Clearwater Paper Q1 2024 outcomes present tissue energy By Investing.com

Clearwater Paper Company (NYSE:) has introduced sturdy monetary outcomes for the primary quarter of 2024, with important contributions from its tissue enterprise and lowered enter prices. The corporate reported web gross sales of $496 million and an adjusted EBITDA of $62 million, marking a considerable improve within the tissue section’s efficiency.

Regardless of a extreme climate occasion impacting operations and anticipated upkeep prices, Clearwater Paper is making strides in its acquisition endeavors and debt discount, sustaining a constructive outlook for the 12 months forward.

Key Takeaways

• Clearwater Paper’s web gross sales reached $496 million, with the tissue enterprise’s adjusted EBITDA greater than doubling year-over-year.
• The corporate is progressing with the acquisition of the Augusta, Georgia Paperboard manufacturing facility.
• A extreme climate occasion in January affected the Lewiston facility, incurring prices of $15 to $17 million.
• Clearwater Paper lowered its web debt by $33 million and repurchased $1 million in inventory.
• The corporate expects robust tissue market situations and full capability operations within the paperboard marketplace for the remainder of the 12 months.
• Anticipated peak leverage of three.5 to 4 occasions following the Augusta acquisition.
• North American softwood {industry} closures may tighten capability, whereas long-term hardwood costs might decline because of elevated international capability.

Firm Outlook

• Gradual enchancment in paperboard enterprise demand anticipated for 2024 and 2025.
• Completion of Augusta acquisition to help in constructing a scaled and diversified paperboard enterprise.
• Concentrate on producing money flows, decreasing debt, and returning to a cross cycle goal of two.5 occasions leverage by the tip of 2026.

Bearish Highlights

• The Lewiston facility’s operations have been disrupted by extreme climate, with important monetary impression.
• Upcoming main upkeep outage in Lewiston and rising pulp costs might negatively have an effect on the tissue enterprise in Q2.

Bullish Highlights

• The tissue enterprise greater than doubled its adjusted EBITDA from the earlier 12 months.
• Optimistic restoration within the paperboard market with greater utilization charges and shipments in Q1 in comparison with This fall.
• Buyer outlooks for the paperboard market stay constructive for the rest of the 12 months.

Misses

• The climate occasion in January led to sudden prices, affecting first-quarter monetary efficiency.

Q&A Highlights

• The corporate addressed the impression of industry-wide softwood closures and the potential for hardwood costs to lower because of elevated capability.
• Clearwater Paper stays optimistic about wooden’s constructive impression, particularly within the first half of the 12 months.
• The collective bargaining settlement for hourly workers at Cypress Bend is expiring in July, however the firm anticipates a constructive dialogue with the unions.

InvestingPro Insights

Clearwater Paper Company (CLW) has demonstrated monetary resilience and strategic progress within the first quarter of 2024, as mirrored by the current monetary outcomes. InvestingPro knowledge and suggestions present a deeper understanding of the corporate’s standing and future potential.

InvestingPro Knowledge highlights a robust valuation and efficiency metrics for CLW:

• The corporate boasts a low Worth to Earnings (P/E) ratio of 5.97, suggesting a pretty valuation as of the final twelve months ending Q1 2024.

• CLW has proven a big EBITDA progress of 18.61% in the identical interval, indicating environment friendly operations and profitability.

• The inventory has skilled a robust return during the last three months, with a 23.42% value complete return, underscoring investor confidence within the firm’s current efficiency.

InvestingPro Ideas supply extra insights into the corporate’s strategic monetary administration:

• CLW has an ideal Piotroski Rating of 9, which is a testomony to its robust monetary place.

• The corporate has been aggressively shopping for again shares, reflecting administration’s confidence within the intrinsic worth of the corporate and a dedication to shareholder returns.

For readers trying to delve deeper into CLW’s monetary well being and future prospects, there are extra InvestingPro Ideas obtainable, together with insights on shareholder yield, free money movement yield, and analysts’ profitability predictions for the 12 months. To discover the following tips and extra, go to https://www.investing.com/professional/CLW and think about using the coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Professional and Professional+ subscription. There are 9 extra InvestingPro Ideas listed for Clearwater Paper Company on InvestingPro, offering a complete evaluation for knowledgeable funding selections.

