RFP - Earnings call transcript Q2 2018 | Resolute Forest Products Inc

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Operator

Good morning, ladies and gentlemen. Welcome to the Resolute Forest Products Second Quarter 2018 Earnings Conference Call. [Operator Instructions]. Please note that this call is being recorded today, August 2, 2018, at 9:00 a.m. Eastern Time. to meeting like to now would turn over the Ms. I Vice President. Travaglini, Silvana Please go ahead.

Silvana Travaglini

Good Resolute's and Thank Call. Welcome Vice morning. you. to Financial Chief hear and Longworth, Officer. Yves President Officer; and Today, Second from Laflamme, Executive President Chief Jo-Ann Senior we'll Earnings Quarter

download you by the of our to certain link follow presentations included A in along presentation financial and slides the and also Investor the will of GAAP non-U.S. to can webcast slides. include for the is can on or webcast under Relations the the release website, slides. section Today's those presentation in financial information. to the You today's in measures U.S. page reconciliation with our press numbers appendix logging using non-GAAP GAAP the

also make statements. forward-looking We will

the is change turn information involve which uncertainties number Forward-looking beliefs assumptions, the on conditions Slide will press current Yves. X as call all today's do. statements and based and presentation. risks now of of expectation, review I release and of cautionary and can in on business to our a our Please

Yves Laflamme

Good flow lumber million improve $XXX prices, Thank of well cash pulp businesses results, significantly positive for leading improved by of repaying delivered quarter to us price improving you and in up our XX% of debt. $XXX million with million, All generated generation nearly quarter. leverage million by $XXX $XXX us first earnings for momentum the Driven morning. today. and paper our the of to this this record we the EBITDA achieved as quarter as joining adjusted to compared allowing

costs. impact increased lower offsetting expenses energy more improved efficiency fiber outages rise second operational the results maintenance and Our shipments planned the market-related also and from in than quarter benefited of and

first eased $X We market pressures from the the $XX unchanged freight freight EBITDA expenses While remained reported million in pulp, transportation quarter, persisted. up quarter. as overall during of constraints rate million

$XX $XX for of million; $X $XX the incurred up contributed newsprint million; results negative quarter. $XX Calhoun includes which up improvement first previous million EBITDA papers, against we the million of $XX products million, an Wood million, million. tissue, For specialty time, in and $XX

Let's pulp. while to by X% year-ago to America shipments shipments China increased period. North the quarter chemical of with pulp X%. market More review starting segments to our in and were XX% and Europe the respectively, X%, individual compared fell by Shipments up Western

Softwood X% shipments offset to in were and higher XX% America. X% shipments Europe, X% to in increase Western North an of decrease a quarter China this reflecting of by

were efficiency, XX% over mills also respectively, and X% price price World to at shipments of by shipments and rate continued all Catawba per compared were quarter growth higher China of further in from remained of and Hardwood on Calhoun rates, beginning to cover shipment the quarter, outage downtime Benefiting up our per pulp Europe operational scheduled and metric to second lower ton $XXX ratio. Despite America XX% and to at pulp ran since to improved due season the capacity Pulp shipments led Western previous tons $XX hardwood while increases market realizations an at and mills. XXXX. our X%, maintenance mills Northern largely the in that were demand. Softwood rose this maintenance X%. quarter, were ratio. the increase pulp X%, strong dropped markets downtime capacity playing global to shipments by shipments reflecting

emissions reduce of September outage XX-day the capacity, Saint-Félicien starting We major also decrease by project will built a ahead further greenhouse cost of in that our strategic production, end inventory increase the for XXXX. at gas mills and

as a year. Converted result quarter, grew of X.X% same we X.X% as by States consumption compared X.X%. to start-up, more almost improved towards while by sales, sales X%. period realized shipments second to to by results, tissue If product include For the sales XX% previously shifting first our rose Calhoun's increase away-from-home the total our quarter at-home products, overall volume were volume, recorded the United mix higher converted prices. new higher up last X.X%, secured for by in We the leading an increased tissue business improved and in grew product

