Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Clearwater paper first quarter 2020 earnings Conference call.
At this time, all participant lines on I listen only mode.
After the speakers presentation, there will be a question and answer session to ask the question. During the session you need the press Star then one on your telephone.
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I would now like the hand, the toppled with here a speaker today sound Wolin.
Investor Relations.
Go ahead.
Thank you Sarah good afternoon, and thank you for joining Clearwater paper's first quarter 2020 earnings conference call. Joining me on the call today or arson catch President and Chief Executive Officer, and Mike Murphy, Chief Financial Officer.
Actual results for the first quarter 2020, released shortly after todays market close.
You will find a presentation of supplemental information, including a slide providing the company's current outlook, which is posted on the Investor Relations page at our website at Clearwater paper Dot com.
Additionally, we will be providing certain non-GAAP information in this afternoon's discussion.
A reconciliation of the non-GAAP information to comparable GAAP information is included in the press release, one discipline supplemental information provided on our website.
Please note slide two of our supplemental information.
Rather than rereading, the slide we're going to incorporated by reference into our prepared remarks.
With that let me turn the call over to ours.
Good afternoon. Thank you for joining us today, we hope you're all well, but both Mike and I know many of the analysts and investors joining us today, we would like to begin with quick introductions.
I'll begin by introducing myself, but then with the company since 2013. Most recently as many of you know I was the senior Vice President and general manager or by consumer products Division.
Earlier in my career at Clearwater paper I held several finance leadership positions as well.
Stead of speaking to the rest of my background, which is included on slide three of our supplemental deck I'd like to extend the special Thank you to Linda Massman for her many contributions to Clearwater paper over the years and for her support during this transition I.
I would also like to thank my leadership team and our executive Chairman Alexander Toby for all their support and expertise during this time.
With that it's my pleasure to introduce Mike Murphy.
Just like to say there, we're very lucky to have Mike here I know, we will benefit greatly from his industry experience and operational expertise.
But more importantly, Mike strategic insights will be invaluable to us as we develop and execute our plan to drive shareholder value.
Thank you Arsone I'm excited to be a member of the Clearwater paper team and about the opportunity to create shareholder value by partnering with you.
Our board and the 3300 employees that are at the heart of our company.
The industry exposure that arson mentioned in his comments includes my finance Treasury strategy, and M&A roles, and Kapstone paper and packaging and Boise.
Previously I worked at JP Morgans investment bank, covering the paper packaging and building products industries among other areas.
I look forward to interacting with you our investors and analysts many of whom I know from my previous experiences as well as developing new relationships.
Thank you Mike before we share a comments about the first quarter will provide a brief update about the company's operation and market outlook during the cobot 19 pandemic.
Let's begin on slide four.
We're working hard to protect our two most important assets our employees and a reputation with our customers, which we believe together with our stable balance sheet will position our company well for future value creation for our shareholders.
First and foremost, we're taking care of our employees by implementing rigorous safety and health measures, including temperature checks social distancing guidelines sanitation practices remote work for those whose jobs allow them to do so and travel and visitor restrictions.
Our employees are covered by health insurance benefits in a paid sick leave.
We further enhanced or benefits to support our employees. During this time to include additional paid leave and assistance for cobot 19 related medical costs.
Well, we have some exposure to cobot 19 in our facilities the safety and health measures put in place of minimized business impact.
We remain vigilant and continue to proactively mitigate risks.
We have been designated as an essential industry and we're proud that our employees continue to make a difference in producing products that are necessary for our country.
Similarly, consistent with our reputation for quality performance and dependability, we have worked closely with customers and suppliers to meet heightened demand.
As the former leader of our tissue business I take a lot of pride in the creativity and dedication of our teams to find proactive solutions to increase throughput and service the unprecedent an increase in demand for products. During this challenging time.
These actions are not only helping to protect our employees and customers, but also our company.
Along with the supportive and stable capital structure, we believe there were well positioned to get through these challenging times.
I want to extend a very heartfelt. Thank you to our employees suppliers customers and state and local government officials, who have been good partners over a very chaotic couple of months.
If you turn to slide five we'll we'll talk to what we're seeing at each of our businesses as it relates to cope with 19.
