Cascades is hit hard by inflation

(Montreal) Action Cascades fell more than 20% on Thursday as the maker of packaging, tissue paper and board has been hit hard by inflation in its production and transportation costs.

Updated yesterday at 3:56pm.

Stephane Rolland
The Canadian Press

According to President and CEO Mario Plourde, the Quebec company’s first quarter results are “disappointing”. “We were surprised by the inflationary pressures we have experienced on our commodities and our costs and the speed at which they have manifested,” the chairman said during a conference call to discuss the first-quarter results.

The Kingsey Falls company posted a net loss of 15 million, or 15 cents a share, compared to a net income of 22 million, or 22 cents, in the same period last year. However, sales rose 10.2% to 1.038 billion.

Before the results were published, analysts had expected earnings per share of 5 cents, according to the company Refinitiv.

Desjardins Capital Markets’ Frédéric Tremblay believes the gap to forecasts is “large”. “Cascades continues to suffer from high material, production and logistics costs,” he notes.

The situation should improve as the company intends to pass on increased production costs to its customers in the form of price increases, Mr Plourde said. “With our latest price announcements we are closing the gap to the second quarter. »

Cascades has also committed to reducing certain production costs. “We are examining various options,” explains the director. Optimizing the network by looking at where we produce and where we will ship to, the number of different items we sell and the number of customers we ship to, all these items are on the agenda of the day now. »

The impact of these headwinds on the company’s debt has also raised questions. Net debt increased by 200 million in three months. The net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) indicator reached a ratio of 4.8 at the end of March, compared to 3.5 at the end of December three months ago.

Chief Financial Officer Allan Hogg wanted to calm down on 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 reduce this ratio. The company would therefore still have the funds to make the investments it plans to make in new factories before 2024, he said. “We don’t think that’s a problem at the moment. »

Financière Banque Nationale’s Zachary Evershed is not worried about Cascades’ financial situation at the moment. He notes that a large portion of his debt consists of senior notes maturing in 2025, 2026 and 2028.

The relaxation of hygiene measures means that fewer customers are ordering online than at the peak of the pandemic. The volumes in the corrugated base paper business declined for this reason, but also due to challenges in the supply chain.

Even if 2021 was an exceptional year for e-commerce, Mr Plourde believes there is still a “big need” for boxes. Despite rising inflation putting pressure on household finances, the leader doesn’t think demand will suffer. “At this point, we remain confident that unless the macroeconomic situation changes drastically, demand will be good in 2022.”

Cascades shares lost $2.73, or 22.96%, to $9.16 at the Toronto close.

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