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Clearwater Paper Reports Third Quarter 2019 Results

October 24, 2019 4:05 PM

SPOKANE, Wash.--(BUSINESS WIRE)-- Clearwater Paper Corporation (NYSE: CLW) today reported financial results for the third quarter of 2019.

The company reported net sales of $445.2 million for the third quarter of 2019, which were $18.7 million or 4.4% higher than net sales of $426.5 million for the third quarter of 2018. The increase was due to higher net paperboard and tissue pricing from previously announced price changes and higher retail tissue shipments. These items were partially offset by lower non-retail tissue shipments primarily resulting from the sale of the company's mill in Ladysmith, Wisconsin in August 2018.

Net loss determined in accordance with generally accepted accounting principles, or GAAP, for the third quarter of 2019 was $11.0 million, or $0.66 per diluted share, compared to net earnings for the third quarter of 2018 of $34.4 million, or $2.08 per diluted share. The decrease in net earnings was due to planned major maintenance at the company's Lewiston, Idaho mill, higher input costs for pulp and wood fiber and increased depreciation and interest expense. Excluding certain non-core items identified in the attached Reconciliation of Non-GAAP Financial Measures, third quarter 2019 adjusted net loss was $8.3 million, or $0.50 per diluted share, compared to third quarter 2018 adjusted net earnings of $22.3 million, or $1.35 per diluted share.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, were $28.1 million for the third quarter of 2019, compared to $71.0 million for the third quarter of 2018. Adjusted EBITDA for the quarter was $30.9 million, compared to third quarter 2018 Adjusted EBITDA of $50.1 million. The decrease was due to the planned major maintenance at the Idaho mill in the third quarter of 2019.

“Compared to our outlook, we performed well during the third quarter, with continued strong pulp and paperboard production and higher retail tissue shipments, which enabled us to achieve solid results,” said Linda Massman, president and chief executive officer. “We successfully completed the major maintenance outage at our Lewiston, Idaho mill and determined we will move into 2020 with no planned major maintenance outages. Our new Shelby, North Carolina facility is meeting all customer quality expectations on ultra and premium grades and we are currently meeting our targeted production volume. We are also happy to report that tissue sales have increased 8% year over year. Our long-term focus remains on improving our operational capabilities to ensure we are well-positioned to generate cash flow to de-lever our balance sheet.”

THIRD QUARTER 2019 SEGMENT PERFORMANCE

Consumer Products

Net sales in the Consumer Products segment were $228.5 million for the third quarter of 2019, up 8.0% compared to third quarter 2018 net sales of $211.6 million. This increase was due to higher retail tissue volumes sold, higher average prices for both retail and non-retail tissue products and a favorable mix shift to a higher percentage of retail shipments, partially offset by the impact from the divestiture of the Ladysmith, Wisconsin mill in August 2018. In the third quarter of 2019, converted case shipments reached 13.2 million cases, an increase of 11.6% compared to 11.8 million cases shipped in the third quarter of 2018, due to growth in business with both new and existing customers.

Segment operating loss for the third quarter of 2019 was $4.4 million, compared to operating income of $21.7 million in the third quarter of 2018. After adjusting for certain non-core items identified in the attached Reconciliation of Non-GAAP Financial Measures, adjusted operating loss was $4.4 million for the third quarter of 2019, compared to an adjusted operating loss of $1.0 million for the same period in 2018. The increased operating loss was primarily due to higher internal pulp costs due to planned major maintenance at the Idaho mill and higher depreciation expense resulting from the completion of the Shelby mill expansion. Adjusted EBITDA for the segment was $14.6 million in the third quarter of 2019, up from $13.4 million in the third quarter of 2018. The increase was primarily due to improved retail shipment volumes, pricing and mix, partially offset by higher maintenance costs and lower non-retail tissue shipments resulting from the divestiture of the Ladysmith mill.

