CLW - Earnings call transcript Q4 2020 | Clearwater Paper Corporation

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Clearwater Paper 4Q ‘20 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Sloan Bohlen, Investor Relations. Thank you. Please go ahead.

Sloan Bohlen

Thank you, Marianna. you call. Clearwater thank XXXX fourth and conference earnings afternoon for Paper’s joining quarter Good

on call Chief me XXXX Executive results Joining the the were Officer and Kitch, for today’s and Chief released President shortly Mike market quarter Murphy, fourth Financial after Financial today Officer. of are close. Arsen

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

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

Arsen Kitch

Please joining Good afternoon and X. today. for thank us turn Slide you to

As of million, the approximately quarter and paperboard fourth the highlights outstanding mention. last business and growth to quarter, quarter of reported X% basis, sales you strength company Paper $XX had year. million operational tissue by our for press of another our EBITDA which the and adjusted fourth XX%, $XXX over of in both represents respectively, A and few On saw a driven excellent net execution. consolidated Clearwater businesses release, from

results volatile drove business higher and meet expectations. demand, tissue Our our to both volumes exceeded sales production with which year-over-year

sales. was the in our quarter production Our to similar

strong Our well. delivered paperboard business performance as

SBS a on the ton price safely our contributed of February to which X, per health service million. decision we portfolio, to debt increase our assets the net people fourth used Slide cash and our customers. during top we previous quarter, starting the quarters, $XX of I $XX operating remain In free our flows on additional the reduce are and announce an to by X. safety over our across backlogs robust, generated Our noted focused priorities as On COVID, to our

strategies and the Our our mitigation risk at difference risk sites. in efforts to making are of reduce helping COVID a

Our manufacturing that are proactively doing staffing have health levels the of of and the monitoring exceptional and workforce an job human our leadership we in teams resources ensuring proper place.

has to Our be continue to people’s success diligence will date to key so. been and our

As November $X,XXX a work a out of by during entire challenging bonus X,XXX onetime the of our to team in this time, we discretionary our people. over recognition of paid

all would COVID encouraging $XXX to for vaccine express entire efforts incentive. the extraordinary team gratitude my to a strongly people also our get through this our are challenging their time. perseverance with I We like and to deepest

start maintaining fourth of to share saw what I until paperboard control and is the levels the the see behind under and quarter. tissue a vaccine COVID As high to we broader for rollout, businesses benefits we encourage I want from in us. vigilance will now both

X. our on start Let’s Slide Products with Consumer division

quarter. tissue we As demand noted, volatile was during previously the had home at

through mid-December. mid-November New waves demand significant spikes caused of pandemic in the

further in products his essential quarter anticipated during below during quarter or fourth the we can we comments. saw unpredictable fourth will of originally on expand While that be this demand of we reminded Mike at time. levels for were in XXXX, demand demand how patterns the

from fourth job customers the in anticipated through working and we production Our volatility than team and great higher benefited this sales are and doing a quarter. volumes

to few view key will summarize largely context. points in the which a Our industry same, some provide I remains

two. manufacturing the swing First, away-from-home, for in between U.S. one-third the tissue at-home limited to production the recall is that market two-thirds and traditionally capability with

consumer has been continue by to behavior. swings Demand consumption. and have shift been have a be homebound, consumers at-home driven As more will there towards

infection on we will rates at-home and on primarily post Our we focused will back are we’re impact a away-from-home a it negatively expectation shift see expect COVID will there be unclear a as behavior is that impact decrease, consumer the lasting to which in us as With that market. administered vaccines if consumption, is said, COVID that environment.

too the discern is continue a a continue. trends, trend ahead have of expect is while gaining it facial to that private overall products demand while early is Private the relative lagging. of had Second, share to paper that share record track to we good past towel note decade, branded category, branded to over demand would brands we tracking tissue

uncertainty with We continued quarters due to in and associated in will continue monitor these demand the COVID. coming to months consumer the trends

previous aiding occurred, we benefit believe as manufacturers counts We both production. lower us. and has in Third, retailers noted additional quarters, that like SKU SKU rationalization

we a back customers to pre-COVID to of anticipate desiring we do counts seen some term. While SKU to recovery SKUs, the not in have medium levels go near

to the and were quarter million around a for compared was that Thanksgiving few This weeks. of results of shipped third demand Our lasting driven to a to XXXX. prior in cases, the the by tissue positive were quarter up quarter Sales relative fourth spike fourth consumer X.X% robust. X.X% a We surprise started was in XXXX. which XX.X down

