Verso Paper Corp. (VRS)

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Verso Paper Corp. (VRS)

Q3 2010 Earnings Call Transcript

November 3, 2010 9:00 am ET

Executives

Robert Mundy – SVP and CFO

Mike Jackson – President and CEO

Analysts

Joe Stivaletti – Goldman Sachs

Bill Hoffmann – RBC Capital Markets

Bruce Klein – Credit Suisse

Kevin Cohen – Imperial Capital

Jeff Harlib – Barclays Capital

Tarek Hamid – J.P. Morgan

Richard Kus – Jefferies

Eric Anderson – Hartford Financials

Phillip Wirtz – Odeon Capital

Chip Dillon – Credit Suisse

James Daly – Deutsche Bank

Roger Spitz – Bank of America/Merrill Lynch

Gary Madia – Gleacher & Company

Sandy Burns – Sterne Agee

Raymond Chiarastella – Blue Mountain

Presentation

Operator

Good day and welcome to the Verso Paper Corporation third quarter 2010 earnings call. Today's call is being recorded. At this time, it is my pleasure to turn the conference over to Mr. Robert Mundy, Senior Vice President and Chief Financial Officer. Please go ahead, sir.

Robert Mundy

Thanks, Karla. Good morning, everyone. Thank you for joining Verso Paper's third quarter 2010 earnings conference call. Representing Verso today on this call is President and Chief Executive Officer, Mike Jackson and myself, Robert 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

Okay. Thanks, Bob and good day, everyone. If you could go to slide three please, in spite of an unusually strong second quarter for pulp and paper volumes, we were up almost 4% or about 20,000 tons above the second quarter of 2010 and over 7% or 36,000 tons above the third quarter of 2009.

Sales were up almost $32 million or 8% from the second quarter 2010 levels and up over 38 million or about 10% from the third quarter of 2009. EBITDA was over double the second quarter of 2010 at $46 million and slightly below the fourth quarter of 2009.

Moving to slide four, during our second quarter call, we gave some third quarter guidance for certain areas. In all cases, we delivered in those areas for the third quarter. Through September, we've continued to see month-over-month pricing improvement. And we expect that to continue each month throughout the end of the year.

As I mentioned, third quarter volume was up from the second quarter. Year-to-date, Verso's coated freesheet and coated groundwood shipments are up 23%, while the industry shipments are up 19% for coated freesheet and 12% for coated groundwood. As you know, mill operations in the second quarter had their first blip in over 14 quarters, so it was no surprise to see our operations back on track for the third quarter.

Input prices and Bob will get into this with a bit more detail. We're virtually flat versus the second quarter and if you include pulp prices, pulp prices were a little greater than $1 million higher. Finished goods inventory was down 24% versus the second quarter and down 43% on a year-over-year basis.

Couple of highlights during the quarter, Verso was recognized as the Manufacturer of the Year in Maine, which both U.S. (inaudible) have recognized, that was a very nice tribute to our people in the state. And we received the President's Award from SFI for our efforts towards forest management and land certification, which really continues to be an important issue for our customers.

With those comments, I'll hand it back to Bob and then I'll come back later in the presentation. Bob?

Robert Mundy

Thanks Mike. Let me turn to slide five, you can see that coated volumes improved about 16,000 tons versus the third quarter last year and were about 32,000 tons above the previous quarter. We continue to see coated prices increase during the third quarter. And we expect prices to increase as we move through the fourth quarter of 2010.

We had no market downtime during the quarter versus about 26,000 tons during the third quarter of last year. Pulp prices were about flat versus the second quarter and about $230 per ton above last year's third quarter. Higher paper and pulp prices together with stronger volumes during the quarter resulted in revenues being up almost 10% versus last year and about 8% above the second quarter of 2010.

If you turn to slide six, you can see the key changes between our second quarter of 2010, adjusted EBITDA of $23 million versus the $46 million in third quarter of 2010. Higher volume contributed about $2 million of EBITDA while improved pricing contributed $20 million. Improved operations resulted in $7 million of improvement. And overall input prices included pulp were slightly negative quarter-over-quarter.

If you turn to slide seven, this gives you a view of the year-over-year adjusted EBITDA changes for the third quarter 2010 versus third quarter 2009. Stronger volumes, we've talked about had a positive impact of about $4 million and higher prices contributed about $6 million of EBITDA versus last year.

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