CANADA (From news reports) -- KP Tissue Inc., part owner of Canada's largest toilet and tissue paper producer, says it won't provide guidance for its next quarter and has delayed a decision on a major capital investment because of U.S. tariffs.
The publicly traded Mississauga-based company, which owns 12.5 per cent of Kruger Products Inc. and shares the same management team, typically provides earnings guidance for the next quarter when it reports earnings, which it did Wednesday. Kruger makes Canada's leading facial tissue brand, Scotties, and the Cashmere, White Swan and Purex lines of toilet paper. It also makes Sponge Towels.
But chief executive officer Dino Bianco said on a conference call with analysts to discuss year-end numbers that Kruger/KP would not provide profit guidance for the first quarter "given the evolving news and volatility." U.S. President Donald Trump this week carried through on his threat to impose a 25-per-cent tariff on many imports from Canada, including softwood products.
Roughly one-third of Kruger's revenues are exposed to tariffs, primarily finished goods made at its nine Canadian plants and Canadian softwood pulp used by its one U.S. facility, in Memphis, Tenn. Kruger derives about 45 per cent of its $2-billion in annual revenues from the U.S.
Mr. Bianco also said the company has delayed a decision on where to locate a new US$600-million tissue manufacturing facility. Kruger has scouted locations in Canada and the U.S. and had expected to make its pick in early 2025.
"The cost of business is a big factor," Mr. Bianco said, noting that tariffs add to other considerations such as energy costs, access to water and labour and freight distribution. Revenue from the U.S. has been growing at nearly three times the rate of its Canadian business, and the company prefers to limit shipping distances to within 800 kilometres of factories because transportation is its second-biggest cost.
Further complicating the decision, he said, are the exchange rate, possible reciprocal tariffs, a potential recession and "collateral impacts around freight," much of which are related to tariffs. "We're going to wait until that all settles out before we make a major announcement like that."
Mr. Bianco recently warned that Americans could face toilet-paper shortages and price hikes if tariffs came to pass. He explained that the price of imported toilet paper - which accounts for 10 per cent of U.S. consumption, with half of that from Canada - would immediately rise 25 per cent in the U.S., as American retailers pass on higher costs to consumers. U.S. producers also rely on Canadian pulp, and Mr. Bianco estimated tariffs would increase their costs 6 per cent to 8 per cent. Those would also be passed on to consumers.
When inflation-battered U.S. consumers realize prices are about to rise, they might load up their pantries, Mr. Bianco said. Given the industry produces to capacity and there is typically little inventory to spare, that demand shock would lead to empty shelves and could spark further panic buying, as happened early in the pandemic, he warned.
Kruger said it generated $539.6-million in revenue in the fourth quarter, up 11.9 per cent over the same period a year earlier, and lost $13.7-million, compared with net income of $16.5-million. The drop in profit was primarily owing to a higher foreign exchange loss and higher depreciation and interest expense. The company did adjusted operating earnings in line with its forecast from a quarter ago, at $66.8-million for the period ending Dec. 31, up 9.2 per cent year-over-year.
National Bank of Canada analyst Zachary Evershed cut his stock price target on KP to $8.50 from $9, reflecting "an assumption that tariffs remain in place as they currently exist," he said in a note.
Kruger recently launched an advertising campaign to highlight the fact it is a Canadian company and makes products for Canadians domestically. Mr. Bianco said he believed that would lead to market share gains but added that it's "too early to tell" if that will transpire.
