Q4 2019 Earnings Call
Ladies and gentlemen, please continue to hold your conference call will begin momentarily.
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Ladies and gentlemen, please continue.
It's called will begin momentarily.
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Welcome to Clearwater paper Corporation's fourth quarter and full year 2019 earnings Conference call. As a reminder, that's called recorded today February 26 2020.
And I like to turn the conference over to Mr. slow Bowman Investor Relations. Please go ahead.
Thank you Dylan good afternoon, and thank you for joining Clearwater paper's fourth quarter and for your 2019 earnings Conference call. Joining me on the call today, our Linda Massman, President and Chief Executive Officer, and Bob Redneck, Chief Financial Officer.
Financial results for the fourth quarter and full year 2019 were released shortly after todays market close you will find a presentation of supplemental information, including an outlook slide providing the company's current outlook after a certain cost price and mix shipment volume and other items for the first quarter of 2020 and for the full year of 22.
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Which is posted on the Investor Relations page of our web site at Clearwater paper Dot com.
Actually we will be providing certain non-GAAP information in this afternoon's discussion a reconciliation of the non-GAAP information to the comparable GAAP information is included in the press release or in the supplemental information provided on our website. Please note slide two of our supplemental information rather than reading this slide I'm going to incorporate it fires.
Reference into our prepared remarks.
Linda Massman will begin today's call with an overview of the fourth quarter 2019, Bob Redneck will then follow with a detailed review of the results for the quarter and the full year, then Linda will conclude our prepared remarks with an overview of the business environment, an update on our strategic projects and an outlook for certain items in the first quarter and full year 2020.
And then we'll open the call for questions and answers.
Now I will turn the call over to Linda.
Thank you Sloane Hello, everyone and thank you for joining US today, we will begin on slide three of the supplemental to provide some business highlights for the fourth quarter.
We finished the quarter with net sales of $436 million.
Which were driven by another strong quarter in tissue, which grew sequentially for the fifth consecutive quarter and were up 8% over the fourth quarter 2018.
Total sales growth was partially offset by lower paperboard shipment given a challenging compare from the fourth quarter 2018.
To be clear, we are enjoying relatively strong paperboard conditions with favorable backlog compared to recent history for this time of year.
Most importantly margins across both segments expanded both sequentially and on a year over year basis to drive a 4% operating margin for the fourth quarter.
Bob will touch on more of this in his prepared remarks.
In terms of adjusted EBITDA, lower input pool and fiber costs.
Well its lighter maintenance expense timing drove adjusted EBITDA of $52 million.
The best result, we've had over the last eight quarters, despite a maintenance outage at our Arkansas mill.
Now turning to slide four let's look back in 2019.
For the year, we recorded $1.8 billion in sales, which is up about 2% from 2018.
Recall that our 2018 result include approximately $17 million of revenue from our latest Smith, Wisconsin operations that we sold in August of 2018.
[laughter] revenue growth was closer to 3% for the year, if we exclude sales from our Lady Smith operation.
This growth was driven from both of our businesses.
In 2019, adjusted EBITDA was $167 million.
The year was affected by planned maintenance outages in the startup of the new paper machine at her Shelby North Carolina facility, which gives us capacity for future growth and distribution optimization.
Overall as we look at the business in 2019, we are proud to have moved Clearwater paper forward executing across a number of strategies.
Our recently completed Shelby expansion provides us the capability to produce both conventional and ultra quality products, which is a strong strategic differentiator in our view.
Additionally, we introduced our Nuvo brand of Cup stock paperboard, providing us a key advantage to expand our footprint with foodservice converters.
I'm happy to report that our New boat Cup stock was recently recognized as a finalist for the fast markets receipt packaging Innovation Award.
Lastly from a broader market perspective, we continue to see growth in private label as it continues to gain market share against branded label.
Before I turn the call over to Bob Let's review our capital initiatives.
First we continue to ramp up our Shelby facility, we remain on target to reach full production run rate by mid 2020.
