Cascades Q2 2026 Earnings Report

Cascades EPS Results

• Actual EPS: C$0.24
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Cascades Revenue Results

• Actual Revenue: $1.22 billion
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Cascades Announcement Details

• Quarter: Q2 2026
• Date: 8/6/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, August 6, 2026
• Conference Call Time: 9:00AM ET

Founded in 1964, Cascades (TSE:CAS) offers sustainable, innovative and value-added solutions for packaging, hygiene and recovery needs. The company employs approximately 9,000 talented people across a network of 60 production units in North America. With its participative management, half a century of experience in recycling, and ongoing efforts in research and development as driving forces, Cascades continues to deliver the innovative products that customers have come to rely on, while contributing to the well-being of people, communities and the entire planet.

Cascades Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q2 results exceeded expectations, with packaging and tissue both improving sequentially on stronger volumes, better execution, and earlier profitability initiatives. Packaging Adjusted EBITDA rose 16% sequentially to CAD 120 million, while tissue EBITDA increased 6% to CAD 35 million.
• Positive Sentiment: Packaging volumes and margins showed resilience, with shipments up 9% sequentially and EBITDA margin recovering to 15.5%. Bear Island operated at 95% of capacity and achieved record production, while comparable box shipments increased 5.8% year over year, ahead of industry growth.
• Positive Sentiment: Management expects consolidated results to improve sequentially in Q3 and now anticipates an annualized Adjusted EBITDA run rate above CAD 600 million in the second half of 2026. New packaging price increases of CAD 110 per ton for linerboard and white paper and CAD 140 per ton for medium are expected to begin benefiting results in Q4.
• Negative Sentiment: Newly announced U.S. tariffs could affect certain tissue and packaging exports, with management estimating a potential net impact of up to 5% of Adjusted EBITDA run rate after mitigation. The company also noted possible secondary effects from weaker demand among customers exposed to the tariffs.
• Neutral Sentiment: Adjusted operating cash flow increased 22% year over year to CAD 123 million, but leverage remained elevated at 3.3x. Cascades extended the timeline for its CAD 230 million asset-monetization target to early 2027, citing market conditions and a desire to preserve asset value.

Presentation

[Operator]

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Cascades' Second Quarter 2026 Results Conference Call. All lines are currently in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. I will now pass the call to Allan Hogg, CFO for Cascades. Please go ahead, Sir. You may begin.

[Allan Hogg, VP and CFO at Cascades]

Thank you, Operator. Good morning, everyone, and thank you for joining our Second Quarter 2026 Conference Call. We will begin with an overview of our operational and financial results, followed by some concluding remarks, after which we will begin the question period. Today's speakers will be Hugues Simon, President and CEO, and myself, Allan Hogg, CFO. Before turning over the call, I would like to highlight that certain statements made during this call will discuss historical and forward-looking matters. The accuracy of these statements is subject to risk factors that can have a material impact on actual results. These risks are listed in our public filings. These statements, the investor presentation, and the press release also include data that are not measures of performance under IFRS. Please refer to our Q2 2026 investor presentation for details.

[Allan Hogg, VP and CFO at Cascades]

This presentation, along with our second-quarter press release, can be found in the Investors section of our website. If you have any questions, please feel free to contact us after the session. I will now turn the call over to our CEO, Hugues Simon, who will begin with a review of our Q2 performance. Hugues?

[Hugues Simon, President and CEO at Cascades]

Thank you, Allan, and good morning, everyone. Our second quarter exceeded expectations, driven by stronger execution across our operations and lower-than-anticipated volume risk. We continue to focus on the areas within our control, strengthening the resilience of our platform in an environment that remains impacted by both macroeconomic and geopolitical uncertainty. Considering these challenges, I'm pleased with our performance in the second quarter, which reflects the disciplined execution of our strategy and the commitment of our teams across the organization. Both packaging and tissue delivered improved sequential performance in the second quarter, reflecting improved operational execution, stronger volumes, and the benefit of actions implemented earlier in the year.

