This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: percent from Q1 and were essentially stable year over year. This performance was in line with our expectations. Volume, pricing, and exchange rate drove the sequential improvement. Year over year sales mix and exchange rate were both tailwinds, while volume and pricing were headwinds. Consolidated debit of 112 million increased 9% from Q1, reflecting stronger pricing and favorable volume and mix, freight, and energy costs. These were offset by higher raw material and production costs. Year over year consolidated debits decreased 20%, mostly due to higher raw material, cost, and decrease in average selling prices. Our second quarter results also includes a 5 million one-time compensation expense related to CEO transition. On the raw material side, highlighted on slide five and six, the second quarter average index price for OCC increased 9% from Q1 and 134% year over year. The market for this material is a consistent demand domestically, including growing amounts needed for new recycled container board meals. We have no problem supplying our operations with good inventory management and our internal supply network. We expect relatively stable markets in the coming months. Average Q2 index prices for white recycled paper grades decreased 6% versus Q1 and 27% from last year. The market was balanced, with readily available volumes and fibers translating into a small decrease in pricing in the quarter. Bulk prices were higher sequentially, up 18% in the case of softwood and 17% for hardwood. Year over year prices were also higher, up 12% and 13% respectively. Our meals were adequately supplied throughout the period. Moving now to the results of each of our business segments as highlighted on page seven through 12 of the presentation. Beginning with container board, Q2 sales increased by 5% sequentially, reflecting higher selling prices and volume and better sales mix and exchange rate. Shipments increased 1% from Q1, driven by converted products. Sequentially, converting shipments increased .9% in Canada, slightly below the .2% increase in the Canadian market. US converting shipments decreased 2.1%, below the .3% US market increase, reflecting the sale of our new town facility during the quarter. Excluding that sale, US converting shipments increased .3% from Q1. A bit done Q2 was $60 million, or 10% on a margin basis. This represents a 20% increase from Q1. Results benefited from recent market price increases, offset by continued iron material costs. We also recorded a $4 million R&D credit during the quarter. This was in line with the range we provided with our Q1 results, but nonetheless impacted by a prolongation of planned maintenance downtime at our Greenback and Bear Island mills. In total, the additional downtime reduced our production capacity by a further 8,000 short times in the quarter. Year over year sales increased by 4%, with benefit from higher volumes and more favorable sales mix and exchange rate, upsetting the impact from lower selling prices. EBITDA levels decreased by 38%, a reflection of the combined impact from lower pricing and higher raw materials. Year over year shipments increased by 4% in Q2, mostly driven by the new Bear Island volume. Converting shipments increased by 8% in Canada, outperforming the 6% increase in the Canadian market. US converting shipments increased 0.6%, slightly below the .1% US market increase. Excluding Newtown, US converting shipments increased .2% from the year ago period. Continuing with our packaging business, our specialty product division continued to deliver strong results. Q2 sales were up 4% from Q1 on improved selling price, sales mix, exchange rate, and higher volume in plastic food packaging. EBITDA was up 4%, or 2 million from Q1, and the margin of .6% remained solid and unchanged from Q1. Year over year sales increased 2% in Q2, with exchange rate and higher selling prices in certain products driving this growth. EBITDA improved by 2 million to 26 million, as lower operating costs offset lower realized spreads due to higher raw material. Moving now to our tissue business. Second quarter sales increased 8% sequentially, largely due to volume increases of 16% in the away from home market and 3% in the retail market, both of which reflects seasonality, new business gains, and promotional activities. EBITDA of 54 million increased 8% from Q1, driven by higher volume and lower transportation costs. These benefits were partially offset by higher raw material costs. Q2 margin of .6% remains stable with Q1 levels. Sales decreased 5% year over year, reflecting lower shipment levels. This was driven by a decrease in parent role shipments following meal closures and higher internal consumption. As a result, the integration rate increasing to 94% from 83% in the year ago period. On the converting side, shipments increased by 3%, the result of a 4% decrease in the way from home following plant closures, offset by a 9% increase in retail. The average selling price increased by 4%, driven by lower proportion of parent roles in the sales mix and the beneficial exchange rate. Year over year, EBITDA increased by $10 million, or 23%. This is the outcome of favorable product mix and lower production costs, the latter of which reflects the beneficial impact from recent plant closures. I will now pass the call to Alan. We'll briefly discuss some of the financial highlights. Alan?