Shipment run rate by 2021.
And full EBITDA benefit in 2022.
At our Lewiston, Idaho plant the probably sulfide reactor is now commission, which is a final component of our pulp optimization project at that facility.
We are not yet seen the expected incremental financial benefits from the Polysulphate process and are working to achieve optimal operational and financial benefits from the project.
We will discuss the expected impact of these projects later in the call as part of our outlook common.
Now, let me turn the call the Bob to detail, our operating result, including a review of our financial position Bob.
Thank you window.
My comments will be focused on our quarterly resolved.
First on our overall operations.
And then I will provide color on the individual segments and conclude with some discussion on the financial position.
Turning to slide six of the supplemental.
Fourth quarter net sales of $436 million grew 2% on a year over year basis due to the strength in both divisions.
And was down 2% sequentially is growth in our consumer products was more than offset by lower paperboard sales.
We are reporting net income of $2 million or 12 cents per diluted share compared to a net loss of $11 million or 66 cents per diluted share in the third quarter of 2019.
Any net loss of $188 million or $11.39 per diluted share and the fourth quarter of 2018.
On a non-GAAP basis, we are reporting adjusted income of $6 million or 37 cents per diluted share in the fourth quarter of 2019.
Compared to a loss of $8 million or 47 cents per diluted share for the third quarter of 2019.
And adjusted income of $7 million.
Or 45 cents per diluted share in the fourth quarter of 2018.
Adjusted EBITDA was $52 million in the fourth quarter of 2019 compared to $32 million in the third quarter of 2019 and $47 million in the fourth quarter of 2018.
Let me provide some color on each of our segments and their results for the quarter as compared to the prior quarter and prior year quarter.
Let me start with consumer products, and then move to pulp and paperboard.
While our businesses our integrated through our pulp operations each business operates in different markets and faces different opportunities.
Therefore, I will walk through each segment independently.
Lets refer to slide eight for an adjusted EBITDA bridge between the third and fourth quarter of 2019 for the consumer products Division.
For the fourth quarter of 2019 consumer products earned adjusted EBITDA of $20 million compared to $15 million in the third quarter of 2019.
As you can see on the bridge this was driven by lower pulp pricing lighter maintenance and lower energy and transportation cost.
Price and mix, where a slight headwind in the quarter.
As compared to the fourth quarter of 2018 consumer products adjusted EBITDA was higher by $4 million due to lower pulp pricing and transportation costs.
Partially offset by the ramp up costs for the Shelby facility.
Let's move to slide nine for an adjusted EBITDA bridge between the third and fourth quarter of 2019 for the pulp and Paperboard Division.
For the fourth quarter of 2019 pulp and paperboard earned adjusted EBITDA of $45 million compared to $28 million in the third quarter of 2019.
As you can see on the bridge. This was driven by the absence of major maintenance at our.
No facility and favorable input costs, partially offset by the major maintenance outage at our Arkansas facility.
Pricing and mix as well as volumes were a modest headwind compared to the third quarter.
As compared to the fourth quarter of 2018 pulp and paperboard adjusted EBITDA was higher by $3 million due to lower input costs offset by higher maintenance costs due to the Arkansas outage in the fourth quarter of 2019.
A few other items of note our corporate expenses were $1 million higher in the fourth quarter of 2019 as compared to third quarter, 2019, and higher by $2 million as compared to the fourth quarter of 2018 due to higher IP costs.
Attributed to our migration to cloud based solutions that are expense versus capitalize historically.
Professional fees and other miscellaneous costs.
Net interest expense increased $5 million from the fourth quarter of 2018 due to our higher debt levels. During the fourth quarter, we used cash of $45 million to reduce our debt, which resulted in a 1 million dollar interest expense.
And sequentially.
Our fourth quarter effective tax rate was 53% compared to 44% in the third quarter of 2019.
For the year, we ended at an effective rate of 29%.