[Hugues Simon, President and CEO at Cascades]

Our packaging segment profitability rebounded significantly, with EBITDA increasing 16% sequentially and margins returning above 15%, reflecting continued solid production and demand levels across our paper mill network, meaningful progress in onboarding new customers in a more favorable economic environment than initially anticipated. Volumes tracked ahead of our forecasted assumptions, contributing to stronger profitability in the quarter. We had record production levels in the quarter at Greenpac and at Bear Island, which operated at 95% of its total production capacity during the quarter. Our tissue segment also posted higher sales, stronger shipment volumes, and improved EBITDA despite ongoing cost inflation. Performance benefited from improved productivity and sales volume. At our Pryor facility, we continued to improve, achieving record production this quarter. We remain on track with our improvement plan discussed in Q3 2025.

[Hugues Simon, President and CEO at Cascades]

While global market conditions remain mixed in both segments, the progress achieved during the quarter reinforces our confidence in the operational and commercial initiatives underway across the organization. Raw material index prices for recycled fibers increased by more than 10% sequentially, but remained slightly below the level seen in the same period last year. Hardwood pulp and eucalyptus costs also increased, rising by as much as 15%, both sequentially and year-over-year. Delivered raw material costs to our mills were further impacted by recent transportation disruptions and higher fuel costs. We provided an overview of average quarterly costs and key trends on slides six and seven. Moving now to the results of our business segments, which are outlined on slides eight through 13 of the presentation. Our packaging segment delivered a strong improvement in the second quarter as operational execution and market condition improved relative to the beginning of the year.

[Hugues Simon, President and CEO at Cascades]

Sales increased to CAD 772 million, up 8% sequentially, while Adjusted EBITDA increased 16% to CAD 120 million. As a result, EBITDA margin improved to 15.5% compared to 14.4% in the first quarter. Despite higher raw material and transportation costs, these results were driven by higher volumes and selling prices, improved manufacturing performance, and the benefit of commercial initiatives implemented across our packaging platform. Volume performance was encouraging. Total shipments increased 9% sequentially to 426,000 tons, with box shipments increasing 6% and external paper shipments increasing 11%. Including the box plant on the West Coast that was sold in the first quarter, box shipments increased 8.4% versus the industry increase of 5.5%. On a year-over-year basis, packaging demonstrated resilience despite a still uncertain macroeconomic environment. Sales increased 1% compared to the second quarter of 2025, while Adjusted EBITDA remained essentially unchanged at CAD 120 million.

[Hugues Simon, President and CEO at Cascades]

Year-over-year EBITDA margin remains stable at 15.5%, highlighting the strength of the business despite ongoing cost pressure in a competitive market environment. Total shipment increased modestly with stronger external paper volumes, offsetting slightly lower containerboard shipments, which include the impact of the sale of our West Coast box plant in Q1 2026. On a comparable asset basis, year-over-year box shipment increased 5.8%, surpassing the industry's 2.4% increase. Results in tissue improved sequentially during the second quarter as volume growth, operational improvements, and a favorable business mix more than offset continued inflation in several operating cost categories. Sales increased to CAD 409 million, up 7.6% from the first quarter, while Adjusted EBITDA improved 6% to CAD 35 million. EBITDA margin remained stable at 8.6%, reflecting higher sales volume contribution, which was offset by higher raw material and transportation costs. Shipment performance improved meaningfully during the quarter.

[Hugues Simon, President and CEO at Cascades]

Total shipments increased 7% sequentially to 121,000 tons. Retail volume increased 2%, while away-from-home volume increased 16%, benefiting from stronger demand and ongoing commercial initiatives. Compared with the second quarter of 2025, sales increased 4%, while total shipments remained stable, supported by growth in both retail and away-from-home categories, which was offset by no external paper wholesale in 2026. Year-over-year Adjusted EBITDA declined by CAD 3 million, with higher logistics costs offsetting the positive impacts of volume, pricing, and cost initiatives. I'll now pass the call over to Allan, who will briefly discuss some of the financial highlights. Allan?