spk10: Yes, thank you, Erg, and good morning, everyone. Slides 13 and 14 illustrate the specific items recorded during the quarter. The main item that impacted EBITDA were 10 million of restriction costs related to the closure of plants, mainly in container and tissue, that occurred over the last 12 months. Slides 15 and 16 illustrate the year over year and sequential variance of our Q2 adjusted earnings per share and the reconciliation with the specific items that affected our quarterly results. As reported, Q2 net earnings per share was 1 cent, this compared to net earnings per share of 22 cents last year and a net loss per share of 20 cents in Q1.
spk03: On an
spk10: adjusted basis, net earnings per share were 8 cents in the current quarter, this compared to net earnings per share of 27 cents in last year's results and zero in the first quarter. Year over year, this variance mainly reflects lower EBITDA and higher financing and depreciation expenses, while sequential variance reflects higher EBITDA levels. As highlighted on slide 17, second quarter adjusted cash flow farm operations was 95 million down from 122 million in the year ago period, but up 49 million sequentially. Adjusted cash flow used in the second quarter improved year over year, largely reflecting the higher levels of capital investments associated with balance in the year ago period. Sequentially, adjusted cash flow farm operations also improved due to lower net financing expenses paid. Slide 18 provides detail about our capital investments. New investments in the second quarter, total $62 million. For 2024, our planned capital investments will be below our initial forecast of 175 million. Moving now to our net debt reconciliation, as detailed on slide 19, sequentially our net debt increased by $73 million in the second quarter. Despite higher cash flow farm operations in Q2, net debt increased due to the exchange rate, our paid capital investments, leases renewal, and a negative working capital variance. We also disposed of some assets for $17 million, largely related to the Newtown Connect ticket converting facility in the second quarter. Higher levels of net debt and lower EBITDA levels on an LTM basis increased leverage to 4.2 times at the end of Q2 from 3.8 times at the end of Q1. Financial ratios and information about maturities are detailed on slide 20, and other information and analysis can be found on slides 23 through 30 of the deck. I will now pass the call back to Ergues, who will conclude with some brief comments on our Newtown Outlook before we begin the question period. Thank
spk01: you, Alain. We've outlined our Newtown Outlook on slide 21 on the presentation. As a reminder, actual results may differ from this outlook in the event of movements in index pricing, both in terms of raw material costs and selling prices. Beginning with our package of big businesses, we expect Q2 results to be stronger sequentially in container board. Two main factors are driving this outlook. The first is the benefit being realized as price increases continue to be implemented. The second is improved operational efficiency, following the important shutdowns in Q2 and good volumes given stronger seasonality. We expect raw material costs to continue to be a headwind for the business. We're planning approximately 11,000 short tons of maintenance scheduled on time in the quarter. Results in the specialty product segments are expected to be stable sequentially. This reflects higher selling prices in certain product categories and gain from efficiency improvements. These tailwinds are expected to offset any impact from higher production costs. Finally, we expect third quarter results to be softer sequentially for our tissue business. While we anticipate stable volumes, this will be outweighed by higher raw material costs and less favorable sales mix. Looking further ahead, our outlook is positive as we have announced a price increase of up to .5% for Canadian retail tissue products and some US customers at the end of Q3. We also secured additional US retail business volume that will be starting in Q4. More broadly, we'll focus on four main workstreams. The first is the ongoing ramp up of the Bear Island facility. Second is solidifying efficiency improvements across all of our production facilities. Third is on further improving customer satisfaction levels with our partners and remaining the supplier of choice. And last but certainly not least is the diligent implementation of already announced price increases. We remain cautious giving the economy and persistent inflation and are committed to continuous operational improvement throughout our business while remaining rigorous when it comes to capital allocation. Let me finish by saying that in my eight weeks with Cascade, I've been very impressed with the passion and the commitment of every employee. People are dedicated and proud and doing everything they can to meet customers' expectations. To me, clearly, the saying accompanies its people rings very true for Cascade and I'm looking forward for the next step as we continue to grow our company. And before I pass it to the operator, I wanna thank the people around the table with me here. They made my life easy on this first call. Back to the operator, thank you.
spk04: Thank you. If you would like to ask a question, please write down the star followed by one on your telephone keyboard. And if you would like to withdraw your question, write down the star followed by two. Thank you. If you would like to ask a question, simply press star then the number one on your telephone keypad. And if you would like to withdraw your question, please press star then number two. Again, if you have a question, please press star then one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And your first question will be from Jonathan Goldman at Scotiabank. Please go ahead.
