Cenveo's (CVO) CEO Robert Burton on Q1 2014 Results - Earnings Call Transcript

| About: Cenveo, Inc. (CVO)

Cenveo (NYSE:CVO)

Q1 2014 Earnings Call

May 08, 2014 10:00 am ET

Executives

Robert G. Burton - President, Director and Member of Executive Committee

Robert G. Burton - Chairman, Chief Executive Officer and Chairman of Executive Committee

Scott J. Goodwin - Chief Financial Officer and Principal Accounting Officer

Michael G. Burton - President of Print, Label and Packaging Group

Analysts

Lance W. Vitanza - CRT Capital Group LLC, Research Division

Kevin J. Cohen - Imperial Capital, LLC, Research Division

James Clement - Sidoti & Company, LLC

Charles Strauzer - CJS Securities, Inc.

Albert T. Kabili - Macquarie Research

Operator

Good morning, and welcome to Cenveo's 2014 First Quarter Results Conference Call. Please note this event is being recorded. Today's host will be Mr. Robert G. Burton, Sr., Chairman and CEO of Cenveo. This call is scheduled to last approximately 1 hour. Mr. Burton will speak, and then the call will open up for a question-and-answer session. I will now turn the call over to Cenveo.

Robert G. Burton

Thank you very much, and good morning, everyone. This is Rob Burton, and welcome to Cenveo's 2014 First Quarter Results Earnings Call. Today's call will be hosted by Robert G. Burton, the company's Chairman and Chief Executive Officer, and members of the senior management team.

Before I turn the call over to Mr. Burton, I'd like to remind everyone that certain materials covered on today's call are considered forward-looking and are covered under the Safe Harbor provision of the United States Private Securities Litigation Reform Act of 1995. Also, any forward-looking estimates given on today's call will exclude any effects of restructuring, impairments and other related acquisition charges. For further details regarding these factors, please reference Pages 10 and 11 of the company's press release that was issued last night. And with that, I'd like to turn the call over to Mr. Burton.

Robert G. Burton

Thank you, Rob. Good morning, ladies and gentlemen. This is Bob Burton speaking. And as most of you know, I'm the Senior Manager of Cenveo. I'm also the largest shareholder of Cenveo's stock and a meaningful and growing owner of Cenveo bonds. As in the past, after our investor call today and with our legal counsel's approval, I plan to make a purchase of our Cenveo stock and bonds to continue to increase my ownership in our company. And I've stated this several times that we're continuing to do that on an ongoing basis. And as you know, I've been making these purchases in the open market since we acquired Cenveo in 2005 proxy fight. And I make these statements about ownership because I want you to know that I'm 100% committed and the rest of the management team, who is focused on our future growth and fully understands the importance of achieving our financial goals for this first quarter and 2014, and really the most important year since we acquired Cenveo. Every one of our Senior Executives at Cenveo, to include myself, is purchasing stock through our Employee Stock Purchase Plan. And we're 100% committed, and you say, "Well, why do you say this every time?" I say it every time because I just think it's important. And I think we are very unique, and most companies do not do this. And our people really understand it and do it and they're committed, and I'll continue to list it until someone tells me not to.

So as you know, for the past couple of years, we've been selling non-strategic assets to prepare for this, as we call the new Cenveo that's already started in the first quarter of this year. Also, you're aware that we have acquired certain National Envelope's assets to develop a better $1 billion envelope group. And keep in mind, and I constantly say this, that all of the Cenveo assets that we earn are making money. But we've started to continue to streamline our operations ever since we've been here, but we're focusing on fewer markets and to improve our margins. And we are also streaming our level of senior management in our businesses to realize that there are a lot of smart people that did not necessarily come from some of these segments but could be welcome additions to our team, and we've seen that happen in the print division with outstanding results.

So today, you're going to hear from our Senior Management team that, again, is very excited as we were last time we talked about our future, because the future is here. And we feel very good about our growth plans for 2014. And as I said before, just keep in mind that we've been preparing this year of 2014 for the last 2 years, getting ready for this period of time. So today, on our call, we'll focus on the first quarter results, and you've probably seen those in the press release. And then we'll talk about the outlook for the second quarter and the full year 2014. We also want to update you on all of our businesses and the great progress we are making with our print sales group. And I might just add right now that, that group, our print sales group, were up in sales 1% versus last year. And you say, "What's 1% mean?" Well, that's in light of we closed down 2 plants in the last 6 months. So Mike Burton and Gary Pawlaczyk are doing just a terrific job with that group. And that business just continues to show very good results and you'll hear me talk about it today and as we move throughout the year.

So I'm going to give you my regular report card. And it as it has been in the past, it's got 10 items. Some of the information was in the press release. Some of the information is information that we know and is first-hand information that's come around to us during the last week or so.

