Clearwater Paper's CEO Discusses Q1 2013 Results - Earnings Call Transcript

| About: Clearwater Paper (CLW)

Clearwater Paper Corporation (NYSE:CLW)

Q1 2013 Earnings Call

April 24, 2013, 05:00 pm ET

Executives

John Hertz - SVP & CFO

Linda Massman - President & CEO

Analysts

Graham Meagher - TD Securities

Steven Chercover - D.A. Davidson

Ian Zaffino - Oppenheimer

James Armstrong - Vertical Research

Lawrence Stavitski - Sidoti & Company

Operator

Good day, ladies and gentlemen, and welcome to Clearwater Paper First Quarter 2013 Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) And as a reminder today’s conference call is being recorded. And today’s speakers for the call, Ms. Linda Massman, President and Chief Executive Officer and Mr. John Hertz, Senior Vice President and Chief Financial Officer.

At this time, I would like to hand the conference over to Mr. John Hertz. Sir, you may begin.

John Hertz

Thank you, Saeed. Good afternoon and welcome to Clearwater Paper’s first quarter 2013 conference call. Our press release this afternoon includes details regarding our first quarter results and you’ll find a presentation of supplemental information posted on Investor Relations area of our website at clearwaterpaper.com.

Additionally, we provide certain non-GAAP information in this afternoon’s discussion. A reconciliation of the non-GAAP information to comparable GAAP information is provided or is included in the press release and supplemental material provided on our website.

I would like to remind you that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. These forward-looking statements are based on current expectations, estimates, assumptions and projections that are subject to change, and actual results may differ materially from the forward-looking statements.

Factors that could cause actual results to differ materially include those expressed or implied by risks and uncertainties described from time-to-time in our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2012 and our quarterly filings on Form 10-Q. Any forward-looking statements are made only as of this date, and we undertake no obligation to update any forward-looking statements.

Now turning to our first quarter financial performance, and let me start with a little housekeeping. For a number of items that we do not believe are representative of our core operations impacting the first quarter and as a result we are providing both GAAP results and those that are adjusted to exclude certain charges and benefits. Those include, one, a $17 million charge associated with the January debt refinancing. Two, a $10 million tax benefit associated with the conversion of alternative fuel mixture gallon, also known as Black Liquor 1 back to cellulosic biofuels also known as Black Liquor 2. Three, $200,000 of exit charges related to the plant closure of our Thomaston converting facility. And finally four, a $3.5 million mark-to-market impact from director’s cash settled common stock units.

Now turning to the results, big picture, the first quarter was a bit of a paradox. We saw positive business fundamentals such as customer demand, shipment volumes, pricing, product mix, production levels and product quality on the one hand, but that was paired with disappointing bottomline results on the other. This dynamic is largely due to fact that we began taking on new conventional tissue business and customers in late 2012 to help offset upcoming displacement of conventional tissue sales as we ramp up TAD bathroom tissue shipments in 2013. Unfortunately, near-term customer demand for conventional bathroom tissue outstripped our ability to efficiently produce and transport it, which gave rise to the cost pressure that we experienced in the quarter.

Turning to the specifics, Q1 net sales came in at $461 million, essentially flat versus Q4 of 2012, and an 8% increase in retail tissue shipments combined with strong favorable shipments offset the effects of planned paperboard consignment inventory build as well as loss production associated with Arkansas mill maintenance outage and a decline in non-retail tissue volumes. Net sales were up 1% versus the first quarter of 2012.

First quarter gross margin excluding the Thomaston impact came in at 10.1%. That’s down 4 percentage points from the fourth quarter of 2012. We expected up to 3 points of margin pressure at the consolidated level resulting from the consumer products cost headwind and Arkansas mill maintenance that we discussed in our February call.

The incremental margin pressure that drove gross margin down 4 points is due to three factors. First, the consumer products headwinds came in at the high end of the 1 to 3 percentage point range that we gave in our Q1 outlook, and on top of that, we incurred incremental converting cost associated with learning to learn our new TAD bathroom tissue products as well as incremental changeover costs on paper machines to keep up with higher conventional bathroom tissue demand.