spk07: Hi, good morning and thanks for taking my questions. Maybe just one on the industry generally. Can you discuss how container board and user demand trends have evolved since May? Yes,
spk09: I'll let Charles take this question.
spk02: Yeah,
spk09: so we see a general uptake due to the seasonal demand. But overall, the demand is pretty good in our, sorry, third quarter demand right now is pretty solid.
spk07: Solid relative to Q2 or as solid as Q2?
spk00: Yeah. Yeah,
spk07: relative to Q2, yeah. And it looks like another quarter where container board shipments outperformed the industry. Actually looks in my model like the eighth quarter in a row. What do you think is driving that outperformance?
spk09: So basically, like we mentioned, we made some significant investment, strategic investment in our group, starting with Bear Island, but also on the converting, we made a major investment in Biscataway, investment also in Central Canada and Ontario. So this also gave us some competitive advantage on the market and growth potential.
spk07: Okay, that makes sense. And then I guess maybe switching to Bear Island, can you give us a status update on the ramp of the facility and maybe specifically how the transition to using more mixed paper is going?
spk09: So the Bear Island ramp up continues. We are now able to supply all the grades that we were supposed to do on that site. They've been qualified to the customer, which is a very good news. So now we can provide to the customers on a regular basis, 20, 21 pound and over. And so we're working with our customers and potential future customers also to deploy that on the market. And on the ramp up and the use of the mixed waste, we're going gradually increasing the mixed percentage. But we're doing so and making sure that the quality of the product is there. So we're balancing more mix, but at the same time monitoring the quality of our product to our customers.
spk07: No, that's good to hear. Thanks for taking my questions. I'll turn over the line. Thank you.
spk04: Thank you. Next question will be from a Hermir Patel at CIBC World Markets. Please go ahead.
spk05: Hi, good morning. Here I realize it's only been eight weeks, but can you maybe speak to some of the potential areas that you expect to look to make changes to just given your operating background?
spk01: Yes, thank you. As you said, it's been eight weeks. Clearly, as I said in the outlook, the Burr Island ramp up is gonna be a focus to make sure that we go as fast as we can to get to capacity. Very satisfied with what we've seen so far. The next coming quarter is gonna be really important as we have a good order file and we need this production to be coming as planned. The second one is on operational efficiencies to make sure that we capture all the potential efficiencies that we have with our current assets.
spk05: Fair enough. Thanks. Just the last question for Alan. Just given the lower CAPEX you're pointing to, how should we think about CAPEX for 2025? And when you think about larger strategic projects for the business, what's kind of left other than maybe some more box plants over time?
spk01: Yeah, so Amir, I'll take that question. And as Alan mentioned, we will be spending less than $175 million in CAPEX this year. We're currently doing a diligent work on how to allocate cash. So that will be coming in the coming months, but we'll be really focused on capital allocation to make sure that what we do with cash will add long-term and sustainable value.
spk10: So priority will remain debt reduction in the coming quarters for sure.
spk05: Fair enough. Thanks. That's all I had. I'll turn it over.
spk04: Thank you. Next question will be from Cassia Kopatec at TD Cowan. Please
spk03: go ahead. Hi, good morning, everyone. Cash on the line. Maybe I'll just pick up that capital allocation thread a little more. You mentioned CAPEX and debt reduction. Just curious around the deleveraging front, any preliminary thoughts on reducing that, not just by a higher EBITDA, but actually reducing debt levels?
spk10: I think. Well, yes, there's some initiative ongoing with some working capital items, looking at everything on that. And there are some assets that we're looking to dispose of following some closure in the recent quarters, but that's just as we did with Newtown in the second quarter. So that may be other items to further reduce debt in a nominal dollar. But the objective remained to be under three times. So it's just delayed, but as it mentioned, a rigorous capital allocation will get us there.
spk03: I'm glad you mentioned that target. That was gonna be my follow-up. But Alan, any sense of the order of magnitude on the working cap reduction and or asset disposal?
spk10: Well, asset disposal, you know, it can change rapidly. It's maybe too early to give you amounts, but it's a working cap. I think we are under 10% of sales. It's a slight improvement here and there, but we are pretty in good shape, but there's always opportunities. So a couple of millions, but we don't have any amount of state at this time.
