Mr. Yves Laflamme reports

RESOLUTE REPORTS PRELIMINARY FIRST QUARTER 2019 RESULTS

Resolute Forest Products Inc. has net income for the quarter ended March 31, 2019, of $42-million, or 45 cents per diluted share, compared with $10-million, or 11 cents per diluted share, in the same period in 2018. Sales were $795-million in the quarter, a decrease of $79-million from the year-ago period. The first quarter of 2018 included sales from the Catawba, S.C., and Fairmont, W.Va., facilities, sold in the fourth quarter of 2018. Excluding special items, the company reported net income of $30-million, or 32 cents per diluted share, compared with $17-million, or 18 cents per diluted share, in the first quarter of 2018. All currency figures are in U.S. dollars.

"Our diversified asset base continued to produce strong EBITDA in the quarter despite building market pressure in some of our businesses," said Yves Laflamme, president and chief executive officer. "Our quarterly results benefited from improved productivity, which allowed us to absorb the significant rise in wood fibre costs and offset the reduction in EBITDA associated with the divestiture of the Catawba mill. Accordingly, we continued to generate consistent value from our paper portfolio, and the results of our wood products business improved as prices rebounded modestly from multiyear lows. We're also pleased with the recent ratification of a four-year collective agreement covering our nearly 800 unionized employees at three of our U.S. pulp, paper and tissue mills."

Operating income variance against prior period

Consolidated

The company reported operating income of $64-million in the quarter, compared with $75-million in the fourth quarter of 2018. The operating results reflect higher average transaction prices for wood products, lower depreciation expense, the favourable effect of the weaker Canadian dollar and fewer production outages. These elements were partly offset by lower volumes, mainly attributable to the Catawba mill divestiture at the end of the fourth quarter and softening newsprint market conditions, as well as an increase in wood fibre costs and seasonally higher energy expenses. The operating results in the fourth quarter of 2018 included a $141-million gain on disposition of assets and a non-cash impairment charge of $120-million. Adjusted EBITDA in the quarter was $104-million, essentially unchanged from $105-million reported in the fourth quarter, which included $15-million from the Catawba facility.

Market pulp

Operating income in the market pulp segment was $42-million, relatively unchanged compared with the previous quarter. The average transaction price remained at $808 per metric tonne, while shipments declined by 56,000 metric tonnes due to a reduction in pulp capacity following the divestiture of the Catawba and Fairmont facilities. On a pro forma basis, sales volume rose by 26,000 metric tonnes because of less scheduled downtime and production disruptions this quarter. The operating cost per unit decreased by $24 to $664 per metric tonne as higher fibre costs were more than offset by improved productivity, increasing EBITDA per metric tonne to $162. Accordingly, despite the sale of the Catawba mill, EBITDA was relatively unchanged at $47-million.

Tissue

The tissue segment incurred an operating loss of $8-million in the quarter, an improvement of $1-million compared with the fourth quarter of 2018. Overall sales increased by 11 per cent, reflecting improved product mix, price increases for away-from-home products and higher shipments. Delivered cost remained unchanged, as lower freight expenses associated with the company's new distribution centre were offset by higher pulp costs following the divestiture of the Fairmont mill. EBITDA improved to negative $3-million, from negative $5-million in the first quarter.

Wood products

The wood products segment reported an operating income of $6-million in the quarter, compared with an operating loss of $8-million in the fourth quarter. The improvement reflects an increase in average transaction price, up $27 per 1,000 board feet, to $374. Lower market-based stumpage fees and maintenance costs more than offset seasonally higher fibre usage and freight costs, leading to a $6-per-1,000-board-foot decrease in delivered cost. Pricing gains and lower costs largely outweighed the 24-million-board-foot decrease in shipments. Volumes this quarter were unfavourably impacted by adverse weather conditions, which affected railcar availability, log supply and U.S. consumption. EBITDA for the segment increased to $14-million, compared with $1-million in the prior quarter. Finished goods inventory remained elevated at 159 million board feet.

Newsprint

At $28-million in the first quarter, newsprint's operating income was unchanged compared with the previous quarter. Sales declined by 14 per cent, driven by a 53,000-metric-tonne decrease in shipments, while the average transaction price remained at $634 per metric tonne. The reduction in sales volume reflects seasonality, the timing of export sales and softening market conditions. As a result, finished goods inventory rose to 135,000 metric tonnes at quarter-end. The delivered cost decreased by $12 per metric tonne, largely attributable to lower depreciation expense, as certain assets are fully amortized. Higher contribution from the Thunder Bay, Ont., cogeneration assets, following a turbine failure in the previous quarter, and overall lower maintenance costs were largely offset by higher fibre and energy costs. Consequently, EBITDA decreased by $10-million to $35-million for the quarter, equivalent to $106 per metric tonne, or 17-per-cent EBITDA margin.

