Q4 2021 Clearwater Paper Corp Earnings Call
Good afternoon. My name is Emma and I will be your conference operator today at this time I would like to welcome everyone to the Clearwater paper for Q 'twenty one earnings call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
He would like to withdraw your question again press the star one. Thank you Sloan Bohlen Investor Relations you May begin your conference.
Thank you Anna good afternoon, and thank you for joining Clearwater paper's fourth quarter of 2021 earnings Conference call. Joining me on the call today are some catch president and Chief Executive Officer, and Mike Murphy, Chief Financial Officer financial results for the fourth quarter 2021 were released shortly after today's market closed along with the filing of our 10-K you will find it.
Presentation of supplemental information, including a slide providing the company's current outlook posted on the Investor Relations page of our website at Clearwater paper Dot com.
Wally 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 and the supplemental information provided on our website. Please note slide two of the supplemental information covering forward looking statements rather than rereading. This slide we are going to incorporate it by reference into.
Our prepared remarks with that let me turn the call over to art.
Good afternoon, and thank you for joining US today, please turn to slide three.
As you saw from our press release, our financial performance was at the high end of our expectations for the fourth quarter.
On a consolidated basis, the company reported fourth quarter net sales.
$490 million adjusted net income of $9 million and adjusted EBITDA of $56 million.
For the full year 2021, we delivered net sales of nearly $1 8 billion.
Adjusted net income of $17 million and adjusted EBITDA of $175 million.
A few highlights to mention.
Strong demand continued in our paperboard business based on that demand, we implemented previously announced price increases across our SBS portfolio.
Demand in our tissue business stabilized with volume in the fourth quarter similar to the third quarter.
We're implementing previously announced price increases across our tissue business to recover some of the cost inflation that we're experiencing.
While pulp prices showed modest easing we continue to experience inflation across most of our other input costs.
We're focused on operating and supply chain efficiencies along with price increases to help offset these headwinds.
We received net proceeds of $13 million from the sale of our closed Neenah, Wisconsin tissue site and related assets.
And finally, we maintained ample liquidity of $265 million at quarter end and reduced net debt by another $37 million in the quarter, which included proceeds from asset sales.
For the year, we reduced our net debt by a total of $69 million.
As noted previously we remained focused on our top priorities during COVID-19 , the health and safety of our people and operating our assets to service customers.
We saw spiking cases and absences starting in December .
The team did an outstanding job managing to keep our most critical assets running but we did experience some downtime on our tissue converting lines.
We implemented weekly Covid testing for all our people last year and secured a regular supply of tests from a major manufacturer.
Our goal is to identify Covid cases, early and limit the risk of spread within our facilities.
Regular testing along with our other safety precautions has enabled us to mitigate risk and minimize business impact.
One additional note before turning to our business performance, we've updated our investor Handout in November which is located on our website with some refreshed information on Clearwater paper and the industries in which we compete.
There were several relevant industry announcements in late December , which I will speak to at the end of my prepared remarks.
With that let's discuss some additional details about both of our businesses and their performance in the fourth quarter.
Please turn to slide four for a few comments on our paperboard business.
The industry continues to experience strong backlogs, even with higher SBS pricing as reported by SaaS markets Risi.
Since the beginning of 2021.
<unk> reported price increases for the U S market that totaled $300 per ton and folding carton and cup stock with.
With $250 per ton occurring in 2021, and another $50 per ton in January of 2022.
We're continuing to see strong demand from both our folding carton and foodservice customers. As a reminder, it typically takes US a couple of quarters for price changes to be reflected in our financials.
It is also worth noting that our portfolio includes additional grades and price mechanisms that are not reflected in <unk> reported.
We will discuss the estimated impact pricing later in our comments.
We executed the Headbox installation project at our Lewiston, Idaho Mill in January .
This project was previously deferred due to strong demand.
Our team did an excellent job in executing this outage under difficult COVID-19 conditions Mike.
My thanks to our Lewiston team, our vendors and our contractors, who completed the work safely on time and on budget.