spk03: Okay, gotcha. The June container board price hike, how are those progressing? Do you expect to get the full hike? Any pushback from customers?
spk09: I'm not going to be too specific on the price increase, but what I can tell you is we are still implementing the price increase. So there's some benefits in the Q2, but continuing in Q3. So yes, we are diligently working with our customers to work with them in passing on the other price increase.
spk03: And just beyond the price hikes themselves, any prospects or other prospects rather for recouping margins in container board beyond price hikes and OCC relief? And if you can get a sense maybe of how much Bear Island has underlying margins to this point, that would be helpful.
spk01: So as far as the improvement as Alan and Chal mentioned, some of it will come from for working cap. We have work streams on margin improvement and cost reduction in all of our businesses. And we're doing diligent work to track these changes with milestones that we have regularly. And on the specific mill with Bear Island, I'm not going to go specific on one mill, but Bear Island is part of the process that I've just mentioned.
spk03: Any numbers you can share around targets for how much margins can improve based on those efficiency and other streamlining limits you referred to?
spk01: Yeah, and we're not gonna put any number at this point, but let me tell you that we're really working diligently to make sure that we cover back enough margins so that we can further reduce our debt level.
spk03: Gotcha. Okay, thanks a lot, everyone. Appreciate it.
spk04: Thank you. Next question will be from Matthew McKellar at RBC. Please go ahead.
spk02: Hi, good morning. Thanks for taking my questions. I think in your preferred remarks, you mentioned securing some additional US retail tissue volumes beginning in Q4. Can you maybe just provide a bit of color around how material the volumes associated with that new business should be?
spk01: Yes, I'll let Jean-David respond to that.
spk08: Yeah, good morning, Matthew. It's a nice business, honestly. It's slightly above 4 million cases for a major retailer in the US. So we're really pleased with those negotiations and discussion and the outcome.
spk02: Okay, thanks for that. Are you able to provide any more additional color around the mechanical break at Bear Island in the quarter?
spk09: Yep, so basically, as you know, it's a ramp up paper mill. So the items, there was a breakdown on the paper machine and the team worked diligently to ramp this up. But this is behind us right now. And it's not anything that will affect the future of the mill.
spk02: Okay, thanks, Jean-David. Thanks, that's helpful. And then maybe last for me, I think earlier this year, you talked about relocating some tissue converting equipment from your operations in Oregon that are now closed elsewhere in your network. Could you maybe speak to how that's progressing and maybe where you are in that process?
spk08: Yeah, those four lines are already running in our other facilities. So the 4 million cases that I was just talking about is gonna fill about 50% of the capacity that we're adding. The remaining two are in ramp up and those two are for away from home market. So we still have some open capacity short term in the away from home. But overall, I will say that those line relocation went pretty well and are according to the plan.
spk02: Okay, thanks very much. That's all for me, I'll turn it back.
spk04: Thank you. Again, if you would like to ask a question, please press star the number one on your telephone keypad. And your next question will be from Zachary Everchett at National Bank Financial. Please go ahead.
spk06: Good morning, it's actually Thomas calling in for Zach. Could you give us a little bit more color regarding the issue makes a consumer trade down?
spk08: We see still a private label going up. So if you look at Nielsen data for the last quarter, private label is gaining share again. In terms of trading down into the category, we see some, I will say moderate trading, I will say. But I think the biggest uplift that we see is retail price going down at some retailers, some important retailer in US that adjusted their. So we see good uplifting volume for our own business and retail US mainly.
spk06: That's helpful, thank you. And I'm sorry if I missed this, but given the mechanical issues at Bear Island, are we expecting to see a catch up in shipments in the third quarter?
spk09: Yep, so yes, the third quarter outlook is as positive compared to the Q2. And this is a combination of market and also more availability on our production. Bear
spk10: Island, but also all the shutdown we took at Q2 are much larger than what we expect in Q3. So yes, we should see pick up in shipments.
spk00: Perfect, that's helpful, thank you guys.
spk04: Thank you. There are no further questions at this time. Mr. Simon, please continue.
spk01: All right, well, in conclusion, thanks everyone for taking the time to attend our quarterly call and we're looking forward to meet some of you in person in the near future. Thank you everyone. Thank you.
spk04: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect your lines.
Disclaimer