Magnera Corp (MAGN) 2017 Q2 法說會逐字稿

Good morning.

My name is Navi, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Glatfelter's Second Quarter Conference Call.

(Operator Instructions) Thank you.

John Jacunski, you may begin your conference.

Thank you, Navi.

Good morning, and welcome to Glatfelter's 2017 Second Quarter Earnings Conference Call.

This is John Jacunski.

I'm the company's CFO.

Before we begin our presentation, I have a few standard reminders.

During our call this morning, we will use the term adjusted earnings as well as other non-GAAP financial measures.

A reconciliation of these financial measures to our GAAP-based results is included in today's earnings release and in the investor slides.

We will also make forward-looking statements today that are subject to risks and uncertainties.

Our 2016 Form 10-K filed with the SEC and today's release, both of which are available on our website, disclose factors that could cause our actual results to differ materially from these forward-looking statements.

These forward-looking statements speak only as of today, and we undertake no obligation to update them.

I will now turn the call over to Dante Parrini, Glatfelter's Chairman and Chief Executive Officer.

Thank you, John.

Good morning, and thank you for joining us to discuss our second quarter results.

As noted on Slide 3 of the presentation, we reported a loss on an adjusted basis of $0.06 per share in the second quarter.

Overall revenue for the quarter was $387 million, down 3.2% on a constant currency basis compared to the same period last year.

However, our engineered materials businesses delivered solid shipment growth and increased revenue on a constant currency basis.

Composite Fibers revenue was up 1.4% in constant currency, and volumes were up 3% in the quarter, driven primarily by wallcover products and technical specialties.

We're encouraged by this level of demand growth and remain cautiously optimistic that this momentum will continue into the second half of the year.

Our cost optimization actions announced earlier in the year are yielding positive results and progressing as planned.

Advanced Airlaid Materials performed well with revenue and constant currency and overall volumes, each up 5% in the quarter versus last year, driven primarily by wipes and hygiene products.

Customer demand remains strong while we actively work to fill the pipeline with additional commercial opportunities in preparation for the Fort Smith facility ramp-up.

However, this was a particularly challenging period for Specialty Papers, and it's significantly impacted our overall quarterly results.

The weak market environment resulted in industry operating rates declining to 86%, a 4 percentage point reduction from the same period last year, which exacerbated the excess capacity situation and further pressured selling prices.

As a result, our shipping volumes for the quarter were down 5.4% relative to the uncoated free sheet market decline of 3.9%, and selling prices were lower in all product categories.

To curve this impact, address the excess capacity issue and optimize our cost structure, last week, we announced the permanent closure of one of our paper machines in Chillicothe, Ohio and an additional salaried workforce reduction that will result in the elimination of approximately 120 positions.

The machine shutdown is targeted for the end of the third quarter and will reduce our capacity by 80,000 tons while the salaried workforce reduction was largely completed last week.

We expect to start realizing the benefits of these actions in the third quarter with annualized savings of $9 million and to achieve the full run rate benefit in early 2018.

As you can imagine, these are difficult decisions given the impact to many of our employees, but we are committed to taking steps necessary to address the difficult market conditions we are facing.

Our cash flow generation was healthy during the quarter with proceeds going to fund capital expenditures, and our balance sheet remains in good shape.

This concludes my opening remarks.

John will now provide a more in-depth review of our second quarter results, then I will offer some closing comments before taking your questions.

John?

Thank you, Dante.

For the second quarter, we reported a net loss of $5.7 million or $0.13 per share.

After excluding noncore business items, we reported a loss of $2.6 million or $0.06 per share compared with adjusted earnings of $2.8 million or $0.06 per share in 2016.

Slide 4 shows a bridge of adjusted earnings per share from the second quarter of last year to this year.

Composite Fibers results reduced earnings per share by $0.01, driven by lower selling prices and higher freight charges to service some of our key customers.

