Verso Paper Corp. (VRS)

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Verso Paper Corp. (VRS)

Q2 2013 Earnings Conference Call

August 08, 2013 9:00 am ET

Executives

David J. Paterson - President and Chief Executive Officer

Robert P. Mundy - Senior Vice President and Chief Financial Officer

Analysts

Bill Hoffman - RBC Capital Markets

Joe Stivaletti - Goldman Sachs

Kevin Cohen - Imperial Capital

Richard Kus - Jeffries

Tarek Hamid - JPMorgan

Bruce Klein - Credit Suisse

Bill Hoffman - RBC Capital Markets

Phillip Rabara - Royal Bank of Scotland

Presentation

Operator

Good day and welcome to the Verso Paper Corp. Second Quarter 2013 Earnings Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Senior Vice President and Chief Financial Officer, Mr. Robert Mundy. Please go ahead, sir.

Robert P. Mundy

Thank you. Good morning and thanks for joining Verso Paper’s second quarter 2013 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. Dave?

David J. Paterson

Good morning and thank you for being on today's call. Starting out, let's look at the quarter we just finished. Volumes were down approximately 10% compared to last year's volume, both due to the Sartell mill closure as well as the closure of the No. 2 machine at Bucksport Paper a year ago. Pricing was up slightly versus the first quarter of last year. We have announced price increases effective July 1 of $40 on No. 5 coated groundwood, $30 on No. 4 coated groundwood, and $30 on coated freesheet.

During the quarter, our manufacturing costs were impacted by scheduled maintenance of our Androscoggin mill that cost approximately $5 million. Also during the quarter, we saw energy prices in the form of natural gas come down much below first quarter levels but we continue to see the delivery charges associated with procuring gas in the State of Maine trending well above historical levels and remaining a concern.

Bob, I'll turn it over to you.

Robert P. Mundy

Thanks, Dave. If you turn to Slide 4, as Dave mentioned, our overall volume for the quarter was about 10% below last year's level or around 47,000 tons. That was significantly driven by the capacity with permanent shutdown at our Sartell mill and one of our machines at Bucksport. Sequential volumes were fairly flat. Revenues followed a pattern similar to volumes as prices both year-over-year and on a sequential basis were up just slightly. Adjusted EBITDA of $22 million in the second quarter compares to similar results both last year and in the first quarter of this year.

On Slide 5, you can see that coated volumes were 36,000 tons below last year, which is the same amount of tons from machines that we have since permanently shutdown. Coated volumes were up about 2% from the first quarter. Versus last quarter, coated prices were off just slightly, less than 1%, while pulp prices were about 9% higher. Pulp volumes were below first quarter levels, primarily due to some unscheduled maintenance at Quinnesec.

Turning to Slide 6, you can see the key changes between our second quarter 2013 adjusted EBITDA of $22 million versus $23 million in the second quarter of 2012. As I mentioned earlier, volume was down as a result of the shut capacity. Overall, price mix was favorable by about $4 million with higher prices for all of our products except coated freesheet. Operational costs were $2 million better than last year and input prices were up just a bit. SG&A and distribution costs were fairly flat with LIFO inventories driving the largest part of the $4 million negative that you see there as we went from a slightly favorable adjustment last year to a slightly negative adjustment this year.

Slide 7 gives you a view of the adjusted EBITDA changes between the second quarter of 2013 versus this year's first quarter. Volumes were off about $1 million primarily due to lower pulp volumes I mentioned. As Dave said, overall prices were up slightly, but represented less than $1 million. Operations cost were higher than the first quarter due to the scheduled maintenance outage we had at our Androscoggin mill and input prices were $10 million positive due to the much lower energy prices that we expected coming off of the unprecedented gas price levels in Maine that we spoke of.

There is a bit more information related to input prices on Slide 8, where you're going to see the direction prices are moving versus last year and versus the previous quarter. Overall, things were generally favorable except for the slightly higher wood prices during the quarter which we expected. Going forward, wood prices should be fairly stable as should input prices overall. Dave?

David J. Paterson

Thanks Bob. Looking towards the third quarter, this is our seasonally strong period and we see that reflected in our volumes for the quarter. We expected paper prices to move up but perhaps not at before announced levels and we expect pulp pricing to remain strong. Manufacturing operations cost improvement from cost reduction initiatives and no scheduled maintenance outages should make those costs significantly lower during the third quarter versus the second, and we see input pricing remaining stable.

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