improved ramp-up machine, tissue and the challenges of volume the the increased Calhoun we of converting with experienced operational While the we lines. operation

starts single-family Muhlenberg in the were second in of basis by Housing we adjusted averaged compared Positive high. multi-family the from and U.S. to remained this the first incurred basis XX%, XXXX. of to starts the million X% U.S. continued a comes certainly pricing cost down a starts, start, with higher year a the unchanged. tissue rising X% This seasonally while result, units half down As previous EBITDA relatively quarter. is decrease lumber trends to quarter, adjusted the prices for record $X a in remained housing preference elevated, on which negative X,XXX,XXX segment. quarter driven on entirely

quarter than goods the As Shipments increase thousand a year result, to in feet compared a by increased our average board ago. transaction XX a million board were higher improved also feet, to railcar per first quarter $XXX a finished XX% as leading this inventory. price to availability $XXX more

lower, last recently Western accumulation the segment slowed our The X% a a compared producers activity EBITDA $XX for from same of million of XXX demand a the and million in board Nevertheless, quarter. the overall X% ratio X% the period second reduction in American North achieved towards demand newsprint capacity record result the from of in XX%, demand Asia from number America printers. X%. down X% substantial American continued mainly newspaper to by quarter drop first with Global position of North for the significant in was of newsprint feet. down period Canadian newsprint was also in Europe Despite North capacity hit X% a compared as year-ago up reduction to the shipments weakened ratio commercial has last driven and producer. XX% the contributing buckets the declined quarter, quarter XXXX was capacity the we from X% of quarter XXXX. year, shipments market, sales shipments to as Industry in the end While declines to for of to second XX%, demand, were a Western in period. inventory World XXXX same down X%, year,

timing favorable. lags the increases the pricing. some balance all remained realized were timing price During quarter, same in with with export markets supply-demand market across -- Further

fees As export represent a approximately of reminder, our volumes. overall newsprint XX%

a $XX to quarter rose the price per $XX year metric transaction ago. average $XXX ton, in more Our than

X%. up by mainly to drove shipment the of rate in second grades year-ago North sales the export American American up second to for transportation quarter, from XX%, industry of the to XX%, down the mechanical to relatively an North XX%, resulting XX%. while improved decreasing XX% X% compared demand position supercalender quarter this XXXX was was Compared rose year-ago for period. decline American X% grades Coated for the the remained the operating unchanged. compared demand timing XXXX. ratio more X% to the constraints industry easing demand in the and this period, of the mechanical also down in even production to capacity due shipments to North in down quarter compared paper the was Our quarter. standard period. of quarter for year-ago Lower was first uncoated demand

the integrated price paid offset per States deposits papers not on compared as XXXX. paper were Calhoun transaction on dynamics August previous average were paper lower from the from lost the interest ton schedule gains The remains In in the of short and of cash increased ceased to all be will with at of Catawba Productivity returned deposit Department Our cash the mills. duty specialty quarter from our countervailing months. of retroactive to sufficient $XX imports supercalender Shipments of July, Canada stemming the for United by through Canada Collection quarter. marginally market outages and Commerce million coming the favorable. $XX this revoked of X, order SC production previously

been of uncoated balance papers sheet Canada published Trade to on determination Commission the assets. and duty rate International injury SC sometime Commerce confirms have the on recorded reminder, until a countervailing duty are deposit groundwood is the expected May $XX current from on and suspended As final million reclassified in a collection also deposit our XX, Starting September.

others and the position taken of members House U.S. in We U.S. Commission, voice opposition to in the continue Senate against duties. and In in July, In the Senate the over opposition total, XX where House broad-based Attendant strong submitted Trade we were an a hearing, formal coalition duties. now have role oath and to U.S. play active these they approved International many member to testimony. groundwood U.S. uncoated see into XXX pleased of the

