Q2 2024 Cascades Inc Earnings Call
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Ladies and gentlemen, welcome to Cascades' second quarter 2024 financial results teleconference. My name is Sylvie and I will be your operator today.
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Sylvia: Good morning, My name is Sylvia and I will be your conference operator today at this time I would like to welcome everyone to the Cascade <unk> second quarter 2024 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.
Speaker Change: This will cast Scott Ms. Aitken you may begin.
Jennifer Aitken: Thank you Sylvie good morning, everyone and thank you for joining our second quarter 2024 conference call.
Speaker Change: We 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 international President and CEO and Allan Hogg CFO.
Speaker Change: Also joining us for the question period at the end of the call our shelf Melo, President and COO of containerboard packaging.
Gigate: <unk> gate, President until our specialty product segment and geography.
Speaker Change: And she will have tissue papers and Nick <unk>.
Speaker Change: Senior VP of corporate services.
Speaker Change: 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 is subject to risk factors that can have a material impact on actual results. These risks are listed in our public filings.
Speaker Change: These statements the Investor presentation and the press release also include data that are not measures of performance under I S. R. S. Please refer to our Q2 2024 investor presentation tricky to detail.
CMO: This presentation, along with our second quarter press release can be found in the investors section of our website. If you have any questions. Please feel free to contact us after the session I will now turn the call over to our CEO CMO, who will begin with a review of our performance Inc.
CMO: Thank you Jennifer and good morning, everyone I'm pleased to be here today and look forward to having the opportunity to meet you in person in the near future.
Speaker Change: Beginning with a quick overview of our consolidated results our second quarter sales levels increased by 6% from Q1 and were essentially stable year over year.
Speaker Change: This performance was in line with our expectations.
CMO: Volume pricing and exchange rates drove the sequential improvement.
Speaker Change: Year over year sales mix and exchange rate were both tailwind while.
Speaker Change: Volume and pricing headwinds.
Speaker Change: Consolidated EBITDA of $112 million increased 9% from Q1.
Speaker Change: The stronger pricing and favorable volume and mix freight and energy costs.
Speaker Change: These were offset by higher raw material and production costs.
Speaker Change: Year over year consolidated EBITDA decreased 20%, mostly due to higher raw material.
Speaker Change: Costs and decrease in average selling prices. Our second quarter result, also includes a 5 million onetime compensation expense related to CEO transition.
Speaker Change: On the raw material side highlighted on slide five and six.
Speaker Change: Second quarter average index price for OCC increased 9% from Q1 and 134% year over year.
Speaker Change: The market for just materials are consistent demand domestically, including growing amounts needed for new recycled containerboard mills.
Speaker Change: We have no problem supplying our operations with good inventory management and in turn out an hour an hour and thrown youll supply network, we expect relatively stable market in the coming months.
Speaker Change: Average Q2 index prices for white recycled paper grades decreased 6% versus Q1 and 27% from last year.
Speaker Change: The market was bad with readily available volumes in fibers translating into a small decrease in pricing in the quarter.
Speaker Change: Pulp 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.
Speaker Change: Our meals were adequately supply throughout the period.
Speaker Change: Moving now to the results of each of our business segments.
Speaker Change: Delighted on page seven through 12 of the presentation.
Speaker Change: Beginning with containerboard.
Speaker Change: Q2 sales increased by 5% sequentially, reflecting higher selling prices and volume and better sales mix and exchange rate.
Speaker Change: Shipments increased 1% from Q1 driven by converted products.
Speaker Change: Sequentially converting shipments increased five 9% in Canada slightly below the six 2% increase in the Canadian market.
Speaker Change: U S converting shipments decreased two 1% below the three 3% U S market increased reflecting the sale of our new found facility during the quarter.
Speaker Change: Excluding that sale U S converting shipments increased 23% from Q1.
Yeah.
Speaker Change: EBITDA in Q2 was $60 million or 10% on a margin basis. This represents a 20% increase from Q1.
Speaker Change: <unk> has benefited from recent market price increases.
Speaker Change: Set by continuous IV material costs, we also recorded a $4 million R&D credit during the quarter.
Speaker Change: This was in line with the range, we provided with our Q1 results, but nonetheless impacted by our obligation of planned maintenance downtime at our Greenback and Barite mill.
In total yes.
Speaker Change: No downtime reduced our production capacity by a further 8000 short tons in the quarter.
Speaker Change: Year over year sales increased by 4% with benefits from higher volumes and more favorable sales mix and exchange rates offsetting the impact from lower selling prices.
