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Resolute's operations stung by unprecedented arctic vortex, says CEO

MONTREAL - The arctic cold that swept across North America last month froze pipes, caused equipment breakdowns and dramatically raised power use at Resolute Forest Products' facilities in Canada and the southern U.S.

Resolute chief executive Richard Garneau says temperatures plummeted in some locations to -50C, conditions he hasn't seen during his long career in the forestry sector.

"Normally you see it in the boreal forest, but you have to go pretty far north. But we saw that in Thunder Bay and also in northern Quebec, so it's pretty difficult to operate under these very cold conditions," he said Thursday in an interview.

Garneau, who spoke after Montreal-based Resolute (TSX:RFP) released its fourth-quarter and 2013 results, said production at a mill was affected because it couldn't secure the rail cars or trucks to deliver products.

Adverse conditions even affected operations in the deep U.S. south, where manufacturing plants don't have the protections from cold that are in place in Canada.

Resolute expects higher power costs will have a "material" impact on its results for the first quarter of 2014, but it doesn't yet have an estimate.

The company beat analyst expectations in the fourth quarter as its net losses were cut to US$3 million, from US$45 million a year earlier. It said the improvement was due to a turnaround in operating income and lower closure and impairment costs.

The Montreal-based company, which reports in U.S. dollars, lost three cents per share for the period ended Dec. 31, compared with a loss of 47 cents per share a year earlier.

Excluding one-time costs, Resolute's adjusted profits increased 10 per cent to $32 million from $29 million in the prior year. That translated into 34 cents per share, up from 30 cents in the fourth quarter of 2012.

Revenues were stable at $1.15 billion.

Resolute was expected to earn 29 cents per share in adjusted profits, according to analysts polled by Thomson Reuters.

Its operating income in the quarter increased to $8 million from a loss of $58 million a year ago, while EBITDA improved to $49 million from $1 million largely due to a strong performance in market pulp and wood products.

For the full year, Resolute's net loss surged to $639 million or $6.75 per share, compared with a profit of $1 million or one cent per share in 2012 on a large income tax provision.

Its adjusted profits increased to $107 million or $1.13 per share, up from $86 million or 88 cents per share in 2012. Revenues decreased to $4.46 billion, from $4.5 billion.

Resolute said improved pricing and volumes in lumber and market pulp were overshadowed by market weakness in the paper grades.

"Overall, I think it is a fairly decent year with all the challenges that we had," Garneau said, pointing to ongoing restructuring, changes to Quebec's fibre supply system, mill restarts and machine closures.

While North American newsprint demand fell by nine per cent last year, Resolute's shipments were down only four per cent. Cost improvements have ensured these operations profitable while the industry remains balanced with the declining demand.

"I am not disappointed with newsprint because we are where we want to be," he said of costs that are the lowest in about three years.

Garneau said the company's market pulp and lumber operations performed well last year and should continue to grow in 2014 as the U.S. economy continues to gradually improve and housing starts surpass one million.

Resolute is looking for North American acquisition opportunities in these two sectors but won't say the maximum it's willing to spend while being cautious about increasing its leverage.

It is also preparing to increase its wood products capacity by nearly 36 per cent to 1.9 million board feet in 2015 by investing in sawmilling operations in northwestern Ontario. It will restart sawmills in Ignace, build new operations in Atikokan and increase capacity at several other operations in Ontario and Quebec.

The wood chips will also help its pulp and paper facilities in Thunder Bay.

While the company is growing its wood operations, it has no plans to close more plants elsewhere across its network, although some machines may open or close depending on market conditions.

"We have a pretty efficient network so we are basically where we want to be," Garneau added.

The company is also preparing for union negotiations this year but declined to say what it will be seeking from workers, shunning any use of the word "concessions."

"I think our union partners know it's a business that is declining and they understand quite well the difficulties that the industry is facing," he said, adding that local unions have helped to make the mills more competitive to secure jobs.

On the Toronto Stock Exchange, Resolute's shares lost three cents at C$18.97 in early Thursday afternoon trading.

Follow @RossMarowits on Twitter.

The Canadian Press


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