Jo-Ann work our outlook. employees in almost We now front, X-year capacity of agreement. retaining labor pulp financial earlier our company with and on the X with markets. our -- a an representing before provides conclude renewal about that the This stable a the On and let performance environment collective company's the Canadian early our of advantage paper total will and lumber unionized attracting of discuss our much reached voted year X of growth the mills. labor recently competitive at I representing believe today's with I workforce challenging of production sawmills this agreement in favor XX%

Jo-Ann Longworth

quarter net or everyone. income of Today, per diluted $X.XX you, share. reported second $XX Thank million Yves, and the morning, for good we

Excluding share period special items quarter segments. million was per as net $XXX XX% This in favorable on $XX due EBITDA. as our across a in previous $X reaching $XX $XX million special to pricing of where excluding net or loss, per a largely had of excluding last $X.XX or million business all at the compares pricing impact special sales sales share higher diluted in items share. year. to or second well the Overall, higher of net million, $X.XX same Total income, quarter items, $X.XX income per million the

increase were quarter, and increased to quarter, increase segment part finished lower part up quarter shipment Catawba cost metric energy Despite outweighed eliminating pulp from to gains operations costs. million in compensated price leading due the with constructions by primarily our mainly good If at This increased, rise costs we to by Calhoun lower an resulting maintenance offset quarter. metric in the cost favorable $XX pulp increase outages first and a fuel at prices from Sales fiber first EBITDA resulting in of and $XXX board in $XXX. increased due activity costs, the maintenance recycled pulp's mills, costs, XX% the ton, first our an paper stumpage offset wood the reflected feet the to inventory volume planned newsprint sales delays After cost because realized and to results Cash a million improved the combined quarter. tissue EBITDA and lower mainly the by products, in to Compared of thousand in lower volumes, by volumes all-in thousand effect in costs. recovered due and attributable ton, effectively Calhoun's and removing fuel to more and market-related improved $XX to exchange, and quarter. products, mainly largely the EBITDA usage. the than in an to million manufacturing time. fiber scheduled rise outages rise pulp volumes in in related gains, cost higher lower mostly higher and buildup the quarter our the wood for our seasonal board labor cash of $XX to of to efficiency. Higher scheduled first and mills. in maintenance prices per transportation in in costs in fees, prices per $XX cash the XX% segment, costs outages by foreign wood previous market increased $XX market-based per first a $XXX. In specialty include $X compared pricing, per and higher in and the Calhoun X% diesel feet by by from inclusion or in the increased paper in led volume Sales Following in productivity tissue first the papers increase were

EBITDA with equivalent the $XX offset million part The higher rose short in realized the cost by and also Newsprint $XXX, the to ton, EBITDA cost lower due $XXX in papers from specialty per to previous short in $XX by pricing, improved higher maintenance. increase expenses reduction quarter, $XX efficiency compared costs. or quarter, volumes million decreased $XX quarter. by per Combined to energy cash plant decreased mainly With metric per cash metric the to by $XX fuel per ton by $XX $XX ton led prices ton. to increasing as to $XX in rose per metric a ton to in for second million

operations our to revolving total During the debt and log decrease generated $XXX of profitability $XXX inventory. million million replay to we in us seasonal million and a under million. allowed reflecting quarter This quarter, credit liquidity cash $XXX at from to improving facilities reducing $XXX end, strong

Our the trailing XX% XX% to to and XX-month further flexibility. net debt-to-EBITDA debt-to-capital ratio improving from our dropped declined ratio financial net X.X,

capital expect for lower million guidance the was of projects. to timing of million our due $XX full half to While spending than the the we first year invest spending million for of $XXX certain previous XXXX, on $XXX

cost and as reduce Cash quarter, lumber investments saving of compared strategic $XX at increased timing improve at to by sales productivity includes Calhoun at due Thunder tissue to sawmills, higher and as and production Bay increase projects Saint-Félicien our yields previous million to payments. year well pulp our costs the deposits mill. duty and this expenditures mainly capital Our

