Catalyst Paper posted a net loss of $37.4 million on sales of $399.5 million in the first quarter of 2008. This compared to net earnings of $12.4 million on sales of $381 million in the last quarter of 2007 - results that largely reflected favorable tax adjustments - and to a net loss of $25.6 million on sales of $478.1 million for the same period in 2007. Net loss before specific items during the first quarter was $21.8 million, compared to $20.9 million in the preceding quarter.
Catalyst benefited in the quarter from pricing momentum across most product lines. Cost reductions resulting from mill and corporate restructuring undertaken last year were also evident in first quarter results.
Offsetting this was a challenging economic climate in North America, increased input costs and the continued strength of the Canadian dollar. The steep decline in the US housing starts triggered additional sawmill curtailments in British Columbia during the quarter. This, in turn, reduced wood residue availability and increased costs.
"Fibre constraints required us to curtail 65,000 metric tons of pulp and paper at our Elk Falls mill during the quarter," said Richard Garneau, Catalyst president and CEO. "As a result our manufacturing costs and sales volumes were unavoidably impacted. As we look to the balance of the year, we expect the Elk Falls No. 1 paper machine will remain idled with our pulp business also likely to be impacted by the continuing fiber shortage."
Restructuring costs of $14.6 million in the quarter reflected the labor agreement reached at the Port Alberni division. The agreement is expected to deliver significant annual cost savings, supporting the restart of the division's No. 4 paper machine in early May.
The investment in a thermo-mechanical pulp upgrade will enable replacement of higher cost deinked pulp with lower cost TMP.
Specialty paper markets generally strengthened during the quarter. Directory was the one exception, with North American demand down moderately year-over-year although average benchmark pricing remained in line with 2007. Average delivered cash costs for specialty printing papers were significantly improved, in part due to reduced labor costs.
US newsprint consumption continued to decline during the quarter, although the upward trend in pricing that began in the fourth quarter 2007 was sustained. Pulp prices continued to increase despite higher producer inventory levels, while linerboard prices held steady and markets remained in balance.
Reflecting the challenges facing the company, Catalyst has announced that it is taking some significant cuts in its employment ranks.
At Elk Falls mill in Campbell River, reductions will affect about 145 hourly and staff employees as the # 1 paper machine, which was curtailed last September, is indefinitely idled.
At the Crofton mill in North Cowichan, around 82 positions will be reduced as the operation takes steps to bring its overall cost structure closer to best-quartile performance.
"The Elk Falls mill has been most affected by fibre and market dynamics to date. With the permanent closure of the TimberWest and other sawmills taking curtailment, the potential to restart # 1 paper machine in the foreseeable future has disappeared," said Richard Garneau, president and CEO.