First.
For consumer products Division I'd like to provide some context on how cobot 19 has impacted us and the broader industry from a demand and supply perspective.
Pandemic has driven a sharp shift from normal demand trends and our expectation is that this will continue in the near term.
For Clearwater paper, specifically, we shipped over 15 million cases of tissue products in the first quarter, which is roughly 19% higher than volume trends over the last four quarters.
The demand increased late in the quarter and while we were able to increase our production rates. We also sold down a lot of our inventory.
Together with our customers, we have diligently worked to rationalize skews and improved throughput such that we believe that absent events outside of our control. We can continue to produce at a rate that is similar to our Q1 shipment volumes.
While none of us like the underlying reason for current demand our employees are working hard to meet the needs of our customers and their consumers with Japan would depend on our products and their daily lives.
In the broader U.S. tissue market retail sales were up over 90% in March versus the same period last year as a customer supply chains supply chains were depleted leading to out of stock conditions that many of you have experienced at your local stores.
Well this was partly driven by consumers loading up their pantries, there's a significant change in consumption patterns that has taken place.
In an environment not impacted by Cobot 19, approximately one third of total us tissue is consumed and away from home settings, such as offices schools hotels restaurants in airports.
A large part of our population staying home not only from work, but also from other activities has clearly shifted that mix to act at home consumption.
We expect the returned to normal to be gradual and stretched over the next several quarters.
This underpins our view that demand for at home products will remain elevated in the near term.
From a supply perspective, we believe that Theres, a limited ability to shift away from home production to retail products.
This will continue to put pressure on suppliers like us to maintain higher throughput and NASA utilization levels until the situation normalizes.
At home sales typically make up over 90% of our company's total tissue volume.
Holtom at least the duration of the elevated demand remains unknown and we're working with our customers with the goal of keeping their shelves stock during this time.
The key takeaway here is that we believe Clearwater papers, very well positioned to execute on the current tissue demand.
We believe our expertise to manufacturing supply chain planning and transportation has enabled us to be an agile partner to our customers and continue.
And continue to deliver at elevated levels.
Based on feedback from customers our performance over the first quarter has further improved our strong reputation during this unprecedented challenge.
Let's turn to our Paperboard division.
We experienced strong demand in the first quarter shipments up 4% versus the fourth quarter.
The business benefited from our exposure to traditionally noncyclical segments, such as food and pharmaceutical packaging and other consumer goods.
This led to an increase in demand for products in March as consumers stocked up.
We estimate that roughly two thirds of the industry demand is driven by market segments that are recession resilient.
With that being said the impact of government mandated closures and current economic conditions are making it difficult to predict what might occur in the end market segments for paperboard and the coming quarters.
In the broader market, we estimate that approximately one third of paperboard demand is driven by end market segments that are impacted by economic conditions.
These include foodservice products used by restaurants, and other discretionary consumer goods.
Historically recessions have led to short term declines in demand for paperboard products in these segments.
It remains to be seen how current economic conditions impact demand, particularly with the consumer shift to add home consumption of packaged food and other consumer goods typically found in center store.
With that being said, we do expect that overall paperboard demand will be more economically sensitive been tissue.
We believe that our end market segment diversification.
Service model and product quality will help to dampen volatility during this period of uncertainty.
With that I'll turn it over to Mike to discuss our first quarter results.
Thanks, Arsone, let's turn to slide seven.
Clearwater paper had a strong first quarter across the board with net sales of $478 million, which was largely driven by an extraordinarily strong quarter in our tissue business.
Sequentially, our overall net sales were up 10%.
As a result, we ended the first quarter with the operating income of $19 million.
Our net income per share for the first quarter was 62 cents and on an adjusted basis. Our net income per share was 57 cents.
Our adjusted EBITDA was $55 million well above our outlook range of 41 to 47 million.
Our performance exceeded expectations due to strong performance in our consumer products division driven by increased demand and continued cost improvements.
Our paperboard division had a solid quarter as well. It's segment results were impacted by the previously reported Risi index price decreases and a public utility disruption at our Cypress spend facility caused by weather event.
Both factors were discussed in our fourth quarter earnings call.
