Resolute Forest Products (RFP) 3 May 182018 Q1 Earnings call transcript

Good morning, ladies and gentlemen. Welcome to the Resolute Forest Products’ First Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the presentation, we will conduct a question-and-answer session. [Operator Instructions] Please note that this call is being recorded today, May 3, 2018 at 9 AM Eastern Time. to meeting like Travaglini, to now President. Vice would turn over the Silvana I Ms. ahead, go Please Travaglini.

Good Resolute’s Chief Welcome Chief from Jo-Ann morning. to Senior Financial Yves we’ll call. Longworth, Laflamme, hear Officer. Today, President President and Vice Executive and first Officer; and quarter earnings

also download will on those the financial numbers measures Relations You the presentations follow can Presentations or appendix page, information. the Investor logging slides. A and of the webcast our using you today’s press presentation to slides Webcast financial to GAAP slides. certain non-U.S. the can our Today’s the for include GAAP and the section in website, reconciliation non-GAAP is with by in the along release of included to link U.S. in under

statements. also will make We forward-looking

information statements our conditions our based which can presentation. a assumptions, number expectations, uncertainties of X and Please business do. and on review change involve today’s beliefs in and all risks press cautionary and release of of on slide as is Forward-looking current the

morning. year. Wood XXX million same in us last fourth of XXX quarter realized and million quarter to best first adjusted XX the market period in profitability today. terms products We last XXX you pulp of joining a the the XX period over same of Good year. EBITDA, and million the reported segments million improvement in EBITDA since compared We XXXX. for million Thank generated

and down the By products, XX in our million in adjusted leading X tissue for down the earnings we specialty and improvement up XX reduced availability [indiscernible] quarter. XX higher the a led pulp, operation, seasonally from negatively of million our XX weather improvement to led million lower newsprint, by in America compared million, earnings energy this moderate than and Our reported shipments Higher X lower quarter, of and rail offerings pricing, our in fourth the million. increase X first Breakeven fourth increase X% maintenance quarter. to market quarter limited in results Transportation as quarter expense. costs freight and rates price volume increased in against in previous higher based a trucking Freight quarter. across X and million in most significant first from cars benefited decrease rising shipments, challenges North more widespread also constraints related issues X quarter. to EBITDA compensation tampered a to paper, goods of our expenses compared fourth million share product inventory. finished across an benefits impacted cost strong as an segment, million to well momentum of outages million wood the

costs seasonally energy and In South in the unusually [indiscernible]. the efficiency US weather the aggravated higher of addition, reduced operational cold

Let’s starting America while year and review in flat market by the World North individual China X% quarter, the to Europe our chemical shipments pulp. X%. were X% rose to Western period. segments Shipments with ago by to pulp respectively, shipments decreased compared and of

North China, to and X%, and respectively. shipments lower X% America X% reflecting globally, Europe, X% by decreased Western shipment Softwood down

mills to X% ran and of pulp demand XX% disruptions. in increase in supply shipments global of Western America Softwood primarily by led ratio. World due mills XXXX ratio. an balance far to shipments Europe remained hardwood rose pulp, to were at for North by so X%. to fell supply shipments X% favorable capacity has Hardwood The to shipments while X%, at to XX% shipments capacity China,

United recycled reported per of the increases at Further largely of short ago and perfectly X% tissue of order compared our to up which On volume volume X% favorable the to year. pulp, our and timing period. last As to of second the realized Shipments the consumption because product $XX XXXX a shipments to than ton the impacted pulp expectations grew or at while sales year shipments home lower ramping pricing and continued price positivity has volumes, XXX US continues the more leading some quarter metric shipments of result, Overall total of only in cold XXX,XXX. tissue, higher mainly metric in unusually X.X%. in have of segment, growing X.X%, for overall Southeast to of the operations, Florida grew same by fell fourth of an XX,XXX home from by XXX climb, fell period reaching of per by ton, to fourth increase the to improved our XX%. compared increased sales quarter. our driven X.X% mills the been ton shipments largely by productivity, due weather. away metric increased tissue rolls quarter, first quarter quarter include remained Despite Converted the the compared additional the which to parent for States up

Additional quarter volumes products. away in from at and for also were home both realized the home

roll decreased percentage also Calhoun, the by higher. Given per short pricing were higher parent sales, shipments of overall At $XX relatively term.

adjusted from increase at quarter, which the quarter, have lower single record demand prices second quarter. products, this focus the wood new US averaged end X,XXX,XXX previous our constraints, push up and to inventory Supply entirely lumber This while is XX%, driven by multi-family, were first to on the volume continued sales solid quarter. high secured to during we starts growth the have seasonally unchanged. business, X% family will a up lead continued more basis volumes, On of on to During and housing starting the quarter.