For for million the $XX will deposits softwood $XX million paper and quarter, $XX coming million the $X groundwood which us supercalender recorded months. were to uncoated sheet, total paid of million $XXX million a for for cumulative on cash including balance our for lumber, refunded be paper, in of

EBITDA pension included $XX our The and of by previous sheet expense the balance liability million impact net adjusted was on million in line OPEB reflecting this and currency. in Our pension OPEB $XX with foreign OPEB and contribution million pension favorable the quarter $XX payments associated quarter. of and decreased

is of to in concluding $XX of pension of included now back unchanged million pension XXXX for I guidance and OPEB turn contributions adjusted Yves with million. payments for $XXX Our corresponding and at million it $XX will remarks. OPEB expense EBITDA the

Yves Laflamme

systems optimistic and about third We pulp demand. Thank trend you, through remain the business quarter the Jo-Ann. our given

by outlook and August. favorable Our supported is of increases July typically reported price further for each

The at will quarter, projects production the quarter decrease XX,XXX an by the which XXXX. pulp capacity our third we outage to investment required XX-day tons increase During tons tons these in and will quarter. metric approximately announced mill, in by the by annual the complete XX,XXX of Saint-Félicien pulp XX,XXX end fourth

remain to targeted pressures, until continue recent fundamentals Costs we for now in market products gradual informed customers starts our tissue healthy focus underlying that we is support to we sales wouldn't volume. productivity achieve housing sustained our will operating level recovery. medium increases support are believe lumber While Due be we improving growing on expected market our penetration converted to continue products, implemented price to improve cost our our daily production. as challenging away-from-home results starting August. the term a inflationary weakening, for Despite the their the of in

created third declining a For demand capacity solid has paper, a reduced favorable structurally a industry in expect and and quarter. supply balance we market,

and coated, uncoated quarter As mechanical uncoated, increases previously in papers. all the freesheet been reported, third further announced price have for

steady our continue paper In productivity, reduce specialty improve optimize and we addition, to to we progress costs are as operations. making

Silvana Travaglini

formal we our open concludes presentation. questions. the This call now will Operator, for

Operator

Instructions]. [Operator

comes of Paul question Markets. the RBC from first Your from Quinn line Capital

Paul Quinn

you transportation more QX, think X%? like just that wondering in you're on cost that had a in in is what year-over-year of Or some seeing I of or transportation overall basis? inflation number? XX% terms kind less Is issues

Yves Laflamme

to we've problem trucks had products in like winter explained to in I had was times. from the deliver and think but the we supplies, to to -- during related -- rails that equipment move rails cost, we the that to transportation first quarter Yes, related also the

of have the supply freight improvements which been territory -- in that course, starting done management cost. have in But in mostly have issue kind in shown and raised manage work April by to So we've swallowed some costs. been rail kind on still northwestern our in improvement of has better the a rail the -- increase an good those the and, also changes improvement good in made that that unfortunately, a of should freight lot side, of

year, the heading year. are of be at a that So for that sense have we're to of there where that's going gives rest the would those I answer freights so for least the pretty the unfortunately, to good you

Paul Quinn

$X Okay. ramp were business, the EBITDA in negative the you result I And then mean, forward for. are just for is going segment up looking looking of at the million this probably But where tissue you the at not the What's Calhoun? in trajectory here?

