Cascades' Q2 Shows Pricing Power Amid Cost Pressure

Packaging margins rebound past 15% as new price hikes take effect; tariff overhang seen as manageable.

CAS.TO · Earnings Call · 2026-08-06

A Return to Profitability Momentum

In a quarter where "exceeded expectations" has become a cliché, Cascades delivered on it. “Our second quarter exceeded expectations, driven by stronger execution across our operations and lower-than-anticipated volume risk.” — Hugues Simon, Chief Executive Officer · 2026-08-06 Both Packaging and Tissue improved sequentially, with Packaging EBITDA up 16% and margins back above 15%. The company now expects annual EBITDA run rate to exceed $600 million in the second half of 2026.

The Pricing Lever: Tight Rolls and New Hikes

The core driver is pricing. “We're extremely, extremely tight in rolls. The demand on rolls exceeds what we can ship.” — Hugues Simon, Chief Executive Officer · 2026-08-06 That tightness has justified a third price increase in a year — $110/ton on linerboard and white paper, $140/ton on medium, effective September 8. Management argues this is not ahead of the curve but merely catching up to cost inflation.

And maybe for the first time, instead of being behind, we're getting on pace.
Hugues Simon, Chief Executive Officer · 2026-08-06

The pricing upturn should start to drop through in Q4, and with ~75% of containerboard volumes tied to contracts, the benefit could be substantial.

Cost Inflation and the Fiber Complex

Raw material costs remain a headwind: OCC price rose over 10% sequentially, and hardwood pulp and eucalyptus jumped as much as 15%. Transportation disruptions and higher fuel costs compound that. Yet Cascades is adapting by flexing its fiber mix — mixed paper utilization can be ramped 15–25% when spreads favor it. As Hugues Simon noted, the focus is on Transportation costs resilience and cost-saving initiatives that are already delivering $25 million in 2026.

Tariff Overhang: Manageable but Real

The U.S. administration's 50% tariff on certain exports is a new variable. Management estimates the impact at no more than 5% of adjusted EBITDA, thanks to mitigation plans that include shifting production between Canada and the U.S. and reworking logistics. “Assuming the tariff remains in effect as announced and considering the benefit of our current mitigation plans, the financial impact will not represent more than 5% of our adjusted EBITDA run rate.” — Hugues Simon, Chief Executive Officer · 2026-08-06 That confidence reflects work done during the prior tariff scare. As Hugues said in 2025, “We're still very confident to fill it before the end of this year, which makes Bear Island a profitable asset.” — Hugues Simon, Chief Executive Officer · 2025-08-08 (Actually that's about Bear Island, may be better placed in asset section.) The company's resilience also shows in its asset monetization program: asset sale proceeds reached $163M against a $230M target, though timing has slipped into early 2027. With debt level at 3.3x and available liquidity of $737M, the balance sheet is well positioned to weather the tariff uncertainty and fund the next round of growth optionality.