Q3 2024 Cascades Inc Earnings Call
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Good morning, My name, Michelle and I will be your conference operator today at this time I would like to welcome everyone to the Cascades third 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.
Speaker Change: Ill pass the call to Jennifer Aitken director of Investor Relations for Cascades mistaken you may begin your conference.
Jennifer Aitken: Thank you operator, good morning, everyone and thank you for joining our third quarter 2024 conference call. 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 <unk>, simo, president and CEO and Allan Hogg CFO.
Jennifer Aitken: Also joining us for the question period at the end of the call are shall Melo, President and COO of containerboard packaging home 38, President and COO of specialty products, John Donovan talked different president and COO of tissue papers, and new fiancee senior VP of corporate services before.
Jennifer Aitken: Before I turn the call over to my colleagues I would like to highlight that certain statements made during this call we'll discuss both 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.
Jennifer Aitken: These statements the Investor presentation and the press release also include data that are not measures of performance under Ifr S.
Jennifer Aitken: Please refer to our Q3 2024 investor presentation for details.
Speaker Change: Presentation, along with our third 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 Simo, who will begin with a review of our Q3 performance Eric.
Simo: Thank you Jennifer and good morning, everyone.
Simo: We're satisfied with the trend of our third quarter performance third quarter sales levels increased 2% from Q2 and were stable year over year.
Simo: Volume and pricing drove the sequential improvement, while pricing favorable sales mix and exchange rate offset softer volume year over year.
Simo: Consolidated EBITDA of $140 million increased 25% from Q2.
Simo: Reflecting stronger pricing and lower production costs, partially offset by higher raw material cost.
Simo: Year over year consolidated EBITDA decreased 13% as impacts from higher raw material costs and less favorable volume and sales mix were only partially offset by higher selling price and containerboard.
Simo: On the raw material side.
Simo: On slide five and six.
Simo: The Q3 average index price for OCC decreased 2% from Q2, but remain 83% higher year over year.
Simo: Fiber availability was solid with good seasonal generation and no export activity, leading to a $20 reduction in October and a further five to $10 reduction in November we expect continued favorable market conditions in the coming months.
Simo: Average Q3 index prices for white recycled paper grades decreased 3% from Q2 and 11% from last year.
Simo: Market remained balance with <unk>.
Simo: Generally available volumes of fibers transiting into small decrease in pricing in the quarter we.
Simo: We are also seeing small price decreases in both October and November and expect continued favorable conditions.
Simo: While prices were slightly higher sequentially up 4% in the case of softwood and 2% for hardwood year over year prices remain higher up 36% and 43% respectively.
Simo: Market conditions improved in Q3 for hardwood than eucalyptus with new capacity coming online and we expect favorable market conditions for these grades in coming months.
Simo: Softwood grades also saw a price decrease at the end of Q3.
Simo: We expect essentially stable market dynamics for softwood in the coming months, given the announced downtime in Europe and capacity secret Jim men's in British Columbia.
Simo: Moving now to the results of each of our business segments.
Simo: Delighted on page seven through 12 of the presentation.
Simo: Beginning with containerboard.
Simo: Third quarter sales increased by 4% sequentially this reflected higher selling prices and volume, partially offset by less favorable sales mix and exchange rates.
Simo: Sequentially shipments increased 1% from Q2. This reflects a 3% increase on the parent roll side and stable shipment levels on converted products.
Simo: <unk> shipments decreased one, 5% and Canada below the two 1% increase in the Canadian market largely due to capacity allocation to support the growth of our U S customer base U S guns running shipment increased <unk>, 8% slightly above the points percent U S market increase.
Simo: EBITDA in the third quarter was $90 million.
Simo: Our 15% on a margin basis. This represents a 50% increase from Q2 and is the third consecutive sequential EBITDA improvement.
Simo: Results benefited from recent market price increases lower production and transportation costs.
Simo: The benefits were partially offset by higher raw material prices.