Advanced Airlaid Materials results improved earnings per share by $0.02, driven by higher shipping volumes.

Specialty Papers results reduced earnings per share by $0.16, driven by lower selling prices and shipping volumes and market-related downtime as the supply/demand imbalance continue to impact the uncoated free sheet markets.

Lower corporate costs improved earnings per share by $0.07.

Pension and net interest expense reduced earnings per share by $0.01 each, driven by midyear true-ups to pension valuation assumptions and higher debt levels.

And taxes and other items reduced earnings per share by $0.02, primarily driven by a tax valuation allowance against net operating losses in the U.S.

As we discussed last quarter, we are required to set the valuation allowance against NOLs under the accounting rules, even though we ultimately expect to realize the benefit of these NOLs.

We now project our effective tax rate for the second half of 2017 to be 35%.

The estimated rate is sensitive to the level of income from Specialty Papers business unit, among other items, and as a result, there could be some volatility in the rate.

Slide 5 shows a summary of second quarter results for the Composite Fibers business.

Total revenue for this business was $133 million, a decrease of 2.4% when compared to the prior year but higher by 1.4% on a constant currency basis.

Overall shipping volumes were up 3%, driven primarily by wallcover products and technical specialties, which grew by 11% and 4%, respectively.

Coffee shipments were strong, up 8% but were offset by lower shipments of tea products.

Selling prices were impacted by regional mix and the competitive situation in select markets, and as a result, lowered revenues by $2.1 million.

On a year-to-date basis, shipments were up 4% compared to prior year.

Food and beverage volume increased 2% over last year, and the outlook remains positive.

Shipments of wallcover products increased 8% for the first half of the year, and we remain cautiously optimistic about the momentum of this trend.

And technical specialties, which includes electrical products, posted strong shipment growth of 5% compared to last year.

As we serve the growing demand for our products, we incurred elevated levels of freight cost totaling $1.3 million.

About half of this was for expedited shipping to some of our key customers that had a significant increase in order patterns on short notice, and our priority was to fulfill our customers' needs.

We do not expect the expedited shipping to be a significant factor in the third quarter.

Our cost optimization program announced earlier this year is progressing well, and we expect to achieve the targeted benefit of $10 million for the year.

Overall, operating profit for the quarter declined slightly compared to the year ago period but is up 10% through the first half of the year.

For the third quarter, when compared to the second quarter, we expect shipping volumes to increase approximately 3%, and selling prices are projected to be in line with the second quarter.

Raw material and energy prices are expected to increase slightly.

We expect to incur approximately $1 million less market-related downtime as compared to the second quarter, and we do not expect any significant expedited freight cost.

Advanced Airlaid Materials results are summarized on Slide 6. Total revenue for this business was $63 million, a 3.4% increase versus prior year, and a 5% improvement on a constant currency basis.

Overall shipments grew 4.7%, with very strong growth in our wipes segment of 16%.

Hygiene product shipments grew at a healthy pace as well at 4%.

Other shipments -- or other segments that continued to show solid growth include tabletop and home care products.

Average selling prices were slightly lower, driven by customer contract provisions requiring the pass-through of lower raw material prices.

Even though solid operating performance supported the higher volume, overall operations were unfavorably affected by general cost inflation.

This business continues to generate solid improvements in operating profit, up 11% for the quarter, with continued growth expected as the construction of the Fort Smith, Arkansas facility is progressing well, both in terms of schedule and budget, with commercial shipments expected to begin in early 2018.

For the second quarter -- I'm sorry.

For the third quarter, we expect shipping volumes to be higher by approximately 2% compared to the second quarter, and selling prices and raw material and energy prices are expected to be slightly higher than the second quarter.

Slide 7 provides a summary of the results for Specialty Papers.

Revenue for Specialty Papers was $191 million or 8.6% lower than the prior year quarter.

Shipping volumes decreased 5.4% year-over-year, while the broader uncoated free sheet market declined 3.9%.