Full transcript – Clearwater Paper Corp (CLW) Q1 2024:

Sloan:

Operator: Good afternoon. My identify is Brianna and I will probably be your convention operator at this time. At the moment I wish to welcome everybody to the Clearwater Paper First Quarter 2024 Earnings Convention Name. All strains have been positioned on mute to stop any background noise. After the audio system remarks there will probably be a question-and-answer session. [Operator Instructions]

Sloan:

Sloan Bohlen: Thanks, Brianna. Good afternoon and thanks for becoming a member of Clearwater Paper’s First Quarter 2024 earnings convention name. Becoming a member of me on the decision at this time are Arsen Kitch, President and Chief Government Officer; and Sherri Baker, Senior Vice President and Chief Monetary Officer. Monetary outcomes for the primary quarter of 2024 have been launched shortly after yesterday’s market shut, together with the submitting of our 10-Q. You’ll find a presentation of supplemental data, together with a slide offering the corporate’s present outlook posted on the Investor Relations web page of our web site at clearwaterpaper.com. Moreover, we will probably be offering sure non-GAAP data on this afternoon’s dialogue. A reconciliation of the non-GAAP data to comparable GAAP data is included within the press launch and within the supplemental data offered on our web site. Please word Slide 2 of the supplemental data masking forward-looking statements. Slightly than rereading this slide, we’re going to incorporate it by reference into our ready remarks. With that, let me flip the decision over to Arsen.

Arsen Kitch: Good afternoon and thanks for becoming a member of us at this time. . As you noticed from our press launch, we had an excellent first quarter pushed by the continued excellent efficiency of our tissue enterprise and decrease enter prices. We additionally generated robust money flows and lowered our web debt by an extra $33 million through the quarter. This resulted in 1.38 occasions leverage ratio on the finish of the quarter. Slide 3 of our supplementals supplies a abstract of our consolidated outcomes. We reported web gross sales of $496 million and adjusted EBITDA of $62 million, which is on the greater finish of our expectations. Our tissue enterprise drove the advance by greater than doubling its adjusted EBITDA from $19 million within the first quarter of final 12 months to $46 million this 12 months. Our paperboard enterprise delivered $34 million of adjusted EBITDA within the first quarter at a margin of 14%, even because the enterprise was considerably impacted by a extreme climate occasion that disrupted our Lewiston operations in January. Let me share a number of highlights with you. Tissue demand remained robust and we noticed an enchancment in buyer demand for paperboard with greater order entry and rising backlogs. Pricing for paperboard decreased by 11% as in comparison with a 12 months in the past, which displays market situations and pricing developments as reported by RISI. Each companies skilled favorable enter prices as in comparison with the primary quarter of 2023, significantly in wooden fiber, pulp, power and freight. We estimate that the Lewiston climate occasion impacted us by $15 million to $17 million through the quarter, primarily in our paperboard enterprise. We repurchased $1 million of our inventory with a purpose of offsetting shareholder dilution because of worker inventory grants. Lastly, now we have made important progress on our deliberate acquisition of the Augusta, Georgia Paperboard manufacturing facility from Graphic Packaging (NYSE:). We imagine that we have cleared regulatory hurdles and anticipate to finish the acquisition shortly. We’re trying ahead to welcoming the Augusta group to Clearwater Paper and constructing a scaled, excessive performing and diversified paperboard enterprise that’s effectively matched to the wants of paperboard converters in North America. With that, let’s assessment every of our segments and supply some extra particulars. Let’s start with our paperboard enterprise on Slide 4 of our supplemental supplies. The latest AFMPA knowledge has shipments up 7.1% and manufacturing up 10.5% within the first quarter of this 12 months versus the fourth quarter of final 12 months. Working charges additionally rose to 88.3% within the first quarter versus 79.3% within the fourth quarter. This aligns with our view that buyer demand is enhancing and that stock destocking is now largely behind us. When it comes to pricing RISI reported a $40 per ton lower in February for a complete of $120 per ton because the center of final 12 months. This additionally aligns with our expertise as softening demand drove costs decrease in 2023. Our quantity was largely flat within the first quarter of this 12 months in comparison with the primary and fourth quarters of final 12 months. Whereas buyer orders and backlogs grew, our volumes have been negatively impacted by misplaced manufacturing through the January climate occasion in Lewiston. As I discussed beforehand, now we have robust conviction concerning the long-term prospects for our paperboard enterprise and keep our outlook for gradual enchancment in demand in 2024 and 2025. Sherri will present extra particulars for our second quarter outlook later in our ready remarks, however we anticipate roughly $35 million to $40 million in extra upkeep prices in Q2 versus Q1 as a result of deliberate main upkeep outage in Lewiston, in addition to extra scheduled upkeep work at our different websites. Along with the traditional outage work being accomplished in Lewiston, we may also be changing the restoration boiler tubes within the decrease furnace, which is a $40 million capital venture of which roughly $28 million is being spent this 12 months. Our group has completed an excellent job making ready for this prolonged outage to finish all the required work in addition to to proceed servicing our clients. Please flip to Slide 5 and let me give you a quick replace on our tissue enterprise. Let’s begin with some broader {industry} developments. Personal branded market share held regular at 36% in accordance with the newest Circana panel knowledge. As we have famous up to now, shoppers are persevering with to embrace personal manufacturers because of financial uncertainty and inflation. Trade utilization charges rose to round 96% in January and February, in accordance with RISI, which we imagine displays robust market situations. As we talked about beforehand, greater than 200,000 tons of web capability have been eliminated between 2021 and 2023, which is driving the excessive {industry} utilization charges. Wanting ahead, roughly 370,000 tons of capability have been introduced to be added between 2024 and 2026 and we imagine that standard demand progress will soak up these extra tons and we proceed to anticipate tissue {industry} situations to stay constructive within the close to to medium time period. Let’s flip to our efficiency within the quarter. Revenues grew by 2% year-over-year and adjusted EBITDA greater than doubled. Our adjusted EBITDA margin was at 18% in comparison with 8% within the first quarter of 2023. This was pushed by robust working efficiency, decrease enter prices and continued sturdy demand. We anticipate to proceed these robust ranges of working efficiency as we transfer by means of 2024. With that, I will flip the decision over to Sherri to cowl our monetary outcomes.

