Verso Paper Corp. (VRS)

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Verso Paper Corp. (VRS)

Q1 2010 Earnings Call Transcript

May 6, 2010 9:00 am ET

Executives

Bob Mundy - SVP and CFO

Mike Jackson - President and CEO

Analysts

Joe Stivaletti - Goldman Sachs

James Armstrong – Credit Suisse

Kevin Cohen - Imperial Capital

Jeff Harlib - Barclays Capital

Eric Anderson - Hartford Financial

Ariel Avila - JPMorgan

Richard Kus with Jefferies

Phillip Wirtz - Odeon Capital Group

Hoai Ngo - Oppenheimer

Fritz von Carp - Sage Asset Management

Bruce Klein - Credit Suisse

Presentation

Operator

Welcome to the Verso Paper Corporation first quarter 2010 end earnings call. Today’s conference is being recorded. At this time, I would like to turn the call over to Mr. Robert Mundy, Senior Vice President and Chief Financial Officer. Please go ahead, sir.

Bob Mundy

Good morning and thank you for joining Verso Paper’s first quarter 2010 earnings conference call. Representing Verso today on this call is President and Chief Executive Officer, Mike Jackson, and myself, Bob Mundy, Senior Vice President and Chief Financial Officer.

Before turning the call over to Mike, 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 website, versopaper.com, under the Investor Relations tab. Mike?

Mike Jackson

Thanks Bob and good day everyone. If you could go page three, the first quarter, you can see was strong volume quarter as volume was up substantially over the first quarter of 2009.

Shipments were up 164,000 tons, while sales were up year-over-year by more than $76 million or almost 27%.

Adjusted EBITDA was $13 million, which was higher than the first quarter EBITDA of $4 million for 2009. The primary reason for the fall off from the fourth quarter of '09 was price, which reached it trough in March. We recognized during our last earnings call that that would be the case and it was.

Moving to page four the first quarter of 2010 brought with it some key areas that I would like to highlight. We knew this would be a difficult quarter that prices would be down and that the first quarter pricing would be trough, but we set the stage for volume growth and price appreciation.

We announced in March a second quarter, coated price increase or $30 a ton, as both inventory and demand were headed in a positive direction. Last Thursday, we also announced another increase for June 1, of $60 for coated groundwood and SC and $40 for coated freesheet.

Pulp prices were up a 11% over Q4 '09. There were three increases during the first quarter, totaling $100 a ton. Our coated volume was 46% above last year's first quarter and seasonably down 5% from the fourth quarter of 2009. This 5% sequential fall off was half of what the normal seasonal drop off has historically been. Clearly a very strong quarter for volume.

These volume numbers grew our market share in the three major grades of coated freesheet, coated groundwood and SC, but not at the expense of the lower price compared to the market. Against the market our pricing for these grades showed the same or less than year-over-year percent movement that the movement that the [VC] benchmark showed for the first quarter. This was the case for both coated freesheet and coated groundwood.

Our sales people demonstrated, I believe, strong discipline in a very difficult environment. Our continued focus on working capital allowed us to have lower coated inventory sequentially and year-over-year, which supports our continued effort on cash management.

On the input price side of our business excluding pulp we were $1 million better than the fourth quarter of 2009 and taking a broader view of pulp prices year-over-year, we have $4 million favorable and $3 million sequentially due to our long pulp position. Bob, will give you more details relative to the input cost in a moment.

So, at this time, I will turn back to Bob and then I will back to review again our focus areas for 2010 and give our outlook for the second quarter. Bob?

Bob Mundy

Thanks Mike, if you turn to slide five, you can see that a significant coated volume improvement versus last year about 46% down only about 5% versus the seasonally stronger fourth quarter. As we said coated prices continued to remain under pressure during the better part of the first quarter but did reach TARP levels as we headed into the second quarter. Market downtime was minimal, we had a few 1000s tons of market downtime. Obviously we had significant downtime last year at this time.

Pulp prices were over 32% higher than last year, over $50 per ton higher than the last quarter. Pulp prices together with the strong coated and new product volumes during the quarter resulted in revenues being up significantly versus last year and down only about 4% versus the seasonally stronger fourth quarter.

If you look at slide six, this gives you a view of our year-over-year adjusted EBITDA changes for the first quarter of 2010 versus the first quarter of 2009. The stronger volumes we mentioned had a positive impact of about $12 million. However, prices were down just over 15% versus last year or about $65 million.

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