Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Roger Stone - Chairman and CEO

Andrea Tarbox - CFO

Analysts

Steve Chercover - D. A. Davidson

Michael French - Morgan Joseph

Rob Young - William Smith & Company

Adam Ritzer - CRT Capital

Eric Hollowaty - Stephens Inc.

Fritz von Carp - Sage Asset Management

KapStone Paper and Packaging Corporation (KS) Q3 2010 Earnings Call November 4, 2010 11:00 AM ET

Operator

Welcome to the Third Quarter 2010 KapStone Paper and Packaging Corporation Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

The information in this earnings call contains certain forward-looking statements within the meaning of Federal Securities Law. These statements reflect management's expectations regarding future events and operating performance and speak only as of November 4, 2010. These forward-looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to differ materially from those expressed in, or underlying, any forward-looking statements can be found in the company's filings with the Securities and Exchange Commission, such as its annual and quarterly reports. The company disclaims any obligation to revise or update such statements to reflect the occurrence of events after the date of this earnings call.

I will now like to turn the conference over to your host Mr. Roger Stone, Chairman and CEO. Please proceed.

Roger Stone

Good morning and thank you for joining us. As usual Andrea Tarbox, our CFO is with me. It is always nice to have this call, when things are turning out as planned. We think we had an excellent quarter with record production, earnings and EBITDA margin and although we are running well and doing well over time we think we can do better.

Now, Andrea will discuss our numbers and then I will return with some closing comments before opening the phones for questions. Andrea?

Andrea Tarbox

The presentation for today’s review of third quarter 2010 is located on our website www.kapstonepaper.com in the investor section for those of you who haven't already located it.

I know you are going to be disappointed because I don’t have any housekeeping items that you would need to better understand the numbers this time. The numbers clearly speak for themselves so let’s just dive into KapStone’s results for the third quarter of 2010.

Starting with slide 3, to summarize our third quarter it was a record breaker. Third quarter of 2010 results for KapStone broke quarterly records for net sale, adjusted EBITDA, production, net income and adjusted net income.

Higher prices and improved product mix drove net sales higher by $37 million, or 22% for the third quarter of 2010 versus a year ago to a record $207 million. Average revenue per ton was $614, up a $119 per ton or 19% versus a year ago on both higher prices and improved product mix.

Record adjusted EBITDA for Q3 2010 was $39 million, up $31 million or 388% versus a year ago, when adjusted EBITDA was $8 million. Sequentially, adjusted EBITDA of $39 million in Q3 was up $14 million or 56% compared to $25 million earned in Q2. Adjusted EBITDA margins have more than tripled in the past year to 19% in Q3 2010.

Strong operations are delivering substantial cash flows. KapStone generated $30 million of free cash flow, or $0.63 per share for the third quarter. Net debt is now $79 million at September 30th, down $28 million from June 30, 2010 and down approximately $400 million since our acquisitions of the Charleston operation in July 2008.

Slide 4 is a summary of our third quarter compared to the prior year’s quarter. In addition to net sales of $207 million and adjusted EBITDA of $39 million, our adjusted net income for Q3 2010 is $18 million, up $25 million or 357% and adjusted diluted EPS is $0.39, up $0.59 or 295% from Q3 2009, including approximately $10 million additional outstanding shares, which negatively impacted fully diluted shares by $0.10.

Slide 5 analyzes the $37 million increase in net sales from Q3 2009 to Q3 2010. Increases in selling prices added $28 million and improved product mix contributed $12 million. The weaker Euro negatively impacted revenues by $2 million year-over-year, as a large percentage of our DuraSorb sales are sold in Euros. Sales volume was down slightly 500,000 tons reducing revenues by approximately $1 million.

Our mills ran very well this quarter as depicted on Slide 6, producing a record 329,000 tons of paper with an operating rate for the quarter of 100%. We sold 327,000 tons up slightly from Q2 2010 and down 1.5% from Q3 2009. Our finished goods inventory in tons is down 30% versus a year ago and down 26% from year end. Ordered backlogs remain strong.

