Clearwater Paper Corp (CLW) 2015 Q4 法說會逐字稿

Welcome to the Clearwater Paper Corporation fourth quarter 2015 earnings conference call. As a reminder, this call is being recorded today, February 10, 2016. I would now like to turn the conference over to Ms. Robin Yim, Vice President, Investor Relations of Clearwater Paper. Please go ahead.

Thank you, Candace. Good afternoon and thank you for joining Clearwater Paper's fourth quarter and fiscal year 2015 earnings conference call. Joining me on the call today in Spokane is John Hertz, Chief Financial Officer. Linda Massman, President and Chief Executive Officer is traveling this week and she is joining us remotely. Financial results for the fourth quarter were released shortly after today's market close.

Posted on the investor relation page of our website at clearwaterpaper.com, you will find both the earnings press release and the presentation of supplemental information including outlook slides providing the Company's current expectations and estimates as to net sales, operating margin and adjusted EBITDA range for the first quarter of 2016 and certain costs, pricing, shipment, production, maintenance and repairs and other factors for the first quarter and full year of 2016.

Additionally, we will be providing certain non-GAAP information in this afternoon's discussion. A reconciliation of the non-GAAP information to comparable GAAP information is included in the press release or in the supplemental materials provided on our website.

I would like to remind you that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. These forward-looking statements are based on current expectations, estimates, assumptions and projections that are subject to change and actual results may differ materially from the forward-looking statements.

Factors that could cause actual results to differ materially include those risks and uncertainties described from time to time in our filings with the Securities & Exchange Commission including our form 10-K for the year ended December 31, 2014 and our quarterly filings on form 10-Q. Any forward-looking statements are made only as of this date and the Company assumes no obligation to update any forward-looking statement.

John Hertz will begin today's call with a review of the financial results for the fourth quarter and fiscal year 2015. Linda Massman will provide an overview of the business environment and our outlook for the year and the first quarter of 2016. And then we'll open up the call for the question-and-answer session.

Now I'll turn the call over to John.

Thank you, Robin. Here at Clearwater Paper, our 2015 focus was on our cost structure and realizing operating efficiencies, particularly in the Consumer Products division as well as the Company overall. It started with the sale of our specialty mills at the end of 2014 with the plan to reinvest the proceeds of that sale into strategic capital investments that we believe will generate a 400 to 600 basis point improvement in CPD's adjusted EBITDA margins as we leave 2017.

We also addressed complexity in our operations through better logistics planning and were able to reduce miles traveled per customer shipment by 2% in 2015. We also were able to eliminate an additional 16% of SKUs in our retail tissue business. In addition, we streamlined the Company with the reorganization. Finally we began the total productive maintenance journey that will, among other things, allow us to significantly increase the operating uptime of our tissue converting line. We began to see benefit of those initiatives in efforts with CPD's adjusted EBITDA margin improving by 200 basis points in 2015 versus 2014.

On the paperboard side, we achieved our target margin of 19% despite absorbing $22 million of major maintenance costs and 15 days of related loss production. As well as the pricing pressure on commodity grade paperboard that we began to see in the third quarter.

On the balance sheet side of the equation, working capital improvements led to a 12-day improvement in the cash conversion cycle as days inventory outstanding improved by eight days and days payable outstanding improved by four days. Which helped cash flow from operations to increase nearly 15% versus 2014 to $160 million.

We completed our $100 million stock repurchase authorization in October. Since the 2011 inception of our stock buyback program, we have repurchased 6.4 million shares for $330 million. And have reduced shares outstanding by 28%. And on December 15, we announced that the board authorized another $100 million stock repurchase program under which we intend to return at least 50% of discretionary free cash flow to shareholders in 2016.

Turning to our fiscal year and fourth quarter 2015 results, first I would like to preface my comments by stating that throughout the rest of my remarks, I will be distinguishing between GAAP and non-GAAP or adjusted results. The adjusted results exclude certain charges and benefits that we believe are not indicative of our core operating performance. The reconciliation from GAAP to adjusted results is provided in a supplemental slides posted on our website.

