Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- KP Tissue Inc (KPTSF, Financial) delivered strong revenue growth of 9.3% in Q2 2024, driven by higher sales volume, favorable sales mix, and improved pricing.
- Adjusted EBITDA increased by 18.6% year over year to $65.3 million, indicating strong profitability.
- The company maintained its leadership position in the Canadian facial tissue market with a 42.8% share and continued to hold top positions in the bathroom tissue and paper towel categories.
- KP Tissue Inc (KPTSF) successfully resolved a labor disruption at its Crabtree Quebec facility with a five-year collective bargaining agreement.
- The company announced a price increase in the consumer segment to mitigate escalating pulp prices, ensuring continued profitable growth.
Negative Points
- Net income decreased by $3.9 million from Q2 2023, totaling $10.6 million in Q2 2024, due to higher foreign exchange losses and greater depreciation expenses.
- Pulp prices reached record levels in Q2 2024, and are expected to remain elevated, impacting cost structures.
- Adjusted EBITDA margin declined sequentially by 120 basis points to 12.8% in Q2 2024, due to increased manufacturing overhead and higher pulp prices.
- The company’s long-term debt stood at $1.01 billion at the end of Q2 2024, reflecting a significant financial burden.
- Despite strong performance, the away-from-home market has not yet recovered to pre-COVID levels, indicating potential vulnerabilities.
Q & A Highlights
Q: You announced a high single-digit price hike in the Canadian consumer business for September. Has that been accepted by your major customers and have your competitors implemented a similar level of increase?
A: Yes, we have been working with our customers and showing the justification for the price increase. While no one wants to take a price increase, particularly in the current economic climate, it is necessary and justified. Most of our customers have accepted it for an early September date. We understand that other tissue companies are also showing the same rationale for pricing. (Dino Bianco, CEO)
Q: Do you see any potential to benefit from Suzano's new product that can replace softwood in certain applications?
A: We are looking at that product and trying to see if there's potential in our network. Our first priority is to ensure it meets our quality specs. If it does, and we can get a price improvement, it will be a win-win. We continue to look at fiber optimization as part of our productivity initiatives. (Dino Bianco, CEO)
Q: Can you provide an updated perspective on the away-from-home margin trend?
A: The AFH business turnaround has been better and faster than expected. We are now seeing stability around low double-digit EBITDA margins. Once our new paper machine comes up later this year, we expect further benefits, including lower costs and consistent high-quality paper, which should improve our margins further. (Dino Bianco, CEO)
Q: Can you remind us of the ultimate EBITDA incremental contribution expected from the Sherbrooke ramp-up?
A: We don't usually quote that number, but the paper machine will provide internal paper, reducing costs and improving quality. It will also feed our new facial lines and support incremental case production. We expect to see some benefit in Q4, with more significant impacts over the next 18 to 24 months. (Dino Bianco, CEO)
Q: Given the announcement of the Clearwater transaction, what's your view on industry consolidation?
A: Kruger will look at every opportunity to consolidate and grow, including acquisitions, greenfield sites, or increased assets at existing sites. We are in a growth mode and will continue to look at all options. Now that Clearwater has come to closure, we are reassessing our opportunities for future growth across North America. (Dino Bianco, CEO)
Q: There is commentary suggesting pulp prices could break later this year. Your outlook highlights pulp costs remaining elevated. Can you clarify?
A: Pulp prices are volatile. While China's market has started to back off, the North American market remains elevated. We anticipate prices will likely go sideways rather than decline rapidly. We announced a September price increase based on high pulp prices and will watch the market to see if further adjustments are needed in the new year. (Dino Bianco, CEO)
Q: Can you explain the volume trends in the away-from-home segment given the volatile economic environment?
A: The market hasn't fully recovered to pre-COVID levels but has been improving. Our growth is driven by gaining share in the US market and strong partnerships with key customers in Canada. Our AFH business covers various sectors, not just restaurants, which have different growth trajectories. The volume growth is based on a strong foundation. (Dino Bianco, CEO)
Q: What is your outlook for the third quarter of 2024?
A: We anticipate adjusted EBITDA will be in the range of Q2 2024, despite escalating pulp prices and the impact of the Crabtree labor settlement. (Dino Bianco, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