Speaker Change: <unk> decreased by 38% a reflection of the combined impact from lower pricing and higher raw materials.
Yeah.
Speaker Change: Year over year shipments increased by 4% in Q2, mostly driven by the new Bear Island volume.
Speaker Change: <unk> shipments increased by 8% and Canada outperforming a 6% increase in the Canadian market.
Speaker Change: Converting shipments increased 6% slightly below the 1% U S market increase.
Excluding Utah U.
Speaker Change: U S converting shipments increased three 2% from the year ago period.
Speaker Change: Continuing with our packaging business, our specialty products Division continued to deliver strong results Q2 sales were up 4% from Q1 unimproved setting price sales mix exchange rate and higher volume in plastic food packaging.
Speaker Change: EBITDA was up 4% or $2 million from Q1, and a margin of 15, 6% remains solid and then changed from Q1.
Speaker Change: Year over year sales increased 2% in Q2 with exchange rates and higher selling prices in certain projects driving this growth.
Speaker Change: EBITDA improved by 2 million to 26 million as lower operating costs offset lower realized spreads due to higher raw materials.
Speaker Change: Moving now to our tissue business.
Speaker Change: 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 motive, which reflects seasonality new business gains and promotional activities.
Speaker Change: 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 due to a margin of 13, 6% remained stable with Q1 levels.
Speaker Change: Sales decreased 5% year over year, reflecting lower shipments levels. This was driven by a decrease in parent roll shipments following mill closures and higher internal consumption as a result, the integration rates increasing to 94% from 83% in the year ago period.
Speaker Change: On the converting side shipments increased by 3%. The result of a 4% decrease in the away from home following plant closures offset by a 9% increase in retail.
Speaker Change: The average selling price increased by 4% driven by lower proportion of parent rolls in the sales mix and the beneficial exchange rates.
Speaker Change: Year over year, EBITDA increased by $10 million or 23%.
Speaker Change: This is the outcome of a 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 Adam will briefly discuss some of the financial highlights.
Speaker Change: Yes. Thank you.
Speaker Change: Good morning, everyone slides 13, and 14 illustrate the specific items recorded during the quarter that may not assumed I think impacted EBITDA were $10 million.
Speaker Change: Restructuring costs related to the closure of clients, mainly in containerboard and tissue that's occurred over the last 12 months.
Speaker Change: Slide 15, and 16 illustrate the year over year and sequential volumes of our Q2 adjusted earnings per share and a reconciliation with the specific items that affected our quarterly results.
Speaker Change: As reported Q2 net earnings per share was one.
Speaker Change: This compared to net earnings per share of <unk> 22 cents last year and a net loss per share of <unk> 20 in Q1.
Speaker Change: Adjusted basis net earnings per share were <unk> <unk> in the current quarter. This compared to net earnings per share of <unk> 27 in last year's results and zero in the first quarter year over year variance, mainly reflects lower EBITDA and how you're financing and depreciation expenses why sequential law against <unk>.
Speaker Change: Flex higher EBITDA level.
Speaker Change: As highlighted on slide 17 in the second quarter adjusted cash flow from operations was $95 million down from 122 million in the year ago period, but up $49 million sequentially.
Speaker Change: Adjusted cash flow used in the second quarter improved.
Speaker Change: Our year over year, largely reflecting the higher levels of capital investments associated with balance in the year ago period.
Speaker Change: <unk> adjusted cash flow from operations also improved due to lower net financing expenses base.
Speaker Change: Slide 18 provides detail of our capital investments new investments in the second quarter.
Speaker Change: Total $62 million for 2020 for our planned capital investments will be below our initial forecast of 175.
Speaker Change: Moving now to our net debt reconciliation as detailed on slide 19 sequentially, our net debt increased by $73 million in the second quarter.
Speaker Change: Spike higher cash flow from operations in Q2 net debt increased due to the exchange rate are paid capital investments leases renewal and then you get the working capital targets. We also dispose of some assets $417 million largely related to the new town kinetic converting facility.
Speaker Change: In the second quarter.
Speaker Change: Higher levels of net debt and lower EBITDA levels on a LTM basis increased leverage to four two times at the end of Q2.
Speaker Change: Three eight times at the end of Q1.
Speaker Change: 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 Ed will conclude with some brief comments and <unk> before we begin the question.
Great.
Thank you Alan we've outline our near term outlook on slide 21 of the presentation. As a reminder, actual results may differ from this outlook in the event of movements and index pricing both in terms of raw material costs and selling prices.
Speaker Change: Beginning with our package testing businesses, we expect Q3 results to be stronger sequentially in containerboard.
