Clearwater Paper Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are to Q1 2020 unless noted. The company operates Consumer Products and Pulp and Paperboard segments.
Financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $425.9 million | $477.9 million | Down 11% |
| Income from operations | $27.1 million | $18.8 million | Up 44% |
| Net income | $12.1 million | $10.3 million | Up 17% |
| Diluted EPS | $0.71 | $0.62 | Up $0.09 |
| Adjusted EBITDA | $54.3 million | $55.4 million | Down $1.1 million |
| Operating cash flow | $33.8 million | $11.7 million | Up $22.1 million |
| Capital expenditures | $11.1 million | $10.5 million | Up $0.6 million |
Operating margin was approximately 6.4% versus 3.9% a year earlier. Adjusted EBITDA margin was approximately 12.8% versus 11.6%. Cash and cash equivalents were $57.1 million at quarter-end, up from $35.9 million at December 31, 2020. Total debt carrying value was $718.0 million, comprising $1.7 million current and $716.3 million long-term. Stockholders’ equity was $536.1 million.
Operating cash flow improved primarily due to a net reduction in working capital. Q1 financing cash flows used $1.4 million, compared with $38.1 million provided in Q1 2020, when the company had short-term borrowings. The ABL facility had $229.2 million of borrowing availability, no borrowings outstanding, and $3.6 million used for letters of credit. The fixed-charge coverage ratio was approximately 5.46x; the covenant applies only if unused availability falls below $25 million.
Segment performance and material changes
- Consumer Products: Sales fell 20.6% to $208.4 million, primarily reflecting retail tissue shipment declines as COVID-related demand eased and customers rebalanced inventories. Operating income rose to $17.9 million from $14.6 million; Adjusted EBITDA rose to $34.7 million from $31.9 million. Lower packaging and chemical costs and improved throughput partly offset lower volume.
- Pulp and Paperboard: Sales declined 1.5% to $219.7 million. Operating income was $25.0 million versus $26.2 million, and Adjusted EBITDA was $34.0 million versus $35.5 million. A winter storm and related natural-gas curtailments temporarily suspended Cypress Bend operations and added an estimated $6.5 million in natural-gas and other input costs. Higher prices partly offset those costs.
- Consolidated sales declined despite higher operating income, supported in part by lower interest expense and substantially lower other operating charges. Those charges were $0.4 million in Q1 2021 versus $8.6 million in Q1 2020, which included reorganization costs and union settlement payments, partly offset by a divestiture-related gain.
- Q1 2020 income taxes included a $7.3 million CARES Act benefit; Q1 2021 recorded a $3.2 million tax provision.
Outlook, risks and other items
Management reported that significant declines in Consumer Products customer orders continued into Q2, which it attributed to elevated customer and consumer inventories following 2020 pandemic buying. The company was reducing production to align converted-tissue inventory with expected demand. Management also expected significant input-cost inflation, especially pulp, chemicals, packaging and freight, to materially affect both segments in Q2.
The company expected its recently completed largest planned 2021 maintenance outage to reduce Adjusted EBITDA by approximately $21 million to $24 million relative to periods without a similar outage. Full-year 2021 cash capital expenditures were expected to be approximately $55 million to $60 million. The filing does not provide a clear full-year earnings or revenue forecast.
Key risks identified include COVID-19 effects on operations, suppliers and demand; competitive pricing; customer concentration; availability and cost of fiber, pulp, energy, chemicals and transportation; operational disruptions; inflation; indebtedness and covenant restrictions; and acceptance and demand for tissue from the expanded Shelby operations. Management reported no material changes to previously disclosed risk factors. It considered pending claims and proceedings, in aggregate, not expected to have a material adverse effect based on currently available information.
A 1 percentage-point change in interest rates on $129.3 million of borrowings under credit agreements would have an estimated $1.3 million annual effect on interest expense. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Q2 tissue orders and customer inventory levels recover, and how production reductions affect sales and margins.
- Whether management’s estimated $21 million to $24 million maintenance-outage impact and $55 million to $60 million capital spending outlook are realized.
- The duration and financial effect of input-cost inflation, including pulp, freight, chemicals and energy, and the extent to which price increases offset it.
- Whether the Cypress Bend storm-related disruption and $6.5 million cost impact are one-time, and whether operations have normalized.
- Debt maturities, interest-rate exposure, ABL availability and covenant headroom; compare reported debt balances with credit-agreement borrowings and outstanding notes.