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Call Start: 9:00

Call End: 10:01

Rock-Tenn Co (RKT)

Q1 2014 Illumina, Inc. Earnings Conference Call

January 29, 2014 / 9:00 a.m. E.T.


Steve Voorhees – CEO

Michael Kiepura – President, Consumer Packaging and Recycling Businesses

Jim Porter – President of Corrugated Packaging Business

Ward Dickson – EVP & CFO


Scott Gaffner – Barclays

Anthony Pettinari – Citigroup

George Staphos – BofA Merrill Lynch

Mark Wilde – Deutsche Bank

Alex Ovshey – Goldman Sachs

Philip Ng – Jefferies & Company

Mark Weintraub – Buckingham Research Group

Chris Manuel – Wells Fargo

Chip Dillon – Vertical Research Partners

Adam Josephson – KeyBanc Capital Markets

Steve Chercover – DA Davidson & Co.

Mark Connelly – CLSA Limited



Good morning. My name is Kathy. I will be your operator for today's conference. At this time, I would like to welcome everyone to the Rock-Tenn First Quarter FY 2014 earnings conference call.

(Operator instructions).

As a reminder, slides are being presented today as part of the conference call. These slides can be accessed at under the investors page. Ladies and gentlemen, this call is being recorded today January 29, 2014. (Operator instructions)

Your speakers for today's call are Mr. Steve Voorhees, Chief Executive Officer; Mr. Ward Dickson, Executive Vice President and Chief Financial Officer.

Mr. Voorhees, you may begin the conference.

Steve Voorhees

Thanks, Kathy. Welcome to everyone who's listening to our call. I'm Steve Voorhees, Chief Executive Officer. I'm joined in the office this morning by Ward Dickson, Chief Financial Officer; and Jim Porter, President of our Corrugated Business.

For those of you following the weather, we're having a memorable couple of days in Atlanta. I believe Mike Kiepura is calling in. The President of our Consumer Packing and Recycling Businesses, is calling in from home. Are you there, Mike?

Michael Kiepura

I am, Steve.

Steve Voorhees

Okay, excellent. Okay. So, we'll start with our forward-looking statement.

During the course of this call, we will make forward-looking statements involving our plans, expectations, estimates, and beliefs related to future events.

These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those that we discuss. These risks and uncertainties are described in our filings with the SEC, including our most recent 10-K. We will also refer to non-GAAP financial measures during the call and have provided reconciliations of these non-GAAP measures to the most directly comparable GAAP measures in the appendix of the slide presentation.

I'm going to start with a discussion of our operating results, and then Ward will discuss our input cost, balance sheet, pension, and other financial matter – measures. I will complete our prepared remarks with comments on our outlook, and then Ward, Jim, Mike, and I will be available for your questions.

The success of our team in executing our strategy drove our 23% increase in earnings per share. We generated over $250 million in free cash flow, and we used that cash to pay down debt, contribute to our pension plans, pay our dividend, make an acquisition, and buy back stock.

And we did all of this while reducing our leverage ratio from 1.95 to 1.84 times. We have a lot of energy around a well-balanced set of actions to satisfy our customers, reduce our cost, invest in our businesses, and deploy our cash flow, where we can have the greatest impact for our shareholders.

Net sales increased by 3% over the prior-year quarter. Higher pricing more than offset reduced volume.

Over the last 12 months, credit agreement EBITDA has increased by 27% to $1.5 billion. This is over $300 million higher than one year ago.

Our free cash flow per share in the December quarter was positively impacted by higher pricing, and also by our taking the opportunity to accelerate the collection of a portion of our accounts receivable portfolio on very attractive terms. Ward is going to discuss this accounts receivable facility in more detail in his commentary.

These favorable items were somewhat offset by lower corrugated volumes and the associated cost of producing at lower levels. The net result of these and other factors was that our free cash flow of $3.46 per share was 26% higher than one year ago. Free cash flow of $11.87 per share over the past 12 months is 49% higher than last year.

Our leverage ratio of 1.84 times is nearly a full turn below where it was just one year ago. We have the ability to provide our shareholders with strong current cash flow returns, and have significant flexibility to improve these returns by deploying this free cash flow to implement our strategy and/or returning this capital to our shareholders through dividends and share repurchases.

The Corrugated Packaging and Display businesses showed significant improvement as compared to last year. Our Consumer Packaging business improved upon its already solid results. Taxes and other items generated a $0.10 per share improvement, primarily due to lower interest expense, with the remainder due to a lower effective tax rate.

Turning to our Corrugated Packaging business. Industry box volumes as reported by the Fiber Box Association on a per-day basis were flat on average in October and November. The December numbers won't be published until February 3.

Industry containerboard mill operating rates averaged 92% for the quarter, as compared to 96% one year ago and 97% in the September quarter. Industry shipments of containerboard to export markets declined by 2% from the prior-year quarter.

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