Q1 2020 Earnings Call
Come to the originally forecast for the first quarter 2020 earnings conference call. All lines have been placed on mute to prevent any background noise.
The other presenter Sean.
The question I'm sufficient.
If you would like to cure for Chris Jones. These missed your phone receive on Bristol followed by the number one on your telephone keypad.
In order to we draw Yuppies Jones. Please press the pound point. Please note that this call is being recalled that will be Thursday April Thirtyth Srini Sweeney after <unk> am eastern time, I'll now like to come to me thinking about 23 million long senior Vice President and Chief Financial Officer.
Go ahead.
Thank you operator, and good morning, everybody welcome to Resolute first quarter earnings call.
<unk> along with the slides for today's presentation by logging onto the webcast using the link in the presentations and Webcasts page under the Investor Relations section on our website you can download.
Today's presentation will include non U.S. GAAP financial information our press release in the appendix to the slides include a reconciliation of non-GAAP information to U.S. GAAP financial measures.
We will also make forward looking statements forward looking information is based on our current assumptions.
Patients all of which involve a number of business risks and uncertainties and can change and conditions.
Please review the cautionary statements in our press release and on flight to today's presentation.
I will turn the call over too.
President and Chief Executive Officer.
Good morning, and report winning.
We reported 32.
In the first quarter Colbert formula in the.
The first quarter results reflect a moment.
Right well number that you gotta <unk> might be as well as normal maintenance cost and pulp and paper, which were offset in part by in or newsprint prices.
By segment.
Reported quarterly adjusted Oh $3 million at market, all all by 15 being outdoors.
6 million bars for tissue or buy to me.
Six didn't mean on borrowing for wood products.
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Keyboard newsprint early trying to upset with me on orders.
Specialty papers, all by $4 million from the previous board.
Why don't we caught your due to operate across all business segments, we've had to take a number of misery.
Oh, the dramatic reduction in economy activity due to current hard responded.
Reducing operational footprint to different levels, consistent with essentially drawing our credit facilities to keep higher cash reducing this year the expenses and it's just spending deferring kept them spend.
[noise] February.
Global demand for chemical pool was 7%.
The second thing, that's certainly for southern trees and demand for hardwood and no change for softwood <unk>.
Operating rate upgrade.
Oh, so somebody Uh huh.
I'm sure batteries at the end of the remembering.
We did an all marine 46 days on board.
Okay.
Oh sure wont work didn't mean 10000 metric tons harder in the floor.
Mostly due to timing.
And with all the school.
I guess earlier expectations, Yeah branch transaction price by $16 per metric ton.
And then they make creative.
In Japan.
Starting in China against what more gradually improving market conditions.
But again, we see resident in global demand.
What you should demand or this is the reduction in printing and writing and huge which makes plus cautiously optimistic for sustained momentum and improving price.
After being a good waters it'd be done in the segment improved contributor.
Finished goods inventory remains low.
For.
The pure.
Quarter ending at 69.
As Rick.
Total tissue consumption was unchanged from February to recalibrate in December the last year, but I mean literally onto the rate changes we've seen since March the impact of R&D make sure.
Patterns.
A significant increase in that and that home demand and the corresponding between.
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Our old tissue business is progressing well in the context of disruptive.
Demand and supply chain.
Which opened the portion is just more recent who to demonstrate products and capabilities.
As we grow our customer base and improve our customer mix.
Accordingly.
Oh sure grew by 20 proportionate of water and on misery is going to only five Donald Trump tops.
With the $15 per short terms and pretty much research on price and outdoor cap costs in the segment it'd be dealt with six me on the World War.
You were offering so I raised 1.5, you know.
On the sort of on adjusted basis than the first war.
21% bunker.
Last year.
This reflects an 11% decrease in single family starts and the 45% between mid C stores.
The segment EBITDA improved to 60 million onboard and Warner.
The $21 per totaling 40 increase in average transaction price and 53 million board feet increase in shipments despite rate blockage in Canada and economic follow.
Folding carton buyers are the.
Excluding our recently acquired QSR, we just we recorded about somebody meter board feet on the water also started with the second half a dozen I'd.
On February 1st.
We closed on our acquisition on three saw mill and the us how trusted in Florida, and well and El Dorado in Arkansas.
Yes, I mean, if I mean dorm rooms, including estimated working capital.
The integration of this new sites not up to a good start with the new would you tell me as contributing about coming on board segment EBITDA in the quarter.
