Cascades Returns to Profit as Debt Remains Near $1.88 Billion

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A return to profit can change the tone of an earnings report, but it does not erase the weight of a large balance sheet. Cascades Inc. posted net earnings of $21 million in the second quarter of 2026, reversing a $3 million loss in the same period last year, as sales rose and its packaging operations performed better than management had expected.

The Quebec-based producer of packaging and tissue products also reduced net debt to $1.879 billion. That was progress, but only modest progress: leverage remained at 3.3 times adjusted EBITDA. The result is a quarter with two distinct messages. Operations are gaining strength, helped by pricing, productivity and cost reductions, while debt reduction remains the central test of how durable that improvement will become.

Profit Returns, but the Quarter Was Not Uniformly Strong

Cascades’ return to profit was meaningful because it came against a weak comparison. The company earned $21 million, or $0.21 per share, in the second quarter of 2026, compared with a $3 million loss, or $0.03 per share, a year earlier. On an adjusted basis, earnings reached $24 million, or $0.24 per share, up from $19 million, or $0.19 per share. Operating income also improved sharply year over year, rising to $58 million from $36 million.

The sequential picture was more complicated. First-quarter net earnings had been $39 million and operating income had been $81 million, so the latest quarter did not represent an across-the-board acceleration. Some of the difference came from special items and the timing of operating expenses. Cascades recorded a $6 million loss on financial instruments and $2 million in restructuring costs, partly offset by $3 million in gains tied to asset and business sales. The quarter was therefore a genuine year-over-year recovery, but not a clean upward line on every measure.

Sales Growth Came From More Than Volume

Second-quarter sales reached $1.219 billion, up $32 million from the same period in 2025 and $94 million from the first quarter of 2026. The year-over-year increase was driven mainly by pricing and product mix rather than a broad surge in shipments. Cascades attributed $13 million of the improvement to higher average selling prices and $21 million to a more favourable sales mix. Those gains were partly offset by a $2 million volume impact associated mainly with previously completed closures and divestitures in packaging.

That distinction matters because price-led growth can be valuable, but it must hold up when customers push back or demand softens. Management said packaging volumes nevertheless came in ahead of its own forecast, helped by solid mill production, new customer onboarding and a better economic environment than anticipated. Adjusted EBITDA increased to $140 million from $137 million a year earlier and $118 million in the first quarter. Its 11.5% margin matched the year-earlier level while improving from 10.5% sequentially, showing that higher revenue translated into a healthier underlying quarter.

Packaging Did Most of the Heavy Lifting

Packaging Products remained the largest contributor, generating $772 million in sales, $68 million in operating income and $120 million in adjusted EBITDA. Sales were up from $715 million in the first quarter and $763 million a year earlier. Adjusted EBITDA rose $17 million sequentially and was slightly above the $119 million reported in the second quarter of 2025. Management credited steady paper-mill production, stronger-than-expected demand and progress bringing new customers into the network.

The segment’s improvement is especially important because Cascades has spent years reshaping its packaging footprint and ramping newer capacity while closing or selling less strategic operations. Better utilization can spread fixed costs across more tonnes, improving profitability even when industry demand is not booming. Pricing is another lever. Cascades said a previously announced $50-per-ton packaging increase was expected to support earnings in coming quarters. Still, packaging operating income fell from $88 million in the first quarter, reminding investors that EBITDA momentum, depreciation, maintenance timing and other costs can produce very different pictures depending on which profitability measure is examined.

Tissue Improved Sequentially, but Still Has Work Ahead

The Tissue Papers business produced $409 million in second-quarter sales, up from $380 million in the first quarter and $392 million a year earlier. Operating income held at $20 million sequentially, while adjusted EBITDA rose to $35 million from $33 million. Management said the business benefited from improved productivity, higher sales volumes and continuing cost-reduction programs. Those gains helped the segment perform slightly better than the range Cascades had expected.

Year over year, however, tissue profitability remained softer. Adjusted EBITDA was below the $38 million generated in the second quarter of 2025, and operating income was down from $25 million. This mixed pattern reflects why operational improvement matters so much in tissue manufacturing. A plant can ship more product yet still face pressure from fibre, energy, labour, maintenance and transportation costs. Cascades has been working to strengthen its tissue platform and cost structure, including investments in Quebec converting operations. The latest quarter suggests that those efforts are improving efficiency, but the segment has not yet converted higher sales into a full year-over-year recovery in earnings.