Second, we encountered some issues during Arkansas major maintenance downtime that caused an incremental two days of outage time.

And third, we experienced higher than expected self insured medical costs in the quarter. I will discuss those factors in more detail in our segment section discussion as follows.

As we think about the continuing impact of the cost pressures that we experienced in Q1, approximately $9 million was related to the network rebalancing due to the anticipated ramp up in TAD production from Shelby and Las Vegas and of low conventional bathroom tissue inventory position. Two-thirds of this amount resolved itself by the end of the first quarter and the remainder will be resolved in Q2. In addition, Arkansas maintenance outage amounted to $5 million of costs, it won’t repeat in the second quarter.

Compared to the first quarter 2012, gross margin declined 190 basis points. Selling, general and administrative expense excluding the $3.5 million in mark-to-marked impact from directors’ cash settled common stock unit was $31 million or 6.7% of first quarter net sales as compared to 6.7% in Q4 and 6.2% in a year ago quarter.

Corporate spending also excluding the same $3.5 million expense was $12 million of the SG&A spend in the first quarter that’s down $2 million from the fourth quarter due to the absence of one-time retirement and relocation costs in Q4.

First quarter adjusted EBITDA was $38 million, an 8.3% of net sales versus $56 million and 12.1% in the fourth quarter of 2012 as a result of the same factors impacting gross margin. First quarter 2012 adjusted EBITDA margin was 10%.

Q1 net interest expense of $11 million was up $4 million from the fourth quarter as we ceased interest capitalization associated with the Shelby project. In addition, we had $17 million of non-recurring debt retirement costs in the quarter; compared to the first quarter of 2012 interest expense increased $1 million.

The first quarter 2013 effective tax rate on an adjusted basis was 52.6% compared to an adjusted 31.2% in the fourth quarter and adjusted 40.6% in the first quarter of 2012. The first quarter 2013 increase in the adjusted effective tax rate compared to the fourth quarter of 2012 is the impact of discrete interest on uncertain tax positions in the first quarter 2013 on a lower pretax earnings level.

On a GAAP basis, we had Q1 net tax benefit of 94.3% as we recognized $10 million tax benefit in the quarter associated with the conversion of gallons from Black Liquor 1 to the more beneficial Black Liquor 1; we made that shift as the time period for adverse legislative actions as it relates to Black Liquor 2 has passed. We expect our annual effective tax rate on adjusted basis to be 37%.

GAAP net earnings were $900,000 loss or $0.04 per diluted share. Adjusted net earnings were $2.4 million of income or $0.11 per diluted compared to $19 million and $0.82 respectively in the fourth quarter. The sequential decline in adjusted net earnings and adjusted EPS were due to the same factors that adversely impacted gross margin. First quarter of 2012 adjusted net earnings and adjusted EPS were $9.8 million and $0.42 respectively.

Non-cash expenses in the quarter included $22 million of depreciation and amortization, $5 million of total equity based compensation and $3 million of non-cash pension expense.

Employee headcount at the end of the first quarter of 2013 was approximately 3,930 as versus approximately 3,860 at beginning of the year.

Now I’ll move to a discussion of the segment results. Consumer products net sales were $285 million for the first quarter of 2013, up 2% versus the fourth quarter, primarily due to a 1.4% or 2000 ton increase in shipments. Breaking it down, retail terms grew 8% primarily in bathroom tissue and that was offset by a 7% decline in non-retail terms due to lower parent role shipments and contract manufacturing.

Day sales grew 4% from the fourth quarter to $13.8 million, primarily due to the increase in retail demand. Total tissue average net selling price per ton was up $2 to $2149 versus the fourth quarter of 2012 as an improved mix of retail shipments from 55% in Q4 to 58% this quarter more than offset specific declines in each retail and non-retail pricing. Retail price per ton declined 2% due to product mix and higher promotional spending, while non-retail fell 1% due to lower machine glazed and contract manufacturing pricing. Consumer products operating margin for the first quarter of 2013 was $10 million or 4% versus $23 million and 8% in the fourth quarter of 2012.