Slide 7 shows the impact of much improved pricing and product mix, which increased average revenue per ton by $119 from a low of $495 a year ago, to $614 in Q3 2010. Revenue per ton should benefit in the future from the realization of the $40 per ton Kraft paper price increase announced in August that will be mostly implemented in Q4 and higher prices for export linerboard.

The significant improvement in our product mix over the past year is illustrated by the pie chart, which show increases in domestic Export linerboard up 25,600 tons, DuraSorb up 9,900 tons, Kraft Paper up 6,600 tons and Kraftpak sales up 4,600 tons, offsetting these increases for the reduction of 51,600 tons of Export linerboard sales. Our product mix now closely reflects our normalized mix.

Turning to Slide 8, adjusted EBITDA margin for the third quarter 2010 was 19% compared to 6% a year ago and adjusted EBITDA of $39 million was up $31 million, contributing to the growth work $28 million on higher prices, $9 million on higher volume and $4 million on productivity improvements.

Input costs primarily would in the restoration of certain compensation benefits that have been suspended in 2009, negatively impacted results year-over-year by $4 million each. The weaker Euro also negatively impacted adjusted EBITDA by $2 million.

Slide 9, is a summary of our third quarter 2010 compared sequentially to second quarter. Net sales of $207 million were up $8 million or 4%. Adjusted EBITDA of $39 million was up $14 million or 56%. Adjusted net income for Q3 of $80 million was up $10 million or 125% and adjusted diluted EPS was $0.39 up $0.22 or 129% from Q2.

Moving on to Slide 10, we show the components of the sequential changes in net sales from 2Q to 3Q 2010. KapStone’s net sales increased $8 million and was driven by $9 million of price increases, as we benefited from the full realization of the April price increases on Domestic linerboard and Kraft paper.

Increasing prices on Export linerboard and the midyear price increases on DuraSorb and Kraftpak. The pie charts on the sales mix show that there were no substantial changes in product mix quarter-to-quarter. Although there was a slight increase of Export linerboard sales offset by slight decreases in DuraSorb and Kraft paper sales.

Export linerboard sales now represent about 17% of total tons sold in Q3 2010, up 8,200 tons or 17% from Q2. Selling prices for Export linerboard have increased at a much faster pace than domestic prices. The margin gap between Domestic linerboard and Export net selling prices has essentially disappeared.

Slide 11 compares adjusted EBITDA on a quarter-to-quarter sequential basis. Adjusted EBITDA in Q3 2010 was up $14 million or 56% to $39 million over Q2 2010. Adjusted EBITDA margin was 19% in Q3 up from 13% in Q2 due to $11 million of higher prices and $4 million from lower input cost primarily wood. Partially offsetting these gains was $1 million of unfavorable mix due to lower DuraSorb and Kraft paper volumes.

During the third quarter, we benefited from improving wood supply, which were very tight early in the year due to the extreme weather conditions experienced during the end of 2009 and into early 2010. With wood supplies returning to normal levels, our wood costs are returning to more historical levels.

We have remained focused on our cash flows and keeping them strong as for trade on Slide 12. Free cash flow calculated by adjusting EBITDA for CAPEX, cash taxes and interest and other non-cash items with $30 million for Q3 2010 or $0.63 per diluted share.

CapEx for the year should be approximately $34 million including about $25 million for maintenance related projects. Year-to-date we spent $24 million. Our robust cash generation has reduced our net debt from June 30th by an additional $28 million to $79 million at September 30th. Our debt to equity ratio was 19% at September 30th and our leverage ratio of debt to EBITDA was 0.89% to 1%.

KapStone’s cash interest expense for the quarter was $800,000 down from over $2 million a year ago on significantly lower balances and interest rates. Our average interest rate is currently about 1.8%.

