Resolute Forest Products (RFP) 1 Nov 182018 Q3 Earnings call transcript

Good morning, ladies and gentlemen. Welcome to the Resolute Forest Products Third Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Please note that this call is being recorded today, November 1, 2018, at 9:00 a.m. Time. Eastern like meeting now to turn to would over the Ms. I Relations. Treasurer, Vice Travaglini, President, Silvana Investor Please ahead. go

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

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

also make statements. forward-looking We will

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

by Good Supported joining earnings, we weaker record quarter you positive price pulp for paper us announced third today. for products, market. morning. lumber despite and momentum Thank our ongoing

XX% the exceeded million quarter's Our of adjusted EBITDA $XXX year-ago [indiscernible] higher and last is than period.

also dollars. products. this [indiscernible] But federal Our lower freight the improved weaker Canadian in impact results from markets third cost, quarter [indiscernible] productivity, [indiscernible] benefited the and the of federal rise by

a cash million. increase $XXX $XXX generated operation of we quarter, operating million, flow, year-to-date, the of year-over-year from During cash and was $XXX million our over

our share. a the of Saint-Félicien Also, including special this will Resolute's approved of at per Board invest pulp project a dividend discuss We in I continue to businesses strategic later. year, our mill, Directors $X.XX which [indiscernible]

wood $XX and $XX quarter, from $XX million; in second reported $XX million, to at up specialty our down with papers, newsprint value Catawba the line around to sale Tissue complete today million against up market total proceeds of $XX recently all In expected million; from serve an the negative of was $X of million, the generated $XX in maximize entered million; our projects $XX $XX of improvement generation unchanged This quarter. million is bond, million, we $XXX EBITDA million the quarter. will for which and we close previous to facility, strategy the Fairmont mill we year-end into an million million. our agreement $XX assets, of

optimize we we all [indiscernible] from with ended are to for running XX mills With for been most estimate realizing million by us operation, months was at the approximately our both business Fairmont minimally potentialize production asset of improve the would capacity, overall pulp an our the recycled September disposition earnings, Catawba and EBITDA the that $XX mill and enabled recycled XX% Catawba, XXXX. reduced With With have last project. conversation their of sales of our small mainly pulp value the XX, profitability. a a

the expected the September XX-month account in at before Excluding $X increase would our have higher about Fairmont, last taking been [indiscernible]. end million production our of XX, for into EBITDA

America respectively, with compared XXXX, and market fell months nine Shipments Europe to to of X% the individual period. the in X%. shipments our China pulp. up while review X% to Let's first by shipments were starting grew pulp of and X% segments year-ago chemical World Western North

shipments during while same the hardwood was wood X%%. of period, shipment X% lower Softwood rose

realizations at to capacity year-ago were ton XX%. demand reflect compared with or the a another Price per core ever $XXX continue metric the company gases strategic led was Supply ton our up $XX this greenhouse achieved mill steady in At wave at growth shipments at highest the and more Shipments not pulp global per the portion Softwood A markets. and supply added to EBITDA of reducing aim at that production project also period. shipments recurring in increasing were mills affected which costs quarter the and improved higher started fully of and mill is to and productivity. to a coupled Saint-Félicien in the significant do mid-October mills to schedule. ratio general segment. industry capacity. has completed full and prediction, The now up ran on due hardwood to increase operating we production capacity constraints ratio XX% the challenges, at disruptions,

about Saint-Félicien Total Additional XX,XXX phases million. XXXX. of increase the tons. the cost metric Once minimum the is $XX of end by the project will will project completed, by be completed production

We an to for improve announced cost, energy gas well Bay our plan emissions. have mill $XX as and productivity, million residual Thunder investment efficiency, greenhouse also as providing

the shipments improved For product total month year, X.X%, the consumption led -- by home of by total tissue the first year, nine at tissue away sales me; for same the year. last first to increased period the from the while months X.X%. of Converted home United States by excuse grew X% compared X.X%, in

rose the improved by volume to more mix secured converted X% tissue shifting of products. one sales we product quarter, by as our During our the and new business

average also for a transaction increased As result, by short-term. price $XX

tissue the the of up output We continue to both increase walking focus and on operation, machine [indiscernible]. to ramping our the

higher we first of basis post to Calhoun warehousing the year to costs. to of in take mill less converting compared was on Construction Florida and stuff undertaken to the U.S. months at to volumes. completion, Housing logistic expected XXXX. October, is and certainly In in line the nine the is various significantly near an the also our X% reduce through a structure. world adjusted outside improve cost and initiatives have efficient facilities others adjacent our up We