We are making plans to rig is already.
In early 2021 subject to market conditions.
You know the lingering uncertainty.
You gave week to more stronger housing starts the negative momentum of the folding maybe mid four.
Oh, great market conditions.
As of today.
We are operating to about 85% of one rig capacity, excluding our newest.
Well its ownership for the near term impact on both except in the current environment are suffering and it could force us to dig further pressure.
On the other had we expect with broader split the key role in the economy to Congress passed policymakers incorrect Negra supers resumption of conference on activity.
Today, we don't we see surprisingly strong demand from the repair and remodeling said.
North American demand for quarter, beginning of the first contracted by 14% quarter over the same period last year.
I think a 20% broken supercalender grades and 8% for southern.
Open to the first quarter of 2000 Nike shoes.
Sure Basketball series sure all quarter, because it would be first what changed in person.
Yeah, Rich transaction price did by $15 per short ton into four mostly reflecting weakness and supercalender grades.
A quarter over quarter shipments I ever won't change against a seasonally stronger Warner.
And as veterinary rotors, and 49000 short term.
North America, you spend demand fell by 12 cents a first water opened this superior than last year.
You bet from newspaper publishers fell by 50% while demand for commercial printers was done by 8%.
North American shipment to capacity reissue was 86% and falling in the current trends you are.
Global demand for newsprint Y O Y 12% from February and the war newsprint ship Masterpass series, you watch some of the person.
As a result, the at risk transaction price slip by further $36 per metric ton water.
Most of the weakness coming in the offshore markets.
Shipment volumes were down by 11000 metric tons and finished goods inventory was unchanged.
The focused in on paper business Weve coach new to be maximize cash generation.
Why they're unfortunate event in the current environment. So marios nobody knew sprint will likely going on there is 200 pressure.
I wouldn't know I repeat and discuss our furniture from thank you Eve, we reported a net loss of $29 million in the first quarter for 33 cents per share excluding special items. This compares to a net loss excluding special items of $53 million were 59 cents per share in the previous quarter.
Net income excluding special items of $30 million worth 32 cents per diluted share in Q1 last year.
Minus $28 million of special items in the first quarter include other income from foreign exchange translation, and nonoperating pension and OPEB credits.
Our total sales in the first quarter were $689 million up by 21 million from the fourth quarter. This reflects the capacity addition from the recently acquired U.S. sawmills and 8% increase in the price of lumber and a 22% increase in tissue shipments all of which were partly offset by.
Weaker pricing in shipments in the news print segment.
Our manufacturing costs decreased by $31 million in the quarter on a comparable basis after removing the impact of volume and the write down of inventory. Following the Q4 idling of the Augusta Newsprint mill.
Compared to the fourth quarter. The all in delivered cost her market pulp fell by $68 per metric ton or 10% on lower maintenance spending and the timing of the same PDK outage in Q4.
Accordingly market, Paul EBITDA improved to $3 million.
The delivered cost in tissue fell by $66 per short ton in the quarter, 4%, mostly reflecting the sales volume impact leading to a 2 million dollar improvement than EBITDA of 6 million.
In the wood product segment, the delivered cost was essentially unchanged, but with the 8% increase in transaction prices EBITDA in this segment improved by $12 million to 16 million.
Newsprint delivered cost was $16 per metric ton lower in the quarter were 3% due to lower maintenance maintenance costs, and I'm, sorry, due to lower maintenance and costs avoided with the closure of Augusta.
But with the lower average transaction price EBITDA fell to breakeven.
Delivered cost and specialty papers fell by $40 per short ton or 6% due to lower maintenance costs and higher generation from internal power assets, which despite the lower average transaction price in paper helped to improve EBITDA by 4 million to 14 million.
We used $49 million of cash from operating activities in the quarter, including 831 million dollar increase in roundwood inventory ahead of the spring breakup.
We also made $21 million of capital expenditures compared to $113 million for all of 2019.
To help manage liquidity in the months ahead, we're trimming our twentytwenty capital spending expectations down to $90 million, including capital to be invested in the recently acquired use solved.
Previously guided to roughly $115 million, excluding the west softness.
We made $15 million in softwood lumber duty deposits in the quarter, bringing our total deposits to $177 million, which is recorded in other assets on the balance sheet.
372 million dollar increase and total debt on the balance sheet reflects a draw of $180 million from our existing term loan facility to finance the acquisition of the U.S. saw mills.