For the full year, those charges netted to $3 million and included $2 million in costs associated with the closure of a Long Island New York, facility. $2 million in legal and settlement costs. $2 million associated with the union labor contract negotiation. $1 million in reorganization related expenses. And a $1 million write-down of foreign tax credits resulting from a logistical change in foreign shipments.

All of that is offset by a $4 million mark-to-market benefit associated with directors cash settled stock units and a gain of $1 million related to the sale of our specialty products mills. For the fourth quarter of 2014, those charges netted to $2 million for costs associated with the closure of the Long Island, New York, facility, the reorganization and the foreign tax credit write-down. All offset by a mark-to-market benefit associated with directors cash settled stock units.

Starting with the full year 2015 results, net sales totaled $1.8 billion down $215 million or 11% from 2014. Consumer Products net sales decreased 19% to $960 million reflecting the sale of the specialty mills and pulp and paperboard generated net sales of $792 million. Up 1% over 2014 as a 2.8% increase in shipment volume was largely offset by 1.7% drop in average paperboard pricing.

Adjusted EBITDA came in at $211 million, down 12% or $28 million which was in line with our October outlook of $206 million to $214 million. That is despite $50 million of headwind versus 2014 and related to the sale of the specialty mills, two major maintenance outages in paperboard and pricing pressure in the commodity paperboard grades. As a result, adjusted EBITDA margin remained relatively flat with 2014 at 12%.

Which reflects the impact of selling at a lower margin specialty product mills, operational improvements, and lower input costs for energy, chemicals, transportation, pulp, wood fiber, and package and supplies. Paperboard delivered $149 million or a 19% adjusted EBITDA margin and Consumer Products delivered $113 million or 12%, which as I mentioned before was a 200 basis point improvement over 2014. 2015 fully diluted adjusted earnings per share came in at $3.13 compared to $3.47 in 2014 which included the specialty mills.

Now turning to the fourth quarter, net sales were $432 million, down 2.4% from the third quarter and above the high end of the consolidated outlook range that we provided in our Q3 earnings call of down 3% to 5%. Paperboard shipment volumes were up 1.5% compared to Q3 and well above our outlook of down 4% to 6%. The typical fourth quarter seasonally down environment was better than expected as customers were replenishing low inventory levels.

That was partially offset by lower paperboard pricing mix and a 2.1% decline in tissue shipments which was weaker than the outlook of flat to down 1%. Compared to Q4 2014, net sales were down 8.6% due to the sale of the specialty mills and lower paperboard pricing which was partially offset by the August 2015 tissue price increase and higher paperboard shipment volumes.

Fourth quarter adjusted gross margin of 15.6% was flat to Q3, as lower paperboard prices, weaker product mix and lower manufacturing absorption on the CPD side were largely offset by favorable trends in manufacturing input costs. Compared to Q4 2014, adjusted gross margin improved 235 basis points due to the previously discussed initiatives.

Adjusted SG&A expense was $30 million in the fourth quarter compared to $27 million in Q3 and $32 million in Q4 of 2014. The 4.3% decrease year over year in SG&A was due to lower IT spend as projects were completed in an overall tightening of corporate spending on travel, hiring freeze for non-critical positions and eliminated overhead resulting from the sale of the specialty mills.

Adjusted corporate EBITDA was $13 million of the total SG&A spend in the fourth quarter and it was up 10% versus Q3 primarily due to higher professional fees and compares to $13 million in the same period last year. Adjusted operating income of $37 million or an 8% margin came in near the midpoint of our fourth quarter outlook of 8% to 9.5%. And down from 9.5% in Q3. The adjusted operating margin was impacted by the same factors impacting gross margin and then the higher SG&A spend. Adjusted operating margin improved over 200 basis points compared to the 6.5% that we saw in Q4 of 2014.

As a result of all of that, adjusted EBITDA was $59 million or 13.6% of net sales which was just above the midpoint of our outlook provided in our Q3 earnings of $54 million to $62 million which is a $4 million or 210 basis point improvement over Q4 2014. Net interest expense of $8 million was flat with Q3.