Sherri Baker: Thanks, Arsen. Let’s cowl our monetary efficiency within the first quarter by turning to Slide 6. The abstract earnings assertion exhibits our first quarter outcomes for 2024 and 2023. Within the quarter, we earned web earnings of $17 million, web earnings per diluted share of $1.02 and adjusted web earnings per diluted share of $1.43. As Arsen famous, the quarter was negatively impacted by the January climate occasion at our Idaho paperboard facility. Regardless of that headwind, our consolidated outcomes got here in on the greater finish of our expectations for the quarter and we imagine we’re effectively positioned for a robust 2024. Our corresponding section outcomes might be seen on Slide 7. As famous, our consolidated adjusted EBITDA got here in on the greater finish of our steering vary, however barely under final 12 months and the earlier quarter. Adjusted EBITDA margins stay secure at round 12%. As we flip to Slide 8, we are able to see the year-over-year comparability of adjusted EBITDA for our paperboard enterprise. The section produced $34 million of adjusted EBITDA at a margin of 14%. On a year-over-year foundation decrease gross sales costs negatively impacted outcomes, which was partially offset by decrease enter price. The impression of quantity between durations was closely influenced by the downtime brought on by the extreme climate occasion in January. Slide 13 within the appendix exhibits a sequential comparability of the primary quarter of this 12 months to the fourth quarter of final 12 months. It displays a destructive value and blend impression, comparatively secure volumes and decrease price. On Slide 9, we bridge the year-over-year comparability of adjusted EBITDA for our tissue enterprise. We noticed some value erosion because of index pricing mechanisms tied to pulp within the first quarter of 2024 versus 2023. We continued to learn from decrease enter prices in addition to excessive ranges of capability utilization, however we anticipate greater pulp costs to negatively impression us in upcoming quarters. Even with greater pulp costs, we anticipate to keep up a lot of the margin enchancment that we achieved in 2023. Turning to our capital construction on Slide 10, our steadiness sheet continued to strengthen, pushed by robust profitability and money effectivity. Our liquidity at present stands at $312 million. Within the quarter, we generated $41 million of free money movement and lowered our web debt by an extra $33 million. We additionally repurchased about $1 million in inventory to offset dilution of our worker inventory plans, with roughly $6 million left below our authorization. Lastly, please flip to our outlook for the second quarter on Slide 11. As Arsen talked about, we’re beginning to see restoration in our paperboard demand and proceed to see robust demand in tissue. Paperboard pricing will probably be impacted by the lower as reported by RISI. As a reminder, 35% to 40% of our paperboard quantity is tied to motion within the RISI value index. We’re additionally anticipating some headwinds from greater pulp costs impacting our tissue enterprise. We’re projecting an extra $35 million to $40 million in greater deliberate upkeep bills within the quarter, primarily pushed by the deliberate majority upkeep outage at our Lewiston facility in addition to extra upkeep at different websites. We additionally anticipate to understand some insurance coverage restoration associated to the extreme climate occasion from Q1. With all these variables, we anticipate adjusted EBITDA for the second quarter within the vary of $23 million to $33 million. For the total 12 months our key operational assumptions stay largely the identical. We anticipate enhancements in paperboard volumes, stability in tissue, decrease enter price with offsets in greater main upkeep bills and decrease pricing. Our money movement assumptions additionally largely stay the identical with $90 million to $100 million of capital expense pushed by main restore and upkeep initiatives at our paperboard amenities. The detailed checklist of those assumptions might be discovered on Web page 11 of our supplementals. Please word that these assumptions don’t embrace any impression from the deliberate Augusta acquisition. As we beforehand acknowledged, the ebook of enterprise that we’re buying from Graphic Packaging (NYSE:) delivered roughly $100 million of adjusted EBITDA in 2023. We anticipate that run fee to be impacted by decrease pricing carrying into 2024, with offsets in rising volumes and improved working charges on the facility. We anticipate to offer extra commentary concerning the monetary efficiency of Augusta in upcoming quarters as we start to function the location as a part of the Clearwater Paper community. Let me now flip the decision again over to Arsen.

