Flambeau River Paper announced the shutdown of its #3 paper machine to be effective immediately. #3 paper machine primarily produces commodity white papers and has been impacted by the ongoing and unprecedented rise in pulp costs coupled with an in-elasticity of commodity paper price. Flambeau River Papers’ #1 and #2 paper machines along with the Flambeau pulp mill, woodyard and utilities will continue to operate uninterrupted on a 24 hour, 7 day a week schedule. It is important to point out that PM 1 and PM 2 produce primarily specialty and value-added papers. The size and capabilities of these two paper machines, along with integrated nature of the mill, make them competitive and well suited for continued success in these markets. Over the last five years the mill has worked hard and qualified propriety specialty papers on these machines. Also manufactured on PM 1 and PM 2 are Flambeau’s other value-added papers such as Torchglow and Glacier Opaque branded papers, custom FDA compliant papers, fluorescent colored papers, wet-strength papers, saturating base stocks, deeply colored papers, watercolor papers, book papers, endleaf papers, lightweight offset papers, converting and drawing stocks. Paper grades historically produced on PM 3 such as Offset Papers and Laser Bond papers will not be part of the productive capacity of FRP as we proceed forward. We will work in concert with you and communicate the status of pending orders and shipments.
Consolidated sales for the three-month period ended June 27, 2015, were $365 million, as compared to $404 million in the same quarter a year ago. The Company generated a net loss of $16 million or $0.16 per share in the June 2015 quarter compared to net earnings of $30 million or $0.30 per share in the June 2014 quarter. The current quarter results include approximately $12 million of incremental costs related to planned major maintenance conducted at two large operating sites. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $2 million for the three-month period ended June 27, 2015, as compared to adjusted EBITDA of $30 million a year ago and adjusted EBITDA of $12 million in the prior quarter.
Business Segment Results
The Specialty Cellulose Pulp segment generated negative adjusted EBITDA of $6 million on sales of $108 million for the quarter ended June 2015, compared to adjusted EBITDA of $3 million on sales of $105 million in the prior quarter. The sales increase of $3 million was due to higher shipments of specialty and viscose grades, as well as lignin products, partially offset by lower prices for specialty pulp grades. Weaker demand for certain specialty grades that began in late 2014 continued into the first half of calendar 2015. The $63 per tonne decline in reported Canadian dollar selling prices for specialty grades was partially due to currency as the euro weakened by 2.6%, negatively affecting pricing for the Tartas pulp mill’s sales. A lower sales mix at the Temiscaming facility also contributed to lower average selling prices for specialty grades. US dollar prices for viscose grades were relatively unchanged. The viscose market remains oversupplied and prices are relatively low. Overall, lower pulp prices reduced adjusted EBITDA by $3 million. Shipments were equal to 78% of capacity, compared to 75% in the March 2015 quarter. The June 2015 quarter results were significantly impacted by major planned maintenance at both pulp mills. The Tartas facility, which takes major maintenance every 18 months, was down for approximately two weeks in April 2015. The Temiscaming facility, which conducts major maintenance every 12 months, was idled for approximately one week in May 2015. Overall, maintenance costs increased by $7 million quarter-over-quarter. The significant downtime led to a production decrease of 10,600 tonnes, generating a negative variance of $5 million for unabsorbed fixed costs. The negative impact of the higher maintenance was partially offset by a $3 million reduction in energy costs at the Temiscaming plant due largely to the continued improved efficiency of the new boiler and turbine.
The Forest Products segment generated negative adjusted EBITDA of $3 million on sales of $103 million for the quarter ended June 2015, compared to adjusted EBITDA of $4 million on sales of $113 million in the prior quarter. Sales decreased by $10 million due to lower SPF lumber prices and the seasonal decrease in third-party log sales. Lumber shipments were equal to 83% of capacity versus 81% in the prior quarter. During the June 2015 quarter, the random length lumber reference price decreased by US $44 per mbf while the reference price for stud lumber decreased by US $35 per mbf. Currency was not a significant factor as the Canadian dollar averaged US $0.813, a 0.7% increase from US $0.807 in the prior quarter. The combined effect was that Canadian dollar selling prices decreased by approximately $40 per mbf, decreasing adjusted EBITDA by $7 million. Seasonally lower manufacturing costs at the sawmills was offset by an increase in lumber export taxes of $1 million and a charge of $1 million relating to a reduction of the carrying value of finished goods inventories resulting from the relatively low lumber prices.
The Paper Pulp segment generated adjusted EBITDA of $3 million on sales of $90 million for the quarter ended June 2015, compared to adjusted EBITDA of $3 million on sales of $73 million in the prior quarter. The $17 million increase in sales was due to higher shipments. The benchmark price (delivered China) for bleached eucalyptus kraft (BEK) increased by US $35 per tonne. However, the increase did not carry over into the high-yield paper pulp market and US dollar prices declined by US $16 per tonne. Overall, average selling prices decreased by $23 per tonne, decreasing adjusted EBITDA by $3 million. Pulp shipments were equal to 104% of capacity as compared to 81% in the prior quarter. Demand for pulp in the June 2015 quarter was good and the Company was able to reduce inventories to more normal levels after absorbing increases during the winter months. In the June 2015 quarter, the two pulp mills produced 14,100 more tonnes as compared to the prior quarter. The higher productivity reduced costs by $2 million
The Paper segment generated adjusted EBITDA of $9 million on sales of $86 million for the quarter ended June 2015, compared to adjusted EBITDA of $8 million on sales of $84 million in the prior quarter. Higher shipments partially offset by lower prices led to the $2 million increase in sales. The coated bleached board market was stable. The coated bleached board shipment to capacity ratio was 87% compared to 82% in the prior quarter. The reference price declined by US $5 per short ton. Overall, average selling prices for coated bleached board were down $26 per tonne decreasing adjusted EBITDA by $1 million. Manufacturing costs decreased by $2 million, primarily for purchased pulp and energy. The newsprint market remained weak with continued decreases in North American demand. The newsprint shipment to capacity ratio was 85% compared to 80% in the prior quarter. The US dollar benchmark price for newsprint declined by US $30 per tonne. Prices in Canadian dollars decreased by $39 per tonne, decreasing adjusted EBITDA by $2 million. Manufacturing costs at the Kapuskasing newsprint mill decreased by $3 million, primarily for electrical energy.