starts in stuff quarter. and X,XXX,XXX housing reflected average down X% U.S. multifamily quarter, the a previous X% the family For decrease from X.XX% starts. decrease single the in units This

market unwinding was the earlier builds average when year in nevertheless prices feet the The XXX,XXX in from freight the board compared of mainly constraints, While Canada of quarter higher finished EBITDA due U.S. softening in our inventory recent healthy million the inventory. Shipment high slowdown $XX thousand in the over historical Western North generated combined decline leading goods XX% to price Despise and [indiscernible] quarter, conditions. XX in all weaker American to stuff increase to motion second in $XX. of a we lumber a with period. this year-ago a the transaction market per housing

annual was August Total ratio was last up last Asia North X% on another American by period million commercial million America to to first driven by through focus to in capacity and which also we XX% continue shipments board period. from period processes, optimize capacity to up reduction same in to year, demand printers. ratio Europe will our, drop manufacturing World at to XX%, XX XX%. North same our feet. lumber recently newsprint from being XX% completed in capacity board a demand will newsprint decline the American the demand investment Capital We months year, shipments for X%, of the improving sawmill feet. sawmill X% efficiency of with at compared productivity new XXXX ago XX% the North increase a once X%. Western XX% several Newspaper capacity from The increase from and nine rose just in expense announced our by project XX Publishers year compared and made

price remained balance with the favorable implementation increases. continued previously quarter, the of supply During demand announced

in to $XXX uncoated for rose demand price X% year grades nine to to however, per the XXXX. XX% the at capacity papers transaction goods than decreased the XXXX in first of from average XX%. This was mechanical ton, industry ratio XX% increase period. down decline for compared while end. design a ago to compared year mechanical ago inventory the was Our to finished Lower from this drove only the largely months nine American the year an Compared a supercalendered to metric X% XX% shipments to export ago. higher down period. XXXX Total sale. to to of quarter North grades in demand year $XXX due Shipments timing XX% shipments capacity first the demand standard The ago in the decreased decreasing months up period, of improved X%. for was led

and we to also ages by higher the plan $XX increases the of well allows compared ton [indiscernible] and were Shipments production performance. realized as reflecting quarter better a all transaction one. at the in restructuring average previous price Calhoun as further per price rose During across flowing operational all quarter, Catawba the increased second

and now get situation addition, improve Calhoun have that productivity In the papers seasonal our profitability the papers in quarter. that in [indiscernible] especial the at to of supercalendar contributed for fourth demand of increase initiatives cost higher business, and to they

wrote supercalendar on States United we the paper by in Trade duty U.S. imports high In Commerce, U.S. Our materially finished paper groundwood, by and order converging the goods rose vote uncoated that XX%. from International inventory up Commission Canada. Department August from the of Canada producer rolled July,

As being result, producers all a paper reformed. are

For apply. from to performance lumber before I conclude our have States would United average [indiscernible]. our to financial with continue I software Canada exports Jo-Ann discuss now

Thank reported everyone. of you, Yves, $X.XX and net third million the for income share. we a quarter morning good diluted Today, per $XXX or

paper in to to reflecting increased costs unchanged cash diluted in the extended remained as million exchange, to Cash effect rise elevated. special $XXX costs compared of per period production previous items costs. removing per pulp the $XX and was or ton. ton, better timing second the or for market second the income year. the offset to $X.XX same in $X.XX newsprint impact $XX $XX sales pricing previous manufacturing recovered $X.X and a the higher and of volume by pricing prices per rose announced all mostly and the share our downtime EBITDA or gains lumber. tissues the recovered volume, prices previously volume Total million per items, XX% income and were and -- related in special quarter, outweighed quarter at share. $X decreased our compared lower the paper and in foreign loss Excluding in Compared to third per a with million quarter higher of pulp from and lower metric paper rise cents sales operations net excluding increase net $XX quarter volume or last million an million This share quarter, combined costs the in After metric in segment of market $XXX our as related

continue up facility. we our the and lines machine the ramping converting at Calhoun As tissue

volume a in log these as higher at the So offset In million. quarter higher and wood to improved costs unchanged per lower by to $XX Canadian costs this pricing and weaker as the $XXX. the volume, $XX despite is EBITDA costs sales effect of growth lower sales this decreased. and million $X by thousand and quarter. result feet favorable to decreased shipments dollar million EBITDA cash products, the to costs This was by With board was U.S. mainly due X freight negative lower