Simo: Year over year sales increased by 3% with benefits from higher selling prices and more favorable sales mix and exchange rate offsetting lower volumes EBITDA levels decreased by 11% largely due to higher raw material costs.
Simo: Year over year shipments decreased by 2% in Q3. This reflects a 4% decrease in parent roll shipments, mostly driven by the closure of our Trenton mill and a 1% increase in shipments of converted products in.
Simo: Converting shipments increased by one 8% in Canada, you live with a seven 6% increase in the Canadian market.
Simo: U S converting shipments increased 4% in line with the 6% U S market increase.
Simo: On a year to date basis, converting shipments increased 6% and Canada above the 5% industry in the U S year to date shipments are up 5% outperforming stable shipments for the industry.
Simo: Continuing with our packaging business, our specialty products Division continued to deliver solid results.
Simo: <unk> sales increased 1% from Q2, unimproved, an improved selling price and sales mix, partially offset by lower shipments in certain products.
Simo: Though was up 4% a $1 million from Q2, driven by higher realized spreads.
Simo: This business is Q3 margin of 16% remains solid improving slightly from the second quarter.
Simo: Year over year sales increased 8% in Q2 with.
Simo: With exchange rates and higher selling prices in certain projects driving this growth EBITDA improved by 29% or $6 million on IRR realized spreads.
Simo: Moving to our tissue business third quarter sales decreased 2% sequentially due to lower average selling prices and volume related to sales mix.
Simo: Converted product shipments increased 1% in the away from home and decreased 2% in the retail market EBIT.
Simo: EBITDA of $43 million decreased 20% from Q2 in line with our expectations driven by higher raw material and transportation costs and slightly lower sales.
Simo: Sales decreased 8% year over year.
Simo: This reflected lower shipment levels in selling prices offset by a positive sales mix.
Simo: Impact.
Simo: Shipments decreased 9% from the prior year quarter. This was largely driven by a 10% decrease in parent roll shipments following plant closures and higher internal consumption as highlighted by the integration rates, increasing to 94% from 87% year over year.
Simo: On the converting side shipments decreased by 2%. The result of a 1% increase in retail and 6% decreasing that we from the average selling price increased by 2% driven by sales mix and the beneficial exchange rates.
Simo: Year over year, EBITDA decreased by $18 million or 30%. This is the outcome of our raw material costs, lower selling price and the net negative volume and sales mix impact.
Simo: These were partially offset by lower energy transportation and production costs, the last of which reflects the beneficial impact from recent plant closures.
Simo: I will now pass the call to Adam who will briefly discuss some of the financial highlights Adam Yes. Thank you Eric and good morning, everyone. So slide 13, and 14 illustrate the specific items recorded during the quarter.
Simo: Let me know items that impacted EBITDA between $90 million of risks.
Simo: Cost.
Simo: And other costs related to the closure of plants in containerboard in 2024.
Simo: And $7 million of impairment charges in tissue and specialty products, resulting from discontinued production of some product lines.
Simo: Slide 15, and 16 illustrate the year over year sequential volumes of our Q3 adjusted earnings per share.
Simo: So and the reconciliation with the specific items that affected our quarterly results.
Simo: As reported Q3 net earnings per share was <unk> <unk> this compared to net earnings per share of <unk> 34, since last year and one <unk> in Q2.
Simo: On an adjusted basis net earnings per share were <unk> 27 in the current quarter as compared to net earnings per share of <unk> 44 cents in last year's results and eight in the second quarter Youll.
Simo: Year over year, the volumes, mainly reflects lower EBITDA Wi sequential <unk> reflects higher EBITDA levels.
Simo: On slide 17 third quarter adjusted cash flow from operations was $86 million down from $106 million in the year ago period.
Simo: And from $95 million in Q2.
Simo: Adjusted cash flow generated in the third quarter improved year over year, largely reflecting the higher levels of capital investment associated with Bay Islands in the year ago period.
Simo: Sequentially adjusted cash flow generated from operations less table.
Simo: Slide 18 provides detail about capital investments new investments net of disposals in the third quarter totaled $34 million.
