Resolute Forest (RFP – Snapshot Report) reported Q1 15 earnings in early May, and missed the Zacks Earnings Estimate by a large margin. The miss was attributed to the decline in global newsprint demand, lower than expected newspaper prices, higher than expected COGS, and FX currency headwinds. Further, demand for the company’s paper grades is declining in North America. The combination of these negative factors has made Resolute Forest the Zacks Bear of the day.
This Zacks Rank #5 (Strong Sell) company manufactures a diverse range of forest products including newsprint, commercial printing papers, market pulp, and wood products. The company owns and operates pulp and paper mills, wood product facilities located primarily in the United States, Canada, and South Korea. It also sells pulpwood, saw timber, wood chips, and recycles newspapers and magazines.
Both the Newspaper, and Specialty papers segments reported sequential declines in EBITDA revenue. The Newspaper segment saw lower demand, and a decline in average realized prices (-6%). Further, the segment saw increased expenses due to pensions and other benefit packages. The Specialty papers segment saw shipments decline 14% because of lower demand and the closure of a mill.
The graph below shows Resolute’s historic price levels against the EPS consensus. As you can see estimates have declined significantly.
Over the past 30 days earnings estimates have declined for Q2 15, Q3 15, FY 15, and FY 16; Q2 plummeted from $0.11 to -$0.09, Q3 15 fell from $0.28 to $0.19, FY 15 crashed from $0.75 to -$0.10, and FY 16 dropped from $1.11 to $0.97.
Weak global newsprint demand, lower than expected newsprint prices, and increased expenses have this company in a very defensive position over the near term.
If you are inclined to invest in the Paper and Related Products segment, you would be best served by looking into Rexam Plc (REXMY – Snapshot Report) which carries a Zacks Rank #1 (Strong Buy), or Fibria Celulose (FBR – Snapshot Report) which carries a Zacks Rank #2 (Buy).
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