Yves Laflamme

Calhoun's the and reason as up why first products result the ramp and Well, much far as I machine think, the as we all, as tissue this quality mean, is the as pretty as should be in -- quarter productivity, the in where we we have we far the Calhoun, far feel also I of of we're as forecasted.

orders a we're We lot. ramping right improved sales So north the side. -- got of

is is the Calhoun should the issue be. now we have mostly not reflecting -- we it the is So in results converting have the where

where So kind the products we machines every I But getting the would have between a the we're deliver freight kind results and is the of with to the, though of and for but And full tissue, we a now increase full -- supply have Calhoun, even is. little going customer to -- the of we're tissue the the operation week problem but year the converting, there. to say, end improving just have the customers. also bottleneck in products not significant the, the we which

Paul Quinn

I just, to Okay. that And just flipping then facilities idled over guess, you have.

you're planning in the I into got news another whether paper where and at Thorold, give at process or other you of with doing looking happening of not a grade? sure board type X printer update any mills I'm number what's was or idled on there. with remember them? there's anything Maybe that? paper if point, that can an you've of sales converting think wondering specifically a sites you're I Just --

Yves Laflamme

have much we Yes, those don't to say about so sites.

down think you Maybe the options we information is don't all just a for Thorold options. that mentioned, at little all have We're looking solid give the I to -- today. but anything still while. so

nothing about any that, can other much any that it's right so what specific pretty for older So now, see I than now. changes say other mills we

Operator

[Operator Instructions].

line comes from Hamir Patel question next CIBC. from Your the of

Hamir Patel

sequentially prices. lumber thoughts with large we're a get stabilizing? conditions. just market in Do think you on in about correction log close think to to lumber curious should seen your how costs we QX And We've was coming off? I

Yves Laflamme

Yes.

So market fast even the very day. hard know sometime every you moves though as is lumber because it's know, to it you gauge probably wood consumed

So have see would if the as that can the is we were now, off-side. like would would the in some not customer -- little using probably the block direct like the the centers, that you say, something Canada, so you I demand be mostly the to right soon in in there the market. wood, lumber big sufficient decrease lumber a some reduce on home inventory, rails disturbance expecting keep that going side a markets But on Western as speculation market -- on create in

see stuff and right those like but that. now, -- some So all replenishment in we

me -- you were, for maybe going that where see back to we're decrease we maybe hard the that we but that but at down maybe it's slowing So now. least I'm in flow, and reached not pricing right to -- the know close to expecting but

demand October. mid you to -- can replenishment of see but for seasons usually, Russian and going and not happen, some August sometime building the it's usually, to So September I'm saying

now. expecting I'm what right that's So

Hamir Patel

in cost sequentially then and the QX? in And log that then Okay. Ontario stumpage -- that's just would given we expect the down And helpful. Québec, be to way works

Yves Laflamme

think I that lag. is a No, always there

an market stumpage we there just the least going to That's a increase according stay in As Ontario. quarter. for at you in know, got to and

thing the the same -- And And is the the auction. in Québec. in Québec new system thing newer with so

we've is and a XX%, impact pretty course, which you of then of XX% have at is the pricing As were right those direct on and high least there stumpage. auction now log auction a lately, markets, good of the with had

next -- if is on to have to for the So it significant that wood than next cost know a And in the the costs you above there for wood now operation quarter it's impact least cost not quarter. certainly we any fuel. not right on expect also that, is fuel at be the [indiscernible] two wood the -- as lower you

will help wood So -- on that and the cost.

are going I be we're quarter, say So that the to little in would maybe second to a we close probably where more.

Hamir Patel

company helpful. And this China is potentially obviously, by North in That's assets. to seen, year later we've Great. waste ban move Chinese imports Okay. paper all a American interested and

of guess, for about operate your obviously, I changed some that a are secular repurposing also sort looking as attractive You, as growth OCC assets of to, time? some And future example, in assets? interest need companies of you ways. of repurpose of the potential Is markets potential opportunity. you containerboard those pulp more how maybe that eventually changes decline. think in If we've market, export as that exploring to seen over some mean, reports I sheeting

Yves Laflamme

Yes.

best As option looking earlier, the the we to we're that That's company. I no with that at. there we do have. I can the not said job believe is

business, On the to do hand, much this middle the see of call of to the we're we still and grow our managing the are business as strategy ramp-up, still is And which paper. pulp and -- how same which can can in -- do in, and we market, growing a the better declining lumber. we pretty our the business integrating pulp other tissue the

the have answer So for can best I that's now.