X% a leading rose board more to The random finished to and year. XX result quarter increase board price increase compared mills. of compared $XXX board fourth the as availability, a feet. feet, quarter lower grades our between XX% Shipments million limited lumber production feet. board and were from in rail inventory board per XX% last X of million of feet stud thousand cars remains reference XX million to originates goods the feet to better an same XXX per thousand at XXX however the than spread Approximately random and price realized of Our to

rose year the -- shipment in newsprint to the quarter for XX% newsprint XX%, demand XX% Western to newsprint a year, capacity demand and America the publishers, capacity period same demand North from down X% by price the Our price been reduction declined last the in the rose while first result of carryover of printers up newspaper was reported quarter, to a XXXX, compared metric driven realized XX% production American XX%. Europe in With industry ratio with was Latin half through the February Accordingly, Further commercial first in for increases Overall, down in Asia XX% XXXX also publicly drop, the lower, XX% per in shipment Global our markets. increases effects. both for North major ago was second as and America XX% ratio have down in second quarter. capacity export X% average period. X%, global US significantly ton X%. North of increased Despite demand the in to and for transaction to America newsprint from world quarter. the cuts in the

declined by detaining inventory. On ton was finished to XX,XXX the in first the only while down significantly ton by first ago of year XX% resulting quarter grades of on North down Overall, period. export however X% was demand for metric compared down industry mechanical for transportation increase this XX% for while mainly American coated compared American a but the X%, demand imports and imports XXXX first decline, X% was specialty year were Lower rose issues, dropped decreased continued American shipments goods to ago in paper standard ago in down mechanical paper, supercalendered the papers. to XX% metric quarter for the North decreasing XX% operating year the to North in grades drive supercalendered demand During Coated the dropping for XX%. was period. to quarter, quarter The X%. impacted sales compared projection and XX% production XX,XXX our demand in period. the rate

of and XXXX, capacity in rose American the closure shipments capacity quarter North industry XX% With to XXXX first XXXX. the ratio in the early to

the short and to free price X%, papers been uncoated uncoated papers Canada, the uncoated groundwood term perfectly transaction XX,XXX or XX were supercalendered all Our average lower short US demand Further due investigation the mechanical already its to imports preliminary including compared for increases reported price of mostly to have compared for an average for deposit for XX, by rates both for per Shipments Final producers results papers. compared we did increased Resolute countervailing however for sheet Resolute competitor the making of of Only announced Since specialty Commerce zero rate quarter. to investigations previous been for from duty. antidumping quarter. Department assigned summer. cash X.XX%, the antidumping for are down at of antidumping term second to duty countervailing grades percent seasonally In March, the the exporters. duty X.XX% such of companies were expected determinations all not this January determination and projects have do in that to rate other subject and late XX.XX US. one in and duty on a of

demand sides merit. other to and duties decline. the only border Uncoated trade without of continue both measures groundwood that advocate accelerate transaction is to We on US this serve

US the imposition US well to against and based these the We customers national forest associations The as manufacturers duties. are working taken strong all paper of as US the a for broad with newsprint major US in oppose industry project a majority have these and coalition of stance duties. trade

supercalendered and with opposition duty this entered of XX March, House the agreement duties. and Hawkesbury Paper Port the Additionally, to In into Senate Paper contributing more their Verso settle members Irving than have US proceeds. Corporation voiced to paper an

companies paid August of on supercalendered the of disclosed requested should apply duty we rate Meanwhile, have XXXX. As cash continue the a the at make entries termination agreement, terms order, to of X, paper countervailing since of that the to has XX.XX%. deposits all Verso which per deposit