Turning to taxes, on an adjusted basis, our Q4 effective tax rate was 54.4%, which was higher than our previous outlook of 36% plus or minus two points and up from 28.5% in the third quarter. The fourth quarter tax rate was impacted by a couple of discreet items including one; tax provision to tax return adjustments related to prior year state returns filed or amended in the fourth quarter and two; the decrease in the value of state tax credits and a reduction in the benefit from the manufacturing deduction due to the passage of the tax extenders law in December 2015.

The state tax credits are no longer deemed realizable and there was a smaller benefit from the manufacturing deduction due to the five-year extension of bonus depreciation allowed for in the tax extender's law that will minimize taxable income that those credits and deductions could be applied against. As a result, our cash tax rate in 2015 was 19%. And we expect it to be approximately 20% in the 2016 and 2017 time frame. The Q4 GAAP tax rate was 59.5% which included the items previously described and the $1 million foreign tax credit write-down. The full year adjusted tax rate was 37.9% and on the high end of our outlook of 36% plus or minus two points.

Fourth quarter 2015 adjusted net earnings came in at $13 million or $0.75 cents per diluted share. That compares to adjusted net earnings of $24 million or $1.28 per diluted share in the third quarter and $15 million or $0.77 cents per diluted share in the fourth quarter of 2014. Q4 GAAP EPS was $0.65 cents. Noncash expenses in the fourth quarter of 2015 included $22 million of depreciation and amortization, $2 million in equity-based compensation and $2 million of net noncash pension and retiree medical expense. Employee head count at the end of the fourth quarter was approximately 3,300.

Now I'll discuss the segment results. Consumer Products net sales were $238 million for the fourth quarter of 2015, down 3.5% versus the third quarter. Volumes were down 2.1% which was weaker than our outlook of sequentially flat to down 1% and total tissue price was down 1.4% driven by mix and in particular, a higher percentage of parent rolls sold in the fourth quarter. Consumer products adjusted operating income for the fourth quarter of 2015 was $11 million or 4.8% of net sales versus $17 million or 6.8% in the third quarter.

Operating margin percentage was primarily impacted by the weaker price mix and a lower manufacturing absorption. Consumer Products Q4 adjusted EBITDA margin decreased $5 million to $26 million or 10.7% of net sales from $31 million or 12.5% in the third quarter. Compared to the same period last year, adjusted EBITDA dollars decreased by $3 million but the adjusted EBITDA margin improved by approximately 90 basis points to 10.7% from 9.9%.

Now turning to the pulp and paperboard division. Pulp and paperboard net sales of $193 million for the fourth quarter of 2015 decreased 1% versus the third quarter. Q4 net sales volumes came in above the seasonal outlook as previously mentioned because our customers were in an inventory replenishment mode.

However, a 2.3% lower average price per ton, due in part to a higher percentage of sales from commodity grade paperboard, negatively impacted fourth quarter net sales compared to Q3. Pulp and paperboard's Q4 adjusted operating income was $40 million or 20.5% of net sales as compared to $38 million or 19.3% of net sales in the third quarter.

The increase in margin percentage versus Q3 was due to a combination of improved runability at the mills which led to lower maintenance in wood fiber costs as well as lower prices for polyethylene and fuel for transportation. Pulp and paperboard's Q4 adjusted EBITDA margin of 23.9% remains above the 19% divisional objective inherent in our cross-cycle financial model.

Now turning to the balance sheet. Capital expenditures were $50 million in the fourth quarter and $134 million for the full year, in line with our Q3 outlook to spend approximately $135 million. $72 million of that was spent on strategic projects we outlined at this time last year and $62 million on maintenance CapEx. Long-term debt outstanding on a gross basis at year end was $575 million.

As of the most recent measurement date of December 31, 2015, our Company sponsored pension plans were underfunded by approximately $24 million. An increase of $7 million from last year due primarily to investment portfolio performance for the year reflective of the 2015 market returns.

