Cascades: Highlights From CIBC’s Eastern Institutional Investor Conference
What’s The Event?
On Wednesday afternoon, we hosted a fireside chat with Cascades’ CFO, Allan Hogg, at
CIBC’s Eastern Institutional Investor Conference in Montreal.
Management Upbeat About Containerboard Markets: CFO Hogg highlighted that
containerboard markets remain “very strong,” with healthy box shipment trends on
both sides of the border (partly aided by growth in the e-commerce channel, though
this remains hard to quantify). Cascades expects the spring 2017 containerboard hike
to be fully implemented across its box system by the end of Q3/17. While Cascades
would not comment on the recent (failed) pricing initiatives by some of its competitors
(Georgia-Pacific, KapStone), the company highlighted its significant earnings upside to
any potential future pricing initiative (we estimate a $102MM annualized EBITDA
impact from another US$50/ton hike). That being said, Cascades also noted that the
typical pricing lag means its box contracts can take four to six months to fully reflect a
hike once it has been published in the benchmark.
Pricing Outlook For OCC (Containerboard Input) Dependent On China: Over the short
term, Cascades expects another reduction in NA OCC prices when the October
benchmark prices are published next week. Looking out to 2018, the company
anticipates OCC prices will be similar to slightly higher than the annual average for
2017, as prices are expected to rise again once China starts buying NA OCC again.
Cascades Focused On Increasing Its Integration Rate: CFO Hogg indicated capital
investment in the containerboard business will be focused on the converting side for
the next few years as Cascades works towards achieving its goal of an integration rate
of ~85%. The current integration rate of 64% is expected to reach 69% once the new
converting facility planned at Piscataway, NJ has fully ramped up. As such, overall
capex is likely to be in the $200MM/year range for 2018 and 2019 as Cascades
implements its integration and modernization plans.