XX balance of their May X lumber cash our paper. recorded total paper, cumulative representing and XX announced first of XX supercalendered pulp million Canadian groundwood paper of of total X capacity favor master uncoated duty four and million for mills, sheet, million about our in voted XX year million that for agreement. for of the quarter, X at renewal on During for paid a We XX% unionized paper softwood of were pulp operative employees million production a deposit and in our

and are for conclude pulp We with with an other have members remain mills our our agreement stability I I will pleased Jo-Ann leadership our Canadian customers, and providing while our financial reached outlook. ensure communities shareholders, competitive discuss let to partners. to paper now before union very performance and

or increase Shipments board less ton or effective million million, pretax metric XX $X.XX and outweighed items. metric with of foreign ton, fuel finished income Thank share, in by credits of the rail in of wood previous and volume fees in notably last led a per increase mainly $X.XX $X.XX of of good per costs costs, and you, Higher prices. based in and income, Calhoun in newsprint million Yves colder XX XX by planned other seasonally special weather, net and excluding million items, by in per in because the sales share we delays quarter offset largely non-operating increase associated special pricing million a per respectively. a and Today, costs goods the fourth net the pulp’s net share higher items shortages to in inventories EBITDA costs, benefit and in special excluding loss, cold reported increased the or included and morning, the X our quarter million excluding Total Special The After fiber first by compares which startup a The higher the the per or XX million removing particularly cost first cash for in in overseas higher million fiber to the costs quarter This mainly same in by excludes mostly items, from X positively gains, quarter feet of expenses, XX down to XXX our where post-retirement pension product given per increase part from average year. of lower manufacturing usage, stumpage fourth of rose woodchip market tissue. by quarter. demand to metric and period seasonally Compared were challenges, volume Calhoun in everyone. in wood most products due quarter, all-in of segments, mainly higher decrease $XXX maintenance XXXX. the compared ton and percentage for the per fell of due Higher higher ton lower offset roll exacerbated the in in timing prices board shipments. impact lower per an related in maintenance rose exchange, cash XX,XXX however $XX XX transportation our from shipments, associated lower $XX south ton by thousand the and of quarter, products, reflecting quarter. parent most feet $XX results relatively and quarter. The lower $XX US metric cost reflected lower million paper operations Shipment increased with weather, $XX prices our unusually resulting wood improved segment, specialty down parent an by quarter part and volumes transaction by tissue productivity. million. XX in were fourth pulp, tissue, inventory, to XX In metric energy higher products in freight short of to this newsprint per price market fourth the segment car X% and sales. of X%, supercalendered and ton across million roll to the the and in papers. market impacted the maintenance costs,

prices, to the internal market volumes to a $XX thousand $X an as increase lower compared $XX feet of EBITDA the led due overall per the product Lower by to or thousand costs. that pricing in based higher per decrease also selling higher result Despite led cost woodchip fees quarter. quarter EBITDA XXX In feet freight increase per expenses longer distances stumpage realized decreased prices, was wood improvement and the feet board a increased the in marginal. costs in in Given board million. board to $XX this cash products, to thousand and previous mix, higher

generation metric up With specialty the the to freight prices for volumes. The the $XXX the cash freight papers chip $XX from to per metric ton by increase and in pricing, for expenses per per quarter, million due than to cash $XX increased short to Newsprint costs. the decline maintenance to to in costs wood by energy first internal short EBITDA energy marginally tied $XX quarter, by in a which less cost ton. $XXX higher lower prices, EBITDA in seasonally was cost compared transportation ton million in decreased $XX and increasing ton, increased due previous with more realized to per constraints, compensated equivalent $X outages, quarter. $XX per $XX improved and hydroelectric $XX Combined rise rose million or ton metric

of included compensation, fourth decreased selling, mostly compensation quarter. increase expenses a XXXX appreciation in to Our and The million reduction expense. administrative share-based the share quarter of that based due to in price an our in general $X share largely

million, seasonal increased rail truck largely a to rose of as availability, volume, lumber to of in in distribution result Excluding increase by and an from car higher rates, demand shipments stemming US. $XX lack the mostly costs effect the addition our of

were net the saw the cash $XX million quarter. in XX in fourth improved with mill and in at million cash long in by rose a million. our During increased the We our reduced quarter. XX million, seasonal provided XX quarter quarter facilities our in XXX at quarter, delays Despite of activities million our compared in million line XX to total inventory Capital fourth credit position to million repaid XXX shipments, Liquidity debt buildup end. X under increase resulting million operating the to million. to expenditures and to inventory, the revolving X by

we duty at previous guidance to their previously in Duty countervailing improve XXXX, expect increased following we than the to sawmills of end compared deposits XXXX As spending, lower by making on make productivity lumber of yields our quarter, project in production million XXXX, the invest investments increase previous deposits and and our XXX to now pulp million. as our million of timing expect the softwood capacity. XXX at suspension back to X disclosed, to in cash August. we Due resumed