[Allan Hogg, VP and CFO at Cascades]

Thank you, Hugues. Let's start with the specific items recorded during the quarter, which impacted operating income by CAD 5 million on slide 14 and 15. The main items consisted of gains from the sale of assets, restructuring costs related to cost-saving initiatives, and lastly, a loss of CAD 6 million on financial instruments. Slide 16 and 17 illustrate the year-over-year and sequential variance of our Q2 Adjusted earnings per share and the reconciliation with the specific items that affected our quarterly results. As reported, Q2 net earnings per share were CAD 0.21. This compared to a net loss per share of CAD 0.03 in the same period last year, and net earnings per share of CAD 0.38 in the previous quarter. On an adjusted basis, net earnings per share were CAD 0.24 in the current quarter.

[Allan Hogg, VP and CFO at Cascades]

This compared to net earnings per share of CAD 0.19 last year, and CAD 0.07 in the first quarter of 2026. The sequential and year-over-year increases were driven by higher Adjusted EBITDA and lower financing expenses, offset by a higher depreciation expense. As highlighted on slide 18, second quarter adjusted cash flow from operations was CAD 123 million, up 22% from CAD 101 million for the same period last year. Slide 19 provides detail about our capital investments, which for the first half of the year, total CAD 67 million. For 2026, our expected CapEx remains unchanged in the range of CAD 150 million-CAD 175 million. Moving now to our net debt reconciliation as detailed on slide 20. Sequentially, net debt decreased modestly by CAD 22 million in the second quarter, mainly due to higher operating cash flows from operations. The exchange rate impact increased our net debt by CAD 36 million.

[Allan Hogg, VP and CFO at Cascades]

Proceeds from business and asset disposal reduced debt by CAD 5 million. Our leverage ratio was unchanged at 3.3x, and our available liquidity under our credit facility stood at CAD 737 million at the end of June. As part of our asset monetization strategy, on July 28th, we completed the sale of the real estate at the closed recycling plant in Lachine, Quebec for an amount of CAD 9 million, bringing our total proceeds from business and asset disposal to CAD 105 million in 2026. We are also updating the expected delivery timing of our objectives from the end of the third quarter to early 2027. Although interest in the assets remains healthy, prevailing market conditions and the terms available for certain transactions have not aligned with our value expectations. In July 2026, we extended the maturities of the Greenpac and Cascades credit facilities by one year to 2029 and 2030, respectively.

[Allan Hogg, VP and CFO at Cascades]

We also extended the maturity of our $260 million term loan, originally maturing in December 2027 to July 2031. These transactions were completed on the same financial terms. Financial ratios and information regarding maturities are detailed on slide 21. Additional information and analysis can be found on slides 25 through 33 of the presentation. With that, I will turn the call back to Hugues for a few closing remarks before we open the line for questions. Hugues?

[Hugues Simon, President and CEO at Cascades]

Thank you, Allan. We provide our outlook for Q3 on slide 22. Including the potential impact of the announced tariffs, we expect sequential improvement in our consolidated results. This is driven by seasonally higher volume and ongoing selling price increase initiatives in both packaging and tissue. Supported by our ongoing profitability improvement program, we now expect annual run rate Adjusted EBITDA to exceed CAD 600 million during the second half of 2026. The implementation of previously announced selling price increases in both packaging and tissue is progressing as planned. In packaging, demand for paper rolls remained very strong. Earlier this week, we announced additional price increases of CAD 110 per ton on linerboard and white paper grades and CAD 140 per ton on medium. These new prices will become effective on September 8th. We expect to begin seeing a positive impact from these increases in the fourth quarter of 2026.

[Hugues Simon, President and CEO at Cascades]

On July 20th, the U.S. administration announced new tariffs on a number of products imported into the United States. We are conducting an assessment of the potential impact on our operations. Based on information currently available, certain tissue and packaging products exported to the United States could be subject to the announced 50% tariff. While this represents a notable development, we believe the potential impact is manageable. Assuming the tariff remains in effect as announced and considering the benefit of our current mitigation plans, the financial impact would not represent more than 5% of our Adjusted EBITDA run rate. In addition to the direct effect of this announcement, some customers whose products are subject to these tariffs may experience weaker demand or reduced production levels, which could affect volumes in certain segments.

