Clearwater Paper (CLW) 4 Nov 24 2024 Q3 Earnings call transcript

Clearwater Paper held its third quarter 2024 earnings conference call, highlighting a successful quarter with $64 million of adjusted EBITDA, despite facing hurricane-related challenges. The company's leadership shared insights into the paperboard industry, strategic plans, and financial outlook, offering a comprehensive view of its operations and future prospects.

Sale of Tissue Business and Strategic Shift

The sale of Clearwater's tissue business to Sofidel for $1.06 billion marked a significant strategic move for the company. The proceeds, estimated at approximately $850 million after taxes and expenses, were used to pay off outstanding credit facilities, leaving the company with a strong balance sheet and a focus on its core paperboard business. Arsen Kitch, the CEO, emphasized the company's transformation into a premier paperboard packaging supplier, highlighting its commitment to servicing independent converters in North America.

Industry Overview and Strategy

Arsen Kitch provided a detailed overview of the North American paperboard market, outlining the three main substrates: solid bleached sulfate paperboard (SBS), coated unbleached kraft (CUK), and coated recycled board (CRB). The company's strategy includes driving operational and cost improvements, expanding its product range, and focusing on independent converters. Clearwater believes that independent converters will continue to play a vital role in the market, offering agility, flexibility, and higher levels of service compared to integrated suppliers.

Financial Performance and Outlook

Sherri Baker, the CFO, reported a $42 million of adjusted EBITDA for paperboard, up from $11 million in Q2 but down from $53 million last year. The demand for paperboard is recovering, with shipments up 2.4% in Q3 compared to the previous quarter and 2.5% year-to-date compared to 2023. Clearwater expects a modest improvement in the fourth quarter, with an adjusted EBITDA target of $20 million to $30 million. For 2025, the company anticipates a target of 8% to 10% adjusted EBITDA margin, with revenue estimated at $1.5 billion to $1.6 billion.

Investments and Cost Reduction

Clearwater is exploring investments to increase the consumption of mechanical and recycled pulp, aiming to develop lighter weight paperboard products that compete with folding boxboard. The company also plans to explore unbleached pulping capabilities to diversify its product offering and deliver a beverage carrier-grade product. To reduce fixed costs, Clearwater is targeting a 10% reduction and a 6% SG&A spend as a percent of sales, aiming for more than $50 million in annual run rate cost savings by end of 2025.

Conclusion

Clearwater Paper's third quarter earnings call provided valuable insights into its strategic shift, financial performance, and outlook for the future. With the sale of its tissue business and a focus on paperboard packaging, Clearwater is well-positioned to leverage its strong balance sheet and strategic investments to capitalize on the growing demand for fiber-based packaging. The company's confidence in the long-term prospects of the industry, coupled with its strategic investments and cost reduction efforts, positions Clearwater for sustainable growth in the medium- to long-term.