Speaker Change: Two main factors are driving this outlook. The first is the benefit being realized price increases continue to be implemented.
Speaker Change: The second is improve operational efficiency.
Speaker Change: Knowing the importance shutdowns in Q2 and good volumes given stronger seasonality.
Speaker Change: We expect raw material cost to continue to be a headwind for the business.
Speaker Change: We're planning approximately 11000 short tons of maintenance scheduled downtime in the quarter.
Speaker Change: Results in our specialty projects segments are expected to be stable sequentially. This reflects higher selling prices in certain product categories and gaining from efficiency improvements.
Speaker Change: These <unk> are expected to offset any impact from your production costs.
Speaker Change: Finally, we expect third quarter results will be softer sequentially for our tissue business.
Speaker Change: Why do we anticipate stable volumes this will be outweighed by higher raw material costs and less favorable sales mix.
Speaker Change: Looking further ahead our outlook is positive as we have announced a price increase of up to eight 5% for Canadian retail tissue products and some U S customers at the end of Q3.
Speaker Change: We also secured additional U S retail business volume that will be starting in Q4.
Speaker Change: More broadly we're focused on four main work streams.
Speaker Change: First is the ongoing ramp up of the Bear Island facility.
Speaker Change: Second is starting to finding efficiency improvement.
Speaker Change: Across all of our production facilities.
Speaker Change: Third is.
Speaker Change: He is on further improving customer satisfaction levels with our partners and remaining the supplier of choice.
Speaker Change: And last but certainly not least is the diligent implementation of already announced price increases.
Speaker Change: We remain cautious given the economy and persistent inflation and our commitment to continuous improvement throughout our business, while remaining rigorous when it comes to capital allocation.
Speaker Change: Let me finish by saying that in my eight weeks with guests that I've been very impressed with their fashion and the commitment of every employee.
Speaker Change: People are dedicated and proud and doing everything they can to meet customers' expectations.
<unk> clearly they're seeing are companies. It's depot brings very true forecast, Scott and I'm looking forward for the next step as we continue to grow our company and.
Speaker Change: And before I pass it to the operator I want to thank the people around the table with me here.
Speaker Change: My life easy on this first call back to the operator, thank you.
Speaker Change: Maxie Ceiba will opposing guests scale for you Steve will take <unk>.
Speaker Change: I will talk Levy telephony.
Speaker Change: So it looks like your steel composite is well suited to that.
Speaker Change: Thank you.
I 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 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.
Speaker Change: And your first question will be from Jonathan Goldman at Scotia Bank. Please go ahead.
Speaker Change: Hi, good morning, and thanks for taking my questions.
Speaker Change: Maybe just one on the industry generally can you discuss how containerboard end user demand trends have evolved since may.
Yes, I'll, let Sean I'll take this question.
Speaker Change: So we see.
Speaker Change: General uptake.
Speaker Change: It is seasonal.
<unk>.
Speaker Change: But overall the demand is pretty good and our.
Alright.
Speaker Change: Third quarter.
Speaker Change: <unk> right now is that it's pretty solid.
Okay.
Speaker Change: Solid relative to Q2 or as solid as Q2.
Yes.
Speaker Change: Q2, yes.
Speaker Change: And it looks like another quarter, where containerboard shipments outperformed the industry actually looked in my model like the eighth quarter in a row. What do you think is driving that outperformance.
Sure.
So.
Speaker Change: Basically like we mentioned we made some significant investments strategic investment in our in our group.
Speaker Change: Starting with Bear island, but also on the converting we made a major investment in scatter weight.
Speaker Change: Investment also in Central Canada in Ontario, So.
Speaker Change: This also gave us some.
Speaker Change: Some competitive advantage in the market.
Speaker Change: Growth potential.
Speaker Change: Okay that makes sense and then I guess, maybe switching to bear island can you give us a status update on the ramp.
Speaker Change: Of the facility and maybe specifically how the transition to using more mixed paper is going.
Speaker Change: So the.
Speaker Change: There Alan.
Speaker Change: Ramp up is continues.
Speaker Change: We are now able to supply.
Speaker Change: All the grade that we were supposed to do on that they've been qualified to the customer which is a very good news.
Speaker Change: So now we can provide to their customers on a regular basis 2021 counting over.
Speaker Change: And so we're working with our customers and potential future customers also to deploy that R&D on the market.
Speaker Change: And on the ramp up and the use of the.
Speaker Change: The mix ways were going gradually increasing.
Speaker Change: The mix 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.
