Clearwater Paper (CLW) 6 Aug 24 2024 Q2 Earnings call transcript

Clearwater Paper held its second quarter 2024 earnings call, revealing strategic moves that aim to strengthen its position as a premier independent supplier of paperboard products to North American converters. The call, led by Arsen Kitch, President and CEO, and Sherri Baker, Senior Vice President and CFO, provided insights into the company's recent strategic decisions and financial performance.

Strategic Moves

Clearwater Paper announced a significant acquisition of Augusta facility from Graphic Packaging and the agreement to sell its tissue business to Sofidel America. These strategic moves are transformational, positioning the company for future internal and external investments to grow and diversify its paperboard portfolio. The tissue business sale, expected to close in the fourth quarter of 2024, is projected to generate net proceeds of approximately $850 million, which will be used to repay existing debt and deleverage the balance sheet.

Financial Performance

In the second quarter of 2024, Clearwater Paper reported net sales of $586 million, a 12% increase from the previous year. The adjusted EBITDA was $35 million, with a decline of $36 million compared to the second quarter of 2023, mainly due to the impact of a planned major maintenance outage at its Lewiston facility. The paperboard business saw a 23% increase in net sales, driven by the Augusta acquisition, while the tissue business continued to perform at an outstanding level with flat revenues compared to the previous year.

Outlook and Challenges

Looking ahead, Clearwater Paper is anticipating a continued recovery in paperboard demand in the third quarter, with higher production volumes and a lower outage cost impact. The tissue business performance is expected to remain strong, although it may face some impact from higher pulp prices. The company is also planning to move all its paperboard facilities to an annual outage schedule, which will lead to smaller, more manageable maintenance outages and improve overall operating performance.

Market Insights

Clearwater Paper is optimistic about the long-term market fundamentals for paperboard, citing consumer preferences and sustainability trends as growth drivers. The company is also implementing a price increase for plate and cup stock grades to address capacity constraints. Despite a slower-than-expected market recovery, Clearwater Paper remains bullish on the market's future, particularly in the food service sector, where demand is solid and growing.

Investor Questions

During the Q&A session, analyst Matthew McKellar asked about the company's product strategy and future growth plans. Arsen Kitch responded that Clearwater Paper will look at opportunities to expand its product offering, both internally and externally, to provide a more complete offering to its converters. The company aims to be a bigger part of its customers' solutions, not just in SBS but also in other substrates and products.

In conclusion, Clearwater Paper's second quarter 2024 earnings call provided a comprehensive update on the company's strategic moves, financial performance, and market outlook. The acquisition of Augusta and the divestiture of the tissue business are transformational steps that will strengthen Clearwater Paper's position as a premier independent supplier of paperboard products. The company's focus on operational performance and strategic investments underscores its commitment to creating long-term value for its shareholders.