As first we our several well. quarter expected results impacted is fourth quarter and which earnings impact quarter XXXX mentioned to as we on customers improve reduce call, network, to complexity results third our exited the and

our that sales our on turn by Please remainder business. paperboard the share pipeline few for can XXXX. encouraged I are comments of X We Slide a to of so

or more approximately derived we estimate recession-resilient by economically products. is paperboard are that that of As more and you recall, sensitive – driven demand products one-third is discretionary from two-third economically by

strong carton weaker service our to or especially concentrations with packaging, care concentrations folding those see health food demand restaurants customers, in food to continue and Our dining, away-from-home quick customers, demand. in continue service those and with especially see

of carton. in Cup We NuVo a folding are position. are pleased ReMagine the market our sustainability our playing brands meaningful reception focused market and with Both of role favorable

continued the gas week in could curtailment the demand where and the caused performance that temporarily point in Cypress encouraged Arkansas for longer production gas deliveries suspend quarter to were our us Natural an last made we curtailed in We strong operate. We’re natural by about to Bend. products. no solid announcement our

now back thanks the our the by that cold event million. are million up from damage across costs including $X with approximately repairs prices, estimate protect assets and to $X the spikes weather our We weather. quarter running, significant We paperboard impact gas associated to system, our in the the tremendous natural by to to team lost due in us efforts production, could first and

our has to since beginning same We price $XX in robust have it of we implementation per continue it the a increase ton fourth fully Demand implement increase remains backlogs our fundamental Price grown supply the to to demand experience to results. us led and discuss dynamics that, expect With announce year. will that turn to more will months begun, and I Mike over January. increase. and quarter that take several the

Mike Murphy

Slide demand $X.XX fourth in Please and Arsen. EBITDA per our the share planned XXXX. Shelby per The adjusted income summary you, income full over benefits material our statement major increases and segment diluted quarter, corresponding Slide significant tissue per COVID-related the represent the as as favorable to of net pricing year turn by year consumer by well outage as division. part quarter results prior investment, raw were large from XXXX Thank are These million share X. In share, company lack and fourth adjusted million. income $XXX.X was was and behavior diluted shows was was as per due periods, and The share net $XX.X the consolidated full a well driven in which EBITDA the on paperboard $X.XX X.

EBITDA adjusted from performance, and benefited continued costs. significant fixed Our associated cost while input strong production paperboard growth leverage consumer growth business and sales its products with favorable

leverage note in bridges. detail I Previously, the how we category. want more volume divisional in impact cost changes our have impact to and in of speak we changes financial portray our we fixed Before associated production shown performance, about our cost

modified the and pricing as which that produce category. including understand changes expect are category investors inflation. production to The approach volume category. our We material input have reflect changes of will in better all this will will sales the volume quantities product we and better in changes that sell, raw that similar we in cost enable be change believe to volume We

paperboard the to We and a our in also that distorts service sales change our of remove base related of sheeting made our the impact volume price of price to sales business presentation our our a contract products. is small sheeting. This paperboard

for make you accounting Additionally, today. decided but them changes we want some starting XXXX, in that we financials have note to our to impact will

and You the filing. review in changes these can X-K pro our impact also forma

be pulp believe transferred mill as will sales with operations pulp will in associated to market now have opposed going These our Lewiston price economics paperboard tissue will our change cost. the bail third better from tissue We business. business. recorded in be this sales Lewiston the to our to been Bail sales business. recorded Our our parties forward at from reflect

quarter our and our We fourth for all from be we provide XXXX nature in filed to will take a periods still where These in impact effect our Slide to fourth the the press release information or at which Lewiston year-over-year our the the the Please quarter these relative transfer that slush XX-K, Lewiston changes quarter prior pulp X, located turn first reporting comparison today, pulp on tissue financial XXXX tissue. of accounting of recast operations bridges will given cost the no reported assets. XXXX we mill follow. to and and will of has

we the of with XXXX including and new costs targeted of which realizing as the project, the mix our paper improvements. paper achieved the persisted lower converting to and reminder, Shelby, of second quarter higher of rate other sales a the wins new and lines, XXXX, benefits to our and our supply incurred, costs second achieving quarter chain we’re related machine capture waste savings associated continuing As in anticipated, throughput, ramping started machine in the production XXXX. and We production startup Carolina North during remainder

investment amount in not performance continued important these Shelby While dollar for realization we the are a and of improvement. the factor specific an costs providing our is benefits,

some more Shelby impacts. Our improve mix to year-over-year continues as than come price has online, offsetting

volume from XXXX. production our benefiting the demand. possibly helped mix increased related input improved cost to elevated from relative of leverage production which fourth fourth in business of the impacted costs, the the tissue lower and XXXX ramp, to quarter to We’re Overall, meet quarter increases fixed

