Caraustar Fourth Quarter and Full-Year 2006 Financial Results - Live Webcast - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

RON DOMANICO, SVP, CFO, CARAUSTAR: Good morning. My name is Regina and I will be your conference operator today. At this time I would like to welcome everyone to the Caraustar Industries, Inc., fourth quarter and full-year 2006 financial results conference call. [OPERATOR INSTRUCTIONS] Thank you.

I would now like to turn the call over Mr. Bill Nix, Vice President, Treasurer, and Controller. Sir, you may begin your conference.

BILL NIX, VP, TREASURER AND CONTROLLER, CARAUSTAR: Thank you, Regina, and good morning. Welcome to the Caraustar fourth quarter 2006 conference call. On the call today are Mike Keough, President and CEO, and Ron Domanico, Senior Vice President and CFO.

Before we begin the call, I would like to provide you with our forward-looking disclaimer statement. The Company's presentation today contains certain forward-looking statements including statements regarding the expected effects of certain events on the Company's future operating results. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements.

For a discussion of factors that could cause actual results to vary from those expressed or implied in the forward-looking statements, you should refer to the text of the Company's press release issued today regarding these matters and to the Company's filings with the Securities and Exchange Commission. We have about 20 minutes of prepared comments and then we will open it up for questions.

At this time I'll turn the call over to Mike.

MIKE KEOUGH, PRESIDENT, CEO, CARAUSTAR: Thank you, Bill, and good morning, all, and thank you for joining us on this morning's call.

This morning Caraustar reported fourth quarter and full-year 2006 results and we would like to add more context to the press release. As the press release pointed out, Caraustar reported a loss from continuing operations of $10.8 million or $0.38 per share. Of the $0.38, $0.33 of the loss was due to restructuring and impairment costs and accelerated depreciation associated with the Caraustar transformation plan.

You will hear more about our financial performance from Ron and Bill, but I also want to touch on key pressure points in our business and developments throughout the year. We finished the year with the disposition of three mills and closed 18 converting locations as part of our transformation plan. This was in addition to the divestiture of our 50% interest in Standard Gypsum back in Q1.

The point I want to make is that we have not stood still in a challenged business environment. The downturn in the housing sector and general manufacturing in the back half of 2006 reinforced our need for continued action. Sales from continuing operations were down 9.9% Q4 to Q4 and up 2.3% year over year.

Clearly, our fourth quarter volume levels were a major disappointment. Most of the shortfall was with our gypsum facing component and the URB segment of our business space, specifically our LaFayette, Indiana, mill, which was officially shut on January 10 of this year. Our tube and core segment tons were down 1.3% for the quarter and up 0.3% year over year.

Caraustar has a strategy to run comparable levels of business with fewer roofs and our tube and core business demonstrates this strategy as we ended 2006 with two fewer tube and core facilities. We also announced the closure of four additional tube and core facilities on January 10 of this year.

We've also invested in high-speed, state of the art, tube and core winders within our system. These investments will provide superior quality products to our customer base while we continue to lower our overall cost structure.

Our folding carton business, including our coated recycle mill in Tama, Iowa, had outstanding volume for the quarter, with shipments up [25.3%]. We had good demand throughout our carton system and the Tama mill is full and running well.

Gypsum facing paper continues to be our biggest drag with volume down 30% Q4 to Q4, and a drop of 8.7% year over year. Clearly the pullback in the housing sector and our integrated customers pulling tons inside their own mill system has caused the shortfall. We expect to see the housing challenge deep into 2007, but we're not waiting for the market to turn.

I would like to point to three activities that will pay off for Caraustar. First, we're excited about our new mold, mildew, and moisture-resistant product called Safe Face MR. This gypsum facing product is produced on Caraustar's Sweetwater Paperboard machine and is a high quality, cost-effective sheet that will compete head to head with glass mat products for interior home applications. We sell this product to a number of customers and we believe that it will complement our other specialty products. We plan a press release on Safe Face MR early next week.

Second, with the gypsum slowdown and LaFayette closure, we've had the opportunity to successfully trial internal tube and core grades on our Sweetwater machine. What we expect to have is the lowest cost tube and core machine in the industry. Our low-cost coal-fired energy source coupled with the width of the machine gives us an excellent additional grade for Sweetwater. We plan to run roughly 40,000 tons of tube grade in 2007 on the Sweetwater machine.

Additionally, the gypsum facing demand down at our PBL joint venture, Caraustar has worked hard to develop both medium and lining customers for that mill. We went from a sold-out mill in October to 11 to 12 down days in November and December. January was 6 days short, but February will be improved to 2 days of downtime.

Our expectation is to be full at the PBL mill from March forward in spite of little improvement this year from facing paper. The gap has been closed clearly with container board.

Specialty converted products were down 10% Q4 to Q4, as shown in the supplemental data, but backing out CRB mills, our business space was much stronger. We're still bullish about our new product development activities in the segment, such as Binder Tex 45 and we expect other growth opportunities with the investment we've made in our Austell number one machine.

In the supplemental data, you'll see that our mill average selling price was up $10 a ton Q4 to Q4 and down $9 a ton sequentially. We see the sequential drop as more mix-related.

We also reported that our tube and core average selling price was up $45 a ton Q4 to Q4 and also up $17 a ton sequentially. We announced a $50 a ton URB increase that will go into effect on March 7, based in part on the recent fiber spike. We also announced an 8% tube and core increase effective with shipments on March 19, and you'll hear …