MONTREAL - Tissue and cardboard producer Cascades Inc. (TSX:CAS) expects demand for its retail and food packaging products will continue to grow, helping offset the impact of a slowing economy on its institutional customers.
"The drop of volume in our packaging operations was offset by record quarterly results in our tissue paper group due in part to strong demand for recycled product," CEO Alain Lemaire said Friday during a conference call about its latest quarterly results.
The Quebec-based company reported a fourth-quarter loss of $19 million, reversing a year-ago profit of $12 million. The loss amounted to 20 cents per share and compared to earnings of 12 cents per share in the year-ago period. Sales during the quarter increased to $1.02 billion from $937 million.
Cascades said its earnings excluding one-time items reached $17 million, versus a year-earlier $1 million. Higher selling prices, lower raw materials costs more than offset the impact of down time.
"Following the first half of the year in which we faced very challenging business conditions, we are pleased with these better results," Lemaire told analysts.
For the full year, Cascades' net loss was $55 million, 56 cents per share, compared to net earnings of $95 million or 95 cents per share in 2007. Annual sales increased to $4.02 billion from $3.93 billion.
Cascades said it is well positioned to withstand the financial market turmoil after adjusting its bank covenants to give it more flexibility.
Slower demand for boxboard and cardboard has prompted the company to cut production, close plants and lay off hundreds of employees in North America and Europe.
The resulting cut in costs have produced the division's best results since the third quarter of 2003, said division CEO Marc-Andre Depin.
The division's future performance will be largely impacted by economic conditions. But weakness in the manufacturing sector should be offset by continuing demand among food and beverage customers, which account for 40 to 50 per cent of division sales, Depin said.
He noted that Cascades hasn't been affected much by the recent bankruptcy filing of rival Smurfit-Stone.
Tissue sales increased 11 per cent in the quarter to $228 million, boosted by stronger U.S. demand and gains in its environmental brand of products. Operating earnings were $41 million, up $19 million, in part due to the Canadian dollar.
Division CEO Suzanne Blanchet said it can adjust to slower demand from institutional customers by producing more retail products.
"We have a diversified product and geographical mix and we believe this balanced approach is currently providing us strong hedge in this uncertain environment," she said.
Analyst Pierre Lacroix of Desjardins Securities said Cascades is getting little credit on the stock market for its improved results because of the flood of value stories out there.
"Cascades is competing with a lot of companies that are also stuck with relatively good results but not a lot of investors interested for risk," he said in an interview.
The company benefits during recessions from reduced costs for energy, recycled fibre, pulp and the dollar. The U.S. downturn, however, has meant many of its operations aren't operating.
"There was a lot of market-related downtime which took a big chunk of profitability out of these results," added Lacroix, who believes Cascades is set up to post similarly strong results for the year.
Cascades, with about 13,000 employees in North America and Europe, makes packaging and tissue products composed mainly of recycled fibres.
On the Toronto Stock Exchange, Cascades shares closed down 14 cents, or more than five per cent to $2.60. Over the past year, its shares have ranged between $2.50 and $8.57.