Item 1, and you hear this from a lot of companies, our consolidated first quarter results were in line with expectations. Even with the bad weather that we encountered, and we did encounter bad weather. Not only weather that hampered our materials getting to our plant and the product getting to our customer, our employees had difficulty getting to work, and we had some locations that missed several days. But even with that, we were able to deliver what we consider a very good quarter for the start of the year.

Item 2. Net sales for the first quarter were $490.1 million versus $418.6 million last year. And if you look at that, that's over a 17% increase in net sales for the quarter, and that's outstanding. And people will say, well, that -- part of that's from the acquisition and part -- I don't care where it's from. It's up 17%, and that's outstanding.

Item 3. Our adjusted EBITDA for the quarter was $36.7 million, which is up 10% from Q1 of 2013.

And Item 4. For the first quarter, we delivered EBITDA margins of 7.5%. And most of you know that the first quarter is our lowest margin quarter, and our margins continue to increase for the full year as we move through the year. Our company goal for margins is 9.5%. I'd hope that we can move closer to 10%, and a lot of that is going to depend on the integration of NEC and how quickly we can get some of these things done.

Item 5. Our integration plans with National Envelope assets were on schedule for the quarter as we continue to do a better job in managing our envelope group. Rob Burton will give you a more informative report on the NEC integrations later on in our presentation.

Item 6. Our print operations continue to deliver improved results and upgraded sales management. We continue to look at improving the quality of the managers that we are hiring. And a lot of them come from different backgrounds and have just delivered outstanding results to us. And we continue to deliver big-time sales success with this group. Now we don't really put out press releases on these major sales and we don't do it because the competitive attention it draws from our sales staff, and a lot of companies will actually come and try to hire those sales people to take that business away from -- but we continue to do extremely well, and on the other hand, we'd have to hire people to write the press releases so we just don't do it.

Item 7. Our Salesforce.com tool continues to be a major success for us as a company. I would encourage all of you, companies and people who have sales individuals, this is a tool that is outstanding. I'd only wished that we had something like this 20 years ago because right now, we've ranked almost the majority of our sales people on their performance for certain criteria. We're finishing up in the envelope group as we speak right now. But it just reminds me of when I first started working for IBM and I was a salesperson in Chicago. And we didn't have a Salesforce.com. We had a chalkboard. And they had listed your name on the chalkboard, and you just wanted to make sure you weren't down at the bottom of the list because if you were, you probably wouldn't be around next month.

Item 8. As I stated during our last call, we continue to have envelope paper price discussions with our customers. Our paper price was increased 5%, and each 1% of price increase, as I've said before, over 5% is $10 million of EBITDA for Cenveo. So you know how important it is for us to get these price increases. We have been able to achieve our goal of meeting with our customers and passing on these increases for Phase 1, but we got 2 price increases. The second one came shortly after the first one. And we've been hit with these 2 price increases, and we're now working on implementing these with our customers. And that is a challenging discussion to have with customers. And I've been on the publisher side and I know what it looks like, but it's not an issue of will Cenveo pass these increases on to our customers? We have no other option. We are passing these increases on to our customers, and we're having some very good success in doing this. And if the economy continues to be strong, I would not be surprised to see some type of paper allocation in the future. And if that does happen, we, as a $2 billion customer, is going to be first in line and be able to have no issues whatsoever. And as a publisher, as I said, I was in that business for some 20 years, we never had allocation problems because we had excellent relationships with our vendors, as Cenveo does today.

Item 9. During the first quarter, we all faced major weather issues, but we were able to still grow our numbers for the first quarter. We saw slight organic revenue growth from our envelope group, print and packaging segments. Our label group performed well, but was impacted by the weather events, and that's improved better. Direct Mail continues to perform well from credit card mailings.

And Item 10. The integration of National Envelope is moving along at a rapid pace with several of the planned consolidations now underway. During the quarter, past quarter, we build up our inventory to support this consolidation and ahead of the announced commodity price increases. And this build up hurt on our cash numbers for the quarter, but we expect to see a benefit of this strategy as we progress to the back half of the year.

So we, if you listened to those 10 points and just the focus of what we're trying to accomplish and what we know that this is the year for us and we have the saying that there's no excuses for 2014. This is the year that we deliver on our promise to you. And that is my part of the report. And as we have in the past few quarterly calls, we'll follow the same 1-hour format, but it'll be shortened for more Q&A at the end of the call. Today, Rob Burton, our President, is going to give you an update on NEC, on the integration plans and our progress in that area. And then I'm going to come back to Scott Goodwin, who is going to report on the financial highlights for the first quarter. And then what I'll do is come back and talk about the guidance for the second quarter and for the full year. And with that, I'm going to ask Rob Burton to give you an update on NEC? Rob?

