Clearwater Paper (CLW) Q2 FY26 earnings call: guidance and Q&A

What is the free cash flow outlook for the year, given Q2 momentum and pricing?

Sherri Baker stated that free cash flow is expected to be positive, driven by $33 million in R&W insurance proceeds, $30 million in tax refunds year-to-date, and a targeted $20 million to $30 million working capital improvement, offsetting capital and interest estimates.

“We do believe that we have a clear line of sight to positive free cash flow this year.”

asked by George Staphos · answered by Sherri Baker

What were the drivers for the significant reduction in maintenance outage expenses for the year, specifically for Augusta?

Arsen Kitch explained that the Augusta outage was split into two parts ($5M-$6M in Q4 2026, $10M-$11M in Q1 2027) to allow more preparation time and for new mill leaders to impact the outage. Augusta will revert to Q1 outages starting in 2028.

“So that's the biggest delta this year is we are splitting the Augusta outage into 2 pieces, doing the $5 million, $6 million this year and the rest early next year.”

asked by George Staphos · answered by Arsen Kitch

What gives comfort that the 8% volume growth in Q2 and 6% year-to-date is not just customers pre-buying ahead of price hikes?

Arsen Kitch stated that the growth is not viewed as a fluke, driven by good growth in the foodservice business and strategic customer programs. He noted strong paper machine backlogs and being oversold on extruded capacity, suggesting current demand rather than pre-buying. He acknowledged that pre-buying can occur but doesn't see evidence of it currently.

“Our backlogs are as strong now as they were the last few months. So if there was a major prebuy effort in Q1, Q2, you would start to see the backlogs trailing off. We're not seeing that.”

asked by George Staphos · answered by Arsen Kitch

What is the strategic impact of the Greenpaper collaboration for Circa, anticipated volumes, and how does it affect plans for CUK capacity?

Arsen Kitch explained Circa aligns with the strategy to offer a complete solution to independent converters, targeting the 20% non-integrated CRB market, with potential capture of 10% (40,000 tons). For CUK, they are exploring a lower-cost solution (under $10 million) at Cypress Bend to accelerate market entry, currently in trials.

“We are developing a much lower cost solution, call it, less than $10 million that would fit within our capital budget that would allow us to come to market a lot sooner.”

asked by Matthew McKellar · answered by Arsen Kitch

Why is Q3 production guided higher than Q2, with flat shipments, given capacity changes? Is it related to inventory shifts?

Arsen Kitch clarified that higher Q3 production is due to the absence of the Lewiston major maintenance outage that occurred in Q2, allowing for rebuilding necessary inventories. The company remains focused on its working capital reduction goal for the year.

“So we ought to see is a bit of a bump in production without having that downtime in Q3. That's really the extent of it.”

asked by Sean Steuart · answered by Arsen Kitch

How should the $40/ton and $60/ton RISI price increases for July be expected to impact Q3 and Q4, and when will the full run rate be seen?

Arsen Kitch stated that $10 million to $20 million in price improvements are expected in H2 FY26 from the first price increase and July RISI changes. He anticipates a $50 million to $60 million annual EBITDA benefit from these changes, with full run rate expected by early next year, as it takes a couple of quarters for RISI changes to flow through the P&L.

“I think it's going to start in Q3, probably bigger impact in Q4. And I would expect by early next year, we ought to see the full run rate of benefit across all of our RISI tons as well as our open market tons.”

asked by Michael Roxland · answered by Arsen Kitch