Verso Paper Corp. ( VRS) Q3 2011 Earnings Call November 7, 2011 9:00 am ET Executives Robert P. Mundy – Chief Financial Officer & Senior Vice President Michael A. Jackson – President, Chief Executive Officer & Director Analysts Joe Stivaletti – Goldman Sachs Bruce Klein – Credit Suisse Tarek Hamid – JP Morgan James Daly – Deutsche Bank Richard Kus – Jefferies & Company Chip Dillon – Vertical Research Partners Gary Madia – Gleecher & Company Bill Hoffman – RBC Capital Markets Jeff Harlib – Barclays Capital Michael Marshuk – UBS Kevin Cohen – Imperial Capital Eric B. Anderson – Hartford Financial Presentation Operator
Previous Statements by VRS
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You may remember during our second quarter call that we expected to have a good third quarter relative to operations and in fact, that was the case. Performance was driven by usage improvements encompassing the components of chemicals, water, pulp and energy which all contributed to the R-GAP category. All focus areas that we’ve spoken about in the past. In fact, operations were $10 million better than the second quarter of this year.Bob will get into the details of our input costs but clearly they’ve been a challenge as our year-over-year increase for just the third quarter was $18 million. Chemicals and wood have been the main drivers with chemicals leading the way. Though inventory levels decreased 7,000 tons for our coated paper from Q2 2011 levels, we’re watching our coated groundwood inventories closely as we move into the fourth quarter. As the economy sputtered, it was clear that catalog companies had pruned their mailing spend. Although not mentioned on this page, I did mention safety in our earnings release this morning and felt it important to mention again. Before the quarter we obtained a total incident rate of 0.8 which is world class performance. Clearly, there’s a correlation between excellent safety performance and improved operations which we certainly saw this quarter. With that, I’ll turn it back to Bob for some financial details and then I’ll be back to talk about the outlook and we’ll take questions at the end of the call. Robert P. Mundy If you’ll turn to Slide Four, the seasonally stronger third quarter volume was up over 70,000 tons from the second quarter, down slightly from last year’s third quarter. Although volume was down a bit from last year, revenues were up almost 6% due to six consecutive quarters of increasing coated sales prices. Operating income was up $18 million versus last year and we had positive adjusted net earnings of about $1 million versus a $19 million lost last year.
On Slide Five, you can see that coated volumes were down about 23,000 tons from last year, although, as Mike mentioned, we still were able to pull inventories down in the quarter. Coated prices are up over $80 a ton versus last year and up slightly versus the second quarter. Pulp volumes were where we expected them to be, and hardwood prices were down about $25 a ton due to the softening in the pulp markets.On Slide Six, you can see the key changes between our third quarter 2011 adjusted EBITDA of $64 million versus the $46 in the third quarter of 2010. As I mentioned earlier, overall volume was down slightly while improved pricing contributed $34 million. Operations were over $3 million better than last year’s third quarter primarily due to usage and energy reductions and input prices continue to be a challenge and were $18 million above last year’s price levels. On Slide Seven, this gives you a few of the adjusted EBITDA changes between the second and third quarters of 2011. The volume during this seasonally stronger period contributed about $11 million and slightly higher sales prices were worth just over $1 million versus the second quarter. I mentioned on our last call that our implementation planning for 2011 relative to productivity, direct costs, materials and usage, and indirect cost initiatives ramps up as the year goes on and you should see a clear indication of this during the third quarter which is what happened and what is represented by the $10 million improvement shown in the operations column. Although input prices were $4 million higher than the previous quarter, hopefully we’ll see some relief when we look at the fourth quarter results next time we talk. Read the rest of this transcript for free on seekingalpha.com