The action of Cascades lost more than 20% on Thursday, while the manufacturer of packaging, sanitary paper and cardboard is hit hard by the inflation of its production and transport costs.
By the own admission of the president and CEO, Mario Plourde, the first quarter results of the Quebec company are “disappointing”. “The inflationary pressure that we have experienced on our raw materials and our costs and the speed at which it has manifested, took us by surprise,” the leader said during a conference call.
The Kingsey Falls company recorded a net loss of 15 million, or 15 cents per share, compared to a net profit of 22 million, or 22 cents, for the same period last year. However, sales increased by 10.2% to 1.04 billion.
Analysts had expected earnings per share of 5 cents, according to data compiled by the firm Refinitiv. Frédéric Tremblay, of Desjardins Capital Markets, believes that the gap with forecasts is “wide”. “Cascades continues to be hit by high costs for materials, production and logistics,” he notes.
Price increase
The situation should recover as the company intends to pass on to its customers the increase in production costs in the form of price increases, said Mr. Plourde. “The price announcements we made recently will close the gap from the second quarter. »
Cascades has also undertaken to reduce certain production costs. “We are looking at different options, explains the leader. The optimization of the network by looking at where we are going to produce and where we are going to deliver, the number of different items that we sell, and the number of customers to whom we deliver, all these points are on the agenda of the day right now. »
The effect of these headwinds on the company’s debt has also raised questions. Net debt increased by 200 million in three months. Net debt to adjusted earnings before interest, tax, depreciation and amortization indicator reached a ratio of 4.8 times at the end of March, compared to 3.5 times at the end of December, three months ago.
Chief Financial Officer Allan Hogg wanted to be reassuring about the company’s financial situation. The start of production at the Bear Island plant in Virginia (expected in December 2022) and efforts to reduce costs should lower this ratio. The company would therefore still have the means to make the investments it would like to make in new factories before 2024, according to him. “We don’t believe that’s a problem right now. »
Zachary Evershed, from Financière Banque Nationale, is not worried about the financial situation of Cascades for the moment. He notes that a large portion of his claims are made up of senior notes that mature in 2025, 2026 and 2028.
The easing of sanitary measures means that fewer customers are ordering online than at the height of the pandemic. Volumes in the containerboard business declined for this reason, but also due to supply chain challenges.
If 2021 was an exceptional year for e-commerce, Mr. Plourde believes that there is still a “great need” for cardboard boxes. Despite the rise in inflation which is putting pressure on household finances, the leader does not believe that demand will suffer. “At this time, unless the macro-economic situation changes drastically, we remain confident that demand will be good in 2022.”
Cascades shares lost $2.73, or 23%, to $9.16 on the Toronto Stock Exchange.