[Hugues Simon, President and CEO at Cascades]

Based on current assessment and the mitigation actions underway, we remain confident in our ability to successfully manage these challenges. This confidence reflects the significant work completed over the past several quarters to make Cascades a more resilient and agile organization. As we indicated last quarter, our focus has been on navigating near-term market pressures while advancing the initiatives that will strengthen our performance over time. During the quarter, we continued to make progress in improving operational and commercial execution and enhancing customer service levels. Our profitability improvement initiative continues to deliver results. Following the CAD 30 million of benefits realized in 2025, we estimate that a further CAD 25 million has been captured thus far in 2026. Our asset monetization objective is also progressing well, with CAD 163 million realized against our CAD 230 million target.

[Hugues Simon, President and CEO at Cascades]

Although some transactions are taking longer than anticipated, this reflects our disciplined approach to ensuring we maximize value from these asset sales. Finally, we continue to prioritize debt reduction to reinforce financial flexibility and position Cascades for future growth. With that, we'll now open the line for questions. Operator?

[Operator]

[Foreign language] Thank you. If you would like to ask a question, simply press star, then number one on your telephone keypad. If you would like to withdraw from the queue, please press star followed by two. If you have a question, please, again, if you have a question, please press star then one on your telephone keypad. One moment, please, while we compile the Q&A roster. Your first question will be from Ahmed Abdullah at National Bank of Canada. Please go ahead.

[Ahmed Abdullah, Equity Research Analyst at National Bank of Canada]

Good morning, thanks for taking my question. The first thing would be the comment around the 3Q packaging EBITDA guidance of CAD 135 million-CAD 140 million implies another sequential improvement here. Can you help us bridge what's going to be driving that in terms of volumes, the realization of the March/April price increases how you're planning to offset some of the cost inflation that you're seeing?

[Hugues Simon, President and CEO at Cascades]

Yes, Ahmed, thank you for your question. Basically, when you look at the 3Q for packaging, from a seasonality standpoint, give you an example, like, harvesting season in some of the regions where we have operation, we have a busier season in the third quarter. We are doing the price increases previously announced. If you remember, we had two, we had a -20 earlier in the year. The net impact of that is going to help support some of the additional profitability. Then we have some inflation costs that if you look even this week, we had the OCC prices moving up CAD 5 in all of the regions where we operate. When we take the global of that, we also take into account a slight volume risk from the economy.

[Hugues Simon, President and CEO at Cascades]

We're still in a pretty unstable environment. We feel that the second half of the year, the third quarter being a very strong one, will give us a run rate that's going to support overall the company on over CAD 600 million.

[Ahmed Abdullah, Equity Research Analyst at National Bank of Canada]

Okay. That's helpful. You were clear in noting your expected impact from the tariffs if they stand at no more than 5% of Adjusted EBITDA. Can you help us parse out how you get to that level? What's the actual full gross impact, how much netting you're expecting to do for mitigation, and what are some of the mitigation efforts that you've considered against these tariffs?

[Hugues Simon, President and CEO at Cascades]

Yeah, great question. If you recall, last year we had a similar situation where there were tariffs on basically all of the products going from Canada to the United States. Back then, we shared with the market that we were putting a task force together to make sure that we have a great understanding on the potential risks. Back then it was tariffs, it was counter-tariff. This time our teams were pretty ready. We have a good plan on these things now. The devils in the details on this potential tariff implementation later this month. Some of the tissue products, most of the products don't have tariffs on the 50% recent announcement, but they really went with tariff codes. We really went back to all of the details and the products we ship. I'll give you an example for clarity.

[Hugues Simon, President and CEO at Cascades]

In URB, the small rolls have tariffs, the big rolls don't. We really went in depth to see what the potential impact was. We looked at how we can switch production, Canada to Canada, U.S. to U.S. The mitigation plan that we have is not something that's going to take 6-12 months to implement. It doesn't get implemented all the first week. It's a rather quick implementation. As far as the gross versus the net, we're not sharing that information yet. We're tracking really the details on what the U.S. administration wants to include, exclude, understanding that this is a couple of weeks from now, that may evolve over time.

[Allan Hogg, VP and CFO at Cascades]

If I may add, Hugues, if it drags on a longer time period, there is other initiatives that we will certainly review and take action. So-

[Ahmed Abdullah, Equity Research Analyst at National Bank of Canada]

Okay, that is helpful. I will pass the line. Thank you.