With regard to our liquidity, we ended the fourth quarter with $6 million of unrestricted cash and short-term investments and $119 million available under our revolver. During the fourth quarter, we generated $52 million of cash from operating activities or 12.1% of net sales, in line with our cash flow model of 11% to 13%.

With that, I will now turn the call over to Linda Massman who will discuss the company's outlook.

Thank you, John. Hello, everyone and thanks for joining us today. First I'll start with 2015 highlights and then discuss our high level outlook for fiscal 2016 and more specifically, for the first quarter of 2016.

2015 was a transformative year for Clearwater Paper as we continued to build a solid foundation for Clearwater Paper's long term success. We are focused on the things we can control to create shareholder value such as operating results and working capital management that generates strong free cash flow and returns on invested capital that exceed our weighted average cost to capital.

A balanced capital allocation that returns excess cash to shareholders while investing in the business to grow free cash flow in future years. And maintaining an optimal capital structure that minimizes our cost to capital. And I believe we executed well on those items in 2015. Discretionary free cash flow for 2015 was $100 million which at our current market value equates to a discretionary free cash flow yield of 15%.

Our return on invested capital of 10.6% is well above our cost to capital. We returned $100 million of cash to shareholders in 2015. $330 million over the last four years and as of December, 2015, we have reduced share count by 28%. And we completed the first year of our three-year strategic capital plan and expanded our consumer product division's adjusted EBITDA margin by 200 basis points of the targeted 400 to 600 basis points as we leave 2017.

We consolidated the management of both the Consumer Products and pulp and paperboard businesses under one group president, Pat Burke, and established cross divisional management for sales and manufacturing. This is proven to be beneficial to running the business from a holistic approach and driving decisions for the benefit of the entire company.

Our pulp and paperboard division had another great year. The group exhibited excellent operational execution in all aspects of the business while managing 15 days of downtime for major maintenance and navigating through a changing market environment. The pulp and paperboard division was still able to achieve the targeted cross-cycle adjusted EBITDA margin of 19% with a contribution of $149 million.

Our Consumer Products division had a good year despite the challenging environment which included the merger of a top five customer. The team had two big notable wins in 2015. We were selected as sole supplier to a new grocery chain in the East and we secured incremental new business with a big box retailer in the Midwest. All of our strategic projects are on schedule and within budget.

First, regarding the pulp digester and optimization project in Lewiston, Idaho. The core engineering design and planning phase of the project were completed in 2015 and all of the necessary environmental permits were secured in addition to some attractive local tax incentives. We broke ground last fall. And as we mentioned in our third quarter call, we were able to accelerate the target completion date to the fourth quarter of 2017 which is one quarter earlier than the original plan.

Regarding warehouse automation, laser-guided vehicles and related equipment are currently being installed in our Shelby, North Carolina facility and will start up in phases during Q1. Installation for our Las Vegas plant is on schedule to start during the second quarter. The engineering and design phase for Lewiston is in process, with the target go-live date in Q4 this year. Installation of our high-speed bath and towel converting equipment in Las Vegas is happening now. The equipment start-up is expected in early second quarter.

Lean Six Sigma and total productive maintenance are both integral parts of our productivity journey. Lean is helping drive our waste in media losses while TPM should reduce variation and improve our operating equipment efficiency rate. To date, we have certified 41 Green Belts and we are on schedule to add 30 more in 2016. In 2015, we added three Black Belts to our team. We've completed over 1,600 continuous improvement ideas, with a target of an additional 1,000 in 2016, which will help to deliver our productivity savings in 2016.

Turning to our view of the market environment for each of our businesses and starting with the North American tissue market, in 2015, the US tissue market grew approximately 1%, in line with expectations. Starting with this quarter and going forward, the metric we will use for market share data will be based on dollar sales versus equivalized cases. This metric should provide a more accurate comparison across brands, channels and the various pack and roll sizes in case configurations which have proliferated over the past few years.

In 2015, based on dollar sales, private label's share was down 1% versus 2014, while the national brands gained a point. And as a result, private label is approximately 23% of the total retail tissue market. In 2015, Clearwater Paper's share of the total tissue market was flat at nearly 6% and our share of the private label market grew 1%, largely due to the two customer wins that I mentioned as well as better penetration at current customers.