Hamir Patel

just Okay. final one Fair one And enough. maybe me. from then,

come potential the follow? side, tissue any how maybe has other P&G timing should And you've with out tissue On the how of if pricing think by Curious of we broad-based hike. private producers actions label? the seen private-label about

Yves Laflamme

tissue business the different. a said We tissue, increase Yes. is as announced, price in I earlier, little but

long-term and We have like that. stuff contract the

before it to start So where -- it's a in fit selling we going results. to better quarter take our maybe price, have a price expect we to

Operator

from Your line Timothy Stabos Stabos next the question of comes Management [ph]. from

Unidentified Analyst

feel what I brings in downs with at astonishing. the didn't point question? quickly Congratulations -- lot are management up got time on this. night it of at the type pay -- to buyback seeing yes, guess, results. better does came debt sure They're start the up almost back you've yes, a these And stock quite cash sleep I'm flows the looking it question, the it, spectacular.

Yves Laflamme

Yes.

First really mentioning of something that's that we the for appreciate. you all, solution, thank

laughing going about and shareholders or a ahead share are talk soon. [indiscernible] We results, say to buybacks looking seeing we here maybe our because somebody

And but there. cash a so see debt. that course, plan, looking steps -- we're or Director. not Board the We're so. going have we're mean, to to -- the in the going We're few of our going with next we're I to of strategic situation what's next weeks going the be ahead, and look at our to

And so now. -- I that a don't but have answer on clear right

Unidentified Analyst

Okay.

question X quantitatively, type tissue think, that you for qualitatively either or years end return visioned we one EBITDA. take, the a least, your operation, to I X- company whatever, be there's comment satisfactory now a return be how want on shareholders? you the other about quantitative, at originally to will $XX your X on that your that -- The qualitatively asset? this investment a going preferably or to that in that be the at Can confidence? publicly? be or will year I period was a you whether are long-term, or of the million-or-so, payback think, it's but confidence on if level don't years And talking terms something qualitative get now and or we least Just like we X-year this, about to How when what over of give Or saying do vision in we then. can

Yves Laflamme

Yes.

on So first. tissue

important of course, tissue. kind Of steps have two we -- we on made the two

The first acquisition being one the Atlas. of

what than the they So on and obvious and stuff safety, lower operation what are Even pleased pretty and we're as speculations were. expectation stabilizing done don't direction. to we the thought the on the in mirrors right meet much that it's definitely and management that as pretty heading mean, one, and sales. cleaning it's we're we I far how though we've there

there, but you talking I than a in the in saw the is going Calhoun felt you and the few slower be the quarters to The So better -- really Calhoun, is this payback -- machine preparation but is last think better. morning, as and paper sales getting is but thing. big expected, ramp-up about

I the tissue really integrated big have machines to sales. in see those to -- and price But converting strategy mill, is more even pulp good tissue now the with and manage initiative. a think pulp, that why we pulp be a you

pipeline old is every month. getting the better So

we our -- we May the and look it's So quarter better. not if if than we look if look to definitely better at it's at be and at July, you going June, feel April,

ramp there feel should to where And in a to let's short a answer year the that that frame we payback is -- talking going about. so is we're much But be pretty we this and maybe time up the should add see, be we be.

the that's improvement about would X, now. That's because So but really, what I say. a maybe instead talk see X of X, X should guess maybe years year, we I

Operator

questions I'll remarks. call time. further no turn are management back There for this closing the at to over

Silvana Travaglini

your Well, Thank all you participation. that today's does conclude for call. conference

Operator

call. conference today's concludes This

You may now disconnect.

Resolute Forest Products (RFP) 2 Aug 182018 Q2 Earnings call transcript