[Hugues Simon, President and CEO at Cascades]

Thank you.

[Operator]

Next question will be from Hamir Patel at CIBC Capital Markets. Please go ahead.

[Hamir Patel, Executive Director of Equity Research at CIBC Capital Markets]

Hi, good morning, and congrats on the strong quarter. Hugues, it looked like you gained market share in containerboard in the quarter with the strong, close to 6% shipment growth year-over-year. Can you comment on what you've been seeing in Q3 so far? I know it sounded like you said you've announced CAD 110 on liner, CAD 140 on medium. Is there any reason why most of the pricing uplift would not drop to your bottom line? I know we had two earlier price increases. The first one was eaten up by cost inflation, it seemed like the second one largely will benefit you, it's looking like this third one will fully drop down to the bottom line. Any clarity you can provide there?

[Hugues Simon, President and CEO at Cascades]

Well, there's a lot of moving parts in your question. First of all, when we look at the second quarter versus the first, if you recall in the first quarter, we had discussions on onboarding new customers. We've really put lots of focus, the teams did a great job in making sure that contracts that we already had in hands were well-executed. That's a good uplift on our box volume. It's something that we'll continue to see. We depend on seasonality, which the third quarter is a good quarter for Cascades in the regions where we have operations and customers. We see so far a market that continues to show what we saw in Q2. That being said, I think we all know that the geopolitical might evolve.

[Hugues Simon, President and CEO at Cascades]

From the cost inflation standpoint, to your comment on inflation, we're seeing a tailwind on fuel cost right now, which we didn't see during the whole second quarter. That may change, we're reviewing our strategy on delivering to our customers to make sure that we have more resilient and that we minimize the impact on transportation costs as much as we can. I separate rolls versus boxes. We're extremely tight in rolls. The demand on rolls exceeds what we can ship. That drove the latest price increase that we announced earlier this week. As far as do we see the full benefit or not the full benefit, we continue to push on our costs to go down. We saw this week OCC price going up CAD 5. That has an impact. We also see fuel costs.

[Hugues Simon, President and CEO at Cascades]

The net of that that we're going to start seeing in the fourth quarter will be really a spread between what OCC price is doing, OCC is not behaving the same way in all regions. We don't expect like a big push on cost on fiber, on fuel, well, that will depend on the geopolitical situation around the globe.

[Hamir Patel, Executive Director of Equity Research at CIBC Capital Markets]

Okay. No, fair enough. It seems like if this price hike goes through, it's a very significant tailwind for Cascades. If you are then generating significantly higher free cash flow next year, when you think about in that sort of environment, are there other larger growth CapEx projects that might then advance? Just thinking about whether you need to increase your integration rate in containerboard, or start to plan for more advanced tissue technology, just given some of the industry developments.

[Hugues Simon, President and CEO at Cascades]

Yeah. What we've been sharing is we're really building a plan for optionality. What you just mentioned are a few of the options that we have. The focus remains on getting that debt level down to the 2.5-3. From the uplift on the cash flow generation that you talk about, I agree with your statement where there's more tailwinds with us right now than what we saw earlier this year. If we go back to the first quarter, we had a pretty low cash flow generation in the first. We were confident to get back to the CAD 600 million run rate in the second half, now we're confident to exceed that. Obviously that's before the implementation of the price increase that we announced this week.

[Hamir Patel, Executive Director of Equity Research at CIBC Capital Markets]

Yeah. Great. Hugues, it looks like, Bear Island seems like it's basically running full from a volume standpoint now at 95%. Where is it on the profitability ramp-up? If it's 95% of production, in terms of sort of steady but how far along is it?

[Hugues Simon, President and CEO at Cascades]

Yeah, a few comments on Bear Island. There are probably a few employees on this call from Bear Island. First of all, great job from the Bear Island team. They went through significant changes and work and their great commitment. We ran at 95% for the full quarter. Our month of July was better than the average of the second quarter, sorry. Our month of July was even better. The focus is on cost. As you know, we don't share profitability per mill, I can tell you that we're very pleased with the financial results of Bear Island right now.

