(Montreal) The strength of the price of wood will translate for Resolute Forest Products into a significant increase in compensatory taxes imposed by the American government, assures Rémi Lalonde, its president and chief executive officer.
This tax will increase from 20% to 30% for “most of the year 2022”, according to the latest revision of the Department of Commerce in the United States. This is a peak in the past five years.
It will take patience before the trade dispute between Canada and the United States over softwood lumber is settled, warns Lalonde in an interview. However, he is “hopeful” that he will settle in favor of Canadian producers “as has been the case in the past”.
In August 2020, the World Trade Organization (WTO) concluded that Quebec’s forestry regime respected international trade rules and that US tariffs to counter Canadian subsidies violated international trade rules.
The dispute is not over, however. “The speed of legal proceedings with the Americans is very slow. We’ve been trying to move the file forward for a long time, but it’s not moving very quickly. ”
Fortunately, strong demand allows the company to avoid potential negative consequences such as reduced production capacity. “In an environment where demand is strong enough, we can recover the tariffs with the prices”, answers the manager.
If the surge in the price of lumber to over US $ 1,000 per thousand board feet (bpm) last spring was not sustainable, prices should remain above the historical average, we anticipate at Resolute.
At US $ 573, the average third-quarter selling price fell 50% from the second quarter. The segment generated operating income of US $ 64 million in the third quarter, down US $ 341 million from the prior quarter.
Over the past 10 years, the price of lumber has averaged US $ 350 to US $ 400, says Lalonde, who believes the price has stabilized. “The factors on the market are still quite favorable. ”
Housing starts remain “fairly encouraging” in the United States, he continues. Millennials, the largest generational group in our neighbors to the south, are in a period of their lives when they are more active in the real estate market.
Results exceeding expectations
In the third quarter, Resolute reported results that exceeded analysts’ expectations on the strength of the wood products and market pulp segments.
The company’s adjusted earnings per share reached US $ 0.84, compared to US $ 0.72 per share for the same period last year. Prior to the release of the results, analysts’ consensus was pointing to earnings per share of US $ 0.71, according to Refinitiv.
Net income, for its part, was US $ 80 million, or US $ 0.99 per share, compared to net income of US $ 57 million, or US $ 0.66 per share for the corresponding period. Sales reached US $ 817 million, up US $ 87 million from last year.
The trend for commodities differs from industry to industry, says Sean Steuart of TD Securities. “The wood market has stabilized after a strong recovery, the market pulp market is under pressure, and the price of paper continues to rise. The tissue paper results are disappointing and management reiterated their focus on looking for improvements. ”
The tissue paper sector still posted an operating loss in the third quarter. The loss is US $ 9 million, a deterioration of US $ 2 million from the previous three-month period. “The year was still quite difficult,” admits Mr. Lalonde.
Demand for “out-of-home” toilet paper, in hotels and restaurants, is under pressure due to the pandemic. Another factor adding to this unfavorable context is the labor shortage.
“The vaccination rate in Florida and the Southeastern United States is lower than what we see in Canada and this has had an impact on the availability of manpower to operate the assets. ”
By early afternoon, the stock was down $ 0.56, or 3.74%, to $ 14.42 on the Toronto Stock Exchange.
Company in this story: (TSX: RFP)