Clearwater Paper (CLW) 31 Oct 222022 Q3 Earnings call transcript

Good afternoon. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Clearwater Paper Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute, to prevent any background noise. [Operator Instructions] I would now like to turn the conference over to Sloan Bohlen, Investor Relations. ahead. go Please

Good Paper's Dennis. thank for you Thank Quarter afternoon, XXXX Clearwater Third Earnings joining you, and Conference Call.

the Officer; our Chief market close, Joining and XX-Q. XXXX were for on call with after Arsen quarter are me today's shortly Kitch, the Chief third Executive Officer; the and Financial Murphy, along released Mike Financial results today President filing of

page presentation providing on find the of our Relations the the current will including slide supplemental clearwaterpaper.com. You a at posted company's outlook Investor of website information,

of supplemental rereading Additionally, press information we information will rather in the website. our call turn to forward-looking this be Slide over the non-GAAP prepared in going are provided providing me and release certain afternoon's non-GAAP Arsen. two this discussion. we information information A it the in With our information supplemental GAAP than comparable to by in incorporate reference is the included to remarks. on reconciliation our of statements, covering let slide, that, note Please

thank you today. for us joining and afternoon, Good

million. everyone our wish I XX% quarter, We $XX million, higher a exceeded basis, Adjusted income consolidated and third third year. earnings, On net and was we turn expectations. safe was Slide million a wanted our quarter of had EBITDA great Halloween. to net reported three. sales which $XX reviewing to which enjoyable Before Please a was $XXX than prior adjusted

pulp, highlights. and Both our headwind in of a fiber, and across Let pricing a in both strong energy. costs, few me remained increased particularly chemicals input demand Inflation share paperboard tissue were businesses. with most

nine-months debt the help the costs. reduced year. quarter We of our to $XXX in the price addition increases, In million $X rising improve first continue in to million impact by and the of operating to performance mitigate we net

in we the total And also million in million million of the year. for of repurchased first the quarter a outstanding $XX finally, of notes during We XXXX. $X repurchased shares $X our due nine-months of

additional both million We our details about have businesses. on With $XX authorization. our buyback some of discuss remaining let's that,

on RISI Slide the experience higher reported totaled strong on that few increases $XXX of U.S. XXXX, comments including reported RISI. Since paperboard ton. September industry start with Let's were in a XXXX, SBS business. four the pricing of continues by The beginning October. with as to for demand per increases in price has tonne reported market and $XXX per $XX $XX in our

us portfolio worth be mechanisms a our up As changes economic RISI's concerns a includes quarters We're our to monitoring not global economic in to for reflected takes grades noting reflected that and additional reminder, reporting. also in about trends, is given It it price are price typically two slowdown. financials. that

stable that industry with we is by weeks the as overall ago. continued evidenced reported RISI's demand. economic robust, strong to the remained backlogs uncertainty, Even Our believe increases continue with price demand few a

lower diligently margins. to working cost in XXXX, recover in recently during tissue uncertainty. economic dollar turn XXXX five observe to for demand branded We our comments their please support strong, shoppers continue price that very of that Slide our performance in business tissue we our this consumers diligently and was shipments of to believe business. and time We working on the our recognize inflation to to that which branded outpaced matching customers and price quarter the quarter we're The and we our tissue increases to implementing in announced second Private all-time benefits XX% well last position. XXXX share over is our inflation. market offset help quarter September, in third of shipped to We products Now and operating will above our to are their year. increases slightly provide underlying We're and of continuously shifting tissue cases million high. tissue some private the XX.X additional additional an are climbed has third positioned

both businesses previous see As of inflation substantial our quarters, continued discussed quarter. in to in the third

In improving and operating we chain addition performance. to to our continue supply focus price on increases,

pricing I productivity offset to quarter that detail. headwinds results is the helping ask focus third Our now to cannot we will in our inflationary and on discuss more Mike control.

