Q2 2023 Cascades Inc Earnings Call

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Charles Good morning, My name is show out and I will be your conference operator today at this time I would like to welcome everyone to the Cascades second quarter 2023 financial results Conference call. All lines are currently in listen only mode. After the Speakers' remarks, there will be a question and answer session I will now pass the call to Jennifer Aitken.

Director of Investor Relations for Cascades, Ms. Aitken you may begin your conference.

Thank you Sheila.

Good morning, everyone and thank you for joining our second quarter 2023 conference call.

He will begin with an overview of our operational and financial results followed by some concluding remarks, after which we will begin the question period.

Today's speakers will be now your pure president and CEO and Allan Hogg CFO .

Also joining us for the question period at the end of the call will be shelved Melo, president and COO of containerboard packaging you're at home E.

Be appointed President and COO of the specialty products segment, John David Tardif, President and COO of tissue papers and with large bank in his new role as senior VP of corporate services.

Before I turn the call over to my colleagues I would like to highlight that certain statements made during this call will discuss historical and forward looking matters. The accuracy of these statements are subject to risk factors that can have a material impact on actual results. These risks are listed in our public filings.

These statements the Investor presentation and the press release also include data that are not measures of performance under I F. R. S. Please refer to our Q2 2023 investor presentation for details.

This presentation, along with our second quarter press release can be found in the investors section of our website.

Finally, I would like to mention that Cascade will be hosting an investor day had no tours of our new recycled containerboard Bear Island facility in Virginia on September 14th 2023, if.

If you have any questions regarding this please feel free to contact us after the session I will now turn the call over to our CEO Matthew.

Thank you Jennifer and good morning, everyone. We are pleased with our Q2 consolidated result, and with the performance of each of our business segments.

Consolidated basis sales increased 4% year over year, while adjusted EBITDA of $141 million rose, 55% from the prior year.

In both cases result were driven by a stronger performance from our tissue paper segment that reflected pricey and a strategic initiative put in place over the past several quarters.

More broadly year over year top line growth.

If it did from a more favorable exchange rates for all of our businesses higher volumes in containerboard and youre selling price prices in tissue and specialty packaging.

These were partially offset by lower selling prices in containerboard following the decrease in index prices.

Year over year EBITDA improved was also driven by stronger tissue resolved.

Sequentially sales increased 3%.

This was driven by higher volumes in all of our business segments, most notably tissue in a better sales mix in containerboard.

Fix was slightly negative for our business sequentially and the impact of lower index prices on the top line performance of our packaging segment more than offset the benefit from pricing in tissue paper.

EBITDA increased 5% sequentially. This was driven by improved volume and mix in all business segments, and lower transportation energy cost in the tissue and containerboard segments.

Raw material costs and selling prices were headwinds for our packaging businesses, but we are a tailwind for our tissue operation.

Production costs were higher sequentially, mainly in containerboard, reflecting the commissioning and startup of the bear Island mill in the second quarter.

On the raw materials side highlighted on slide five and six the Q2 average index price for OCC decreased 66% year over year, but increased 42% from Q1.

The OTC market was relatively stable in the second quarter with limited export activity and favorable seasonal fiber generation, albeit at a slower pace than recent year transportation cost and also continue to ease we are expecting and Nick Signet.

It can evolution in the market condition in the short term and our operations are well supplied.

Average index prices for white recycled paper grades decreased 17% sequentially in Q2 and.

And 22% from the prior year levels.

We saw favorable market dynamics over the quarter and important index price reduction.

Similar trends were seen with Virgin Paul There are dual pulp index decreased 16% sequentially and year over year, while softwood pulp index prices decreased 10% from Q1 and 13% year over year.

Condition have improved for Virgin pulp following lower demands for me Asia improved logistics and new capacity. The later of which should largely offset any potential impact from recent forest fire and notes market related downtime in the industry and wood chip shortage.

Material is available and our meals are adequately supplied.

We'd remind you that chart it changes in index prices take a few weeks before the impact flows through our results as it relates to level of inventory.

Moving now to the results of each of our business segment as a lighted on page seven through 12 of the presentation.

Beginning with the sequential performance sales in containerboard were stable in Q2.

This reflects higher volumes and beneficial sales mix upset by the impacts from lower average selling prices. Following the decrease in index pricing and the less favorable exchange rate.

The 4% volume increase reflect a 1% increase in shipment of parent roll and a 7% increase in converted product shipments sequentially converting shipments increased by five 5% in Canada outperforming the two 7% increase indicate either market.

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U S converting shipments increased 13, 8% outperforming the one 2% U S market increase.

Q2, adjusted EBITDA of 96 million or 17% on a margin basis was below the Q1 levels, which as a reminder include the final 7 million insurance settlement from water effluent treatment issued.

In mid 2021 at our <unk> complex.

Sequential Q2, EBITDA performance reflects lower selling prices and raw material costs following announce index price changes.

These were partially offset by a more favorable sales mix and lower transportation and energy cost.

I would also note that result also reflect that the bear island facility was a negative contributor to our performance, giving the mill is in ramping up.