This was a very challenging quarter from a pricing volume and capacity perspective.

Similar to the first quarter this year, selling prices in the second quarter were below year-ago levels in all product categories, reflecting continued pricing pressure, driven by excess capacity and lower industry operating rates.

As Dante mentioned in his opening remarks, industry operating rates in the second quarter were 86% compared to 90% a year ago.

And as outlined in last week's announcement of the various cost reduction measures we are taking in this business unit, we believe the paper machine shutdown in Chillicothe, Ohio and the headcount reductions will help rightsize the capacity and cost structure necessary to keep the business competitive.

During the quarter, we incurred approximately $6 million of cost penalties due to the market-related downtime to balance production with demand.

We successfully completed our annual maintenance outages in the second quarter of both mills, with a total cost of $22.9 million compared to $26.3 million a year ago.

And we are aggressively driving cost reductions across the business, which generated a $5 million benefit for the quarter.

Despite the strong cost control, the business generated an operating loss of $13.8 million during the second quarter compared to a loss of $5.8 million last year.

For the third quarter, we expect shipping volumes to be approximately 5% higher than the second quarter, with selling prices declining slightly.

Raw material and energy prices are expected to be slightly higher.

The impact of market-related downtime is expected to be $2 million or $3 million lower than the third quarter, and we expect about $1 million in cost savings from the salary workforce reduction announced last week.

Slide 8 shows corporate costs and other financial items.

During the quarter, we incurred costs related to the startup of our new Airlaid facility at Fort Smith, Arkansas, the Composite Fibers cost optimization program and the residual expenses on the BART/MACT environmental compliance project.

These costs were excluded from adjusted earnings.

Corporate costs during the second quarter were $4.5 million and significantly lower than prior year due to lower professional services fees and a fracture of legal cost.

We expect corporate costs in the third quarter to be in line with the second quarter.

Slide 9 shows our free cash flow.

During the second quarter, cash flow from operations was $21.2 million, slightly lower than last year due primarily to lower earnings.

Total capital expenditures for the quarter were slightly lower compared to last year, reflecting lower spending on major capital programs with the BART/MACT project now behind us.

During the second quarter, we resolved claims related to the Fox River environmental matter between Glatfelter and Georgia-Pacific.

Under the agreement, Glatfelter will pay Georgia-Pacific $9.5 million during the third quarter.

The agreement also clarified the division of responsibility for monitoring and maintenance in the river post-remediation.

This outcome was contemplated in the reserves established for this matter, and we made no changes to our reserves during the quarter.

Slide 10 provides additional detail on capital expenditures and related costs.

Consistent with our prior guidance for the full year 2017, we expect capital expenditures to total between $130 million and $140 million.

For 2018, we expect this to return to more normalized levels of $62 million to $72 million, with the completion of the Airlaid capacity expansion project.

Slide 11 shows some balance sheet and liquidity metrics.

Our net debt on June 30 totaled $373 million, up $55 million from the end of 2016, primarily on account of the major capital programs.

We finished the quarter with $69 million of cash on hand and $104 million available under our revolving credit facility.

Our leverage is at 2.4x at the end of June based on adjusted EBITDA.

This concludes my comments.

I'll turn the call back to Dante.

Okay.

Thanks, John.

As we close out the first half of 2017 and review our action plans for the second half of the year, I believe that we're in a strong position to deliver continued growth in our engineered materials businesses, bring the Fort Smith growth investments to fruition and successfully execute on our cost reduction plans across the company in light of the challenging market environment Specialty Papers.

Our Composite Fibers business is poised for steady volume and earnings growth with its best-in-class product offerings, leading global market positions and relationships with long-standing customers, who recognize Glatfelter for service excellence, consistent high-quality and strategic partnership.

The cost optimization initiative remains a high priority and will create operating leverage as our shipping volumes increase.