Robert G. Burton

Okay, thank you. So today, I'm going to provide some more details into our Q1 operations and spend some time walking through the NEC integration process so far and some of the 2014 initiatives that we're working on. As we've spoken about before, the first quarter came in ahead of -- slightly ahead of our expectations, driven by strength across our print, packaging and envelope operations, offset by disruption caused by the weather that contributed to higher energy costs and lost productivity.

We are very happy to report that overall we saw organic growth of just under 1% for the entire company during the quarter. Our print business showed organic growth despite 2 facility consolidations that impacted sales, and we do feel that our strategic focus on key verticals and recent management focus is beginning to yield dividends that we expected.

As discussed, credit card mailings, again, showed growth during the quarter against a very strong comp from last year. We remain encouraged by what we're seeing here in Q2 and in the back of the year on the credit side as well. The label business performed well. However, this business was impacted by timing plus weather issues that caused some customer disruption timing patterns here in Q1. We have seen a pickup in April to date. As mentioned before, overall higher-than-usual energy costs driven by high natural gas prices during Q1 impact the company by a few million here in the quarter across our Northeastern plants. We do hedge, however, given how cold it was for so long, we did burn through the hedge here during Q1. We do expect that to sort of normalize here in Q2 and the rest of the year.

Very importantly though, we have seen improvement in our average selling price across our envelope operations. Our average selling price is up 5% through March on the envelope side. We expect this trend to continue as increases continue to roll in due to timing of customer contracts. However, we have expanded our supply chain globally to optimize our cost structure and to prove our inventory balances going forward.

On the National Envelope integration, we are on track to achieve a $30 million run rate by the end of 2014 for EBITDA expectations. We have realized little of the consolidation's benefit in our P&L to date as the consolidation efforts now underway during the seasonally slow second quarter to allow for this benefit to occur to us. If anything, we have accelerated the timing of our plan to complete nearly all of our facility closures during the summer period. We're in the process today of consolidating 5 legacy NEC facilities into our platform. This is being done to align our production with customer demand and to take advantage of our vast geographic footprint to remove significant amount of fixed costs. We're moving out of over 1 million square feet over the next 2 months into a much smaller footprint without significantly impacting our customers. The benefits will begin accrue to us in the second half of this year.

As discussed, we built raw and finished good inventory for our customers during the quarter in advance of our consolidation efforts and ahead of several raw material increases. We want to be able to service our customers with minimal disruption over the next few months. As we do go into this transaction, we had to invest over $30 million into building NEC inventories since September of 2013. We believe now this inventory ramp is mostly behind us as we sit here today, and will begin to reverse itself later this year, especially as the consolidation efforts continue.

We feel great about our platform once we are complete. And it'll strengthen our leadership position in our envelope business by being able to nimble and offer our customer service and quality that's truly unmatched in our industry.

Last, I want to speak on a few 2014 initiatives that we're working on, but before that, we feel very good that the hard work that we've done to date will continue to be reflected by the improvement that we've seen starting in the Q1 results. And this will ramp for the remainder of the year as the cost actions are beginning to be implemented and realized. We are encouraged by the volume trends that we're seeing to date and the normalization that we're seeing today in our business after weather impacts that disrupted our first quarter.

We are actively monitoring capital markets and we look to take advantage of lower interest rates and extend maturities if the opportunity presents itself.

Operationally, we are dealing with 2 uncoated free sheet increases since September of last year. And as evidenced by our average selling price, we have passed on all the first increase. We are actively monitoring the market to ensure that our purchasing leverage is being used to drive down the cost of any materials that we have. And we have set the global supply chain network to aid in these efforts.

Strategically speaking, we have seen a lot of consolidation in our industry as of late. And we think that this trend will continue in 2014 and beyond. We have been exploring several strategic options for several of our operations for a while. We have been deliberate in our valuation of strategic options to ensure that we're looking to create value for our shareholders.

While I cannot share the specifics, we and our advisors have been focusing on several different alternatives that we believe could create value for our shareholders and hope to complete this review in the very near future. We fully expect Cenveo to a be part of any industry consolidation going forward and continue to look to position our company for future growth and higher-margin businesses going forward.

As I conclude my comments, we here around the table feel very excited about our progress to date in Q1, and we believe that 2014 will be a much stronger year for Cenveo as our envelope integration, continued growth in Labels and packaging business and improvements in the print business will drive much stronger results.

However, please be reminded that much of what we're doing is not going to be reflected entirely in 2014 numbers. While we believe that we will show improvement each quarter this year, our run rate exiting this year will be significantly stronger as we complete our integration efforts, as well as cycle through the NEC inventory build and continue to pay down our higher cost debt. And with that, I'll turn it back to you.