deferred on product, Lewiston in certain investment segment and $X which the Thank taxes the net lower-than-anticipated resulted XXXX. and an income and share Please tax the third credits you, adjusted $XX.X by was our to open income by pulp year-over-year for net related Net $X.XX. reversal was years The we with share shows performance, and the income Slide across our expenses. is gas in turn XXXX, previously third Arsen. diluted In quarter third of third XXXX EBITDA net comparison our from for inflation per six. quarter income seven. natural pricing, We are which increases, five our quarter, higher approximately summary We per categories. was pulp from In diluted statement IRS Slide $X.XX, third increasing in our quarter. corresponding our adjusted partially the The exceeded operating results ago the strong eight were to settled business spend consolidated maintenance EBITDA offset Slide prices company million. price quarter. expectations adjusted our benefited quarter solid paperboard and announced effectively million

no You'll took adjusted of the third XXXX. recall quarter major of $X was XXXX, There that quarter by we EBITDA a maintenance outage outage the third in million. impacted in

comparison provide third in business where can a second a comparison Slide quarter. XXXX of performance our year-over-year our quarter You Please third to tissue the XX. relative our on X, Slide review to for quarter we turn

quarter. we price mix increases, realized In the benefit implemented to in some addition the

production our due These higher offset pressures. reduce was last by while were higher benefits and demand, to year. year largely modestly inflationary higher than costs production we curtailing were Our were and than last to inventory meet sales

Slide Slide capital outlines You can on the third a XXXX to our relative XX. review XX quarter structure. our comparison quarter of performance second

$XX We million million $X to debt by reducing that third free million was flows with $XXX principal our of notes repurchase in at net cash cash reduced liquidity We of utilized amount our quarter. in $XXX the million. net Our XXXX, and the flows to quarter. the end mature liquidity free

Additionally, repurchase to million, $X under the total approximately existing repurchase XXX,XXX million shares a increases XX,XXX at with to used average This repurchased per for program shares our approximately $X $XX stock $XX share. an above we XXXX approximately share. purchased price just in

capital remaining $XX inflation. major expenditures authorization. have our projects million $XX $XX to impacts We We per to year, of on million updated to million reflect the target the absent

was and net EBITDA of times, debt end to adjusted the of $XXX million. the was net debt Our at XXXX third quarter X.X

year our during XX third fourth deposits quarter raised stable and from resulting quarter. guidance. our perspective S&P Additionally, on outlook the outlook Slide the provides full a XXXX

we to to continue will significant predict. assets that to be assume without expectations price We to our want continue disruptions. reiterate difficult that operate Our and inflation realization our

quarter lower for Our due This is adjusted quarter $XX expectation million maintenance to major the than adjusted range midpoint fourth outage. the the The fourth current planned EBITDA is $XX of quarter million. largely to is $XX of that million. third our million EBITDA for of $XX

to price million. outage are increases quarter we us quarter positively and will outages to had As to third million $XX than is in that quarter million expected previous by impact in This higher by the $XX million. a $X fourth modestly expect during impact the $X maintenance Previously no adjusted announced the impact EBITDA paperboard major reminder, expectations.

our and We in pulp, million. an pulp us and fiber, energy October, paperboard expect issues experienced both impacting $XX to to inflation, million by paperboard chemicals We reducing additional particularly mills $X production cost million. our $X and EBITDA production at approximately

tends quarter volumes in seasonally to fourth be focusing on for tissue holiday with retailers the Additionally, their soft items stores.

when for in quarter guidance, EBITDA year with our million higher our adjusted we quarters three EBITDA $XXX significantly to to XXXX first adjusted was $XXX expect the the fourth of than million $XXX $XXX adjusted EBITDA Our XXXX. be of million, million combined and full

of are some blocks that those compare year. Here to expected performance XXXX relative last building

and $XXX full expect end previous energy $XXX prior end pricing chemicals to near high be of Commodity fiber which freight, million, million expected the is to expectations. including We cost is which low our the inflation, at of year of guidance. $XXX $XXX million, is pulp, to a million benefit our

mitigation million. inflation, to net We cost $XX efforts labor expect be approximately of

in growth volume. tissue expect converted We

volume be the supply financial higher higher In major planned by impact. maintenance business, will paperboard chain offset a outages our slightly costs. However, benefits to have largely expected are