Lastly, with lower capital expenditures, we generated net free cash flow in the quarter. Today, we continue to have ample capital and liquidity as we continue to focus on generating strong cash flows and prudently managing our capital expenditures.
On slide nine the adjusted EBITDA performance of our tissue business in the quarters highlighted.
As Arsone previously mentioned volume grew from 13.3 million cases in the fourth quarter of 2019 to 15.2 million cases in the first quarter of 2020.
Or over at 14% increase.
Roughly two thirds of this growth was driven by selling through existing inventory while increased production accounted for the remainder.
Higher production volume led to improved cost absorption, which together with declines in some of our input costs contributed to 4 million dollar cost improvements.
On slide 10, the adjusted EBITDA performance of our paperboard business as detailed.
As we mentioned in our fourth quarter earnings call previously reported threec price reductions impact or performance by more than $2 million.
That said, we continued to experience strong orders as our sales improved over 4% on a sequential and year over year basis.
We also experienced higher cost due to wage inflation and some production disruption.
And a public utility outage at our Cypress been facility caused by weather event that impacted production per week.
As we turn to our outlook there is significant uncertainty driven by covert 19 government actions to flatten occurred.
Broader economic conditions and hall, how all these factors ultimately impact our customers and their consumers.
This uncertainty is also impacting pulp market pricing and availability of residual would in the Pacific northwest that we purchased a supplier Lewiston mill.
Regardless of this uncertainty our focus will continue to be on the items that we have greater control over which is keeping our employees healthy.
Operating our facilities servicing our customers and continuing to generate cash to deleverage our balance sheet.
Looking ahead to our second quarter outlook on slide 12.
We currently expect adjusted EBITDA in the range of 45 to 55 million.
We expect volumes to moderate from the first quarter with continued elevated demand and tissue.
While selling through some of our finished goods inventory in March contributed to our tissue sales growth.
We believe that current production rates in the second quarter can support the sales volume levels achieved in the first quarter.
We believe that the cost benefits and tissue realized in the first quarter should be sustained in the second quarter.
Receipts reported price decreases in Sps have created downward pressure on the margins in our paperboard business.
We expect that our and market segment diversification will dampen the impact of possible demand reductions.
We also experienced a public utility failure in Arkansas at the beginning of the second quarter.
Looking ahead at the second half of the year. We are optimistic about continued strength in our tissue business, but are less certain about the impact of economic conditions on the paperboard end market segments and key cost drivers during the fourth quarter earnings call. We provided an outlook range for certain revenue and cost components for the full.
Sure.
There are a number of scenarios that we considered since that outlook.
And while there is uncertainty on how each component plays out. We currently believe that the net impact still represents the likely outcome given today's information.
We are expecting to provide an updated outlook when we have a greater degree of confidence in the economy and its impact on our business.
We continue to expect full year capex to be in the $45 million to $50 million range, well below our expected depreciation and amortization of 109 to 112 million.
And interest expense in the range of 49 to 51 million.
We are less certain about our previously communicated range of using $20 million to $25 million of cash to build working capital due to recent inventory reductions.
Finally, we do not anticipate being a net cash tax parent this year and we believe our effective annual tax rate, excluding our tax attributes should be approximately 25%.
To wrap up our outlook comments.
We are on track to meet our Shelby Ics.
Expansion paper production target by the middle of this year and expect to contribute 20 to 25 million to adjusted EBITDA impact in 2020.
This is included in our outlook as a reminder, our Shelby expansion delivered roughly $10 million of adjusted EBITDA impact in 2019 and is expected to contribute an additional 20 to 25 million in both 2020 and 2021 and the remainder in 2022.
In total were on track to contribute $55 million to $65 million adjusted EBITDA for the project.
Approximately half of that impact is expected to come from new sales volume.
While the other half is expected to come from network optimization and other cost reductions.
Before I turn the call back to our son to conclude I'll review, the key facts about our liquidity position and debt maturities you can find the details on slide 13.
We have an asset based revolving credit facility or an ABL.
A covenant lite term loan and two outstanding bonds.
Our current debt maturity schedule is $3 million annually until our 2023 bond maturity.
And we could have additional mandatory repayments, if we generate excess free cash flow.