Debt Fell, but $1.879 Billion Is Still the Central Number

Net debt declined to $1.879 billion at June 30, 2026, from $1.901 billion three months earlier and $2.104 billion a year earlier. That represents a $22 million sequential reduction and a $225 million year-over-year improvement. Total debt was $1.975 billion, while cash and cash equivalents stood at $96 million. The direction is favourable, but the remaining balance is still large relative to the company’s earnings base.

The leverage ratio stayed at 3.3 times trailing adjusted EBITDA because debt reduction was modest and the last-12-month EBITDA figure increased only slightly, to $572 million from $569 million at the end of March. That ratio has improved from 3.8 times a year earlier, but it explains why investors may view the profit rebound with measured optimism rather than relief. A leveraged industrial company has less room when demand weakens, input costs rise or capital projects require more cash. For Cascades, sustained operating gains matter most when they produce free cash flow that can permanently reduce borrowings rather than simply stabilize them.

Cash Flow Provided the Strongest Evidence of Improvement

Cash flow from operating activities reached $116 million in the second quarter, compared with $18 million in the first quarter and $67 million a year earlier. Adjusted operating cash flow was $123 million. After capital spending, lease payments, dividends and other listed items, Cascades reported $47 million of adjusted cash flow generated before specific items, compared with a $7 million use of cash in the first quarter. That swing gives the debt-reduction plan more credibility than profit alone would provide.

Capital expenditures totalled $40 million during the quarter, below the $44 million spent a year earlier but above the first quarter’s $28 million. Cascades continues to forecast between $150 million and $175 million of capital spending for 2026 before asset disposals. That range reflects the balance management must maintain: mills and converting plants require ongoing investment to remain reliable and competitive, yet every dollar retained after essential spending can support deleveraging. The quarter showed that Cascades can generate meaningful cash when operations cooperate, but repeating that performance will be more important than any single three-month result.

Asset Sales Are Supporting a Broader Reshaping

Cascades generated $5 million from asset sales in the second quarter, bringing proceeds for the 2025–2026 period to $154 million. Management is targeting $230 million in total proceeds and now expects to reach that objective in early 2027. The delayed timeline was presented as a consequence of taking a disciplined approach to maximizing value rather than accepting weaker prices simply to complete transactions faster.

The program is part of a wider effort to simplify the company and direct capital toward operations with better long-term prospects. Earlier in 2026, Cascades sold its Richmond, British Columbia, corrugated packaging plant and announced exits from honeycomb and partition packaging activities, with three plant closures affecting more than 100 workers. Those decisions illustrate the human cost behind portfolio optimization: debt reduction and stronger margins can require communities and employees to absorb disruption. Financially, divestitures can provide immediate cash, but the deeper test is whether the remaining network becomes more productive. Selling assets helps the balance sheet once; better operations must carry it afterward.

Tariffs and Input Costs Could Complicate the Recovery

Management warned that certain tissue and packaging products exported to the United States could be exposed to newly announced 50% tariffs. Cascades said it was assessing the potential effect and pursuing tactical measures intended to reduce the financial impact. It also noted a second-order risk: customers whose own products face tariffs may cut production, which could weaken demand for boxes, protective packaging or tissue products even when Cascades’ goods are not directly affected.

The company described the potential impact as manageable, but the uncertainty arrives while raw material and transportation costs are already pressuring results. Higher fibre, freight, fuel or energy expenses can quickly erode gains from pricing, especially when customer contracts delay cost recovery. Cascades is also monitoring instability in the Middle East because sustained increases in oil prices could raise transportation and manufacturing costs. The practical challenge is timing. Price increases can restore margins, but costs often move first. That lag makes operational flexibility, regional production choices and customer negotiations crucial to protecting the earnings improvement seen in the second quarter.

The Outlook Is Better, but Execution Must Now Reduce Leverage

Excluding the potential tariff impact, Cascades now expects its annualized run-rate adjusted EBITDA to exceed $600 million during the second half of 2026, surpassing its original objective. Management said packaging and tissue price increases were progressing as planned, while productivity initiatives and cost optimization were strengthening the organization. The board also maintained its quarterly dividend at $0.12 per share, signalling confidence that the business can continue returning cash to shareholders while pursuing its other priorities.

The central tension remains capital allocation. Cascades must fund maintenance and improvement projects, support the dividend, absorb restructuring and market volatility, and still direct enough cash toward debt. The second quarter offered encouraging evidence: profit returned year over year, EBITDA improved sequentially, operating cash flow strengthened and net debt declined. Yet leverage did not move from 3.3 times. That makes the next several quarters less about proving that a turnaround has begun and more about showing that better operations can create a sustained downward path for debt. Profit is the first step; balance-sheet flexibility is the more durable destination.

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