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Resolute Reports Third Quarter 2022 Results

Press Release

  • Q3 GAAP net income of $87 million / $1.11 per diluted share
  • Adjusted EBITDA of $157 million
  • Net cash position at $145 million and liquidity at $1.3 billion at quarter-end
  • Acquisition by Paper Excellence Group approved by stockholders

MONTRÉAL, Nov. 3, 2022 – Resolute Forest Products Inc. (NYSE: RFP) (TSX: RFP) today reported net income of $87 million, or $1.11 per diluted share, for the quarter ended September 30, compared to net income of $80 million, or $0.99 per diluted share, in the same period in 2021. Sales were $974 million in the quarter, an increase of $157 million from the year-ago period. Excluding special items, the company reported net income of $85 million, or $1.08 per diluted share, compared to net income of $67 million, or $0.84 per diluted share, in the third quarter of 2021.

Non-GAAP financial measures, such as adjustments for special items and adjusted EBITDA, are explained and reconciled below.

Quarterly Operating Income Variance Against Prior Period

Consolidated

The company reported operating income of $124 million in the quarter, compared to $217 million in the second quarter. The $93 million reduction reflects lower realized prices in wood products ($185 million), partially offset by higher prices in the pulp, paper and tissue segments ($48 million), higher shipments in wood products ($40 million) and lower manufacturing costs ($12 million). The company also recorded higher selling, general and administrative expenses ($17 million), reflecting a higher share-based compensation expense and costs incurred in relation with the acquisition by the Paper Excellence Group.

On July 5, the Paper Excellence Group, through its wholly-owned subsidiary Domtar Corporation, a global diversified manufacturer of pulp and specialty, printing, writing, and packaging papers, entered into an agreement with Resolute to acquire all of the outstanding common shares of Resolute stock.

For additional information, a full description of the transaction is outlined in the definitive proxy statement of Resolute filed on September 20, 2022, with the U.S. Securities and Exchange Commission (or, the “SEC”) at www.sec.gov and with the Canadian securities regulators on the System for Electronic Document Analysis and Retrieval at www.sedar.com and mailed to stockholders of Resolute beginning on September 20, 2022. Please also see Resolute’s current reports on Form 8-K filed on July 6, 2022, July 7, 2022, August 4, 2022, October 25, 2022, October 27, 2022 and October 31, 2022 with the SEC.

Segment Operating Income Variance

Wood Products

The wood products segment generated operating income of $42 million in the quarter, a decrease of $138 million from the previous quarter. The average transaction price fell to $624 per thousand board feet, a $307 per thousand board feet, or 33%, decrease from the previous quarter. Wood products shipments increased by 88 million board feet, to 606 million, reflecting gradually improving rail car availability, leading to a 71 million board feet reduction in finished goods inventory, to 168 million at quarter-end. The operating cost per unit (or, the “delivered cost”) decreased by $25 per thousand board feet, or 4%. EBITDA in the segment declined by $138 million, to $53 million.

Market Pulp

The company generated operating income of $81 million in the market pulp segment, an increase of $40 million from the previous quarter. The average transaction price increased by $93 per metric ton, or 10%, to $1,025 per metric ton, with gains in all grades. The delivered cost decreased by $54 per metric ton, or 7%, mainly due to lower maintenance costs in the quarter. Shipments increased by 5,000 metric tons and finished goods inventory remained relatively unchanged at 67,000 metric tons. EBITDA in the segment rose by $38 million, to $86 million.

Tissue

The tissue segment incurred an operating loss of $12 million in the quarter, compared to an operating loss of $9 million in the second quarter. The average transaction price increased by $72 per short ton, or 4%, but the delivered cost rose by 10%, mostly reflecting higher pulp prices. Shipments were 2,000 short tons lower and finished goods inventory increased by 1,000 short tons. Segment EBITDA decreased by $3 million, to negative $8 million.

Paper

The paper segment generated operating income of $52 million in the quarter, an increase of $15 million from the previous quarter. The average transaction price increased by $66 per metric ton, or 8%, reflecting more favorable market conditions. Shipments decreased by 34,000 metric tons, mostly reflecting inventory destocking in the prior quarter and lower productivity, and finished goods inventory increased by 7,000 metric tons due to shipment timing. The delivered cost was relatively unchanged as higher chemical prices were offset by lower maintenance costs. Segment EBITDA improved by $15 million, to $62 million.

Consolidated Quarterly Operating Income Variance Against Year-Ago Period

Operating income in the third quarter was $22 million higher than the same quarter of 2021. The variance includes higher selling prices for the market pulp, paper and tissue segments ($125 million) and higher shipments in wood products ($33 million). The company faced higher manufacturing costs ($99 million), mainly related to fiber ($46 million), maintenance and labor ($25 million) and energy prices ($24 million), as well as higher freight ($24 million). The company also recorded higher selling, general and administration expenses ($25 million), reflecting a higher share-based compensation expense and costs incurred in relation with the acquisition by Paper Excellence Group, and it benefited from a lower Canadian dollar ($12 million).

Corporate, Cash and Liquidity

The company generated $163 million of cash from operating activities in the quarter and it invested $31 million, net, in fixed assets.

With $446 million of quarter-end cash, liquidity stood at $1.3 billion. As a result, the company ended the quarter in a net cash position of $145 million.

By quarter-end, the company had recorded cumulative softwood lumber duty deposits of $535 million on the balance sheet, including $35 million paid in the quarter.

The company continues to assess the extent of the damage from a fire that started on October 6 at its Menominee (Michigan) recycled pulp mill, which resulted in the temporary idling of the facility. The company aims to restart the mill in the coming months. The company maintains insurance coverage for the mill, subject to customary deductible and limits. There was no injury in connection with the fire.

At the special meeting of stockholders held on October 31, Resolute’s stockholders approved the acquisition by the Paper Excellence Group. The closing of the transaction is expected in the first half of 2023, following regulatory approvals and satisfaction of other customary closing conditions, the receipt of which remain outstanding.

Earnings Conference Call

Due to the pending transaction with Paper Excellence Group, the company will not host a third quarter 2022 earnings conference call.

Description of Special Items

Special items

Third quarter

(in millions)

2022

2021

Closure costs, impairment and other related charges 

$

(1)

$

Non-operating pension and other
postretirement benefit costs (credits)

3

(3)

Other income, net

(37)

(20)

Income tax effect of special items                  

33

10

      Total

$

(2)

$

(13)

For further information: Contacts: Investors: Marianne Limoges, Treasurer and Vice President, Investor Relations, 514 394-2217, [email protected]; Media and Others: Seth Kursman, Vice President, Corporate Communications, Sustainability and Government Affairs, 514 394-2398, [email protected]

IBF4

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