Going forward, excluding discrete items, we estimate our annual effective tax rate to be 25%.
Now turning to the balance sheet, we ended the year with $185 million in working capital.
Our cash capital expenditures were $14 million in the fourth quarter and $140 million for the full year.
We reduced our ABL facility by about $45 million in the fourth quarter and ended 22019 with a 14 million dollar balance.
Our total leverage ratio declined by 50 basis points, the 5.2 times, our 12 month trailing adjusted EBITDA.
That concludes my remarks, and I will now turn the call back over to Linda.
Thanks, Bob.
Sure. We review our outlook for 2020, I will provide some color on the markets that we operate in which includes received view of the market environment for each of our businesses.
Starting with the North American tissue market.
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First the total tissue market grew approximately 6% year over year second private brands grew 10.9% versus 3.9% for national brands over the same period.
Third private brands ended the fourth quarter with a 31.8% market share compared to 30.4% a year ago.
The data continues to point to strong consumer acceptance and growing preference for private brand products, especially in the ultra quality category.
Private brand growth in the Ultra segment continues to outpace total category growth for Bath tissue and paper towels.
Receives new tissue capacity over the long term averages out to approximately 130000 tons per year and we believe in line with one to one half percent tissue demand growth per annum.
Assuming all that capacity comes online as scheduled plus net imports capacity utilization is expected to remain between 95.5 and 96% per receipt.
Turning to North American Paperboard Reeses outlook for the remainder of 2020 is 93% capacity ratio, which is flat compared to 2019.
According to S&P as of the ended the fourth quarter the industry operating rate was 91.9% compared to 93.5% a year ago.
And down slightly from the third quarter operating rate of 93.2%.
Industry backlogs reported by Risi, our 4.2 weeks and about 6% lower in backlog a year ago.
At the ended the fourth quarter Risi reported industry backlog of approximately four week.
We believe the foodservice segment of the industry.
Is positioned to benefit from the trend of Boxboard away from polystyrene and single use plastics.
The longer term trend for bleached board remains positive as consumer products companies continue to look for more environmentally sustainable packaging alternative.
Onto our outlook as you will notice from our supplemental on page 11, and 12. In addition to our usual quarterly outlook. We've also added some items for the full year.
Following discussions with investors, we believe the additional disclosure should be helpful and we certainly welcome your feedback.
So with that let's begin with our outlook for the first quarter 2020.
Would you will see on slide 11, you will notice. This outlook is in the same format. We have presented in the past.
For the first quarter, our expectation is for adjusted EBITDA to be in the range of $41 million to $47 million based on the following key assumptions relative to our fourth quarter 2019 adjusted EBITDA.
First we assume a modest one to 2 million dollar headwind on pricing and mix that we expect to be offset by higher volumes as you can see in the first two bars of our bridge.
Second we expect a two to 3 million dollar headwind from a weather related disruption at our Arkansas facility in January in which highway damaged or utility high voltage power transmission lines, and we were without power.
Our utility restore power after eight days, we mitigated losses. During this time by putting in place temporary generators to run the facility for a portion of the outage period.
Lastly, we expect $47 million of incremental costs.
As a onetime credits and lower maintenance cost in the fourth quarter will not repeat.
Additionally, we tend to incur higher energy costs in the first quarter due to winter weather conditions.
Now turning to slide 12 to detail our outlook for 2020.
Before I walk through our major assumptions. We note that the information is based on management's current expectations and estimates, which are impart based on market and industry data and many factors are outside our control, including commodity prices at market prices for our products.
With that said, we walk you through our outlook with respect to certain items for full year 2020 relative to our full year 2019 result.
First we expect net sales growth of 2% to 3% in 2020.
Turning to the drivers of our 2020 adjusted EBITDA outlook. We currently expect price mix and volume to serve as a 25 to 30 million dollar headwind relative to 2019.
The key trends here include continued competition in tissue and impact of Sps index price reduction.
