AbitibiBowater Q1 net income swings to US$30M profit from a loss of US$500M a year earlier on net sales up 9.1% to US$1.2B, despite some ongoing post-emergence costs and higher energy, fiber costs
May 17, 2011
* Reports net income of $30 million, or $0.31 per diluted share
* Cash from operations improved to $58 million
* Expects continued improvement in demand and costs in the second quarter
AbitibiBowater Inc. (NYSE: ABH) (TSX: ABH) yesterday reported net income for the first quarter of 2011 of $30 million, or $0.31 per diluted share, on sales of $1.2 billion. These results compare with a net loss of $500 million, or $8.68 per diluted share, on sales of $1.1 billion for the first quarter of 2010.
The net income for the first quarter, net of certain special items, was $24 million, or $0.25 per diluted share, compared with a first quarter 2010 net loss before special items of $301 million, or $5.22 per diluted share. First quarter special items, net of tax, consisted of the following: a $29 million gain related to foreign currency changes, a $6 million charge related to closure costs, a $1 million gain related to asset sales, an $8 million charge for post-emergence expenses, a $4 million impact of fair valuing inventory in fresh start accounting and a $6 million severance charge. A reconciliation of these items is contained in Note 7 to this release.
"Our first quarter since emergence resulted in net income and positive cash flow from operations, despite some ongoing post-emergence costs," said Richard Garneau, President and Chief Executive Officer. "Our operating results for the quarter were negatively impacted by the strong Canadian dollar, higher energy and recycled fiber costs, and market-related production curtailments in a seasonally weak quarter. Looking to the balance of the year, we expect improvement as a result of the implementation of previously announced price increases for our products, efficiency gains in our manufacturing costs and seasonally stronger demand."
The implementation of the plans of reorganization and the application of fresh start accounting materially changed the carrying amounts and classifications reported in the Company's consolidated financial statements. The Company also began allocating all of its selling, general and administrative ("SG&A") expenses back to each product line, with the exception of special items, during the first quarter of 2011. Accordingly, the Company's operating results, including depreciation, for periods before December 31, 2010, are not comparable to the operating results after December 31, 2010.
For the first quarter of 2011, the newsprint segment had operating income of $19 million, an increase of $31 million from the fourth quarter of 2010 operating loss of $12 million. The Company's average transaction price increased $10 per metric ton compared to the fourth quarter of 2010. Average operating costs decreased by $35 per metric ton, including a reduction in depreciation of $40 per metric ton. Excluding SG&A and depreciation, operating costs decreased by $3 per metric ton. Total newsprint shipments were 97,000 metric tons lower in the first quarter compared to the fourth quarter as a result of seasonal weakness. Downtime and roof damage at the Clermont, Quebec facility reduced production by 19,000 metric tons during the quarter.
Operating income for coated papers for the first quarter was $3 million compared to operating income of $17 million in the fourth quarter of 2010. The Company's average transaction price for coated papers increased $13 per short ton in the quarter compared to the fourth quarter. Average operating costs increased $90 per short ton from the fourth quarter as a result of an $11 per short ton increase in depreciation, an annual maintenance outage on the paper machines and the annual kraft pulp outage at the Catawba, South Carolina facility. As previously reported by third parties, the Company has announced a $40 per short ton price increase on coated papers effective April 1.
For the first quarter, the specialty papers segment was breakeven compared to an operating loss of $5 million in the fourth quarter of 2010. The Company's average transaction price and average operating costs were essentially unchanged compared to the fourth quarter; however, depreciation declined by $41 per short ton. The Company's cash costs were impacted by the 30,000 short tons of market downtime taken during the quarter and the stronger Canadian dollar. As previously reported by third parties, the Company has announced price increases of $40 per short ton for super bright and high bright papers and $70 per short ton for directory papers effective June 1. During the quarter, the Company closed its unprofitable Coosa Pines, Alabama paperboard machine.
Operating income for market pulp was $23 million in the first quarter of 2011 compared to operating income of $45 million in the fourth quarter. The average market pulp transaction price was essentially unchanged from the first quarter. Average operating costs increased $74 per metric ton compared to the fourth quarter, including a reduction in depreciation of $16 per metric ton. The higher average cost is a result of kraft mill maintenance outages at the Catawba and Fort Francis facilities and the stronger Canadian dollar. Shipments also declined primarily as a result of the maintenance outage. As previously reported by third parties, the Company has announced a $30 per metric ton price increase April 1 for all paper grade market pulp.
For the first quarter of 2011, wood products had an operating loss of $3 million compared to operating income of $5 million in the fourth quarter of 2010. The average lumber transaction price for the Company increased $11 per thousand board feet while costs increased $33 per thousand board feet as a result of a stronger Canadian dollar and higher fiber costs.
Augusta, Georgia Newsprint Mill
The Company previously controlled 52.5% of the Augusta Newsprint Company, which operates a 407,000 metric ton newsprint mill in Augusta, Georgia. During the first quarter, the Company purchased the remaining ownership interest in the mill for $15 million in cash and a secured promissory note of $90 million.
ACH Limited Partnership
During the first quarter, the Company announced that it had entered into an agreement to sell its 75% equity interest in ACH Limited Partnership ("ACH"). The Company expects to receive cash proceeds of approximately C$293 million. Closing of the transaction is expected to occur in the second quarter of 2011. The Company expects to use a substantial portion of the proceeds to reduce its debt.
Earnings Conference Call
As previously announced, a conference call hosted by management to discuss these financial results will be held today at 9:00 a.m. Eastern. The conference call number is 1-866-696-5910 with the pass code 7360232. A webcast of the call will be available on the Company's website at www.abitibibowater.com. Interested parties may follow the on-screen instructions for access to the webcast and related information. A replay of the call will be available after 1:30 p.m. Eastern today on the Company's website. In addition, a replay by phone will be available until May 31, 2011 by dialing 1-800-408-3053 with the pass code 4365402.
AbitibiBowater is a global leader in the forest products industry, producing a diverse range of products, including newsprint, commercial printing papers, market pulp and wood products. The Company owns or operates 18 pulp and paper mills and 24 wood products facilities located in the United States, Canada and South Korea. Marketing its products in more than 70 countries, AbitibiBowater is also among the largest recyclers of old newspapers and magazines in North America, and has third-party certified 100% of its managed woodlands to sustainable forest management standards. AbitibiBowater's shares trade under the symbol "ABH" on both the New York Stock Exchange and the Toronto Stock Exchange.