On slide five I want to highlight our track record of product innovation and sustainability in our paperboard business as we continue to focus on meeting the needs of the circular economy.
First we achieved the sustainable Forestry initiative and Forest stewardship Council certifications for sustainability for sustainably sourced fiber nearly a decade ago.
In fact, we believe that we were the first North American Paperboard company to dual certify our products with both <unk> and FSC.
These certifications helped to ensure the sustainability and integrity of our supply chain.
We're now focused on bringing sustainable products to the market that meet the needs of our customers.
In the last couple of years, we launched Nouveau Cup stock and re matching folding carton brands, both containing post consumer recycled content that meets FDA compliance with direct food contact.
In January of this year, we launched value of PBS coating on our Cup stock.
The coding can be used in hot Cup applications as an alternative to low density polyethylene, enabling the company to become profitable.
When applied to our Newbuild Cup stock, which contains up to 35% post consumer recycled fiber, we're offering unique environmentally friendly solution.
We believe that innovations like these will help drive incremental domestic demand for SBS products due to their inherent sustainability benefits.
For both businesses were committed and focused on developing products for sustainable circular economy to meet the needs of our customers.
Please turn to slide six with some additional comments on our tissue business.
The tissue market environment continues to be challenging let me describe our point of view. According to risi the size of the U S market was $10 6 million tons in 2020.
Approximately 70% in the at home market.
Using that math the at home market is approximately $7 6 million tonnes of which approximately two thirds is branded.
And one third is private branded.
We operate in a private branded market, which is approximately $2 5 million tons.
It has grown more quickly than the branded market.
In terms of the retailer environment. The two key trends have been industry consolidation and share gains by club and mass at the expense of the grocery channel.
Today.
One of the top five retailers in the grocer in those top five retailers now make up nearly 70% of all private branded tissue demand.
The supplier based on the other hand has been deconsolidation and adding capacity that exceeds demand growth.
Due to this we believe that private branded manufacturers will operate a depressed capacity utilization levels in the next several years.
In terms of recent trends based on our experience in Q4, and early 2022 demand patent demand patterns of our retail customers and consumers have stabilized.
We shipped $12 4 million cases in the fourth quarter slightly higher than the $12 3 million cases shipped in the third quarter, which was in line with our guidance for flat tissue volumes quarter over quarter.
We continue to experience significant inflation in the fourth quarter and as a result, we announced and began implementing tissue price increases. In addition to other actions, helping us to recoup some of the margin loss due to the CTO inflation.
Based on previously announced price increases, we're expecting we're expecting low single digit price impact across our retail business in 2022.
We're also working with our customers on product changes to reduce costs.
With that I'll turn it over to Mike to discuss our fourth quarter results.
Thank you <unk>, please turn to slide seven.
The consolidated company summary income statement shows fourth quarter and full year comparisons for 2021 and 2020.
In the fourth quarter of 2021, our net income was 9 million diluted net income per share was <unk> 54, and adjusted net income per share was <unk> 82.
A corresponding segment results are on slide eight.
Slide nine is a year over year adjusted EBITDA comparison of our pulp and paperboard business in the fourth quarter.
We benefited from our previously announced price increases favorable mix improvement and slightly higher sales volume.
Our costs were impacted by higher inflation, particularly in energy chemicals and freight.
This resulted in adjusted EBITDA of $61 9 million, which represents a quarterly adjusted EBITDA Records for our Paperboard Division.
You can review a comparison of our fourth quarter 2021 performance relative to third quarter on slide 17 in the appendix.
On slide 10, we compare the full year 2021 performance to 2020 for paperboard with adjusted EBITDA similar to 2021 relative to 2020.
We implemented substantial price increases that were largely offset by significant cost inflation.
That cost category at a $27 million impact associated with the planned major maintenance outages in 2021.
Whereas we had no major maintenance outages in 2020.
Please turn to slide 11, where we provide a year over year comparison for our tissue business in the fourth quarter.
We implemented previously announced price increases in addition to realizing some mix benefits in the fourth quarter.
Our pricing impact was significantly below inflation as we struggled to maintain our margins due in part to the supply and demand dynamics in tissue.