Robert G. Burton

I might add that we have -- this is not just a NEC integration with the envelope group. We have used resources throughout our entire company. All the support corporate people that we have who has certain skills have been part of this. But Mike Burton has definitely have been a major part of this group, and Scott and his finance group. Everyone has pitched into this because we know how important it is and how important the deadlines are that we face. And that's the reason we feel very good about the timetable and where we stand with that. So with that, I'm going to ask Scott to give the financial review. And Scott has been doing a terrific job for us, and been wearing about 5 or 6 hats, and we'll let him report on the quarter now. Scott?

Scott J. Goodwin

Thank you, Mr. Burton, and good morning, everyone. Today, I'm going to review our first quarter 2014 financial results, provide select financial highlights from the quarter and briefly discuss a few items of importance as we move into the second quarter. Before I do, I think it's important to remind everyone that the results being discussed today include National's operating assets in 2014 and exclude them in 2013, given National was not acquired until September of 2013. Additionally, the results for both periods exclude the custom envelope division, which was classified as a discontinued operation in all periods presented or discussed given the divestiture at the end of the third quarter. Finally, our results include the separate disclosure of our print and envelope segments and our recasted label and packaging segments for both periods being presented or discussed.

Turning to the key highlights for the first quarter operating results. Net sales for the first quarter were $490.1 million compared to $418.6 million in the prior year. The increase in net sales was primarily due to the acquisition of National's operating assets. Our envelope sales also experienced an increase in average selling price across our direct and office products businesses, which were offset in part by volume declines in our office products business. Our print sales increased 1% from the same prior year period despite the 2 plant closures in the last 6 months. Excluding those closed locations, our print sales were up in excess of 3%. Our Label and Packaging sales were down nearly 4% due to weather-related impacts to several of our large customers and ordering regions within our label operations, and these disruptions were offset in part by a large customer win within our folded carton packaging business.

Our gross profit was up $8.3 million for the quarter, driven by increased gross profit from our envelope and print segments. However, our gross margin continued to be impacted by National's lower gross margins. As a result, our gross margin declined from 15.9% in the prior year to 15.3% in the first quarter of 2014. We expect improvement in National's gross margin as we move throughout the year given our facility consolidation plans accelerate in the second and third quarters.

SG&A expenses were up $7.1 million for the first quarter as compared to the same prior year period primarily due to the incremental SG&A expenses related to National, as well as one-time integration costs. Despite the onboarding of National's operations, our SG&A expense, as a percentage of sales, was down almost 0.5% in the first quarter of 2014 compared to the first quarter of 2013.

Restructuring, impairment and other charges for the first quarter were $5.9 million compared to $4.2 million in the prior year. This increase was primarily due to the consolidation of our West Coast envelope operations in connection with the National integration plan, as well as one additional plant closure in our print operations.

Interest expense for the first quarter decreased $1.7 million to $27.9 million from $29.6 million in the prior year. This decrease was primarily due to a lower weighted average interest rate of 7.8% in the first quarter of 2014 compared to 8.7% in the first quarter of 2013, which is purely a result of our 2013 refinancing activities.

Turning to our cash flow highlights for the quarter. We experienced a use of cash of $3.4 million from our continuing operating activities in the first quarter of 2014 compared to a source of cash of $1.8 million in the first quarter of 2013.

The primary drivers of our working capital changes this quarter were the inventory buildup related to our National integration plans; procuring uncoated free sheet paper supply in advance of price increases; and the effect of the 7% price increase that took effect during the quarter. Additionally, we paid in excess of $10 million to our inventory consignment partner in connection with the National transaction, as the majority of the usage we absorbed in the fourth quarter of 2013 became due and payable during the first quarter of 2014. We continue to expect positive working capital trends in 2014 as we integrate National and focus on our working capital initiatives. However, our trending may continue to change as we manage through various business decisions, such as procuring supply in advance of price increases and reducing our envelope manufacturing capacity.

Cash paid for interest was $25 million for the first quarter of 2014 compared to $28.1 million for the same prior year period. Cash restructuring and integration was $5.8 million for the first quarter of 2014 compared to $4.3 million for the first quarter of 2013. Cash paid for pension and post-retirement plans in the first quarter of 2014 and 2013 was essentially flat at $3.3 million and $3.4 million, respectively. Cash paid for income taxes for both the first quarter of 2014 and 2013 was $0.5 million or less. Cash flows related to investing activities for the first quarter of 2014 reflect net capital expenditures of $8.8 million and a strategic investment in label technology. Cash flows related to the financing activities for the first quarter of 2014 primarily reflect the funding of our working capital and our capital expenditures for the quarter, as well as transaction costs to complete the amendment of our covenant compliance measure on our term loan facility from a total leverage covenant to a first lien covenant.

