Cascades Issues Second Earnings Warning in Six Weeks Due to Omicron’s ‘Rapid Rise’

A Cascades plant is seen in Laval, Quebec. Cascades, the fourth-largest tissue paper producer in North America, said its delivery challenges were felt primarily in Canada.Paul Chiasson/The Canadian Press

Cascades Inc. warns that its latest quarterly profit will fall below expectations due to increased disruptions related to COVID-19 – the packaging and tissue paper maker’s second warning in six weeks.

Adjusted operating income before depreciation and amortization will be $62 million for the fourth quarter, the company said in a statement before markets open Monday. That’s about 30% less than the $87 million profit it had forecast in a separate downward revision on Dec. 22.

The Kingsey Falls, Quebec-based company blamed a “rapid escalation” of the Omicron variant in the last two weeks of December, which it said exacerbated existing worker availability issues as well as labor issues. transportation and supply chain. The difficulties triggered an immediate increase in costs, unplanned production breaks and “unprecedented challenges with product deliveries,” the company said.

“The ramifications of the ongoing pandemic-related disruptions and ongoing challenges in product delivery have resulted in significant, often unpredictable, direct and indirect impacts and costs to our businesses,” said the CEO of Cascades, Mario Plourde, in a press release. “With current trends suggesting that the Omicron variant is moderating, we expect the pressures to begin to ease in the first quarter.”

Dozens of companies across different industries are experiencing labor and supply chain issues related to a lack of workers as the latest wave of the pandemic forces them into further isolation. Some restaurants in Quebec have said in recent days that they will not be able to maintain regular hours when they reopen this week due to a lack of staff.

Cascades, the fourth-largest tissue paper producer in North America, said its delivery difficulties were felt primarily in Canada, where the impact of flooding in British Columbia continued to disrupt rail and trucking during the trimester.

Frédéric Tremblay, an equity analyst at Desjardins, downgraded his rating on Cascades shares from “hold” to “buy” on Monday, saying in a note that he thinks supply chain and inflation will continue to put pressure on the company’s results in the short term. term. In a separate note just days ago, Mr. Tremblay spoke of “encouraging signs” that the momentum could give the company as the year progresses.

Cascades shares fell 6% from their previous close on the Toronto Stock Exchange on Monday, ending the day down 5.4% at $12.72. The stock has traded between $12.60 and $18.48 over the past year.

Hugo D’Amours, spokesperson for Cascades, declined to provide further details on the difficulties beyond the published statement. The company is expected to present a new three-year strategic plan on February 24 alongside the fourth quarter results and will provide additional information at that time, he said.

Demand for tissue paper products made by Cascades and other producers has seen wild swings during the COVID-19 crisis, the maker said in an investor presentation last month. And as cost inflation hits its containerboard business, the company and other key competitors in the space – International Paper Co., WestRock Co. and Packaging Corporation of America – recently announced price increases that could help protect profit margins.

Cascades employs approximately 10,000 people in a network of 80 facilities in North America. The company reported earnings of $198 million or $2.04 per share for fiscal 2020 on sales of $5.1 billion.

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