Looking to 2016, the US tissue market is expected to grow approximately 1% to 2%, in line with the long-term trend, and we believe that private label should gain share. The most current RISI forecast for net new retail tissue capacity is 388,000 tons, which is down 32% from their previous forecast, due to a push out of one new machine from 2016 to 2017, the removal of some capacity due to bankruptcy and the removal of an 80,000 ton confidential paper machine from the forecast. Based on the current forecast, the operating rate through 2016 is expected to be 96%. RISI's current forecast supports a balanced supply and demand environment in 2016.

Turning to North American paperboard RISI's outlook for 2016 is a relatively balanced market due to forecast of improved demand for food service and processed food packaging to support an increase of 2.1% in production volume, combined with a 1.6% decline in capacity, due to announced mill conversion at Riegelwood. This yields an increase in operating rate to 96.1% in 2016 from 92.6% in 2015

The secular trend away from foam food service cups and containers towards eco-friendly alternatives like paperboard is expected to continue into 2016, as quick-serve restaurants are in varying stages at conversion. For 2016, the near-term risk continues to be the strength of the US dollar. RISI is forecasting continued pressure on US exports and limited gains in imports. RISI's price forecast is flat with Q4 2015 versus the first half of 2016, followed by a 2% to 2.5% softening in the back half of the year. In our view, operating rates would have to drop below RISI's forecasted level for this change in price to occur.

Turning to Clearwater Paper's 2016 outlook, which is provided in slide 20 of the supplemental earnings presentation. For price mix, the previously announced and implemented CPD price increases will remain in effect. For PPD, RISI is projecting pricing to remain at the fourth quarter 2015 levels until the back half of the year where the forecasted pricing is down 2% to 2.5% over the first half. Uncertainty remains around further impacts from incremental imports and pressure on US exports due to the strength of the US dollar.

Volume for CPD is projected to reflect tissue market growth of approximately 1% to 2% and PPD volumes are expected to be flat, following robust growth. For pulp and wood fiber cost, we expect this to be flat to slightly up as higher wood fiber costs resulting from continued strong demand is partially offset by lower external pulp costs.

Regarding maintenance cost, we will have one major maintenance outage and approximately 11 days of downtime at our Lewiston mill in the third quarter and benefit from no major maintenance at our Cypress Bend, Arkansas mill in 2016. That $7 million savings will be partially offset by investments in TPM and higher scheduled maintenance at other sites.

We expect other costs to be flat to slightly up as benefits from lower energy and chemical costs will be offset by wage and other input cost inflation. We are on track to achieve $40 to $50 million of savings from strategic investments, operational efficiency, sales effectiveness and continuous improvement productivity initiatives less $10 to $15 million from margin pressure.

Our outlook for 2016 tax rate is 37% plus or minus 2%. 2016 capital expenditures are expected to be $155 million, including $21 million of unspent CapEx in 2015. Breakdown is $95 million of strategic investments and $60 million in base maintenance CapEx.

Now to our Q1 outlook for the Consumer Products business. We're expecting fairly stable shipment volume and pricing mix compared to the fourth quarter of flat to up 1% for both variables. The outlook is for stable pulp, chemical, transportation, energy, maintenance, and SG&A costs. Operating in petrochemical based operating packaging supplies are expected to be down.

Turning to the first quarter outlook for our Pulp and Paperboard division, we expect to see a fairly stable shipment volume of flat to up 1% and stable pricing mix compared to the fourth quarter. Most input costs and SG&A expected to remain stable, except for higher wood fiber cost due to market conditions in the Pacific Northwest and maintenance in the quarter due to a boiler water wash in the Lewiston mill.

Looking at the consolidated business for Q1 versus Q4, we expect net sales to be flat to up 1%, our consolidated operating margin to be in the range of 7% to 8.5%, and an adjusted tax rate of approximately 40%, and as I mentioned the full year rate is expected to be 37% plus or minus two percentage points. All of those variables combined are expected to result in a Q1 adjusted EBITDA range of $52 million to $60 million. The key variables we see determining where we land in that range are changes in paperboard market conditions, brand promotional activities, and changes in customer and consumer demand.

