Cascades Revises Outlook for Q4 2021; Shares Fall

Cascades (TSE: CAS) has issued a warning that its year-end performance, which will be presented on February 24, will fall below the expectations that were revised just before Christmas.

Omicron Worsened Already Existing Constraints

On a consolidated basis, Cascades expects unaudited adjusted operating income before depreciation and amortization (OIBD) of C$62 million. These factors triggered a significant and immediate cost escalation.

The Victoriaville paper company said Omicron’s rapid escalation in the last two weeks of December has compounded already-existing labor and transportation constraints as well as supply chain issues, primarily in the containerboard and tissue paper segments.

In addition, they have resulted in unplanned production downtime in many of the Cascades’ operations and unprecedented difficulties in product delivery. The effect of this was particularly felt in Canada, where the impacts of flooding in Western Canada continued to disrupt rail and trucking.

CEO Commentary

Cascades President and CEO Mario Plourde said, “Without question, we are very disappointed with our performance in the fourth quarter. The ramifications from the ongoing disruptions related to the pandemic, and the continuing challenges in delivering products, have resulted in considerable direct and indirect impacts and costs, often unpredictable, in our business segments.

“We continue to adjust and respond to the rapidly changing operational challenges and constraints as needed and remain in close contact with our customers. With current trends suggesting that the Omicron variant is moderating, we are hopeful that pressures will begin easing through the first quarter.”

Wall Street’s Take

On January 28, National Bank analyst Zachary Evershed kept a Buy rating on CAS and raised its price target to C$20.50 (from C$19.50). This implies 59.2% upside potential.

The rest of the Street is cautiously optimistic on Cascades with a Moderate Buy consensus rating based on five Buys and two Holds.

The average Cascades price target of C$18.43 implies 43% upside potential from current levels.

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