Clearwater Paper Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. All amounts are in U.S. dollars; financial statement amounts are in millions except per-share data. The company operates Pulp and Paperboard and Consumer Products segments.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $496.2 | $525.4 | Down 5.6% |
| Income from operations | $30.4 | $39.8 | Down 23.6% |
| Net income | $17.2 | $23.8 | Down 27.7% |
| Diluted EPS | $1.02 | $1.40 | Down 27.1% |
| Adjusted EBITDA (non-GAAP) | $61.5 | $65.7 | Down 6.4% |
| Cash from operating activities | $59.2 | $(9.1) | Improved by $68.3 |
| Capital expenditures, cash paid | $18.5 | $21.5 | Down $3.0 |
Consolidated operating margin was approximately 6.1% in Q1 2024 versus 7.6% in Q1 2023. Adjusted EBITDA margin was approximately 12.4% versus 12.5%. The income tax provision was $7.0 million; the filing does not state a single effective tax rate, and the reported provision implies approximately 28.9% of pretax income.
- Pulp and Paperboard: Sales were $244.5 million, down 12.3%; operating income was $25.3 million versus $57.1 million, and Adjusted EBITDA was $33.7 million versus $66.2 million. Segment operating margin was 10.4% versus 20.5%. Paperboard shipments fell 1.1% and average sales price fell 10.9%.
- Consumer Products: Sales were $253.1 million, up 1.9%; operating income was $31.5 million versus $4.2 million, and Adjusted EBITDA was $45.7 million versus $19.2 million. Segment operating margin was 12.5% versus 1.7%. Retail tissue shipments rose 4.0%, while retail price per ton fell 2.0%.
Cash, debt and liquidity
At March 31, 2024, cash and cash equivalents were $55.2 million, up from $42.0 million at year-end. Current assets were $576.2 million and current liabilities $301.4 million. Total debt carrying value was $443.2 million, including $0.9 million current; debt principal was $448.0 million before unamortized debt costs. The company repaid $23.5 million of long-term debt during the quarter and reported no outstanding ABL borrowings at quarter-end.
Operating cash flow benefited from working-capital movements, including a $20.5 million increase in accounts payable and accrued liabilities. Investing cash outflow was $18.5 million; financing cash outflow was $27.6 million. Management believes cash, operating cash flow and borrowing capacity will be adequate for the next 12 months, while noting uncertainty in cash generation due to competitive and cyclical markets. The company was in compliance with credit agreement covenants at quarter-end and expects to remain compliant based on current projections, but cautions that deterioration in financial or market conditions could affect compliance.
Material changes, outlook and notable items
- Lower paperboard prices, weaker customer demand and inventory rebalancing weighed on Pulp and Paperboard results. Lower wood, energy and freight costs partly offset these factors. Consumer Products earnings improved mainly on lower pulp and freight costs and higher private-label demand.
- A severe weather event at the Lewiston site caused a loss in excess of $15 million. Management expects insurance proceeds to offset a portion of the loss in the quarter ending June 30, 2024; the expected recovery amount is not specified.
- Other operating charges were $7.9 million versus $1.1 million, including $4.2 million of acquisition and project-related costs, $2.3 million of restructuring and integration costs, $0.2 million of asset impairment, and $1.2 million of directors’ equity-based compensation expense.
- On February 20, 2024, Clearwater Paper agreed to acquire Graphic Packaging International’s Augusta, Georgia paperboard mill and related facilities for $700 million in cash, subject to working-capital adjustments and customary closing conditions. Closing was expected in Q2 2024. The company planned to use cash on hand, existing credit agreements and new financing; no amounts were outstanding under the new facilities at March 31. The transaction’s completion and integration are uncertain.
- Management expects 2024 cash capital expenditures of approximately $90 million to $100 million. No other quantified earnings or sales guidance is provided in this filing.
Other disclosed risks include pricing and demand pressure, input-cost and supply disruptions, manufacturing interruptions, customer concentration, labor and cybersecurity risks, pension and environmental obligations, and the ability to service debt and comply with covenants. The filing reports no material change to the risk factors in the 2023 Form 10-K and no significant quarterly development in market-risk exposure. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the Augusta acquisition closed as expected, its final purchase price and financing terms, and the expected integration costs and benefits.
- The amount and timing of insurance proceeds for the Lewiston weather loss and the net effect on subsequent-quarter results.
- Whether paperboard demand, shipments and pricing stabilize, and whether the sharp year-over-year decline in Pulp and Paperboard profitability persists.
- Whether Consumer Products’ improved margins are sustainable as input costs, product mix and pricing evolve.
- Progress against the $90–$100 million 2024 capital expenditure outlook, debt repayment plans and credit covenant headroom.
- The composition and duration of working-capital cash-flow benefits, particularly the increase in accounts payable and accrued liabilities.