Clearwater Paper Corp Q4 FY2024 earnings call

• Strategic accomplishments in 2024: Acquired Augusta Paperboard facility in February, increasing paperboard capacity by ~70%, and sold tissue business for $1.06 billion in November, using proceeds to delever the balance sheet.
• Fourth quarter performance: Impacted by Hurricane Helene and a planned major maintenance outage at the Augusta facility, resulting in $21 million of adjusted EBITDA. Market demand gradually improved but industry utilization remained below historical averages.
• Cost reduction actions: Authorized a $100 million share repurchase program, repurchased ~$9 million of shares by February 7, and implemented a 10% reduction in all positions across the company in January, targeting $30 million to $40 million in cost savings in 2025.
• Product diversification: Exploring compostability, increased recycled content, lightweighting, and potential entry into new paperboard substrates like beverage carrier grades, white top, or recycled board, with near-term initiatives requiring modest capital investments and longer-term efforts taking 24-36 months.

In the fourth quarter of 2024, Clearwater Paper delivered $21 million of adjusted EBITDA across total operations, which included one month of discontinued operations from the tissue business. For the full year 2024, adjusted EBITDA from total operations was $182 million. The acquisition of the Augusta Paperboard facility in May increased paperboard capacity by around 70% and is expected to contribute $140 million to $150 million of annual adjusted EBITDA once volume synergies are captured and industry utilization returns to normalized levels. The tissue business was sold in November, with net proceeds used to delever the balance sheet.

• First quarter 2025: Expect to deliver $20 million to $30 million of adjusted EBITDA, with no planned major maintenance outage costs, but expecting ~$4 million to $5 million in higher energy costs. First full quarter as a paperboard-only business.
• Full year 2025: Anticipates demand recovery with internal utilization around 85%, revenue of approximately $1.5 billion to $1.6 billion, improved mill operating performance offsetting pricing and inflation headwinds, $30 million to $40 million in fixed cost reductions leading to a $40 million to $50 million annual run rate, maintenance outage costs of $40 million to $50 million, and capital expenditures of $80 million to $90 million. Sees mid-cycle margins in the 13% to 14% range with free cash flow conversion of 40% to 50%.

• Tariff impact: Potential tariffs on imports from Mexico, Canada, or the EU could increase supply costs for chemicals and pulp, which would need to be passed on to customers, though impact is hard to predict.
• Operational disruptions: Weather events like Hurricane Helene can cause damage and operational disruptions, as seen in Q4 2024 with the Augusta facility.

Q: Could you provide more detail on the ramp-up of the long-term supply agreement signed and its impact on volume assumptions?

A: The long-term supply agreement incorporated into 2025 assumptions will take several years to ramp, aiming to fill out open capacity at the Augusta mill, which had ~150,000 to 200,000 tons of open capacity when acquired.

Q: How much benefit from headcount reductions and fixed cost savings can be expected in Q1 2025?

A: There will be a modest benefit in Q1, with savings ramping more in Q2 and bulk of savings in the second half of the year.

Q: What's the impact of tariffs on Mexico, Canada, and the EU on Clearwater Paper?

A: Tariffs could increase costs from chemical and pulp suppliers, which would be passed on to customers, with primary impact on supply costs but hard to predict global flow effects.

Q: Thoughts on share repurchases given the strong balance sheet?

A: Will be opportunistic with share repurchases when shares trade at a sufficient discount to intrinsic value, with top priorities being investing in assets and maintaining a strong balance sheet.

Q: Comments on Q1 2025 demand trends across folding carton and food service?

A: Conversations with customers are positive, expecting 2025 to be better than 2024. Food service demand is more robust than folding carton, with some machines close to sold out on extruded products.