BUSINESS

Cascades says first quarter puts it on the path towards stronger results ahead

05/10/2012 03:29 EDT | Updated 07/10/2012 05:12 EDT
MONTREAL - Cascades says lower recycled paper costs and restructuring efforts that closed several plants should generate strong results this year and pay even bigger dividends by 2014.

The Quebec-based paper, tissue and cardboard producer expects its earnings before interest and taxes will grow by more than 43 per cent over the next few years.

It hopes to add at least $100 million in earnings to the $229 million earned in 2010.

"By the end of 2013, beginning of 2014 it's mainly then that we'll see the majority of the benefits, chief operating officer Mario Plourde said after its annual meeting Thursday."

Cascades (TSX:CAS) is investing $150 million to $200 million annually in new equipment and facilities as part of a corporate restructuring that has shed hundreds of jobs.

The company is expanding its U.S. operations by partnering to build a new US$430 million mill in Niagara Falls, N.Y., that will make lightweight linerboard, a packaging material in demand from retailers.

The Norampac division and its partners, including pension fund manager Caisse de depot et placement du Quebec, will build the Greenpac mill next door to an existing Norampac operation in the U.S. border city.

Meanwhile, consolidations will force the closure of Ontario plants in North York, Peterborough and Mississauga along with Cascades Enviropac in Toronto. A containerboard mill in Trenton, Ont., will shut by June 1 because of financial losses and the rejection of a contract offer by nearly 130 workers.

Plourde said most of its planned cuts have been completed, but he wouldn't rule out more plant closures if facilities remain unprofitable.

"Obviously, we're working towards improving these results but at the end if we don't see any improvement then we have to make some tough decisions," he told reporters.

So far this year, it has been helped by lower recycled fibre costs that are expected to remain stable for the balance of the year.

"We believe 2012 will a lot better year than 2011."

Plourde said prices are favourable because supply of recycled paper is good and export demand from Asia is down. The situation is very different from 2008 and 2009 when the Chinese initially bought lots of material and then suddenly stopped.

Cascades reversed a loss last year by earning $6 million in the first quarter as the packaging and tissue maker saw revenue soar by more than $100 million.

It earned six cents per share for the period ended March 31. That compared with a year-earlier loss of $8 million or eight cents per share.

Excluding gains on assets disposals, foreign exchange and a loss on discontinued operations, it earned four cents per share.

Sales revenue was $891 million, up from $774 million.

President and CEO Alain Lemaire described the results as a "significant improvement" but still "below our expectations due to a low level of productivity of our containerboard manufacturing operations."

Meanwhile, Lemaire said the company's tissue papers group continued to perform well and its specialty products group had shown improvement.

Pierre Lacroix of Desjardins Capital Markets said the seasonally weak quarter showed that earnings momentum is coming back.

"After a few disappointing quarters, we are seeing the first tangible indication that Cascades’ real earnings power is pushing ahead of expectations for 2012," he wrote in a report.

On the Toronto Stock Exchange, Cascades shares gained 13 cents, or three per cent at $4.36 in Thursday afternoon trading.