[Hamir Patel, Executive Director of Equity Research at CIBC Capital Markets]

Okay. That's helpful. Just a final question, Hugues, on the tissue side, I know, there's sort of, was an announcement of some new NTT technology coming to market. I know there's a bunch of sort of older school TADs being built. I think Kimberly-Clark is doing some work on some novel fiber technology. How do you think longer term about how you position your tissue business, especially in retail to stay competitive?

[Hugues Simon, President and CEO at Cascades]

Yeah. I mean, the work that's been done in tissue for the last few years is really to position ourselves as a supplier of choice for the private brands, it's working really well. We have a good reputation, good growth. That really gives us option in the future, if we want to increase our capacity. Demand on these projects go with population growth. I mean, in North America, clearly there's kind of a break here on population growth, we don't see that as being a long-term trend. You look at the age of assets within the industry versus the new projects, there's room for new projects in tissue, that's one of the options that we have as our debt level goes down.

[Hamir Patel, Executive Director of Equity Research at CIBC Capital Markets]

Okay. Just thinking about the Orchids. When you think about technology-wise to compete with TAD, what would be your approach longer term?

[Hugues Simon, President and CEO at Cascades]

Yeah. We think there's room for conventional tissue, you look at the value proposition for the consumer. There's room for TAD for some specific products, there's also room for conventional. We are a conventional producer of tissue. We're good at it, we'll continue to optimize that to remain like the supplier of choice. We don't have in our cards right now, TAD machines of equivalent technology.

[Hamir Patel, Executive Director of Equity Research at CIBC Capital Markets]

Okay. Fair enough. That's all I had. I'll turn it over. Thanks.

[Operator]

Next question will be from Sean Steuart at TD Cowen. Please go ahead.

[Sean Steuart, Managing Director at TD Cowen]

Thanks. Good morning. A few questions. I want to follow up on that last question that Hamir asked around CapEx optionality. I guess between tissue expansion projects longer term or converting capacity on the packaging side, would one rank over the other in terms of priority for Cascades?

[Hugues Simon, President and CEO at Cascades]

I mean, we're going to go for best value. Right now, the focus, we have a clear sight of view with getting to the 2.53x debt ratio on debt to EBITDA. We are looking at those options. It's not options that we've decided that we would publicly share, but we're not waiting to be there to start looking at our options. We have clear view, but it's really at the end of the day, it's going to be on the return for our shareholders, what makes the most sense. The thing that we have going for us is both segments are delivering good improvements. Both segments have good reputation with our customers. Both segments also have a positive growth trend, in the products that we do.

[Hugues Simon, President and CEO at Cascades]

Our sustainability story, both in tissue and packaging, are well above the industry average from an offering that we have for the consumer. We have choice and we'll take the time to make sure what makes the most sense for our shareholders, understanding that we don't have to say or decide today whether it's going to be one, the other, or both.

[Sean Steuart, Managing Director at TD Cowen]

Okay. Thanks for that detail. The non-core asset sale program, you're sticking with the total dollar value. You're extending the timeframe a little bit into early next year. I'm wondering if you can square that up. I mean, it feels like there might be some friction on value, your perceived value versus what might be out there in the market. How do you square up holding the overall dollar figure and just pushing out the timeframe if potentially some buyers are resisting a little bit. Maybe I'm over-reading into it, if you can give us some additional context there, it would be appreciated.

[Hugues Simon, President and CEO at Cascades]

Yeah, no, great question. I reinforce the CAD 230 million. It's a question of timing. We will reach the CAD 230 million, sometimes you have to play time to see what you want to do. As I shared with our shareholders before, when you focus on the number, you need to be working on a bigger number. I'm very comfortable with the CAD 230 million. Now, we'll play with the timing to make sure that we get the fair value for the assets that we feel are not strategic, they're not moving the needle for Cascades. That being said, we still have a good line of sight to achieving the CAD 230 million, sometimes it's just a matter of a bit more time. Our initial target was end of the year of 2026.

