Verso Paper Corp. (VRS)

VRS 
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Verso Paper Corp. (VRS)

Q3 2012 Earnings Call

November 13, 2012 9:00 am ET

Executives

David Paterson – President, Chief Executive Officer

Robert Mundy – Senior Vice President, Chief Financial Officer

Analysts

Joe Stivaletti – Goldman Sachs

Tarek Hamid – JP Morgan

Bruce Klein – Credit Suisse

Kevin Cohen – Imperial Capital

Richard Kus – Jefferies

David Ross – Citi

Jeff Harlib – Barclays

Joe Von Meister – Bennett

Aaron Rickles (ph) – Millennium Partners

Presentation

Operator

Good day and welcome to the Verso Paper Corporation Third Quarter 2012 Earnings 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 Mundy

Thank you. Good morning and thank you for joining Verso Paper’s Third Quarter 2012 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 website, versopaper.com under the Investor Relations tab.

Dave?

David Paterson

Thanks Bob, and thanks to everyone for joining us on the call this morning. Starting on Slide 3, which is looking at third quarter overview, seasonally the third quarter is normally a very strong quarter for us and we saw that this year with volumes both in coated freesheet and coated groundwoods picking up significantly. In terms of pricing, we saw coated groundwood pricing moving up and coated freesheet prices at stable levels. The Verso inventories of finished goods are in very good shape as we enter the fourth quarter. We had a very good cost quarter mainly as we saw our major outages for maintenance occurring in the second quarter, and we’d had no significant maintenance outages in the third; and our input prices moderated and showed declines in most areas in the third quarter.

The major event for us in the quarter was the announcement of the permanent closure of the Sartell mill which had a very unfortunate accident involving a fire and explosion at the site and a fatality of an employee. The result of that decision to not restart Sartell obviously had a significant impact on our earnings with a pretax charge of $107 million in total with 97 million recorded in the quarter.

With that, I’ll turn it back over to Bob.

Robert Mundy

Okay. If you’ll turn to Slide 4, our overall volume for the quarter was about 80,000 tons below last year’s levels; however, you’ll have to recall that last year’s volume included about 92,000 tons of coated groundwood and supercalendar products from four paper machines permanently shut prior to this year’s third quarter. Revenues compared to last year’s third quarter were down due to the volume items I just mentioned as well as lower pulp and coated prices; however, revenues moved back up this quarter versus the second quarter on higher volumes and coated prices moving higher as well.

Turning to Slide 5, coated volumes were seasonally higher versus the second quarter but down versus last year’s third quarter, which included about 55,000 tons of coated groundwood from machines that we have since shut down. Average coated prices were up almost $10 per ton from the second quarter as coated groundwood prices rose throughout the quarter while coated freesheet prices were about flat. Good pulp volumes for the quarter, although pulp prices were lower; however, since the end of the third, we’ve announced two pulp prices in the fourth quarter totaling about $45 per ton.

Turning to Slide 6, you can see that key changes between our third quarter 2012 adjusted EBITDA of $50 million versus the 23 million in the second quarter of 2012. As I mentioned, we had seasonally higher volumes and rising prices during the quarter that contributed about $5 million. The lack of scheduled maintenance outages in the third quarter versus the second, along with realization of the benefits from our productivity, direct costs, materials usage, and indirect cost initiatives, as well as some cost eliminations from the Sartell mill resulted in a $15 million improvement. Input prices trended down as we expected, and we were favorable in the corporate overhead area as we continue to closely manage our SG&A expenses.

Slide 7 gives you a view of the adjusted EBITDA changes between the third quarter of 2012 and the third quarter of 2011. The year-over-year change can pretty much be summed up as due to our overall sales prices being about $35 per ton below last year’s levels, with the other bridge components fairly similar to last year with positive items netting out the negative items.

There’s a bit more information related to input prices on Slide 8 where you can see the direction prices have been moving. As you saw in the previous slides, overall there has been a favorable impact from input pricing relative to the previous quarter as well as last year’s third quarter.

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