For cost. We currently expect FY 15 to 20 million dollar headwind driven by wage and benefit increases and other general inflation.
Turning to maintenance, we expect to $20 million to $25 million step down in costs compared to 2019, driven by our expectation to not have maintenance outages at either Idaho or Arkansas facilities.
For pulp, we expect lower pricing to Favourably impact our adjusted EBITDA by 15 to 20 million dollar per current outlook price indices.
And lastly for our major capital projects, we expect combined 20 to 25 million dollar positive impact to adjusted EBITDA in 2024, our continued Shelby expansion and the optimization of our list in pulp operation.
At Shelby, we continue realizing the transportation benefit as we move production closer to our end markets.
In 2020 at Shelby, we intend to focus on reaching full utilization of paper production capacity driving manufacturing cost competitive levels and generating incremental sales.
And Lewiston, we're pleased to have achieved $10 million run rate in 2019 of our originally expected 25 to 35 million dollar full EBITDA benefit for the project.
There are two factors that are making it challenging to be assured when if the full benefit will be realized.
First under our original assumption, we anticipated approximately a third of the project benefit would come from raw material cost savings or pulp.
At current pulp pricing, we will not realize that benefits.
The good news of course is that lower pulp pricing has a positive benefit across the rest of our business as you will see in our 2020 outlook.
The second impact is that the anticipated fiber yields from the facility. Following the commissioning of the poly sulfide reactor are falling well below our original expectations. We originally expected another third of the project benefits to come from enhanced yields.
We will continue working to optimize the pulp process to achieve incremental yield.
Any further benefit will be incorporated into our future outlook.
In closing I know that the team with our since leadership, we remain focused this year on improving operational capabilities to ensure we are well positioned to generate cash flow to delever our balance sheet.
So in my prepared remarks here and we will now take your questions.
Thank you ma'am as a reminder to ask a question you would need to press star one on your telephone to withdraw your question first the key please standby, while we've compiled the county roster.
Our first question comes from Adam Josephson from Keybanc capital markets. Please go ahead.
And then Bob good afternoon.
Hi, Adam I am.
Hi.
Bob to start off with Paul I know, we kind of beat this.
Topic into the ground on last call, but if you recall there were several questions about why you weren't expecting more of a pulse related benefit than what you seem to be guiding to and you talked about these caps in your contracts and then and now is in late October pulp really hasn't moved much if at all since then.
And now you're you positively preannounced in part on seemingly much lower than expected pulp cost. So im just a little confused what changed from late October to now given that pulp prices really didnt change. Since then and we were asking before why you weren't getting more of a pull benefit and now youre.
Affording the huge call benefit so I'm, just a little confused as to what's going on I'm, hoping you explain it.
Yes, so basically Adam are up the way our pulp contracts are now set up.
We have contractual volume level in the contracts, but we also tie the pricing to the Risi index. So we've we've moved away from the historic caps that we talked about like in 2018.
Which impacted year over year analysis in 2019, so basically NR 2020 outlook.
We're projecting that based on market indexes forecast for the year, we should get a $15 million to $20 million benefit.
Right, but that was relative right I'm, just saying relative to the got initial guidance you gave for Fourq, what what dramatically changed if pulp prices Didnt actually move was it that you changed higher contracts are set up and then you've got this immediate benefit from that change or was there something I'm just trying to understand what would of course.
As you to do much better than you thought given that there really was no movement in pulp prices from then to when you positively Preannounce correct me if what we started to date yes.
Yes, so Adam we certainly see the benefit.
Second half of the year, if you look at the bridge on slide six in the Supplementals. Okay. So so basically from Q3 to Q4, we have a pulp and wood fiber cost benefit that reporting us over $7 million. So that's.
The latter half of 2019, we began to see the benefit and then that benefit will flow through 2020.
Okay and in terms of the favorable timing of expenses that helped you in a quarter Bob forgive me. If you elaborate on this and I missed it but what exactly was that and to what extent is that coming out of your one Q 20 guidance.