In the tax notes, on the Slide 13, our tax provision for the current quarter was a benefit of $13 million or a negative 49.9% versus 37.9% a year ago and reflects the $20.7 million benefit from the cellulosic biofuel credit. The cellulosic biofuel credit may be utilized to reduce income taxes payable beginning in late 2010 and will be used to offset future cash taxes payable. The credits will expire in 2015.

KapStone’s balance sheet includes $68 million accrued for taxes and interest on the AFTC or the black liquor credit. KapStone has been advised and doesn’t believe that the AFTC is taxable, as it is similar to an excise tax refund. We have received no further guidance from the IRS, but I would like to note that our 2009 tax year is currently under examination by the IRS.

I will now turn this back over to Roger.

Roger Stone

Looking at the fourth quarter, the good news is that we see lower fiber cost and improved pricing. The Kraft paper price increase will be fully implemented throughout the quarter, export prices continue with their upward momentum and are now better than domestic prices and our other grades will improve marginally.

Unlike last year, we will improve our mix by increasing exports as November and December Domestic linerboard seasonally moderates, demand moderates and this is also true for Saturating Kraft. In the bad news category, in October we took our annual coal shutdown at Roanoke Rapids, we came back a bit early ahead of schedule and the mill is running very well.

With regards to linerboard, we believe there is continues to be a very good balance between supply and demand, industry inventories are low and should move up somewhat as normally happens at year end.

At this time, a probability of improved pricing for all of our grades looks good for implementation next year. We think we will continue to generate significant free cash flow and as well as continue to grab with the high class problem of using our strong balance sheet to build shareholder value. As you can tell, we remain very positive of about our future.

Now I will open the phone for questions.

Question-and-Answer Session

Operator

(Operator instructions)

Your first question comes from the line of Steve Chercover with D. A. Davidson.

Steve Chercover - D. A. Davidson

First question, please can you tell us how much that coal shut at Roanoke Rapids’ costs in the quarter?

Roger Stone

It usually costs about $6 million to $6.5 million. That would be possibly right and we not only took care only for the coals, the maintenance side mistakenly shutdown, but we took care of some interesting capital projects as well.

Steve Chercover - D. A. Davidson

Okay, nice and Charleston has no shut in 2011?

Roger Stone

No. Charleston only goes down called about once every three years, but as they have some redundant recovery borrowed capacity and other effects, but they do take equipment shutdowns, which were the P&L periodically. There is no shutdowns plan for the balance of this year.

Steve Chercover - D. A. Davidson

Can you please discuss business trends in the fourth quarter compared to Q3?

Roger Stone

I covered pricing. Pricing is improving were statement. The export prices are the biggest factor of improvement, but Kraft paper being finally installed across the quarter. At the end of the quarter, we will be very good, but it comes in throughout the quarter.

Saturating Kraft and Kraftpak will be marginally up. Demand is good. Backlogs are strong at the mills. You always worry about November-December we might have got a little inventory, but I don’t think so. I think that our plans are working to ship what we make. That’s always and if the question when we get into December.

Backlogs are strong. Our customers are optimistic and some business conditions are pretty good and we plan on operating at good levels in both today are running very, very well.

Steve Chercover - D. A. Davidson

The 1% dip in DuraSorb shipments in the quarter, is that a seasonal thing?

Roger Stone

Yes, that is a seasonal thing and DuraSorb shipments will be down in the fourth quarter as well and that’s seasonal. Exports will be up. Hopefully there will be more positive that to remember that I hope so and we see growth coming in all of our businesses, but still below 2008 levels.

Steve Chercover - D. A. Davidson

My final question just additional clarification on pricing, the failure of the third continued wood price increase, when it was revised in September.

Is that really going to change your average just continue wood prices sequentially and then it sounds like your cost the optimistic that the industry will revisit that third price increase on wood in the spring?

Roger Stone

Yes, we’ve raised our prices. The industry pulled it. It issue some credits for those price increases, which are reflected in the quarter. It’s a shame that the thing that it didn’t work in the quarter. If you look at the reasons why prices should increased that would be supply and demand and you have this unusually strong export pull and which is reflected by higher export prices than domestic prices.