year. our on of relative comparison volatility review You the quarter and tissue quarter XX contains a The Slide last of retail a year-over-year on sales third its IRI a basis, patterns, have some additional review shows financial we box what fourth measured related data, the with our in appendix. in and can consumer dollars, XX Slide from the XXXX showing on of of tissue to while observed is on a changes the quarterly customers panel demand XXXX demand also to versus which depicts our performance. line snapshot impact performance in context the data

our until in the customers, expected quarter behind we IRI call, This order profile, an the to volatility reminder of volatility appendix a demand changed on pullback, are the the an the that and noted see November additional quarter, panel Based is materials that in December and details good strong demand we our forecast demand into levels But have anticipated our demand that slowing October, third supplemental to but third ample may mid-November impacting from inventory we the volatility, the We customers softness us, orders business. of earnings slide not after sales. added supply we we chain which both spike data return October experienced. elevated our at fourth weekly consumer-driven As and pattern in on exited in quarter that and in stable our in to a our pattern. customers December, rapidly. stable period that ability COVID-related

quarter in of decline growth the a of cases, versus X.X% sales third versus and the prior were XX.X year. quarter Our representing million X.X% fourth unit unit

with in and partly continued a production rationalization. was the X.X% Bend results cost our a Slide SKU significant improvement. to cases or for a The along increase freight deliver year-over-year and the costs was our mix. strong well quarter have paperboard Our from and is production, in was this The the strong million Shelby at absence X% versus logistics, led which quarter mill levels from in by leverage quarter and $XX.X year-over-year of RISI Overall, in ramp improved our up benefited XX offset XXXX, adjusted ran versus major favorable prior EBITDA outage Lower operations business. to planned pricing, third down also driver Production year. team reported comparison Cypress results. of our February the in continued year-over-year.

XXXX provides quarter full first relative XX other key perspective You in on our of some XX quarter year outlook performance drivers on to performance review a a third comparison fourth can and our appendix. XXXX Slide the quarter XXXX. Slide for

quarter is million As previously Tissue shipments trending February outlook in function tissue first cases, the the to are to shipments this buying January below quarter versus impacted demand. initially when fourth COVID are a of million our discussed, experienced be X XXXX, of XXXX. expecting and of first we pace, down below in sales in and largely shipments quarter cases. were X.X levels patterns, At consumer

we previously, ton of business February our effective X. As across increase paperboard grades mentioned a our a price SBS announced $XX

lost expected outage impact reflected with COVID-related of at continue approximately increases and are we Given we natural gas customers, $X we and as disruptions. quarter $XX assumptions negatively the limited will agreements nature our to mill, production well couple quarter million expected operate QX. which benefit the of this our also $XX EBITDA caused the expect of This without with million. benefit to the assumes in assets million. system, the that as of weather-related by the our The quarters adjusted $X be be If significant discussions paperboard our price to in to range would that range is across Arkansas unexpected repairs first anticipate in our correct, million next to

to While like there drivers, prepared we and would specific are are we guidance not address. that for variables XXXX, assumptions to several provide annual

announced impact We are from expecting increases. previously price positive the a SBS

upon low volumes high to but buying double-digit single pandemic. dependent course normalization patterns, anticipating This percentages. continued assumes to drop highly consumer tissue of of the are the is We

by Paperboard volumes the positive expected encouraged are of anticipate second We which a our part sales be we have pipeline, largely on are will year. impact to the stable.

higher including expecting packaging, are pulp, and costs, freight. energy We input

today, to our year, total raw million While are predict million coming be inputs our a for pulp. In more XXXX $XX $XX in reduce could total headwind XXXX planned compared from business, difficult outages million to maintenance to major these than the variables are $XX this with million. material $XX half to expected to paperboard by earnings

you current quarters. Cypress out XX, guidance evaluating updated reflects outage of event, We Slide our the schedule have we where quarter, our plan. timing which we the may this in weather light timing the by on Bend are In coming broke of update and

$XX XX tax XX%, is liquidity expense $XX that For expected the execute amount flow cash historical free and $XXX between and also million. XXXX, We of between of our we we’re to our reduce be to the $XX and to expected million. of closer the reduce $XXX year. effective million we to on expect was the expected and between million structure. including prepayments $XX utilize is XXXX. $XX million, full some loan, Depreciation which anticipating projects $XXX rate million $XX is were approximately in which voluntary to term million be to trends at year making our tax against Capital attributes interest end to following: to are net million expect and our delayed to as current And taxes. utilized our debt, to million cash Slide XX% some our be capital expenditures outlines

after continue financial strides net ratio of flexibility assuming COVID increasing We reducing outages. as with a adjusted to to EBITDA of a and debt our target X.Xx, net we amount make debt our normal EBITDA adjusted in and benefits