Simo: For 2020 for our planned investment will be approximately $160 million. This does not include any proceeds from asset disposals.
Simo: Moving now to our net debt reconciliation as detailed on slide 19 sequentially, our net debt decreased by $54 million in the third quarter.
Simo: This reflects positive impacts from cash flow from operations, the exchange rate and working capital variances, partially offset by a lease renewals and paid capstone investments.
Simo: However, lower levels of net debt.
Simo: And EBITDA on an LTM basis slightly increase leverage to four three times at the end of Q3 from four two times at the end of Q2.
Simo: Financial ratios and information of our maturities are detailed on slide 20, and other information in Atlanta. This can be found on slides 23 through 30 of the deck.
Speaker Change: I will now pass the call back to Eric who will conclude with some brief comments and our near term offload before we begin the question period.
Speaker Change: Thank you Alan we've.
Eric: We've outline our near term outlook on slide 21 them their presentation. As a reminder, actual results may differ from this outlook in the event of movements in the index pricing bone in terms of raw material costs and selling prices.
Eric: Beginning with our packaging business, we expect.
Eric: Q4 results to be stable sequentially in containerboard.
Speaker Change: With benefits from lower raw material costs, and incrementally higher ascending prices offset by seasonally lower volumes. We're planning approximately 20000 short tons of maintenance and seasonal downtime in the quarter.
Speaker Change: Results in our specialty product segments are also expected to be stable sequentially.
Speaker Change: This reflects benefits from lower raw material costs offset by usual seasonal volume in certain product categories.
Speaker Change: Finally, we expect fourth quarter results will be slightly stronger forward tissue business, we anticipate stable to slightly higher volumes and lower raw material and fixed costs pricing is expected to be slightly lower.
Speaker Change: This is a combined results of the previously announced Canadian retail increase beginning September one offset by less favorable sales mix John.
Speaker Change: Consolidated results will reflect the aggregated impact of these factors and are expected to be stable sequentially.
Speaker Change: Before opening the call to questions I'd like to finish by providing an update on bear island.
Speaker Change: We're currently lagging on the aggressive ramp up curve, we have set for this mill.
Speaker Change: We're below our daily production target on the tonnage basis.
Speaker Change: Let me be very clear this is not where we want or need to be we've added important internal resources to Brian and to close this gap and this expertise is beginning to deliver results.
Speaker Change: The positive and important to them.
Speaker Change: <unk> is producing quality products and all of these projects are meeting all of their customers' expectation.
Speaker Change: We are intently focused on accelerating the <unk> ramp up and attaining targeted efficiencies and profitability levels.
Speaker Change: On this last point seeking out and capturing incremental efficiency gains extends equally to everyone of our facilities and it will be a key element of our strategic focus for the next 18 to 24 months.
Speaker Change: Success on this front will drive cash flow generation and debt repayment.
Speaker Change: And create lasting value for the company and our shareholders.
Speaker Change: The combination of our containerboard and specialty products businesses into a United packaging entity is an important strategic step in this regard.
Speaker Change: In addition to cement in cementing the alignment throughout our operations it will strengthen the company's agility and accelerates execution and decision making.
Speaker Change: A market perspective.
Speaker Change: <unk> packaging approach will not only facilitate but.
Speaker Change: Help increase cross selling positioning cascade as a comprehensive one stop packaging solution provider for our customers.
Speaker Change: With that we can now open the call to questions operator.
Speaker Change: Nelson and hopefully improving Gil proposal at 12 <unk>.
Speaker Change: Hum.
Speaker Change: Our next single release, Dave a quick question a couple of the 12. Thank you if you would like to ask questions.
Speaker Change: Press Star then the number one on your telephone keypad, if you would like to withdraw your question. Please press star two.
Speaker Change: If you have a question. Please press Star then the wondering your telephone keypad will pause for a moment to compile the Q&A roster.
Speaker Change: Your first question comes from Amir Patel with CIBC. Your line is now open.
Amir Patel: Hi, good morning.