That to me very time we had a higher export price than domestic price. I believe in my career we’ve had a price increase domestically.

Steve Chercover - D. A. Davidson

How many times have you seen that?

Roger Stone

I have seen it three times in my career. Once under Nixon price control’s that goes back quite a bit. Price controls were not on export products. History tells me, and conditions tell me and the outlook, where next year not be robust, but better than this year would indicate to me, I’m looking at capacity that’s not coming on, so really looking a creep. Tells me conditions are right for price increase.

I’m very positive about that, but it’s not up to me. The market conditions, which say to me based on my experience that a price increase in the spring is a reasonable assumption.

Operator

Your next question comes from the line of Michael French with Morgan Joseph.

Michael French - Morgan Joseph

I would like to pickup where we left off there on the price outlook for next year so that’s the story will continue or whatever the other product areas.

Roger Stone

We believe that we will see Kraft paper, which will probably follow linerboard going up for the same reason. Things perhaps are bit tighter on Kraft paper than they are in linerboard. We’re in the midst of negotiating price increases on DuraSorb and we believe we will be successful.

In Kraftpak, in comparable grades price increases are being announced now by some companies. We believe that demand for the overall product categories pretty on good and so we expect price improvement in that line as well. We think we will have price improvement in everything that we make today.

Michael French - Morgan Joseph

You mentioned in the opening remarks using the balance sheet for shareholder advantage, exiting a M&A I suppose so are there any updates for where you were last quarter in terms of looking at targets and evaluating opportunities?

Roger Stone

There are a few more opportunities today than they were in last quarter. Our shareholder value is always on our mind. That’s all I can say about it.

Michael French - Morgan Joseph

Opportunities, in the same area that you have been looking in terms of mills that weren’t link to [time] factors or other activities?

Roger Stone

We are obviously looking for what is always, we believe is a good thing for shareholders, but we tend to be looking at things that are strongly related to what we are doing.

Michael French - Morgan Joseph

In terms of change of strategy still the same and there is just a couple of more opportunities inside?

Roger Stone

Yes. I’ve got nothing to announce today.

Michael French - Morgan Joseph

It seems like something is imminent than it was before.

Roger Stone

Well, I can’t say that of course.

Michael French - Morgan Joseph

Well, thanks Roger. I appreciate and good luck.

Operator

The next question comes from the line of Rob Young with William Smith & Company.

Rob Young - William Smith & Company

Just curious following up on that last question with the M&A opportunities, is that classified as your pretty much your number 1 priority in terms of capital deployment?

Roger Stone

Yes, we have obviously all the capitals and where all the capital needed to do. Capital expenditures that have high return potential on our own operations and we will continue to do that. We have a very strong balance sheet and if we can find something that makes good sense for the company. We will pursue it.

If we can’t find something that makes good sense, we won’t pursue it and then you tend to look at other things that you can do perhaps for shareholder value. I’m not predicting anything except a wide range of possibilities that everyone knows had been there in the past and they will be there in the future.

Rob Young - William Smith & Company

Is the dividend outside of that (inaudible) possibilities or that still get in there?

Roger Stone

Well certainly we are not going to pile up cash to look at it. We are not smart enough to make it for you how to build shareholder value in one respect. Well, with another respect in other fashions.

Rob Young - William Smith & Company

A little bit extended on the demand, I was hoping you can talk about your demand expectations as well as operating rates for 2011?

Roger Stone

Demand for all of our products hardly enough maybe not quite strong for DuraSorb. We have no more competition. The issue is perhaps some inventory change. Demand will be very strong, relative to supply, relative to the existing capacity demand there should be ample. Therefore operating rates I don’t think it can above 100%. Okay, but they will be in the very high 90s.

Rob Young - William Smith & Company

Can you quantify your movement into more Export liner, while you’re at 17% now, is that expected to get into the low 20s?

Roger Stone

I’m not going to quantify, but it should be percentage-wise significantly higher in the fourth quarter.

