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Cascades achieves strong 2020 fiscal year

The packaging company says its strong financial performance was driven in part by healthy containerboard demand.

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February 25, 2021

Cascades Inc., Kingsey Falls, Quebec, has reported strong financial results for its fourth quarter and 2020 fiscal year. According to the packaging producer, it achieved sales of $1,284 million in its fourth quarter, which ended Dec. 31, 2020, compared with $1,275 million in the third quarter of 2020 and $1,227 million in the fourth quarter of 2019.

In its fourth quarter, the company had an operating income of $109 million compared with $73 million in the third quarter of 2020 and an operating loss of $1 million in the fourth quarter of 2019. The company says operating income before depreciation and amortization (OIBD) was $181 million in the fourth quarter of 2020 compared with $154 million in the third quarter of 2020 and $76 million in the fourth quarter of 2019. Cascades says its net earnings per share totaled 72 cents in the fourth quarter of 2020 compared with 51 cents in the third quarter of 2020 and a net loss per share of 27 cents per share in the fourth quarter of 2019.

For its full fiscal year, Cascades reports it had sales of $5,157 million compared with $4,996 million in 2019. Operating income was at $366 million compared with $261 million in 2019, and operating income before depreciation and amortization was $665 million for the year compared with $550 million in 2019. The company had net earnings per share of $2.04 in 2020 compared with 77 cents in 2019.

The company says its net debt was at $1,679 million as of Dec. 31, 2020, compared with $1,982 million as of Sept. 30, 2020, which Cascades says reflects “solid cash flow from operations.” In 2020, total capital expenditures paid net of disposals were at $195 million compared with $231 million in 2019. Cascades says its forecasted 2021 capital expenditures will be between $450 million and $475 million, including $250 million for the Bear Island containerboard conversion project in Virginia.

Mario Plourde, president and CEO of Cascades, says the company’s consolidated adjusted OIBD of $166 million surpassed the company’s “cautious outlook for the period,” representing an increase of 2 percent sequentially and 9 percent year over year, driving profitability to a record level for a third consecutive year.  

He says, “These results demonstrate good operational execution within the context of a challenging environment, benefits being realized from our ongoing margin improvement initiatives and the resiliency and dedication of our employees throughout the challenges of COVID-19.”

Segment breakdown

Cascades reports that its fourth-quarter performance was driven by “a solid contribution” from its Containerboard segment, fueled by stronger-than-expected demand on both the manufacturing and converting side.

According to its earnings report presentation, shipments within the Packaging Products and Containerboard segment decreased 3 percent sequentially, driven by a 6 percent decrease in manufacturing shipments that reflects 1 percent lower capacity utilization rate and higher integration rate in the current period. Shipments of converted products increased by 1 percent on a sequential basis. The company says its average selling price in this segment increased by 2 percent in Canadian dollars, reflecting early benefits being realized from its Nov. 1 price increase.

Cascades says its Tissue segment generated “good” results, with stable consumer retail tissue demand helping to offset lower demand levels for away-from-home products as a result of the pandemic. Plourde says the Tissue segment generated a solid fourth-quarter adjusted OIBD margin of 10.5 percent in spite of ongoing challenging market conditions.

In its earnings presentation, the company reports shipments in this segment increased 5 percent on a sequential basis in the fourth quarter of 2020, driven by a 7 percent increase in shipments of converted products in all market segments, which is a reflection of weaker shipment levels in the prior quarter related to COVID-19’s impact on demand levels, primarily for away-from-home converted products. The company says the average selling price in Canadian dollars was stable in the quarter.

Additionally, Cascades says its Specialty Products and European Boxboard segments generated slightly lower results in the quarter.

Future projects

This year, Cascades has announced planned progressive and permanent closure of its tissue operations at its Laval plant in Quebec by June. The company adds that its tissue operations in Pennsylvania ceased in December 2020. Additionally, Reno De Medici S.p.A. had announced the signature of a put option for the sale of Cascades’ French subsidiary, which produces virgin fiber-based boxboard, in February 2021. The company says that transaction is expected to close at the end of the second quarter of 2021.

The company says it also will be progressing on its conversion of the White Birch Bear Island paper mill in Ashland, Virginia, which will produce lightweight, 100-percent-recycled linerboard and medium for the North American market.

Plourde says, “A large portion of our announced modernization investments in the Tissue segment have been completed, with the remaining two state-of-the-art converting lines expected to be installed in the coming quarters. In Containerboard, we announced details of our strategic Bear Island conversion project in mid-October and helped to de-risk the project with a concurrent $125 million equity issuance offering.

He continues, “The European Boxboard segment announced the acquisition of Papelera del Principado S.A. (Paprinsa) and three affiliated companies … will strengthen and consolidate Reno de Medici's competitive positioning within European recycled boxboard markets and is expected to close at the end of the first quarter of 2021.”

Plourde concludes that Cascades’ near-term outlook “is positive despite ongoing COVID-19-related uncertainty.” He says containerboard demand remains strong and, combined with recent industry price increases, will help to offset raw material price increases. With the Tissue segment, he says stronger-than-expected volumes in December, usual seasonal softness in the first quarter of the year and unfavorable demand impact on away-from-home products related to the pandemic will likely translate into weaker sequential performance in the segment. He adds that the company predicts stable sequential performance for its Specialty Products segment, with higher average selling prices and good demand trends for consumer food packaging offsetting the slightly higher raw material costs. He concludes that results in European Boxboard are expected to remain stable as well, with higher volumes and a favorable exchange rate mitigating higher forecasted raw material and energy costs.

Additionally, Plourde says he predicts higher average old corrugated container (OCC) costs in the near-term future, increasing in line with usual seasonal trends of the period. He adds that prices for white recycled fibers will likely remain stable, while virgin pulp prices are expected to increase “given recent moves in index pricing.” He says raw materials have been “readily available,” and “we do not foresee any changes in this regard.”

Plourde concludes that he expects 2021 to be a “busy year” for Cascades.

“The highlight will be our Bear Island containerboard project, which will account for the lion’s share of our capex program,” he says. “We will also be finalizing modernization investments in our tissue converting operations, with all of these projects encompassed within our $450 to $475 million capital program for 2021. We expect these investments to be fully funded by solid projected cash flows for the year, in part driven by our ongoing margin improvement initiatives that are targeting net revenue management, production efficiency, organizational effectiveness and supply chain optimization. These initiatives are expected to contribute 1 percent annually to consolidated OIBD margins in both 2021 and 2022, regardless of external factors."

He says, “As we continue to navigate the challenges and uncertainties inherent in the ongoing pandemic business environment, we remain focused on ensuring the health and safety of our employees and on proactively engaging with our customers to ensure that their needs and expectations are met consistently, promptly and professionally.”