Clearwater Paper Corporation — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Figures are unaudited and in millions of dollars unless noted.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $524.6 | $526.4 | $1,050.0 | $1,014.6 |
| Income from operations | $47.3 | $31.5 | $87.1 | $64.4 |
| Net income | $29.7 | $14.7 | $53.5 | $31.3 |
| Diluted EPS | $1.75 | $0.86 | $3.15 | $1.83 |
| Adjusted EBITDA | $71.5 | $63.0 | $137.2 | $121.9 |
| Operating cash flow | $46.0 | $78.5 | $36.9 | $119.5 |
Q2 operating margin was approximately 9.0%, compared with 6.0% a year earlier; net margin was approximately 5.7%, versus 2.8%. For the first half, operating margin was approximately 8.3% versus 6.3%, and net margin approximately 5.1% versus 3.1%. Adjusted EBITDA is a non-GAAP measure and is not directly comparable across companies.
At June 30, cash was $41.7; total debt was approximately $565.7, including $0.9 current and $564.8 long-term. Current assets were $592.1 and current liabilities $263.5. Stockholders’ equity was $614.5. The company reported a $275 million ABL revolving commitment subject to borrowing-base limits; the filing does not provide a clear figure for undrawn availability.
Changes and operating drivers
- Q2 sales were nearly flat year over year, while first-half sales rose 3.5%. Net income and Adjusted EBITDA increased in both periods.
- Pulp and Paperboard: Q2 sales fell 7.9% and operating income fell 19.3%. Paperboard shipments declined 13.8%, while price per short ton rose 6.1%. Management attributed weaker results mainly to softer demand and customer inventory rebalancing, lower volume, maintenance costs, and planned downtime; higher prices partly offset these pressures.
- Consumer Products: Q2 sales rose 9.3% and operating income increased to $25.0 from $3.5. Retail tissue prices increased 7.7% and shipments rose 2.7%. Management cited price increases, improved mix, increased private-label demand, and lower freight and energy costs in Q2. For the first half, higher prices were partly offset by higher pulp, freight, and energy costs.
- Corporate expenses increased to $20.1 in Q2 from $18.2, primarily due to business-process improvement projects and higher charitable contributions.
Cash flow, debt, outlook, and risks
- First-half operating cash flow fell to $36.9 from $119.5. Management cited cash outflows related to the major outage in late 2022 and higher inventory, partly offset by improved operating performance. First-half capital expenditures were $34.3.
- The company expects 2023 cash capital expenditures of approximately $70–$80. It believes cash, operating cash flows, and borrowing capacity will cover debt service, operations, capital spending, and working capital needs for the next 12 months, while noting uncertainty from competitive and cyclical markets.
- First-half financing included $10.1 of share repurchases and $4.6 of tax withholding related to equity awards. The company repurchased 263,381 shares in Q2 at an average $31.70 per share; $14.7 remained under the authorization at quarter-end.
- The company was in compliance with its ABL agreement at June 30 and expected to remain compliant based on current projections, but cautioned that deterioration in financial results or market conditions could affect compliance.
- Unusual items included $1.1 of first-quarter 2023 impairment charges for equipment and spare parts no longer in use; Q2 2023 included $0.4 of net other operating income. Q2 2022 included a $4.6 impairment charge associated with equipment at a closed facility.
- Key disclosed risks include pricing and demand pressure, manufacturing interruptions, customer concentration, input and freight cost or availability, labor and cybersecurity risks, environmental obligations, and the ability to service debt and comply with covenants. Management reported no material changes to previously disclosed risk factors. It believes pending claims and proceedings, in aggregate, are not expected to materially adversely affect financial condition.
Important facts for investors to verify
- Whether weaker paperboard demand, customer destocking, and lower shipments persist, and how planned downtime affects future volumes and margins.
- Whether Consumer Products’ improved pricing, product mix, and input-cost trends continue to offset cost pressures.
- Progress against the $70–$80 million capital expenditure expectation and the effect on cash generation and liquidity.
- Available borrowing capacity under the borrowing-base-limited ABL facility and continued covenant compliance under changing conditions.
- The size and timing of any further asset impairments, and the company’s ongoing share repurchases and debt-service requirements.