Verso Paper Corporation ( VRS)

Q4 2010 Earnings Call

March 3, 2011 9:00 am ET


Mike Jackson – President, Chief Executive Officer

Robert Mundy – Senior Vice President, Chief Financial Officer


Joe Stivaletti – Goldman Sachs

Bill Hoffman – RBC Capital Markets

James Daly – Deutsche Bank

Jeff Harlib – Barclays Capital

Bruce Klein – Credit Suisse

Tarek Hamid – JP Morgan

Chip Dillon – Credit Suisse

Richard Kus – Jefferies & Company

Eric Anderson – Hartford Financial

Gary Madia – Gleacher & Company

Mark Fisher – (Inaudible) Capital

Frank Duplak - Prudential



Good day ladies and gentlemen. Welcome to the Verso Paper Corporation Fourth Quarter 2010 Earnings call. Please note that today’s call is being recorded. At this time I would like to turn the conference over to Mr. Robert Mundy, Senior Vice President and Chief Financial Officer. Please go ahead, sir.

Robert Mundy

Good morning. Thank you for joining Verso Paper’s Fourth Quarter 2010 Earnings conference call. Representing Verso today on this call is President and Chief Executive Officer, Mike Jackson, and myself, Robert Mundy, Senior Vice President and Chief Financial Officer.

Before turning the call over to Mike, I’d like to remind everyone that in the course of this call in order to give you a better understanding of our performance, we will be making certain forward-looking statements. These forward-looking statements are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from management’s expectations. If you would like further information regarding the various risks and uncertainties associated with our business, please refer to our various SEC filings which are posted on our website,, under the Investor Relations tab.


Mike Jackson

Thank you Bob, and good day everyone. As projected in our third quarter call, our fourth quarter showed continued upward price realization. Coated prices were up over 7% in the fourth quarter of 2010 compared to the fourth quarter of 2009, and grew almost 5% from the third quarter of 2010.

As expected, our volume seasonally declined in the fourth quarter; however, coated volumes for the entire year increased almost 17% from 2009 levels. Manufacturing operations improved over third quarter and helped drive our $17.4 million positive operating income. Our input prices were virtually flat versus the third quarter of 2010.

Printer and mill inventories ended the year in good shape. That is both a total tons available comment as well as a days to consume. Our working capital number was both below last year and better than our aggressive target by almost 20%, and we hit our CAPEX spending right on our budgeted number for 2010.

Adjusted EBITDA was up almost 56% from last year’s fourth quarter and up 9% from the third quarter of 2010, all very, very positive trends.

With that, I’m going to hand this over to Bob for some more details and then I’ll return to address some of the supply, demand and operating rate forecast. I’ll give you a more crystallized view of our energy projects and the EBITDA impact that these projects will have on our business going forward, and then talk a little bit about the view that we have for 2011.


Robert Mundy

Thanks Mike. Turning to Slide 4, as we mentioned on our last call, our volume for the quarter was down from the seasonally strong third quarter and comparable to the fourth quarter of ’09. Revenues were up 7% versus last year on comparable volume, but with prices up over 7%. Sequentially sales were down due to the seasonally lower volume. Adjusted EBITDA for the fourth quarter of $50 million over 56% versus last year, and up about 9% versus the third quarter. Adjusted net earnings were much improved versus last year and the previous quarter, primarily due to our improved sales price realization.

Turning to Slide 5, you can see that coated volumes were down a bit from a very strong fourth quarter 2009 as well as down from the seasonally strong third quarter. We continued to see coated prices increase during the fourth quarter, and we expect prices to continue to increase as we move into 2011. Pulp prices were down about 9% versus the third quarter but about a $100 per ton above last year’s fourth quarter.

Turning to Slide 6, you can see the key changes between our fourth quarter 2010 adjusted EBITDA of $50 million versus the 32 million in the fourth quarter of 2009. As I mentioned earlier, overall volume was flat while improved pricing contributed $26 million. Operations were about $3 million better than last year, and overall input prices were about $8 million above last year with that primarily being driven by higher pulp prices and somewhat higher chemical prices.

Slide 7 gives you a view of the changes between the fourth quarter of 2010 versus the third quarter of 2010. Volume was down seasonally, as mentioned earlier, but continued realization from our price increase announcement was worth about $12 million. Manufacturing operations improved slightly versus last quarter, and prices for our input materials were flat quarter-over-quarter primarily due to lower pulp prices. The $5 million negative bar there was primarily driven by higher diesel prices and some changes in certain freight contracts driving up our distribution costs, along with the timing of certain SG&A expenses.

Moving on to Slide 8, you can see the direction our input prices were moving versus last year and versus the third quarter of 2010. In the chemical area, it’s a mixed bag of certain items going up and others flat or going down slightly. Latex has been up most of this year due to the tightness in butadiene, but things such as starch and clay were slightly better than last quarter. Overall, wood prices continue to stay at a very good level for us and energy prices were comparable to the third quarter driven by low gas prices and our ability to utilize our flexible energy platform to take advantage of this in our operations.

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