As we stated on our fourth quarter 2012 earnings call, we expect consumer margins to fall expected consumer margins to fall 1.3 points sequentially due to higher pulp incremental purchase paper and transportation costs. The increment to the four points of margin pressure that we actually experienced was due to three things. First, there was $1 million in added costs related to establishing our new TAD bathroom tissue grade. We are making adjustments to improve run-ability on the converting line which is showing improvements here in the second quarter. Second, we had increased changeovers on our conventional paper machines to meet bathroom tissue demand, which cost us $1 million. As the inventories improved, the issue resolved itself and in fact the paper machines are currently operating at expected rates in the month of April. And third, an up tick in adverse medical clearance that cost us another $2 million.

As it relates to pulp, the $13 cost increase per production time was about what we expected and translates into $2 million increase in pulp cost versus the fourth quarter. As we look into Q2, we expect pulp cost to continue to rise modestly. With regard to purchased paper, we purchased 3300 incremental tons versus Q4 at additional $2 million cost which was on the high end of what we expected. As we look into Q2, inventory levels reflects that we no longer are purchasing external paper however about 2000 tons of purchase paper from Q1 ending inventory will flow through Q2 operating results. Incremental transportation costs were $2 million, also at the high end of what we expected. We expect transportation costs will continue to be above average into the middle of the second quarter when bathroom tissue case inventories get to levels that permit a more normal operating schedule.

Regarding Shelby, as the Shelby produced 13,000 tons and 1.4 million cases in the first quarter. These production numbers were slightly ahead of our expectations and we continue to expect Shelby to produce 55,000 tons this year, with a steady ramp to the full 70,000 ton run rate by the first quarter of 2015. As for our TAD bath introduction. We shipped 94,000 cases in Q1 and expect to ship approximately 18,000 to 20,000 tons and 4 million to 5 million cases in 2013, with 4000 tons and 900,000 cases in the second quarter. Now turning to the Pulp and Paperboard Division; Pulp and Paperboard net sales of $176 million for the first quarter of 2013 were down 3% versus the fourth quarter of 2012 due to a net 4,000 ton decline in ship paperboard volumes to a 186,000 tons. Strong shipments partially offset a 9,000 decline associated with the implementation of the plan consignment program as well as 4 days of loss production primarily due to our consigned maintenance outage. Paperboard average pricing of $935 per ton was roughly flat with the fourth quarter. While we did see price declines in the first part of the quarter in folding carton and commercial print, lower plate and pulp shipments improved the overall product mix.

Pulp and paperboard operating margin for the first quarter of 2013 was $80 million or 10%, as compared to $26 million or 14% in the fourth quarter. The decline is primarily due to major maintenance, which includes $3 million of schedule cost and additional 2 million due to unplanned downtime. Now turning to the balance sheet, capital expenditures were $30 million in the fourth quarter which included $2 million related to the TAD project, bringing total TAD project expenditures to $256 million through the end of Q1. Capital expenditures in 2013 are expected to be approximately $91 million, which includes an estimated $60 million associated with the TAD project. Long-term debt outstanding at March 31, 2013, was $650 million, which increased from the December 31, 2012 balance due to the January financing of our 150 million 10 and 5 base notes with the issuance of $275 million of four and half senior notes due 2023.

During the first quarter, we repurchased approximately 830,000 shares of common stock, at a total cost of $50.2 million. This figure includes $50 million associated with our accelerated share buyback program. Approximately 80% of the shares to be repurchased under that program were delivered in the first quarter. The exact number of remaining shares will be determined and delivered at the end of the buyback program based on the volume adjusted weighted average Clearwater stock price during the term of the program. We expect to repurchase the balance of our $100 million authorization by the end of 2013 through open market transactions. As of the most recent measurement date of December 31, 2012, our company sponsored pension plans or under funded by $79 million. We contributed $3 million to those plans in the first quarter. We expect to contribute $17 million to those plans during the remainder of 2013.