Speaker Change: Glenn Bear Island, you mentioned you're below your production targets can you help frame for us.
Amir Patel: What maybe what level of production you are at currently and where you would expect it to be at this point.
Amir Patel: Yes, sure I mean, we're roughly 20% below our daily production target.
Speaker Change: That being said.
Speaker Change: We're seeing more and more days at target or slightly above targets, what we ought to focus on and continue to work with the teams is really to narrow down narrow down the duration of our breakdown and the in terms of time and also in terms of occurrence.
Speaker Change: What we've seen over the last six to eight weeks is very encouraging where we're seeing good progress.
You know we're seeing more and more days at target or slightly above targets. What we have to focus on and continue to work with the teams is really to narrow down the duration of our breakdown in terms of time and also in terms of occurrence.
Speaker Change: In terms of duration.
Speaker Change: And number of occurrence.
Speaker Change: Okay. Great. Thanks, that's helpful. And then just assuming the ramp up improvement Youre seeing continues how should we think about what type of production.
Speaker Change: Production or production capacity you could you could sell in 2025.
Speaker Change: Yes, I mean, we are currently finalizing our plan for 2025 with our expectation is to close that gap of 20%.
Speaker Change: <unk> 25, with a consistent ramp up curve I mean, not all happening in the first in.
Speaker Change: In the first quarter, but definitely before the end of 2025.
Speaker Change: Okay. Great. Thanks, that's helpful and just a question for Alan how should we think about Capex for 2025 and any major projects.
Speaker Change: Might be contemplating.
Alan: No. We are assessing what will come next year, but there is no major project.
Speaker Change: On the table right now so we should expect maybe something similar of this year in the same range, but we will come back to you when it will be finalized but.
Speaker Change: Nothing major next year.
Speaker Change: Okay, great. Thanks, that's all I had I'll turn it over.
Speaker Change: Your next question comes from Sean Stewart with TD Cowen. Your line is now open.
Sean Stewart: Thank you good morning, everyone.
Speaker Change: A follow up question on the combination of containerboard and specialty packaging it sounds like a lot of the anticipated benefits on the marketing side.
Speaker Change: I'm wondering if you can go into a bit more detail there and not sure if youre prepared to put a synergy target around what's expected over this combination but.
Speaker Change: Should we assume that's all marketing are there any operating benefits you would anticipate as well maybe just some more context on that initiative.
Speaker Change: Thank you for your question definitively, we expect benefits from both operation and marketing if I start with with marketing with the product offering that we have in our specialty business and packaging regular I mean, we have customers that use both product lines, we want to make it easier far.
Speaker Change: Our customer base to deal with Cascade. So we totally expect some some cross selling improvements there.
Speaker Change: From a production standpoint, we operate east to West in Canada, and I mean, the mostly in the east, but north south in the U S. We have synergies from a regional standpoint best practices and also like equipments so as.
Speaker Change: As far as the targets, we're diligently working on that target and that will be part of our war updates and the strategic development. Early next year, we will have a target for you guys to that then.
Speaker Change: Okay. Thanks for that and then just to follow up on Amir's question around Bear Island can.
Speaker Change: Can you give us an idea what the issue has been at the mill and achieving target.
Speaker Change: Operating rates is it one specific element of.
Speaker Change: The operation Thats a bottleneck.
Speaker Change: Any any details you can provide on that front.
Speaker Change: Yes, I mean.
Speaker Change: We are still in ramp up I mean, we did set something pretty aggressive.
Speaker Change: If you look back a few years back when we decided to do this project.
Speaker Change: Nothing to me that's out of the ordinary I mean with.
Speaker Change: You know coming out of Covid, and thus have turnover.
Speaker Change: You were making new with existing equipment. So.
Speaker Change: You look at nearly all of the quality of the equipment that was installed.
Speaker Change: There is nothing to be concerned about I think we feel pretty good about that it's the learning process of really getting the machine to a 90%.
Speaker Change: Efficiency rates.
