Cascades Inc., a Kingsey Falls, Quebec-based packaging producer, has released its financial report for the first quarter of this year, a three-month period ending March 31, and the company says the results came up short of its expectations for the quarter.
Cascades reported sales of $1,038 million, compared with $1,028 million in the fourth quarter of 2021 and $942 million in the first quarter of 2021, which it says reflects an $84 million benefit from improvements in selling prices and sales mix and higher volumes in the tissue and specialty products segments. But the figures were partially offset by lower containerboard volumes largely due to supply chain and logistics challenges and difficult year-over-year comparison following strong industry demand in the first quarter of last year, the company says.
“Our first-quarter performance was disappointing and lower than our expectations,” Cascades President and CEO Mario Plourde says.
Plourde says demand levels were stable for the company’s packaging segments and showed a positive underlying momentum in tissue, but that two main factors caused results to come in what he says is below Cascades’ outlook. “The first was the important escalation in production and operational costs, the effects of which were further compounded for our tissue segment by persistently higher raw material prices.”
He adds, “The second was logistics from both a cost and availability standpoint. Inflation-driven fuel surcharges increased already elevated cost levels. The ongoing transportation constraints slowed order inflow levels from some customers experiencing shipping challenges while also delaying delivery of our products to some customers.”
Plourde adds that production was temporarily adjusted in several of the company’s operations, which impacted sales levels.
Cascades reports that it generated an operating income before depreciation (OIBD) of $56 million in the first quarter of 2022, down from $109 million in the first quarter of last year. On an adjusted basis, first-quarter OIBD totaled $58 million, a decrease of $64 million, or 52 percent from the $122 million generated in the same period last year—a decrease the company says largely is attributed to higher raw material costs in all segments, important increases in production and logistics costs and lower volume in the containerboard segment.
In February, Cascades unveiled a three-year strategic update that pointed to projected growth in the tissue sector from 2022 to 2024 and increased containerboard capacity thanks to its project at the Bear Island mill in Virginia. The mill, which is expected to open in the fourth quarter of this year, will consume old corrugated containers (OCC) and residential mixed paper (RMP) and produce 400,000 metric tons per year of corrugated medium and linerboard.
The company reported in February that the ramp-up of the Bear Island mill, along with increasing integration with new converting capacity in the U.S. and accelerating the pace of new sustainable product development and commercial launches, has Cascades aiming for combined revenue in its packaging businesses of more than $3.5 billion in 2024.
Cascades says specific items before taxes that impacted first-quarter 2022 OIBD and/or net earnings were:
- $6 million of gain from the sale of land and a building-related to a closed plant in Canada in its specialty products segment;
- $1 million of additional costs related to asset relocation and severances in its tissue papers segment;
- $7 million unrealized loss on financial instruments; and
- $1 million foreign exchange gain on long-term debt and financial instruments.
The company also posted a net loss of $15 million, or $0.15 per common share, compared with net earnings of $22 million, or $0.22 per common share, in the first quarter of last year.
“Looking ahead, we are implementing price increases in our packaging segments that will help offset input cost headwinds,” Plourde says. “These, combined with good demand for our packaging products as we enter the summer season, will progressively improve profitability levels in the coming months.”
He adds, “This course is expected to reverse with improved business performance in the coming months and future positive contribution from the Bear Island project following the facility’s startup … Despite significant cost headwinds, we remain confident that we will be in the range of the 2022 target disclosed in our February strategic update.”