Year over year sales decreased marginally and EBITDA decreased by 3 million.

With lower selling prices and higher production costs offsetting the beneficial impact from lower raw material freight and energy costs.

Year over year shipment increased by 5% in Q2, reflecting a 10% increase in external parent roll shipment and a 1% increase in converting shipments mainly driven by higher volume in the U S market.

Specifically converting shipment decreased by <unk>, 6% in Canada year over year outperforming the two 8% decrease in the Canadian market.

Converting shipment increased nine 6%.

Above the seven 9% U S market decrease.

Continuing with our packaging business Q2 sales levels in our specialty products segment increased by 2% sequentially.

This reflects higher volume in the cardboard and plastic sub segment, partially offset by lower selling prices in our business and lower molded pulp volume a bit.

<unk> decreased by 3 million units sequentially as higher overall volume benefit.

Were more than offset by lower realized spread in all sub segment.

When compared to the prior year Q2 sales decreased by 4 million or 2% driven by softer volume in all business sub segments, and lower selling prices and cardboard product related to decrease in index pricing.

These were partially mitigated by a more favorable exchange rates and higher selling prices in the food packaging business.

EBITDA level decreased by a marginal 1 million to 24 million in Q2 as benefit from your realized spread were more than offset by the impact related to the lower volume and are your production costs.

Moving now to our tissue business.

The repositioning of our tissue paper platform announced at the end of April progressed as planned in the second quarter with the closure completed as scheduled in June and July .

We anticipate that these decision combined with the ongoing productivity optimization initiatives, which are also progressing as expected.

We'll continue to strengthen the performance of our tissue paper business going forward.

Sales increased 7% sequentially, driven by higher selling prices and stronger volume.

Which reflected ongoing profitability and optimization initiatives.

Shipment increased 8% from Q1, reflecting a 7% increase in shipment of converted product and a 10% increase in parent roll shipments sequentially EBITDA improved improvement was driven by benefits from higher volumes lower raw material.

<unk> and energy cost and improvement in selling prices.

Year over year sales rose, 22% with pricing and sales mix initiative, a more favorable exchange rate and a slightly higher volume all contributing to the stronger performance.

Q2, EBITDA of $44 million compared to a loss of $8 million in the prior year period. This year over year improvement was driven by higher selling prices and lower transportation cost.

The benefit of which more than offset your operation.

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Alan will now discuss the main highlights of our financial performance after which I will discuss our near term outlook and conclude our presentation Allen. Thank you Matthew and good morning, everyone. So on slide 13, and 14, we illustrate the specific items.

That were recorded during the quarter. The main items that impacted our EBITDAR were $8 million of impairment charges and restructuring cost in our tissue segment related to U S assets.

But the response for the quality of the product is very very good the finish of the sheet also is good and when I look at where it is going strategically we have decided to.

I'm sorry can you just precise a bit more you for the question.

Yeah are you running into a high level of competition. When you are trying to secure I mean, you guys did pre sell a lot of the bear island volumes.

So I'm not going to comment on on price.

But just on the network that we have because we can offer yes borrowing as a part of the overall that we have.

So what we're doing right now.

We invested in bear island.

To be better equipped to compete.

So again, we have a lighter weight we have.

High performance both in the medium also in minor.

So when we look at the market.

We're positioning ourselves to provide some some product that are helping customers to be more competitive.

So.

Okay.

That's basically the.

The approach that we have.

We think that the.

The more we're going to be better we can offer to our customers and better we're going to be able to compete and create value. So that's our goal.

Thank you for that and then just one last one for me.

What are you hearing from your containerboard customers in terms of demand recovery post destocking.

So the.

Our own.

Customers.

Pretty much.

The inventory and it reflects.

What we're seeing overall, so I think that from the information we get there.

People are pretty much balanced right now and we should be passed.

The Destocking phase that we saw in.

And of the 2022, when the beginning of 2023.

Thank you very much I'll turn it over.

Please go ahead.

The reason for the question is essentially because I'm wondering if the decrease in pulp pricing that we've seen will eventually make its way into lower tissue prices or more aggressive promotional activity in the market.

Good morning.

I won't comment on that.

Pricing in the coming quarter, but for sure, but what I can tell you is that overall.

The market that we're playing with that in terms of private label in the segment that we're paying as went into private label and also the customer mix that we have.

I think we're well positioned to be in good shape for the coming quarters in terms of pricing and volume.

Overall, we will see how things will go into that.

Working with customer and we're close to our customer with good customer base.

Well that will adjust this.

We'll see where the market will go.

Okay. That's all I had thank you.

Thank you there are no further questions at this time Mr. Ted Please continue.

Thank you everyone for being able to call today, and we're looking forward to see you at our Investor Day and Bear Island on September 14 in the meantime, I wish you a very good summer. Thank you everyone.

Yes.

Well Sumit that may Mr Sella, methane and a coffee downstairs LLC.

My first question. Thank you ladies and gentlemen. This concludes today's conference call you may now disconnect.

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