The Resolute Forest Products logo is shown in a handout. THE CANADIAN PRESS/HO

Shares of Resolute Forest Products Inc. surged as much as 48 per cent Thursday after the lumber, pulp and paper producer beat analyst profit expectations in the second quarter despite a 19 per cent decrease in revenues.

The Montreal-based company's stock peaked at $6.06, the highest level since January, and were up $1.39 or 33.9 per cent at $5.49 in midday trading.

Resolute said strong lumber sales and a housing market recovery boosted the company this spring, despite an economic downturn that slashed paper shipments by 27 per cent.

In the face of fear that the housing market would crater to levels seen in 2008 and 2009, it seems people are still spending money on their houses amid stay-at-home orders, chief executive Yves Laflamme told The Canadian Press. Not only are houses being built, but they are being remodelled, said Laflamme.

“In the environment of the COVID-19 pandemic, the biggest surprise we've had so far in our company ... is certainly lumber,” said Laflamme.

“People are not travelling anymore and they're just spending their money on the repair and remodelling of their houses; building decking and spending time at home. So, I think it's a good surprise for the whole lumber industry, including Resolute Forest Products. ... The question is how long is spending going to last?”

Excluding one-time items, the company’s adjusted loss was $22 million or 25 cents per share during the quarter, a narrower loss than the 30 cents per share expected by Refinitiv estimates and compared with a 12 cents per share adjusted profit a year ago. Revenue, however, was US$612 million, softer than the $628 million forecast by analysts.

Unadjusted, second-quarter net income was US$6 million, or seven cents per diluted share, for the three months ending on June 30. That’s down from US$25 million, or 27 cents per diluted share, on sales of US$755 million in the second quarter of 2019.

Diminishing demand for paper at commercial printers and newspapers contributed to the year-on-year drop in sales, said the company, which keeps its books in U.S. dollars.

While the company has anticipated declines of 10 per cent to 15 per cent in the paper industry each year — owing largely to the decline of newspapers and magazines — this year has been more drastic, said Laflamme.

At the end of April, the company temporarily laid off more than 1,000 workers mainly in Quebec because of the COVID-19 pandemic, but executives said the company may soon qualify for some government wage subsidies.

Still, Laflamme said that with several paper machines down, there are still hundreds of workers locally and in the head office who are waiting to see how much business comes back. Government subsidies are not expected to make a huge impact on that, Laflamme said.

“We feel that some of [the paper demand] is going to come back, like advertising, with stores being pretty quiet. But we don't think all of it is going to be back,” said Laflamme.

A spike in demand for tissue early in the COVID-19 pandemic sent prices higher but shipments lower, amid drained inventory. In the tissue market, sales remain strong for “at-home” items such as toilet paper, although aside from hospitals, corporate sales are more muddled, said Laflamme.

The company’s quarterly results also noted that it has been focused on paying down debt and integrating newly acquired plants. The company owns or operates about 40 facilities in the U.S. and Canada, and its products are sold in about 70 countries.

This report by The Canadian Press was first published July 30, 2020.

Companies in this story: (TSX:RFP)

News from © The Canadian Press, 2020