Relative to last year, our sales and production volumes were significantly lower as the impact from Covid driven buying lessons.
As you'll recall in the second quarter, we announced the closure of our Neenah site, which helped mitigate both volume and cost pressures during that year and was the final step in realizing the operational and supply chain benefits from our Shelby investment.
Additionally, we have been working to reduce our inventory by reducing production.
We are now at our targeted inventory levels and expect to match production to demand from 2022.
On slide 12, we compare year over year performance.
And mix were small factors.
Our sales and production sales volumes were down substantially in a business that has significant fixed costs leverage our cost inflation, which was significant was partially offset by the closure of our neenah, Wisconsin facility.
You can review a comparison of our fourth quarter 2021 performance relative to third quarter on slide 18 in the appendix.
We also have other operational and financial data on a quarterly basis on slide 19 for both businesses.
Slide 13 outlines our capital structure.
Our liquidity was $265 million at the end of the fourth quarter, our free cash flow in the quarter was $37 million bolstered by asset sales, including our Neenah, Wisconsin site, a $13 million.
The asset sale proceeds which were realized in the fourth quarter, largely offset our cash closure related costs associated with the neenah site in the second and third quarters.
Our full year free cash flow generation was $69 million.
We utilized free cash flow to reduce our term loan balance to $50 million.
Maintenance financial covenants do not present, a material constraint on our financial flexibility and we do not have near term debt maturities.
Our net debt to adjusted EBITDA at the end of 2021 was three four times, we continue to make progress on our targeted net debt to adjusted EBITDA ratio of two five times are around $500 million of net debt, which we expect to achieve both by 2023.
Slide 14 provides a perspective on our first quarter 2022 outlook, but key drivers and some assumptions for the rest of 2022.
Our expectations assume that we continue to operate our assets without significant COVID-19 related disruptions.
We want to reiterate that inflation and other supply chain disruptions continue to be difficult to predict.
Our current expectation for the first quarter and adjusted.
Adjusted EBITDA of $48 million to $56 million.
Let me walk you through the buildup to that range from our fourth quarter adjusted EBITDA of $56 million.
Previously announced paperboard and tissue pricing are expected to positively impact us during the quarter by $10 million to $14 million in total.
Paperboard impact could be 9% to $11 million in tissues impact can be $1 million to $3 million.
We had strong shipments in paperboard in the fourth quarter and expect to have lower shipments in the first quarter as we rebuild inventory.
Tissue sales are expected to be flat quarter over quarter.
Implemented price increases are largely being offset by inflation and fiber chemicals, and energy, which is expected to negatively impact us by 5% to $7 million.
We have $3 million to $4 million of planned major maintenance outages compared to no major maintenance outages in the fourth quarter.
We continue to experience some supply chain difficulties and COVID-19 related absenteeism and the start of the quarter impacting our cost structure.
We wanted to comment on some of the key annual drivers for 2022 to provide you with a framework to think about our potential performance.
If our previously announced paperboard and tissue prices remain at current levels throughout 2022.
We would expect an annual pricing benefit of $120 million to $140 million in total.
$110 million to $120 million in paperboard and $10 million to $20 million in tissue.
We expect growth in converted tissue volume, but the benefits will largely be offset by higher supply chain costs and.
In 2022, we also have some larger tissue agreements up for renewal, which could create uncertainty both in terms of price and volume.
Cost inflation, including pulp fiber freight chemicals, and energy is expected to be $90 million to $100 million.
We also expect some labor inflation net of cost mitigation efforts, which could be approximately a $10 million headwind.
In our paperboard business planned major maintenance outages are expected to have a similar financial impact is 2021.
For the full year 2022, we are also anticipating the following.
Interest expense between 33% and $35 million.
Depreciation and amortization between $101 million to $104 million.
Capital expenditures of approximately $60 million to $70 million in line with our historical average excluding extraordinary projects.
And some projects that moved out of 2021% to 2022 due to some timing issues.
And our effective tax rate.
Is to be between 22, and 23% and we expect to be a cash taxpayer.