Rob Young - William Smith & Company

Does that lower your freight costs?

Roger Stone

Yes, would lower our freight cost and increase our mill nets on those grades.

Rob Young - William Smith & Company

Just understanding question for this quarter, it looks like your freight costs were higher than in the comparable quarter, but your volume was slightly lower. Is that trend expected to continue, is the freight costs is expected to, that movement expected to increase in terms of per unit cost?

Roger Stone

We always have to look at mill nets rather than the solid labor costs. Clearly, the more export we ship to lower the freight cost, but in the past lower freight cost have also been lower selling prices.

Today you got the luxury of having exports at higher selling prices as well as low freight. Freight is an isolated cost depends on the mix. Apples-to-apples freight to get to our customers, grade per grade hasn’t changed much.

Rob Young - William Smith & Company

Lastly, you mentioned before in adjusted EBITDA margins of roughly 20 percentages your sweet spot is that still what you are looking at or is that a change to go?

Roger Stone

I said previously I thought 15% to 20% ongoing best it was what I expected to get from the existing investment base. Obviously at 19% we are pretty close to 20% and I’d think on a quarter where we have no shutdowns, I would expect that number hopefully to continue. Yes, to be very positive. Maybe able to beat a little bit maybe not, but in that area.

Operator

Your next question comes from the line of Adam Ritzer with CRT Capital.

Adam Ritzer - CRT Capital

Most of my questions were answered, but I have quick questions. In last quarter, you gave monthly progress throughout the quarter in fact you said June month was $12 million of EBITDA. Can you give us that same statistic for July, August, September?

Roger Stone

Well, I did it in last quarter. I said 50% of the EBITDA was redundant in the month of June. I tried to demonstrate that the shareholder with the roll up at pricing was meaning.

Adam Ritzer - CRT Capital

Exactly and looking for that same kind of info.

Roger Stone

Right and that momentum obviously June continued for the three months in this quarter. The months were relatively comparable, okay, in the quarter to ship a little bit. Our next ship will see some improving pricing, but what we established in June improved a bit in this quarter mostly because of pricing and we are very good throughout the quarter.

Adam Ritzer - CRT Capital

September wasn’t like $14 million, $15 million and you see a little bit of ramp to give us an idea of what Q4 is, most of the Q4 ramp is going to come close to September?

Roger Stone

Month-to-month statements here are sometimes misleading and now the important quarters to quarter to watch. The momentum is good and as I said the news is pricing is getting better, shipments will be okay, but we had to take our normal outage in the quarter. You calculate your own numbers.

Adam Ritzer - CRT Capital

I understand that’s fine. In terms of the price increase, I mean obviously this will not go through, but everybody is saying the same thing that you guys are in box demand a strong. Why wait until the spring? Why not do this again now? Or in January, why wait?

Roger Stone

Well, I’d like last quarter, but it didn’t happen. I hope you are right. Clearly, we are not a market leader in linerboard. This industry should move, when the economic appear obvious to them. That is justified.

Adam Ritzer - CRT Capital

Everybody I’ll seeing will grew with you.

Roger Stone

People raise prices for all different reasons, but clearly you have a world, where the price of linerboard for example is higher elsewhere that it is here. That’s unusual. On the US it truly will cost that [mightier] box are cheapest out here. The United States is non-competitive. It’s not because of the paper and box industry.

Clearly, if we don’t raise it here to the extent that export demand continues to grow or ease it that more paper will be shifted to the export side. What happens normally, historically, is domestic prices rise to approach that level. I don’t see any reason given the conditions of our view of next year why this shouldn’t happen. I would hope the earlier the better, but that’s all in that.

Adam Ritzer - CRT Capital

Sure. How much higher is our export prices now than domestic prices, can you give us?

Roger Stone

It’s not bit of math. If you read pulp and paper, when you see that the South Americans have raised prices very successfully and done very well with Brazilians. The Europeans have raised prices almost on the continual basis.

China has raised prices, and that was before them the Dollar got so weak or it’s even greater relatively speaking today. You can get all that information by just looking at the publications.

