Cascades reports its unaudited financial results for the three month period ended 30 September 2016.
Q3 2016 Highlights
Sales of $1,021 million
(compared to $998 million in Q2 2016 (+2%) and $1,026 million in Q3 2015 (stable))Adjusted (excluding specific items)OIBD of $103 million
(compared to $112 million in Q2 2016 (-8%) and $134 million in Q3 2015 (-23%))Net earnings per common share of $0.32
(compared to $0.38 in Q2 2016 and $0.52 in Q3 2015)As reported (including specific items)OIBD of $98 million
(compared to $112 million in Q2 2016 (-13%) and $122 million in Q3 2015 (-20%)Net earnings per common share of $0.21
(compared to $0.38 in Q2 2016 and $0.24 in Q3 2015)Net debt of $1,625 million as at September 30, 2016 (compared to $1,664 million as at June 30, 2016 ) and net debt to adjusted OIBD ratio at 3.8x.
Mr. Mario Plourde , President and Chief Executive Officer, commented: "Our third quarter results were in line with our forecasts for the period. Good execution by our North American operations helped counterbalance the weaker results generated by our European boxboard business during the quarter, which had been expected given the persistent challenging market conditions. On a consolidated basis, this translated into softer financial results year-over-year, consistent with the near-term outlook we provided when we disclosed our second quarter results in August.
It is important to highlight that our performance this quarter also includes a total of $6 million of additional costs related to the fire at our Mississauga ( Ontario ) containerboard mill in August, and the ongoing initiatives we are taking to implement a new ERP platform, transform internal business processes and increase efficiency levels across our business.
Operationally, we are pleased with the overall productivity of our North American operations during the quarter, with all three business segments reporting slightly higher sales year-over-year, and the Tissue and Specialty Products groups also increasing the total number of tons shipped. Our Containerboard Packaging segment also increased capacity utilization by 1% to 96%, and when including paper sold to our associate companies, successfully increased its integration rate to 68% in the current period from 64% in the third quarter of 2015.
Moving to our financial performance, third quarter consolidated adjusted OIBD was down year-over-year, as expected, as a result of the continued weakness in Europe and a lower contribution from our Containerboard Packaging Group during the period. Partially offsetting this was a record performance from our Tissue Group, which generated an adjusted OIBD margin of 14% for the quarter, driven by good volume, a more favourable sales mix and successful implementation of the previously announced Consumer Products price increase in Canada beginning at the end of April.
Our Specialty Products Group segment also had a good quarter, with a 7% increase in shipments and higher prices driving increased spreads in Recovery & Recycling activities. Lower adjusted OIBD from our Containerboard Packaging Group was in line with our forecasts, as higher input costs through the summer coupled with lower published containerboard index pricing put pressure on margins prior to the price increase announced in August, and which will be implemented beginning in the fourth quarter.
Lastly, we continued to follow through on our commitment to lower our debt, decreasing it by 2% or $39 million during the third quarter. As expected, our short-term weaker consolidated adjusted OIBD during the quarter resulted in our leverage ratio marginally increasing to 3.8x from 3.6x at the end of June. We expect this trend to be reversed as we improve our operational performance, reduce working capital, and continue to allocate free cash flow toward debt repayment."
Analysis of results for the three-month period ended September 30, 2016 (compared to the same period last year)
Sales of $1,021 million decreased a marginal $5 million compared to the same period last year. This includes a $2 million currency-related negative impact, and an 8% decrease in European Boxboard sales attributable to the ongoing challenging market conditions. Partially offsetting these effects were higher North American business segment sales, most notably a $7 million increase in sales from the Specialty Products Group during the period. Containerboard Packaging similarly increased sales by $3 million , as the benefits from the acquisition of a plant in the second quarter, a favourable product mix, and a price increase in converted products in Canada , more than offset a reduction in the published index pricing and lower shipments on a same plant basis.
Adjusted operating income decreased from $89 million in the third quarter of 2015 to $55 million in the third quarter of 2016. This reflects increased depreciation expense and corporate costs stemming from the implementation of a new ERP system and the modernization of other business process platforms ( $2 million ), coupled with costs associated with a fire at a mill in Ontario ( $4 million ). In Containerboard Packaging, higher sales were counterbalanced by higher raw material costs, and by an increase in production cost per ton due to sales mix and higher freight and maintenance costs, which resulted in a $10 million decrease in operating income. Lastly, ongoing weak market conditions resulted in lower shipments and selling prices at our European Boxboard operations, which negatively impacted this segments' quarterly contribution. As reported, operating income amounted to $50 million compared to $77 million for the same period last year.
The main specific items, before income taxes, that impacted our third quarter 2016 operating income and/or net earnings were:
$5 million of impairment and restructuring charges (operating income and net earnings) related to the closure of a Tissue Group converting plant in Toronto during the second quarter;a $7 million foreign exchange loss (net earnings) on US$-denominated long-term debt and financial instruments.
Adjusted net earnings amounted to $30 million ( $0.32 per share) in the third quarter of 2016 compared to $49 million ( $0.52 per share) for the same period in 2015. As reported, net earnings amounted to $20 million ( $0.21 per share) in the third quarter of 2016 compared to $22 million ( $0.24 per share) in the same period in 2015
Analysis of results for the three-month period ended September 30, 2016 (compared to the previous quarter)
On a sequential basis, sales increased by 2% to $1,021 million . This reflects higher shipments and higher average realized selling prices in Canadian dollars in the Containerboard Packaging and Tissue Group business segments, partially offset by lower sales from the European Boxboard operations attributable to ongoing market weakness and longer than usual shut downs that are customarily taken in the third quarter.
Adjusted operating income decreased from $65 million in the second quarter of 2016 to $55 million in the third quarter of 2016. This is attributable to a combination of the factors mentioned above, higher corporate costs stemming from the implementation of the new ERP system and other business platforms, the fire at the Mississauga, Ontario , containerboard mill, and lower contribution from the Boxboard Europe segment.
