Clearwater Paper Q2 Earnings Call Highlights

Clearwater Paper (NYSE:CLW) reported a second-quarter net loss from continuing operations of $21 million, or $1.33 per diluted share, as lower market pricing and a major maintenance outage outweighed higher shipment volumes and insurance recoveries.

Net sales totaled $375 million in the quarter. Shipment volumes rose 8% from a year earlier, while market pricing declined 9%, as measured by the RISI index. Adjusted EBITDA was negative $8 million, within the company’s guidance range.

Chief Executive Officer Arsen Kitch said the company completed a major maintenance outage at its Lewiston, Idaho, facility in June, on time and on target, with direct costs of about $22 million. He also cited higher-than-expected transportation costs, partly tied to the Iran conflict, as a pressure on quarterly results.

Costs and balance-sheet actions

Chief Financial Officer Sherri Baker said the Iran conflict added roughly $5 million in chemical and transportation costs during the second quarter compared with the first quarter. Clearwater expects another $3 million to $5 million of pressure in the third quarter and estimated that the conflict could reduce full-year results by $20 million to $25 million.

Oil-derived chemicals, particularly polyethylene, have experienced cost pressure, while transportation expenses have been affected by fuel prices and driver shortages, Baker said. The company expects some supply-chain improvement during the fourth quarter.

Clearwater reduced net debt by $59 million during the quarter and by $50 million year to date. The improvement was driven by a $26 million cash tax refund received in the second quarter, $15 million in insurance proceeds and lower net working capital.

The company has recovered $55.5 million under representation and warranty insurance related to its Augusta acquisition, including $32.5 million recovered year to date. About $25 million remains available under the policy’s $105 million limit, and Clearwater said it will continue pursuing a final settlement.

Baker said the company expects positive free cash flow for 2026, supported by insurance recoveries, tax refunds and a targeted $20 million to $30 million reduction in working capital. Clearwater is also working with its existing bank partners to extend debt maturities before its credit facilities become current.

Pricing and paperboard-market conditions

Kitch said Clearwater is seeing “meaningful green shoots” in solid bleached sulfate, or SBS, market conditions. Company SBS shipment volumes were up 6% year to date, while industry imports declined 11%, according to management’s comments. RISI has reported approximately 300,000 tons of reduced SBS production across the industry since the start of the year.

RISI forecasts SBS operating rates will rise from the low-80% range in the first quarter to 88% in the second quarter and above 90% by year-end, Kitch said. Clearwater said it is sold out across its network and oversold on extruded capacity serving the cup market.

In response to cost pressure and improving industry conditions, Clearwater announced a $60-per-ton price increase in June and a second $60-per-ton increase scheduled to take effect in August. RISI’s latest report reflected a $40-per-ton increase in folding carton pricing and a $60-per-ton increase for cup stock.

Management expects the first Clearwater price increase and the RISI index movements to produce a $50 million to $60 million annualized EBITDA improvement once fully reflected in results. The company expects $10 million to $20 million of that benefit in the second half of 2026, with the full run rate expected by early 2027. About half of Clearwater’s volume is tied to the RISI index, with the remainder subject to direct market negotiations.

Restructuring and product expansion

Clearwater restructured its Cypress Bend, Arkansas, facility during the quarter, reducing roughly 20% of roles at the mill. The action is expected to yield $8 million to $12 million in annualized savings and limits the company’s network production to approximately 1.2 million tons annually.

Kitch said Clearwater has removed more than $60 million of fixed costs from its system since 2024, including mill restructurings and lower SG spending. Second-quarter SG was 5.6% of net sales, below the company’s targeted range of 6% to 7%.

The company also launched Circa, a coated recycled board product line for folding-carton and beverage-carrier applications. Circa will be manufactured by Green Paper at its Monterrey, Mexico, facility and sold through Clearwater’s distribution network. Kitch said the arrangement is intended to provide independent converters with an additional paperboard option without channel conflict from integrated suppliers.

Clearwater is also evaluating production of coated unbleached kraft, or CUK, at Cypress Bend. While a full capital solution would cost about $60 million, management said it is testing a lower-cost alternative requiring less than $10 million that could fit within the company’s normal capital spending budget.

Third-quarter and full-year outlook

For the third quarter, Clearwater expects adjusted EBITDA of $20 million to $30 million. Paperboard shipments are expected to be roughly flat with the second quarter, while production is projected to increase as the company rebuilds inventories after the Lewiston outage. No major maintenance outages are planned for the third quarter.

For 2026, Clearwater maintained its revenue expectation of $1.4 billion to $1.5 billion, with moderate shipment growth. The company expects approximately $70 million of carryover impact from 2025 market-driven price declines, partly offset by $10 million to $20 million of pricing improvement in the second half of 2026.

Clearwater reduced its forecast for total direct maintenance-outage costs this year to $32 million to $35 million from a previous estimate of $45 million to $50 million. The company narrowed the scope of its Augusta outage planned for the fourth quarter, deferring $10 million to $11 million of work to the first quarter of 2027. It also plans a Cypress Bend outage in the fourth quarter costing an estimated $5 million to $7 million.

About Clearwater Paper (NYSE:CLW)

Clearwater Paper Corporation is an independent manufacturer of premium tissue and pulp and paperboard products for private-label and commercial customers in North America. The company operates through two core segments: Consumer Products, which produces bathroom tissue, paper towels and other away-from-home tissue products under private-label contracts; and Pulp Paperboard, which supplies bleached paperboard used in folding cartons, foodservice packaging and specialty paper applications.

The Consumer Products segment services retail grocers, warehouse clubs, online merchants and janitorial distributors, leveraging multiple converting facilities to produce roll and folded tissue items for both household and institutional use.

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