Adam Ritzer - CRT Capital

Yes, unfortunately my subscriptions of pulp and paper will be grant out. I don’t have that handy.

Roger Stone

Most have a good friend to ask one.

Adam Ritzer - CRT Capital

Yes, I understand. My last question going back to the M&A opportunities, you have been looking these for a while is do you have a timeframe that you say, hey look another six months if we can’t find anything, maybe we do something more significant with the balance sheet.

The other part of my question is, with your stock trading, assuming there is going to be no debt pretty soon at 4 times EBITDA. How do you justify making an acquisition at a higher evaluation than that versus recapping your own balance sheet and buying back stock or something like that?

Adam Ritzer - CRT Capital

There are a lot of things you put into the analysis. For example, one of the reasons, our multiple maybe low, yes because our size is low. People are comfortable with be in this a small cap company or small growth company. What’s right to do? What we always try to do, in many of us around this phone are significant shareholders, we try to do what we think is in the best interest.

I don’t have a timetable, but clearly looks like there wasn’t anything that was good that we could do. We had to think about something else but because our stock prices depressed, we hope people will find the value of what we do and that multiple should go up.

People would see that our operations are going the way we said they would go. We think that’s pretty good. We think that would be hopefully recognized in this. If our stock is selling to 3 and there is a bargain out there at 4 for example and it’s a very good deal. We will give good return whether recognized or not by the shareholder, we would probably do that.

Adam Ritzer - CRT Capital

Yes, that would be great. I guess what people maybe concerned about is, if you are at 4 and you pay 6 for something and you’re maybe near the top of a cycle and you had leverage that could be a concern is all.

Roger Stone

You have to trust that hopefully we will be smart about that.

Adam Ritzer - CRT Capital

Right, you’re way smarter than I am. Okay I appreciate it. Thanks very much.

Operator

Your next question comes from the line of Eric Hollowaty with Stephens Inc.

Eric Hollowaty - Stephens Inc.

Most of my questions are done. Couple of things, could you help us think through sequentially from third quarter to fourth quarter. How we might think about trends in two things, number one, SG&A and number two, cost of goods.

There are any end of year impacts it might be one-time compensation or otherwise related in the fourth quarter and the cost of good side for example, seasonal ships in raw materials that might make them more elevated versus third quarter?

Roger Stone

The thing that would be elevated is the shutdown cost, which is because are not producing the tons and you are spending money for the maintenance side of it. Those numbers are pretty apparent as the impact throughout the company’s history. No relative change there.

I did say that we think would cost will be lower in the fourth quarter particularly in the South Carolina region and that’s surprising. Clearly, the costs are under control as far as compensation. We approve appropriately what we think compensation will be. If there is a surprise and that’s shame on us. No, I don’t see anything any snakes under the rocks out there that you should be aware of.

Eric Hollowaty - Stephens Inc.

Okay. Great very well. On the Export linerboard side, can you help us understand your current mix, where is that product going to primarily, is it being driven by Europe or?

Roger Stone

Well, it’s going every where. It’s going to Europe. It’s going to Central America. It’s banana season. It’s going to South America and so dramatically it’s going to the MidEast and that are going to Asia.

It’s pretty widely spread. We have good relationships in lot of the areas of the world. Clearly, since the prices are attractive and seasonal demand for Domestic linerboard is down, this is a good thing to see if you can make happen by selling more.

Eric Hollowaty - Stephens Inc.

Great thanks very much and good luck.

Operator

Your next question comes from the line of Fritz von Carp with Sage Asset Management.

Fritz von Carp - Sage Asset Management

I was wondering, if we can talk a little bit. You sell a lot of your containerboard, I guess only I’m wrong, two independent box mills. If you could just me a little color in general into the structure of that industry. That the box industry, the independent box converting thing, with terribly over capacitized.

Is it terribly fragmented? It seems from reading the line, which are Pulp & Paper Week they are not going to let your prices, who controls the approximate cost. Pulp & Paper Week controls most of your pricing if not all, is the fact or all of it?

