In times of uncertainty, Clearwater Paper thrives

Arsen Kitch’s first day as CEO at Clearwater Paper coincided with the start of a pandemic that forced his company into the spotlight as it played the important role of providing staples to families in a time of uncertainty.

The coronavirus presented two related challenges for Clearwater Paper. Kitch, Clearwater Paper’s third CEO, had to help figure out how to keep toilet paper and paper towels on the shelves of stores that sell the company’s tissue after national demand for those goods doubled in March.

As consumers stuffed their pantries, Clearwater Paper instituted precautions at its factories to protect its employees from the virus and prevent temporary suspensions in production an outbreak at any of its sites could have triggered.

While Kitch and his team orchestrated Clearwater Paper’s response, a higher-than-normal number of people were watching.

Idaho Gov. Brad Little mentioned the company in his updates about COVID-19, drawing media attention to the manufacturer.

Kitch’s approach worked. There were no interruptions at its plants, and Clearwater Paper made $22.8 million in April, May and June, his first quarter as CEO.

Kitch credits the entire staff with the success, but acknowledges he made some contributions he hadn’t anticipated when the company was planning his transition to CEO.

“We were able to work with our tissue customers in real time to look at their inventories … to get the product to their shelves,” he said. “We were very, very responsive, very, very quickly. I participated in some of those calls early on with customers, just to make sure they understood that this has visibility from the CEO level and on throughout the organization.”

In recent weeks, the immediate pressures of the job have eased some, giving Kitch more time to consider what the lasting impact of the pandemic will be on the company and focus on reducing Clearwater Paper’s debt, one of its new goals.

Business Profile spoke to Kitch about the effect of the coronavirus, new paperboard products and his strategy for Clearwater Paper to succeed in the future.

Business Profile: How much do you believe the coronavirus shaped the demand for tissue?

Arsen Kitch: There was a significant lift in demand for (paper towels and toilet paper). In March, tissue demand in the national market doubled. In April, it was up 37 percent. It was (up) 19 percent in May. It started normalizing in June; it was up 11 percent. Early on, you had pantry loading. But if you look at the overall tissue market in the U.S., about one-third of it is … tissue consumed outside the home. Think about kids being home from school, offices being shut down, airports (being) nearly empty, hotels having very low-capacity utilization. There was this major shift that happened to at-home consumption, (which Clearwater Paper serves). I think the initial doubling of demand in March was pantry loading. I think the subsequent demand was just increased consumption at home versus away from home. The big question for us is how long does that continue, and when does the country get back to its normal shopping, dining and work patterns versus during COVID? That’s what we’re trying to figure out. We believe that will drive how long demand stays elevated for tissue.

BP: Clearwater Paper’s tissue normally is sold under store brands. What effect does that have on sales in tough financial times?

AK: During economic downturns, typically private-brand demand increases. That’s because consumers are looking for lower-priced products. What happens is they try (our products and like them). The economy recovers, and they’ve shifted their shopping patterns to private brands. That trialing is important for continued private brand share increases. Certainly there was trialing that took place over the last number of months. We’ll see how that plays out.

BP: You believe the need to clean more to prevent the spread of coronavirus could fuel sales. What can you share about that?

AK: Paper towels are a great way to clean surfaces. The question is, is there a shift that takes place in sanitation practices? We don’t have an answer to that right now.

BP: The picture for paperboard is different. What do you see there?

AK: In paperboard … (food and pharmaceutical packaging) have remained stable and strong. As folks are spending more time at home, they’re consuming more things that are found in the grocery store. There are some weaknesses in …paperboard around food service. So think restaurants and cafes. Our order book has remained stable through this time period. Strength in food packaging markets is offsetting some decreases in demand in food service.

BP: Since we’re discussing paperboard, could you talk about ReMagine, your new product?

AK: It’s a brand of folding-carton paperboard that contains up to 30 percent post-consumer recycled fiber (that can be used to package items such as pharmaceuticals and upper-end cosmetics). We’re providing them a high-quality folding carton paperboard that has all of the quality attributes that we’re known for: reliability through their converting processes and printability. But it contains post-consumer recycled content. If you look at the raw material of our products, we believe they’re inherently sustainable. But certainly there are some customers and consumers that are looking for post-consumer-recycled content. ReMagine is brand new, so we’re not going to comment on commercialization just yet. There’s lots of customers that are interested in having discussions about ReMagine.

BP: The cup version of this paperboard, NuVo was introduced last year. What is the update on NuVo?

AK: The interesting thing about NuVo is it was launched right before COVID. With COVID, the (overall) demand for drink cups went down significantly. Our demand for (drink cups) has remained relatively stable during that same time period. NuVo is certainly part of that.

BP: Let’s shift gears and talk a little bit about Clearwater Paper as a whole. One of the company’s goals right now is to reduce its debt. How quickly are you making progress, and why is that a good approach?

AK: For the last number of years, we focused on large capital investments between the ($150 million continuous pulp) digester in Lewiston and the new ($420 million) tissue expansion in Shelby, N.C. Now, our near-to-medium-term focus is on paying down our debt. You can see that in our earnings: We reduced our net debt position by over $100 million in the second quarter and ended with just under $800 million in net debt. We believe it’s a great way to create shareholder value in the near-term.

BP: As you pay down your debt, what is the likelihood that you will offer a dividend?

AK: That’s a decision that we will have to make with the board in the future of how we allocate capital.

BP: How does Lewiston factor into Clearwater Paper’s future?

AK: We are committed to Lewiston. This is the heart of our company. This is the birthplace of our company. We want to make sure that we are successful here in Lewiston and we are successful as a company for our employees, for our customers as well as our overall community.

BP: What do you believe will determine if Clearwater Paper can meet future challenges?

AK: We are a relatively small company in a global market competing with very large companies. To build a company that has long-term success, we have to figure out how do we deliver a compelling value to our customers? How do we deliver the right quality products, the right level of service and the right cost structure? If we do those three things, and we deliver a value proposition that our competitors can’t, we’ll be successful.

BP: What will your part in that be?

AK: As I told the board, this company is going to get everything I have for us to be successful. I am deeply committed to this business and this company.