Resolute Reports Preliminary First Quarter 2021 Results

Resolute Forest Products Inc. (NYSE: RFP) (TSX: RFP) reported net income for the quarter ended March 31 of $87 million, or $1.06 per diluted share, compared to net loss of $1 million, or $0.01 per share, in the same period in 2020. Sales were $873 million in the quarter, an increase of $184 million from the year-ago period. Excluding special items, the company reported net income of $119 million, or $1.45 per diluted share, compared to a net loss of $29 million, or $0.33 per share, in the first quarter of 2020.

"This has been a very good quarter for our strong and growing wood products business as the lumber tailwind continues," said Remi G. Lalonde, president and chief executive officer. "We are making good progress with the ramp-up at our El Dorado (Arkansas) and Ignace (Ontario) sawmills, both of which are now running on two-shifts, helping to increase production in favorable markets. Our balance sheet got stronger and our business more competitive this quarter with the timely refinancing and deleveraging of our senior notes, the refresh of our senior secured credit facility and the approximately $30 million in annual free cash flow improvement once the implementation guidance for U.S. pension relief measures take effect. These moves will support our progress as we continue to accelerate our evolution to generate long-term value for shareholders and to drive sustainable economic activity in the communities where we operate."

During the first quarter, Resolute announced its commitment to reduce absolute greenhouse gas (GHG) emissions (scope 1 and 2) by 30% against 2015 levels by 2025. This new target builds on the company's 83% reduction in absolute GHG emissions from year-2000 levels, two-thirds of which reflect reductions in emission intensity.

Quarterly Operating Income Variance Against Prior Period
Consolidated
The company reported operating income of $177 million, compared to $4 million in the fourth quarter. The improvement reflects higher selling prices in all segments ($148 million), partially offset by lower overall shipments ($23 million), and a higher share-based and variable compensation provision ($7 million). The company also incurred a charge of $12 million related to a process improvement program to improve the financial performance of the Calhoun (Tennessee) operations. The fourth quarter operating results were unfavorably affected by non-cash charges related to the temporary idling of the Baie-Comeau and Amos (Quebec) newsprint mills ($80 million), which were partially offset by a credit of $10 million under the Canada Emergency Wage Subsidy (or, "CEWS") program. The CEWS credit was based on the significant drop in revenue in the company's pulp and paper segments as a result of the pandemic.

Segment Operating Income Variance
Wood Products
The wood products segment generated operating income of $221 million in the quarter, a $93 million improvement from the fourth quarter, due to a $266 per thousand board foot increase in the average transaction price, or 44%, on strong lumber demand. But shipments fell by 50 million board feet because of seasonal shortage in rail cars and trucks, pushing finished goods inventory up by 46 million board feet, to 143 million board feet. The operating cost per unit (or, the "delivered cost") rose by $49 per thousand board feet, or 13%, reflecting a higher variable compensation provision, higher fiber costs and the CEWS credits received in the previous quarter. EBITDA in the segment improved by $93 million, to $232 million.

Market Pulp
Operating income in the market pulp segment was $4 million, an improvement of $8 million over the prior quarter. The average transaction price rose by $51 per metric ton, or 9%, with gains in all virgin fiber grades. The delivered cost increased by $22 per metric ton, or 4%, mainly due to higher weather-related energy and freight costs. Shipments were 12,000 metric tons lower, but finished goods inventory also decreased by 7,000 metric tons. EBITDA in the segment improved by $8 million, to $10 million.

Tissue
The tissue segment incurred an operating loss of $2 million in the quarter, compared to an operating loss of $3 million in the fourth quarter. The results include $1 million in costs for the ramp-up of the recently-acquired Hagerstown (Maryland) converting facility. The average transaction price increased by $21 per short ton, or 1%, and the delivered cost decreased by $28 per short ton, or 1%. Shipments rose by 1,000 short tons and finished goods increased by 2,000 short tons, to 8,000 short tons. The segment generated EBITDA of $3 million, up $1 million.

Paper
The company incurred an operating loss of $24 million in the paper segment in the quarter, $5 million worse than the previous quarter. The average transaction price rose by $13 per metric ton, or 2%, but shipments slipped by 16,000 metric tons compared to the seasonally stronger fourth quarter. The delivered cost increased by $31 per metric ton, or 5%, due to higher energy and freight costs, as well as CEWS credits received in the fourth quarter. As a result, EBITDA fell by $8 million, to negative $9 million. Finished goods inventory dropped by 9,000 metric tons, to 87,000 metric tons.

During the quarter, the company announced the indefinite idling of its Baie-Comeau and Amos newsprint mills, which were temporarily idled since the spring of 2020, as a result of market conditions and impacts of the pandemic.