In Advanced Airlaid Materials, we're finalizing the build of our brand-new facility in Fort Smith, Arkansas that will add 22,000 tons of Airlaid capacity to the North American market, which is otherwise at full capacity at the moment.

This expansion will enhance the long-term growth prospects and margin profile of the business.

The key focus here will be maintaining our ongoing strong performance, filling the customer pipeline and flawlessly executing our project completion and the production ramp-up for commercial shipments in early 2018.

And in Specialty Papers, with the current headwinds expected to prevail in the near term, we remain committed to maintaining a lean operational structure while enhancing the product mix through new business and new product development.

We're focused on executing our cost reduction measures, including the paper machine shutdown at our Chillicothe facility, to allow us to operate our machines full while minimizing our need for purchase pulp.

These actions are intended to improve the business profile and better position us for success.

In closing, Glatfelter will continue to leverage its capabilities and continuous improvement, cost management and commercial excellence to bolster our leading market positions and maintain a competitive cost structure.

This approach is focused on driving profitability while preserving liquidity that can be utilized for targeted growth investments.

I'll now open the call for your questions.

(Operator Instructions) Your first question comes from the line of Mark Wilde from BMO Capital Markets.

Dante, to start out, can you just, you or John, help us think about the time line on the Fort Smith ramp-up and the sort of track to profitability?

Sure.

So as we've been saying throughout the entire length of the project, we expect to have the buildout completed during Q4 and start shipping commercially salable products and invoicing our customers in Q1.

The expectation is that within 2 to 3 years, we will have the facility at full capacity.

We have a majority of the volumes already spoken for through customer agreements, and we expect positive EBITDA contribution in 2018.

Okay.

And would that be like second half of '18, Dante?

Can you put any finer point on it?

Mark, I think we certainly would expect some positive in the first part of the year, but we definitely weighted towards the second half.

Okay.

All right.

And then, Dante, just stepping over to the Composite Fibers business.

I wondered if you could talk about both the nice increase in the wallcovering volumes but also that 5% drop in the teabag market.

Sure.

So we'll go in the same order that you asked.

Regarding wallcover in the Russian market, clearly, the market is more stable than it has been in several quarters, and we're certainly encouraged by the year-over-year growth.

As John said, we had 11% growth in Q2, and that followed Q1 growth of 5%.

I would say that there has -- a return to economic growth in the region is helping.

A relatively stable ruble is helping.

We mentioned 1 or 2 quarters ago, a Scandinavian French competitor exited the market, which created some opportunity that our commercial team is working diligently to take advantage of.

Of course, the geopolitical profile of the region makes forecasting a bit more challenging and lends itself to more uncertainty.

But with all that being said, we're cautiously optimistic about the second half of the year.

And then regarding tea, yes, we were off about 5% in Q2, although we had a very strong quarter for coffee, up 8%.

You may recall from first quarter, tea was up about close to 6%.

So first half of the year, we're flattish.

Expectation is volume growth for food and beverage in the second half of the year, as is the case with majority of all of our product lines for CFBU.

So we're not overly bothered by the period-to-period volatility from a bigger picture trend point of view.

And as we said coming into 2017, we expect a restoration across all of our CFBU product categories for growth.

And we're seeing that, and we feel confident that we'll see that continue in the second half.

Okay.

And then you mentioned some pricing weakness, and I wondered if you could give us some color on that, as well as that expedited freight.

I don't recall this coming up in other quarters.

Sure.

So a little bit of the pricing weakness.

We have varying levels of competition across the globe and across product categories.

And then of course, sometimes mix of customers and mix of geographies can also translate into selling prices.

So we talked a few years ago about a new piece of capacity that came into the market.

And so from a year-over-year comps point of view, we've seen things kind of starting to smooth themselves out as witnessed by the elevated volume improvements.

So I think the market needs to -- is catching up with itself.

As it pertains to the freight costs, the good news was we had more orders than our customers had forecasted or conveyed to us and that we were planning on, and some of this all happened in a very short period of time.

