Clearwater Paper Corporation — Q1 2023 Form 10-Q
Reporting period: Quarter ended March 31, 2023; unaudited. Clearwater Paper operates Pulp and Paperboard and Consumer Products segments, including paperboard and retail tissue products. Comparisons below are against Q1 2022 unless stated otherwise.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $525.4 million | $488.2 million | Up 8% as reported by management |
| Income from operations | $39.8 million | $32.9 million | Up 21% |
| Net income | $23.8 million | $16.6 million | Up 43% |
| Diluted EPS | $1.40 | $0.97 | Up 44% |
| Adjusted EBITDA | $65.7 million | $58.9 million | Up 12% |
| Operating cash flow | $(9.1) million | $41.1 million | Declined $50.2 million |
| Capital expenditures, cash basis | $21.5 million | $7.9 million | Up $13.6 million |
Operating margin was approximately 7.6%, compared with 6.7% a year earlier. Net margin was approximately 4.5%, versus 3.4%. Interest expense, net, was $7.6 million, down from $8.6 million. The income tax provision was $8.4 million, compared with $6.0 million.
Segments
- Pulp and Paperboard: Sales of $278.8 million, up 5%; operating income of $57.1 million, up 14%; Adjusted EBITDA of $66.2 million. Paperboard shipments fell 6%, while average paperboard selling price rose 14% to $1,441 per short ton.
- Consumer Products: Sales of $248.3 million, up 11%; operating income of $4.2 million, compared with $0.9 million; Adjusted EBITDA of $19.2 million. Total shipments declined 3%, while retail tissue selling price rose 12% to $3,201 per short ton.
Balance sheet and liquidity
At March 31, 2023, cash and cash equivalents were $16.7 million, down from $53.7 million at December 31, 2022. Total debt was approximately $565.8 million, including $0.9 million current and $564.9 million long-term; the company reported no material change in long-term debt. Stockholders’ equity was $592.0 million, compared with $572.1 million at year-end. Current assets were $567.9 million and current liabilities $265.5 million.
Operating cash use reflected cash outflows associated with a major outage in late 2022 and higher inventory, partly offset by improved operating performance. Inventory increased to $345.5 million from $324.0 million at year-end. Financing activities used $6.3 million, including $1.7 million for share repurchases and $4.2 million for tax withholding on equity awards. The company borrowed and repaid $12 million on its ABL facility during the quarter.
The ABL Credit Agreement provides a $275 million revolving commitment, subject to borrowing-base limits. The company said it was in compliance at quarter-end and expects to remain in compliance based on current projections, while cautioning that deterioration in its financial position, results, or markets could affect compliance. Management believes cash, operating cash flows, and borrowing capacity will cover debt service, operations, capital spending, and working capital needs for the next 12 months.
Changes, outlook, and risks
- Higher selling prices drove improved segment earnings, offset in part by inflation, particularly in fiber, chemicals, and energy; Consumer Products also cited higher pulp costs.
- Pulp and Paperboard shipments declined amid weaker demand as customers rebalanced inventories. Consumer Products cited stronger private-label demand and improved product mix.
- Corporate expenses rose to $20.4 million from $17.8 million, primarily due to business process improvement projects.
- Other operating charges were $1.1 million, including a $1.1 million impairment of equipment and spare parts no longer in use. Q1 2022 charges included reorganization and mill-closure costs.
- Management expects 2023 cash capital expenditures of approximately $70 million to $80 million. The filing provides no earnings or revenue guidance.
- Risks include pricing and demand pressures, input-cost and supply disruptions, manufacturing outages, customer concentration, labor and cyber risks, environmental obligations, and debt covenant compliance. The filing reports no material change to previously disclosed risk factors and no significant market-risk developments.
- Management believes pending claims and proceedings, in the aggregate, are not expected to materially adversely affect financial condition, based on currently available information.
Most important facts to verify
- Whether weaker paperboard demand and customer inventory rebalancing persist, and how shipment volumes respond.
- Whether pricing continues to offset fiber, pulp, chemical, energy, and other input-cost inflation.
- Cash conversion and working-capital trends, particularly inventory and cash outflows following the late-2022 outage.
- Actual 2023 capital spending versus the $70–$80 million estimate, and borrowing capacity under the ABL’s borrowing-base limits.
- Progress on business process improvement projects, corporate cost growth, and compliance with debt covenants.