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Here's Why Resolute Forest Products Dropped As Much as 31.3% Today

By Maxx Chatsko – Feb 1, 2018 at 10:24AM

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One-time expenses sapped the pulp and paper company's income in 2017.

What happened

Shares of Resolute Forest Products (RFP -0.05%) fell nearly 31% today after the pulp and paper leader reported 2017 earnings. The manufacturer improved several operating metrics as it continued to contend with a weak and deteriorating North American market, but special items totaling $96 million easily resulted in a net loss for the year. Excluding those expenses, the company delivered net income of $12 million in 2017 -- a vast improvement from the year-ago period. 

Resolute Forest Products also announced the retirement of president and CEO Richard Garneau, who led a difficult restructuring of the company and returned it to respectable and efficient operations. Yves Laflamme was appointed to the same roles and is tasked with delivering consistent profitability.

As of 10:56 a.m. EST, the stock had settled to a 31.3% loss.

A chart drawn on a chalkboard that has its upward slope sloppily erased and a new negative slop redrawn in its place.

Image source: Getty Images.

So what

There are definitive signs that the business is improving. Here's how operations last year stacked up against 2016.

Metric

2017

2016

% Difference

Revenue

$3.51 billion

$3.54 billion

(1%)

Operating income

$49 million

($26 million)

N/A

EBIT

$6 million

($57 million)

N/A

Net income

($84 million)

($81 million)

N/A

Operating cash flow

$158 million

$81 million

95%

Data source: Resolute Forest Products.

All in all, Resolute Forest Products turned in a solid year. The improvement compared to 2016 was aided by more profitable operations in the company's market pulp, tissue, and wood products segments. The newsprint and specialty paper segments performed worse than the year-ago period on drastically reduced volumes, although the manufacturer is (wisely) exiting the newsprint business.

Now what

Improvements notwithstanding, it's worth pointing out that the North American pulp and paper industry is slowly losing steam and losing market share to newer infrastructure in Asia. That means the goalpost is constantly moving, which will make it more and more difficult for Resolute Forest Products and its mid-tier peers to capture consistent profits. In other words, the company could find itself in a perpetual state of restructuring.

That said, a nearly 30% drop seems like a drastic overreaction, especially given the company's cash flow generation. At least after last year's epic rise, this pullback is a little easier to swallow for shareholders.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Resolute Forest Products Stock Quote
Resolute Forest Products
RFP
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