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Why Resolute Forest Products Stock Just Dropped 12.5%

By Rich Smith – Jul 31, 2020 at 1:51PM

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Resolute earned a small quarterly profit but will probably still lose money this year.

What happened

One day after the company reported second-quarter 2020 financial results, shares of Resolute Forest Products (RFP) are down 12.5% in 1:10 p.m. EDT trading. But was Resolute's news as bad as all that?

Investors selling the stock today certainly think so. According to analysts, Resolute was "supposed" to report a $0.30 per share loss yesterday, on sales of $628 million. As it turned out, Resolute's loss was less than predicted -- only $0.25 per share -- but sales fell well short of consensus estimates at just $612 million.

Timber stacked by side of a forest dirt road.

Image source: Getty Images.

So what

And yet, while sales did disappoint, falling 19% year over year, and while pro forma losses were steep, when you calculate the numbers according to generally accepted accounting principles (GAAP), it turns out that Resolute was actually profitable for the quarter, earning $0.07 per share.

(And yes, granted, that was a 74% decline from last year's Q2 profit -- but at least it was a profit.)

Now what

CEO Yves Laflamme blamed "the COVID-19 pandemic and ensuing economic slowdown" for Resolute's somewhat less-than-sturdy results. Nevertheless, the CEO highlighted Resolute's success in paying down its debt load by $191 million during the quarter.

Looking ahead, Resolute's leadership thinks it will "gain momentum in the coming quarters," citing the lumber market as "a bright spot" in which things are looking better now than they did at the height of the pandemic in April. Management gave no specific guidance regarding sales and profits, but while analysts believe the company will end up losing money this year, losses are expected to moderate as we head into 2021.

Rich Smith 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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