So being the supplier of choice and the leader in these respective segments, our #1 objective is to always satisfy our customers' needs and make sure they know that they can always count on Glatfelter through an entire business cycle.

And that's what we did.

It elevated some freight costs.

So as John said, half of them, $1.2 million or $1.3 million that we saw year-over-year was expedited freight, and we don't expect that to be a material impact in Q3 going forward.

Okay.

And then just turning to the Specialty Paper business.

For years and years, you've really been running ahead of the industry in terms of volume.

And this quarter, you were behind the industry by about 1.5%.

Can you talk about that and also the impact of the Chillicothe shutdown on just the economics of that mill at large?

Sure.

So clearly, Q2 was an off quarter for Specialty Papers.

And we have, for more than a decade, outperformed the broader uncoated free sheet market.

I think there are number of factors at play here, Mark.

Some of our markets are declining faster than industry rates.

For example, carbonless and business forms.

And with pricing at an 11-year low, we're experiencing higher levels of competition.

And in some cases, it just doesn't made economic sense for us to produce certain grades on purchase pulp.

We also had the planning well underway regarding PM24.

And as we were completing the analytics, it made sense for us to be much more conservative in terms of managing working capital and how we ran that particular asset, and all of those factors contributed to the volume offset in Q2.

Okay.

And then do you have comments for the mill?

Yes.

So as it pertains to the 24 shutdown decision, clearly, the continuation of the supply/demand imbalance and low operating rates has -- have been pervasive and exacerbated the problem, as we outlined in our press release.

This action helps us reduce a lot of costly downtime.

As John referenced, we had a substantial cost penalty, about $6 million, from lack of absorption in Q2.

It also reduces our demand for markup pulp.

So the marginally economics of the last tons out the door on markup pulp weren't making any sense to us any longer.

I can tell you that this decision makes -- has no impact to our customers.

So we can serve the business from 24 on the remaining 7 paper machines across Specialty Papers, and the objective and the high level of confidence is that we'll be able to do this in a way that's transparent to the customers.

So I think we rightsized the footprint, we get closer to pulp neutrality, we take out 120 positions which has about a $9 million cost advantaged, and I think all these things strengthen the competitive positioning of Specialty Papers in Chillicothe.

Your next question comes from the line of Debbie Jones.

Just a couple of follow-ups on white paper.

Do you think -- or do you have any visibility into kind of a stabilization of this underperformance that we've seen relative to the market?

Just kind of how would you think about performance in the back half?

And then in addition, if we think about this industry in the past when you've seen capacity removals by some of your competitors, can you just remind us how that typically has impacted Glatfelter?

Sure.

So it's very difficult to have a crystal ball.

I would say that the assumption of us performing closer to the market levels is a good assumption for the second half of the year.

As it pertains to capacity coming out of the market, depending on how material it is and where the operating rates are, when meaningful capacity comes out of the market, you typically see a restoration of more stable and higher operating rates, which also translates either into stable pricing.

Or if operating rates get to the 92% level or higher, you'll see price improvements.

So just dimensionalize the 24 shutdown for GLT.

If you keep the math around, we shipped approximately 800,000 tons a year from Specialty Papers.

So this is about 10% of our production capacity, and it represents about 1% of the uncoated free sheet market in North America.

So that helps you dimensionalize it.

So it's clearly meaningful to us.

It's an important step forward in the message to the marketplace, but it's 1% of the total printing and writing -- or uncoated free sheet market in North America.

So hopefully, that helps you frame the impact.

It does.

And I was also hoping just get some clarity, and I apologize if you gave this.

But you said you got some clarity on the division of responsibility around Fox River as it relates to Georgia-Pacific and you together.

Can you help us with that a little more granular on what that means?

Sure, Debbie.

