By BRENT JANG
Friday, February 2, 2018
VANCOUVER -- After weathering U.S. duties on softwood lumber and newsprint, Resolute Forest Products Inc.'s Achilles heel turned out to be its fourth-quarter earnings miss and lingering investor concerns about a shortage of truck drivers.
Resolute's share price tumbled 29 per cent to close at $10.01 on Thursday on the Toronto Stock Exchange as investors punished the forestry company for disappointing financial results, which included rising freight costs related to the scarcity of truck drivers. The shares had fallen as low as $9.46 in the morning.
The Montreal-based firm's adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rang in at $89-million in the fourth quarter, far short of analysts' expectations of $135-million.
Resolute had been on a roll, with its stock hitting a record intraday high on Jan. 22 of $15.23 - nearly triple its 52-week low of $5.29 in July, 2017. The stock price rallied even though the United States began imposing duties in April on Canadian softwood shipments south of the border, followed by the decision on Jan. 9 to slap tariffs on newsprint from Canada.
"I believe that the value of the shares are going to go back to where they were very quickly," said Richard Garneau, who served as Resolute's chief executive officer from 2011 until his retirement on Thursday. "It's just a blip. We see blips very often. It's going to come back because the intrinsic value is there."
In the fourth quarter, Resolute posted a $13-million profit, compared with a $45-million loss for the same period in 2016. Quarterly revenue climbed slightly to $898-million from $889-million.
Prices for lumber in particular have been strong as producers pass along most of the cost of tariffs to American buyers .
Mr. Garneau, 70, added that he is optimistic Canada will eventually emerge as the victor in trade disputes over lumber and newsprint, describing the punitive U.S. duties as "capricious and arbitrary."
He said steps have been taken to alleviate problems arising from the shortage of truckers, including deploying larger equipment to move wood chips in an effort to avoid production slowdowns at pulp and paper operations, notably in Quebec.
"We've put in place basically a strategy where we are now using larger trailers to haul the chips to the paper mill," he said during Resolute's quarterly conference call. "And we also have the special hiring program to try to attract more people ... All the transportation is done by contractors, so we are working with them to give them our support to address the issues that we have to address." Yves Laflamme, who had been a senior vice-president at Resolute, has taken over as the forestry company's CEO. Mr. Laflamme, 61, had responsibility for wood products, global procurement and information technology.
"I'm certainly honoured to take on this leadership role at Resolute. I have been with the company and its predecessors for 37 years," Mr. Laflamme said, referring to past entities such as AbitibiBowater Inc.
"Congratulations, Richard, on an amazing career. And I'll miss your honesty and more importantly, your passion. I thought you'd never retire," RBC Dominion Securities Inc. analyst Paul Quinn said to laughter during the conference call.
"Sometimes in your life, you have to review your priorities," Mr. Garneau replied.
In a research note, Mr. Quinn said Resolute suffered from weaker-than-expected performance in specialty papers and wood products, but management has a positive outlook: "Resolute points to favourable market conditions for pulp and lumber, while paper should see improvement on the company's restructuring efforts."
CLOSE: $10.01, DOWN $4.07
Richard Garneau, who retired as Resolute Forest Products' CEO on Thursday, says the company will bounce back from current difficulties 'because the intrinsic value is there.'
RYAN REMIORZ/THE CANADIAN PRESS