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Buckeye Technologies Inc. (BKI)

F4Q08 Earnings Call

August 12, 2008 10:00 am ET

Executives

John B. Crowe - Chairman and Chief Executive Officer

Daryn Abercrombie – Senior Finance and Investor Relations

Steve Dean - Senior Vice President and Chief Financial Officer

Kristopher J. Matula - President, Chief Operating Officer, Director

Analysts

Gail Glazerman - UBS Securities LLC

James Armstrong - Citigroup

Napoleon Overton - Morgan Keegan

Bill Hoffman - UBS

Presentation

Operator

Welcome to the Buckeye Technologies Inc., fourth quarter earnings results conference call. (Operator Instructions). At this time for opening remarks and introductions I would like to turn the call over to John Crowe, Chief Executive Officer of Buckeye.

John Crowe

Welcome to Buckeye’s conference call commenting on our results for the April-June quarter 2008 and fiscal year 2008. Today I am joined in this call by Kris Matula, President and Chief Operating Officer; Steve Dean, Senior Vice President and Chief Financial Officer; Beth Welter, Vice President and Chief Accounting Officer and Daryn Abercrombie, Senior Finance and Investor Relations.

After Steve and I have made some introductory remarks we will respond to your questions; first Daryn will read our Safe Harbor statement.

Daryn Abercrombie

Answers to questions and other comments may constitute forward-looking statements within the meaning of the Federal Securities laws. Although management believes these statements are based on reasonable assumptions, these statements are subject to risks and uncertainties that could cause actual results to differ materially, including but not limited to risks related to economic, competitive, governmental and technological factors affecting the company’s financing, markets, order volumes, prices, products, operations, capital expenditures, and costs.

Other risk factors can be found in Buckeye’s press releases and public filings with the Securities and Exchange Commission. Additionally, non-GAAP financial measures may be discussed during this call. Any required disclosures with respect to these measures are provided in the investor relations section of our company website www.bkitech.com.

John Crowe

Net sales for the April-June quarter grew by 7.6% over the prior year to $215.3 million a new quarterly record. After tax earnings for the quarter were $9.3 million, $0.24 per share, compared to the after tax January-March quarter earnings of $10.4 million, $0.26 per share and $15.9 million, $0.41 per share to the same period a year ago.

In quarter four 2007, $0.15 of the $0.41 were due to one time items. Steve will cover the items in detail during the earnings reconciliation. Increased selling prices across all our businesses compared to the year ago quarter were sufficient to offset significantly higher raw materials, energy, chemicals and transportation costs; however reduced production volumes due to unplanned maintenance outages at our Perry Florida wood facility mill and lower non-woven sales, were the drivers behind our year-over-year reduction in operating income of $7.1 million.

Due to the unprecedented cost escalation we have experienced over the past six months we have implemented additional price increases and surcharges effective July 1. While oil and natural gas prices have moderated recently, we are still facing rising costs for raw materials, chemicals, and transportation in the July-September quarter.

Fiscal year 2008 was an outstanding year for Buckeye. Building on our momentum from 2007 we achieved a variety of significant performance milestones including our highest ever sales revenues, debt reduced below our $400 million target and earnings per share up 52% over the prior year.

Highlights for the fiscal year 2007 that I would like to call to your attention include net sales of $825.6 million, our best ever, and 7.3% above our previous best of $769 million achieved last year. Net cash provided by operating activities totaled $92 million enabling us to reduce balance sheet debt to $394 million this year, meet our capital expenditure needs, and complete a modest share repurchase of 300,000 shares. We expect to continue to manage debt at or below our current balance of total debt to capitalization of 48%.

We are now in position to use cash for opportunities that include share repurchase, dividends, cost savings projects, and growth initiatives.

Our earnings for the year were $47.1 million after tax, $1.20 per share, a significant improvement to last year’s earnings of $30.1 million after tax or 40.79 per share. Our capital spending was up slightly at $49 million and we anticipate increasing our investment program to $54 million in fiscal year 2009 as we implement our renewable energy project at our Florida facility.

Our gross margin improved to 18.1%. While our margins were compressed by unprecedented and unexpected cost pressures during the second half of the year, possibly expected to continue during fiscal year 2009, we are committed to achieving margins at or above 20% over the longer term.

Now Steve will review the supplemental reconciliation chart that we included with our press release.

Steve Dean

I would like to provide some color to the quarterly sales and earnings reconciliations included on the last page of this quarter’s press release financials.

Starting with the first column at the top of the page we have a reconciliation of earnings per share for the fourth quarter to the same quarter a year ago. In the fourth quarter net sales were up $15.1 million or 7.6% compared to the same quarter a year ago. Selling prices were significantly higher, up 12% on average compared to the same period a year ago and accounting for $20.8 million in incremental sales revenue year-over-year. Shipment volumes in tons were down year-over-year by about 2% accounting for a reduction in sales of $9.6 million compared to the same period in 2007, partially offsetting the impact of higher prices. This reduction in volume was due to the previously announced volume loss with a large customer in our non-woven segment. The impact of the stronger euro added $3.7 million to our sales for the quarter, but currency overall had a small negative impact on earnings for the company.

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