Cascades earnings down from dip in tissue demand

Tissue demand had spiked in the second quarter of 2020 in response to the COVID-19 pandemic.

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Cascades Inc., a tissue and packaging producer based in Kingsey Falls, Quebec, experienced a slight decline in sales in the second quarter of the year compared with the same fiscal quarter in 2020. According to the company’s latest earnings report, it attributes this decline to lower demand in its tissue business.

“Our second-quarter results were below expectations, with the sequential shortfall driven by our tissue segment,” says Mario Plourde, president and CEO of Cascades, of the company’s second-quarter earnings. “This reflected several factors, the most prominent being $12 million due to higher raw material costs and $9 million related to the net impact of sales prices and mix variance in the current period. We continued to see lower demand levels in tissue in the quarter, notably in U.S. consumer retail product categories, as customers worked through inventories built up throughout 2020 in response to COVID-19 demand volatility.”

In the second quarter of 2020, tissue demand had spiked in response to the COVID-19 pandemic.

Cascades achieved sales of $956 million in the second quarter, which ended June 30. This compares with sales of $942 million in the first quarter of this year and $1,020 million in the second quarter of 2020. Operating income was at $23 million in the second quarter compared with $44 million in the first quarter and $64 million in the second quarter of 2020. Operating income before depreciation and amortization was at $87 million for the recently completed quarter compared with $109 million in the first quarter of this year and $127 million in the second quarter of 2020.

Plourde says Cascades decided to “curtail some tissue converting production” in June to manage inventories. He says the demand contraction is tissue is likely “an interim response to COVID-19 volatility given the essential nature of these products. Looking ahead, the modernization completed across our tissue platform has equipped this segment to generate important benefits when demand levels begin to normalize.”

On the packaging side of the business, Plourde says Cascades’ Containerboard and Specialty Products business segments delivered strong quarterly results. He says higher selling prices in the Containerboard segment reflect two of the three announced price increases the company has made, and he adds that volumes in that segment have been strong.

Raw material costs were high in the quarter, though. Plourde says Cascades lacked sufficient funds to fully cover raw material costs and production cost inflation in the second quarter for the Containerboard segment. Its second-quarter earnings presentation notes that old corrugated containers (OCC) prices were up in the second quarter compared with the first quarter of 2021 as well as compared with the second quarter of 2020, driven by high domestic demand and high export activity. Sorted office paper prices also rose in the second quarter of the year compared with the first quarter, negatively affecting raw material costs for Cascades.

The company’s Specialty Products division benefited from volume growth, helping to offset raw material costs, Plourde adds.

In July, just after the second quarter ended, Cascades announced that it would monetize its 57.6 percent controlling equity interest in Reno de Medici S.p.A. for 1.45 euros (about $1.71) per share, which the company says it expects to result in total net proceeds of $461 million. Reno de Medici operations include six recycled paperboard mills and two paperboard sheet mills located in France, Spain, Italy and Germany. The company says that transaction is expected to close in the third quarter of the year.

Plourde adds that he expects to see improved results in the third quarter, supported by the rollout of announced price increases in the company’s Containerboard and Specialty Products segments as well as a gradual normalization in demand for tissue products.

“The COVID-19 pandemic continues to bring with it the potential for volatility in operational and financial performance,” Plourde says. “As our second-quarter results highlight, continued fluctuations in demand as well as pricing of raw materials and other input costs remain difficult to accurately predict, as does the timing and scope of economic reopening across North America. We are focused on effectively managing these uncertainties, taking decisive and necessary steps to meet the sometimes changing needs of our customers while also ensuring the safety of our employees.”  

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