Verso Paper's (VRS) CEO David Paterson on Q2 2014 Results - Earnings Call Transcript

Aug.14.14 | About: Verso Corporation (VRSZQ)

Verso Paper Corp. (VRS) Q2 2014 Results Earnings Conference Call August 14, 2014 9:00 AM ET

Executives

Robert Mundy - Senior Vice President and Chief Financial Officer

David Paterson - President and Chief Executive Officer

Operator

Good day, ladies and gentlemen and welcome to the Verso second quarter 2014 earnings conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Robert Mundy. Please go ahead, sir.

Robert Mundy

Thank you. Good morning and thank you for joining Verso Paper's second quarter 2014 earnings conference call. Representing Verso today on this call is President and Chief Executive Officer, Dave Paterson; and myself, Robert Mundy, Senior Vice President and Chief Financial Officer.

Before turning the call over to Dave, I'd like to remind everyone that in the course of this call in order to give you a better understanding of our performance, we will be making certain forward-looking statements. These forward-looking statements are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove incorrect, actual results may vary materially from management's expectations. If you would like further information regarding the various risks and uncertainties associated with our business, please refer to our various SEC filings which are posted on our Web site, versopaper.com, under the Investor Relations tab. Dave?

David Paterson

Thank you, Bob, and good morning to everyone on the call. Let's talk about the quarter, first from an integration point of view related to our NewPage proposed acquisition. That work has gone quite well and is on track and we are encouraged by the effort put in by both sides, both teams as well as the opportunities we see presented to ourselves.

On the pricing side, on our primary coated paper grades, we have seen a continued decline in pricing, 5.2% versus last year and 1.6% versus last quarter. Most of the pressure is in the coated mechanical side in terms of downward pricing pressure. On a volume point of view, our volume in the second quarter was in line with the prior year and up substantially from the first quarter. During the first quarter of this year we took approximately -- excuse me, took an excess of 33,000 tons of market downtime and our second quarter numbers didn't reflect that amount of downtime.

As we have discussed several times, energy cost in the state of Maine are particularly high in the winter, particularly the first quarter. We saw a $16 million improvement in our energy cost position in Q2 over Q1, which was in line with our expectations. Maintenance cost during the quarter were down, $ 7 million over the prior year. This was really timing issues. We moved some maintenance items from the second quarter to the third and those will be reflected in the third quarter results.

Our inventories are in good shape, below last year and down from last quarter and we continue to manage our inventories and all working capital matters very well. A significant financing goal was reached during the first quarter when we raised a $ 40 million asset-backed bridge loan secured by our hydroelectric assets in our Androscoggin, Maine facility. Bob?

Robert Mundy

Thanks, Dave. Turn to Slide 4. As Dave mentioned our overall volume for the quarter was comparable to last year's levels. It's driven by the strength in our pulp and specialty paper segments. Sequentially, volumes were up across all segments by a total of almost 10% or about 35,000 tons. Even though volumes were slightly higher than last year's levels, revenues were 3% lower than last year as a result of prices being just over 4% below the second quarter of 2013, versus the first quarter. Improved volumes drove revenues about 7% higher, although prices were 2% below the first quarter levels. Adjusted EBITDA was $28 million in the second quarter compared to $ 22 million in last year's second quarter and a negative $8 million in the first quarter of this year.

Slide 5. You see that coated only volumes were 18,000 tons below last year and coated pricing was almost $45 per ton lower than last year's second quarter. Coated volumes were improved versus the first quarter but pricing continued to move downward by almost $14 per ton. We had very good pulp sales volume during the quarter with pricing hanging there versus the last quarter and about $ 20 per ton our last year.

Turning to Slide 6. You can see the key changes between our second quarter 2014 adjusted EBITDA of $28 million versus the $22 million in the second quarter of 2013. As I mentioned earlier, volume was comparable to last year's levels. Overall price mix was unfavorable, $ 11 million driven by coated prices being about $ 45 per ton lower. Operational cost were $ 13 million better than last year due to continued R-Gap improvements but primarily due to the postponement of some scheduled outages into the third quarter of this year. Input prices were favorable, driven by lower raw material and energy prices versus last year's levels.

Slide 7. Gives you a view of the adjusted EBITDA changes between the second quarter of 2014 versus this year's first quarter. The volumes were up about 10% or around $ 2 million. Prices were about 2% or $ 5 million lower. We had about 33,000 tons less market downtime, as Dave mentioned, versus the first quarter and operations cost were below first quarter levels, primarily due to the mills running a lot better, R-Gap improvements and much less energy users then the colder first quarter.

There is a bit more information related to input prices on Slide 8, where you can see the direction prices were moving versus last year and versus the previous quarter. Overall, things were generally favorable due to the much lower energy prices which were offset somewhat by wood prices being 5% to 7% above last year and last quarter due to the poor weather related spring logging conditions that we were experiencing. Dave?

David Paterson

Thanks, Bob. As we look at the third quarter, I would like to hit some of the highlights. We continue to work to close the NewPage acquisition and you will continue to see updates on that as we go through the quarter. Our volumes were getting our normal seasonal uptick in the third quarter and so volumes are expected to be comparable to last year's third quarter. On the pricing side, we have seen some price improvement in coated freesheet grades and we continue to see some price pressure on coated groundwood though for the third quarter this should be relatively flat on the groundwood side.

Input prices, similar to last year. We continue to cost improvements across our operating platform with the continued use of our R-Gap process. But we will have, as I mentioned earlier, our normalized maintenance will be moved into the third quarter from the second. And you see that reflected in our third quarter results. And we continue to manage all components for working capital including inventory, very aggressively.

So with that I would like to end the call. Thank you for your interest in Verso. Again, we are not taking questions while we are in the middle of the NewPage acquisition. So thank you for your participation.

Question-and-Answer Session

Operator

Thank you. And ladies and gentlemen that does conclude today's conference. Thank you all again for your participation.

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Verso Paper (NYSE:VRS): Q2 EPS of -$0.64 Revenue of $320.9M (-2.9% Y/Y)