Resolute Forest Products (RFP, Financial) is a global leader in the forest products industry with a diverse range of products, including market pulp, wood products, tissue, newsprint and specialty papers. The company owns or operates over 40 pulp, paper, tissue and wood products facilities in the U.S., Canada and South Korea, as well as power generation assets in Canada.
Marketing its products in close to 80 countries, Resolute has third-party certified 100% of its managed woodlands to internationally recognized sustainable forest management standards. It is the third largest in North America for market pulp and No. 1 producer of newsprint in the world.
The company reported fourth quarter results and is poised to grow. Margins and market prices of these products were under pressure in 2015. Weaker global currencies contributed to the problem. The company, for the first time in six years, had incremental newsprint price increases in North America. The company’s pulp digester in Calhoun is now making good progress toward reaching its expected normal operating efficiency.
Fourth quarter results
The company reported a net loss of $26 million (excluding special items), or 29 cents per share, during the fourth quarter (which was $35 million, or 37 cents per share, during the prior-year quarter).
Sales were $894 million in the quarter (a decrease of $161 million, or 15%, from the prior-year quarter).
GAAP net loss was $214 million, or $2.39 per share (a net loss of $109 million, or $1.15 per share, in the prior-year quarter).
Global chemical pulp demand rose by 3% in 2015.
The company reported an operating loss of $226 million in the quarter.
Total pension and other postretirement benefit ("OPEB") expenses were $68 million higher in 2015.
Segmentwise results
Market pulp
The market pulp segment generated operating income of $17 million in the fourth quarter. Adjusted EBITDA for the segment was $30 million. For 2015, the segment generated operating income of $76 million (an increase of $13 million from the prior-year period).
Tissue
The average transaction price in the segment was $1,537 per short ton, and the delivered cost was $1,569; sales were $11 million on shipments of 7,000 short tons.
Wood products
This segment generated an operating loss of $8 million in the quarter. Shipments rose by a further 25 million board feet, or 6%, to 446 million board feet. Adjusted EBITDA was $3 million in the quarter, for a margin of $7 per thousand board feet, or 2%, compared to $43 in the previous quarter and a trailing 12-month average of $23 per thousand board feet.
Newsprint
The newsprint segment generated an operating loss of $13 million in the quarter. The segment generated an operating loss of $23 million in 2015 (operating income of $20 million in the prior-year period). Adjusted EBITDA in the newsprint segment fell from $89 million in 2014 to $41 million in 2015, reflecting an EBITDA margin of 4% in 2015 and 6% in 2014.
Specialty papers
The specialty papers segment generated an operating loss of $2 million in the quarter. Adjusted EBITDA from specialty papers was $15 million in the quarter, down from $27 million in the previous quarter, for an EBITDA margin of $38 per short ton, or 5%, compared to $66 in the previous quarter and a trailing 12-month average of $63 per short ton. Operating income in the segment for the year was $29 million (a $48 million improvement from the prior-year period).
(Source: Company’s Website)
Progress in 2015
- Increased capacity of lumber and market pulp businesses.
- Completed $100 million continuous pulp digester in Calhoun.
- Started two sawmills in Northern Ontario.
- Building world-class tissue and converting facility.
Positive attributes of the company
- Financial strength.
- Competitive position.
- Focus on operational excellence.
Strategy
- Maximize value-generation from paper.
- Integrate pulp into high-quality tissue.
- Grow lumber and pulp.
Focus at the moment
- Gaining efficiency with the two new Northern Ontario sawmills.
- Ramping up the Calhoun continuous pulp digester.
- Smooth integration of Atlas Paper after the November acquisition.
- Leverage know-how and expertise of experienced tissue manufacturing, sales and management teams.
On a concluding note
There is a cyclical downturn in global commodities to which the forest products industry is no exception. The company is well positioned to weather this storm and to sustain growth initiatives in wood products, market pulp and tissue. It is uniquely positioned to generate synergic benefits. It is a global leader in the forest product industry and will march forward once the downturn clears. The company has fundamentals for a better future. The company expects to reach a level in a shorter time, which will give additional capacity and lower millwide costs.
Disclosure: I do not hold any position in the company.
