Rock-Tenn (RKT)

Q2 2012 Earnings Call

April 26, 2012 9:00 am ET


Steven C. Voorhees - Chief Administrative Officer, Chief Financial Officer and Executive Vice President

James A. Rubright - Chairman, Chief Executive Officer and Member of Executive Committee

James B. Porter - President of Corrugated Packaging and Recycling


George L. Staphos - BofA Merrill Lynch, Research Division

Phil M. Gresh - JP Morgan Chase & Co, Research Division

Mark Wilde - Deutsche Bank AG, Research Division

Chip A. Dillon - Vertical Research Partners Inc.

Mark A. Weintraub - The Buckingham Research Group Incorporated

Kurt Schoen - Credit Agricole Securities (USA) Inc., Research Division

Albert T. Kabili - Crédit Suisse AG, Research Division

Philip Ng - Jefferies & Company, Inc., Research Division

Steven Chercover - D.A. Davidson & Co., Research Division

Joshua L. Zaret - Longbow Research LLC

Stephen Atkinson - BMO Capital Markets Canada

Anthony Pettinari - Citigroup Inc, Research Division



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Good morning. My name is Shane. I will be the conference operator today. At this time, I would like to welcome everyone to the RockTenn Second Quarter Fiscal 2012 Earnings Conference Call. [Operator Instructions] As a reminder, slides are being presented today as a part of the conference call. These slides can be accessed at under the Investors page. Ladies and gentlemen, this call is being recorded today, April 26, 2012. [Operator Instructions] Your speakers for today's call are Mr. James Rubright, Chairman and Chief Executive Officer; and Mr. Steve Voorhees, Chief Financial Officer. Mr. Voorhees, you may now begin.

Steven C. Voorhees

Thanks, Shane. Welcome to RockTenn's Second Quarter 2012 Earnings Conference Call. This is Steve Voorhees, Chief Financial Officer. I'm joined by RockTenn's Chief Executive Officer, Jim Rubright.

During the course of this call, we will make forward-looking statements involving our plans, expectations, estimates and beliefs related to future events. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those that we discussed. We included a description of these risks and uncertainties in our filings with the Securities and Exchange Commission, including our 2011 [ph] Form 10-K and our Form 10-Q for the -- filed for the period ended December 31, 2011. During the call, we will refer to non-GAAP financial measures. We provided reconciliations of these non-GAAP measures to the most directly comparable GAAP measures in the appendix to the slide presentation, which is available on our website.

Jim is going to begin with a commentary on the performance of our businesses during the quarter. And then I will discuss the status of our integration, as well as non-operating items in our financial statements. After our prepared comments, Jim and I will be available for questions. Jim?

James A. Rubright

Thanks, Steve. Good morning. Our adjusted earnings of $0.97 per share reflected continued excellent performance in our Consumer segment. That was more than offset by the lower earnings in our Corrugated segment caused by the continued price weakness in domestic box and export containerboard markets and the seasonal demand and pricing bottoms we believe we experienced in January and February. The weak market conditions we faced in the maintenance downtime we took in the quarter had the greatest impact on our Corrugated segment, where sequential quarter adjusted earnings were down $0.31 per share, and that more than offset the $0.10 per share in other earnings improvements.

While the improvements in the market conditions in March and April have been modest to okay, we performed much better in March than we did in January and February. Quarter's actual earnings improvement over our pre-announcement resulted from better performance during the month of March than we estimated that we pre-announced expected quarterly results. But March can be a very good and a picky month than for us it was this year.

In the face of the quarter's relatively weak market conditions, we continue to achieve strong cash generated from operations of $255 million. And as Steve will discuss, we executed several very favorable financings that significantly improved our overall financial structure. During the quarter, among other cash uses, we reduced net debt $62 million, contributed $40 million to our pension plans in excess of pension expense, and we paid dividends of $14 million. The proceeds from closed plant sales essentially offset cash restructuring costs, and we paid $19 million in redemption premiums and issuance costs to retire our 9.25% 2016 notes and the balance of $746 million on our acquisition-related term loan B.

Comparing Corrugated segment earnings in Q1 to -- in Q2 to Q1, lower pricing reduced earnings $10 million; volume including economic and major maintenance downtime reduced earnings $22 million; and the net impact of wood, fiber and energy increased earnings $8 million. We completed major maintenance outages at our Panama City, Florence and Jacksonville mills, which reduced containerboard output by about 52,000 tons. And we took approximately 120,000 tons of economic downtime, primarily at our Jacksonville recycled containerboard mill and at our La Tuque and West Point white top mills. We also permanently closed our Matane, Québec 176,000-ton-per-year recycled containerboard mill. It was a medium mill, and we took it down as required to balance our system capacity in the lighter capacity that we we're going to add to our Hodge and Hopewell mills through projects later this year. We expect it will take a very limited amount of white top economic downtime in the June quarter, no brown economic downtime, and it will draw down the containerboard inventories we built up in anticipation of the approximately 140,000 tons of major maintenance outage downtime that we expect to take in the June quarter. We also currently expect to run to capacity in the September quarter, and we see our primary challenge in it is meeting our overall system demand in our seasonally strongest period. Our overall corrugated converted product volume was up about 1% over the December quarter. Our strongest performers were our West Coast in Mexican operations and our recently acquired Corpak plants, and that acquisition is working out very well.

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