We also have an obligation under our ABL and term loan three finance or repay the 2023 bond at least a quarter in advance of the bond maturity, which is standard for capital structure like ours.
At the end of the first quarter, our liquidity was approximately $234 million. We believe we have adequate liquidity today, which should be enhanced by expected positive free cash flow generated for the balance of the year.
Let me turn the call back over to Parsons conclude our call today, but the level set a clear water papers value as we see it and a few concluding remarks.
Thanks, Mike, Let's turn to slide 14, first we believe Clearwater paper is very well positioned across too attractive and complementary businesses.
Our consumer products division as a leader within the growing private branded tissue market.
From our vantage point, we believe the key strengths of this business or the following.
First tissues and economically resilient and meet based product historically demand has not been negatively impacted by economic uncertainty.
Second there are long term trends away from branded products to private brands.
This is amplified during recessions.
Private brand tissue share in the U.S has risen to over 30% in 2019 up from 18% in 2011.
While these trends are impressive we're still a long way from where many European countries are where private brands represent over 60% of total tissue share.
Lastly, we have a national footprint within ability to supply wide range of product categories and quality tiers, which has an attractive sales proposition to our customers our expertise in manufacturing supply chain and transportation is a key differentiator, especially during challenging times like today.
Turning to our Paperboard division.
We believe that the key strengths of this business or the following.
First we operate well invested assets with the geographic footprint, enabling us to efficiently service customers on both coasts.
We have a diverse customer base with end markets within market segments that have largely stable demand.
Second not being vertically integrated enables us to focus on independent customers with unparalleled service and quality commitment.
Lastly, we believe that business that the business is well positioned to take advantage of trends towards more sustainable packaging and foodservice products.
Our paperboard business has demonstrated an ability to generate good margins and solid cash flows.
Overall, our large capital investments are behind us and we're prioritizing cash flows to reduce debt.
We intend to do so by delivering benefits from our Shelby investment.
Continued operational improvements aggressively managing working capital and prudently allocating capital.
We believe that this strategy is the best way to create value for equity and debt holders in the near term.
I also want to add that we prioritize the sustainability of both the products we make in the way, we make them, which is a key part of our investment proposition.
We recently published our latest sustainability report that includes our focus areas, which we believe benefit the environment local communities and our business for the long term you can find the report on our website.
Before we take your questions I went to reiterate my excitement for taken on the leadership with Clearwater paper at this time and how proud I am with how our employees have responded to the cobot 19 related issues that are impacting our personal and professional lives.
So with that we will end are prepared remarks and take your question.
Thank you.
First question comes from the line of Adam Josephson with Keybanc capital markets. Your line is now open.
Our first and then Mike good afternoon.
Good afternoon.
Best of luck to both of you in your new roles.
I'll start off on that paperboard segment for either of you. Your volumes were up 4.5% sequentially. As you mentioned and March was obviously the biggest driver that can you talk about what your shipments were up in March.
And what they were in April and what you're expecting for the balance of the second quarter.
Relative to whatever they were in April.
So what I'll tell you is our shipments were strong in March and our backlogs were.
Strong in March as well versus versus prior versus prior years.
If you look at the overall industry.
Backlogs and March were were also up by 14% versus versus February we had we had high operating high operating rates.
Our our backlogs have continued to remain healthy and into April and we have healthy we have healthy shipments. The question. The question. That's the biggest question before US is how does the current economic environment.
Impact the broader paperboard market for balance of the year.
I think as we stated in our in our prepared remarks, we believe a third of the overall demand is.
In products that are we consider discretionary which is called foodservice and.
And luxury goods and other and other types of packaging.
We will we don't know is how this current recession will impact.
Third of the demand.
We do know is we have strength in the and the underlying folding carton business that is I use for for food for food packaging and pharmaceutical applications and Adam if I can add to it we actually had good year over year sales momentum and both January and February so our.
Our growth in March well above trend.
Isn't that full explanation for the year over year in sequential growth that we saw.
Thanks can you can arson I guess you don't want to talk about April what you were up or not up in April just try and now you said your backlog remains healthy can just give us some perspective as to what your shipments were versus the up.
In one Q.
I think will.
We'll hold off on commenting on on Q on Q.