And injection of over $120 million from existing credit facilities as a prevented measure in mid March to build and immediately available cash cushion of liquidity.
And an inflow of roughly $70 million from existing facilities to support short term working capital requirements.
The term loans, we used to finance the acquisition of the U.S. saw mills have 10 year maturity and carry a floating rate of interest of about 2% as of today net of the expected patronage dividends.
Maybe our credit facility also carries a floating rate of interest of about 2%.
Our cash balance at quarter end was $116 million for net debt of 700 and fine.
Our liquidity also remains strong at $349 million.
Finally, we contributed $23 million to pension plan order and we may open payments of $3 million with a combined expense of 8 million included in adjusted EBITDA.
Well contribution payable for the year, our 112 million pension and $13 million OPEB, we expect to take advantage of the recently announced measures under the U.S. stimulus bill to defer up to $34 million of U.S. contribution.
In January 120 21.
Accordingly, our pension contributions for Twentytwenty will be approximately $80 million and 13 million okay.
117 million dollar reduction net pension and OPEB liability on the balance sheet reflect the impact of the weaker Canadian dollar and payments made in order.
Considering the sudden and precipitous reduction in equity markets and falling treasury rates in the quarter. If the year were to end on March 31, we would expect the funding ratio on an accounting basis and on our funding bases to a white, which would imply higher contribution in the future, but we will conduct.
That assessment only at year end in accordance with applicable accounting and pension funding rules Eve.
Right.
Good morning America across North America, I recognize the import underperformance product sector and defined against a permanent monitors and then.
Resolute manufacture a number of key pros, including notebook or infrastructure now ended the economy recovered recon pop personal care products.
Bruce and clinical supplies used by our healthcare professionals on the trunk lines.
But you shouldn't be a shortfall was to meet our basic needs for been lives.
For a new sprint and note.
People off in full.
Oh.
As we navigate.
Yes, hi, I'm sort of buying our short term borrowings these will be focused on the funnel.
Operating our assets in accordance with rigorous oral health and safety, including special visitors, we've put in place to minimize the spread of Diverters are all of our occasions.
Glutamate managing sources of liquidity and developing a fortune to dish to access additional liquidity shouldn't be required.
Okay with all of those look ornament did the regions, where we operate to support the speed it karlovic recall.
Fluidly monitoring the moving to risk or through the exposures with some of our customers.
Beginning with regular negative there.
Regularly.
Well, maybe by the risk of rising pension contribution should financial markets remained depressed and interest rates no.
Adjusting capacity.
Based on rapidly changing conditions and.
Big tight control on this year the expenses and ultimately kept on spending.
These are obviously unprecedented.
Before we complete this morning's call I would like to recognize our employees contractors and supermarkets.
Our people I resent the challenge.
With some operations.
There was a.
Directly or financial impact.
But across the company.
They all have remained committed to a job well done.
Oil and hub walking.
They recognize the importance of their role in providing our customers essential products.
And in spite of the pressure of walk in family during this difficulties.
We remain focused on the world class health and safety practices and it remains engaged communities.
We see gone cliffs acts of kindness and sounded very.
From what else are meantime, and file on show an encouraging donations.
Oh, you brought up truly our greatest asset.
Making a difference paper they end up the Appleton board of directors and executive team.
I want to perfectly thing.
This concludes our formal presentation operator, we will now open the call for questions.
As a reminder, so I'll stick with Jones, you will need to press star one on your telephone keypad. The withdraw your question. Please press the phone key.
Please let's pause for a moment, so compared to Q1 zero Sir.
Your first question comes from the line of Sean's to work of TD Securities. Please go ahead your line open.
Thank you good morning.
Couple of questions.
You you reference the.
Dynamic downtime approach, you're taking I'm wondering if you can provide a little bit of detail across the business segments with respect to the amount of downtime taken during April.
And how that's trending into may for each of the segments as well.
Okay. So a good morning, CHMP first of all the as far as the downtime we spend that has been taken as if we built a new sprint.
We've taken the Oh, I'm, a big bubble, but mill, which is about it but still machine.
Don't have the thoughts on the on the yield of business.
Two of the Republic.
And then we took us well at the last four weeks of two weeks and we got we.
The meal just that the automotive four weeks the eight Wassa newsprint mill.
Which is a one machine and then what's supposed to it will allow us volume so.
Those are temporary adult part though.
