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Original Source: FD (FAIR DISCLOSURE) WIRE
. John Haudrich, Smurfit-Stone Container, Director IR . Pat Moore, Smurfit-Stone Container, Chairman, President, CEO . Chuck Hinrichs, Smurfit-Stone Container, CFO . Mark O'Bryan, Smurfit-Stone Container, SVP, Strategic Initiatives . George Staphos, Banc of America Securities, Analyst . Tim Cohen, Bank of America, Analyst . Richard Skidmore, Goldman Sachs, Analyst . Pete Ruschmeier, Lehman Brothers, Analyst
. Joe Stivaletti, Goldman Sachs, Analyst . Bill Hoffman, UBS, Analyst
. Richard Schneider, UBS, Analyst . Mark Connelly, CSFB, Analyst
. Mark Wilde, Deutsche Bank, Analyst
Management reported a 1Q06 net loss of $0.29 per share and adjusted EBITDA of $83m.
A. Key Data From Call 1. 1Q06 net loss per share = $0.29 2. 1Q06 adjusted EBITDA = $83m 3. 1Q06 capex = $56m 4. Total reported debt at end of 1Q = $4.719b
S1. 1Q06 Financial Summary (P.M.) 1. Earnings: 1. Co. reported a net loss available to common stockholders of $64m or $0.25 per diluted share. These results include unusual items:
1. The quarterly results benefited $0.06 per share from the divestiture of the Port St. Joe joint venture interest and a non-cash currency translation adjustment. 2. Restructuring costs related to closure of three corrugated container facilities reduced earnings by $0.02 per share. 2. Excluding unusual items, 1Q06 net loss was $0.29 per share. 3. 1Q is always tough for this business, 1. Seasonally the slowest period for packaging demand following the holidays,
2. Energy usage is high, and 3. Other timing issues such as scheduled mill maintenance downtime and employee benefit costs negatively impact earnings. 4. But the outlook is favorable.
1. Prices are rebounding. 2. Industry is entering a seasonally stronger period for packaging demand, and 3. Benefits from strategic initiatives will begin to have meaningful impact on financial results. 2. Containerboard and Corrugated Containers: 1. 1Q operating profit was $9m. 1. Up $14m sequentially, but 2. Below profit of $66m in 1Q05. 2. Containerboard production and boxed shipments were flat YoverY. 1. Yet average prices for these products were down as a result of price erosion through most of 2005. 3. Trends are improving, with significant price improvement on a
sequential basis, which will carry forward. 4. 1Q06 containerboard production decreased from 4Q, principally due to over 20,000 tons of additionally scheduled maintenance downtime and two fewer production days. 5. Containerboard inventories decreased nearly 4% from year-end and stand at seasonally low levels.
6. Sequentially Co. improved external containerboard mix with
domestic shipments increasing while export tonnage was down.
7. Responding to strong market conditions, average domestic
linerboard price improved 10% vs. 4Q. 8. Overall containerboard inventories remain low. 9. Pulp and Paper Week linerboard price index increased $50 per ton. 10. Consistent with FBA overall market trends, 1Q per day corrugated shipments were flat YoverY.
11. Price improvement has a significantly greater impact on
operating margins than volume, and Co's price box price realization improved 3.6% on a sequential basis. 1. Much of the recent price improvement will impact earnings in 2Q and 3Q, including those reported earlier this month. 3. Consumer Packaging: 1. 1Q operating profits were $16m 1. Slightly above 1Q05, 2. But down $4m sequentially. 2. Folding carton volume was up slightly from 1Q05, while prices were generally flat. 3. Following the seasonally slow 1Q, expect continued YoverY earnings improvement.
4. Other Segments: 1. 1Q operating profit in other operations segment, principally reclamation operations, was $4m. 1. Down $2m from 1Q05, but 2. Up $1m from 4Q05. 2. OCC prices have trended down over the past several qtrs. yet prices are up $15 to $20 per ton over the past six weeks, and expect upward pricing pressure for the remainder of the year. 5. Corporate: 1. Corporate activities improved $53m from 4Q05 to a net expense
S2. 1Q06 Detailed Results (C.H.) 1. Objectives: 1. Co. was built through acquisitions. 2. Co. has rationalized excess capacity and optimized the supply chain while maintaining a decentralized box plant structure. 3. Focus now is to capitalize on the strengths of scale and integrated system. 4. Co. is now organized along centrally managed functional lines. 5. To complement the improved cost structure of the mill system mgmt. is driving improved converting productivity and building scale. 6. The go-to-market sales strategy is evolving to capitalize on market trends and innovative products and services. 7. Strategic initiative targets include: 1. Reducing costs by $600m per year by 2008, and 2. Achieving above market revenue growth of $650m by 2008. 8. Interim targets were also provided. 1. In 2006 targeting $280m of savings and $100m of above market revenue growth.
2. Cumulative savings and revenue growth for the full year, not
run rate numbers expected by year end. 9. All targets compare to a baseline generally set as YTD 3Q05. 2. Tracking Methodology:
1. Each qtr. Co. will: 1. Reconcile current adjusted EBITDA to results in the previous qtr. outlining key factors such as impact of price, volume and cost trends. 2. Delineate the benefits from cost savings and revenue growth initiatives. 3. Present initiative benefits in the context of total business results.
4. Analyze the impact of changes in qtrly. operating costs, organizing the cost changes into categories such as 1. Cost inflation, 2. Impact of volume changes. and 3. Cost savings from the initiatives. 4. Some of these categories are impacted by timing or seasonal factors, and Co. will explain these factors. 5. Evaluate price and volume trends against market indexes. 6. Focus on the EBITDA impact from performance relative to the market indexes rather than presenting growth revenue trends. 2. Thus the initiative benefits reported in EBITDA roll forward include both cost savings and profit impact of above or below market growth performance. 3. 1Q06 Results: 1. Adjusted EBITDA was $83m, 1. Down $2m vs. 4Q05.
2. Market-based volume and price changes added $53m in EBITDA
to 1Q results. 2. Gains were more than offset by $57m in timing or seasonality factors: 1. One timing factor was employee benefits. 1. 1Q included $18m of higher employee benefits due to
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