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Verso Paper Corp. (VRS)
Q1 2013 Earnings Conference Call
May 9, 2013 09:00 AM ET
David J. Paterson - President and CEO
Robert P. Mundy - SVP and CFO
Joe Stivaletti - Goldman Sachs
Bill Hoffman - RBC Capital Markets
Tarek Hamid - JPMorgan
Bruce Klein - Credit Suisse
Richard Kus - Jefferies & Company, Inc.
Kevin Cohen - Imperial Capital
Nilay Mehta - ALJ Capital
Marc DuBois - Bowery Investment Management
Good day everyone and welcome to the Verso Paper Corporation First Quarter 2013 Earnings Call. Today’s conference is being recorded.
At this time, I’d like to turn the conference over to Mr. Robert Mundy, Senior Vice President and Chief Financial Officer. Please go ahead sir.
Robert P. Mundy
Previous Statements by VRS
» Verso Paper's CEO Discusses Q4 2012 Results - Earnings Call Transcript
» Verso Paper's CEO Discusses Q3 2012 Results - Earnings Call Transcript
» Verso Paper's CEO Discusses Q2 2012 Results - Earnings Call Transcript
» Verso Paper Corporation's CEO Discusses Q1 2012 Earnings Call Transcript
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. Dave?
David J. Paterson
Thank you, Bob, and good morning to everyone on the call. Let me first look back at our first quarter 2013. As we look at the quarter, we saw pricing as flat on a sequential basis and year-over-year. On the inventory front we have substantial reduction in inventories, but partially that was due to the closure of the Sartell asset. But we’re still down 20,000 tons excluding the Sartell asset closure versus the first quarter of 2012.
One of the significant issues for us during the quarter was the price of – the delivered price of natural gas to our two mills in the State of Maine. And we’re referencing a $22 million increase in cost for that gas on a year-over-year basis and a $15 million sequential cost increase versus the fourth quarter of last year.
During the – we want to remind everyone that we successfully completed the sale of the Sartell Mill site and the Fiber Farm in Minnesota and we’re now – have mill assets remaining at the site or in the Fiber Farm. We do complete an exchange offer for senior unsecured holding company term loan. We have no significant debt maturities until 2016 with the balance of the maturities in 2019. And we received $13.7 million Section 1603 grant dollars relative to the Bucksport Renewable Energy Project. Bob?
Robert P. Mundy
Thanks, David. Turning to slide 4, our overall volume for the quarter was around 50,000 tons below the first quarter of 2012, which is about the same amount of tons from machines that then permanently shutdown since last year’s first quarter. Sequentially volumes were just over 7% lower due to the normal seasonal slowdown, moving from the fourth to the first quarter, which also allows us to build our inventories which had been very low for the stronger demand during the balance of the year.
Revenues followed a pattern similar to volumes as prices both year-over-year and on a sequential basis were essentially flat. Adjusted EBITDA and operating income were similar to last year’s levels.
On slide 5, you can see that coated volumes were almost 60,000 tons below last year of which 50,000 tons related to capacity that has since been permanently shutdown. Coated prices were down about $10 per ton from the fourth quarter with most of that being driven by lower coated groundwood prices.
Very good pulp volume for the quarter and pulp prices continue to move up. We expect that prices will be fairly flat again next quarter prior to moving up during the third and fourth quarters. You may have seen that we’ve announced price increases on all of our coated grades effective July 1st.
Turning to slide 6, you can see the key changes between our first quarter 2013 adjusted EBITDA of $20 million versus the $25 million in the first quarter of 2012. As I mentioned earlier, overall volume was down as a result of the shut capacity. Price mix was favorable by about $2 million. Operations had an excellent quarter, coupled with the operating cost we’ve had since last year relative to the four paper machines we’ve shutdown.
As David mentioned, the energy component of our input prices relative to our facilities in Maine was almost $22 million above last year’s levels and primarily because of lower wood prices, our overall input prices were $18 million above the first quarter of 2012.
Slide 7, gives you a view of the adjusted EBITDA changes between the fourth quarter of 2012 and the seasonally slower first quarter of ’13. Lower volumes represent at somewhere between $3 million to $4 million, while price mix was off less than a $1 million.
Manufacturing operations costs were above fourth quarter levels, primarily in the area of repairs and indirect cost spending, but nothing alarming here as we had budgeted for this and actually finished the quarter favorable to our budget. Again, the unfavorable input prices were due to the gas issues in Maine that [we spoke of], the other areas of input prices like wood, fiber and chemicals were lower that fourth quarter levels.