Verso Corporation
Q3 2014 Earnings Call Transcript

Published: 13 Nov 2014

[Operator:]

Good day and welcome to the Verso Paper 2014 Third Quarter Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Robert Mundy, Senior Vice President and Chief Financial Officer. Please go ahead, sir.

[Robert P. Mundy:]

Thank you. Good morning and thank you for joining Verso Paper's third quarter 2014 earnings conference call. Representing Verso today on this call is President and Chief Executive Officer, Dave Paterson, and myself, Robert Mundy, Senior Vice President and Chief Financial Officer. Before turning the call over to Dave, I'd like to remind everyone that in the course of this call in order to give you a better understanding of our performance, we will be making certain forward-looking statements. These forward-looking statements are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove incorrect, actual results may vary materially from management's expectations. If you would like further information regarding the various risks and uncertainties associated with our business, please refer to our various SEC filings which are posted on our Web-site, versopaper.com, under the Investor Relations tab. Also, due to the pending NewPage acquisition, we will not be taking questions after today's remarks. Dave?

[David J. Paterson:]

Thank you, Bob, and good morning to everyone on the call. Looking at the third quarter, we saw our sales volumes down 4% versus last year but up 6.5% from the second quarter. Coated prices were down 4% versus last year but up 1.6% from the second quarter. Coated freesheet prices improved 4% sequentially, and coated groundwood prices were flat. Our inventories are below last year and last quarter levels. Certain maintenance outages during the year were moved from the second quarter to the third quarter. This resulted in reducing our pulp volumes in the third quarter. Overall, input prices moved lower versus Q2 and the prior year. Bob will touch on this in his presentation. We continue our efforts to close the NewPage acquisition and prepare for integration. During the quarter, we satisfied the minimum conditions in the Second Lien and Subordinated notes exchange offers. And subsequent to the quarter end, we announced the permanent closure of the Bucksport, Maine mill. Bob, over to you.

[Robert P. Mundy:]

Thanks, Dave. If you turn to Slide 4, as Dave mentioned, our overall volume for the quarter was down 4% versus last year. It represents about 18,000 tons, driven almost entirely by lower coated groundwood tons. Sequentially, volumes were up seasonally as they typically are moving from the second to the third quarter, driven by the higher coated volumes. Sales for the quarter, just over $350 million, up from the second quarter due to the higher volumes and higher coated prices but below last year's level due to the lower coated groundwood and pulp volumes as well as overall prices being about 2.5% lower than last year. Adjusted EBITDA for the third quarter, $41 million, compared to $51 million in the third quarter of last year and $28 million in the previous quarter. On Slide 5, you can see coated volumes were seasonally stronger versus the second quarter and about 24,000 tons below last year. Again, that's driven by lower coated groundwood volume. Versus last quarter, coated prices were higher as we had some traction relative to our announced price increase for coated freesheet. However, coated groundwood prices remained relatively flat. Pulp volumes were lower solely due to the scheduled maintenance outages that we had moved from the second to the third quarter and pulp prices sort of hung in there at a level comparable to last year and the previous quarter. Turning to Slide 6, you see the key changes between our third quarter 2014 adjusted EBITDA, $41 million, versus the $28 million in the second quarter of this year. As I mentioned earlier, volume was seasonally higher, and higher coated freesheet prices drove a $4 million pricing improvement. We had some market downtime on certain machines back in coated groundwood and input prices were $7 million lower than the second quarter. It was primarily energy-related prices but chemicals, wood and pulp, were slightly favorable as well. Slide 7 gives you a view of the adjusted EBITDA changes between this year's third quarter and the third quarter of 2013. Volume was down primarily in the coated groundwood area and overall lower sales prices had a negative $10 million impact. Downtime was about a $5 million negative impact versus last year, and lower energy and chemical prices drove a $5 million improvement in our input costs. There's a bit more information related to input prices on Slide 8, where you can see the direction prices are moving versus last year and versus the previous quarter. Overall, things were generally favorable versus the comparison periods due to lower chemical and energy prices, offset somewhat versus last year by wood prices being about 11% higher. Dave?

[David J. Paterson:]

Thanks Bob. As we look out to the fourth quarter, we continue to work diligently on completing the NewPage acquisition. We are in the process of beginning the orderly shutdown of the Bucksport mill and completing analysis of options for the disposition of the mill assets. Fourth quarter seasonally is slowing in terms of volumes and we expect to see significant seasonal volume declines particularly in the coated groundwood sector. Prices are expected to remain relatively flat versus the third quarter. There has been an announced pulp price increase by ourselves of $20 a metric ton effective November 1. We expect to see, particularly in state of Maine, the normal seasonal uptick in gas pricing, and remind the Group that it's both the raw material and delivery costs, and we're already seeing delivery cost in Maine escalate in line with what we saw last year. And our inventories remain at low to moderate levels across the board. So with that, we will end the call. Again, we are not taking questions due to the NewPage acquisition still not being completed. We look forward to speaking to you as soon as that is completed and talking about the new Verso. Thank you very much. [No Q&A session]

[Operator:]

Thank you for your participation.