ton Newsprint EBIRDA quarter, metric to ton than operations per at cash in lower warm the $XXX, given prices volume cash realizations $XXX in to to costs metric $X papers $XXX metric rose million per our remaining weather The our under at prior With to $XX as credit freight cash in especially of equivalent $XX we million due compared short well EBITDA to by per Higher that abnormally mainly previous for the allowed million higher generated million facilities and filed quarter. rose higher revolving to increase $XXX with by in improved cost dollars million $XX This the efficiency, per the by as short outages. from quarter a ton time us $XX million per $XX repay cash to fully quarter. $XX maintenance quarter. $XX ton $XX the in third end of Despite power a $XX up the $XXX from maintenance from increase costs inventory, decrease was costs. $XX ton. to price and and the short the more million compensated or increased increasing

to trailing improved As quarter $XXX by debt second were in to the and to up result dropped $XXX million million months expenditures the million one EBITDA million quarter. XX from Capital time. $XX liquidity a our $XX

expending capital disclosed, previously year. in the we invest million full As expect to $XXX a for

XX, cumulative deposits the Softwood the reported duties lumber $XX as with quarter sheet $XX million September of million of on paid For duty were balance deposits XXXX. of

deposits For deposits were with quarter the of paid $X will the cash in interest. unclothed duty no groundwood and refunded be million

refunded. For the million were and SC million of deposits cash In the of paper today to with be $XX returned $XX million remains third interest. only of $X as quarter

and sale the were buyers liabilities by September assets subject and as the on assets of liabilities potential the for XX, Fairmont sale and balance sheet. As the held to to Catawba be assumed reclassified

agreement $XX pension as to OPEB contributions pension of the decreased the This payments and for in previous assumed and be was EBITDA corresponding adjusted million by $XX quarter our OpEx the pension of same well million liabilities and to obligation to held sell The in reclassification the our OpEx net sale as as $XX at included quarter Catawba. million. reflecting in liabilities expense

million. want OPEB disposal of our approach of XXXX pension a announced and unchanged talk I adjusted of with for associated our million allocation. to the context the position guidance is pension $XX OPEB of financial In EBITDA Our contributions at and capital expense payments specifics $XXX asset by $XX about million an current reducing to and

the flexibility execute and ability with strong Our low levels us combined favorable with debt pricing provide strategy. to liquidity our which has

dividends spending on our the shareholders for undertaken optimized benefit to those repay our creating over retire may the operations competitive or take an flexibility. idle excess position, enhancing refinance indebtedness markets opportunities value in expenditure, outstanding of is capital long with our from that our From We costs us concentrating and explore synergies a further or our and divestiture We diversification, to that reduce on only market disciplined, repurchases. strategic initiative to our and seek position share return some conditions, a most strategic non-core to view growth. financial opportunistic approach, product term time-to-time we capital into provide capital or time through expand based and our we cost reducing manner sites. Our pursuing focused strengths improve

for on to shareholders today I XX, turn record now special result a Yves As back cash it per December a we dividend announced December payable It $X.XX remarks. X, a of to of XXXX is will on share. concluding XXXX.

the demand at funding tons tons to remains further maintenance continued project, from approximately remain remain by decrease is publicly fourth Jo-Ann. to XX,XXX fourth the is fourth quarter, scheduled November. reported the Saint-Félicien solid. mills the the the operated fourth in the strong. increases price and are through pulp and the probably including our lost by of third production unplanned in expected Favorable of mills XX,XXX most outlook capital opportunistic outages, quarter quarter Thank you, We experience quarter. all business includes to Despite production expect at we industry disruptions and supply October for supported In outages

home For are The productivity expected long-term we ongoing can December. in focused our medium away customers would on the is recovery fourth in repair segment increase improvements in that be tissue inform and the implemented the recent ongoing in improve prices believe starting in to should we and from In renovation results quarter. our starts to that segment weakness in the lower price products growth housing impact we that. the negatively the U.S. far

increases, results in we While fourth of previous paper quarter. to declining the picture impact this favorably the impacted Implementations continue demand. by markets of be our

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

question [Operator comes Capital you. Paul go Quinn Markets. RBC of the first Thank Your line from ahead. Instructions] Please from

Yes, thanks very much.

Good morning.

of maybe starting have around a Good capital how the buybacks those? and versus with a dividend morning. any versus look just allocation, the dividend couple you restrictions you implementation whether guys at regular of of Yes, any share special questions

on think I as far that that there [Indiscernible] of but Jo-Ann of was suggested. answer, option me join you any on restriction no matter can restriction the as

shareholders front that right see set the we company and decided dividend to so and for business that the -- the of we dividend, and long -- having mean supporting the that cyclical in we for as a going XXXX, know, this with time we us, special have is and emergence and time with to we us in, are in a is special go -- So us to what's why not have been dividend, I you a went way, since the a of markets. come

Okay.