We continue to monitor the level of suppressed capacity under our ABL facility, as well as our term loan --, unsecured term loan position. However, as we've communicated previously, we will continue to monitor our cash flow requirements necessary to fully integrate National into our platform before addressing these 2 areas within our capital structure.

Lastly, in regards to the capital structure, we believe the leverage loan and high-yield debt markets remain robust. As such, we may pursue additional refinancing opportunities to achieve any one of, or a combination of, reductions in our future cash interest expense, the extension of our existing debt maturities or greater flexibility to address our debt instruments as they become callable in the future.

In closing, we continue to feel positive about what were are seeing across a number of our product lines and we believe that we should be able to capitalize on a few opportunities in the current marketplace that may further contribute to 2014. We believe the integration of National continues to be on track and will accelerate over the coming months given our decision to exit a mass release arrangement during the bankruptcy process with supported multiple facilities within National's operating platform.

And with that, I'd like to turn the call back over to Mr. Burton.

Robert G. Burton

Thank you, Scott. Now let's talk about some guidance. As you know, last year, we did not give any quarterly guidance because of so many moving parts of selling assets and acquiring National Envelope's assets. So as I did last quarter, I'm going to give you our full year guidance and talk more about the second quarter, and we'll continue to operate this way during the rest of the year. As I said, the same message the last time.

We plan to meet at the end of 6 months, and I said this the last call, and to really see where we're at versus the $190 million versus the $200 million EBITDA. And a lot of that's really going to depend on where we're at on the different parts of the integration. But this will allow us to access opportunities to increase our outlook or keep it the same, and we're definitely not going to lower it, that's for sure. But to assess where we're at, and I promise you we'd do that, and I just wanted to mention again, and we'll do it at the end of the second quarter.

So if we look at the full year guidance, I'll take you through it the first time and then I'll run back through it again just in case you want to take some notes. On the sales side, we still see that $2 billion number as a good number versus $1.8 billion last year. And that $2 billion would represent 12.5% growth versus 2013. We look at EBITDA, we're still at $190 million. That's 13.8% growth versus last year of $167.3 million. And the margins, we still have them at 9.5%. We hope to do better than that. Last year, we ended the year at 9.4%. And again, I said that the margins will just continue to increase as our revenue does through the year. Capital expenditures of $30 million is still a good number. And the cash flow from operations of $60 million is a good number that we want to stay with. So again, just to go over those briefly, sales at $2 billion; EBITDA at $190 million; margins at 9.5% and growing; capital expenses, $30 million; cash flow, $60 million. That's where we’re at, and we have not changed any of the numbers since our first quarter.

Now let's talk a little bit about the second quarter. Last year, in 2013, we delivered $36.8 million of normalized EBITDA for the second quarter. So you're going to say, what's this word normalized mean? I cannot even pronounce it, let alone know what it means. We received a $2.7 million insurance check for an equipment fire we had in our Rex organization. That check was treated as an insurance gain in the second quarter. I did not count that check as part of our operating results when we built our 2014 second quarter budget. We hope to be -- to give you a better feel, we hope to be in the low- to mid-$40 million range for the second quarter. So what does that mean? If you took a number of $42 million, that would reflect the 14% growth versus the $36.8 million of EBITDA. Our April results, we just have closed them. They're pretty well on budget. May and June will be big months for us, as they always are, but we feel that we have the appropriate backlog and new sales to be in that low- to mid-$40 million kind of range for the quarter. And I'm sure not expecting any weather issues as we move forward to the back part of the quarter. But no matter where we end up at, we feel very comfortable with our full year EBITDA forecast of $190 million, because every day, as we move toward the end of year, we're making better cost savings decisions, we're making decisions that's improving our margins and making us a better company. So if we happen to have some kind of problem, we can make it up very quickly. But I'm not anticipating that, I would say right now, to be in that low- to mid-$40 million range for the second quarter would be a good look for us right now. So that's the forecast for the full year, which not -- has not changed, and our look for the second quarter, the 14% increase, which I think is pretty good.

And in closing, I'd like you to bring up another comment that we are very proud of this recent Annual Report proxy vote for Cenveo Directors and the vote on executive compensation. This information has been -- has become public by way of a recent filing that most of you may not have read. And I thought, as investors, you would appreciate getting some basic information on our investor call. Just a couple of major ones, to give you a feel for what that vote really ended up at, the average percentage vote for all of our directors was 88%, in favor of. And this is a good number. I look at a lot of proxies and know a lot of different companies, this is a good number compared to a $2 billion New York Stock Exchange company. And I was very appreciative and humbled by the 95% personal vote for myself, and I promise that I will work harder and smarter to make 2014 the kind of growth year that we've promised you for several years.

