Montreal, Quebec - Consolidated sales for the three-month period ended September 24, 2016, were $389 million, as compared to $373 million in the same quarter a year ago. The Company generated net earnings of $12 million or $0.12 per share in the September 2016 quarter compared to a net loss of $32 million or $0.32 per share in the September 2015 quarter. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $57 million for the three-month period ended September 24, 2016, as compared to adjusted EBITDA of $36 million a year ago and adjusted EBITDA of $26 million in the prior quarter.
For the fiscal year ended September 24, 2016, consolidated sales were $1.5 billion as compared to $1.4 billion in the prior year. The Company generated net earnings of $20 million or $0.20 per share compared to a net loss of $150 million or $1.50 per share in fiscal 2015. The prior year loss included a non-cash loss of $81 million related to the translation of US dollar denominated debt. Adjusted EBITDA was $148 million compared to $70 million in the prior year. Operating earnings increased from $31 million to $99 million.
Business Segment Results
The Specialty Cellulose Pulp segment generated adjusted EBITDA of $23 million on sales of $122 million for the quarter ended September 24, 2016, compared to adjusted EBITDA of $10 million on sales of $111 million in the June 2016 quarter. The pulp sales increased by $12 million due to higher shipments and prices. Canadian dollar selling prices for specialty grades improved by $30 per tonne. The increase was currency and mix driven as US dollar and euro prices for specialty pulp were relatively unchanged quarter-over-quarter. The higher effective Canadian dollar prices increased adjusted EBITDA by $1 million. The selling price of viscose and other grades increased by $51 per tonne due to higher US dollar selling prices and a weaker Canadian dollar, which declined by 1.2% versus the prior quarter. The higher viscose grade prices increased adjusted EBITDA by $1 million. Shipments were equal to 94% of capacity, compared to 85% in the June 2016 quarter. During the June 2016 quarter, the Temiscaming specialty cellulose pulp mill was idled for six days as part of its annual major maintenance outage. There were no major maintenance outages in the September 2016 quarter and the two pulp mills produced 8,800 more tonnes. Manufacturing costs declined by $9 million including $5 million of fixed cost absorption associated with the aforementioned productivity improvement. The higher pulp shipments combined with a higher percentage of specialty grades generated a favourable $2 million variance. Chemical business adjusted EBITDA was relatively unchanged.
The Forest Products segment generated adjusted EBITDA of $12 million on sales of $113 million for the quarter ended September 24, 2016, compared to adjusted EBITDA of $4 million on sales of $102 million in the prior quarter. SPF lumber sales increased by $4 million due to higher prices. Sales of logs increased by $5 million due to the seasonal increase in activity in the summer months. During the September 2016 quarter, the random length lumber reference price increased by US $20 per mbf (thousand board feet) while the reference price for stud lumber increased by US $30 per mbf. Currency was a positive factor as the Canadian dollar weakened. The net effect was that Canadian dollar selling prices increased by $20 per mbf, increasing adjusted EBITDA by $4 million. Lumber shipments were equal to 82% of capacity, unchanged from the prior quarter. In response to relatively low stud lumber prices, the Company idled the Senneterre, Quebec, sawmill in early February 2016, removing approximately 20 million board feet in the June 2016 quarter. The Senneterre sawmill operated on its normal two-shift basis in the September 2016 quarter. The delivered cash cost of SPF lumber declined by $22 per mbf. The summer months are normally lower cost operating periods.
The Paper Pulp segment generated adjusted EBITDA of $8 million on sales of $83 million for the quarter ended September 24, 2016, compared to adjusted EBITDA of $1 million on sales of $86 million in the June 2016 quarter. The $3 million decrease in sales was due to lower shipments, partially offset by higher selling prices. The benchmark price (delivered China) for bleached eucalyptus kraft (BEK) decreased by US $17 per tonne. However, US dollar prices for high-yield pulp actually increased by US $18 per tonne, allowing it to close the significant discount gap that had occurred over the last several quarters. Average selling prices for external sales in Canadian dollars increased by $29 per tonne, increasing adjusted EBITDA by $4 million. Pulp shipments were equal to 98% of capacity as compared to 107% in the prior quarter. Mill level costs declined by $3 million.