Tissue Sales Volumes and Prices:

Pulp and Paperboard

Net sales in the Pulp and Paperboard segment were $216.6 million for the third quarter of 2019, up 0.9% compared to third quarter 2018 net sales of $214.8 million. The increase was due to higher paperboard prices from previously announced increases, partially offset by lower sales volume.

Segment operating income and margin for the third quarter of 2019 were $17.1 million and 7.9%, compared to $38.3 million and 17.8%, respectively, for the third quarter of 2018. Adjusted EBITDA for the segment was $28.3 million in the third quarter of 2019, compared to $47.7 million in the third quarter of 2018. The decrease in operating income and adjusted EBITDA was primarily due to planned major maintenance at the company's Idaho mill, partially offset by higher paperboard prices.

Paperboard Sales Volumes and Prices:

Taxes

The company's consolidated GAAP tax rate for the third quarter of 2019 was a benefit of 44.3%, compared to a provision of 9.6% in the third quarter of 2018. The tax benefit in the current quarter resulted from the pre-tax loss for the quarter.

Note Regarding Use of Non-GAAP Financial Measures

In this press release, the company presents certain non-GAAP financial information for the third quarters of 2019 and 2018, including adjusted net earnings (loss), adjusted net earnings (loss) per diluted share, EBITDA, adjusted EBITDA, adjusted operating income (loss) and adjusted operating margin. Because these amounts are not in accordance with GAAP, reconciliations to net earnings (loss), net earnings (loss) per diluted share and operating income (loss) as determined in accordance with GAAP are included in the tables at the end of this press release. The company presents these non-GAAP 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. In addition, the company uses EBITDA and Adjusted EBITDA: (i) as factors in evaluating management’s performance when determining incentive compensation, (ii) to evaluate the effectiveness of the company's business strategies, and (iii) because the company's credit agreement and the indentures governing the company's outstanding notes use metrics similar to EBITDA to measure the company's compliance with certain covenants.

WEBCAST INFORMATION

Clearwater Paper Corporation will discuss these results during an earnings conference call that begins at 2:00 p.m. Pacific Time today. A live webcast and accompanying supplemental information will be available on the company's website at http://ir.clearwaterpaper.com. A replay of today's conference call will be available on the website at http://ir.clearwaterpaper.com/results.cfm beginning at 5:00 p.m. Pacific Time today.

ABOUT CLEARWATER PAPER

Clearwater Paper manufactures quality consumer tissue, away-from-home tissue, parent roll tissue, bleached paperboard and pulp at manufacturing facilities across the nation. The company is a premier supplier of private label tissue to major retailers and wholesale distributors, including grocery, drug, mass merchants and discount stores. In addition, the company produces bleached paperboard used by quality-conscious printers and packaging converters, and offers services that include custom sheeting, slitting and cutting. Clearwater Paper's employees build shareholder value by developing strong customer relationships through quality and service.