Arsen Kitch: Thanks Sherri. I am happy with our first quarter efficiency and stay optimistic about our prospects for the total 12 months as we see indicators of restoration in paperboard market situations and continued energy in tissue. I am additionally trying ahead to finishing the Augusta acquisition and welcoming the Augusta group to Clearwater Paper. As I discussed on our final name, our long-term goal is to construct a scaled and diversified paperboard enterprise that meets the wants of our converter clients. The Augusta acquisition is an enormous strategic step for Clearwater Paper and we intend to proceed to opportunistically have a look at different paper property as we execute our technique. We may also proceed to guage the feasibility of investing in our present property to broaden our product providing. Whereas we have a look at extra alternatives in the long term, our near-term focus is on capturing worth from the Augusta acquisition, producing money flows and deleveraging our steadiness sheet. We have now a confirmed observe document of deleveraging and anticipate to be again to our cross cycle goal of two.5 occasions by the tip of 2026. Let me wrap by thanking our folks for a robust begin to 2024. We delivered a robust quarter, at the same time as we managed by means of some very troublesome working situations brought on by the climate occasion at our Lewiston facility through the quarter. And as all the time, I’d additionally wish to thank our clients and shareholders for his or her continued assist and for putting their belief in us. With that, we’ll finish our ready remarks and take your questions.

Operator: Thanks. [Operator Instructions] Your first query comes from Matthew McKellar with RBC Capital Markets. Please go forward.

Matthew McKellar: Hello Arsen and Sherri. Good afternoon. Thanks for taking my questions. I might like to begin simply asking a few questions round your steering. I do know you spoke to the concept you’d present extra data with coming quarters, however are you able to give us a way of how we must always anticipate upkeep CapEx at Augusta to form of development on a run fee foundation after which to any diploma you might quantify the partial insurance coverage restoration for the occasion at Lewiston? That will even be useful, thanks.

Arsen Kitch: Sure. Let me, let me begin with the Augusta query after which Sherri will take the insurance coverage query. So at this level we’re trying ahead to closing right here very shortly and as soon as we get in there, we’ll have a significantly better thought of how this matches into Clearwater and the financials. So it is slightly untimely for us to be offering any form of steering for steadiness of the 12 months round Augusta, however I believe we’ll present extra data in upcoming quarters. Sherri, do you need to take the insurance coverage query?

Sherri Baker: Certain. So Matt, of the $15 million to $17 million, that was the total impression that we noticed in Q1, that’s the full quantity of the declare. We do have a $4 million deductible and we anticipate to see some partial restoration within the second quarter. In order that course of remains to be ongoing with the insurance coverage provider, however we do anticipate to see some funds movement throughout the second quarter.

Matthew McKellar: Okay, thanks for that. Shifting over subsequent to tissue pricing, it appeared like costs slipped a bit quarter-over-quarter. Are you able to simply make clear in any respect whether or not that was a mixture subject or in the event you noticed some compression on a like-for-like foundation? After which how are you anticipating pricing to development, I suppose, go ahead right here on condition that working charges appear fairly stable and that now we have rising pulp costs, which may perhaps assist taking some value as effectively?

