By the numbers: Q2 2024
Net sales: $586.4M
Up 11.8% year over year
Pulp and paperboard net sales: $333.6M
Up 22.5% year over year
Net loss: $25.8M
Compared with net income of $29.7M in Q2 2023
- Demand recovery signals: During Clearwater Paper’s second-quarter earnings call on Tuesday, CEO Arsen Kitch pointed to signs of modest demand recovery and industry forecasts for further improvement in the second half of this year and beyond. “While we’re seeing a gradual recovery, it is proving to be slower than expected,” he said. “We believe that paperboard is well-positioned for growth, given consumer preferences and overall sustainability trends.”
- Paperboard transformation: Executives described the company’s recent efforts to transform Clearwater into a paperboard-focused business. The purchase of Graphic Packaging International’s mill in Augusta, Georgia, which closed May 1, and the divestiture of Clearwater’s tissue business to Sofidel, announced July 22, are “significant and transformational transactions for our company,” Kitch said. Accomplishing both deals during the same six-month period is “a momentous feat for our team,” he said.
- Expanded offerings: As part of the paperboard business transformation, Clearwater is looking to expand its product and substrate offerings beyond the solid bleached sulfate paperboard currently provided. “Converters use other substrates and other products, so we will look at opportunities, both internal and external, to have a more complete offering to our converters — whether it’s lightweight products, other substrates, different coatings and so on,” Kitch said.
- Tissue divestiture: The $1.06 billion all-cash tissue business sale to Sofidel is expected to close in the fourth quarter. The deal includes facilities in Elwood, Illinois; Las Vegas; Lewiston, Idaho; and Shelby, North Carolina. Clearwater will retain the paperboard mill and some related assets at the Lewiston site, which also has tissue-related assets, as part of a site-sharing agreement with Sofidel; the deal includes an arrangement to lease land and facilities as well as a services and use agreement. Sofidel will also hire the Lewiston tissue employees upon the deal’s close. “We believe that we have come to a good agreement that will allow both companies to operate effectively on the Lewiston site,” Kitch said.
- Augusta mill purchase: Clearwater will continue to integrate the Augusta mill into its portfolio this year, and it expects a major maintenance outage during the fourth quarter. Executives anticipate capital expenditures at Augusta for the May to December period to be $25 million to $30 million, including “the planned completion of an environmental compliance project at the mill, which was known to us during the acquisition,” said CFO Sherri Baker.
- Outage schedule: After planned maintenance at Lewiston, Clearwater experienced “operational challenges ramping the pulp mill” and therefore experienced a greater financial impact in Q2; the company continues to work through those issues and resume full operations at the mill, Kitch said. Next year, Clearwater plans to put all of its paperboard facilities on an annual outage schedule, which Kitch said is common in the industry. “We believe that this will lead to smaller, more predictable and more manageable maintenance outages and improve our overall operating performance,” he said.
- Outlook: Clearwater’s third-quarter guidance anticipates that it will continue to operate the tissue business for the entire quarter. It expects Q3 adjusted earnings before interest, taxes, depreciation and amortization to be in the range of $58 million to $68 million. Full-year maintenance expenses for Augusta and Lewiston are expected to total $69 million to $74 million. Executives expect paperboard demand recovery to continue into Q3, resulting in higher production volumes.