Specialty papers

The specialty papers segment generated operating income of $15-million in the quarter, compared with $17-million in the previous quarter. Pricing rose by $12 per short ton to $768, while shipments fell by 88,000 short tons with the sale of the Catawba mill at the end of 2018. Despite the exit from higher-cost coated mechanical grades, delivered cost remained unchanged at $695 per short ton, reflecting continued higher wood costs in the U.S. southeast due to abnormally wet weather, unfavourable energy expenses and scheduled maintenance costs. While segment EBITDA decreased by $3-million to $25-million this quarter, EBITDA per short ton rose by $30 to $125, due to the sale of the Catawba mill, equivalent to a 16-per-cent margin.

Consolidated quarterly operating income variance against year-ago period

The company's operating income was $16-million higher than the first quarter of 2018. Overall pricing added $37-million to the results, as the average transaction price increased by 14 per cent for each of market pulp, newsprint and specialty papers, offsetting the 19-per-cent drop in lumber prices. The improvement in operating income also reflects the $20-million favourable impact of the weaker Canadian dollar and lower depreciation expense of $13-million due to divestitures and the full amortization of certain assets.

These favourable items were largely offset by an increase in manufacturing costs of $51-million, mainly resulting from higher fibre costs and additional maintenance, mostly planned. Results were also impacted by lower sales volume of $8-million, reflecting weaker lumber and newsprint market conditions.

Corporate and finance

During the quarter, the company generated $23-million of cash from operations, despite the seasonal buildup in log inventory and the increase in newsprint finished goods inventory. Cash decreased to $69-million, reflecting $26-million in capital expenditures and the repurchase of $225-million of the senior notes due 2023. Net debt to trailing 12-month adjusted EBITDA remained low, at 0.6 times, and liquidity at quarter-end stood at $595-million.

By quarter-end, the company had recorded cumulative softwood lumber duty deposits of $117-million on the balance sheet, including $14-million paid in the quarter. Uncoated groundwood papers duty deposits of $6-million were fully refunded during the quarter.

Following the adoption of new lease accounting standards, the company recognized total liabilities of $66-million associated with operating leases, and corresponding assets on the balance sheet as of March 31, 2019.

Outlook

"We maintain our view on market pulp fundamentals even as prices have recently started to trend down. While we expect lower price realizations in the second quarter, limited capacity additions and growing demand will continue to support favourable market dynamics over the medium term. Our tissue segment remains a key focus as we continue to build on the late-year progress in terms of productivity and quality. We expect our wood products cost performance to improve for the balance of the year. But we're more conservative with our expectations around lumber markets even as some market participants are more enthusiastic following abnormally wet and wintry conditions and in light of production curtailments among Canadian producers, including downtime of our own. While our near-term outlook is more uncertain, our medium- to long-term outlook remains positive. With ongoing global demand declines and currently low operating rates, we expect lower pricing for our paper grades in the second quarter. But despite the softening market conditions, our paper business generated strong first quarter EBITDA margins, and we are confident we can continue to produce attractive cash flows as we take steps to reduce inventory and maintain our competitive cost position," added Mr. Laflamme.

Earnings conference call

The company will hold a conference call to discuss the financial results at 9 a.m. Eastern Time today. The public is invited to join the call at 877-223-4471 at least 15 minutes before its scheduled start time. A simultaneous webcast will also be available using the link provided under presentations and webcasts in the investors section of the company's website. A replay of the webcast will be archived on the company's website; a phone replay will also be available until May 14, 2019, by dialling 800-585-8367, conference No. 4294727.

About Resolute Forest Products Inc.

Resolute Forest Products is a global leader in the forest products industry with a diverse range of products, including market pulp, tissue, wood products, newsprint and specialty papers, which are marketed in close to 70 countries. The company owns or operates about 40 facilities, as well as power generation assets, in the United States and Canada. Resolute has third party certified 100 per cent of its managed woodlands to internationally recognized sustainable forest management standards.

                       CONSOLIDATED STATEMENTS OF OPERATIONS
                (in millions of dollars, except per-share amounts)  

                                                       Three months ended March 31,
                                                                   2019        2018

Sales                                                              $795        $874
Costs and expenses
Cost of sales, excluding depreciation,
amortization and distribution costs                                 554         614
Depreciation and amortization                                        40          53
Distribution costs                                                  100         116
Selling, general and administrative expenses                         37          43
Operating income                                                     64          48
Interest (expense)                                                   (9)        (13)
Non-operating pension and other
postretirement benefit credits                                       12          13
Other (expense), net                                                 (4)         (7)
Income before income taxes                                           63          41
Income tax provision (loss)                                         (21)        (31)
Net income including non-controlling interests                       42          10
Net income attributable to non-controlling interests                  -           -
Net income attributable to Resolute Forest Products                  42          10
Net income per share attributable
to Resolute Forest Products  
common shareholders
Basic                                                              0.45        0.11
Diluted                                                            0.45        0.11

We seek Safe Harbor.