So under the agreement we have, this is both under the consent decree, proposed consent decree, that was put to the court between NCR and the U.S. government, coupled with the agreement we have with Georgia-Pacific, kind of outlines what areas of the river we are responsible for monitoring maintenance and what areas of the river Georgia-Pacific is responsible.

So we -- the river is kind of segmented into operating -- operable units.

So we are going to take what's called operable unit 1 through operable unit 4a, and Georgia-Pacific gets operable unit 4B and 5. So there's no longer any sort of uncertainty around which areas of the river each company has.

And again, the resolution that we reached with Georgia-Pacific was contemplated in our reserves, so we made no changes during the quarter.

We continue to be comfortable with where we're at.

Okay.

And as you kind of went through this thinking about the maintenance cost going forward, it sounds like you're comfortable with what the potential might be for that?

It's a little early there...

That's right.

We have estimates both for the cost to monitor as well as what we expect potential maintenance would be.

I'll tell you that in the part of the river that we remediated, OE1, that we completed many years ago, 2009, there's been no maintenance required, and our monitoring is -- has been clean.

So we do have a good view as to what those recurrence would be.

Okay.

That's helpful.

And just last question, just on CapEx.

I just -- I noticed you brought up the bottom end of the range for the CRM.

I'm assuming that's maybe FX-related.

And then could you just -- thank you for the 2018 information.

Could you just on the -- step back from 2017, it is highlighted there, but it's a $60 million to $70 million.

Is that -- how much of that is just kind of general maintenance versus growth CapEx that you're pointing to for 2018?

Sure.

So on the 2017 range we had, there was some carryover from '16 into '17.

So we came in a little bit lower in '16, so with some carryover, and we had a bit of a wider range because we weren't sure what the carryover would be from '17 to '18.

As you could see, the carryover on the Airlaid capacity expansion is expected to be pretty small.

So that's -- the tightening up of that range was just to reflect the movement between years.

On 2018, we typically would say that our normal CapEx is $70 million to $80 million, sort of given the situation we see with Specialty Papers.

We're pulling that back a little bit to make sure we generate a very soft cash flow in 2018 and get the significant improvement that we expected.

I would say that there is a pretty low level of sort of growth-type investments in that $60 million to $70 million.

Generally speaking, there is some for cost out improvements, but the bulk of it is maintenance CapEx.

Your next question comes from the line of Dan Jacome.

Can you hear me?

Yes, we can.

Oh great.

Two quick questions.

What's driving the volatility in tea shipments?

I know you just told us not to annualize the weakness this quarter, but that also seems like incremental in use to us.

And then on the Fox River, how long are the monitoring costs going to go?

Should we think about it as into perpetuity?

Or is it going to be several decades?

Or what's your best estimate?

Sure.

So as it pertains to tea, we have market share of about 55% worldwide.

So we have positions with all the major players.

So you can have a quarter where 1 or 2 of your larger customers are off cycle with their order patterns.

Or if they're managing a quarter-end working capital, it can have a several percentage point swing for us on a quarter-to-quarter basis.

That's why I pointed out the 6% up in Q1, 5% down in Q2, flattish for the first half of the year.

But the expectation is for volume growth in the second half of the year, and we have line of sight to some incremental pieces of business that gives us the confidence around the projections for volume.

Okay.

And then on the Fox River?

Yes, Dan, on the Fox River, as you mentioned, the monitoring and maintenance cost go on for quite some time.

Generally, it's about 30 years.

Okay.

That's what I thought.

Did -- has your long-term target for food and beverage shipment growth -- I think you guys have targeted like 3% to 4%, maybe closer to 3% these days.

Has that changed at all based -- I'm going to assume no, the answer is no, but just checking.

Has that changed at all, your long-term kind of growth rate?

No, you're correct.

Unchanged.

Your next question comes from the line of [Howard Brierming] from the [PN Capital].

Just wanted to ask a couple of questions revolving around cash flows.

Your revolver balance is just about doubled.

Where should we expect the balance to be by the end of the year?

