Clearwater Paper Corp Navigates Challenges in Earnings Call

Clearwater Paper Corp ((CLW)) has held its Q3 earnings call. Read on for the main highlights of the call.

Clearwater Paper Corp’s recent earnings call painted a mixed picture for the company. On one hand, there were notable improvements in EBITDA and cost reductions, and the company maintained a strong liquidity position. However, these positives were overshadowed by a significant net loss due to goodwill impairment, ongoing industry utilization challenges, and a strategic decision to defer a potentially lucrative investment project due to current market conditions.

Adjusted EBITDA Improvement

Clearwater Paper Corp reported an adjusted EBITDA of $18 million, hitting the higher end of their guidance range of $10 million to $20 million. This marks a significant year-to-date increase in adjusted EBITDA from continuing operations, reaching $87 million compared to $26 million the previous year.

Net Sales Growth

The company experienced a 2% growth in net sales compared to the previous quarter, driven by a 6% increase in shipment volumes. However, this growth was partially offset by lower market-driven pricing, indicating some challenges in maintaining pricing power.

Fixed Cost Reduction Success

Clearwater Paper achieved impressive savings of $50 million through fixed cost reduction initiatives, surpassing their original estimate of $30 million to $40 million. This success underscores the company’s commitment to improving operational efficiency.

Maintenance Outage Execution

The company successfully completed all three planned major maintenance outages for 2025, with execution significantly improved compared to the previous year. This achievement highlights Clearwater Paper’s focus on operational excellence.

Strong Liquidity Position

Clearwater Paper maintained a robust balance sheet with ample liquidity of $455 million and a net leverage ratio of 2.7x. This strong financial position provides the company with flexibility to navigate market uncertainties.

Net Loss from Continuing Operations

Despite the operational successes, the company reported a net loss from continuing operations of $54 million, or $3.34 per diluted share. This loss was primarily due to a $48 million noncash impairment of goodwill, reflecting challenges in the current market environment.

Industry Utilization Challenges

The company anticipates industry utilization rates to remain in the low 80% range by year-end, significantly below the normalized cross-cycle average of 90% to 95%. This is expected to exert pressure on margins.

SBS Market Oversupply

Clearwater Paper faces a projected SBS capacity oversupply of more than 500,000 tons, with expectations that the market may take over five years to fully absorb this excess capacity.

Decision to Hold CUK Investment

In a strategic move, the company decided to defer a $50 million CUK investment project, despite its attractive return profile, to prioritize maintaining a strong balance sheet amid market uncertainties.

Forward-Looking Guidance

Looking ahead, Clearwater Paper provided guidance for the fourth quarter, expecting adjusted EBITDA to range between $13 million and $23 million. For 2026, the company anticipates revenues between $1.45 billion and $1.55 billion, with a mid-80% capacity utilization rate. They also forecast capital expenditures of $65 million to $75 million and aim for more than $20 million in working capital improvements. The company targets a cross-cycle adjusted EBITDA margin of 13% to 14%, translating to over $100 million in free cash flow annually, assuming net sales of $1.8 billion to $1.9 billion.

In summary, Clearwater Paper Corp’s earnings call revealed a company navigating a challenging market environment with strategic cost reductions and operational improvements. While the company faces significant challenges, including a substantial net loss and industry-wide utilization issues, its strong liquidity position and forward-looking strategies provide a foundation for potential future success.