[Hugues Simon, President and CEO at Cascades]

Then we said, "Well, we'll be more aggressive, push a bit the envelope to the third quarter." Now it's a question of cost benefit, right? We think a bit more time will give us more cash. In the macroeconomy like today, cash is king, we really want to get the debt level down, we want to get the fair value. We're not being overly optimistic on the fair value. It's not a question of that's what we think it's worth, we're just way overestimating this. We're very comfortable with the CAD 230 million.

[Sean Steuart, Managing Director at TD Cowen]

Okay. Thanks for that. One last one from me. You had very good volume momentum in the second quarter year-over-year. You touched on that. The industry also grew year-over-year. I'm trying to gauge how much of that might have been buyers getting ahead of proposed price increases versus sustained demand pull. Are you continuing to see good momentum? I know seasonally Q3 is always strong, but even on a year-over-year basis, is that momentum continuing into the third quarter?

[Hugues Simon, President and CEO at Cascades]

Yeah. Let me split tissue and packaging here on that question. In tissue, we don't think that's happening. We go on the retail business where we have a continuous deal with our customers. There might be a bit of that, but that would not be a material number on the way from home, let's say. On packaging, on rolls, it's so tight that even if people wanted to get ahead of that, we wouldn't be able to over ship versus what we see in the ongoing order files that we have. On the box, it's more a seasonal thing that this quarter will have more volume than the previous, just from a seasonality. From a materiality, it becomes small numbers when people are doing that. It's not an area of concerns for us.

[Sean Steuart, Managing Director at TD Cowen]

That's great. Thanks very much for the context. I'll pass it on.

[Operator]

Ladies and gentlemen, again, if you would like to ask a question, please press star then number one on your telephone keypad. Next question will be from Matthew McKellar at RBC Capital Markets. Please go ahead.

[Matthew McKellar, VP at RBC Capital Markets]

Good morning. Thanks for taking my questions. First for me, slide seven in your materials notes the continued strategic conversion toward greater use of eucalyptus over NBSK. Could you tell us just a bit more about this initiative? How far along are you in the process, and how do you think about the cost savings and any other impacts from the continuing conversion? Thank you.

[Hugues Simon, President and CEO at Cascades]

Yeah. If you were to step back a few years versus today, we made significant progress. Our strategy is really to have flexibility over the type of pulp we use, understanding that the spread between the different pulp production moves quite a bit. We want to have flexibility. We have flexibility within what our customers are asking us, so it's a clear understanding between us and our customers on what we can and cannot do. We feel there's more flexibility that we can get. We may have to do some small investments in some of the facilities, but nothing that will bring us over the CapEx amount that we've, the CAD 150 million-CAD 175 million over time. It's really tactical investment to make sure that we provide ourself for more flexibility. We still have upside on more eucalyptus.

[Hugues Simon, President and CEO at Cascades]

On the cost-saving initiatives, that really depends on what the spread is. Our strategy is really to be up to speed to what the prices are, our options. We have strategic agreements for some volume of fiber that we use, and we want to stay ahead of the game there all the time, as fiber moves fast. There's more capacity in Asia today, so we don't see from a eucalyptus standpoint, the supply is there, it's available. On the softwood, it's a bit more restricted where new capacity is not something that we feel is going to happen. Understanding there's a few projects in Canada on trying to restart some asset, but over time, we feel that we really need to get more and more flexibility to use all kind of fiber to make sure that we optimize the spread between the different options.

[Matthew McKellar, VP at RBC Capital Markets]

Great. Thanks for all that detail. I'll follow up with sort of a related question here, and that you've called out mixed paper as being or becoming a viable alternative to reduce production costs with how costs have trended here. I know that's something you've discussed doing at Bear Island, but can you remind us how far you can flex your overall mill systems inputs as it relates to using mixed paper in place of OCC? Thank you.

[Hugues Simon, President and CEO at Cascades]

Mixed paper, we've been on and off at Bear Island on mixed paper as we were focusing on getting the uptime and the speed and the quality was the priorities of the operation. We can get quite a bit of mixed paper. We're not using it all the time. Again, it depends on the spread. It's more an opportunity right now than something that's already in our cost structure. We've been focusing on using better grades to get the machine to the 95%-100%. The upside, we could probably use between 15%-25%, but we're not at these numbers today. These targets may evolve depending of the cost spread between the different type of fiber and also the difference in actual quality that we see between mixed and the other number 11 grade of OCC.

