Clearwater Paper Corporation Q3 2024 Earnings Report

Clearwater Paper Corporation (NYSE: CLW) announced its Q3 2024 earnings on November 1, revealing an adjusted EBITDA of $64 million. This aligns with company guidance, although results were affected by Hurricane Helene.

The sale of Clearwater's tissue business marks a strategic shift towards becoming a leading paperboard packaging supplier. A major maintenance outage in Q4 is expected to further influence earnings, alongside repercussions from the tissue business sale.

Key Takeaways

• Adjusted EBITDA of $64 million falls within expected range, despite a $5 million impact from Hurricane Helene.
• Sale of tissue business to Sofidel for $1.06 billion, with net proceeds of around $850 million allocated for debt reduction.
• Clearwater Paper is now refocusing on paperboard packaging, aiming for $1.8 billion in revenue at high utilization rates.
• Q4 adjusted EBITDA is projected to decline due to the tissue business sale and upcoming maintenance outage.
• The company is exploring innovative products and remains open to acquisitions.

Company Outlook

• Transitioning to a top-tier paperboard packaging supplier with a focus on independent converters in North America.
• Projected adjusted EBITDA margins of 8-10% in a down cycle, exceeding 16% in an upcycle.
• Plans for $50 million in annual cost savings through fixed cost reductions and SG&A optimization.

Bearish Highlights

• Expected decline in Q4 adjusted EBITDA by $25-$30 million due to tissue business sale and maintenance outage.
• Anticipated negative price cost impact of approximately $40-$50 million over the next year due to a downturn in SBS.
• Additional estimated impact of $2-$3 million in Q4 from Hurricane Helene.

Bullish Highlights

• Improved EBITDA from paperboard to $42 million, compared to $41 million from tissue in Q3.
• Strong positioning in paperboard packaging following the tissue business sale.
• Exploring expansion into CUK supply due to its limited availability in the independent market.

Misses

• Without Hurricane Helene's impact, adjusted EBITDA could have exceeded the guidance range.
• Next year's anticipated maintenance expenses estimated at $40-$50 million.

Q&A Highlights

• Management discussed potential production diversification and cost-saving strategies.
• Aiming for a net leverage ratio of 1x to 2x while considering strategic capital reinvestment.
• No disruptions reported from recent East Coast port strikes.

Clearwater Paper's strategic pivot towards paperboard packaging reflects a response to market demands and sustainability trends. The company's financial strategy focusing on debt reduction from the tissue business sale and cost-saving measures aims to enhance financial health and shareholder value.

With a stable North American paperboard market, Clearwater Paper is well-positioned for growth despite short-term challenges.

InvestingPro Insights

InvestingPro data suggests that Clearwater Paper's P/E ratio of 6.37 indicates potential undervaluation relative to earnings, supportive of its focus on improving financial health through the tissue business sale.

Management's active share buyback reflects confidence in the company’s new direction within the paperboard segment. Despite a projected Q4 decline in adjusted EBITDA, forecasts indicate profitability this year, reaffirming strong EBITDA margins even in downturns. Clearwater's Price to Book ratio of 0.64 suggests it's trading below book value, appealing to value investors.

Full Transcript

Operator

Thank you for standing by. Welcome to the Clearwater Paper Third Quarter 2024 Earnings Conference Call…

Sloan Bohlen

Thank you, Rob. Good afternoon…

Arsen Kitch

Thank you for joining us today…

Sherri Baker

Thank you, Arsen. As Arsen mentioned earlier…

Operator

We will now begin the question-and-answer session…

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