The executive compensation vote was just the opposite of what it's been in the past. The vote was 63% in favor and 37% against. And we're very proud of that positive vote and of the fact that the 63% this year is just a reflection of that -- of what we're trying to do with this company. So I thought you'd be interested in those. If you already have, I apologize, but I want them to -- to mention them on this call.

And just on summary on that, we, as directors, review and discuss this results and try to improve each year and appreciate your vote of confidence. And we know that confidence only comes with results. And we also know that we have gone through some times here since we started and where we're at today, and this is our year. And I say it and -- every day with our management team and everyone is committed, we will deliver what we have committed to. And we have our best talent working on it, and I feel very good about our outlook for the rest of this year.

So with that, operator, we can have some calls. We tried to get through this as quickly as we could so could we have some calls here at the end. So why don't you -- operator, why don't you get the -- get set up, and we'll do some Q&A, please.

Question-and-Answer Session

Operator

[Operator Instructions] And the first question comes from Lance Vitanza.

Lance W. Vitanza - CRT Capital Group LLC, Research Division

I had 2 questions, I guess. The first is on the UFS price increases. We understand there was the second hike at the end of March. I think the priors were looking for another $50 to $70 per ton. And I'm wondering -- it sounds like that increase has stuck to at least some extent. But could you provide a little bit more color on that and specifically how that impacts your business? I'm just wondering how sensitive EBITDA is to, say, a $10 increase in UFS pricing. And then my second question is just on the strategic investment in the label technology, Scott, that I believe you mentioned. That sounds interesting. I'd love to get some more color on the nature of it and how you expect to monetize that investment?

Robert G. Burton

It's Rob. I'll handle the uncoated free sheet question. Yes, the mills are attempting to pass the second increase on. I think the total attempted is about $70 a ton. It has been working its way through the market yet. I think it's still not fully accepted. If you look at sort of the RISI indexes, I think maybe 1/3 of it's been accepted to date. Obviously, we are working to mitigate that cost not only for us, but for our customers as well. However, I think it's a pretty tight market, as we talked about, and there potentially is a third increase down the road, if not allocations. So whatever dollar -- 1% increase for us is worth $10 million in terms of revenue. So I think we fully anticipate to pass 100% of that increase on and we've been successful doing it the first time around and we feel we'll be at least as successful doing that the second time around. But it's out there. We've gone to our customers already. So it's out there in the marketplace and everybody is impacted -- being impacted by it right now. But we feel very confident in our ability to pass it on.

Robert G. Burton

Bob Burton. As I said, earlier, we track this daily. And we have 100% commitment from all our sales managers and our sales people. And we have this pretty well stripped down that we need to get these increases and we're getting them. And we don't want to go beyond that kind of discussion right now because there is some discussion about what all this really means. But I just want you to know, from our standpoint and our company, we are out there implementing those price increases.

Robert G. Burton

Okay. What's the other one? The land?

Scott J. Goodwin

Lance, in terms of the strategic investments, we have been making investments over the last 3 years, small investments, into a liners company that is working on liner-less label technology for multi-channel purposes. But if you think about when you go into your supermarkets or something and the label comes out with the liner attached to it. And if they peel off and they stick the label onto that, this actually would allow for no liner. So less waste in the production within our customer's platform. So over the last 3.5 years, if you go back through the cash flow, you see there's about $4 million that we've invested in this. It's a little bit over a 10% ownership. So...

Operator

Our next question comes from Kevin Cohen with Imperial Capital.

Kevin J. Cohen - Imperial Capital, LLC, Research Division

I guess in terms of the strategic review, not to touch on anything over the near term, but after any potential transactions over the near term, are there any other sort of further strategic reviews underway, or would that potentially or likely conclude that?

Robert G. Burton

This is Rob. I think -- we like most of our business. We like all of our businesses, to be honest with you. I think -- each one is doing well for us, each one is profitable and each which one has opportunities to grow. I think we know where we want to be longer term. We've focused on the packaging labels as sort of one area we want to be at. We are the 800-pound gorilla in the envelope market given sort of our market share up 40, 50 percentage points depending on sort of the end vertical. But yes, I think we sort of -- we're evolving and we want to know -- we know where we want to be, and who knows where that sort of course takes us here. But I think we've got a lot on our plate right now between the review and also via the integration efforts at National. I think once you get past that, we'll probably kick back and take a hard look at it again. But for now, I think we're focused on what we we're focusing on.

Kevin J. Cohen - Imperial Capital, LLC, Research Division

That's helpful. And then in terms of the potential incremental cost takeout, you mentioned, I think, consolidating another roughly 5 or so plants from NEC. What kind of cost savings might that translate to?