And is that kind of a run rate we should expect going forward?

So the revolver balance has increased as we've completed the major capital programs that we talked about.

So in -- earlier this year, we completed the environmental compliance investments we needed to make in Specialty Papers to continue to operate, and we're in the process of completing the Fort Smith capacity expansion in the Airlaid business.

I would expect that as we go through the balance of the year, typically, we get a working capital benefit as we move through the second half of the year.

So I would expect that net-net, we'll be cash flow positive in the second half of the year.

So where would you expect the revolver balance by year-end?

I don't have a number to share with you, but our net liquidity -- so our cash less our debt or our cash plus our availability in our bank facility ought to improve as we go towards the end of the year.

Okay.

And then just question revolving around the shutdown of the Ohio plant.

Do you plan to sell that plant?

Is there any residual value there from the potential sale of an asset?

Or is that just salvage?

Just to clarify, we didn't -- we're not shutting the plant down.

We are just shutting down one paper machine.

Oh, pardon me.

Okay.

I misunderstood that.

And then finally, pension funding.

I was looking at your pension slide.

Where does the funding of the plan sit?

Is there any catch-up funding that needs to be done?

No.

We're-- our full fund plans are overfunded.

We haven't had to make cash contribution in a very long period of time, and we don't expect to for the foreseeable future.

(Operator Instructions) Your next question comes from the line of [Kirk Neager].

Just a couple questions.

First one, with the lowered pricing in the Advanced Airlaid segment.

Due to some of those contractile pass-throughs and now the expectation for some flight inflation, should we expect maybe some all lags on recovering some of that price in the back half of the year?

No.

Typically, those pass-throughs are immediate.

So there should be very little, if any, lag.

Okay.

So I mean, in the third quarter, given your expectation for some raw material inflation, you wouldn't get any prices associated with that.

No, we would expect -- I would expect in Q3 that any increase in raw materials will be offset by increased selling prices in the quarter.

Okay.

And then do you guys by chance have your operating rates excluding for the first half of the year excluding the machine that you are going to shut down?

It was -- they're pretty high.

So I would say there was a little bit of downtime on some other paper machines, but quite low.

We're talking, maybe for the first half of the year, 4,000 or 5,000 tons in total.

So it's -- they're operating nearly at capacity.

Okay.

So should we expect maybe a little bit of inventory build just as far as some wiggle room shifting that production from that machine to your existing machines?

No.

I wouldn't expect any significant inventory build as a result of that or as a result of the machine shutdown.

I think that for the most part, the products can be pretty quickly moved to other machines.

And any kind of increases, for particular, customers we may need to take care of, we should be able to offset through the rest of our inventory levels.

So I wouldn't expect any significant change.

Okay.

And then as far as the $9 million profitability target from the shut of the machine, can you maybe categorize the buckets that, that target is going to come from, whether it be partially from labor or fixed cost absorption or anticipation of less market-related downtime going forward?

Not in too much detail.

I would say that there's 2 broad components.

One is the salary workforce reduction.

So we talked about reducing our salaried workforce by 70 positions.

That's the bulk of the driver of the benefit.

But the machine shutdown will -- also incrementally adds to that benefit.

But because its use of purchase pulp makes the margins a little bit on the lower side.

So this is more an anticipation of avoiding the downtime, so it's embodied in that $9 million.

And you do have a follow-up question from Mark Wilde from BMO Capital.

John, I noticed pretty much all 3 segments, you talked about sort of the increase in raw material and energy in the third quarter.

I wondered if you had a sense of what you think the cumulative is across all 3 of those businesses just quarter-to-quarter from raws and energy?

It's probably $1 million to $2 million.

Across all 3 together?

Yes.

And I would now like to turn it back over to Dante for a brief closing remark.

Okay.

Well, thank you, everyone, for joining our call today.

We look forward to speaking with you next quarter.

Have a good day.

That does conclude today's conference call.

You may now disconnect.