FORWARD-LOOKING STATEMENTS

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended, including statements regarding managing and completing the company's Shelby, North Carolina facility expansion, planned major maintenance outages, customer quality expectations, production volume, operational and financial execution, cash flow and debt reduction. These forward-looking statements are based on current expectations, estimates, assumptions and projections that are subject to change, and actual results may differ materially from the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to: competitive pricing pressures for products, including as a result of increased capacity as additional manufacturing facilities are operated by the company’s competitors; the loss of, changes in prices in regard to, or reduction in, orders from a significant customer; changes in customer product preferences and competitors' product offerings; the company’s ability to achieve full production at its new tissue manufacturing operations in Shelby, North Carolina on time and within current cost expectations; customer acceptance and timing and quantity of purchases of the company’s tissue products, including the existence of sufficient demand for and the quality of tissue manufactured at its expanded Shelby, North Carolina operations upon full production; consolidation and vertical integration of converting operations in the paperboard industry; the company’s ability to successfully implement its operational efficiencies and cost savings strategies, along with related capital projects, and achieve the expected operational or financial results of those projects, including from the continuous pulp digester at its Lewiston, Idaho facility; changes in the cost and availability of wood fiber and wood pulp; changes in transportation costs and disruptions in transportation services; labor disruptions; changes in the U.S. and international economies and in general economic conditions in the regions and industries in which the company operates; manufacturing or operating disruptions, including IT system and IT system implementation failures, equipment malfunctions and damage to the company’s manufacturing facilities; changes in costs for and availability of packaging supplies, chemicals, energy and maintenance and repairs; larger competitors having operational and other advantages; cyclical industry conditions; changes in expenses, required contributions and potential withdrawal costs associated with the company’s pension plans; environmental liabilities or expenditures; cyber-security risks; reliance on a limited number of third-party suppliers for raw materials; the company’s ability to attract, motivate, train and retain qualified and key personnel; material weaknesses in the company's internal controls over financial reporting; the company’s substantial indebtedness and ability to service its debt obligations; restrictions on the company’s business from debt covenants and terms; and changes in laws, regulations or industry standards affecting the company’s business; and other risks and uncertainties described from time to time in the company's public filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2018. The forward-looking statements are made as of the date of this press release and the company does not undertake to update any forward-looking statements based on new developments or changes in the company's expectations after the date of this press release.

Clearwater Paper Corporation

Consolidated Statements of Operations

Unaudited (Dollars in thousands - except per-share amounts)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Net sales

$

445,188

100

%

$

426,460

100

%

$

1,325,960

100

%

$

1,295,511

100

%

Costs and expenses:

Cost of sales

(418,704

)

94

%

(376,221

)

88

%

(1,212,775

)

91

%

(1,155,808

)

89

%

Selling, general and administrative expenses

(28,944

)

7

%

(26,283

)

6

%

(85,942

)

6

%

(85,827

)

7

%

Gain on divested assets, net

—

—

%

22,944

5

%

—

—

%

22,944

2

%

Total operating costs and expenses

(447,648

)

101

%

(379,560

)

89

%

(1,298,717

)

98

%

(1,218,691

)

94

%

(Loss) income from operations

(2,460

)

1

%

46,900

11

%

27,243

2

%

76,820

6

%

Interest expense, net

(13,077

)

3

%

(7,547

)

2

%

(32,477

)

2

%

(23,290

)

2

%

Debt retirement costs

(2,725

)

1

%

—

—

%

(2,725

)

—

%

—

—

%

Non-operating pension and other postretirement benefit costs

(1,421

)

—

%

(1,234

)

—

%

(4,266

)

—

%

(3,700

)

—

%

(Loss) earnings before income taxes

(19,683

)

4

%

38,119

9

%

(12,225

)

1

%

49,830

4

%

Income tax benefit (provision)

8,710

2

%

(3,675

)

1

%

4,665

—

%

(5,825

)

—

%

Net (loss) earnings

$

(10,973

)

2

%

$

34,444

8

%

$

(7,560

)

1

%

$

44,005

3

%

Net (loss) earnings per common share:

Basic

$

(0.66

)

$

2.09

$

(0.46

)

$

2.67

Diluted

(0.66

)

2.08

(0.46

)

2.66

Average shares outstanding (in thousands):

Basic

16,539

16,487

16,531

16,493

Diluted

16,539

16,564

16,531

16,573

Clearwater Paper Corporation

Condensed Consolidated Balance Sheets

Unaudited (Dollars in thousands)

September 30,

December 31,

2019

2018

ASSETS

Current assets:

Cash and cash equivalents

$

7,815

$

22,484

Restricted cash

1,440

—

Receivables, net

157,929

145,519

Taxes receivable

6,721

6,301

Inventories

282,395

266,244

Other current assets

7,960

3,399

Total current assets

464,260

443,947

Property, plant and equipment, net

1,273,474

1,269,271

Operating lease right-of-use assets

74,503

—

Goodwill

35,074

35,074

Intangible assets, net

18,725

24,080

Other assets, net

15,041

15,746

TOTAL ASSETS

$

1,881,077

$

1,788,118

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Short-term debt

$

58,000

$

120,833

Accounts payable and accrued liabilities

229,563

321,032

Current liability for pension and other postretirement employee benefits

7,430

7,430

Total current liabilities

294,993

449,295

Long-term debt

866,702

671,292

Operating lease liabilities

66,571

—

Liability for pension and other postretirement employee benefits

73,738

78,191

Other long-term obligations

33,990

38,977

Accrued taxes

3,070

2,785

Deferred tax liabilities

116,868

121,182

TOTAL LIABILITIES

1,455,932

1,361,722

Stockholders' equity

425,145

426,396

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

1,881,077

$

1,788,118

Clearwater Paper Corporation

Consolidated Statements of Cash Flows

Unaudited (Dollars in thousands)

Nine Months Ended

September 30,

2019

2018

CASH FLOWS FROM OPERATING ACTIVITIES

Net (loss) earnings

$

(7,560

)

$

44,005

Adjustments to reconcile net (loss) earnings to net cash flows from operating activities:

Depreciation and amortization

86,343

75,686

Equity-based compensation expense

2,959

2,845

Deferred taxes

(6,023

)

3,930

Employee benefit plans

1,006

102

Amortization of deferred issuance costs on debt

1,452

943

Loss on retirement of debt

2,725

—

Gain on divested assets

—

(25,510

)

Other non-cash activity, net

724

84

Changes in working capital, net

(98,266

)

7,402

Changes in taxes receivable

(420

)

13,534

Other, net

825

(1,922

)

Net cash flows from operating activities

(16,235

)

121,099

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to property, plant and equipment

(125,794

)

(174,034

)

Net proceeds from divested assets

—

70,930

Other, net

14

807

Net cash flows from investing activities

(125,780

)

(102,297

)

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings from long-term debt

296,146

—

Repayment of borrowings on long-term debt

(101,671

)

—

Borrowings on short-term debt

534,877

322,454

Repayments of borrowings on short-term debt

(598,715

)

(277,454

)

Payments for debt issuance costs

(1,844

)

—

Other, net

(1,430

)

(853

)

Net cash flows from financing activities

127,363

44,147

(Decrease) increase in cash, cash equivalents and restricted cash

(14,652

)

62,949

Cash, cash equivalents and restricted cash at beginning of period

24,947

16,738

Cash, cash equivalents and restricted cash at end of period

$

10,295

$

79,687

Clearwater Paper Corporation

Segment Information

Unaudited (Dollars in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Segment net sales:

Consumer Products

$

228,544

51

%

$

211,642

50

%

$

676,220

51

%

$

672,069

52

%

Pulp and Paperboard

216,644

49

%

214,818

50

%

649,740

49

%

623,442

48

%

Total segment net sales

$

445,188

100

%

$

426,460

100

%

$

1,325,960

100

%

$

1,295,511

100

%

Operating (loss) income:

Consumer Products

$

(4,438

)

180

%

$

(1,269

)

3

%

$

(8,300

)

30

%

$

(3,244

)

4

%

Gain on divested assets

—

—

%

22,944

49

%

—

—

%

22,944

30

%

Pulp and Paperboard

17,098

695

%

38,280

82

%

80,073

294

%

98,626

128

%

12,660

59,955

71,773

118,326

Corporate

(15,120

)

615

%

(13,055

)

28

%

(44,530

)

163

%

(41,506

)

54

%

(Loss) income from operations

$

(2,460

)

100

%

$

46,900

100

%

$

27,243

100

%

$

76,820

100

%

Clearwater Paper Corporation

Reconciliation of Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA

Unaudited (Dollars in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Net (loss) earnings

$

(10,973

)

$

34,444

$

(7,560

)