With regard to our liquidity, we ended the first quarter with 95 million of unrestricted cash and short term investments. We generated 14 million of cash from operating activities in the quarter and 27 million or 6% of net sales excluding the impact of the debt retirement cost. Our leverage ratios remain solid, our total debt-to-total capitalization excluding accumulated other comprehensive loss was 51.8% on March 31, 2013 compared to 44.4% on December 31, 2012. Adjusted EBITDA-to-net interest expense for the first quarter of 2013 was 3.5 times. In summary, market dynamics were stronger than expected in the quarter forcing some inefficiencies in the business adversely impacted operating margins. We have identified and addressed the underlying issues and are focused on our successful ramp of TAD bathroom-tissues for the remainder of the year.

I will now turn the call over to Linda Massman, who will discuss the company’s outlook.

Linda Massman

Thank you, John. First off, thanks for joining our call today and for your continued support to Clearwater Paper. Unfortunately as you heard from John, our first quarter was the mixed bag and I am disappointed about the performance we delivered to you. With that said the fundamentals of the business do remain solid. We’ve assessed what went wrong in our way to fixing it. We did anticipate there will be complexity associated with rebalancing our converting and paper making network in light of the new production coming from Shelby, which is truly a complex process to undertake predicatively and operationally, but we did not receive all the issues. We made some difficult decisions within the tissue business to meet customer demand and service levels that the expense of near term possibility to ensure that we had the overall demand we need in Q3 and Q4 when Shelby ramps up.

At the end of the second quarter, many of those events are (inaudible). We have taken active steps to stop or at least minimize the activities that are driving the margin compression that we saw in Q1. Examples of this would include getting our mix of inventory back to healthy operational levels, reducing purchases of external paper, minimizing paper machine changeovers wherever we can, and prioritizing customer service related decisions. However there were likely be a hangover into the second quarter as it relates to transpiration cost, TAD converting line run rates, and pulp cost. As we look at our end markets for tissue and paper board and the factors that drive those markets, we see solid trends. For the first quarter 2013, the US tissue market grew 3.3% year-over-year to a $128 million equivalent cases; and within that private label tissue grew 5.1% to $33 million equivalent cases on a strong bathroom and facial tissue demand [according to IRI].

Private label tissue sales also outpaced industry growing 7% to $865 million versus 1% for the total tissue market. Accordingly private label continues to gain share in the tissue market, making up 26% of the equivalent cases sold and 22% of the total tissue dollar sales. By category case sale, private label makes up 22% of bathroom tissue, 27% of facial tissue, 31% household towels and 50% of napkins.

For the second quarter in our consumer products business we are expecting tissue production volumes to be up modestly as Shelby continues to ramp up. However, we believe shipment tons will be roughly flat sequentially as higher non-retail tons should offset lower retail tons.

Although retail tons are expected to be down slightly, our case sales should continue to rise as TAD bathroom tissues produces more cases per ton. We expect average price per ton to rise moderately with higher TAD bathroom tissue sales and our announced price increase in parent roll sales on our tissue and machine-glazed parent roll business that is expected to be effective May 1.

On the expense side, we expect higher market pulp cost in the second quarter that will be partially offset by our reduction in purchase paper. Further out however we continue to think that pulp prices will fall in the second half of the year due primarily to new capacity.

Second quarter transportation costs are expected to be down as the bathroom tissue inventory issue resolved itself midway through the quarter. We expect chemical, energy and maintenance costs to be stable as compared to Q1.

Regarding our paperboard business, the market outlook for our [STS] product is generally favorable. Domestic demand in our primary markets is running upwards this year and is up on a year-over-year basis. We expect this trend to continue at least through the next quarter due to the nominal seasonality of our business.

Prices are also trending upwards as the announced $40 price increase in plate, dish and tray has been fully implemented and the announced $50 price increase in folding cartons has been partially implemented in the marketplace will take effect in May. In addition, several producers including Clearwater Paper have announced cup stock increases on $50 which have yet to be implemented.

In generally, the overall outlook is positive with stable costs and improved pricing. The Arkansas shutdown is behind us and we expect excellent runability over the balance of the year due to backlogs.