Robert G. Burton

Well, again, I think part of that was with the initial consolidation plans. I think what has changed is the timing of it. I think we sort of had a multiple year sort of consolidation plan. And I think some things changed in terms of our ability to negotiate with certain landlords, and we want to get as much cost out of this as soon as possible. So there's some incremental costs, I think that most of it was kept within sort of in our initial plans. And again, we're trying to be as aggressive as possible in taking as much cost out as we can. So I think we're feeling good that there could be some extra costs there, but we've got to get there first.

Kevin J. Cohen - Imperial Capital, LLC, Research Division

And then, Rob, in terms of the energy hit that you mentioned earlier in the call, are you able to quantify what that might have been in the first quarter?

Scott J. Goodwin

Yes. I mentioned in my remarks that it was a couple of million dollars. So it's a couple -- $2 million to $2.5 million. This is mostly driven by higher natural gas costs in the Northeast. We -- a lot of people got killed up here with that just being so cold for so long. And I believe that we actually hedged -- we hedged almost close to 100% of it. But when it's that cold for that long a period, we ate right through it.

Kevin J. Cohen - Imperial Capital, LLC, Research Division

Okay. I got in a little bit late. And then lastly for...

Robert G. Burton

Well, we covered that. Just so you know, we covered that expense.

Kevin J. Cohen - Imperial Capital, LLC, Research Division

Right. We dialed in just a few minutes late to the call. I guess for Scott or maybe for Rob, the cash restructuring outlays over the remainder of the year, what should we still -- what should we model in? I know there's prior guidance. I'm just wondering if that's changed or not?

Robert G. Burton

No, I think we're still in that $15 million to $20 million range that we talked about. I think what you'll see, Kevin, is probably it gets a little more intensive here in the second and third quarter as we get out of these 5 locations. So what probably was a little bit more streamlined, if you will, over the year, probably accelerates a little bit more heavily here in Q3 and Q4. So -- I'm sorry, Q2 and Q3.

Operator

Our next question comes from Jamie Clement with Sidoti.

James Clement - Sidoti & Company, LLC

I don't know, Scott or Rob, if you want to take this, but as you look at the high yield and leveraged loan markets in the -- with the backdrop of a tremendous consolidation in your envelope platform. I mean, if you look at those arguments -- those markets and argue that maybe you'd want to do something sooner rather than later. But on the flip side, if you're taking out 1 million square feet of envelope capacity, you could also make the argument that you want to print those quarters, see the margin improvement and the profits associated with that. Can you give us a sense of how you're looking at potential refinancings and balancing those 2 things?

Robert G. Burton

Yes, again, we monitor that on a daily basis. We've been, as a management team, very, very opportunistic over the course of last 3 or 4 years. And I think we had a been a team that tends to be more aggressive than not in terms of taking advantage of openness in the capital markets. If you look at where our bonds are trading at, they're all above par for the most part. So I think the market is telling us one thing here in terms of what they believe the company is sort of valued at and what potentially we could be saving here going forward. So we're actively monitoring it. However, we got a full plate. So in terms of acquisition-related integration and just running the business on a day-to-day basis. So we are monitoring it. And it's sort of a, yes, if it makes sense and creates value for our shareholders, we will do it.

James Clement - Sidoti & Company, LLC

Okay. Changing gears just a little bit. I wanted to ask about envelope market fundamentals. It seems like -- and specifically, Direct Mail. It seems like financial institutions, who obviously have been a really important customer group for you all over the years. It seems to have held up better than some other industries just based on this earnings season. Can you talk a little bit about that? Is that accurate in your opinion?

Robert G. Burton

Well, the Direct Mail market in Macquarie is strong. And it's a function of our customers, you're right. We have the best customers in the business and they normally do better than other kind of customers. So I don't think there's any special magic about it one way or the other.

James Clement - Sidoti & Company, LLC

Okay. Or do you think there are -- do you think financial institutions, Direct Mail for them is almost a completely different animal from other Direct Mail customers or there's some real similarities there as well?

Scott J. Goodwin

I think, if you go back in time, Jamie, you got to remember what happened to a lot of financial service customers here about 2 years ago when the government intervened in their business and sort of put them out of the mail stream for about 1 year. So they are coming back and it is a cycle. It is a cyclical type of business here.

James Clement - Sidoti & Company, LLC

You also had consolidation, right? I mean, you also had consolidation among customers. So they bought customers as opposed to go out and market for them, right?

Robert G. Burton

Yes, they have to grow their business, too. So they find mail to be a very advantageous way of acquiring customers. So we see that continuing. We haven't seen that change in terms of increased postage, increased mail costs, increased everything else that we're seeing in this marketplace. It continues to be a strong ROI for them. So we're seeing that continue to play out in our marketplace right now. And again, we're coming up against the political season. That could drive incremental volume as well. So we're feeling pretty good about the mail business right now.

Robert G. Burton

Jaime, we track that almost daily. With some of these big accounts, monthly on the other reports. And we feel strongly, that's going to be part of our future. It's not going away.