Speaker Change: We've done that in the past I mean, we have other operations that are writing insurance levels. So to me. It's a question of taking a bit more time, but to make sure its sustainable and we have a solid foundation. So that it remains for the long term.
Speaker Change: So my expectation is really.
Speaker Change: We'll continue to provide all of the expertise that we have within the organization, but also outside.
Speaker Change: The key challenge right now to be a bit more specific on your question is really uptime. So when the machine runs its running well.
Speaker Change: But we need to get the uptime to to a higher level Wyndham.
Speaker Change: When the machine runs and I know, you're spending less money and youre getting tons out and all of those tons are sold so we feel pretty good about the output win win when they have it available, but really is to get the uptime to level and that's the part that stuff and then you should start up but I feel we've got the right team to get it done and as you have.
Speaker Change: The good news is that we reach these levels yes.
Speaker Change: Yes, we are.
Speaker Change: If you look on that.
Speaker Change: Even weekly basis, we're beating those levels it just needs to be more consistent.
Speaker Change: I mean.
Speaker Change: One way to say it is that we're taking good pictures on when it's running well to make sure that all of that the setup that we have in the operations. We know what they are we know where we need to be and we know under machine behaves so steady progress slower than what we were.
Speaker Change: We want but in acceleration over the last six to eight weeks.
Speaker Change: That's that's useful details it just one clarification, though when you say you are 20% below the daily production target.
Speaker Change: Is that 20% below the 90% operating rate target just trying to frame that.
Speaker Change: With that reference.
Speaker Change: Let Charles answer this one.
Charles: Yes, the 20% that we're talking about and I want to reiterate what I'd mention is when we set the program as we call. It the vertical startups. So we had a pretty aggressive curve.
Speaker Change: And when we talk about the 20% is.
Speaker Change: Exactly what we're talking about is were 20% lower than the curve that we have set two years ago.
Speaker Change: Understood.
Speaker Change: Okay. That's all I have for now thank you.
Speaker Change: Your next.
Speaker Change: Comes from Zachary <unk> with National Bank Financial your line is now.
Speaker Change: Good morning, congrats on the quarter.
Speaker Change: Thank you.
Speaker Change: Do you think there was any pull forward in box volumes as retailers may be tried to ship products in anticipation of the Canadian rail strike or the port strike.
Speaker Change: <unk> thousand one answer.
Speaker Change: If I understand right.
Speaker Change: Was there any impact on volumes due to the potential strike and is that what youre looking for.
Speaker Change: Yes, please okay.
Speaker Change: Okay. So.
Speaker Change: We all knew that.
Speaker Change: There was a potential strike duration, we didn't know so our teams worked with with our customers. So there was no real.
Speaker Change: Significant impact that.
Speaker Change: That impacted the results of the <unk>.
Speaker Change: Each quarter.
Speaker Change: Got you thanks.
Speaker Change: And then can you run us through the broad strokes of the rationale for the executive shuffle.
Speaker Change: Yes for sure I mean, as we announce.
Speaker Change: Last week.
Speaker Change: We have three businesses in.
Speaker Change: We're always looking at better ways to serve our customer base and position ourselves for the future and when we look at where we are today the maturity of the organization.
Speaker Change: Got it.
Speaker Change: It was a good time to really refocus make sure that Cascade doesn't run is that as kind of a tree entities, but thats one company capture all the synergies so.
Speaker Change: We decided that we have to organize ourself in such a way that.
Speaker Change: We're positioned for the future and we're faster to make decisions.
Speaker Change: We're better to put synergies together.
Speaker Change: And when you look at the <unk>.
Speaker Change: Potential of efficiency gains throughout all the operations that we have I mean, Brian Nunez of startups with Thats kind of a high profile, one and its normal to avid but across all of the other mills.
Speaker Change: We have good potentials, we have.
Speaker Change: Projects that will sell and if we produce so for me, it's a very healthy for an organization to take you and others and to move them around some of that.
Speaker Change: We take their strength and we put them at work.