In the second quarter we are expecting paperboard production and shipment volumes to be higher as we don't have a plant maintenance outage and the consignment inventory build is complete. Further paperboard backlogs are at strong levels for this time of the year and we expect stable to improving costs in Q2.

Looking at the consolidated business as a whole for the second quarter versus the first quarter, we expect increased shipments volumes and higher pricing as well as reduced transportation and maintenance costs to be partially offset by higher pulp cost. Further out we remain confident in our ability to produce $75 million in quarterly adjusted EBITDA in Q1 2014 as detailed in the bridge on page 10 in our supplemental financial presentation.

Specifically we expect quarterly increases in EBITDA to be achieved in the following; $13 million to $15 million from TAD bath tissue, $9 million from the elimination of transition costs, $5 million from the reduction in major maintenance and $7 million to $8 million from paperboard volume and pricing increases, and lastly $3 million to $6 million in cost savings programs.

So while we anticipated most of the challenges we discussed today, we did not anticipate for counts to the length and extent which they occurred. We now have a handle on these challenges. We're proud that we have loyal customers wanting our product and a great group of employees that are empowered to meet our objectives. We remain confident in the asset of our business, both our employee assets and our hard assets and thank you for your continued confidence in our business.

Finally, we will be attending the Bank of America/Merrill Lynch conference on May 8 in Boston and the Oppenheimer 8th Annual Growth Summit on May 14 in New York. We hope to see you there and thank you for listening to our prepared remarks and we will now take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Graham Meagher from TD Securities.

Graham Meagher - TD Securities

Just a couple of questions. I guess first one on the consumer tissue side, you know retail tons at 77,000 this quarter, that’s up quite a bit from last quarter. How much of that was Shelby and how much of that was just improved demand from the conventional side?

John Hertz

Graham, how are you? This is John. There were very low shipments of actual Shelby TAD in the quarter. So it was, I would say, 99% conventional tissue.

Graham Meagher - TD Securities

Okay, great. And then may be just one for Linda. Just think about the sales process for Shelby and 13,000 tons produced by this point, but how was the sales process going with your existing and new customers?

Linda Massman

Yeah. I would say the sales process we feel very confident about how we’re progressing. Our sales team is obviously working very hard in a marketplace to ensure our customers are ready to go with the new products and of course they are also continuing to bring on new customers. So I’d say we’re feeling very confident right now.

Graham Meagher - TD Securities

Got you. And then may be just last one sort of on that line, in the bridge on page six, where you have talked about SG&A cost being up in the Consumer Products segment noting higher selling in TAD bath tissue marketing cost. Is that sort of a one-time thing to get yourself into customers or is that promotional activity, how should we think about that number?

Linda Massman

Graham, I think I would say it's probably a bit of both. Clearly we have a pretty aggressive build up taking place right now, which would clearly increase our cost, but those costs still remain as we continue to take care of our customers and are looking for new business. So it is actually a little bit of both.

Graham Meagher - TD Securities

Okay, great. Thanks very much.

John Hertz

Thanks, Graham.

Operator

Thank you. Our next question comes from Steven Chercover from D.A. Davidson.

Steven Chercover - D.A. Davidson

Thanks. Good afternoon, everyone. First of all, I think you normally give us your pulp purchases and average price; did I miss that in this quarter?

John Hertz

You mean our -- we have before previously given the sale of pulp and average sales price, because it’s actually diminished number and it's our intention to use it all up, internally we start doing that.

Steven Chercover - D.A. Davidson

Okay, got you. And I guess we’re trying to sort that, I guess this is three for you John to see philosophically where you stand, we didn't do a great job and sort of putting your guidance from the last conference call, but do you have a rule of thumb on where you might think that it's prudent to issue a prerelease if there is going to be such a substantial miss to EPS?

John Hertz

No, (inaudible) I mean we don't actually give guidance. And if we move through the quarter and we looked at the range of where the different analyst estimates were towards the end of the quarter, we were at the low end of that range and then finally through the closing of the books, we ended that being lower than that. So at that point, our focus was on making sure we understood what happened and so there was a big discussion with you that we had completely understand situation to be able to explain how we are going forward.