turn conclude me to Let Arsen the over today. to call our back call

Arsen Kitch

our in Slide key to Before on accomplishments wrapping of XXXX on reflect up I XX. proposition, with value some wanted our

and by new CEO, and an sheet. including It to believe a interesting debt on through our and by and risks our on the outstanding this paying year. we least, say proud serve balance strengthen a of fully Our developing while run went to maturities at promotion results, down well facilities transitions, a COVID. CFO improvement near-term leader allocation. managing several adjusted we site net long-term ramped the are customers. changes We We same build rapidly leadership CPD capital relationships can focus hiring Shelby are ramp to continue stronger this outstanding our that heading business to delivered many volatility I’m of end our customers. that on perform paper job year our for safety time, to million, demand our and did. $XXX track assets in of to machine and health financial my refinanced and options XXXX into with we the At business. an with new our an new strategy of certainly focusing We driving our we to overall and the the near-term through mitigated levels team reduced did We positioned in a our We make was debt continue and debt

remarks. wrap reiterate our quarter. across value we turn positioned complementary to believe and on and is XX Clearwater throughout Let’s to the well call Slide I to prepared earnings We proposition, investors and up attractive discussed our mentioned previous businesses. Paper our which would X very like

division which have of the Products a growing our this the wide are the a key first, national leader tissue is Consumer we in sales following: business believe branded a within to footprint product an vantage market. private range From customers. strengths ability categories supply is an proposition with attractive point, Our we our tiers to quality of

today. chain expertise a Our during and transportation like key manufacturing, differentiator, especially supply is in times challenging

rose private in These brand in from Second, U.S. amplified away up XX% long-term typically brands. share in have been from are the XX% XXXX. products XXXX, Private trends branded tissue to over there to recessions. during

where way half from share. long of where tissue brands impressive, these While are countries a many are over total trends represent still private we’re European

been is has by need-based impacted economic economically resilient Historically, uncertainty. product. not tissue and an demand negatively Lastly,

to that customers this service we the first, with following: coasts. both paperboard believe assets footprint, operated Turning well a we division, on key to strengths the us business our geographic invested of enabling are efficiently

have a customer have markets largely stable diverse that We base, demand. serves which end

Second, unparalleled enables not quality service independent being on with focus to vertically and customers commitments. us integrated

is to Third, take more products. positioned trends well service food we the and believe business advantage of packaging towards sustainable

flows. $XX we with ability reduce fourth Lastly, capital solid in and quarter generate good demonstrated to demonstrated flows us Overall, margins paperboard we an behind large cash has and as cash our investments business are debt a prioritizing are our million, XXXX of the debt to by operational reduction aggressively to benefits We investment, approximately capital. net and our million. continuing to our improvements, continue deleverage intend delivering over prudently reduction $XXX bringing to in capital net managing from allocating working Shelby

we normal tissue shipments success we’re year, by While is the shareholder EBITDA value. engage We With reduced COVID their adjusted the future believe on We strategy long in term. the target to of lower way to impacted and and part anticipate to Board making expect have allocations. our moves our we the for benefits, sound business outages strategic capital achieving continue X.Xx our our support continually in and that best do an success to first not customers this year. leverage create with position this

Beyond improve shareholder our deleveraging, of in including: a operation we competitiveness. that creating first, of internal to value, expect variety explore means investments

capital our that investments market returning synergies external shareholders. third, and deliver Second, and improve to our position;

will prepared remarks we end that, our your and take questions. with So

Operator

[Operator first of Instructions] from Wilde Montreal. with question comes Bank Mark Your

open. is line Your

Mark Wilde

good and Thanks. Michael. Arse morning, Good afternoon,

Arsen Kitch

Good afternoon.

Mark Wilde

the we as talk about, first pulp through Arsen, in higher costs if move you then year? these impact the quarter and could wondered of I the

Arsen Kitch

Yes, Mark.

out from highly QX in will million going estimate $XX year more we think and we what to impact is that, a best that unpredictable we In further really through since have given $XX about our announcements QX. than – ton pulp impact system mentioned this million our end and the be of today, outlook, that cost felt modest, That’s in coming through So volatility half right our inflation that be but is pulp in we it’s over is expect We full how now. $XXX believe to there, market with last of the increases. given seen there further the QX year flows up pulp.