Speaker Change: No that's great to hear thanks for taking my questions I will turn it over the line. Thank you.
Thank you next question will be from Muhammad Patel at CIBC World markets. Please go ahead.
Speaker Change: Hi, good morning.
Okay.
Speaker Change: It's only been eight weeks, but.
Speaker Change: Can you maybe speak to some of the.
Speaker Change: Essentially areas that you expect to tell.
Speaker Change: So look to make changes to just given your your operating background.
Speaker Change: Yes. Thank you.
Speaker Change: As you said, it's been any tweaks that clearly as I said in the outlook.
Speaker Change: The barite and ramp up is going to be a focus to make sure that we.
Speaker Change: We go as fast as we can to get to two capacity.
Speaker Change: Very satisfied with what we've seen so far the next coming quarters, that's going to be really important.
Speaker Change: A good order file and we need just production that will be coming after that.
Speaker Change: One is on the operational efficiencies to make sure that we capture all the potential efficiencies that we have with our current assets.
Speaker Change: Okay Fair enough, Thanks, and just the last question for Alan.
Speaker Change: Just given the.
Speaker Change: Lower capex youre pointing to how should we think about capex for 2025.
Speaker Change: And when you think about larger strategic projects for the business.
Speaker Change: What's kind of left other than at least some more box plants overtime.
Yes.
Speaker Change: Take that question in that.
As Adam mentioned, we will be spending less than $75 million in capex. This year.
Speaker Change: We're currently doing a diligent work on how to allocate cash.
Speaker Change: So that will be coming in in the coming months, but that will be really focused on capital allocation to make sure that what we do with gas will add long term and sustainable value.
Speaker Change: Priority will remain debt reduction.
Speaker Change: Coming quarters.
Speaker Change: Okay Fair enough. Thanks, that's all I had I'll I'll turn it over.
Speaker Change: Thank you next question will be from Catherine Kopek at TD Cowen. Please go ahead.
Speaker Change: Hi, good morning, everyone cash on the line.
Speaker Change: Maybe I'll just take it that capital allocation threat a little more.
Speaker Change: You mentioned <unk>.
Speaker Change: Capex and debt reduction just curious around the deleveraging Brian any preliminary thoughts.
Speaker Change: On reducing that.
Speaker Change: Higher EBIT, but actually.
Speaker Change: At that level.
Speaker Change: Well, yes, there is some.
Speaker Change: Initiative ongoing.
Speaker Change: Some working capital items.
Speaker Change: Looking at everything.
Speaker Change: On that and there are some assets that.
Speaker Change: We're looking to dispose of Halloween.
Speaker Change: Closure in the recent quarters.
Speaker Change: Just as we did with <unk> in the second quarter, so that may be other.
<unk> two.
Speaker Change: Sure to refer to reduce debt in nominal dollars.
Speaker Change: But the objective.
Speaker Change: The objective remain.
Jeff: To be under three things so Jeff.
Speaker Change: <unk> delayed.
Speaker Change: You've mentioned.
Speaker Change: <unk> capital allocation will will get us there.
Speaker Change: I'm glad you mentioned that target that was going to be my follow up for Allen.
Speaker Change: The order of magnitude on the working cap protection and or asset disposals.
Well.
Speaker Change: Asset disposal.
Yes.
Speaker Change: It can change very rapidly, it's maybe too early to give you amounts lifted.
Speaker Change: And working capital raising we.
Speaker Change: We are under 10% of sales.
Speaker Change: Slight improvement here and there, but we are pretty good shape, but theres always unfortunate. These so couple of millions, but we don't have any ammo to state that at this time.
Speaker Change: Okay got you.
Speaker Change: Did you have containerboard price hikes, how are those progressing do you expect to get the full hike any pushback from customers.
Speaker Change: 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 is some benefits.
Speaker Change: In Q2, but.
Speaker Change: Continue in Q3, so yes, we are.
Speaker Change: We are diligently working with our customers.
Speaker Change: To work with them.
Speaker Change: Passing on the price increase.
Speaker Change: And then just beyond the price hike.
Speaker Change: Any prospects or other prospects, rather four weeks roofing margins containerboard beyond price.
Speaker Change: I think youll get it.
Speaker Change: How much bear island.
Speaker Change: Underlying margins to this point that would be helpful.
Speaker Change: So as far as that improvement.
Speaker Change: And Sean mentioned.
Speaker Change: Some of it will come from the working cap.
Speaker Change: 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 then specific meal with Verizon Im not going to go specific on the on one meal with Verizon as part of the process that I've just mentioned.