We mentioned last quarter, we expect to have additional major maintenance outages in 2023.
Meanwhile, our estimates are not complete and subject to change we believe that those outages can impact our 2023, adjusted EBITDA by 34, 35% to $40 million or $10 million higher than in 2022.
We have included these estimates on slide 23, the primary drivers for the outage is work that we need to do on our recovery boiler at Lewiston, Idaho mill.
In addition to the operating expenses that we are likely to incur the capital required for this work will likely exceed $30 million.
Majority of that occurring in 2023.
We do not have an estimate for full year 2023 capital spending at this time, but we expect it to exceed our normalized expected spend of $60 million per year.
Let me turn the call back over to <unk>.
Thanks, Mike.
First I want to thank our people for their focus on safety and serving our customers throughout 2021 as well as a strong finish to the year as.
As Mike mentioned the inflation that we saw in 2021 is expected to carryover into 2022, and we expect the tissue demand volatility will be greatly reduced.
As we mentioned previously we think that supply and demand drive near to medium term pricing and margins in both of our businesses.
Our paperboard business is benefiting from favorable market dynamics and tissue, we had some success on announcing and implementing price increases in the fourth quarter, but the supply and demand dynamics remain challenging.
We continue to work on efforts to improve our cost positions to offset margin compression, which is a recurring theme.
I want to share some perspectives with you regarding some recent industry headlines as well as some larger contract renewals and tissue that could impact future performance.
In December the European Company announced the acquisition of a U S based printing and writing Great company and its intention to convert two paper machines to primarily folding box board or SBB grade.
The announced timeline for the conversion of the first machine is in 2025 and the second machine is in 2029.
Two machines are expected to have a combined capacity of over 1 million tonnes.
Sure some perspectives related to this announcement.
<unk> and other industry sources report the domestic consumption of SBS is $4 1 million tonnes with an additional 400000 tons of FPV imports.
Demand is expected to grow by 1% to 2% per year for 50 to 100000 tons for a total of four to 800000 tons by the end of the decade.
A domestically produced SBB would likely partially offset imported FTB due to the supply chain advantages.
It is our belief that SBS continues to be a preferred product.
Based on operational economics and end use requirements.
We also believe that in today's market demand exceeds supply.
In the long term case for paperboard products remained strong units inherent sustainability advantage.
These conversions are complex expensive and initial assumptions about projects feasibility often changeover time.
So while we will continue to evaluate the situation as it unfolds, we do not believe that this changes our long term positive outlook on the industry and our business.
In tissue, we have some significant customer agreements up for renewal later in 2022.
We're focused on these renewals as well as pursue new opportunities to fill out our capacity.
There were also two additional tissue capacity announcements that are expected to come online in 2024 with a total of over 100000 tons targeting the at home market.
We continue to evaluate our tissue asset footprint to ensure that we are cost competitive.
While there are several moving pieces in our industries.
Let me remind you why you think these businesses are well positioned in the long run.
For our Paperboard Division, we believe that the key strengths of this business are the following.
First we operate while invested assets with a geographic footprint, enabling us to efficiently service our customers.
We have a diverse customer base, which serves end markets that have largely stable demand.
Second not being vertically integrated enables us to focus on independent customers with unparalleled service and quality commitment.
Third we believe through product and brand development. The business is well positioned to take advantage of trends towards more sustainable packaging and foodservice products.
Lastly, our paperboard business has demonstrated an ability to generate good margins and solid cash flows.
Our consumer products Division is a leader within the growing private branded tissue market.
From our vantage point, we believe the key strengths of this business are the following first we have a national footprint with an ability to supply a wide range of product categories and quality tiers, which is an attractive sales proposition to our customers.
Our expertise in manufacturing supply chain and transportation is a key differentiator.
Second there are long term trends away from branded products to private brands.
Branded tissue share in the U S rose to over 30% recently up from 18% in 2011.
While these trends are impressive we're still a long way from where many European countries are in which private brands represent over half of total tissue share.
Lastly, tissue is an economically resilient and an essential need based product historically demand has not been negatively impacted by economic uncertainty.