Okay and.
And then just one more on paperboard. Thank you for your estimate of the industry's next in terms of retail versus foodservice and discretionary is your mix comparable or do you have a much different mix than what you estimate the industry's mix to be.
So we have we believe we have less exposure to two foodservice and liquid packaging and the rest of the industry, but we have more exposure to.
What I would call discretionary folding.
Folding and packaging.
So while our mix is our mix is different we do think that about a third of our demand has also what I would call.
Would be impacted by potential recessionary conditions.
Sure enough. Thank you.
On tissue.
Who knows how long the situation the state of affairs will last but let's operate under the assumption that at home demand will remain elevated as you're expecting a while I have never domestic otherwise.
How do you think that will affect the capacity addition, slated to come online obviously, the private label tissue market has struggled for years.
With that.
Excess supply situation I'm, just wondering how this sudden surge in demand could affect that supply demand balance over the next few months and perhaps longer than that.
So a couple of comments on that Adam.
So we will we saw in March and into April was what I would call would be was driven by by pantry loading we saw a 90% increase in March we saw 40% increase in April the industry saw 9% in the 40% increases yep.
And we.
In a lot of that was driven by the pantry loading there's a longer term question as a third of total tissue consumption is takes place outside the home.
And.
The big chunk of that consumption is shifting to at home.
And if you just assume that 50% can throw out a number 50% of at home.
Away from home consumption shift at home, you will drive a 20% to 25% increase in at home.
Tissue tissue demand.
The forecasts out there for this year estimate somewhere between 215 300000 tons of as.
Passing the US as you know in this in this industry capacity can't turn capacity on and off and you can you can't finished capacity.
All that quickly so we have to assume that that capacities coming online, but in terms of the overall supply demand balance for at home tissue I think it's going to be driven by how long. This this trend towards at home consumption continues.
Thanks, Arsone just last from me on that the away from home what happens to all that away from home capacity that I know you address that.
Roughly in your prepared remarks, but can you just share your thoughts with us in terms of.
How much of that away from home capacity could be converted to producing for at home and.
And for those that.
For the capacity that can what what comes of it.
It's a hard one to the hard one to analyze so we think some portion can be converted to at home.
At home up production, but we don't think it's the majority.
I think the minority of that.
Production could be converted but it's hard to tell what within away from home.
Players at this decide to do whether they decide to convert to spent the spend any capital on that or not so it's hard to comment on that right now.
Thanks, a lot Arsenal.
Thank you. Our next question comes on the line of Paul Quinn with RBC capital markets. Your line is now open.
Yes. Thanks.
Yes fair afternoon, sorry, it's been a London.
Good afternoon, good afternoon Paul.
Just a question just following up with Adam on on the wafer home side.
Idea of a limited ability to switch you guys described yourself is 90% at home.
10% that you produced for the away from home market did you produce side or did you switch some of that into.
Consumer lands.
At a high level.
90, plus percent of our sales are are at home at 10% is a combination of parent roll sales.
As well as away from home sales so away from home is actually less than less than 10% of of our sales.
We have very specific away from home assets and right now we're running all the retail products that we can.
But I think thats its a small part of our overall capacity.
Okay. Thanks, and then what we see tissue inventory drawdown on the quarter.
So we're not going to comment specifically on.
On the on exactly where inventories ended up but I would tell you there was a very significant very significant drawdown.
Of our inventories and we assume we have to assume that a similar drawdown happened across the supply chain with our customers with our customers as well with the.
Precedented demand increase in March and April but it was it was this a substantial.
Inventory drop to where I think were essentially running at our cycle stock inventory levels.
Okay and then just on this notion of the increased demand in Q1 in your expectation that that it stays high in the near term and you expect a pullback at some point down the road is already seeing actually increased consumption by the consumer.
Okay I.
I think it's going to be driven by how long some of these stay at home orders last and how quickly the consumer shift back to their old.
Consumption patterns.
And now how quickly people get back to work it back to traveling get back to eating out.
We think it's going to take at least a few quarters for for things to normalize.
So we do expect we do expect increased demand in the coming quarters, but to what extent I think it's difficult to predict right now.
Okay, and then just lastly, just.