Arsen Kitch: Sure. So pay attention, we’ll keep away from commenting on future pricing, however by way of simply sequential, the slight drop that we noticed, it is actually largely round that a few quarter of our quantity is below contract, that is partially tied to a RISI pulp index. I do know pulp costs are going up, however simply the way in which it is measured, pulp costs have been coming down by means of most of final 12 months. So I believe the majority of that value lower that we’re seeing is said to that. I believe the remaining might be chalked as much as some combine points. I believe tissue market situations stay robust, utilization charges are excessive. We’re working rather well and I believe you noticed that in our quarterly EBITDA outcomes.

Matthew McKellar: Nice. That is sensible, thanks. Could also be sticking with pulp costs, are you able to simply remind us, is it nonetheless truthful to consider there as being a few three-month lag by way of how that flows by means of to your outcomes? After which on condition that rising development, is it nonetheless truthful to assume that you simply’re anticipating your leverage to peak out that 3.5 to 4 occasions following the Augusta acquisition?

Arsen Kitch: Sure, I believe 90 days is — three months is an effective rule of thumb form of give, or take simply the way in which pulp strikes by means of our manufacturing course of and stock. So in the event you have a look at pulp costs, they’ve elevated sequentially quarter-over-quarter and I believe simply now, in the event you simply have a look at the indices have arrived to the place they have been on common in 2023. So there are some fascinating timing developments. Pulp costs have been falling by means of 2023. I believe they hit their backside someplace in that Q3 time vary after which they began slowly creeping again up and clearly a better impression right here within the first quarter. Should you have a look at softwood versus hardwood, you already know this, Matthew, there have been a variety of closures in softwood in North America. I believe that is tightening up capability. I believe in the long term, in the event you have a look at hardwood and also you have a look at the forecasts which might be on the market past the following couple of quarters, they point out a decrease hardwood, particularly eucalyptus pulp costs as capability comes on-line globally.

Sherri Baker: After which in your second piece, Matt, the expectation remains to be that there could be a peak leverage between that 3.5 and 4 occasions. That’s nonetheless right.

Matthew McKellar: Nice, that is useful, thanks. Could also be one in your price of fiber extra typically, we have seen a number of softwood lumber mill closures in Montana over the previous few months right here. Do you anticipate any impression to your price of residuals for Lewiston? I’d anticipate that is in all probability outdoors your procurement radius, however simply needed to verify.

Arsen Kitch: I haven’t got these numbers on the tip of my fingers, however typically talking, I believe you are proper. In order that within the Northwest it is largely a residual market the place greater working charges on the lumber mills are helpful to us and within the Southeast it is an entire log market. So I haven’t got particular data round a few of the impression of a few of the impression of a few of the closures that we have seen. However simply total, I believe we anticipate in complete throughout the corporate, we anticipate wooden to be a web constructive this 12 months versus final 12 months, particularly within the first half of this 12 months versus the primary half of final 12 months, in order that’s throughout Arkansas and Idaho. We anticipate for wooden to be a very good man.

Matthew McKellar: Okay, nice. Thanks. Could also be simply focusing in on the paperboard market slightly bit, it appears like that market is firming up and also you’re seeing higher developments there. Are you able to discuss what chances are you’ll be seeing to begin Q2 and perhaps name it any pockets of energy and weak point by finish market that you simply is likely to be seeing?

Arsen Kitch: No particular feedback on finish markets. I believe we’re seeing a pleasant restoration occurring and also you noticed within the NPA knowledge utilization charges have been up. Shipments have been up in Q1 versus This fall. So we’re seeing those self same developments and clients have constructive outlooks right here for the steadiness of 2024. We’re anticipating at this level, from the place we sit to be working full for steadiness of the 12 months. We do have a significant outage which could have some impression on our manufacturing, however outdoors of that, our expectation is to run full this 12 months for the rest of the 12 months.

Matthew McKellar: Nice. Thanks. And perhaps final one from me and please right me if I am incorrect, however I believe your collective bargaining settlement at Cypress Bend for hourly workers would expire in July. Are you able to discuss that occasion and tone of discussions you’ve got been having up to now and perhaps what we must always anticipate, simply given a form of basic inflationary setting for labor?

Arsen Kitch: I believe I will steer clear of commenting on expectations. I believe typically talking, now we have superb relationship with our unions, and I believe we’re trying ahead to a very good, constructive dialogue as now we have had traditionally in Arkansas.

Matthew McKellar: Nice. Truthful sufficient. That is all from me. I will flip it again. Thanks.

Operator: Seeing no additional questions at the moment, this may conclude at this time’s convention name. Thanks all to your participation. You might now disconnect.

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