I to level the why sites is liquidity about approach competitive specifically most strategy focused then keeping to and previously think that allocation We call. pulp this wood obviously growing segments I mean, talked and excess on opportunistic in financial capital Paul the our we taking capital. in and my capital overtime that's send talked the to exercise with company on its about conversation which we of our a and leverage strategy talk and about. at described

dividend. We this have to capital of in share the return in past a it's shareholders special terms and around time buybacks

at outline maybe what you Quebec I other capacity then, benefits my capacity simple timing? spending just could CapEx look that you the EPN And a are that then the Okay. there, additions there what's and it's know the you the basis, on pretty the what's addition and are sawmill of spending and CapEx expensive that Ontario for

ability in doing efficiency in this largest, $XX in and new lot improving have we cost, that's and The the so has been storage drive that same mostly pricing box the of all, Thunder bottleneck washing timing and U.S. that increase efficient recovery it's and going ton Bay. of has by said we would the XX% XX,XXX said a new as beginning mill lot increase since ELA their tank I've a new the bottles thing going when about function investment a I Thunder Bay in know being a to to that that say so first are that's like space, stuff say you about fixed and steam things been same a machine it's and course shutdown same I and of efficiency, Thunder [indiscernible] of project is had storage lot in it's would we XX,XXX and XXXX, since of pulp lot about full real actually we with thing changed done and so that's of the is done there XX,XXX Bay, bleaching thing million improving of been and phase

pretty be the do spread the of sometime So to back has full of quarter [indiscernible], would going XXXX. far middle been that going much, getting we done, when XXX to sometime, say volumes of production down to is first in it probably as the finished third I by are as

amount that the the and expect you Okay, then come are spending you [indiscernible] the what's on mills of timing when of to Ontario production online? money

about be, there's mostly first-half much many the going I will the to where probably Quebec. would say I efficiency say to done same sawmill by The It's it's in capacity that's and sawmills, mill XXXX. [indiscernible] about second,

what's We rough to new address the yield mostly rest have the sign can of there we printer bottleneck been a the already a and equipment ordered terms we we new some we the sawmill. the family and and have more see shift to run with the and number from a while better to in of the that in to efficiency now we revenue. are why scheduled do think was capacity there meal, saw front that on I had new And can third more planner talking has and the

lastly to that's it? block? the tissue another And ask enough or from area going maybe that then, just get in is into to great. away the be Okay, Is how just that that increase much home price announces to

certainly which XX% not of be was overall We to Efficiently, is XX%. from all to it, of X. price up increase expected it to Obviously, right our business away below was now up about XX%. home,

luck. All all had. Best of I That's right.

you. Thank

of the from ahead. line CIBC comes Markets. Please Capital go Patel question next Hamir Your from

Hi. Good morning.

year? of job machines remaining company sort the the monetizing done paper that you You monetizing there look Are you when additional guys a this over have. assets year, you fleet of at see the mills great next could have

a us and now, things the there I opportunities other that of that mean, we right that it. right see with right think and don't you are of are now companies industry those to what now do take I going can like pretty things course and right lot us see going it's of options I but industry. can to makes is and in with of sense in going on with much, see we evaluation lot fun what us, as a But are the on say I that know going we when now for of the

prices you I to competing just you and markets know we've for those ask much seen wanted How grades. sheet free have Fair the to about you actual papers enough higher. production grades? do to some increase continue uncoated room graphic guys move off on produce

the Well, there. produce we just equivalent a couple. USA machines We some grades but we do remaining on also paper Calhoun and have

what would volume sort So and there? potential grow the of an what's to Jo-Ann on speed annual those basis

we we'll this And we said and continue to total It's on as what about times the see up work circle. was XXX,XXX the obviously quarter market productivity. pricing

on just any QX Are thanks. helpful guys and given maybe larger you in lumber That's have related a in downtime the the -- Okay, markets weakness. given and discount taking turning markets market seen Canadian to emerge downtime the planning in you duties?

is. There

Let's a still see discount are up there's of the going beginning the but since been duties. that they significantly

about Of course, it's that, would market slower more say is the being I right now. industry the U.S.