$XX also anticipating amortization $XX million and for expense are expenditure between between $XXX is Interest expected to million, target levels than This capital We filing $XX lower $XXX million. million. million, the $XX around $XX XXXX. of million to million $XX depreciation and expenditures of our million and

targeted we the $XX you will target cumulatively Over three over next our years above to several the that expect years, by million we've should $XX last over spend that range. $XX million million. And underspent

which on fourth a the $XX to quarter estimated during expected Lewiston boiler update you $XX replacement of million. expect timing the call of approaching impact project, to adjusted capital is recovery an million once and We EBITDA require the earnings tube

We expect XXXX. $XX capital in to million $X of spend expenditures the million out

net XXXX year typical That rate tax impacted in to rate of taken be through the full for XX%. by of tax effective credit reversal versus the Our to expected is the XXXX. XX% rate XX% being is

Lewiston assumes accelerated statutory Additionally, our for pulp to the taxes depreciation as our from current that projects. cash related we years cash and benefited expansion future expectations exceed taxes will optimization Shelby

over back to me Arsen. Let call turn the

our discussing CEO priorities our I generating Thanks, shareholder cash key financial becoming Since deleveraging XXXX, flow, value to sheet few free for are minutes and improving in flexibility. a want creation. we focused on Mike. spend balance

and believe bottom. offers and Slide depiction robust framework. allocation is share from capital has together prioritized top achieved We a to our by a now our XX with good shaped leverage input have Board. is This our analyst visual time a our with which of recently dialogue to target framework framework, that investor been

average Our projects. which an expenditures asset $XX requires capital sustain first annually, large million excluding priority $XX to of we of millions is our believe base, to

to We expect target near level that invest in the medium above to term.

we sheet that to Second, us intend flexibility. a financial with provides maintain balance

leverage greater believe further of that will down we investment continue shareholder to we in cycle. advantage a may financial opportunities to create flexibility a value deleverage long-term X.X ratio create of take is potential appropriate, While that to

internal Third, investments near-term evaluate value-accretive cash we benefits. and add value and will clearly realizing by in nature investments. These be should external flow strategic

greenfield expect or grants acquisitions reduction Fourth, of our large capacity Given environment, we're incremental dilution buy brownfield impact expansions. and the mitigate to to we the current likely add-on back from to to business employees. shares cost versus prioritize share projects

be for value on In to be closing, across would the allocators with both I will and opportunities and right depending to also we'll repurchases share opportunistic efficiently additional I levels. that, We emphasize they our continue people that their that our price will out our would of disciplined businesses. our their thank support thank for trust seek create like operations our do in to also running and our to shareholders our all take share us. will we our customers. and of continued prepared placing capital, keep remarks like servicing I to for end questions. With for your to safely and we customers want

question Josephson Please Capital [Operator Instructions] line Your first ahead. is the with go KeyBanc Adam Markets. from of

Arsen the quarter demand and guidance I were third prices your in sources good and assume quarter? you thinking related good Mike, call it, on million. in EBITDA full year upside implied the and to on -- that? your quarter. relative really another for goes paperboard $XX-ish Arsen, right by, entirely your up Congratulations I I higher was mostly of Or the topped not, afternoon. performance, if assume just Am or that obviously, guidance. the EBITDA the same to guidance third what going

range things, was Adam. a of it So

to well very we our foremost, expectations. relative paperboard standpoint Tissue production well. and good and from performed had as First operational really a performance

relative Pricing outperformance. So the I'd the the lever portfolio biggest was was to second biggest say across the lever that for probably guidance.