The Paper segment generated adjusted EBITDA of $19 million on sales of $97 million for the quarter ended September 24, 2016, compared to adjusted EBITDA of $16 million on sales of $99 million in the June 2016 quarter. The $2 million decrease in sales was due to lower newsprint shipments, partially offset by higher prices for coated bleached board and newsprint. The US dollar reference price for coated bleached board was unchanged quarter-over-quarter. The weaker Canadian dollar was a positive factor. Overall, average selling prices for coated bleached board were up $7 per tonne increasing adjusted EBITDA by $1 million. The coated bleached board shipment to capacity ratio was 107% compared to 105% in the prior quarter. Manufacturing costs were relatively unchanged. The US dollar benchmark price for newsprint increased by US $25 per tonne. The previously noted decline in the relative value of the Canadian dollar also favourably impacted price realizations which increased by $29 per tonne, increasing adjusted EBITDA by $1 million. The newsprint shipment to capacity ratio was 78% compared to 94% in the prior quarter. The Kapuskasing newsprint mill incurred nine days of downtime as part of an electrical load shedding program that reduces its average annual cost of purchased electricity. Despite producing 4,200 less tonnes, mill costs remained relatively unchanged quarter-over-quarter.
On October 31, 2016, the Company completed the previously announced sale of the Senneterre, Quebec, sawmill and related forestry assets. The sale also included certain working capital items. The Company received proceeds of $9 million on closing, subject to normal post-closing working capital adjustments. The transaction will not give rise to a gain or a loss on disposition. During the 12-month period ended September 2016, the sawmill had sold 61 million board feet of stud lumber, generating sales of $24 million. Chip and by-product sales added a further $7 million. The sawmill generated negative adjusted EBITDA of $5 million.
Overall, the September 2016 quarterly results were better than anticipated. The absence of major maintenance combined with an approximate 1% decrease in the value of the Canadian dollar versus the US dollar led to improvement in operating results in all business segments. The $13 million increase in Specialty Cellulose segment adjusted EBITDA was expected due to the absence of any planned major maintenance at the two specialty pulp mills. The Temiscaming mill had been idled for six days in the June 2016 quarter to carry out annual planned major maintenance. While US dollar and euro specialty cellulose prices were stable, exchange rates led to higher effective Canadian dollar selling prices. Prices for viscose grades increased during the quarter and this trend is expected to continue into the December quarter. The December 2016 quarterly results will be impacted by a two-week major maintenance outage at the Tartas specialty pulp mill. The pulp mill takes these outages at 18-month intervals. Lumber markets showed some "late season" strength and continue to do so at time of writing. Although normal seasonal weakness is anticipated in the coming quarter, the lumber market fundamentals should continue to gradually improve over time. The $7 million increase in the Paper Pulp adjusted EBITDA was caused by higher prices and reduced costs. Hardwood paper pulp markets continue to be soft, as evidenced by the price decline in the benchmark BEK grade. This market will remain challenging. The Paper segment adjusted EBITDA increased by $3 million, with the weaker Canadian dollar being the primary driver. US dollar prices for newsprint also improved quarter-over-quarter. This segment should continue to perform well. With trailing twelve-month adjusted EBITDA having reached $148 million, the Company has been able to demonstrate the positive impact on margins generated by the Temiscaming Cogen project as well as year-over-year cost reductions in all business segments. The Company will continue to focus on cost and working capital reductions with a goal of further improving operating results and reducing the Company's overall level of indebtedness.
Tembec is a manufacturer of forest products – lumber, pulp, paper and specialty cellulose – and a global leader in sustainable forest management practices. Principal operations are in Canada and France. With annual sales of approximately $1.5 billion, Tembec has approximately 3,000 employees and is listed on the TSX (TMB). The full quarterly report, including the interim Management Discussion and Analysis, the interim financial statements and the accompanying notes for the quarter ended September 24, 2016, can be obtained on Tembec's website at www.tembec.com or on SEDAR at www.sedar.com.
The Company's financial results have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). All financial references are stated in Canadian dollars, unless otherwise noted. All references to quarterly information relate to Tembec's fiscal quarters. Adjusted EBITDA and certain other financial measures utilized in the press release are non-IFRS financial measures. As they have no standardized meaning prescribed by IFRS, they may not be comparable to similar measures presented by other companies. Non-IFRS financial measures are described in the Definitions section on the last page of the interim Management Discussion and Analysis (MD&A).