Resolute searching for more cost savings despite plans to shed up to 170 jobs

MONTREAL – Pulp and paper producer Resolute Forest Products will continue to find more ways to save despite announcing plans that it’ll shed up to 170 positions at two facilities in Quebec and Ontario, the company’s CEO said Thursday.

“We are focused on preserving our lower cost advantage,” Richard Garneau said during a conference call about its latest quarterly results.

The Montreal-based company swung to a US$588 million loss in the third quarter due to a large non-cash tax charge, but still beat analyst expectations as adjusted profit soared to US$29 million. The results prompted Resolute’s (TSX:RFP) shares to surge nearly 13 per cent or $1.91 to C$16.70 on the Toronto Stock Exchange.

Resolute expects to reduce between 70 and 90 jobs at its plant in Baie Comeau, Que., and will close one machine in Iroquois Falls, Ont., that makes construction paper, affecting 70 to 80 workers.

Over the last three years, the company has cut hundreds of jobs as it searched for ways to improve its financial performance. The big opportunities have been realized but Garneau said “we still have things that we’re working on” that will be announced as required.

“This lean and efficient operating platform is our key competitive advantage. We will continue to play to our advantage by managing production and inventory levels, selling only profitable tons and maintaining world-class operational standards,” he said.

Resolute recently told employees in Iroquois Falls, Ont., that it will close an older machine in about four to six months amid waning demand. The number of layoffs will be reduced because about 70 people are eligible for retirement. The closure will leave about 170 workers at the mill’s newsprint machine.

“The closure of this machine, even though it’s a sad day for the employees, I think it’s going to allow this mill to be more cost-competitive going forward,” Garneau told analysts.

The company is also cutting the workforce in Baie Comeau and lengthening the work day to address falling newsprint demand from overseas customers. Workers recently voted to reopen their collective agreement to maintain three paper machines operating and preserve the most jobs possible.

Resolute is planning to open two large sawmills in northwestern Ontario in 2014 and 2015 that will create 400 jobs and about 100 related positions.

Garneau said continued cost reduction efforts helped to maximize the company’s earnings power in the quarter despite challenging market conditions.

The forest products producer, which reports in U.S. dollars, lost $6.22 per share in the third quarter, compared to 38 cents per share or $37 million in earnings a year ago.

Excluding $617 million of special items primarily related to the reduced value of a U.S. deferred income tax asset, the company had $29 million or 31 cents per share of adjusted earnings. That was up from $13 million or 13 cents per share a year ago.

Revenues for the period ended Sept. 30 decreased slightly to $1.11 billion.

The company was expected to earn 25 cents per share in adjusted profits on $1.14 billion of revenues, according to analysts polled by Thomson Reuters.

Chief financial officer Jo-Ann Longworth said the company doesn’t expect to pay cash taxes in Canada or the United States any time soon because it has more than $1.6 billion of tax carry forwards available to reduce future earnings.

Meanwhile, Resolute said a series of problems and downtime at several co-generation facilities reduced earnings. It earned just $12 million in EBITDA during the quarter, but expects to realize $60 million to $65 million per year once facilities in Thunder Bay, Ont., Dolbeau, Que., and Gatineau, Que. are fully ramped up.

Paul Quinn of RBC Capital Markets described the results as “slightly positive.”

“Management sees positive momentum for pulp into the fourth quarter but is ‘somewhat more uncertain’ on 2014 given upcoming capacity additions (in South America),” he wrote in a report.