Cascades looks to mitigate tariff risk

With the threat of tariffs looming from the Trump administration against Canada and Mexico, Canadian packaging company Cascades Inc. is taking what CEO Hugues Simon said is “the worst-case scenario” approach to mitigate any potential business and economic risks.

Simon addressed the tariff situation during Cascades’ fourth-quarter and full-year 2024 earnings call Feb. 20.

The risk of bilateral tariffs being implemented has the potential to have broader implications on the economy and is difficult to predict,” he said.

Cascades, based in Kingsey Falls, Quebec, generates approximately 11 percent of its annual sales from products made in Canada and sold into the U.S., and Simon said cross-border intercompany transfers, including raw materials, increase the company’s tariff exposure to approximately 15 percent of its revenue.

In an attempt to mitigate the risk as much as possible, Cascades has begun implementing several measures, including changes to its raw material sourcing, reallocating production where possible to minimize the need for cross-border transit and implementing strategies with suppliers and customers.

“In addition to these processes we have in place to monitor and minimize the potential impacts on our operations, we also are actively engaging with governments along with numerous other Canadian companies to explore ways that Canadian manufacturers can maintain a competitive position,” Simon said.

“The devil is in the details, but we have some pretty good action plans to mitigate as much as possible. Some of the products that we manufacture like tissue [and] basic care products have a different behavior in the context of tariffs. ... But definitely a slowdown in the Canadian economy is something that would have an impact on any companies in Canada, so we're taking the worst-case scenario [approach] to prepare, which means all the products from Canada to the U.S.”

According to Cascades Chief Financial Officer Allan Hogg, the key risk is a slowdown of the Canadian economy.

“When we look at Cascades specifically, … from a linerboard medium position, about two-thirds of our raw production is in the U.S.,” he said during the earnings call. “But … the key risk is really a slowdown of the economy in Canada, so then it's not material from Canada going to the U.S., but it's the Canadian economy overall. That's definitely something we're tracking because the slowdown in the economy will mean less shipments of every kind … whether it's shipped in the U.S. or within Canada.”

Simon added that the ability to pass tariffs on to customers will vary by product and that Cascades is “actively” working on strategies with its customers.

Bear Island update

A breakdown on one of its paper machines last summer led to what Cascades called a “slower-than-expected” ramp-up of its Bear Island containerboard mill in Ashland, Virginia, resulting in production falling 20 percent below its initial targets as of November 2024.

“When we look at the months of October, November and December [last year], those three months had improvements from previous months, with the month of December being roughly like covering half that gap, so roughly between 10 percent and 11 percent,” Simon said.

While he expects some continued production “hiccups,” Simon also said Cascades is “fixing stuff, and we’re fixing them permanently.” The plan is for the Bear Island mill to meet its production targets by the end of this year.

Financial results

As far as earnings, Cascades posted slight improvements in sales and operating income for both the fourth quarter and full year of 2024.

The company reports fourth-quarter sales of $1.21 billion compared with $1.14 billion in the fourth quarter of last year, while its $16 million in operating income is up from a $24 million loss in same period last year.

Cascades’ full-year sales came in at $4.7 billion compared with $4.6 billion last year, while its 2024 full-year operating income of $95 million is up from $40 million last year.

“Our fourth quarter 2024 performance was in line with expectations,” Simon said.

“Favorable average selling prices and raw material costs in the Containerboard business drove stronger sequential results, offsetting the impact of usual lower seasonal volumes. Specialty Products continued to perform well despite slightly lower volume sequentially. In Tissue, average selling prices and raw material costs were advantageous and fully offset slightly higher operational costs. Broadly, the depreciation of the Canadian dollar benefited quarterly results, but led to higher reported debt levels at the end of the year given the company's $1.3 billion of U.S. denominated debts."

Cascades’ full earnings presentation can be found here.