four has the where of Third also planned our lever. predict been pretty been quarter we months our in which curves to buckets, one came guidance. was then. the some That down the since three we we'd then forward expenses future. natural ago, the noted difficult third Those gas the ugly. the That would deferred look pretty to prices, have primary maintenance to be Adam, relative be And that would

issues was? what as in not persist I mentioned Okay, expecting can into thank you, the specific that you're those production you Mike. Pulp and be more that. I November? The you October, assume And to any that to Paperboard, appreciate

both still, impacted mills Yes. the of We're those in into mills production to and they going through at not issues. production one paperboard but get frankly, other working the details, mill. pulp the We're

impact it back was happened through something although to quarter, impact on the get quarter. them. get across and thought we of we'll majority the through as So here month an early the working $X that having October, out in is million on track, it we it call is we're we expect our we'll an but It's that think impact important of

more And question, your as end, I part a appreciate any you're you're toward begs towards capacity strategy in which inclined year, a capital is. the greenfield from just that. what tons me. is mean, pretty not precisely large paperboard your couple you capacity XXX,XXX obvious your capacity you're producing paperboard of One at the allocation additions business. I much mentioned is which

think paperboard going Or that not do would future business? -- additions? the growing How you your have mean where how capacity able to you any are the capacity, invest absent new to you're at you do major business grow? in in you to in If capacity? about grow capability be I

you're a while. full and ways do We've right. in capacity, been been for to paperboard. Adam, So at Two that operating we've

certainly is I incremental we'd to be throughput for think get through on the of the would details to going and we horizon And acquisition externally drive machine. pursue of into lot say, improve growth. production growth see not acquisitions. investments paper us I some looking first what those for not like, look one making options And a to any That's we're some could in production. medium-sized the then That's potential to and mills opportunities. but increase

capacity SBS been additions U.S. even imports, is And producers long-term the might announced have talk that a have U.S. related Europe that. How FBB and of domestic FBB on about have that all you the capacity additions that some for are Asia announced? trials. FBB in just that in thinking And running last and about been that appreciate your the one, the I in are matter, the of and lot one there's FBB impact been growth business? which what

discussions lot has of about FBB There recently. a been

this believe period relatively market of some So been of FBB X.X in about years. tons million been there's for that's We for imports and time. many low

think through years, our the I lot domestic having this benefits a couple supply customers of of a last of chain. recognize

that's think is converting the operations. second require they change And converters And part applications run still the this market. is, predominantly to -- of require I processes different FBB part their different answer. So for it SBS type an and

-- don't I So while. into to they've at imports in exactly U.S., additions how will near a know capacity think the least but the impact the been term, medium for how those around

we're I think do. what domestic through how for and FBB react production potentially would and would offset some of various those we we imports. working But planning scenarios

Yes, thanks so much, Arsen.

Your is go RBC. Please with the question line Paul from Quinn of next ahead.

much, Yes, guys. thanks very

you Board cost Just terms increases going your both -- price that that wondering are assuming side got tissue QX in the guidance, treatment you're seeing the seeing? have about of and on the offset you're you to are inflation

little a think bit we of had issue, I timing No, Paul. a

So it's good question. a

our raw what to be. price think we increases material is below going to be cost going just are Our inflation

is sequential inputs, material And to million. be million million. to $X you up raw our that's and then from to range, $X $X pricing this freight million going give So and $XX a a up

So a from that to compression third going mild margin the the quarter. to see we're fourth quarter

Okay. That's on costs helpful. you then relief are on And freight any seeing yet? themselves, the

in We little bit heading the saw that into fourth yes. quarter. Freight, the third a quarter

seeing on at we're that that's think least area a I sequential a basis. X So positive comparison

to on pulp, but you're fact, And on at starting this yet? see energy nothing something

Yes.