In conclusion, 2016 will be a year of relentless and continuous improvements to our operating platforms as we set the stage for further margin improvement, particularly in our consumer business. While market conditions for both of our businesses continue to be challenging, we believe we are well positioned to grow our discretionary free cash flow, achieve returns on invested capital well above our cost and continue to create shareholder value.

And finally, I'd like to thank our employees for another solid year of hard work and for their loyalty and commitment to Clearwater Paper's success.

Thank you for listening to our prepared remarks and we will now be ready for questions.

Thank you. (Operator Instructions). Our first question comes from the line of Paul Quinn of RBC Capital Markets.

Yes, thanks very much and solid Q4 results.

Thanks Paul.

Just a couple of questions on the 2016 outlook, it sounded like you expected private label to gain share in the Consumer Products side, just wondering how that reconciles with the loss of share in 2015 and why did private label lose market share in 2015 and why is it going to turn around in 2016?

Yes, Paul, I think the market share was fourth quarter and it was primarily because the brands promoted more than private label. We don't see it as a long-term trend against private label. And so, we think it's just growth again with population like we've seen in the past many, many years.

Okay. And then just on the paperboards side, we've got the Metsa Board machine started up in February, it sounds like you expect pricing to hold flat for the first half and then see some decrease, I think it was 2.5% down in the second half. What gives you that level of confidence that you're not going to see higher imports?

Paul, I think it's based off of what we saw this particular year, in 2015, we saw some addition of imports, but I think more of the market was impacted by the lack of exports. So I think RISI does a lot of research. We are not taking a counter position to what they have to say about import/export changes and I think we've produced good high quality paperboard and we're doing it at a more effective and efficient way every year. So I think we'll be able to compete pretty effectively.

And just following up on the paperboards side, it sounds like the import pressure is coming on in the commodity side and it sounded like from your remarks that Q4 you had more of a mix to the commodity. Can you actually shift your mix more to the specialty side to get away from the import pressure?

Yes, and that's something that we're actively working on and started working on during 2015 and I think we've already started seeing progress in that and I expect to see more progress in 2016.

All right. That's all I had. Best of luck guys.

Thanks, Paul.

Thank you. And our next question comes from Steve Chercover of D.A. Davidson. Your line is now open.

Good afternoon. I really just had one question since some of mine have already been answered, which is I appreciate the conservative presentation, but would it make sense to call out the high tax rate in your operating earnings, because EBITDA was in line, but EPS missed and poor optics can get you punished in this market?

Yes, Steve. This is John. So I guess when we go through our decision-making process with what we would adjust out or not, in particular as it relates to taxes, there is things that really are unique and more similar to asset write off kind of thing in that foreign tax credit that we adjusted out fell into that category. But there is other things around valuation allowance increases that are really more ordinary course things that happen quarter in, quarter out within the tax line and that's really what the remainder of it was and for that reason didn't feel that met our criteria to adjust that stuff out.

Yes. I just think that you might get punished for the $0.65 number versus the consensus of $0.95, or $0.99. But really if you had a normal tax rate you probably would have beat on that line. So I don't mind you being conservative, you might want to be explicit. Alright, thanks.

Alright. Thanks, Steve.

Thank you. And our next question comes from James Armstrong of Vertical Research Partners. Your line is now open.

Good evening. And thanks for taking my questions. Truthfully, it looks like they were reading over my questions on the previous analysts. But diving into the Metsa Board a little bit, as the dollar remains strong, have you seen any bleach board entering the market in the US yet? And in Europe, is there any confidence or lack of confidence that that board will find its way into the US market? And what do you think the puts and takes are there?