Mark Wilde

prices, of volatile, you is do to quite even of And how volatile in – to counts? last I to have the how do this this? volatile what say have commodity, I plays we I intend Arsen, it how respond mean, you mean, sheet but pulp starting to is Is a is think matter for seen out? it reduce months couple a raising

Arsen Kitch

cost as Mark, number have levers requirements. a of quality our pulp, around a they perspective grades of from using need to changes long we different as products

of focus a So levers have cost. to there that internally on we is our number

supply price, demand-driven. ultimately price. of sets the market terms the Mark, and It’s In

we the we be and throughout working our good will are serviced So a to are year that position. customers they with ensure in well

Mark Wilde

this Okay. papers. recognized turning in paperboard the to was February SBS And market, then – trade hike the the not

is us it that March, Assuming that the rolling about of X how cadence X can in over to the think in help next you months?

Mike Murphy

I jump that. Mike. and take So, in Mark, it’s will

I and to think contract-based. but that market, do implemented quarter the a is majority fully of of our third it business is call pricing get to it, business from more anywhere time our have, a then takes spot we

And it, time the I bit but it’s done. couple would think over I get fully to so can about get course of done to implementation a going quarters, take we that of of us the think a as

Mark Wilde

then we quarter bonus Michael? is between how And that numbers, is fourth if Okay, two segments the helpful. one-time or that, that for you look account at the million That’s alright. did spread in $X.X

Mike Murphy

on $X.X million, correct to was just So, it employees. of focused most it. our Mark,

and eligible that our incentive that was folks Clearwater programs. for so most at of incentive people X,XXX the normal about have aimed bonus We aren’t discretionary at or that

Arsen Kitch

something that an And accrued in was bonus the you put your took quarter. third we third for Mark, to if looking that that in we it expense had to that – the are model quarter, into so to add

Mark Wilde

what I’m pension you exactly in Can impact would been it on outcome some How just curious, think finally, a then seen reasonable you’ve Washington, multi-employer has Clearwater? the programs. can there for alright. some And Okay, what And be? proposals was – I in might for. you just update of about know what there? Michael, you talk us That’s I looking changes

Mike Murphy

that XX-K And our relates Sure. we’ve filed remind I’ll and updated the so you, multi-employer to Mark as our today, it disclosures we of plans. some

think I is legislation speaking out you’re the that’s what to there.

to House plans for facing proposed legislation part pension included in multi-employer of stimulus intended provisions legislation solvent allow an from COVID-XX the insolvency at XX whether to incur It’s make that financial the PIUMPF. could has would the to Clearwater eligible sorry, proposed – the relief substantial from amount which were remain as PIUMPF This federal next years. So are reduce the – if withdraw the for extent address uncertain or of to legislation. liability government Clearwater amount would to

a However, seen solvency and would Clearwater long-term retirees. to We’ll outcome, be for as both enthusiastic we’ve its being legislation. the promising. about passage. this our We’d the continue positive monitor of proposal PIUMPF’s and state workers be

Mark Wilde

alright. Okay,

Michael. turn I'll much. over. Thanks Sounds it good, very

Operator

your KeyBanc. comes from question And next Adam Josephson with

Your line is open.

Adam Josephson

Arsen and afternoon. Mike, good

Mike Murphy

Adam.

Arsen Kitch

Hello, Adam.

Adam Josephson

talk both. you to Good to

numbers, of tissue On your cases fourth couple XX.X a I the in produced quarter missed – expectations, your the but million. tissue were

with I I you single quarter. I the to a said Jan you touch you volume me million. low- February what think catch cases was expected misheard you below a drop And I comment, X were about me sequential there? January, correct but think high- then you if can you that help was double-digits Feb? said in I and in to what but tissue assume said please didn’t

Arsen Kitch

Yes.

highly million to sales. production were best X.X our cases. sales some happens be with January The and low is million way what aiming and expectations So may below we’re The were largely, But There COVID. think this about – February shipments fluctuations. have really our full double-digit production roughly trending we they in is volume for what be year. matching to match X high-single cases, the low our to on about to year, our are is dependent talked the

lead point outcome. to that that COVID vaccines to assuming prove if some resilient some different continues, and normalized different, more to a get these could of normalization more is at that. variants We’re that a state we be to at If

Adam Josephson

And just I I that. appreciate –

terms – year low is full what’s Just your what high year-over-year – single embedded of so to that – in outlook high percentage the to compared decline? guidance in single down double-digit, XQ your of

Arsen Kitch

said state prior that. year below What We didn’t we to below quarter. be explicitly and it’s is prior going

Mike Murphy

so we Adam, on. demand quarter was did those XX.X shipped in then is below both X.X and trending This the really in kicked that in. So current And when million the in cases. prior numbers. the million run the below again, million And year, we’re kind XX.X million of COVID January of X cases we to February fourth rate

Adam Josephson

Got it.