We're optimistic that this business will generate meaningful cash flows over the long run.
We're entering 2022 is a better and stronger operation than where we started in 2021.
In addition to appropriately sustaining our asset base, our capital allocation plan is focused on paying down debt and improving our cost structure and operating performance.
We continue to work with our board on a range of value, creating capital allocation options.
We expect to share our long term strategic capital allocation priorities when we approach our target debt levels later this year.
In closing I would like to thank our people for all that they do to keep our operations running safely and efficiently and for servicing our customers.
I also want to thank our shareholders for their continued support and our customers for choosing us with that we will end our prepared remarks and take your questions.
Thank you. Your first question today comes from the line of Mark <unk> with BMO capital markets. Your line is now open.
Thanks, Good evening or good evening Mike.
Good evening.
Let's start off or any way to help us think about the impact of that 'twenty two shifts mix in the bleach Board business.
So mark on the shift mix, what just clarify the question for us.
Well youre talking about basically vol.
Volume moving from kind of folding carton back to foodservice.
That was up.
When I went the other way during Covid that was a benefit and now it looks like it's going back.
Towards foodservice, so what's the impact of that on a year over year basis for yields in your view.
Mark what we've seen is some strength within the.
The foodservice category from a pricing standpoint, so it's probably going to be a less.
Pronounced negative impact this year as it was a positive impact back in 2020.
Okay, Alright and is it.
Possible for you to talk at all about sort of just a general in general terms about the strategy to counter this.
European box Port produced from it it it does seem to me.
That they are aiming at that same merchant piece of the SBS market that you focus on a lot of the independent carton converters. So.
It seems like they're coming straight at your wheelhouse I'm just curious about how you counter that or how you think about countering that.
Mark I think Theres, a couple of ways to look at it I think the first.
First thing worth mentioning.
This is a.
The big expensive risky conversion rate so over the next step 889 years, So as you know.
These conversions can be pretty unpredictable, so, let's let's start there.
I think the second piece I think more broadly speaking in today's market demand is outstripping supply and we think there is healthy growth ahead of us and in SBS and ahead of the market.
And we think the SBB nature of these conversions will really target the imports first.
So if you take all those factors that combine all those factors.
We still maintain a bullish positive outlook on our paperboard business and while we're going to monitor it.
Frankly, we're not losing sleep over it.
Yes.
Fair enough and then final question for me.
Is it possible to get any sense of kind of the.
The activity levels that you've seen in January and through the first half of February on both sides of the business.
I think we've continued to see strong demand in paperboard I think demand is still outstripping supply, we're still having to turn away customers.
We're focused on servicing our long term customers and try and trying our best to.
To provide them with paperboard on the tissue side I think we've seen similar trends as we saw in Q4. So January was a reasonable month and I think it speaks to the normalization that's taken place in tissue.
Mark textbook quantify it shipped $4 1 million cases in January for tissue, which is kind of right in line with what we're doing in the fourth quarter.
On paperboard things are a little bit murkier, we actually had a really strong shipment month in December some of our customers wanted to get in before our one of our price increases kicked in on some contracts on January one we managed to find the freight and also in January partially mentioned in his comments that we had an outage.
We will see a pullback a little bit.
First quarter paperboard numbers because of those two phenomenon such strong shipment month in December and an outage in January .
Okay, Alright, I'll turn it over thanks, Mike.
Thanks Mark.
Your next question comes from the line of Adam Josephson with Keybanc. Your line is now open.
<unk> and Mike Good afternoon, I hope you're well.
Hi, Adam.
And just on your tissue your private label tissue comment you comment that extensively about the challenging supply demand conditions about the likelihood that.
Producers will operate at depressed levels.
For years to come obviously some of your competitors.
Echoed those statements in recent weeks so it's clear that the industry is in need of.
Some consolidation.
We've been waiting for it in and nothing has transpired as yet.
What do you think is necessary.
<unk>.
Have these large contract renewals coming up which you said could cause some.
Some bumps.
In the next year or two I mean, what do you think what can you do.