Speaker Change: Any any.
Speaker Change: The numbers you can share around target for how much margin Peru.
Based on the presentation.
Speaker Change: Hi, there.
Speaker Change: Alright, Thank you Robert.
Speaker Change: Yes, we're not going to put any number at this point, but let me tell you that we are really working diligently to make sure that we.
Speaker Change: We cover back enough margin so that we can further reduce our debt level.
Speaker Change: Got you okay. Thanks, a lot everyone appreciate it.
Speaker Change: Thank you next question will be from Matthew Mackellar RBC. Please go ahead.
Speaker Change: Hi, Good morning, Thanks for taking my questions I think in your prepared remarks, you mentioned securing some additional U S retail tissue volumes beginning in Q4 could you maybe just provide a bit of color around how material the volumes associated with that new business should be.
Speaker Change: Yes, I'll, let Pat John David to respond to that.
Speaker Change: Yeah, Good morning, I should say.
Speaker Change: This business honestly, it's slightly above 4 million cases for a major retailer in the U S.
Sure.
Speaker Change: Negotiation discussion.
Speaker Change: Okay. Thanks, Thanks for that.
Speaker Change: Are you able to provide anymore.
Speaker Change: Additional color around the mechanical break at bear island of Macquarie.
Speaker Change: Yeah, so basically.
Speaker Change: As you know what I'd say.
Speaker Change: Ramp up.
Speaker Change: Paper Mills so.
Speaker Change: The items.
Speaker Change: There was a breakdown on the on the paper machine and the team that worked.
Speaker Change: Diligently to ramp this up.
Speaker Change: Right now.
Speaker Change: And it's not anything that will affect the in the future.
Okay.
Speaker Change: Okay. Thanks, that's helpful. And then maybe last for me I think.
Speaker Change: Earlier this year, you talked about relocating some tissue converting equipment from your operations in Oregon that are now closed to elsewhere in your network.
Speaker Change: Could you maybe speak to how that's progressing and maybe where you are in that process.
Speaker Change: Yes, those four lines.
Speaker Change: We are already running in our other facilities, so that formula and so that was just talking about is going to fill.
Speaker Change: About 50% of the capacity that we're adding the remaining two are in ramp up.
Speaker Change: Two are far away from the market.
Speaker Change: So we still have some open capacity short term loans in the away from home but.
Speaker Change: Overall, I would say that those language.
Speaker Change: <unk> relocation went pretty well in.
Speaker Change: Adding to the to the plan.
Speaker Change: Okay. Thanks, very much that's all from me I'll turn it back.
Speaker Change: Thank you again, if you would like to ask a question. Please press Star then number one on your telephone keypad.
Speaker Change: And your next question will be from Zachary <unk> at National Bank Financial. Please go ahead.
Yes.
Good morning, its actually Thomas calling in for Zach.
Speaker Change: Could you give us a little bit more color regarding the issue makes it just a consumer trade down.
Yes.
Speaker Change: You still private label going up so if you look at the Nielsen data for the last quarter private label.
Speaker Change: Gaining share again.
Speaker Change: In terms of trade.
Trading down into the category, we see some.
Speaker Change: I would say moderate.
Speaker Change: <unk> I will say that but.
Speaker Change: I think the biggest.
Speaker Change: Uplift that we see as retail price going down at some retailers some important reseller in U S.
Speaker Change: Adjusted theirs.
So we see good uplift in volume.
Speaker Change: Our own business and retail use.
Yes.
Speaker Change: Okay. 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.
Speaker Change: A catch up in shipments in the third quarter.
Speaker Change: Yes, so yes.
Speaker Change: The third quarter.
Luke: Luke is positive compared to.
Speaker Change: Q2, and this is a combination of market and also.
Speaker Change: More visibility on our on our production.
Speaker Change: But also.
Speaker Change: All of this shutdown we took yes you are.
Speaker Change: Much larger than what we expected, which recently, yes, we should see pick up in shipments.
Speaker Change: Perfect. That's helpful. Thank you guys.
Speaker Change: Thank you.
There are no further questions at this time Mr. Simone Please continue.
Speaker Change: Alright, well in conclusion, thanks, everyone for I think the time to attend our quarterly call and we're looking forward to meet some of you in person in the near future.
Speaker Change: Thank you everyone. Thank you. Thank you Mr. <unk> Ms. Sue So let me say helical fan also do as Andre will provide more of a cushy.
Ladies and gentlemen, this does conclude today's conference call you may now disconnect your lines.
Okay.
Yes.
Okay.
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