And don’t those words, other notable along Okay. think in February unusual or and anything numbers, is lines? January particularly any destocking in you there anything not those

Arsen Kitch

Adam, it’s hard to tell.

healthy, So, February. look if into spike Then a saw in happened month. in was was and that fairly October, thought at we soft softness we seeing adjustment we saw some fairly what that, and we’re an you October, a in November December. January

this and inventories. work month as retailers consumers another adjustment could be So through

adjustment this time our happens be dependent a are so what so retailers. predicting having with could We’re month. COVID, It’s hard but this another and certainly on

Adam Josephson

million terms I so sequentially of I be of it, weather at appreciate call it. the in Got that, $X million. is, Arsen. $XX believe, the down, midpoint, you’d which XQ Also guidance,

called quantify you just that the etcetera? account How volume? items $XX other remaining out terms the million. Can would So inflation, is you is $XX of modest million for lower how in much much tissue

Arsen Kitch

variables, those specifically And are that we those haven’t Adam, but we all individual haven’t certainly, elements. out broken out. broken

Adam Josephson

Right.

can quantify modeling? I what the that appreciate just have that Mike, – But of breakdown – – for you is you quarterly Arsen. you modeling know expense. us that. – the outage quarter Okay, I with by just Can to help

Mike Murphy

Page the here, In give to round so to some second I’m chart let me numbers refer quarter Adam. the And Sure. XX. going here – on

and going area, million The outage in of to second area. is low the $X quarter to dollar in in couple outage, the kind a million be million And outage million then then estimated quarter third quarter that fourth the expenses $XX $X area.

Now expecting. what I I’m some the context to giving terms hope $XX million in guidance, up but those you we’re $XX million of to just add

Adam Josephson

Yes, that’s perfect, thank you.

the more half, the on How it’s One guiding, is million let’s comprised so is say, inflation exactly? which And million, Just million which of for of remainder to more what it’s to much freight? of if rest pulp is so $XX me. $XX million. than $XX you are two $XX the

Arsen Kitch

and Yes. dollars, energy. it’s am the missing... but out broken Adam, I we Mike, haven’t transportation its specific

Mike Murphy

the input are raw two Adam seeing. biggest Those we are that inflation, material

Adam Josephson

– expecting in you pulp? in see brunt those to are the of unlike it And XQ, fully

Arsen Kitch

QX, modest So for what said expect fairly – I we think we it’s inflation.

come that of So to in that yet is that most through implies really, QX QX.

Adam Josephson

Right.

Okay.

And freight just you all are you Okay. So sounds I and but think backlogs on fairly pulp, it applies mentioned to lastly flattish this demand boxboard, then like it improving, year. energy? expect of your

So two me square not? not, statements. Are help backlogs why And the just be if you growth? demand are you to are improving? you might trying I’m Can those expecting – you with

Arsen Kitch

sell So the We state best way it. thanks to what we for Adam the question. I produce, guess, is

so at didn’t last down all any year, either. And we slow downtime, market-related we didn’t take

full. And we year, talk being run is plan so we it’s this – the year, to when about to similar essentially volumes last conclusion

issues cropped any backlogs On last the industry. at side our year increasing statement, start across of this backlog the up of into year sort were actually, end supply the before the of

led about which strong us general, price so made. And felt the very the announcement we we increase that in to business

Adam Josephson

Mike. Thanks it. Got

Arsen Kitch

Adam. Thanks,

Mike Murphy

Adam. Thanks,

Operator

next Your America. from Spitz Instructions] [Operator Roger question of comes Bank with

open. is line Your

Roger Spitz

Thank you. Good afternoon.

you cash or So mute. you Can might any any I’ll on that are guidance or cash attributes off sure expect? taxes just give XXXX there I’m rebates make

Mike Murphy

for Roger. Sure, Thanks the question.

tax of a in attribute in XX-K and you’ll this we current that our assets, the about the standpoint, have receivable see taxes $XX million. from So

an XX% a effective And modeling so cash XX%. purposes, that And then perspective. for use I rate would use flow from I’d to from tax

Roger Spitz

million, is you’re you part – that all $XX correct? XXXX implication. in of that the that Is so was might saying crystallize So what that

Mike Murphy

That’s expectation. our current

Roger Spitz

refund, that’s – periods $XX the it then million reduce And other prior paying the would as you be to paying Okay. regulation – inflow? you presumably, presumably far for be tax might – use or that as that to

Mike Murphy

payroll amount Outside paying back taxes. of modest a of

esoteric of with tax that we defer north recall, were the of is for million. payroll is don’t I too number this anything a that, you to slightly Act, taxes expectations year. part As think this there able the $X Outside of CARES some

Roger Spitz

or maybe maybe a million So $XX look think that like suggesting, the inflow be might less characterization? net. $X repayment Is million inflow, I you’re $XX fair million at

Mike Murphy

to effective otherwise XXXX. into million you taxes the would $XX that It’s model offset

Roger Spitz

Okay.

for Perfect. of provide XXXX, of and kind can that? And QX guidance capital terms source Okay. then you what working on then in use

Arsen Kitch

on Roger, offered any year this haven’t guidance we working capital.