And so we don't give guidance, the any pre-announcement within that being somewhat of an operational release and so that I don't think we’d be in a position of saying here is what we now think a range of EBITDA would be.

Steven Chercover - D.A. Davidson

I appreciate this slide 10 showing us how you get from the $38 million Q1 run rate towards the $75 million. Can we may be go through these puts and takes and just see which one of them will be impacting Q2, I mean Arkansas is not there in Q2, cost saving programs and how quickly could those materialize kind of phase of in 2 million in ton?

John Hertz

Yeah I mean the cost saving programs what big hitters there are kind of full run rate of the Granger acquisition that we said would be kind of $4 million to $5 million for the year will have more of an impact in the second quarter than in the first quarter, and then Thomaston which you know will start to incur more costs before we execute the benefits of that so we won't really see the full benefits of that until we get in probably the first quarter of next year. Then it’s a bunch of kind of onezy, twozy capital projects largely in paperboard side of the business that we see $100,000 per quarter here, $200,000 per quarter there.

Linda Massman

I think the Arkansas outage is the only one that's fully resolved into the second quarter, the rest I think are going to play out over the course of the year. It will be a part of the transition cost as we said about two-thirds will be resolved in the second quarter, but some will carry over into third quarter or the second quarter.

Steven Chercover - D.A. Davidson

So does that mean $6 million reduction in transition cost in Q2.

Linda Massman

Yes, that will [reduce] that.

Steven Chercover - D.A. Davidson

And similarly $13 million to $15 million in TAD tissue that's gone, right, that's a one time [rift] in Q1.

John Hertz

Well, no that's incremental EBITDA to come once we ramp the TAD bathroom tissue, that's more Q3 to Q4.

Steven Chercover - D.A. Davidson

Got it, that's not just from buying third party tissue.

John Hertz

No, that's all baked into this transition costs.

Operator

(Operator Instructions) Our next question comes from Ian Zaffino from Oppenheimer.

Ian Zaffino - Oppenheimer

As far as the switch from the TAD to the conventional, when were you made aware of that and how does it work as far as the lead time you’re given to make that conversion.

Linda Massman

Ian we talk to customers all the time, so we have continual dialogue and I think maybe the best way to address that question is at the end of 2012 we knew you are facing challenges in Q1 which is why we guided to being down one to three points. I would say early in the first quarter it became apparent that the challenges we anticipated were greater in longer duration than we had anticipated, and I will tell you that we began immediately working on getting us back on track. But the complexity and rebalancing the network as our new customers came online, coupled with the low inventories and bath tissue just were more challenging than I think could have been anticipated at the end of the year in 2012.

Ian Zaffino - Oppenheimer

Okay and then on the $75 million of EBITDA run rate guidance or goal or however you call it, what quarter are we looking at that. Is that an end of 2014 mid-2014 how do you think about that.

John Hertz

We are saying we are coming into 2014 at that run rate so Q1.

Ian Zaffino - Oppenheimer

That would be great. So I guess if we are looking at 2014, it will be somewhat higher than $300 million for 2014.

John Hertz

No I think what we've said is 2014 will be at least $300 million.

Ian Zaffino - Oppenheimer

Well, I guess you really said $75 million per quarter entering 2014, which would mean that you are getting certainly at $75 million per quarter. This gets you to 300 million, I would imagine you are getting maybe some other benefit from some other area, whether it's pricing, whether it's cost savings or something to push through over that 300 million.

John Hertz

Well, I guess we will take that where it comes.

Operator

Our next question comes from James Armstrong from Vertical Research.

James Armstrong - Vertical Research

The first one is could you talk about the parent roll price increased May first. Could you remind us the order of magnitude of that increase?