All the CPP great.
We took about a month.
Before we got don't buy more vulnerable.
Let's see meal.
They restarted on Monday.
Till at least the next the next all they have June and we also took a mission Dol then.
And I bought a which is about a 70000 for per year on that.
Other than that.
You know were of the paper side than pulp size, we're running pretty much.
Full operation on the of the.
The lumber side.
We achieved we took a stub mill.
She will start mills, though the full quarter because of the big spread between the you know as you saw the twins so that roundup. So the set up a solid mill is down but the volume of law, it's been bode Miller.
Pretty goals as a.
Suddenly and a we've got the shifts in the one of our rent the mail the job will we called why meals pick as well as stability adult or two months now.
As Tom isn't northwest on no sorry was though that.
Dog earlier, so so still though.
That's pretty much what we have.
It logo, we took two weeks additional two weeks and the.
The big bubble sawmills in line with the downtime of the paper mill.
We will restart of the about two weeks ago choose chips be moved to double it was revealed so.
Other than that.
That's pretty much of the.
Well I think it's something like 25.
All this together represent about 25% of wall.
Yeah.
Okay, great. Thank Steve.
Remy a question on the balance sheet, you referenced the lower Capex and the pension deferrals in the U.S.
Can you go through some of the other levers you have to pull with respect to supporting that.
The liquidity position and I'm thinking your things like seasonal working cap declined screw the.
Second and third quarters.
Property tax deferrals.
I'm not sure if there's any stumpage deferrals on deck in eastern Canada.
Thoughts there with respect to others measures.
Yeah, So and just maybe to begin Sean our liquidity is starting from a pretty good position and 300, and a and $50 million as of a as of quarter end.
And so there is there some opportunities we think that worked on nothing to add to announce at this time, but in terms of how things are evolving we talked about 34 million dollar deferral on on pension.
Which is helpful. The first quarter is also pretty significant in terms of working capital consumption. So we expect that to add to reverse over the course of over the course of the year.
The deferral of capital spending is going to reduce about $30 million in spending.
There are programs that have been announced by a by province in to defer some payments under the harvesting programs, but thats, mostly within a within the existing year and a and then the other programs you talked about deferring property taxes that that those tend to be a little bit a little bit smaller.
So that I pretty much covers what we what we're working on shop.
Okay. Thanks, Jeremy that's all I have for now thank you.
Your next question comes from the line of Hamir Patel of T.I.B.C. capital markets. Your line is open.
Hi, good morning.
Morning back against a sense as to how much graphic paper and newsprint demand.
It is down year over year in April and would you expect things to be even worse.
In may.
Yes so.
We see the.
We have a number.
So the threaded first quarter, we'll spend a lot of both up 15% or so.
But since the but they make a as I mentioned earlier you had to post best did that wasn't expected.
Which represent about 25 kilowatt paper business Oh, the newest for inside the you know and even of the on the CPB side, we feel that the responsibly and automotive to see some push on more right now all of them.
We're expecting.
The question about doubled forces.
Going forward.
With the.
Yes.
Business coming back how much going to come back on the on the paper side. So we expect as far as advertising of DSE as an example, and.
Most specialty papers.
Hopefully.
Some business going to come back, but it's hard to.
Sure I'll watch.
How much can come back.
I would say to answer your question more precisely.
Of course, you know April is one that they.
Probably the most effective in the paper side.
We don't see me.
So you're doing a better so we hope to have some some business coming back other newsprint site is it's more began sets up.
They all of its just the overseas markets been struggling go up.
You know this part of the paper business, even before as you know.
We already took a August Georgia mill down because of the lack of the mass will question.
Although much of just.
It's going to spend to be back so.
What's the I'd go but.
We don't we don't feel that.
We don't feel that everything's going to be back but.
Some of it with the expectation.
Great. Thanks, you that that's helpful and can you give us a sense as to maybe how product pricing for newsprint and graphic papers has trended since the end of the quarter.
Oh, no you're looking at it these are talking about the newest spread a force as I said, it's the offshore markets, but it really bad so, we'll just pretty quiet right oh shipments to dealers.
To give you a precise price show, which are proceeding, though what was.
As of August you aren't.
On the CBB. So both same thing you know what.
I don't have precise number to give you write costs was almost markets when gold or something like that.
Lastly, Ah.
Right so.
Okay. Thanks, and even your your comments you mentioned are in our had been strong was that.
