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Buckeye Technologies, Inc. (BKI)

Q2 2013 Earnings Call

January 30, 2013, 11:00 am ET

Executives

Eric Whaley - Director, Investor Relations

John Crowe - Chairman & CEO

Steve Dean - EVP & CFO

Doug Dowdell - EVP, Specialty Fibers

Marko Rajamaa - SVP, Nonwovens

Hank Hall - VP, Cotton Cellulose

Analysts

Gale Glazerman - UBS

Tim Quillin - Stephens Incorporated

Chip Dillon - Vertical Research Partners

Steve Chercover - D.A. Davidson

Paul Quinn - RBC Capital Markets

Stuart Benway - S&P Capital IQ

Presentation

Operator

Good day everyone and welcome to the Buckeye Technologies’ Second Quarter 2013 Earnings Results Conference Call. Today’s call is being recorded. Presently, all parties participating on this call will listen to opening remarks made by the company. After the prepared remarks, Buckeye management will answer analyst questions.

At this time for opening remarks and introductions, I would like to turn the call over to Eric Whaley, Director of Investor Relations of Buckeye Technologies. Please go ahead sir.

Eric Whaley

Thanks Ann. Good morning and welcome to Buckeye’s conference call commenting on our results for the second quarter of fiscal year 2013 which covers the October to December period. Today, I am joined in this call by John Crowe, Chairman and CEO; Steve Dean, Executive Vice President and Chief Financial Officer; Doug Dowdell, Executive Vice President of Specialty Fibers; Marko Rajamaa, Senior Vice President of Nonwovens and Hank Hall, Vice President of Cotton Cellulose. After John and Steve have made some introductory remarks, we will respond to your questions.

First, let me briefly cover our Safe Harbor statement. The matters discussed in this call include forward-looking statements that involve risks and uncertainties that may cause the company’s actual results to differ materially from those projected in such forward-looking statements. For further information on factors that could impact the company and statements contained herein, please refer to the slides accompanying this presentation as well as the company’s most recent annual report on Form 10-K and the quarterly report on Form 10-Q. I would also like to refer you to the supplemental earnings slides posted on our website and on streetevents.com for additional details related to this call.

Now I’ll turn it over to John.

John Crowe

Thanks Eric and good morning. My opening remarks will be referencing slide three in your presentation material. Our second quarter fiscal 2013 financial results were weaker than we expected with adjusted earnings of $0.60 per share which is $0.05 below the low end of our range. We provided guidance on our last earnings call that we expected earnings to be in the range of $0.65 to $0.70 including and an expected $0.15 insurance recovery. The net positive impact to the final insurance settlement related to the steam drum failure in June 2012 at our Florida mill which we received in December was $0.11 which was $0.04 lower than we had anticipated.

Net sales revenue for the October-December quarter was $204 million, down $17 million or approximately 8% year-over-year. The February 2012 sales of the Merfin Systems converting plant in King accounted for $4.3 million or 2% of that reduction in sales. The main difference in our results versus our anticipated earnings for the second quarter was the already mentioned lower insurance recovery plus the impact of product mix and lower margins on our specialty wood pulp delivered to the viscose staple fiber market. In our second quarter, we shipped approximately 12,000 tons into viscose staple fiber’s market. Additionally our fluff pulp prices were lower than predicted due to the increase in spot business this quarter.

You will recall, we overshot our inventory targets during the first quarter and we were committed to bringing inventory back in line. To accomplish a better balance we chose to sell into the viscose staple fibers market for the first time in over two years and we purposely increased our spot fluff sales. At the end of the quarter two, our finished goods woods inventory is very close to our target level.

During the quarter we continued to experience weaker market conditions in a few of our specialty fibers markets such as European high performance tire cord, acetate filament, and LCD screens. We had exceptional production in the second quarter resulting in stronger shipments, up 6.4% compared to a year ago quarter.

While the second quarter is seasonally weaker quarter for nonwovens, we are pleased with another strong revenue quarter for nonwovens and we're experiencing and improving ROIC for the nonwovens segment. The closure of our Delta nonwovens facility went as planned with production ending in late November and the organization made great progress on equipment decommissioning during the months of December and January. We expect to close on the sale of the Delta land and buildings on February 06, with the expected net sales proceeds of about $20 million. The Delta organization performed very well and delivered on the plan with record safety and quality performance, a class performance that now allows us to improve nonwovens ROIC due to lower cost structure and higher capacity utilization.

During the quarter, we made good progress on our Specialty Expansion and the Oxygen Delignification Projects at our Florida wood facility. Both projects are on schedule and both are important long-term initiatives for our specialty fibers business. We anticipate that they will come online in April and July 2013 respectively and that they will be key contributors for revenue growth and cost reduction.

We continue to focus on a balanced approach to the allocation of capital. Yesterday, the Board of Directors voted to pay a quarterly cash dividend of $0.09 per share on March 15, 2013. We continue to return cash to shareholders during the quarter with $9.2 million in share repurchases and a $3.4 million dividend pay. We anticipate your interest in our market conditions and after Steve reviews the supplemental of financial reconciliation chart, Doug, Hank and Marko will provide brief updates on some of our key markets.

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