Okay. So so I want to make sure I understand the question are you.
You are interacting with the aim when do you pretend and she said it was the quarter is better than you thought in part because of the timing of expenses.
Yes, so so basically we preannounced toward the end of January as we were in the process of closing our books, we recognize that we would have a favorable cost impact from wood fiber and Paul a couple of million dollars then.
We had two major maintenance outages in second half of the year. So there was lower than expected what I would call routine maintenance spend.
That got pushed into Q1 that was another couple of million dollars and then we had some favorable.
Items.
For example, we had.
Tax credits.
We had some adjustments and lower other miscellaneous costs, which generated another $2 million benefits. So recognizing that we had about $6 million of.
Favorable items, we thought it was important to update our guidance range right now I appreciate that about just Linda you gave in Sps market overview and I'm, sorry, I may have missed part of it but how exactly are you thinking about the market now obviously risi reduced.
Yes folding carton in February by 30 held foodservice can you remind us how much of your SBS business is folding carton versus foodservice, what's the timing lags are and what the impact year, you're expecting in 2020 from those February reductions as.
Yes so.
Yes, I will add them, so with regard to our mix of SBS I would say that.
Folding carton is about 50% and the balance.
Primarily is foodservice, there's some other little pieces and parts in there, but a big portion of those balances to service.
So in looking at the ended the year, we ended the year with strong backlog so that was great.
We looked at look at receipt forecasting utilization to be flat in 2020 versus in 2019, so roughly at about 93% utilization for the for the industry capacity.
Yes, there has been recently.
He came out with a lower SBS folding carton price.
And and all of those together.
I guess I would just summarize it is definitely a competitive market theres some shifts taking place as we saw one competitor come out in another come in and we're just working through those supply changes.
Got it thanks, Bob just one on Capex I think you guided to Capex of 45 to 50. This year I think the company previously indicated that maintenance was about 60, correct me, if if I'm wrong there but.
Why are you expecting to spend below maintenance side of it doesn't seem like a sustainable situation for very long. So I'm just trying to understand your capex plan for this year and perhaps even going into next year, if you're going to understand maintenance. This year, presumably you'd have to outspend maintenance next year.
Yes, so so basically.
I think when you look at the Capex budgets.
This is primarily maintenance capex and it's really in line with our historical maintenance spend.
Because if you're back to the last.
Three to five years, we are Capex was high because of the strategic projects that we were focused on but I think this particular level of maintenance capex.
Now is appropriate for our business because it is in line with what we've done historically.
We're also focused this year on generating positive free cash flow. So we can delever our balance sheet.
Thanks, so much about.
Thank you.
Our next question comes from Steve Chercover from D.A. Davidson. Please go ahead.
Thanks, and congratulations live it must be next to transition knowing that a progress is underway.
Thank you Steve Yes.
So.
I guess I'm also trying to just drill a bit more into the expectations for pulp in fiber.
Because obviously if you annualize the Q4 benefits were 25 30 million dollar tailwind. So can you parse the difference between what happened in pulp and what happened in your wood, which I assume is chips.
We're not going to go into that level of detail, but.
On page 12 of our 2020 outlook management has a view based on the market index projections that we have a tailwind.
$15 million to $20 million, that's certainly an assumption in that could potentially change during the year.
But that's our current view.
Okay. So can you tell us what risi is projecting for the grade E bike in 2020 versus.
2019 average.
Okay.
I don't I don't have that kind of detail, but I think.
Our view.
Is that the outlook slide on.
Page 12 would capture what our expectation would be regarding pulp and wood fiber.
All right you probably can't answer this one either them, but do you know if receive assumptions were established for the.
The magnitude of the krona virus was really understood.
I I don't have that kind of insight.
All right, so I'm not trying to trip yet, but that's about yeah, yeah I don't.
Yes.
Well, let's switch gears hopefully you know this.
On tissue.
