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Boise Inc. (BZ)

Q3 2009 Earnings Call

November 3, 2009; 10:30 AM ET

Executives

Alexander Toeldte - President & Chief Executive Officer

Robert McNutt - Senior Vice President & Chief Financial Officer

Jason Bowman - Director of Investor Relations

Analysts

Jeffery Harlid - Barclays Capital

Bill Huffman - RBC Capital Markets

George Safis - Banc of America

Rick Skidmore - Goldman Sachs

Mark Wilde - Deutsche Bank

Fritz Gallagher - Lazard Capital Market

Taric Ahmed - JP Morgan

Presentation

Operator

Good morning, my name is Melissa and I’ll be your conference facilitator today. At this time, I would like to welcome everyone to Boise Inc.’s third quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. (Operator Instructions)

It is now my pleasure to introduce to you Mr. Jason Bowman, Director of Investor Relations, Boise Inc. Mr. Bowman; you may begin your conference.

Jason Bowman

Good morning Melissa and welcome everyone to Boise Inc.’s third quarter 2009 earnings call. Joining me today are Alexander Toeldte, our President and CEO and Rob McNutt, Senior Vice President and CFO.

Please note that some statements made on this call constitute forward-looking statements within the meaning of the federal securities laws, including statements regarding management’s future expectations of company performance. Management believes these forward-looking statements are reasonable.

However, the company cannot guarantee you that its actual result will be consistent with the forward-looking statements and you should not place undue reliance on them. These statements are based on current expectations and speak only as of the date they are made. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result or future events, new information or otherwise.

Important risk factors regarding the company that may cause results to differ from expectations are included in the company’s filings with the SEC, including our quarterly report on Form 10-Q for the quarter ended September 30, 2009.

This morning’s call is posted on our website at www.boiseinc.com under webcast and presentations. An archived webcast and a replay of the conference call will also be posted shortly after the call.

I will now turn the call over to the Alexander.

Alexander Toeldte

Thank you, Jason. Welcome to the call and thank you for listening in. This morning I would like to spend a few minutes summarizing our business results and the debt restructuring we just completed, and then I will turn it over to Rob McNutt to give a more detailed presentation of our financial results. As we mentioned in our pre release a few week ago, we generated good earnings, good EBITDA and good cash flow in the third quarter. Our EBITDA was $128 million during the third quarter, excluding special items our EBITDA was $66 million.

This performance was achieved as cost declined generally faster than prices and we had no maintenance shutdowns in our mills and we continue to see improved demand in our key target product categories. Our cash generation was also strong with $139 million in cash from operations for the quarter. That translates into $79 million if you exclude the alternative fuel mixture credit.

Looking at the modeling key products, during the quarter we saw a continued growth in label and release, a good seasonal demand for our packaging product and the food processing and agricultural market and benefited from better demand for office papers than in the previous two quarters. Overall, our product portfolio mix continues to develop in line with our strategy of shifting for more premium and packaging driven products.

Turning to our balance sheet, recently we completed a debt restructuring and strengthened our balance sheet. Through this restructuring, we substantially reduced our balance sheet risk. As you know, the debt restructuring occurred in October and therefore, its effects are not included in these third quarter results.

I would like to highlight two other recent accomplishments. First, we are now fully in compliance with the New York stock exchange listing standards and second OfficeMax, our largest customer awarded us their best supply chain performance award for 2008 and 2009 beating out 1,800 other suppliers across all product categories. We are very proud of the award which recognizes the excellent work our people have done in providing OfficeMax with the quality and service they deserve.

Now I’d like to focus your attention on our paper segment. Our paper business turned in another good quarter generating very good EBITDA and cash flow. Excluding tax credits, EBITDA was $57 million and EBITDA margins exceeded 15% during the quarter as cost declines out stripped price erosions and our mills ran well.

During the third quarter, we had no maintenance outages and took a modest amount of market downturn. We continue to manage our inventory and working capital levels well. Finished good inventories in our paper segment are now down 21% from the beginning of the year. We’ve achieved that improvement while continuing to improve our customer service performance.

Turning to demand and pricing, overall uncoated freesheet demand stabilized in the third quarter. Shipments in both August and September improved over year-to-date trends. Our restructuring of St. Helens mill completed earlier this year eliminated 13% our capacity and reduced our exposure to printing and converting grade.

Our year-to-date uncoated freesheet sales volumes through third quarter, including that mill downsizing are down 15% compared to last year. Market demand for our office papers which constitutes the majority of our uncoated freesheet sales improved gradually during the quarter, sales volumes of our labor release flexible packaging and premium office papers continued to grow. For example, ASPEN 100 our 100% recycled office paper set a new sales record in September.

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