Clearwater Paper Second Quarter Income Falls on Costs, Production Disruptions

July 24, 2013 - Clearwater Paper Corporation (CLW) today reported financial results for the second quarter of 2013.

The company reported net sales of $471.0 million for the second quarter of 2013, compared to net sales of $473.6 million for the second quarter of 2012. Net earnings for the second quarter of 2013 were $11.7 million, or $0.52 per diluted share, compared to net earnings of $21.5 million, or $0.91 per diluted share, for the second quarter of 2012. Net earnings for the 2013 period included a $1.1 million benefit associated with the mark-to-market impact of directors’ equity-based compensation and $1.0 million of expense associated with the announced closing of the company’s Thomaston, Ga., converting and distribution facility. Excluding those items, second quarter 2013 net earnings were $11.6 million, or $0.51 per diluted share. For the second quarter of 2012, excluding $1.0 million of expenses associated with the Metso litigation, a $1.0 million loss associated with the sale of legacy Cellu Tissue foam manufacturing assets and $0.3 million of expense associated with the mark-to-market impact of directors’ equity-based compensation, net earnings were $23.0 million, or $0.97 per diluted share.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, was $53.0 million for the second quarter of 2013. Adjusted EBITDA of $52.8 million was down 20.6% compared to second quarter 2012 Adjusted EBITDA of $66.5 million. The decrease in EBITDA and Adjusted EBITDA was due to higher transportation and purchased paper costs in the Consumer Products segment as a result of the through-air-dried (TAD) transition, as well as overall higher energy, wages and benefits, and maintenance costs.

“Our focus on internal execution in tissue and strong fundamentals in paperboard drove the quarter’s solid progress in EBITDA. Our new TAD tissue facility in Shelby, N.C., continues to ramp up consistent with our expectations,” said Linda Massman, president and chief executive officer. “As a result, we continue to anticipate achieving our $300 million adjusted EBITDA target in 2014.”

During the second quarter, the company repurchased approximately 205,000 shares of common stock at a total cost of $9.8 million pursuant to its previously announced $100 million share buyback program. Since announcing the program in January, the company has repurchased approximately 1.0 million shares. The company expects to use the balance of its overall $100 million share repurchase program by the end of 2013.

SECOND QUARTER 2013 SEGMENT PERFORMANCE

Consumer Products
Net sales in the Consumer Products segment were $289.7 million for the second quarter of 2013, up 2.3% compared to second quarter 2012 net sales of $283.1 million. The increase was primarily attributable to higher selling prices, with volumes flat year over year.

Operating income decreased to $14.8 million from $25.7 million in the prior year period, driven primarily by short-term transition costs of $4.2 million associated with the company’s TAD expansion. Operating income was also adversely impacted by expenses related to the announced closure of the company’s Thomaston facility, higher energy and packaging costs, and increased depreciation year over year.

  • Tissue sales volumes of 132,057 tons in the second quarter of 2013 were roughly flat compared to the second quarter of 2012. Retail tons and converted product cases shipped increased 3.5% and 3.8%, respectively, with non-retail tons dropping 5.7% during the second quarter of 2013.
  • Average net selling prices increased 3.1% to $2,194 per ton in the second quarter of 2013 compared to the second quarter of 2012, due to increased TAD sales, improved mix, and parent roll and away-from-home price increases during the second quarter of 2013.
  • TAD transition costs included increased transportation, manufacturing and outside purchased paper costs associated with the increased conventional tissue sales the company took on to help offset the displacement of conventional sales expected by the ramp up of the company’s new Ultra TAD bathroom tissue product in 2013.

Pulp and Paperboard
Net sales in the Pulp and Paperboard segment were $181.3 million for the second quarter of 2013, down 4.8% compared to second quarter 2012 net sales of $190.5 million. The decrease was primarily due to lower paperboard volumes driven by short-term production issues and lower pricing in the second quarter of 2013 compared to the second quarter of 2012.

Operating income for the quarter decreased $7.2 million to $24.8 million, compared to $32.0 million for the second quarter of 2012, primarily due to higher energy and employee costs as well as operational disruptions at the company’s Arkansas facility in the second quarter of 2013.

  • Paperboard sales volumes decreased 1.4% to 190,518 tons in the second quarter of 2013, compared to the second quarter of 2012.
  • Paperboard net selling prices decreased 3.0% to $946 per ton compared to the second quarter of 2012 as a result of competitive pressures across most product segments.
  • An electrical disruption and operational issues with maintenance and repairs performed on the recovery boiler in Arkansas in the second quarter of 2013 resulted in increased costs of approximately $2.9 million during the quarter.

Taxes
The company’s effective tax rate for the second quarter of 2013 was a provision of 37.4%, compared to a provision of 39.2% in the second quarter of 2012. The lower effective rate was primarily the result of a return to provision true up partially offset by interest accrued on uncertain tax positions in the reporting period. The company expects its annual effective tax rate to be approximately 38% for 2013.

Note Regarding Use of Non-GAAP Financial Measures
In this press release, the company presents its results for the second quarters of 2013 and 2012, including EBITDA, Adjusted EBITDA, adjusted net earnings and adjusted net earnings per diluted share excluding special items. These amounts are not in accordance with generally accepted accounting principles (GAAP), and accordingly reconciliations to net earnings and net earnings per diluted share as determined in accordance with GAAP are included at the end of this press release. The company presents these amounts because management believes they assist investors and analysts in comparing the company’s performance across reporting periods on a consistent basis by excluding items that the company does not believe are indicative of its core operating performance.

Clearwater Paper manufactures quality consumer tissue, away-from-home tissue, parent roll tissue, machine-glazed tissue, bleached paperboard and pulp at 15 manufacturing locations in the U.S. and Canada. The company is a premier supplier of private label tissue to major retailers and wholesale distributors. This includes grocery, drug, mass merchants and discount stores. The company also produces bleached paperboard used by quality-conscious printers and packaging converters. Clearwater Paper's employees build shareholder value by developing strong customer relationships through quality and service.

SOURCE: Clearwater Paper Corp.