Yes. I think we saw some import increase in 2015, although I wouldn't call it overly material, but it's enough to have an impact on market pricing. And I would also say that in combination with the lower exports, I think RISI expects imports to be relatively flat. I agree with them. I mean, there is some risk, there is no doubt that that board can make its way into the US. But like I said, we've been very focused on improving our productivity with our two paperboard machines and ensuring that we are driving good value with our particular customer base and ensuring we have the right quality and customer service to protect ourselves. So that's how we're going to compete in 2016. I'm fairly confident we're going to be successful.

Okay. That helps. And then switching to the tissue side and the pricing versus the market share in the fourth quarter, are you seeing any direct pricing competition heat up or does this remain more of a ad spending and promotional activity basis with the branded players?

I'd say it's more of the ads and the number of ads being run. We definitely saw in the fourth quarter the brands promoted more than private label, but that would be generally typical for fourth quarter anyway. Not seeing a lot of change on the price side. As you know, we implemented our price increase and in our 2016 outlook said that we intend to maintain that price increase. So I think definitely more of the ads driving it.

Okay. That helps. And then lastly just on the tissue market as a whole, besides de-sheeting, which has always happened, you've also seen tissue get smaller in sizing change. Have you been able to -- has private label been able to match what the branded players have been doing or are there contracts that prevent you from sizing your product in a similar fashion as the brands do?

We have done some of the de-sheeting, I wouldn't say we have matched it one for one. We'll continue to work towards that. That's always a function of discussing that with our retailers, ensuring that they are comfortable with our product design and attributes and ensuring that it meets their needs for what they want to have on the shelf for their private label program. So we tend to try to follow as quickly as we can, but it is definitely good dialog we have with our customers first before we follow up.

But not necessarily the de-sheeting, it's the size changes. For instance, in toilet paper where a square is getting smaller than a square 10 years ago or is private label following that or are there different dimensions on the private label side versus the branded side?

I don't know if I have the specifics on that so much, but we can follow back up with you on that. It's not overly material, I can assure you of that.

And James, this is John. I would say we use the term desheeting as a broader term which would include things like shrinking the actual square size because at the end of the day, that's just less fiber on the roll. So think about that in general.

That helps a lot. Thank you very much.

Thank you. (Operator Instructions). And our next question comes from Roger Spitz of Bank of America Merrill Lynch. Your line is now open.

Thanks, good afternoon. What was driving the mix shift toward more parent rolls and less retail tons?

Yes, I mean that's kind of -- parent rolls can fluctuate quarter-to-quarter and it happened to be in this quarter where we saw less in the way of retail shipments, because of what Linda had just prior talked about and then we saw more opportunity to sell parent rolls. So those two things converged in the quarter and that's why the mix shifted the way it did.

Okay. And maybe you've talked about this and I missed in the commentary, but the $10 million to $15 million margin pressure in 2016, which segment was that in, if not both? And what was the main thing driving that expectation?

Yes, that's kind of across the board. And it's wage pressure, certain commodity cost pressures, could be some price reductions on conventional tissue paper, for example. The derivation of that was last year at this time we talked about some investments we were going to make in strategic capital and we laid out what those benefits were going to be. In total and how they layered into the P&L over the 2017 timeframe. We included our caveat in that that as we move through time, we will face some inflationary pressure and we estimated that to be $10 million to $15 million per year. And like I said, that's across the whole spectrum, not specific to any particular division or product line.

Okay. Got it. And then perhaps you gave, but do you have a 2016 CapEx guidance? I didn't necessarily see that in the --

Yes, we did. I think it was $155 million; it was in Linda's comments.

Oh, it was in her comments. All right. Thank you very much.

Yes.

Thank you. Ladies and gentlemen, that does conclude our question-and-answer session. At this time, I will turn the call back over to Ms. Massman for any closing or additional remarks.

Great, thank you. I appreciate it. We look forward to another year of solid progress toward attaining out target cross-cycle margin model. We're excited, energized and ready to take on the challenges for 2016. We thank our customers who make us better every day and for the support of our shareholders. Thank you for joining us and for your continued interest in Clearwater Paper.

Ladies and gentlemen, that does conclude our Clearwater Paper fourth quarter and fiscal year 2015 earnings conference call. We do appreciate your participation. Everyone, have a great day.