$

44,005

Add back:

Interest expense, net3

15,802

7,547

35,202

23,290

Income tax (benefit) provision

(8,710

)

3,675

(4,665

)

5,825

Depreciation and amortization expense

31,990

25,342

86,343

75,686

EBITDA1

28,109

71,008

109,320

148,806

Directors' equity-based compensation expense (benefit)

420

769

101

(1,930

)

Non-operating pension and other postretirement benefit costs4

1,421

1,234

4,266

3,700

Reorganization related expenses

934

158

986

950

Gain on divested assets, net

—

(22,944

)

—

(22,944

)

Reorganization related expenses associated with SG&A cost control measures

—

210

—

6,390

Other

—

(338

)

—

—

Adjusted EBITDA2

$

30,884

$

50,097

$

114,673

$

134,972

1

EBITDA is a non-GAAP measure that management uses to evaluate the cash generating capacity of the company. The most directly comparable GAAP measure is net earnings. EBITDA is net (loss) earnings adjusted for net interest expense (including debt retirement costs), income taxes and depreciation and amortization. It should not be considered as an alternative to net earnings computed under GAAP.

2

Adjusted EBITDA excludes the impact of the items listed that the company does not believe are indicative of its core operating performance.

3

Interest expense, net for the three and nine months ended September 30, 2019 includes debt retirement costs of $2.7 million.

4

In 2018, the Company adopted Accounting Standards Update 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires all net periodic pension and postretirement costs other than service cost to be presented on a line outside of operating income. Beginning in the first quarter of 2019, the Company is excluding these non-operating costs from the calculation of Adjusted EBITDA. The corresponding prior period amounts have been reclassified to conform with the current period presentation.

Clearwater Paper Corporation

Reconciliation of Non-GAAP Financial Measures

Adjusted Net Earnings and Adjusted Net Earnings Per Diluted Common Share

Unaudited (Dollars in thousands, except per-share amounts)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

GAAP net (loss) earnings

$

(10,973

)

$

34,444

$

(7,560

)

$

44,005

Adjustments, after-tax1:

Debt retirement costs

1,791

—

1,791

—

Directors' equity-based compensation expense (benefit)

276

524

(40

)

(1,480

)

Reorganization related expenses

614

108

635

694

Gain on divested assets, net

—

(12,680

)

—

(12,680

)

Reorganization related expenses associated with SG&A cost control measures

—

143

—

4,767

Other

—

(250

)

—

—

Impact of state tax rate changes

—

—

—

(676

)

Adjusted net (loss) earnings2

$

(8,292

)

$

22,289

$

(5,174

)

$

34,630

GAAP net (loss) earnings per diluted share

$

(0.66

)

$

2.08

$

(0.46

)

$

2.66

Adjustments, after-tax1:

Debt retirement costs

0.11

—

0.11

—

Directors' equity-based compensation expense (benefit)

0.01

0.03

—

(0.09

)

Reorganization related expenses

0.04

0.01

0.04

0.04

Gain on divested assets, net

—

(0.76

)

—

(0.78

)

Reorganization related expenses associated with SG&A cost control measures

—

0.01

—

0.29

Other

—

(0.02

)

—

—

Impact of state tax rate changes

—

—

—

(0.04

)

Adjusted net (loss) earnings per diluted share2

$

(0.50

)

$

1.35

$

(0.31

)

$

2.09

1

Tax effect was calculated using the estimated annual effective tax rate for the period presented.

2

Adjusted net (loss) earnings and Adjusted net (loss) earnings per diluted share exclude the impact of the items listed that the company does not believe are indicative of its core operating performance.