Can you just.
Detailed the two or three most significant capacity additions that are competing with you on the retail side.
Yes, so in terms of tissue there there's pressure coming from a couple.
Angles first of all the retail landscape.
Continues to be under pressure, there's a lot of competition among brochures mass club and dollar stores. So that's a headwind that we're facing and then there is.
A lot of new capacity coming on board over the next two years, which is going to put pressure in the space short term.
Tissue market is growing but.
But you know is new capacity comes on board.
It could be somewhat lumpy in terms of the absorption of that capacity and Steve I might just add that.
We usually report these numbers than we did this time to private label clearly growing and if you look at the two if I break up into two segments in that private label into ultra and conventional ultra is growing faster and if you look at history I would say more of the competitive threat has been in.
The conventional side of the business.
More competitive pressure there.
And so that's that's an extra detail I guess, we provide.
Okay. Two more quick season, then I'll turn it over.
Can you articulate what makes the Nuvo Cup stock different from your legacy Kapstone.
Sure so.
This is a new new brand a cup stock for us as we talked about in it includes up to 35% post consumer fiber, which is what's different for us.
And so you know the brand is being very well received by the market. It does.
Allow for flexibility by our customers in how much post consumer fiber goes into the cup stock composition and they can pick up to 35% I would just say it obviously is a great Cup. It maintains the beautiful and effective print surface, which we love to see and provide to our customers and.
I did say this in my prepared remarks, when you say it again, we were named a finalist in receive packaging Innovation Award, which we're very proud of and I just want to congratulate team for such a.
Great new product.
And that post consumer.
Fibers that.
Mix.
Waste, but.
Mixed paper office paper, what's the degreed use there must be pretty sanitary.
Yep Yep and that's that's what it is for the most part.
Okay last one.
Why is depreciation lower in 2020 than 2019, considering we've got a full year of Shelby in the mix.
Well I think we have if you look at our total asset base.
We have assets that are.
Depreciating over time and.
Some of them the depreciation is starting to.
Roll off so I would argue.
In terms of our outlook for 2020, the depreciation that we're projecting is about 110 million that would be depreciation and amortization versus 115 million in 2019. So I mean, it says it's a small change.
Okay. Thank you.
Thanks, Steve.
Thank you. My next question comes from Paul Quinn from RBC Capital markets. Please go ahead.
Thanks, very much good afternoon.
Oh, Hey, I'm I'm confused on the a this $7.4 million pulp savings.
Do you called out but.
Adam asked a question and we got a personal answer but I'm also confused on the maintenance side. I mean, you guys guest sort of are estimated at 11 12 million dosage, where do you put your direct your savings come from.
So.
I'm not sure I understand the question as you focus on pulp well or maintenance no no just on just on your guide for the quarter.
Todd maintenance would be.
11 to 12 million and you got 15.3. So you know if I just take the midpoint of 11 to 12, there's a $4 million difference there and just.
Additional savings Im just wondering where that came from okay. So so so basically from from Q3 to Q4, we if you think about it the Lewiston outage in Q3 was a much larger event than the outage that we had an ARCUS Arkansas in Q4.
Okay.
So so thats really.
The piece of the Delta that's shown on slide six of the Supplementals.
Yes, I know it I understand that Lewiston being a larger facilities can have a higher maintenance costs.
Yes, yes about.
Yes for the outage you can think about it this way.
You know if you look at the total pie Lewiston was say 75%.
I would argue Arkansas is 25% so it's it's a larger components.
We had more expense in Q3.
Than we did in Q4, given the size of the outage and I think all another part of your question we were lower on a maintenance expense in Q4 than we originally thought some of that is from just a pure timing perspective will flow into Q1, just given where the project for scheduled and what work was done in Q4 versus Q1.
Okay. Thanks, Thanks lender that was that was kind of the answer to that was I was trying to.
Hoping to get.
And then.
I guess.
The other question just just had on on paperboard.