You need them to let you move forward with pricing. We can have theories about what might cause that to happen, but ultimately they do publish the print.

From what they said it would seem like they are going to wait until the converters have their act together to get pricing and if you could help me understand, having some insight into that sector. What is their situation and when are they going to be structured in a position that pricing power?

Roger Stone

The integrate company, we don’t make boxes, but the integrate company do make boxes obviously.

Fritz von Carp - Sage Asset Management

You do sell the people, who make boxes, right?

Roger Stone

Those are our customers, right. Those are our customers.

Fritz von Carp - Sage Asset Management

Then I was asking that I thought you would have some insight into that sector being that they are your customers?

Roger Stone

Then we sell both to the integrated and to the independent. The integrated fingers republican for most part and they have been able to pass on for the most part of the price increase for what I read, but not too much or more. For them it has been a good deal.

The independents obviously have to pass on more than the cost increase and a lot of them are very good at that and some of them haven’t understand with the principal of accounts and difficulty with that.

That the market anticipation price increase for early next year, I think the independent’s expected. They don’t like to plan. They are independent generally don’t like to send their customers out shopping. We can’t raise the price, but by not raising it.

You can’t back into a price increase and eventually people are recognized it. The price of great deal of the container prices unfortunately at my view are tied to the price of paper and otherwise there is a formula for every dollar a ton paper goes up, the box price goes up X percent. A lot of the market is done that way.

Prices are sort of automatically raised for a certain segment of the business, when a price increases in effect. I thought the last price increase was not only justified, I thought that was going through.

Why I feel probably it remains a mystery to me. I suspect if conditions are the same next year as they were when the price increase was implemented, I suspect it would be successful.

Fritz von Carp - Sage Asset Management

In general, what is that state of that industry is it terribly over capacity.

Roger Stone

There is always forever excess converting capacity in the marketplace. Most plants don’t run two shifts. They always have a ship. They always have weekends. A lot of invested capital so they can produce three days, what they used to produce in five and why they make those investments, I never know.

Yes, there is always excess capacity on the converting side. The limit on capacity for this industry is on the mill side. That’s what the tax pricing on supply, but the converting side always has excess capacity.

Fritz von Carp - Sage Asset Management

You are saying that, if it’s not a capacity utilization issue that will put them in a position that they can raise their prices and therefore they will allow you to raise yours, what needs to happen for them?

Roger Stone

They got the (inaudible) customers prices. There is no compact here that says to the independent that because I raised my prices you have to raise your prices, if the independent chooses not to raise his prices for whatever reason obviously he will do that.

Fritz von Carp - Sage Asset Management

For except that the magazine has said, that they won’t let you raise price. As I read the magazine it said, if the independents are getting squeezed we won’t let mills have it.

Roger Stone

If they are being squeezed, which I regret because I really want to be in the industry, where the worst operator makes a lot of money, that’s always been my ambition. It’s really an independent decision. If we feel our prices must go up, it they’re going to go up and hopefully the independent so one can not only passing along, but make some incremental profit in the process.

Sometimes in its history independents have their prices go up and have missed raising their customer’s price because they thought it wasn’t going to happen. It wasn’t a mistake and sometimes they were right on that and sometimes they were wrong. I do know the other thing you are talking about, but the independents are not belong say to the mills, you can raise my prices. It doesn’t work that way.

Operator

There are no further questions in queue. I would now like to hand the call back over to Mr. Roger Stone, Chairman and CEO, for any closing remark.

Roger Stone

Thank you. It has been a good quarter. I said last time, it should be hopefully a series of continued good quarters and our business is getting under better control and as I said, very optimistic. Thank you all for calling in. Thank you.

Operator

Thank you for your participation in today’s conference this concludes the presentation. You may now disconnect you lines. Good Day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: KapStone Paper and Packaging CEO Discusses Q3 2010 Results - Earnings Call Transcript
This Transcript
All Transcripts