amortization groundwood duty XXXX we million US million In the in this earlier of of to we regulations. We compared a million year, closure guidance, compared of our X for total back million. of is losses costs on million make for of decrease Consistent pension plants. XXXX of of timing the The in XXXX of in decrease result concluding subject OPEB the to US million, to uncoated and impact. pension plants. contributions our XX it and from expense balance to decreased payments sheet payments exited also our liability pension pension million in turn billion, I the Quebec made relief X exclusively the previous contributions an to will XXXX million in expected associated Yves OPEB result of quarter, be of with baseline, X to XXX before to our the for The to now remarks. OPEB contributions compared million is an pension favorable net the XX XX million excluding currency by beginning stronger expect XX to paper, and and lower a funding ongoing X.X and on quarter. largely became a previous pension credits XX to countervailing $XX OPEB recorded credit deposits related we contributions of and January. in quarter, a asset million increase expense X of We returns OPEB and due actuarial The

Thank you, Jo-Ann.

paper segments, Further been maintenance Near progress increases operational our our ramp our in we and reported of at term and priorities, the the mainly quarter. season. as lumber our of positive make we expect pulp mills have as We American operations, optimizing of the tissue up about into North our XXXX operation term, in investing to second quarter. and price pulp most Pulp the Calhoun remain publicly outages our specialty on scheduled business. price moves in business our are momentum completing two optimistic near second maintenance pulp across outage the industry for continue

pulp a production decrease by to result, tons. approximately our As expected XX,XXX is

of number or outages both outage While impacted plant these scheduled during paper a and maintenance times deferred planned pulp addition are result sorry, costs well at The next by In as cost tissue, our until the at in term lower our short our the activity the maintenance maintenance are volumes. same. segments third – perspective until typically while of two remaining as the remains the quarter. our fourth is maintenance the quarter, scheduled of the mills outage are one end scheduled mills outages the of next pulp

to continue productivity capacity on improving tissue mid-year. expect We to work machine’s targeted attain and the the operational by

segments as we are have our increased We will lower Wood we In reducing XXXX. in carried industry strong of but additional The net wood expected improving in and term. wood housing optimistic are ongoing market. profitability The compared of cautiously on the and company’s chip converted overall products, balance remain secured are newsprint capacity XXXX begin in wood grades that the access production are operation Even million. supply the a and specialty will constraints which focused chip $X the also products the to in reduction quarter tissue to quarter, our resource to in prices projects the expected XXXX, the half of by are we latter pulp in of are be housing tissue impact products in part remain results in and internal Calhoun to second the current wood sales, for near in starts, prices buyer chips. expect cost over realize recovery sometime the US favorable. to wood markets market low costs paper to lumber the selling remain market and second of XXXX quarter. benefiting of recorded both and we In our XXXX, second

mechanical related continue reported to have as first headwinds progressively related extent, freight the well are as and newsprint, free to typical a to paper We lesser earnings, quarter business uncoated uncoated quarter sheet. expected impact weather second Transportation in given constraints. for but price increases the our

to during newsprint expect down walk quarter goods also We both inventory and the first finished wood in buildup products. the

presentation. questions. This concludes we will the Operator, for our formal open now call

Markets. Your Capital Paul question comes Instructions] RBC first from with Quinn [Operator

Just to Maybe tissue. a on start couple of questions.

you to lot Your started of have of current guess product some machine. seeing and What the platform are really of a low mid-grade lines. I sells the Calhoun kind ultra and competitive on and premium sell there pressures you

talking rolls, parent we about lower grade. First we're more of when talking not grade, all, than are lower about

So that was in Atlas mostly.

on that for was the Florida machine. the more getting reason convertings, sales the on So

is this with and -- Florida So what the doing we're operation.

Calhoun, going hard to our and to up roll the much as rolls, even sell sell though so not as parent don’t we job far so are As expect parent a we is that said, sales now. right

Okay. Calhoun the the And in affects when it material? account the do be and going to the at beginning you or timing of quarter when is quarter and end you QX for the expect then what of that, of

think we're good pretty up right on ramp now. doing I

the So see there about is second we of in not say, precise according some yet quarter, accounting we when kind getting we're rules. to, soon. so closer. that This but We're we're stability really not and why let’s have coming

the a to Will material segment? it be

Yes.

mean XXXX. at side, it Okay. looks then XX,XXX like only in And inventories pulp drop I the understand looking shipments the the just up tons, I were

production So the XX,XXX. than delta guess less was there I

your question? is What

Just experience, production wondering your sorry materially the or in higher QX. guess, Did pulp if that quarter? you’d in weather I adverse affect

and weather We mostly In water, mill. we had in had in production our solid the mostly Yes. affected pulp resulted had power that outage It did. problem Calhoun. the was from Catawba we first