Reeses dropped the price.
I guess, that's going to flow through just just wondering what percentage of your mixes will be affected by that.
Yes, so silly, we have about 50% of our business isn't folding carton. So that's a good good rough number to use keep in mind, we in our in our guidance for our outlook for 2020, we've factored all of all of these.
Pricing changes and whatnot into those estimates so definitely fully in there.
Okay, No I understood the 50% that your folding carton. It so it doesn't have it doesn't apply or it doesnt affect the remaining 50% in anyway.
No no.
Okay, and then just market. It look question on Paperboard, you know I think some people are surprised with the price drop with re CD you do you anticipate any further price drops in 2020.
Yeah, I'm not going to.
Try to predict what really is going to published by any stretch of the imagination, but I would just say that all of the pricing action that we foresee is built into the outlook. We provided so it's all in there.
Right, that's all that bestseller okay. Thanks, Paul.
Thank you. Our next question comes from Adam Josephson from Keybanc capital markets. Please go ahead.
Lin and Bob Thanks, So much for taking my follow up Bob just one more.
Cash flow question I think you said you would see you expect to generate positive cash flow. This year and I don't have enough time to go through all the moving parts and I'm not certain what your cash taxes will be but when you say positive or you talked in 20 area I assume you're not talking north of 50, so something between zero and 50 is that.
Reasonable so so Adam what we've done on the 2020 outlook slide on page 12, we provided other assumptions.
That can be used with the assumptions for EBITDA impact to generate.
Free cash flow range, so we provided that.
To.
Investors and analysts so you can.
Take our ranges and come up with your own forecast, where you think we're going to be.
But the bottom line is the free cash flow that we generate priorities going to be to de lever our balance sheet.
Would you mind.
Can you just do the math for me I mean, if it's all laid out there can you just give us a range in that case.
Yes, we we actually.
We're not going to provide.
Our our estimates that we I think if you look at the assumption page you can easily be able to generate a free cash flow number.
Okay.
Linda just one on on tissue you talked about the ongoing capacity additions expected to continue driving competitor market do you see any light at the end of the tunnel here I mean in a commodity business of course when conditions are weak typically supply gets taken out and in this case supply is actually being added not.
Subtracted so at what point do you expect industry conditions to stabilize and and for that matter meaningfully improve.
Yes, Adam I think that is a difficult question to answer I would say that we didn't anticipate all of the capacity additions that have come online.
Well, we're focused here on here is everything that we can control. So we don't obviously control competitor actions and so what we are focused on is working closely with our retailers ensuring the quality of our product is on target and our mark with what they want offer for their store brands, ensuring we can meet their customer service.
Feeds which of course are increasing in demand every year that we're in this business and just really bring Shelby up.
And getting the the benefit that we expect out of out of Shelby.
Sure No I understand and then on on SBS as you mentioned Linda you have one big chunk of supply getting taken out toward the end of last year.
Another chalk thats been gradually coming on over the past couple of years and we'll continue to ramp up this year. So perhaps you're thinking that those two may roughly offset each other I don't want to put words in your Ralph the tell me if if if you think I'm.
Mistaken along those lines so.
Do you expect any change meaningful change in industry conditions compared to where they are now in terms of these low ninetys operating rates and backlogs in the low 400.
It's not sure et cetera.
Yeah, I am I think the way you characterize it is is it fair way to characterize it and I would just say we can definitely agree in C line of sight to what we see as forecasting with regard to 2020 being at or close to 93% utilization that feels about right right. Okay. Thanks, So much Linda.
Thanks.
Ladies and gentlemen that does conclude our question and answer session. At this time I'll turn the call over to Miss Massman for any closing or additional remarks, great. Thank you and thank you everybody for joining us today and for your continued interest in Clearwater paper have a great day.
Thank you, ladies and gentlemen that does conclude the Clearwater paper fourth quarter and year end 2019 earnings Conference call. We do appreciate your participation you may now disconnect.
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