In light of the supply demand challenges that you and your peers will be facing for some time.
Such that you can earn adequate returns in this business.
Yeah. Thanks, Adam So let me maybe to reiterate a couple of a few points here. So there is.
There is now a small number of customers that dominate the.
The tissue markets. If you look at the top four or five customers now represent something like approaching 70% of all private branded tissue purchases.
And the suppliers have been consolidated and are adding capacity at rates that exceed demand growth as you mentioned, that's not a long term sustainable position.
Physician position to be in.
Just to speak speak bluntly, we do think consolidation is needed to improve throughout our to improve scale and improve the cost positions.
The industry and are frankly, where we are a willing participant in it we'll look at for opportunities where they make sense for us now to your question what would need to happen.
Bose.
I suppose we would need to have willing buyers and willing sellers for that to happen.
Yes now understood.
In terms of your your price mix well first of all your full year guidance should we assume that you gave us the big buckets of inflation and price mix volume sounds like there are puts and takes but relatively stable are there any so I assume their maintenance is going to be flattish year on year in 2000 to anything else that you.
Good.
Point me to other than the three buckets that you highlighted bearing in mind that maintenance will be flat.
I think those are the key drivers happen.
So the cautionary statement as it is very hard to make predictions in this environment and we certainly saw that in 2021, and we'll look forward to updating you guys with their best estimates.
Progresses, Adam I think what we saw here in late Q4, and early Q1 is supply chain supply chain disruptions cobot absenteeism in some of our mills approaching 10 or 15%. So we ran into some.
Some issues and challenges we weren't expecting at the end of Q4 and early Q1.
I don't know where this year leads us to Mike's point.
It's really around those supply chain challenges that we may be facing which could.
Could translate into higher cost.
Yes.
Above and beyond what the.
<unk> range that Youre talking about.
Sure.
At the same time, we're also focused on offsetting those right with with supply chain efficiency initiatives and productivity. So we're doing what we can on our end to offset those but some of these can be quite overwhelming in nature.
At year end.
One on the inflation RF sooner, Mike can you help us with what.
You're assuming in terms of euro material freight and energy costs are you basically just taking current prices across the board in Flatlining number walk us through whatever your assumptions might be along those lines. If you don't mind.
Sure Adam.
We will look at the same things that youll, let cap across the spectrum so to get an estimate on.
On fiber pulp chemicals energy, we're looking at third party publications and trying to look at therefore, incurs and make a prediction based off of that.
Therefore curves are probably better than our own internal judgments in many cases, but thats, our best assumptions that we have today as we sit here and talk to you. This afternoon.
And I think as Mike mentioned some of these.
These can be a little uncertain in nature. If you look at pulp a few months ago. I think we were predicting in the industry was predicting pulp prices to fall here.
Later in 'twenty, two and the forecasts are still showing an easing in pulp prices, but we've also seen some fairly significant price announcements by by the pulp suppliers here recently.
So while we don't frankly, we don't think they're supported in the long run it kind of remains unclear where something major like pulp goes in 2022.
Right right.
Just because youre not assuming any major changes from current levels is that a reasonable assumption.
Yes, I think Adam largely the pulp curve is somewhat flat for this year and I'll remind you two things one it takes about a quarter for pulp prices to make their way through our financial statements and <unk>.
We start off 2021 really at a much lower pulp price level.
So we are seeing inflation in pulp due to those phenomenon.
But I don't think they are material outliers fiber I'm, assuming you've heard from others is going to be up year over year, we're experiencing that as well.
Yes.
There is a statistical difference between what we're seeing today versus our forward estimates on fiber.
That's perfect and just one last one on your price mix assumption in paperboard. So.
Did you have up to $73 million of price mix, Mike that you had in that segment for the year was 55 of that price thereabouts.
It's a little bit higher than that Adam. So theres mix is one component. We also have pulp pricing that shows up there we show show a little bit of <unk>.
Market based pulp I think a fair number would be about $60 million for paperboard price increase paperboard building right.
Got it so you see at 60, and then Youre expecting another call. It $1 15 at the midpoint this year such that the cumulative pricing would be about $1 75.