very October. a firm. -- pretty on on minor of is think Eucalyptus here saw little we I easing one because it's pulp, tough into a bit it's softwood, holding

in an that. into seen at the forecast of you the the think if I year, easing We prices. back second haven't half indicating obviously forecast pulp we're this look

are 'XX, some hoping But coming wrong and we're years. If the some pricing. you quarters. to the been it's I point, into at think least in most in I peak, this of look at forecast see them We're softwood. decreases for on we've we're at see But we'll assuming pulp good easing relief several think

to it for in of think million year? Okay. major 'XX do I $XX mean at we be I end, are due to how see but then just on 'XX? another the for zero major about 'XX, you $XX that postponed saying that million And Or maintenance the maintenance, also could slide sort or

Sure. Good Paul. question,

two clarify, XX, XXXX. Slide separate So potential just to in there's outages

one we've fourth million that's the out in called So a that's quarter, $X about outage.

position in The to need for we other XXXX, Lewiston, replacement as a get outage, time the the one, on outage going about one, frame in this take going into is be a to project. is much choose in up related to fourth and our 'XX that is And finish XXXX we here quarter better or Paul, this this the screen tube Lewiston commence outage. week. And which we're we'll to which of to

in is late availability XXXX depending the of or upon either of the the XXXX, both this early screen So in the availability of states materials. contractors and tubes,

Okay. great. That's

So that does to do then like? a 'XX. that back What and just for 'XX the tubes on through defense? the Lewiston in Does you're to assuming preliminary off you're -- screen basically the push going year look cyber cover

outage Too to anticipate your but get once Paul, we're in you we question November. guidance to through we here this early the when the ready speculate, one give at Lewiston on next will

That’s I enough. fair Thanks. Okay, all had.

Wilde next question is with Please go BMO Your from Capital Mark line the of ahead. Markets.

afternoon, and Good Mike. Arsen Thanks. morning -- good

major a million. million First on at $XX XX, got maintenance question. $XX outage one number is just Slide listed The of kind a -- to detailed Lewiston you've

by go Can couple us I of bucks. that? -- help you think during the commentary, can million I with number heard you a just that up

to major closer for they're Yes. Good $XX the the question it outage. at have maintenance that there. higher end, I'd million

about kind pricing that terms of should both quarter-to-quarter. businesses? what $X to I right. Okay. of talked million expect we $X in correct across And sort already of of million think then the All you've in Is

Correct.

of Okay. And you're now, that working there or Mike, any right contract anything, on? Mike in terms renewals is outstanding Arsen,

think got the we've through I in material 'XX. ones

I at us. -- as for we you look year a 'XX, look normal it's think as more at

that normal we and next the we So feel going frankly, year, risk good any into about pretty have year.

have think in business and to opportunities our both I optimize tissue. grow we

couple And kind sort and you've need consolidation. right in of your clear change the Okay. the market tissue now? of been years, potentially some on quite last What's the the for over of situation Arsen, read about

by stand comments. still We those

that consolidation still cost I -- we we're can play to scale are consolidation. whatever make in Right somewhat a standpoint, capital so think still I to and margins on our we want depressed both balance play think that well to sure play are we a sides. have returns. turbulent. we tissue From in markets needed positioned and to and need now, consolidation in the role business improve role But strong we sheet

investing Okay. about then All when integrated two Maybe you on last right. of packaging? me, kind think packaging, in And then of versus And tissue that for just historically just in talked incrementally your about you've business. investing any of been business. How do thoughts the sort sort the sides of you not packaging? one about downstream and

So of creation, by we'll and first think your I question, opportunistic. we'll value be driven part be

in we of think So both we're value. can willing our business to I create if invest sides

and and through downs market. in at But But of We're to will our and public packaging, we've right years the of on in them proposition you're sense. the we'll we XXXX, coming value that's of options continue we've still that going now been our part In to of our terms if still for of makes ups proposition. the that's customers had and evaluate is are sure looking to strategy have all that's focused strategies value -- in paperboard run. we strategy the that right, our all to part that make the be we've become that's company, certainly, since a long independent, a

the in of mill on of about And to midst Would conversions at assume mill kind or conversions? sort in it of fair you the might of be medium-sized be Okay. talked look could SBS. undergo side just finally, potential kind or the that, involve that could moves

our part look the can there business sense and for the strategically potential create think is us. more quality make that's optionality And opportunities would line there. I at The be I third down a or a a, we'll think customers. us creating we to scaled we for and No, where be better we'll relevant asset say, the more paper is to has open-minded to for of the

all Okay, right.