Quebec and and anything as logistics production. Ontario rail about was far north, as more and the else shipments and So than

regionally or bigger transportation understand Okay. you on a help issues, if does And kind your or both the of that on for breakdown rail is us issues? you that then just concern truck or can

talking the of first previous issue chips, pretty issue has much which on resolved. The for all, so the trucks we're was, been about quarter Yeah.

okay we're have pressure trucks think, and Canada, I doing you so know you you're you to the and of have move to on Eastern in rails, you rail, trucks. know, deliver first the In quarter, pressure customer, now. now when mostly on to as you putting course

So side lumber. be on paper than the, the on it would and mostly kind both of

lumber, little we were a behind. So

As we volume, had side we not spot far and issue costs America saw, ship about stuff less was to was volume, on paper as as was and drivers, much that problem that but as the we rail truck with in lumber, but the transportation on rail to and affected more there truck driver. a on switch market because of the is

-- do better and second in the to as said. quarter So expect I we

on just projects? lastly, just XXXX, some a major investments of is million XXX a then just CapEx bunch whole combination there? there that Is little for of And the

better have and yield good better projects side We we saw and for investing on some mill productivity. week there as we’re in in, the this coming was said before, one

other reason than main operating. that said challenge. projects is Jo-Ann the and the that side said the to of lumber now, know, delivered as of less on the are one there previously going So, completing what to be those suppliers why stuff And a parts is get right you

So, projects why what going that’s mostly are so mostly to that’s and the be.

next Patel, Your Hamir CIBC. question Instructions] [Operator from comes

can are and declines sort America facing latest globally, newsprint we've demand as destruction, is for that globally. some your movements what what pressures curious you demand we publishers of implications the expect do going price for of seen what think to large the and just the forward North in are view Given given

Yeah.

has pushes and the I and impact supply even and a now duties we think know balance, the prices demand that being significant the in the right without pricing it duties up. on

demand the down we XX%. about still that by So know paper is for

So without that.

So a concerned about about have as a accelerate that we’re really it’s the in but going demand good it’s don’t mean, see paper. how to we’re concern a pleased We decrease the better that. for definitely pricing, news. to I

So, it’s right XX% already the at which I range now. bottom said

some as end price the sense are there's sort the and by to to to just some business, would What seen hope a at producers the the have increases that you rate run we've suggest in what tissue year. do underway And you of you EBITDA of turning yet be market. seeing

tough As that to right going the but as with going pulp run think rate increase, one, that the as price price now don’t Jo-Ann that far the as I mean, answer being of I’m know, far integrated, know competitors. up, to guess But now in that tons of I price business market books, the it’s right we’re some course, right or let something of say increase leader having tissue so EBITDA, I I I probably a just now. from of we push to so cases would not, solid our

So something fact the what based producers that the on pressure putting is now. to happen, maybe on going right is pulp

know you Jo-Ann, don’t I So something to want if add on the EBITDA.

previously We haven't disclosed EBITDA guidance for tissue.

end be terms XXXX. of into going in fully profitability of XXXX, We that ramped the by to expect we have up said

said, I by we we’re business that in the end we of QX some coming we've expect promising about realize got think the As -- quarter. to

quality the the on and we forward. we that moved And feel pulp the to integrated bring what consider of this competitive continue the direction high we reemphasize one reasons access strategic fact is fully tissue I will again, product markets So advantage to side, very going of market. into which that we we’ve is a a

much sort at And million QX transportation slide, expect levels do Jo-Ann here? to one hold general of QX, you how get that weather expect of in or and QX? you headwind them mentioned further would transportation from of And back which just a in escalation terms in expecting of costs, to the then XX

particularly of little US About was bit the volume energy on on of in lost. -- almost the a the about course, costs. or half a impact some it’s deferred of finally call let's of volume, that prices XX and freight million of is it, there a the cold weather the Then, southern lost result

but about, the unused south, products. the productivity in inventory we in largely wood also and then US the increase As talked pulp of in print and

a availability as of the as likely how to quarter, have us a but Yves larger car disclosed. competitors transportation a go tends which second winter to the problem to to most be months also trucking spot rates improve market, rail about have forces far of rail to is in As we when the of don't our dollars, much the in number availability talked in car, as

to that already quarter. we in pressure second expect start to or will has So the that ease started ease

questions to this There over Ms. are I further would at Travaglini. call time. this turn no

you. Thank That concludes our call for today.

This concludes today’s conference call.

You disconnect. now may