Key Takeaways
Clearwater Paper Corp. (CLW) reported a 5% decline in first-quarter net sales and guided for a potential loss in the second quarter, citing ongoing price pressures and rising input costs.
"Today’s margin levels are resulting in negative operating cash flow after the CapEx that is required to maintain these assets," Arsen S. Kitch, President and Chief Executive Officer, said on the company's earnings call. "This is simply not a sustainable position for us to be in."
The paperboard producer posted revenue of $360 million, a 5% decrease from the prior-year period as lower market pricing offset a 5% increase in shipment volumes. The company reported a net loss from continuing operations of $13 million, or $1.29 per diluted share, for the quarter. Adjusted EBITDA was $2 million, slightly ahead of the company's breakeven guidance.
For the second quarter, Clearwater Paper projects an adjusted EBITDA in the range of breakeven to negative $10 million. Management attributed the downbeat forecast to a major planned maintenance outage at its Lewiston, Idaho, facility and $3 million to $5 million in quarterly cost headwinds from the conflict in the Middle East. The company is aiming for breakeven or better free cash flow for the full year, supported by cost-cutting, insurance proceeds, and tax refunds.
Clearwater is facing significant cost pressures on chemicals, wood, and diesel, which management projects will create a $3 million to $5 million quarterly headwind. To counter this, the company announced a $60 per-ton price increase on extruded products, such as poly-coated folding cartons and cups, effective in May.
However, a previously announced $50 per-ton increase on non-extruded grades has been difficult to implement. Kitch noted the implementation has been "challenging given our industry’s current oversupply position," signaling continued margin pressure in those segments.
In response to the market environment, Clearwater has restructured its Cypress Bend, Arkansas, facility, reducing the workforce by approximately 20%. The move is expected to generate $8 million to $12 million in annual cost savings. The company has also shifted its production strategy to focus on 1.2 million tons of profitable production annually, below its stated capacity of 1.4 million tons.
The company also launched Velora, a new lightweight folding carton paperboard brand designed to compete with imported products. While the engineering for a potential $60 million investment to produce Coated Unbleached Kraft (CUK) at the Cypress Bend mill is complete, management stated the project will only be considered when the company's balance sheet and market conditions improve.
The guidance for a potential second-quarter loss highlights the operational and cost challenges facing the company. Investors will be watching the implementation of price increases and the progress of cost-saving initiatives in the coming months.
This article is for informational purposes only and does not constitute investment advice.