As our the any that have now us companies eastern don't right or things far we with about time, we board in whatever. other select and Canada announced, with see downtime as

we away. are not based a We market capacity right have we what so for and some that problems on places running and lot just getting that some

Okay, given is sort projects, do and sheet, debottleneck the to think there for you lumber have in across system in final improvement but and some about the okay. assets Great a you've smaller the you couple for maybe having room business me just balance lumber U.S.? interest much in growing pulp point and question the any both in announced how how the at of do a

a since the to and think all. part grow the its lot I of tool just strategy of lumber Yes, a our and that's beginning

sawmill, we meaning bought of as as filled we we spoken two, build lumber is and started [indiscernible] So restart build sawmill. and the some you the with the kind know one of

so size open that are to didn't the through some we've things work, same as in up thing been low-quality certainly have and growing at both of we of looking days about possibly different look suddenly of to that also is business, the are talking grow talking we opportunity so are but something spinning transaction are course So at looks we we many the we [indiscernible. interesting pulp and

capacity as have we possibilities, other Calhoun a our Bay have option we and capacity. we Calhoun in pulp Thunder well, can as We that well increase have today thing company own good same do with with to

the Which Calhoun the digester XXXX. we new in give with

your Right. would something Greenfield And platform look pulp then, this just in a mill you've you be Does lumber -- given south. at? maybe paper paper the and or in the that U.S. that

take I of that if in want build is been the a somewhere. we mean looking I well. past so thing reality that's have to into right ready we few you get to course, the the mill equipment now go, with something the to But something the the you think today, same pricing it's of lumber the new. years, our there have still and consideration could we've and something new in as at But, situation. going you change are it's to great before it's take book

Fair That's had. all enough. Okay. Thanks. I'll over. it turn I

you. Thank

T.D. of Instructions] question go [Operator Please comes from the line Steuart ahead. next Your Sean from Securities.

Good few a Thanks. questions. morning,

morning. Good

Good morning.

are I the on give bit up On ramp expected get us to you trying visibility where timeline and ramp more rates guess operating just for Calhoun. the the to detail up to full speed the business, on Can now there? tissue a

tissue. On

Yes.

machine size. lot to ready would a same improvement significant something you're that that tissue made We've for the Yes, the of have would improvement. tissue, again say in on

good I studying products. think idea have that pretty the we a for

conversion would We now. more, together side say the have ending up right on I the

hard labor So and the side, build it even so improvement doesn't the we're though that retention well. of and making just tried equipment push on we as to

and training a have we're new we people of lot employees. So

So at we much we're end it. of heading right we're now still in through the direction sorting day but of right the the believe that

you improve that post Fairmont, give the on Could to operating mill you the the of up rates bring us that? timeline sale expect expect fast or do how you if full operating and Okay you to rates mentioned at a close to to Menominee. would

Yes, the right bottom is line through.

us factoring broadly you up you ramp speaking in CapEx, the sawmill have in give allocation mind the XXXX given other some a quick can capital DO XXXX about, on you've position where Okay, care in for more a and you initiatives capital yet? on are then of number talked in guidance expansion

a which about over that years without my… I like was least year number those I think, you I I you with would a the would I said of that we something Big don't talk did budget all projects $XXX specific today, at think so have that would give we million I rather would give per big be more ballpark

all much. I Okay, that's had. very Thanks

Thank you.

Your next Quinn question RBC line comes from the go ahead. Capital Please from Markets. of Paul

Thanks for thanks. Yes, taking this one.

in the like I you come in and in left $X once duty do does refund, just what thought confused sounds it cut periodically you've walk QX? have come Just on expect million reversed amount. Why through me to that could for so it would full and maybe that it gets got you that is check

our the them any Yes, duties our as EBITDA. of into as record be over Paul. to deposits paper on don't We or time. We wood refundable record

fee a actually of example million received refund for the in those we third quarter. $XX on So

$X through against another went we $XX to go remaining QX end received the the then since balance accounts sheet. million they only of And $XX million sheet million we which is the Since have So September will the against there again million receivable. another and balance to that cancelled to XXXX. end receive that to And beginning $X which then the before only of year. we have collect of in expect was paid coated we groundwood QX expect the by today

it paid. them the the a on amount. you've timing full guys reversed. Why holdup cut the I what's And for should know of what mean releasing deposits? that day it specifically So, right gets the gets then check you when

on for single interesting the duty pay we that those here. every that's in how the states entry get over overall Well, thing separate checks actually we

time processing is on their the So a long little part.

So how that QX? many be entries how in would many

Thousands and and thousands thousands.

Okay.

it. get I Now

much. Okay very Thank thanks you.

Thank you.

remarks. back turn further time. no this the are at to questions the I call closing for over There presenters

want I to us today. thank call. conference today's concludes you. for Thank That joining everybody

conference This call. concludes today's

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