It's like pulp was a tailwind in the quarter, what's your expectation going forward and maybe.
Little bit of an update on the digester loosen.
Yes, so during the the fourth quarter earnings call. We we stated that we expect pulp to be.
15 to 20 million dollar a tailwind for us.
Paul as you know pull prices.
Bottomed at the end of Q4 into Q1 of this year and receives projecting projecting increases later this year. We still think we have we have $15 million to $20 million of upside and pulp year over year.
And Paul on the latter comment on Lewiston, just want to remind you that the project overall as generated $10 million of EBITDA benefits.
We're still working to optimize the assay.
And we'll.
Look to give you an update on the upcoming quarters.
Okay. So the so what I'm trying to get more it's more your exposure to pull markets. So thats still remains the at somewhere around 300000 funds.
That's correct and as you think about us the majority of that hardwood exposure as opposed to softwood.
Right, Okay, thanks, very much like us.
Thank you.
Thank you. Our next question comes on the line of Steve Chercover with da Davidson. Your line is now open.
Thanks, Good afternoon, everyone.
So.
Obviously, it was weighted quarter for tissue I guess, that's from the no surprise department.
And I can attest that things are still sold out in late April currently may.
Any visibility on how far forward. Your order files are I mean, I know you said that you expect volumes to be fairly similar.
Yes.
So in tissue, we will we look at is.
Is that as our demand at various points in the month customers order with within their lead times. So what I would tell you is demand remains strong in April and I think our orders remained strong and to main intimate. So I do think that the strength the strength there continues.
Not at the same levels, obviously isn't as in March and I think the IR right data with with support that work continues to see to see strong demand as we look forward I still think our customers supply chains.
Our pretty light on inventory.
I think until we get product on the shelf and Philip our customer supply chain.
I think our order book will remain pretty strong.
Thanks, and you kind of touched on this but.
I think it's an important point away from home is only.
Very small part less than 10%.
And obviously, you're selling to some third party converters is there a target integration level for converted product I mean would you prefer to not so any parent rolls for instance.
I think that's probably the best way to answer that as.
We look at them at each of our each of our regions each of our mills in each of our assets and figure out what's the best way to to optimize profitability.
So when we do sell parent rolls that is.
That is the best way to optimize profitability for those for those tons.
We will continue to make those types of decisions.
Obviously.
We are in the finished goods business and that's that's that's our preference, but we will we will sell parent rolls if if those incremental finished good cases don't make sense financially.
Got it switching gears to paperboard is there any kind of insurance recovery anticipated for the utility failure in Arkansas and the product disruption that you referenced.
In the waterfall chart is that also a function of the power related issue.
So Steve on the first one got I'm, not anticipating any sort of recovery necessarily there. This was a power line that went down and we can get power into the mill.
And again that happened again in the second quarter.
And so I know that answers. The first are the question. The second part can you just clarify for me.
The question.
Oh, well in the same waterfall chart, there was product disruptions and I'm wondering if that's part of utility failure.
That's that's where most of it caught it.
Yes, that's most of it we had a little bit of disruption in the quarter and Lewiston, but the majority of it was from the power outage that we experienced at Cypress spend.
Okay, and then operationally how would you characterize the ramp of the new machine Shelby.
I mean does the voracious demand for tissue prompt you to wrap it faster than you might have mapped it out last fall.
What I would tell you is we are doing everything possible to ramp to ramp those assets as quickly as we can.
As we said we're on track to to ramp the machine halfway through this year.
And our goal is to get to get everything ramped and sold out bye bye.
By the.
By the end of 21 heading into into 22, so the sites running 24, seven as you might imagine and has been.
And we are making products for customers and trying to get as many cases out those off those lines as as possible.
Okay and finally just.
Follow on to Paul Quinn's question on the benefits of to Lewiston, Digesters, I think Mike said, but $10 million the benefit so far what was the original target was.
20% of 180 million dollar investments can you let me frame that.
And it was that was roughly $30 million was was there was the initial was the initial target.
A third of that was was cost a third was yielded a third was was was incremental production.
We think we're getting a third of that when we have not seen what we're not seeing is the that yield and and that resulting volume benefit.
So we're continue to optimize our assets. The team is the team is working hard to.
