Clearwater Paper Q1 2026 Earnings Call Transcript

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Provided by Quartr
April 28, 2026

Key Takeaways

  • Negative Sentiment: First-quarter results showed a net loss of $13 million and adjusted EBITDA of $2 million (just above guidance), with shipments +5% but net sales down 5% and an estimated $15 million weather-related EBITDA hit at two mills.
  • Positive Sentiment: Management restructured the Cypress Bend mill (about a 20% reduction in rolls) and expects $8 million–$12 million of annual cost savings while running the mill at reduced rates to better align supply with demand.
  • Positive Sentiment: The company has received over $40 million of representation & warranty insurance proceeds (including $17.5 million in Q1) and expects a tax refund of roughly $27 million–$28 million (about $23 million remaining), which management cites as part of a plan to achieve break‑even or better free cash flow for the year.
  • Negative Sentiment: Near-term margin pressure remains significant — management expects $3 million–$5 million of quarterly headwinds from the Middle East conflict (chemicals, diesel, wood) and Q2 adjusted EBITDA is guided to break‑even to −$10 million due to a $22 million–$24 million Lewiston maintenance outage.
  • Neutral Sentiment: Strategic product and pricing moves include launching lightweight Velora paperboard to compete with FBB and implementing a $60/ton price increase on extruded products (70,000 tons not index‑tied), though broader price recovery on other grades has been challenging given current industry oversupply.
AI Generated. May Contain Errors.
Earnings Conference Call
Clearwater Paper Q1 2026
00:00 / 00:00

Transcript Sections

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Operator

Thank you for standing by. At this time, I would like to welcome everyone to today's Clearwater Paper First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I'd now like to turn the call over to Sloan Bohlen, Investor Relations. Cheri?

Cheri Ellison
Cheri Ellison
VP of Strategy and Corporate Finance at Clearwater Paper

Thank you, Ben. Good afternoon, and thank you for joining Clearwater Paper's first quarter 2026 earnings conference call. Joining me on the call today are Arsen Kitch, President and Chief Executive Officer, and Sherri Baker, Senior Vice President and Chief Financial Officer. Financial results for the first quarter of 2026 were released shortly after today's market close, along with the filing of our 10-Q. You will find a presentation of supplemental information, including a slide providing the Company's current outlook, posted on the investor relations page of our website at clearwaterpaper.com. Additionally, we will be providing certain non-GAAP financial information in this afternoon's discussion. A reconciliation of the non-GAAP information to comparable GAAP information is included in the press release and in the supplemental information provided on our website. Please note slide 2 of our supplemental information covering forward-looking statements.

Cheri Ellison
Cheri Ellison
VP of Strategy and Corporate Finance at Clearwater Paper

Rather than reading this slide, we incorporate it by reference into our prepared remarks. With that, let me turn the call over to Arsen.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

Good afternoon. Thank you for joining us today. I'll begin my comments with a brief overview of the first quarter. I will also provide some perspectives on industry conditions and outline the actions that were taken to navigate the current business environment. I'll then turn the call over to Sherri Baker to walk through the financial results in more detail and discuss our outlook. Let's start with the highlights from our first quarter, as well as a few updates from April. Our shipment volumes were up 5%, which was more than offset by lower market pricing, resulting in net sales being down 5% compared to the prior year. We increased share in a highly competitive market environment with continued growth in food service. Adjusted EBITDA for the quarter was $2 million, slightly above our guidance of break even.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

This included approximately $15 million in weather-related impacts at our mills earlier in the quarter. Our team effectively navigated difficult operating conditions with a weather event in the Southeast. We minimized costs, protected our assets, and were able to service customers with minimal disruptions. This quarter, we launched Velora, a new lightweight folding carton paperboard brand that is engineered to compete with imported FBB. We restructured our Cypress Bend, Arkansas facility, resulting in a reduction of approximately 20% of rolls at the mill. We're planning to run the mill at reduced operating run rates until industry conditions improve. This action will drive an expected cost reduction of approximately $8 million-$12 million on an annualized basis. Our Lewiston, Idaho union ratified a new four-year labor agreement.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

This agreement combines competitive wages and benefits for our employees with significant additional flexibility in how we can operate the mill. Finally, we received $17.5 million in additional representation and warranty insurance proceeds during the first quarter, for a total of over $40 million. We continue to pursue claims against $50 million of the remaining policy limit. Let me now provide some perspectives on industry conditions and the impact on our business. SBS shipments were nearly flat in the first quarter of 2026 versus the first quarter of 2025, outpacing CRB and CUK, which declined by around 3%. SBS shipments are forecasted to grow by 4% in 2026. We believe that at least part of the strength can be attributed to lower imports and substitution effects, as SBS is now the low-cost paperboard substrate on a per square foot basis.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