[Matthew McKellar, VP at RBC Capital Markets]

Great. Thanks very much. I'll turn it back.

[Operator]

Next question comes from Ryan Fox at Bloomberg. Please go ahead.

[Ryan Fox, Corrugated Packaging Market Analyst at Bloomberg]

Good morning. Congratulations on a good quarter. Wondering if you can remind us what percentage of your customers are contractually tied to linerboard prices?

[Hugues Simon, President and CEO at Cascades]

It's approximately 75%.

[Ryan Fox, Corrugated Packaging Market Analyst at Bloomberg]

Okay.

[Hugues Simon, President and CEO at Cascades]

On the box-

[Ryan Fox, Corrugated Packaging Market Analyst at Bloomberg]

Okay.

[Hugues Simon, President and CEO at Cascades]

Lined container boards.

[Ryan Fox, Corrugated Packaging Market Analyst at Bloomberg]

Yeah. I know you can't comment about what competition is doing as far as this price increase, but can you give us any color about how you got to CAD 100 a ton or what this next increase is going to be? A third increase in one year is, I'll say, unprecedented. We've only seen it a few times. Just curious how you are portraying that to customers.

[Hugues Simon, President and CEO at Cascades]

Yeah, we're not going to provide much detail on the strategy on how we get to a number. What I can say on unprecedented three price increases in the same year, I have a list of unprecedented things that happened over the last 12 months. When you look at the profitability of Cascades with the cost of having assets like we have, we're getting into a trend that's acceptable for a shareholder. There were tremendous cost inflation, unprecedented cost inflation in many of the categories of items that we use. Our responsibility is to our employees and to our customer is to have a sustainable product offering to them. In order to do that, you need to have profitability within your business so that they can rely on you for the long term.

[Hugues Simon, President and CEO at Cascades]

You look at the margins, like we just got above the 15% mark on packaging. We're below 9% on tissue. We're really adjusting our pricing to the reality of the economy. Maybe for the first time, instead of being behind, we're getting on pace. We're not even getting ahead of pace as far as I'm concerned. We're just getting on pace from a profitability standpoint.

[Ryan Fox, Corrugated Packaging Market Analyst at Bloomberg]

Okay. If I'm seeing this properly in the slide deck, your vertical integration rate is around 51%. Is that what I saw?

[Hugues Simon, President and CEO at Cascades]

Yes, it's-

[Ryan Fox, Corrugated Packaging Market Analyst at Bloomberg]

53%, 52%

[Hugues Simon, President and CEO at Cascades]

50%. Yeah, 50% something on a consolidated basis, but we have a partnership as well, so then it increases with partnership to the 70% mark.

[Ryan Fox, Corrugated Packaging Market Analyst at Bloomberg]

I got you. Those vertical alignments are great. All right. That's all I got. Thank you.

[Hugues Simon, President and CEO at Cascades]

Thank you.

[Operator]

There are no further questions at this time. Monsieur Simon, please continue.

[Hugues Simon, President and CEO at Cascades]

Thank you, Operator. Before we end the call, I'd like to thank all of the Cascades employees for their hard work and commitment. Their efforts continue to drive our progress that we're making, and you've seen that from our second quarter results. Health and safety and execution, they will remain our highest priorities, and we're pleased with the progress we've achieved this year. Lastly, I want to reinforce the fact that high-quality execution is critical in a fast-moving economy. Thank you.

[Allan Hogg, VP and CFO at Cascades]

Thank you.

[Operator]

[Foreign language] Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect. Have a good day.

Participants

Executives

• Allan Hogg, VP and CFO
• Hugues Simon, President and CEO

Analysts

• Ahmed Abdullah, Equity Research Analyst at National Bank of Canada
• Hamir Patel, Executive Director of Equity Research at CIBC Capital Markets
• Sean Steuart, Managing Director at TD Cowen
• Matthew McKellar, VP at RBC Capital Markets
• Ryan Fox, Corrugated Packaging Market Analyst at Bloomberg