feet, or 6%, but the effect was more than offset by the 39 million board feet reduction in shipments due to seasonality and lingering uncertainty around the strength of the recovery, and higher manufacturing costs associated with road-building and log transportation, as well as higher stumpage fees. This caused an increase in the delivered cost of $26 per thousand board feet, to $377. Consistent with last quarter, the company recorded over 70 million board feet of downtime in the quarter, for 240 million in 2019. EBITDA in the segment was unchanged in the quarter, at $4 million.

For 2019, the wood products segment recorded an operating loss of $6 million, compared to operating income of $169 million in 2018. The change reflects a $90 per thousand board feet drop in the average transaction price or 20%, and a reduction of 115 million board feet in shipments, in each case reflecting a sharp drop in market prices in the second half of 2018 and a slow recovery through 2019. The delivered cost rose only slightly year-over-year, reflecting mostly higher fiber costs largely offset by the favorable effects of the weaker Canadian dollar. EBITDA in the segment reached $28 million, compared to $201 million in 2018. 


Newsprint’s operating income decreased by $4 million in the quarter, to breakeven. The average transaction price fell by $30 per metric ton from the third quarter, mostly reflecting difficult conditions in offshore markets, which represent approximately 35% of newsprint shipments, and to a lesser extent the downward pressure within North America. The delivered cost improved by $15 per metric ton, reflecting mostly the cost benefits of idling Augusta, which only operated for two weeks in the quarter. Shipments and finished goods inventory were both unchanged in the quarter. EBITDA declined by $4 million, to $7 million in the quarter. 

For 2019, newsprint’s operating income was $49 million, a $25 million reduction from 2018. Year-over-year, the average transaction price slipped by $14 per metric ton to $588, with most of the weakness for the year coming in export markets. The delivered cost was essentially unchanged as the impact of higher chip prices was offset by the favourable effect of the weaker Canadian dollar and a lower depreciation expense in the segment. Shipments were down by 192,000 metric tons in the year, or 13%, as a result of lower global demand. EBITDA was $78 million in 2019, down from $140 million in 2018. 

In November, the company announced the indefinite idling of the Augusta mill, with a capacity of 214,000 metric tons, as a result of the decline in North American newsprint consumption. The company took about 160,000 metric tons of temporary downtime in 2019; the decision allows it to focus production on fewer, more competitive mills and to eliminate fixed costs associated with surplus capacity. 

Specialty Papers

The specialty papers segment incurred an operating loss of $1 million in the quarter, down by $5 million from the third quarter. The reduction is almost entirely due to lower pricing, which decreased by $30 per short ton on softer market conditions, even as shipments rose seasonally by 12,000 short tons. The delivered cost increased by less than 1%, and finished goods inventory fell by 18%, to 40,000 shorts tons, a record low. The segment generated EBITDA of $10 million, down from $15 million in the previous quarter. 

For 2019, operating income in the segment was down by $7 million, to $33 million. Year-over-year average transaction price rose by $21 per short ton, to $739 per short ton. Shipments fell by 356,000 short tons, including nearly 300,000 short tons from the sale of Catawba. The delivered cost rose by $14 per short ton year-over-year due mainly to higher maintenance and higher fibre costs. EBITDA was $76 million in 2019, down from $87 million in 2018. 

Consolidated Quarterly Operating Income Variance Against Year-Ago Period

The company’s operating results were $144 million lower than the fourth quarter of 2018.  The change reflects: the unfavorable effects of lower selling prices ($98 million), mainly in the pulp and paper segments; an unfavorable variance ($51 million) related to gains on divestitures, impairments, write-downs and closure costs, including Augusta; and the lost contribution from the divestiture of Catawba and Fairmont ($24 million). These were partially offset by favorable SG&A expenses and depreciation and amortization ($15 million), due mostly to lower variable compensation expenses, lower manufacturing costs ($9 million), due in part to the idling of Augusta, net of inventory write-downs, and lower freight expenses ($5 million).

Corporate and Finance

On December 24, the company announced an agreement to acquire from Conifex Timber Inc. three sawmills in the U.S. South for $163 million plus working capital delivered at closing, which is currently estimated at $13 million. The three sawmills, with a combined production capacity of 550 million board feet, are located in Cross City (Florida), and Glenwood and El Dorado (Arkansas).  The company expects the transaction to close in the coming days.  It intends to finance the acquisition with existing credit facilities.

The company used $35 million of cash in operating activities in the fourth quarter, including a payment of $14 million following a court decision, which the company is appealing, relating to the 2012 acquisition of Fibrek Inc. Only $2 million of the closure costs associated with the indefinite idling of Augusta were cash items in the quarter; the company expects a further outflow of up to $5 million cash in the first quarter of this year.

The company repurchased 3 million shares of common stock in the quarter, for $12 million (5 million shares for $24 million for all of 2019).  With capital expenditures of $31 million in the quarter ($113 million for the year) and softwood lumber duty deposits of $13 million ($59 million for the year, and $162 million total to date on the balance sheet), the company completed the year with $3 million of cash.

In October, the company entered into an amended and restated senior secured credit facility for up to $360 million, replacing the existing $185 million facility entered into in September 2016. The amended credit agreement includes a term loan facility of up to $180 million, with a delayed draw period of up to three years and maturities of six to ten years at the company’s option, as well as a six-year revolver of up to $180 million.  In connection with the refinancing, the company repaid a term loan from the previous facility with proceeds from the new facility. It drew $25 million from its revolving credit facilities in the quarter to support working capital needs. 

Due to an 80 basis points decrease in applicable discount rates, the net pension and other postretirement benefit liability on the year-end balance sheet increased by over $200 million from last year to $1.5 billion.  


“Our average transaction price in market pulp is down by over $200 per metric ton from its peak about one year ago, but we believe the cycle reached bottom in the fourth quarter.  Indeed, we see stronger operating rates, especially in softwood pulp, as indicators of long-term demand growth for quality market pulp, which is consistent with the recently-reported steps the industry has taken toward pricing recovery. With our existing tissue footprint, we expect progressive earnings growth for 2020 in the business as we continue to build on recent improvements around sales growth and productivity gains. We’re excited with the prospects around the pending acquisition of three U.S. sawmills, as our timing allowed us to achieve an attractive price. The upside will come with the turnaround plan for the assets and continued momentum in market conditions from their recent soft levels. We will continue to maximize the earnings power and cash generation of our paper segments, although we have modest expectations when it comes to this year’s earnings as there are limited catalysts to support a material improvement in the near term,” added  Laflamme. 


The Working Forest