And to think going we’re so this away I capital. guidance juncture at for from stay providing

Roger Spitz

fine. about that to start that be starting from ‘XX you That’s we I is we XXXX good should lot we takes there CapEx give think any specific that, puts perhaps is place, a major I compare have. least just you of XXXX from some if not that XXXX would given when things think haven’t And guidance, at ‘XX because and would say CapEx, there or know you a looking a sense, with CapEx? But XXXX, don’t Okay. to

Arsen Kitch

look we’ll is be So projects larger at. future, returning I XXXX we’re CapEx rates. normalized run in capital. about think rate starting more may a the what think on point good is more normalized that I there this a to we said But run Certainly,

Roger Spitz

much. Got it. you Thank Alright. very

Arsen Kitch

Thank you.

Operator

Paul Quinn RBC Markets. with question comes from Capital Your next

open. is line Your

Paul Quinn

Yes, much. And on the thanks I guidance. of so appreciate the some detail

Just expect a half. question around $XX in million the the million you to $XX inflation, the

– assume that of expect If and math guys XXX,XXX ton. half up It purchased basically prices be about you Is to tons. a stated you pulp’s about that $XX you have you on... the assumes kind pulp

Arsen Kitch

are You correctly. the doing math

you our but vaguer probably Paul, already And We’re little exposure probably hardwood. a terms you, know of that I’ll more you’re in through thinking this, correctly. to range, the is remind

it, So we’re buying. of that that of that, is majority hardwood pulp vast that the XXX,XXX call

Paul Quinn

Okay.

rises inflation? if on not upwards it we price well encompassing it’s be see will of $XXX, north So,

Arsen Kitch

how – And it would Paul, we’re yes, – inflation. resets you’re we’d It’s higher it, pricing basis. mechanisms work. mostly the aware a of see RISI to monthly discount see a to and attached on We tied with

subject would we be – we So be that. to would

I the think you at a is where easing goes. in lot that forecasts market balance about some there pulp now the some of If of the right half, although year are look anticipating uncertainty of for second this they

Paul Quinn

but exposure, offset tissue your side of increases the to price just not of you industry, in on this? North the have given, anybody America that’s And especially to Okay. rest announced heard the pulp,

Arsen Kitch

demand-driven. talk I’ll the What Paul, and at the you market is tell we pricing. it’s future price don’t supply and sets

good be a certainly are working will with and we position make as a we to So in customers good well. our position are sure in they

Paul Quinn

else at or targets? lastly incremental capital internal what debt, just that looked you then And besides Okay. bolt-ons any reducing of that? Is on it’s allocation, – have anything like more interest or

Arsen Kitch

year. that get to we what leverage So unlikely our it’s we’ll is mentioned this X.Xx

de-leveraging focused are we on still So strategy. that

are – months. the right – medium-size that the in at over to looking small to deliver projects, next ones that XX over the internal returns are next We XX

exploring put strategic and that’s those competitive scenarios we working various us provide with in external We opportunities that will a good position. through those options. our developing But all synergies Board be and are –

Paul Quinn

lastly, just the is pushback we last just you much to SKU see reduction here? year come going tissue, the how to And how I in back? mean, expect of much that saw reduction, ‘XX in Okay. do

Arsen Kitch

But for good what retailers of it’s think strategies our in good retailers shelves. they terms and want We – have for our different us retailers. different it’s on various have their

COVID are We working those come the those back our those to medium impact and certainly with especially of discussions near ongoing, discussions ongoing, expect as but all term, eases. SKUs retailers. the So to don’t in are we’re

Paul Quinn

I all Thanks much. That’s very Alright. had.

Arsen Kitch

you, Thank Paul.

Operator

Bank next Your comes of with from America. question Mark Wilde

line is Your open.