In relation to what you're seeing out of your Canadian operations are from the one and a U.S. saw no you have operating today.
Yes, what we see we see that on two to spread the ways. You know, we Oh, we have contract with home centers.
Even you know on value added like affording strip should all kind of business.
And a lower as well or can it operation.
We've seen the demand the kind of going pretty goes and even some five stronger of different products.
So with direct sales, which is a pretty good measure to measure the demand on the also that business. Although you aside it's more of the utilize you know we're producing decking. So as we see a pretty good demand for a big in going through the business. So at this.
You say that as we as we speak again see that.
You have it seems that Don seibel before in a virus most business I've been pretty good.
Great and I'm just a final one for me at Remy.
If.
We have a prolonged oh.
Period of market weakness you already indicated there was sort of run rate Capex has been reduced by 30% is there's still room to hear that back further if need be.
Well, yes, as you know a mere were pretty capital intensive business. So it takes about $70 million to $80 million to keep the lights on so yes, we could compress capex a little bit.
But beyond that we're not doing ourselves any long term papers.
Fair enough.
Great that's up so I don't what kind of thanks. Thanks Amir.
Your next question comes from the line of pull Queen of RBC capital markets. Your line is open.
Thanks for much money Thats.
Recurring Paul.
Hey, just some clarification on the wood products side, I think you mentioned a deep the EBITDA contribution from the newly acquired U.S.. So smells is 2 million for the two months is that right correct. That's correct.
Okay, and maybe you could just outlined that shifting of those mills currently.
The shifts were operating yeah, we operate actress City, Florida.
Worked we ship critical or was it.
And a big part of it as I said earlier is more is that gain which is pretty good right. Now so we're pretty pleased with what we're doing with.
Bill.
We have the you know what we've been acquisition, let would Arkansas was running about solving what running on the one shipping that.
So.
Our goal was to restart the all competing the second shift.
We still a walking on it what would've been up right always for having a suite shift between the minimum to ship at that going running to solve is to ship you're going to depend in Macon with training at or things that in a bulk altogether, but we're pretty minimal there is little that'd be a lot well we see good unfortunately.
And aggregations doing well and as they are otherwise you'd always dumbo, we're still a forecasting too.
To restart at the beginning of putting into what the best market force the demand, but Oh, that's what it would align the although the written was Watson so the situation from a.
Okay, great. Thanks, Thanks for that and then just switching to market pulp here I was surprised to the price drop.
Thats $60 quarter over quarter.
Given where I saw you know most of benchmark prices, maybe maybe you could give us an outline of where your pulp is going regionally and and any mix shift for that you know that explains that.
Price drop.
So.
As we said no the market first quarter was.
As expected.
We have different mix of all in all we have the so all in all with hardwood and softwood and capital efficiency, we have the trough all that.
And of course, we do have the the soft performance have been seeing whether it makes a hardwood and softwood pulp.
So we have something.
I was.
The tougher I would say.
And it's the based on the whole thing same thing above the the fluff pulp.
As good as was supposed to be but the good news at the Ultragaz you heard that.
Pretty optimistic about what's going on right now.
During the football and the travel mill.
It's been much better upside and even better since we have a bit our mix with the we more soft would like household. This is what explained for than what's what happened the.
In the first quarter, maybe reveal if you have more details on pricing so.
Pretty much covers a wide across the range.
All right and then just lastly on tissue, maybe if you give us an idea that the split that you've got between consumer and the away from home in terms of a salesman how's that ramp, but a couple things progressing.
So most of the business is focused on our retail everything out in California is our retail so that's about call. It 60, 65000 times a year that Florida Mills are largely away from home with a portion of retail in there.
As far as how this segment is doing a leave and tissue machine at Calhoun is producing very well in the last two quarters.
As we've indicated in the past our priorities there were to improve the converting operations and we're making some encouraging progress there and the other thing that we were talking about also is improving customer mix. So the reality of the last couple of months is that it's given us opportunities as there are more customers looking to fill out.
Store shelves, particularly on the retail side has given us opportunities.
To get into those some of those places and demonstrate the quality of our product and our in our abilities to support it. So its has been pretty positive. We pointed out there was a 22% increase in shipments and our inventories today on the tissue side are very low.
Alright.
Thanks, guys.
Thanks.
There are no further questions. So this time I've come to cold, but what's the present that's.
Okay. Thank you everybody for joining today have a good day. Thank you.
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Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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