Linda Massman

Yeah, James, we haven't stated what the magnitude of that increase is, but what I can tell you is that it was on tissue and the machine-glazed parent roll business. We announced it mid-March. We expected to be effective May 1, kind of based on the function of two different things, both a rising pulp market and rather strong demand in the tissue market, and I think the reason is kind of hard to go through the exact increases. Our parent roll business cover is such a broad spectrum of end users from kind of highly specialized, wanting to kind of a more commodity towel business. So that price increase is really varied across those different grades.

James Armstrong - Vertical Research

Fair enough, completely understand. And then switching gears a bit, corporate expense was up sequentially quarter-over-quarter but much of that seemed a one time expense. As we go out through the rest of the year, should corporate expense roughly be the same as what we saw in 2012?

John Hertz

Yeah, I mean I think that kind of call it $11 million to $12 million run rate is what you should expect, it was up in Q1 because of the mark-to-market equity comp. And so if you feel that out, we are actually down versus the fourth quarter. In fourth quarter we happen to have some one-time retirement cost, so I think it all kind of comes back around that $11 million to $12 million run rate.

James Armstrong - Vertical Research

Perfect. And then lastly, could you remind me the maintenance schedule for the remainder of the year, do you have any maintenance in the third and fourth quarter?

John Hertz

Yeah, third quarter, Idaho will be down for major maintenance and we have said that’s going to be 11 million to 13 million.

James Armstrong - Vertical Research

11 to 13, perfect. Thank you very much.

Operator

Thank you. Our next question comes from Lawrence Stavitski from Sidoti & Company.

Lawrence Stavitski - Sidoti & Company

Hi, good afternoon. Can you guys just I guess I don't know if I missed this or I guess can you just elaborate on the increased cost as a result of the lower inventories for the conventional grades? I guess can you just elaborate on what you guys were, what you guys missed there I guess and going forward what you guys project?

Linda Massman

Well, let’s try this way and see if this answers your question, because what we said was about $89 million of cost, transition cost associated with kind of the rebalancing of the network as we bring Shelby up and kind of some of the inventory and those costs were additional transportation costs in product around the country and customer demand, increased changeovers and some manufacturing inefficiencies as we had to changeover of in to try to meet customer demand as well as an upside purchase paper, which is a less lower margin weight around the business. And I’d say those are probably the biggest items. Does that answer your question?

Lawrence Stavitski - Sidoti & Company

Okay, yeah, that is very helpful. I guess the next question would be in terms of a retail and non-retail shipments; do you have any outlook for those would be? And I guess just maybe elaborate on what happen this quarter in terms of the retail and non-retail shipments?

Linda Massman

Yeah, so the retail shipments were definitely very, very robust. And then with regards to the non-retail the tons were down and that was by design to reallocate tons in order to rebuild some of our inventory.

Lawrence Stavitski - Sidoti & Company

Okay.

John Hertz

And we said looking forward that more essentially a little bit flat but down in retail asset by up to non-retail.

Lawrence Stavitski - Sidoti & Company

Okay, great. Thank you. That is helpful. And then I guess going back to the gentleman’s question on the price increases, I know you guys it’s difficult to project them, but would you not rule out any additional price increases, if you see the input cost is increasing accordingly or should the May 1st would that be all for the year?

Linda Massman

Well, I would say that is all we have line of sight to today, but obviously the progress of the year, if market conditions change, we will without a doubt take a look at what is the best course of action is for the company.

Lawrence Stavitski - Sidoti & Company

Okay, got you. And then just lastly the share buyback is about 80% complete in terms of the accelerated buyback and what is taking place, is that so there is the 20% left for the balance of 13?

John Hertz

I know that’s just – that’s for the half that we did accelerate buyback program on, there is also another $50 million of open market transaction.

Lawrence Stavitski - Sidoti & Company

Okay. So there is 20% left in the accelerated buyback and that 50% outside of that.

John Hertz

Correct.

Lawrence Stavitski - Sidoti & Company

Okay, got you. Thank you.

Operator

I would like to hand the conference back over to Ms. Linda Massman at this time.

Linda Massman

Great, thank you everybody for attending the call. We appreciate your support of Clearwater Paper and we look forward to talking to you shortly at our two conferences.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.

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