If I take the 300 box multiplied by your capacity that rough math is $240 million, but obviously and you've talked about the fact that only about a quarter of your paperboard business is tied to the index in their six month lags are those the two callouts that you would make in terms of the deviation.
That theoretical $240 million or so.
That's exactly right.
So Adam you've nailed it.
Thanks, so much Mike.
Thanks.
Your next question comes from the line of Paul Quinn with RBC. Your line is now open.
Yeah, Thanks, very much afternoon guys.
Hey, Paul good afternoon.
You mentioned the material contracts in the tissue side that are up for renewal.
Material early but what percentage of your of your total volume is in these contracts up for renewal.
I'm going to I'll call I'll use round numbers in most years, we aim.
For about a quarter of our business to be up for renewals.
This will be approaching.
50% of our business just to give you and just to give you an approximation so.
We typically go through these renewals every year. This year, we just have more of them the normal and just due to the nature of some of the agreements that are expiring.
Okay, and then just on the <unk>.
Major maintenance that you expect in 2023 and it sounds like the Lewiston recovery boiler.
I guess I would expect they are hoping for.
<unk> on major maintenance, there what is going on with their recovery book.
So Paul.
At our last major maintenance outage at Lewiston, we discovered that we have some screening tubes that are nearing their end of their useful life.
And so this is a major project to project to replace a significant amount of the screen tubes, there and the recovery boiler.
And so.
The capital component is the screen tubes, and some other components.
Downtime component, we're going to have to take the pulping operations down for an extended period of time. So we're going to have to pay more for pulp to feed into the paper machines.
Right so.
Well 23 get this done there is youre going to be more to come in 'twenty. Four we expect it to have a break in 24 then.
So Paul I think we're being we're going to be in a better position to respond to that question. Once we get through the outage in 'twenty three the intent of the outages to fix our address at the end of useful life of these tubes.
So hopefully that answers your question.
Okay, and then just back to the tissue business I mean, I know this business has been struggling for a while now.
Ed.
It sounded like you were partially successful on price increases what are the major implements to get these price increases through it.
Like anybody in the industry at the private label side is doing gangbusters here so what's.
What's the issue.
Yes.
I think I think that when it comes down to its supply and demand drives drives drives pricing. So these are negotiations that take place.
And so frankly, we got to two.
Two cost inflation, where it just wasn't feasible not to be able to take.
Take pricing to offset some of that some of that cost inflation, but at the end of the day, Paul it's that supply and demand that drives it and the customers have an option to frankly to frankly go bit there globally in their business and look for alternative suppliers. So it is a negotiation at the end of the day.
Alright, Thats all I had thanks guys.
Thanks, Tom.
Your next question comes again from the line of Adam Josephson with Keybanc.
Your line is open.
Mike Thanks, very much for taking my follow ups.
Couple of them are just on your SBS.
Demand commentary the expectation of.
Call it 1% to 2% growth or thereabouts when I look at your November slide deck, one can see that production has actually been in decline for the past decade in the SBS market. So to the extent, we're talking about apples and apples.
Why would you expect the market to go from contraction too.
Pretty steady expansion.
So Adam it's Mike maybe I'll lead off.
So there is a domestic component to the market and there is the export or net export in total component to the market. So.
The comments that we had made.
Most three quarters of that production is oriented to the domestic market.
And what we've seen over time as the domestic market has grown at that 1% to 2% rate.
The decline that Youre referencing in terms of total production here in the US was really a function of a decline going into the export market. So thats the historical trends.
Going forward unclear whats going to happen in the export market, we're very focused on the domestic market and we're focused on those demand drivers there.
<unk> had.
The dots with the announcement of the conversion of a mill.
There is there is a decent amount of domestic growth that will accommodate at least some of that volume that's projected to come online.
So in any event I hope that we're answering your question there.
Yes.
I appreciate that I can see that exports have come down from I think $1 8 million at 1.1.
I hear you loud and clear on that.
<unk>.
Yes.
And also on growth expectations, you're talking about 1% to 2% ish.
