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» Verso Paper's CEO Discusses Q1 2011 Results - Earnings Conference Call
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 versopaper.com under the Investor Relations tab. Mike?Mike Jackson Good morning, everyone and also Dave a hearty welcome to Verso. Just before the question-and-answer period, I will make some further comments about the CEO transition and the fact that the company has chosen the right successor. If you would go to slide 3, as many on the call know, the first quarter is a seasonally challenging quarter for volume. Such was the case this year. In fact, this was compounded this year due to the larger than expected drop in advertising spend, which impacted both the magazine and direct mail business. As we look at year-over-year comparisons, the first quarter of 2011 was unusually strong, and coupled with the impact of our three machines being shut down in the fourth quarter of 2011; it really makes for a distorted year-over-year basis for comparisons. From an industry perspective, if you adjust for 20,000 tones of coated mechanical imports from Korea, which are really competing in the freesheet market, but get classified as mechanical due to the BCTMP content, then both coated mechanical and coated freesheet demand were down 7.5% in the first quarter. This drop-off was a bit disappointing, but given the fact that GDP was a very lukewarm 2.2% growth, we expect to see a stronger economy going forward. I will speak of that in a moment, when I give my forward-looking comments. Our inventories of coated groundwood remained at levels similar to both the fourth quarter of 2011, as well as the first quarter of 2011. Our coated freesheet inventories did grow, but overall our inventories are at planned levels and in good shape.
Pricing for pulp compared to last year was up $90 a ton, while our coated price was relatively flat year-over-year, but dropped sequentially on an average of $25 a ton, which we by the way projected in our last earnings call.Operations from a cost perspective were up $2 million from Q1 2011 due to reduced production from machine shuts and some machine centers not running at the targeted levels. We did of course see year-over-year savings in spending and direct cost. As has been the case in the past, our R-Gap process savings builds quarter-by-quarter throughout the year, and we anticipate the same results in 2012. During our last call, we suggested that input prices would remain flat. In this case that proved to be the case, as input prices were slightly lower sequentially. That being said, input prices were significantly higher than the first quarter of 2011 and Bob will highlight the components of those direct costs later in the call. We are also very busy in the quarter kicking off several capital structure refinancing alternative, and Bob will give you a very clear picture in a moment of those activities and the impact of the maturity schedule as we move forward. Bob. Robert Mundy If you will turn to slide 4, our overall volume for the quarter was about 8% below the first quarter of last year and 14% lower on a sequential basis for the seasonally slower first quarter. These volumes were in line with our internal projections which had assumed a slow start to the commercial plant, and served retail markets. Additionally the comparison to last year’s is a bit skewed, as Mike indicated they turn almost record volume in March of last year. Revenues were down in a similar fashion for these reasons, as well as the falloff in pulp prices which bottomed out during the quarter. Coated prices were flat with last year’s levels and down a little less than 3% versus the first quarter of 2011.
On slide 5, you can see that coated volumes were off almost 56,000 tons versus a very strong first quarter of 2011, as well as due to our exiting the supercalendered business that resulted from the shutdown of our two SC machines last year.Read the rest of this transcript for free on seekingalpha.com