Temple-Inland Inc. Q2 2010 Earnings Call Transcript

Temple-Inland Inc. (TIN)

Q2 2010 Earnings Call Transcript

July 27, 2010 10:00 am ET

Executives

Randy Levy – CFO and Treasurer

Doyle Simons – Chairman and CEO

Pat Maley – President and COO

Analysts

Gail Glazerman – UBS

Mark Weintraub – Buckingham Research

Christopher Chun – Deutsche Bank

George Staphos – Banc of America/Merrill Lynch

Richard Skidmore – Goldman Sachs

Chip Dillon – Credit Suisse

Peter Ruschmeier – Barclays Capital

Mark Connelly – CLSA

Presentation

Operator

Good morning. My name is to Terries, and I will be your conference operator today. At this time, I would like to welcome everyone to the Temple-Inland second quarter 2010 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. (Operator instructions) Thank you.

I would now like to turn the call over to Mr. Randy Levy, Chief Financial Officer and Treasurer for Temple-Inland. You may begin.

Randy Levy

Thank you. Good morning. My name is Randy Levy, Chief Financial Officer and Treasurer, Temple-Inland; and I would like to welcome each of you who have joined us by conference call or webcast this morning to discuss the results of second quarter 2010. Joining me this morning are Doyle Simons, Chairman and Chief Executive Officer of Temple-Inland and Pat Maley, President and Chief Operating Officer.

Please read the warning statements in our press release and our slides concerning forward-looking statements, as we will make forward-looking statements during this presentation. In addition, this presentation includes non-GAAP financial measures. The required reconciliation to GAAP financial measures can be found on our Web site at www.templeinland.com.

This morning we will give a presentation on the results for second quarter 2010. After the completion of the presentation, we will be happy to take your questions.

Thank you for your interest in Temple-Inland, and now I would like to turn the call over to Doyle Simons.

Doyle Simons

Thank you, Randy. Good morning, everyone, and welcome. This morning we reported second quarter 2010 net income excluding special items of $0.19 per share. This compares with a net loss of $0.01 per share in first quarter 2010 and net income of $0.24 per share in second quarter 2009.

Special items in the quarter were an after-tax charge of $1 million related to facility closures in connection with Box Plant Transformation II.

In corrugated packaging, segment operating income in the quarter was $63 million. This compares with $46 million in first quarter 2010 and $91 million in second quarter 2009.

Operating results in the second quarter 2010 compared with first quarter 2010 were up due to higher prices, which were partially offset by extended and unscheduled mill outages and unprecedented low inventory levels that negatively affected our financial performance in the quarter by $20 million, as I will discuss in more detail in just a second. Compared with second quarter 2009, higher prices were more than offset by higher input costs.

Our Rome mill was down in June for its annual maintenance outage. This was a complex outage, and while the mill was down, we discovered additional work that needed to be performed. As a result, the mill was down longer than we had forecasted and we spent more money than we had anticipated during the outage. The additional work performed and money spent during the outrage will improve the reliability, cost and productivity of the mill going forward but negatively affected second quarter earnings.

In addition, both our Maysville, Kentucky, and Newport, Indiana, mills rely on third-party utility providers. In the quarter, each of these mills was down for almost a week due to unscheduled outages of the utility. We took advantage of the unscheduled downtime and performed maintenance at the Maysville mill that was scheduled for later in the year. The acceleration of this maintenance negatively affected the second quarter, but will benefit the second half of the year.

The total negative impact on earnings in the second quarter from the issues at Rome, Newport and Maysville was approximately $11 million. Our total downtime in the quarter was 41,000 tons compared with the projected 26,000 tons.

Our second quarter end inventories were at historically low levels, down another 22,000 tons compared with first quarter, and as we said last quarter our first quarter inventories were already below our practical minimum. As a result, we were forced to make additional outside purchases of containerboard and incurred additional freight and waste costs. These incremental costs were approximately $9 million in the quarter.

Bottom line, it was a tough quarter as unscheduled and extended mill outages negatively affected our financial performance by a total of approximately $20 million.

In terms of absolute input costs comparing second quarter 2010 with first quarter 2010, input costs were down slightly with virgin fiber up $1 million, OCC down $1 million, energy down $11 million, chemicals up $1 million and freight up $7 million. Compared with second quarter 2009, input costs were up significantly with virgin fiber up $13 million, OCC up $44 million, energy up $4 million, chemicals flat, and freight up $11 million.

Published linerboard prices moved up $50 a ton in January and another $60 a ton in April. Most of our box prices are either directly or indirectly influenced by adjustments in published linerboard prices. Our average box price was up $42 in the second quarter compared with the first quarter. Compared with a low point in February, our July average box price is up about $80 a ton.

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