Mark Wilde

Montreal. Well, of curious. let’s But try that. I’m maybe just Mike, Bank

slide So I go to on Page deck. XX the

can Like, give management, that a managing I year. You’ve in us want the don’t you the got about for aggressively to you about are? bullet aggressive talk understand capital elements what’s capital. But this working number what main working

Mike Murphy

trying think look on terms that to that on standard job trying obviously that inventory at in the stuff make a front. that inventory right you we’re it’s XXXX, think, with sure the levers to management, I the diligence when did are there, looking we’re in maintaining statements, Mark, Those customers management good we it’s of and pull. financial continued vendors, our we with push terms then And to out. I that of discipline maintain kind

Mark Wilde

you things there would looked that can is this an Are do said, any well, of where at call you out clearly we that better? and kind area you’ve

Mike Murphy

Mark, customers good in XXXX, inventory to with levels. to service managed lower we our provide

certainly we’re levels That’s improving how looking and at area right our chain is certainly an can network to bit there levels. see where we at that is planning a an focus. quite lower of service So deliver in inventory area that supply the

Mark Wilde

Okay. market that then the Arsen, And XX% about of of label you any I’m right much just tissue estimate curious, private for XX% that’s do thought how you’re might of to now, exposed but clearly XXX% I if ballpark integrated have the you kind prices? of versus exposed pulp if of you just not market, rising sense and nonintegrated nonintegrated? that that yourselves, mean at be looked slice any

Arsen Kitch

are the outside have that Mark, pure us, say – number I most would brands specific I and branded private players, integrated. that larger brands integrated. players you. private some But are There specific are that I a don’t of players private branded for numbers. do have not don’t both

Mark Wilde

Okay. That’s for. you. all was Thank I looking

Operator

next Josephson Your question with Adam comes from KeyBanc.

Your line is open.

Adam Josephson

my taking follow-up, for Thanks Arsen.

particularly were slightly are inventories not Just low, average. me Operating XX World above so Shipments pulp, rates yesterday. in data are X%. Arsen, above on one Producer they January are out fact, average. down not the for came

understand what than outside prices it’s reason. driving to skyrocketed of whatever futures So historic other from this is for Chinese having kind surge hard the

to Just following this how talk market, can your to just be might – it’s market? think know the close And you be you’re you likely what think on time happening? I sustainable about you based

Arsen Kitch

various signals of there. lot a is There out

that at suppliers. value at look improving the pulp-based look happening China, over the some look improving several seen at for and look look what’s quarters the economic trends you can the pulp you and can can last can products, dollar, so you in outages of of you at demand potential at conditions, we’ve And with you can

been there. out markets. to that says increases these that’s there There pinpoint one that’s have if anticipating later one I certainly the forecasting quite the I’ll driving hard that significant are specific for the So be that forecast been expert in the a a an pulp and It’s pulp don’t is – look you a is lot to But of prices. variables pretend think they in – to at year, ease.

Adam Josephson

when I really this you you asked adjust do or And sustainable terms in earlier of reverse how terms will the mean no you in could have we your next is? count plan I how for and all – the know surge in prices – someone X do it responses for then about of how accordingly. you that And think months. idea sheet to surge

Arsen Kitch

is or the is that we pulp longer grades things on the upswing optimizing work products. we term downswing, to which optimizing our There that need to some the pulp continue use, whether on, is

pull, our tissue We that in and going when of have to need a harder to continue cost are we number pull levers prices potentially up. business pulp

make we’re the pricing, price continue about will As and mentioned, demand are market and short supply sure positioned well to set that I and they customers work the run. the in but and with we’ll well ultimately, positioned our to long

Adam Josephson

last quickly of had expectations, year. into There some It years. compared that. you will being much to you obviously, normalcy North year a us settle for That an and the demand, And just how added last supply Arsen, appreciate last been situation just think this I great can oversupply changed next supply on remind deal year from year. is norm. changed America tissue degree one one, many your in presumably this demand

how you’re to semblancy normal wondering revert supply/demand assumption the that I’m under So we’ll this thinking of trends year? about some

Arsen Kitch

If XX you it, a take with year, growing the a market million-ton or call X% take, let’s macro view, it’s give population.

year, XXX,XXX – branded space. one private that’s that is demand of the is It’s at XXX,XXX, there look coming paper two online. tons at of aimed the which about So This growth, XXX,XXX if machines. RISI, majority you is to tons

year, that’s tons range – year in supply total, XXX,XXX this about and added it’s a So demand should be in tons. it’s XXX,XXX growing being that

Adam Josephson

of lot, Great. Best a Thanks Arsen. luck.

Arsen Kitch

Thank you.

Operator

President the portion of call. I Officer Arsen to Kitch, turn Chief remarks. Executive today’s Q&A concludes now closing This and over it will for

Arsen Kitch

vendors teammates and our integrity thank customers communities our each company, challenging customers through again commitment We appreciate times. these us during want time Clearwater to atypical and our our for their working to our this everyone. for during I and other,

also We support us. in our shareholders’ appreciate and interest you. Thank

Operator

you today’s Ladies Thank conference for participating. and gentlemen, this concludes call.

You disconnect. may now

Clearwater Paper (CLW) 27 Feb 212020 Q4 Earnings call transcript