Sounds good. Thank over. I'll turn you. it

with from Today's Please final a Markets. question go the Josephson ahead. is follow-up KeyBanc Adam line Capital of

and Mike, appreciate Thanks, Arsen it. I

market to to Just would all the of you'd years one Mark's mean invest to given questions on in inclined reasons? segment you else to or which of necessarily more in for but inclined value up understand more structure paperboards number any in come. be not I I equal, be about at Arsen, looking follow the just invest superior

So a question. good Adam, it's

one a of involved. creation I fit, strategic factors think potential. value And is there's I at assets. mean the number looking of obvious at looking first quality then

other. that the to on So or we side business it's can more one the hard say find opportunities of

think specific I be the growth. at going potential look as it's to we siting for

right. We've challenged. absolutely we've I good the margins think unique. is a is But each more to great paperboard years, be enjoyed going situation You're over enjoyed tissue and --

at be the think and sides I opportunistic business. to So continue both look of we'll

in X, years. years, Mike, $XX to that. be spending X rough mentioned you've next recent which million, X, CapEx, to the of over might million you given me of in the in that you above give just be expectations you'll appreciate I few you those $XX thinking No, magnitude, lines? the degree the Can underspent whatever along terms order years, that next some

codes. of model I way right $XX on to think to that in Adam, be $XX it, million is average the just million to

the as ours, at small, the project under so that bit be years, like few you something spend company little a when become you a things rather forward a will we're that So And and look episodic. you last took over higher. more

couple that to capital into number that's that should expenditures something boiler that that have, here your you X that's going regular at for the example, So incorporate models we to recovery as next add an Lewiston of and the years. way project,

year, don't about be know anything Yes. timing be maintenance that aware we No, appreciate admittedly 'XX next or whether I thinking we thinking year, XXXX. next it stage? versus the 'XX just ought aside, That at Mike. about in this major early the that, all And of there obviously, as is next of year will to we're

So from to we want shy guidance giving away for XXXX.

think But the to we'll call like start do those February building we'll what done. giving off until we've on I year-end hold customarily look in earnings blocks to you then.

Yes. No, that fair. all And increase went up Or it was just And one last all point SBS for also $XX of Was price September, to clarification I was year, partly the on think increases? related by October -- million. the paperboard? increase? price/mix the guidance of that previous the that

it's paperboard. think on see and the businesses. previously we tissue increases I both We're from And price call, we'll tissue announced So in increases into mentioned price benefits next implementing both the year. going

on think on has an that upswing. been look you price at the I tissue selling average if

although still ability we're those are our to some optimistic go. ways we margins in tissue, inflation recover we have So from in to

actually Yes. before last Arsen, And I X go. you let one

that now XX%, see private some insight pressure the happening Can obviously, that what behaviors us You how share brand into given high a just buying brand go under? share consumer mentioned is consumers and little are market and more being private you could give you market affected. perhaps above

Yes.

good really seen we've seen we've -- private brands in Adam, shape. even gain was economy So when so share the

we an European are said the north north the uncertainty. of and aisles and well. at as that in previously, happening we've inflation there's think acceleration on of shares grocery branded And here economic with if And but what And the some North so that's private you XX% -- markets categories American are markets, there XX%. do look

XX% get plenty the brands share. of in to gain stretch. So term? there's to for bit a think That's near here private do we'll a think I of runway probably gain to I But still

We pack have gravitating noticed items, sizes. towards also lower-cost consumers smaller

of remains next But is happening. year. into seen that consumers heading I some be behave think exactly how in So to that

Arsen. much, Thanks so

today's does call. That you conference Thank for conclude all joining.

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