<unk> tissue slightly greater than population.
U S population was was flat last year and the year ended June .
For the first time in a very long time. So one would think that would be having an impact on tissue demand growth to the extent that tissue demand is driven by population much more so than anything else.
Do you have any reason to think otherwise if population remains flat.
Is there a is there a good reason to think that tissue demand would grow over the next few years.
I think two ways to look at it I think what we've said is it tends to slightly outpace whatever population growth is I think the more important.
The number is the private branded share gains and tissue.
Private branded growth has outpaced overall growth and if you look at if you look at private branded share.
Last year it hit 33%.
And it's up versus let me just grab the numbers here from less than 30% of <unk> 19, So we picked up.
Private brands have picked up appointed five of share roughly.
Since 2008 since 2019, so the trend of.
About a point of share pickup continues so we think thats whats going to drive our space, but you are right I mean, it is population growth stays at zero.
Potentially that overall demand growth, maybe less than 1% 2%.
Yeah.
Hi.
I understand.
But one last thing I want to ask you about was you mentioned club and mass.
<unk> grocery and I'm, just wondering how that.
Factor is playing into these contract renewals I know, you're you're much more heavily weighted toward grocery which has been losing share to club and mass can you just talk about that dynamic in the context of these contract renewals that you said.
There could be some challenges in the next couple of years as a result of them.
If you look at what's happened with grocers. So the first trend is yes. They have lost share to club and ask the second the second piece Theres been a tremendous amount of consolidation over the last 10 years and groceries. So if you look at the the more sizable grocery players. There is a small handful of players that can drive can drive the category and drive our.
Business so.
So those are still a critically important customers to us and we're very much committed to working with them and growing better categories and helping them gain helping them gain share at the same time as we've mentioned before we're focused on growing in club and mass and dollar and we've made a lot of progress over the years and in growing our share.
And that in that space, but to your point, we're still overweight in grocery. So we are still very much committed to.
To winning with our grocery retailers.
I appreciate that and just one last one Mike on cash flow do you expect any major or are there any major cash flow items that we ought to be aware of aside from capex any big working capital swings youre expecting cash taxes anything that we ought to be aware of that might deviate from 'twenty one.
Yes, we're a bigger cash taxpayer this year.
We do have a refund you can see that in current assets, we have probably an offsetting liability almost dollar for dollar with the repayment of the payroll taxes associated with carriers.
And so those two will offset and then we're going to be cash taxpayer on our income.
So that would be the big difference year over year correct.
Thanks, a lot Mike.
Thanks, Tom.
Your next question comes from the line of Mark <unk> with BMO capital markets.
Your line is now open.
Also I just wanted to come back for a minute or two to structure it in the tissue business.
Just a part of it.
Sort of ownership nature of so much for your competition in private label.
Is that an obstacle in your view to seeing some consolidation.
Owned companies willing to kind of take the pain for a longer period than public companies perhaps.
I think it is a variable certainly.
We answer to shareholders and we have a public company.
So we have to deliver in the long haul.
Your family family owned company that May lead to different dynamics in different different objectives in the long run so yes that could certainly be a factor market.
Okay, and then just one other one.
It does look to me in the last couple of months.
That we may be starting to see some no mass moments for some of the smaller players in this market.
You got one producer that basically is sort of shut down the fiber island supplied its main tissue operation. So it's.
It's hard to imagine that theres not more change coming there.
What is your kind of strategy is this kind of stuff happens do you.
Just sort of stay on tact with optimizing existing operations and getting down that debt or how.
Could you or could you not participate in this.
I think it's a two fold approach I think the first one is the one you. Just mentioned is we have to be cost efficient and we have to be highly competitive.
In our market. So that's the first priority second priority is.
It is really looking at ways, which we could.
Participating in the consolidation, where it makes where it makes sense.
Both from a value perspective, and strategically for us and Thats that.
It's a very important component for Mike and myself as we think through these potential opportunities. It has to make sense for our network that has to improve our cost structure.
And it has to drive value for our shareholders.
Okay fair enough good luck.
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