Clearwater Paper Corp Q1 FY2025 earnings call

• First quarter results: Delivered $30 million of adjusted EBITDA (high end of guidance), net sales up 46% due to Augusta acquisition, reduced fixed cost by eliminating over 200 positions (10% of total roles), and repurchased approximately $11 million of shares. - Industry conditions: Industry shipments increased 2% in Q1 2025 vs Q1 2024; demand projected to grow 3%-5% in 2025; industry utilization 88% in Q1 2025 vs 84% in Q1 2024; potential net beneficiary from tariffs as domestic customers seek local supply. - Strategic initiatives: Product development in compostable food service products (BPI certified, expect market entry by year-end), lightweight folding carton products (solution ready in 2026), and alternative poly free barrier technologies; exploring expansion into Coated Unbleached Kraft (CUK) and Coated Recycled Board (CRB) substrates; targeting $30 million to $40 million in cost savings in 2025.

In the first quarter of 2025, Clearwater Paper delivered $30 million of adjusted EBITDA, which was at the high end of the guidance range. Net sales increased 46% to $378 million versus the first quarter of the previous year, driven largely by the Augusta acquisition. The company had a consolidated net loss of approximately $6 million from continuing operations or $0.36 per diluted share. There is no specific breakdown of product segments by revenue contribution provided in the transcript.

• Q2 2025: Expect adjusted EBITDA of $35 million to $45 million, ~5% growth in sales and production volumes vs Q1, raw material costs stable, $7 million to $9 million planned major maintenance outage cost at Cypress Bend. - Full year 2025: Expect revenue of approximately $1.5 billion to $1.6 billion, $30 million to $40 million fixed cost reduction, $80 million to $90 million CAPEX, confident in market cycle recovery to 13%-14% EBITDA margin, 40%-50% free cash flow conversion.

• Tariffs: Purchased ~$80 million of energy and other raw materials from Canada, ~$20 million to $25 million from outside the U.S.; hypothetical 25% tariff on these items could cost ~$25 million per year, but cost impacts are currently minimal and manageable.

Q: Hi, good afternoon. Thanks for taking my questions. Just a couple of questions around tariffs and related issues. Maybe first of all, what's your sense of what's happening with FBB imports here just over the last month or two? And then second, the $20 million to $25 million of purchases, I think you mentioned would be from outside the U.S. and Canada. Do you have a rough geographic split there? And in particular, is there any exposure to China that could be particularly challenging?

A: Yes, Matt, let me start with imports and exports. I mean I think looking at monthly data, it's probably too noisy. What I would tell you is imports were up in 2024 and exports were down in 2024. And if you look at what's being forecasted by RISI in 2025 is for imports to actually decrease by 5% and for exports to increase by 1%. I suspect that's going to be a pretty dynamic number as tariffs are felt across the industry. Like we mentioned in our comments, 100% of everything we make and more than 90% of everything we sell is domestic in the U.S. And I suspect that we will have domestic customers looking for local supply during this time of uncertainty around tariffs. And if anything, we could potentially benefit from those dynamics. So I think that's the first piece. The second piece around tariffs just to clarify, we import about 100 million. About 80 million of that is from Canada. It's chemicals and pulp and some energy. The other 20 million comes from other parts of the world. I don't have a specific breakdown by country, but I do suspect that some supplies may come from China, whether they're MRO maintenance supplies. So that's the portion that we're watching and making sure that we either have alternative supplies or we negotiate very hard to mitigate those cost increases.

Q: Next for me, just looking at Slide 16, it looks like there is a reasonably significant shift in paperboard sales quarter-over-quarter in terms of mix with folding carton up, food service down. Is that mostly a seasonal shift or were there some customer kind of wins and losses in there? Any kind of color would be helpful. And then as we think about the demand progression into Q2, where you're expecting volumes to be up, any significant differences between folding carton and food service outlooks to call out there?

A: Yes. I think the biggest driver there -- I'm assuming you're looking at Q1 of '24 versus Q1 of '25. The big difference there is the inclusion of Augusta. And so then you can see the mix shift as Augusta was added to our fold. And so that's really the delta that you're seeing from Q1 to Q1.

Q: Next for me, just regarding your exploration of options to expand your product offering. Maybe starting with CRB, what would be your criteria for evaluating M&A if that's the road you choose to go down there?

A: Yes. I mean I think more broadly speaking, I think it has to be a good strategic fit. They have to be good quality assets that are a good fit for our network. I think most importantly, we have to believe that we can win in that space, that we have a right to win in that space. And so we'll be looking at both the market as well as any potential assets that may be available in the future.

Q: And just around the lightweight folding carton product under development, what kind of costs would be associated with the paper machine upgrades you mentioned? And how should we think about that product and its share of your overall volumes, call it, late '26 or into '27? Would you be targeting mostly existing customers with that product? Or are there some new opportunities you can be chasing?

A: Yes. I think any of those changes will be on our existing machines. We're still working on potential projects on the way to get there. So I don't have a good estimate for you in terms of capital required. Maybe more broadly speaking, we believe that any capital would largely fit within our stated capital range that we've discussed previously. And this would be on our existing equipment with existing capacity. So this is more of a mix shift versus incremental revenue growth. So we would obviously be targeting working with our existing customers where they have a need for this type of product and obviously looking for new customers that may be buying this product somewhere else.

Q: How significant would you expect the impact of cost savings to be sequentially in Q2? Or maybe put differently, what kind of run rate of cost savings would you expect to exit the quarter at? And then just around the synergies from Augusta, I recognize a big portion of that $40 million to $50 million is capturing volume and cost synergies there. But how much of that $40 million to $50 million have you achieved to date just given that the mill is now integrated into your system?

A: So I'll take the first one, Matt. So I'd say for -- on a sequential basis, we'll see probably roughly 2x the amount of savings in the second quarter that we saw in the first quarter. That's just more from a timing and execution of the various initiatives across the organization. You'll see some additional incremental benefit on a sequential basis as you're getting into the back half and then it should probably start to plateau as you're exiting the year. That would be how I would think about the ramp of the fixed cost savings. That would be the first one. And on the second piece, the $40 million to $50 million on Augusta, it is by far volume synergies. Keep in mind that, that assumption also is based off of what we'll call normalized EBITDA margins. So we are certainly seeing a good chunk of the benefit of the volume so far, but we also need to get back to what we'll consider a cross-cycle margin in order to achieve that $40 million to $50 million of synergies.