Clearwater Paper Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the same 2020 periods. The company operates Pulp and Paperboard and Consumer Products segments.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $406.4 million | $480.6 million | $832.3 million | $958.5 million |
| Operating income (loss) | $(56.6) million | $48.2 million | $(29.5) million | $67.0 million |
| Net income (loss) | $(51.6) million | $22.8 million | $(39.6) million | $33.1 million |
| Diluted EPS | $(3.10) | $1.36 | $(2.37) | $1.99 |
| Adjusted EBITDA | $14.8 million | $78.9 million | $69.1 million | $134.3 million |
| Cash from operations | $14.3 million | $108.6 million | $48.1 million | $120.4 million |
Q2 sales declined 15% and six-month sales declined 13%. Q2 operating margin was approximately negative 13.9%, versus positive 10.0% a year earlier. Adjusted EBITDA is a non-GAAP measure; the company cautions it is not a substitute for GAAP results and may not be comparable across companies.
- Pulp and Paperboard: Q2 sales rose 5.1% to $227.4 million, but operating income fell 59.4% to $13.0 million. The segment cited planned Lewiston maintenance, winter-storm impacts and reduced product availability; higher prices partly offset costs.
- Consumer Products: Q2 sales fell 33.4% to $180.7 million, and the segment recorded a $10.0 million operating loss versus $36.8 million income. Retail tissue shipments fell 35.6%; management attributed weaker demand to easing pandemic-related buying and customer inventory reductions, as well as higher input costs and reduced operations.
Balance sheet, liquidity and cash flow
At June 30, 2021, cash and cash equivalents were $60.9 million, total current assets $498.6 million and current liabilities $255.9 million. Long-term debt was $716.2 million, with $1.7 million current, for total reported debt of $717.9 million. Stockholders’ equity was $488.1 million. Six-month capital expenditures were $21.1 million; cash used in investing was also $21.1 million. Cash rose $25.0 million during the half to $60.9 million, excluding $1.1 million restricted cash.
The $250 million ABL revolver had no borrowings outstanding and $239.2 million of borrowing availability, with $3.6 million used for letters of credit. Its fixed-charge coverage covenant applies when unused availability falls below $25 million; the reported ratio was approximately 4.40x. A 1 percentage-point interest-rate change on $129.5 million of credit-agreement borrowings would affect annual interest expense by approximately $1.3 million.
Material developments, outlook and risks
- The company announced closure of its Neenah, Wisconsin tissue and converting operations, reducing annual tissue and converting capacity by approximately 54,000 and 70,000 tons, respectively. It recorded $41.7 million of closure-related charges, including $36.9 million of asset and inventory impairment and approximately $4.8 million of cash employee-related costs. It expected another $4.2 million of employee severance and WARN Act cash costs in Q3.
- Management expected 2021 cash capital expenditures of approximately $50 million to $55 million. No other specific financial guidance is provided in the supplied filing text.
- Other cited risks include COVID-19 effects on demand and suppliers, competition and pricing, wood fiber and pulp costs and availability, transportation disruption, customer concentration, operational interruptions, labor, environmental liabilities, and substantial indebtedness and covenant restrictions. The company reported no material change to the risk factors in its 2020 Form 10-K.
- Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. It believes pending legal matters, in aggregate, will not materially adversely affect financial condition.
Important facts for investors to verify
- Whether Neenah closure costs, asset-sale proceeds and capacity reductions develop as expected, including the additional Q3 cash costs.
- Whether tissue demand and shipments recover after pandemic-related inventory normalization, and the impact of exiting the away-from-home market.
- Whether paperboard pricing offsets maintenance, input-cost and transportation pressures.
- Cash generation, planned capital spending, debt service and ABL availability; confirm covenant headroom under changing operating conditions.
- The assumptions and exclusions underlying Adjusted EBITDA and the $41.7 million closure charge.