Operator

Our next question is with -- from Charlie Strauzer with CJS.

Charles Strauzer - CJS Securities, Inc.

Just picking up on Jamie's question about the refinancing and the $60 million cash flow guidance you gave, Bob. Is that -- if you did do a refinancing, does that factor in any cash kind of cost for refinance? Or is that something that you'd have to take into account later?

Robert G. Burton

I'm just trying to recover from the last ones. Please, I mean -- I hope not. I hope not. I tell you that $60 million is like in stone, in stone. And I don't know how these other guys just fell out of their chairs, but I don't care. That $60 million is locked in. Do you want to respond?

Michael G. Burton

Yes, Charlie. I think the $60 million that we talked about is from cash flow from operations. So if we were to go out and refinance, that would end up down in the financing side of the house. Obviously, we'd see some benefits from cash interest. And I think we've done a pretty good job here over the last couple of years. What was north of $110 million of cash interest could be -- if something were beneficial here, low 90s, if not, maybe even touch on the 80s. We feel pretty good about that and kind of getting that 15% paper on the unsecured term loan out of the way as well. So that's kind of the direction we're moving, if you will, from a refi perspective.

Charles Strauzer - CJS Securities, Inc.

Great. Thank you for clarifying that. And then if you look at the -- you had mentioned that the weather impact kind of hit the packaging and labels side a little bit in Q1. Have you seen that rebound and kind of what are the trends in that side of the business?

Robert G. Burton

Yes, definitely. It did hit them. And all you got to do is look at the section of the country they were in. And in those labels, when that slows down, it makes you very -- it's a little scary. But we've seen a pickup and we feel pretty comfortable. Mike, you want to make a comment on that?

Michael G. Burton

Yes, April. I mean, end of March and February, in particular, were light, primarily driven from the weather. But April started off strong, and it has continued right through early part of May. So we are absolutely seeing a kickback in a positive way.

Operator

Your next question comes from Al Kabili with Macquarie.

Albert T. Kabili - Macquarie Research

First question. It's just on the envelope pricing. And did the first quarter -- I know given contractual timing of things, pricing can be delayed or take some time. Did the first quarter -- how much of that is sort of fully representative of the current kind of 5% pricing? So in other words, if you sort of adjusted for normalized, or what is today's current input cost, and you sort of have full -- you had the current pricing sort of fully in for the first quarter, would that have made your envelope business results higher? And so we will see some additional benefit from pricing in the second quarter, just given timing? Or is the first quarter pretty representative of the current sort of run rate of profitability in the business?

Robert G. Burton

Well, if I hired 10 people, maybe I could answer that question. But I would tell you, I would think it would be pretty similar to what you're seeing. It takes a while. You're right. Customers, we have certain kind of relationships with them. And when we try to get these price increases, they don't all just go the first day. It takes more than 1 or 2 meetings sometimes. And we've been in the process of that. And some of those customers are people that would be hit with 2 customers or 2 price increases. So it's a battle and -- where we don't have the final results. But I would tell you right now, what you're seeing is a mirror of what hopefully will get better as we move throughout the year. You want to add anything?

Robert G. Burton

Yes, again, not all of the prices went up January 1. It's an evolving, it's an iterative cycle that we have to go to -- again, that we're working with our customers on. So again, I think things will improve as we cycle through the year. We'll take one more question, please.

Albert T. Kabili - Macquarie Research

I guess the second question is just on how you're feeling about your combined share with National Envelope? Is there any surprises on the competitive front, is your share kind of trending -- how was your share trending versus your initial expectations with National Envelope?

Robert G. Burton

Well, it's growing fine. I mean, National Envelope -- some shares. There is no share. We're now Cenveo. It's one company and we're looking at that and we're working together as one company. And we sort of moved away from what they had and what we had as making one company because of the consolidations. And I think the reports you're seeing and heard today is what we have.

Robert G. Burton

Yes, no. I think from my perspective, National had a great customer base. We're glad to have them on board with their customers. And I think what you've seen here in Q1 is that those people are coming on board with us.

Robert G. Burton

I don’t think -- if that's the question, are we having difficulty? No, we're not. We put a lot of time and effort. We got a group looking at the whole situation on where we want to be location-wise and management-wise. When you acquire these companies, you hope that you're going to have people who can step in, and we sure hope that happens. And it sort of like everything else. We hope to get the best of the best. And that's what the process is that we're going through and still going through right now. So it's probably a little earlier to answer those questions. Maybe at the end of the second quarter we can have a better answer for you. And if you call in and I'll try to answer next time.

I think that's it. Ladies and gentlemen, thank you very much. And if you have any other questions, feel free to call Rob directly. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You will now be disconnected.

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