Spokane Journal of Business

Spokane-based Clearwater Paper expects big returns

Having invested in facilities, company's sales projected to rise

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-—Photo courtesy of Clearwater Paper Inc.
The recently built plant in Shelby, N.C., above, is expected to be at full production by year-end.

Clearwater Paper Corp., the Spokane-based maker of tissue and paperboard products, is poised to increase sales in 2014 after spending the past few years developing a wider U.S. manufacturing footprint, says Linda K. Massman, president and CEO.

Clearwater claims to be the largest provider of private-label tissue products to grocery chains in the U.S., with annual sales of $1.9 billion. Since late 2010, the company has increased the number of its manufacturing sites through acquisition, added new equipment at some plants, and recently built a tissue manufacturing and converting facility in Shelby, N.C.

Massman says the strategy for its pulp and paperboard division, meanwhile, is to continue recent steps it's taken to add lean practices into making premium bleached paperboard, including stock used for cups and food cartons as well as high-gloss product packaging.

As a result, the company expects a significant boost in its cash flow next year. In recent reports to investors, Clearwater said that its 2014 target for earnings before interest, taxes, depreciation, and amortization (EBITDA) is $300 million, up substantially from $228 million in 2012.

"Last fall, I had the opportunity to be one of the architects for a new strategy that the company launched earlier this year, and the focus of that is it's really all about growing cash flow to ensure we maximize investments we've made in the business," says Massman, who replaced retiring Gordon L. Jones as chairman and CEO in January.

Massman has played a key role in developing Clearwater's business strategy for nearly five years now, most recently as its president and chief financial officer. Prior to moving to Spokane from Boise in 2008, the Harvard Business School MBA graduate worked in various finance and business strategy roles for corporations, including six years at Albertsons Inc.

Five years ago, Massman joined a small management team here, along with Jones, to help chart a course for Clearwater just before Spokane-based Potlatch Corp. spun it off. Potlatch continues to manufacture lumber and panel products, while Clearwater became a separate, publicly traded company in December 2008.

Today, Clearwater employs nearly 4,000 people in the U.S. It currently operates 17 manufacturing facilities in 12 states and Ontario, Canada. The facilities include the 840-acre Lewiston, Idaho manufacturing complex.

Just over 100 of Clearwater's employees are based at its Spokane offices, located in the Bank of America Financial Center, at 601 W. Riverside.

"By the end of 2008, we became a stand-alone company, and boy, we've accomplished a lot in that timeframe," Massman says. "We developed our strategy which is twofold: grow our consumer tissue business and optimize our pulp and paperboard business."

Today, Massman says Clearwater expects to grow its sales of tissue products, particularly on the East Coast and to a broader range of retail outlets. The growth is anticipated following a full ramp-up of production at its new Shelby plant and full integration of former facilities of Cellu Tissue Holdings Inc. that Clearwater purchased in December 2010.

The Cellu Tissue acquisition gave Clearwater a number of manufacturing and paper-making sites in the Midwest and the East. The network of plants also meant that the company didn't have to ship all of its paper products from West Coast facilities to sites across the country.

"We were already selling nationally, and it was a matter of matching our manufacturing footprint nationally," Massman says. "The Cellu purchase added growth. We grew from four sites to 17 sites. It was a nice match."

She adds, "We expect Shelby to be at full capacity as we leave this year."

Massman says Clearwater's business strategy also includes the company recently expanding its use of equipment for making high-end tissue products called through-air-dried (TAD) paper machines, which now are located in its plants in Shelby, Las Vegas and St. Catharines, Ontario.

"With consumer trends, it became evident they really wanted a higher quality bath tissue," Massman says. She says the company offers different quality tiers of tissue product, ranging from single-ply to what is called high-end or premium tissue products offered under private labels for paper towels, facial tissues, napkins, and bathroom tissue.

She adds, "Having had the retail grocery experience, it's very clear to me how important private-label products are to consumers, or some people call them store label. It gives them the option of having the national brand quality at a great value."

The company announced it was building the Shelby plant in 2010, and it started up some production there at the end of 2012, she says. The facility's footprint covers 1 million square feet of space.

At the time Clearwater spun off from Potlatch, it had only one TAD facility in Las Vegas producing high-end paper towels only. Massman says the company recently reengineered the TAD equipment at Las Vegas, so it could produce both ultra-grade toilet paper and kitchen towel products.

The TAD machines are expensive, though, with the one in Shelby reaching $260 million alone, she says.

However, the company as part of cost-savings moves also has had some consolidation. In February, Clearwater announced plans to close a tissue converting and distribution facility in Thomaston, Ga., about 60 miles south of Atlanta, by the first quarter of 2014. The company planned to move most of the Thomaston equipment to its Shelby facility and to one in Oklahoma City.

For its pulp and paperboard division, Massman says two recent projects are expected to control costs significantly. The projects include the 2012 acquisition of Granger Co., a wood chipping facility west of Clarkston, Wash., and construction of an Oregon City, Ore.-based wood chip facility and dock.

"For our pulp and paperboard, we've had a focus on how to incorporate lean manufacturing," she says.

She said the company also is improving its mix of paperboard products, including for food containers and folding cartons used in packaging of pharmaceuticals, cosmetics, and other products as sold in stores.

Steve Chercover, a Portland-based D.A. Davidson & Co. senior research analyst who follows Clearwater, says the company's $300 million EBITDA target indicates that the company expects to be in a strong cash flow position by next year, which he says is good news for investors.

Based on the target, he estimates that the company's net income from continuing operations could reach $99.4 million for all of 2014, compared with $64.1 million in 2012. He says that follows the company investing significantly in facilities this year, including costs associated with the ramp-up of Shelby.

For its tissue products, Chercover also says that consumers can find those private-label items in grocery stores such as Fred Meyer, Albertsons, or Safeway, but that the company has less of a foothold so far in stores along the East Coast.

"They've done a great job on the West Coast," he says. "If they get anywhere close to that on the East Coast, they'll be doing well."

Chercover adds, "It's almost this simple: If they can operate efficiently and ramp up this new facility and sell the product and generate the type of cash they've indicated they believe they can, then this is very inexpensive stock. They have to deliver on their promise."

Earlier this week, Clearwater Paper's stock was selling at $48.40 a share, which compares with a 52-week trading range from about $35 to $53 a share.

He contends it's possible that Clearwater is being conservative. If they can deliver what they put in writing and discussed in conference calls, he says, there will be significant upside.

Chercover also says that regarding the company's other main division, "There's no shame in the bleached board products. It produces a lot of cash. It's a solid business. They're good at it, and they have solid assets."

Massman says the company reached its 2014 EBITDA target with the expectation of generating up to $240 million from the Shelby operation, $35 million to $40 million from the Cellu-acquired operations, and $20 million from companywide cost-saving steps.

As for its corporate headquarters here, Massman says Spokane offers a number of advantages.

"We're thrilled to be in Spokane," she says. "It's a positive business climate. Our employees have strong roots in the area, and we find we attract talent who want to come here."

Treva Lind
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Reporter Treva Lind covers natural resources and technology at the Journal of Business. A Nevada transplant and recovering swim mom, Treva has worked for the Journal since 2011.

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