Speaker Change: And on that last point, given what we saw in tissue over the last few years would it be reasonable to expect some capacity rationalization in the packaging segment now.
Speaker Change: Well I think.
Speaker Change: What would be reasonable to see us to continue.
Speaker Change: Continuing to improve our results.
Speaker Change: The purpose of our of our operation is not to reduce the number of operation, but to run the ones that makes sense for the company. So the award stream debt.
Speaker Change: We've already started in all segments of our operation as we consistently look at what are the assets what is the sweet spot on the machines versus its customer base and trying to pair the right customer with the right machines at some point you know if you get out of solutions you make difficult decisions.
Speaker Change: <unk> like the ones, we took in Trenton, but the objective is to run sweat the assets.
Speaker Change: But it has to deliver good value forecast, Scott and the shareholders.
Speaker Change: That's great. Thanks, I'll turn it over.
Speaker Change: Again, if you would like to ask a question.
Speaker Change: Jordan the number one on your telephone keypad. Your next question comes from Matthew Mcnee with.
Speaker Change: With RBC capital markets. Your line is now open.
Matthew Mcnee: Hi, good morning, Thanks for taking my questions maybe.
Speaker Change: Maybe first to follow up on Sean's question could you help us understand the degree to which you see cross pollination between the containerboard and specialty packaging segments today.
Speaker Change: Example, what share of your specialty revenue be from customers, who are also customers in the containerboard business.
Speaker Change: Yes, I mean, we.
Speaker Change: We have most of our customers that are in special and TD also use rig owner and packaging. So we're not talking 510% here, we're talking like way above the 50% Mark.
Speaker Change: The other thing, though is also from a packaging side.
Speaker Change: What we don't know right because I mean, there is stuff we know, but there's also stuff, we don't know and we believe that.
Speaker Change: There's just as much potential there.
Speaker Change: Sales force being able to have access to <unk>.
Speaker Change: Some great customers.
Speaker Change: Understanding our customers their needs.
Speaker Change: Because I mean, our customers are much bigger and I am not going to name specific ones, but you would guess that.
Speaker Change: We have many customers.
Speaker Change: I mean, they use such a large variety of projects.
Speaker Change: So it does create value and it doesn't have to be a $1 billion of additional business to make a significant impact on the profitability of Cascade. So there's something there for sure that.
Speaker Change: We've indentified customers, where we can do some cross selling.
Speaker Change: But we've also identified the one that we're not sure, but we need to find out.
Speaker Change: Great. That's helpful. Thank you.
Speaker Change: Maybe next and tissue it sounds like Youre expecting stable to slightly higher volume sequentially could you. Please clarify if that will see the Q4 in particular, you'll see the full benefit of volumes associated with new business with the U S retail customer.
Speaker Change: Or if that ramps into 2025, and then from a mix perspective is that new business part of the sequential Mick mix impact I think you had mentioned for Q4 and if not could you just provide some more color around the changes in mix or seed.
Speaker Change: Sure I'll, let <unk>.
Speaker Change: <unk> answered that question kind of is.
Doug: Yes, Thanks, Doug.
Speaker Change: For the new customer ramp up it's going to be more towards the end of Q4. So we'll see the full impact in Q1 2025.
Speaker Change: The mix effect that we have and we've talked about it as more as one day away from old site at this moment.
Speaker Change: We will see some changes in our mix on the retail by the end of Q4 as well. So again this should be.
Speaker Change: I would say stabilized in Q1 of next year.
Speaker Change: Great. Thanks, very much I'll turn it back.
Speaker Change: Thank you there are no further questions at this time Mr. Kent.
Speaker Change: Please continue.
Speaker Change: Okay. Thank you alright, well. Thank you everyone for your great questions and attending this call and looking forward to a speaker on an individual basis with some of you and also looking forward for the next call. Thank you very much.
Speaker Change: Customer Diamond Mr. Selim <unk> Ala coffeehouse closure.
Speaker Change: And then I had a question. Thank you ladies and gentlemen. This concludes today's conference call you may now disconnect.