Krishnacreations | Dreamstime
Cascades Inc., a Kingsey Falls, Quebec-based packaging producer, has released its unaudited financial results for the three-month period ended Sept. 30.
"Our third-quarter performance was in line with expectations, notwithstanding the fact that our tissue segment continued to face unprecedented cost inflation and reduced productivity due to labor scarcity and inefficiencies,” Cascades President and CEO Mario Plourde says. “Companywide, improvements in volume, pricing and sales mix mitigated continued cost headwinds on a sequential and year-over-year basis. Importantly, the profitability initiatives that have been deployed throughout our tissue business absorbed this segment's higher costs during the quarter.”
The company reports sales of $1,174 million compared with $1,119 million in Q2 2022 and $1,030 million in Q3 2021.
The corporation generated an operating income before depreciation and amortization (OIBD) of $92 million in the third quarter of 2022, down from $136 million in the third quarter of 2021. On an adjusted basis, the third quarter OIBD totaled $111 million, an increase of $4 million, or 4 percent, from the $107 million generated in the same period last year.
This increase is attributable to $138 million of improvements related to the selling price and mixes in all businesses, the benefits of which outweighed higher raw material, production, energy and logistics costs in all segments.
Adjusted operating income totaled $44 million compared with $28 million in Q2 2022 and $44 million in Q3 2021. Operating income before depreciation and amortization (OIBD) of $111 million for the quarter compared with $91 million in Q2 2022 and $107 million in Q3 2021.
The report shows adjusted net earnings per common share of 20 cents compared with net earnings per common share of 10 cents in Q2 2022 and a net loss per common share of 1 cent in Q3 2021. Net debt of $2,011 million as of Sept. 30 compared with $1,712 million as of June 30. Net debt to adjusted OIBD was a ratio of 6.2 times, up from 5.4 times as of June 30.
Total capital expenditures, net of disposals, totaled $121 million in Q3 2022 and $333 million in the first nine months of 2022. Forecasted 2022 net capital expenditures were $450 million to $470 million, including $310 million to $330 million for the Bear Island containerboard conversion project in Virginia, according to the company.
Cascades announced Oct. 19 it had successfully amended its existing credit facility to reinforce its financial flexibility. The updated agreement increased the authorized term loan to $260 million from $160 million while extending the maturity by two years to 2027. The term of the corporation's revolving facility was extended by one year to 2026.
The Bear Island project advanced well during the quarter, and Cascade is preparing the commissioning of certain key equipment. As pointed to in Cascades' second-quarter release, supply chain constraints in 2022 slowed the delivery of some materials, which delayed certain construction milestones at the site. These conditions continued in the third quarter and, as a result, startup of the facility will occur in the first quarter of 2023. The capital investments for this project totaled $83 million in the third quarter and $228 million year-to-date.
“These elevated investment levels underline the environment of high-cost inflation and have resulted in an important increase in our leverage, a trend we expect to reverse in 2023 with improved business performance and the contribution from this facility following its startup,” Plourde says. “A prominent FX [foreign exchange] impact and higher working capital requirements, driven by inflation, were similarly important factors in the increase in our debt levels in the third quarter."
Plourde says because of the persistent inflationary pressures on costs and the current macroeconomic environment, Cascades is taking a conservative approach to its near-term outlook. Accordingly, the company says it expects sequentially stable results in its packaging businesses, with lower raw material cost tailwinds projected to counterbalance lower volumes.
For its tissue segment, Cascades says it anticipates improved sequential results driven by accruing benefits from profitability initiatives and stable demand levels. Its initiatives have delivered according to expectations thus far, despite certain timing delays in their implementations. The exception to this is meeting production targets, where it continues to put in place additional measures to narrow the shortfall.
The temporary shutdown of one of the machines at the company’s St. Helens facility in Oregon has not impacted annualized longer-term tissue profitability objectives. Production is expected to resume by mid-December, and costs associated with the shutdown will total about $6 million, Cascades says.
RELATED: Cascades to permanently shut down corrugator at Ontario facility.
The company says its tissue business performance has been affected by persistent cost inflation this year. The effect on results is immediate, whereas the roll-out of corrective pricing and other commercial initiatives takes time to be implemented and generate benefits. Plourde says given the significant impact that this interval has had in the current year, its tissue segment is expected to generate $8 million to $12 million of adjusted OIBD in the fourth quarter of 2022 and, as such, will not achieve the $25 million to $40 million adjusted OIBD target in the calendar year 2022. More importantly, notwithstanding these challenging conditions, its tissue segment remains on track to deliver on its long-term objectives, the company says.
The main specific items, before income taxes, that affected third quarter 2022 OIBD and/or a net loss were:
$2 million of impairment charges in the Containerboard Packaging segment on some equipment as part of the continuing optimization initiatives of the platform in Canada (OIBD and a net loss);
$14 million of impairment charges in the tissue Papers segment on spare parts and some property, plant and equipment related to a permanently closed plant in the United States (OIBD and a net loss);
$3 million unrealized loss on financial instruments (OIBD and a net loss); and
$10 million foreign exchange loss on long-term debt and financial instruments (a net loss).
For Q3 2022, the corporation posted a net loss of $2 million, or 2 cents per common share, compared with net earnings of $32 million, or 32 cents per common share, in the same period of 2021. On an adjusted basis, the corporation generated net earnings of $20 million in the third quarter of 2022, or 20 cents per common share, compared with a net loss of $1 million, or 1 cent per common share, in the same period of 2021.
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