To get the benefit, but we'll level will provide you with an update when we have one.
Yes, I mean, the catalyst, maybe maybe I should just wait.
I know you've got the new catalyst and so.
That's that's not the only secret sauce evidently.
I think as I've said, where we are the team has the team is looking at at every part of that production and the process.
As you May imagine, it's an end to end process and they have to look at various stages in the process.
To see what we can do to to get to that yield number.
Got you okay. Thanks, very much stay safe.
Thank you to Steve.
Thank you we do have a follow up question from Adam Josephson with Keybanc capital markets. Your line is now open.
Thanks Arsenal, Mike one on your guidance the 45 to 55 for Twoq, Obviously, I think you addressed the fact that it's it's a rather wide range just given.
The.
Highly unusual circumstances, we find ourselves and but is there anything in particular that would get you to the high end or bottom and that you would point to one and then to Mike or ours in is the deferral extent of the Shelby savings in that number such that sequentially Twoq to Threeq you there wouldn't be.
Incremental savings.
From the shell the expansion.
So Adam I'll reversed the order of your questions. There there is some incremental benefit each quarter from the Shelby expansion.
So it's not a as you're modeling, it's not a big Bang and that we received at all in either Q1 or Q2 right.
Second backing up to the 45 to 55.
Part of it is going to be volume strength. So if we continue to have.
Abnormally high tissue demand.
That's going to drive a lot of the benefits that we see in the quarter.
And then.
Demand, we see on the Sps side of things I think we've commented that we had a very strong first quarter I.
I think we're not dissimilar from the industry overall into major way, we're starting to see some.
Some pullback there and so those are the bigger question marks at least in my mind, our son I don't know if you have anything that agreed.
Perfect. Thanks bike and just on the cash so I think you mentioned earlier that.
Working cap may not be a use of cash anymore, just given the substantial decline in your tissue inventories.
Can you just elaborate on that comment are you thinking now that working cap could be flat or perhaps even a source of cash this year.
Anything on the receivables or payables side that you would point to.
Thanks for giving me the opportunity to clarify I think in the fourth quarter, we guided to 20 to 25 million of increased working capital.
What we're saying now as it were not sure that Thats a great assumption.
In part due to the drawdown on inventory, where we land at the end of the year will largely be a function of the demand levels that were seeing at the end of the year and if we've been able to replenish somebody inventory drawdown that we've seen on our balance sheet and in our assets.
Perfect and just one last one it just back to the guidance in your visibility into tissue to me I know you're asked this question Arsone, but.
How much this what is your visibility slash backlog at this point just again to to try to further clarify that point, but.
How much of your to Q tissue volumes have you effectively locked in or do you have visibility into at this point.
Okay.
So in that in the tissue in the tissue business, we don't think of demand in terms of backlogs our customers order within their lead times in the order and it varies and on a very regular pattern. So would we see visibility to is over that lead time with the orders look like.
And in right now the orders remain remained strong, but we have visibility out to those out that lead time for per customer ordering.
I'm not sure if that answers your question, but it's how we how we look at the tissue business here.
We do you measure that in in a matter of weeks.
Two weeks three weeks is it longer than that short of Matt.
It depends on the customer, but the I think you're in the ballpark.
Okay. Thanks, so much ours and best of luck.
Thank you.
Thank you we do have a follow up question over the line of Paul Quinn with RBC capital markets. Your line is now open.
Yeah. Thanks, guys.
Here I've noticed when I've been shopping at various locations and.
British Columbia here that prices.
Paper as moved up now talking to some of the other producers out there they seem reluctant to increase prices is there any.
Can you share any thoughts about whether we look for a price increase given the increased demand.
So a couple of waste a couple ways to look at that so number one right now we're focused on servicing our our customers and pricing in this space is driven by supply demand in our in our value proposition in the market I think that's a that's a nice way of saying we are not going to talk publicly about about future pricing actions.
Okay fair enough. Thanks.
Thank you. This concludes todays question and answer session I would now like to turn the call back to arcing kits, President and Chief Executive Officer for closing remarks.
Great. Thank you and thank you to everybody for joining us today and for continued for your continued interest in Clearwater paper have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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