Clearwater Paper Corporation

Reconciliation of Non-GAAP Financial Measures

Segment EBITDA, Adjusted EBITDA, EBITDA Margin and Adjusted EBITDA Margin

Unaudited (Dollars in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Consumer Products:

Net sales

$

228,544

$

211,642

$

676,220

$

672,069

Operating (loss) income

(4,438

)

21,675

(8,300

)

19,700

Depreciation and amortization expense

19,025

14,447

51,227

42,964

Consumer Products EBITDA1

$

14,587

$

36,122

$

42,927

$

62,664

Gain on divested assets, net

—

(22,944

)

—

(22,944

)

Reorganization related expenses associated with SG&A cost control measures

—

87

—

1,746

Reorganization related expenses

—

158

—

950

Consumer Products Adjusted EBITDA2

$

14,587

$

13,423

$

42,927

$

42,416

Consumer Products EBITDA margin3

6.4

%

17.1

%

6.3

%

9.3

%

Consumer Products Adjusted EBITDA margin4

6.4

%

6.3

%

6.3

%

6.3

%

Pulp and Paperboard

Net sales

$

216,644

$

214,818

$

649,740

$

623,442

Operating income

17,098

38,280

80,073

98,626

Depreciation and amortization expense

11,168

9,316

30,144

28,106

Pulp and Paperboard EBITDA1

$

28,266

$

47,596

$

110,217

$

126,732

Reorganization related expenses associated with SG&A cost control measures

—

71

—

454

Pulp and Paperboard Adjusted EBITDA2

$

28,266

$

47,667

$

110,217

$

127,186

Pulp and Paperboard EBITDA margin3

13.0

%

22.2

%

17.0

%

20.3

%

Pulp and Paperboard Adjusted EBITDA margin4

13.0

%

22.2

%

17.0

%

20.4

%

1

Segment EBITDA is segment operating (loss) income adjusted for depreciation and amortization.

2

Segment Adjusted EBITDA excludes the impact of the items listed that the company does not believe are indicative of its core operating performance.

3

Segment EBITDA margin is defined as Segment EBITDA divided by Segment Net sales.

4

Segment Adjusted EBITDA margin is defined as Segment Adjusted EBITDA divided by Segment Net sales.

Clearwater Paper Corporation

Reconciliation of Non-GAAP Financial Measures

Segment Adjusted Operating Income and Operating Margin

Unaudited (Dollars in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Consumer Products:

Net sales

$

228,544

$

211,642

$

676,220

$

672,069

Operating (loss) income

$

(4,438

)

$

21,675

$

(8,300

)

$

19,700

Gain on divested assets, net

—

(22,944

)

—

(22,944

)

Reorganization related expenses associated with SG&A cost control measures

—

87

—

1,746

Reorganization related expenses

—

158

—

950

Consumer Products Adjusted operating loss1

$

(4,438

)

$

(1,024

)

$

(8,300

)

$

(548

)

Consumer Products operating margin

(1.9

)%

10.2

%

(1.2

)%

2.9

%

Consumer Products Adjusted operating margin2

(1.9

)%

(0.5

)%

(1.2

)%

(0.1

)%

Pulp and Paperboard:

Net sales

$

216,644

$

214,818

$

649,740

$

623,442

Operating income

$

17,098

$

38,280

$

80,073

$

98,626

Reorganization related expenses associated with SG&A cost control measures

—

71

—

454

Pulp and Paperboard Adjusted operating income1

$

17,098

$

38,351

$

80,073

$

99,080

Pulp and Paperboard operating margin

7.9

%

17.8

%

12.3

%

15.8

%

Pulp and Paperboard Adjusted operating margin2

7.9

%

17.9

%

12.3

%

15.9

%

1

Segment Adjusted operating (loss) income excludes the impact of the items listed that the company does not believe are indicative of its core operating performance.

2

Segment Adjusted operating margin is defined as Segment Adjusted operating (loss) income divided by Segment Net sales.

Clearwater Paper Corporation

(News media)

Shannon Myers

509.344.5967

or

(Investors)

Robin S. Yim

Vice President, Investor Relations

509.344.5906

Source: Clearwater Paper Corporation

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