SBS is highly versatile, with diversified end-use applications ranging from high-end folding cartons used in pharmaceuticals and cosmetics to food, to food service items for at-home or QSR consumption. From a supply perspective, we started the year with industry capacity substantially exceeding demand by more than 10%. With recent changes in industry capacity, including our restructuring of the Cypress Bend mill, we now believe that the excess industry supply has been reduced by approximately 50%. RISI is forecasting additional net capacity reductions by the end of this year, resulting in industry operating rates of around 90%. As we've stated previously, margins should start improving to historical cross-cycle averages with industry rates exceeding 90%. Bleached imports were down by 12% in 2025 versus 2024, driven by higher tariffs and a weaker dollar.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

European producers are facing additional cost pressures this year with higher energy, chemical, and transportation costs driven by the conflict in the Middle East. RISI is forecasting total bleached imports to decrease by an additional 12% in 2026 versus 2025. In terms of our business, we're experiencing solid demand with stability in folding carton and strength in food service, particularly in cup and plate. Backlogs across our paper machines are strong, and we are sold out on extruded products such as cup and poly-coated folding carton. With our mill restructuring, we have customer demand to run full across our three mill network for the remainder of the year. While we're seeing some positive signs of both demand and supply, current industry operating rates are driving margins that don't produce the necessary cash flow or returns to reinvest in our capital-intensive assets in the long run.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

In fact, we believe that today's margin levels are resulting in negative operating cash flow after the CapEx that's required to maintain these assets. This is simply not a sustainable position for us to be in. Against this backdrop, we remain focused on controlling what we can control while anticipating a recovery in industry conditions. First, we're continuing to drive costs out of our business and focusing on operating our assets efficiently. Second, we're protecting share with our strategic customers by delivering the right combination of quality, service, and cost. Third, we're looking for ways to recover the increased cost that we've experienced, including the most recent impacts from the Middle East conflict. Let me provide a bit more context on our actions at Cypress Bend.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

We reduced rolls at the mill by about 20% and improved the mill's cost structure by an expected $8 million-$12 million per year. We're prepared to run at reduced production rates until SBS industry conditions improve, or we invest in other capabilities such as CUK. Cypress Bend remains a well-invested and cost-competitive mill that provides us with the optionality to grow in the long run. It also provides our customers with North America's largest independent paperboard mill network with capabilities to produce a full range of SBS products. In total, we are now focused on producing and profitably selling approximately 1.2 million tons of SBS across all three of our mills versus our stated capacity of around 1.4 million tons.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

In addition to the industry oversupply that we're facing, we're also experiencing significant cost pressures on certain chemical, wood, and diesel costs because of the conflict in the Middle East. Altogether, we're projecting $3 million-$5 million of quarterly headwinds from these cost increases until the conflict is resolved and global supply chains have returned to normal. With these additional cost headwinds, and due to our sold-out position in our cup business, we have revised our previously announced price increase on cup and other extruded products to $60 per ton, effective in May. This increase impacts approximately 70,000 tons of our extruded business not tied to the RISI price index. The rest of our cup and extruded business, which is approximately 150,000 tons, will move within a couple of quarters of any change to the RISI price index.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

We see momentum in our cup business while we continue to face a highly competitive environment in our not extruded grades, such as folding and plate. We announced a $50 per ton increase on these grades in March. We found implementation to be challenging given our industry's current oversupply position. We believe that our margins on these grades aren't sustainable in the long run and will continue to look for ways to recover the cost pressure that we faced over the last couple of years. Before I turn the call over to Sherri Baker, I'd like to briefly update you on our strategic initiatives to further build and diversify our product portfolio. We have successfully launched a new lightweight paperboard product line called Velora. We believe that Velora will compete effectively with FBB and support a wide range of general use packaging applications.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

While we believe that this type of product has a place in the market, it is not a replacement for our high-quality SBS offering. We continue to evaluate our CUK investment decision as we navigate current industry conditions. The engineering work is complete with an estimated investment of approximately $60 million and an execution timeline of roughly 12-18 months. As a reminder, this project would take place at our Cypress Bend, Arkansas mill, and we would target 100,000-150,000 tons of CUK volume with this conversion while maintaining our ability to produce SBS. In addition to our focus on lightweight SBS and CUK, we are evaluating opportunities to add CRB to our product portfolio.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

We believe that offering the full range of paperboard substrates positions us to better meet the needs of our independent converter customers and expand our share of their overall paperboard spend. With that, I'll turn the call over to Sherri to discuss our first quarter financial results in more detail and provide an outlook for the second quarter.

Sherri Baker
Sherri Baker
SVP and CFO at Clearwater Paper

Thank you, Arsen. Turning to our first quarter financial performance. For the quarter, we reported a net loss from continuing operations of $13 million or $1.29 per diluted share. Our results include $17.5 million of insurance proceeds. Net sales were $360 million, down approximately 5% compared to the first quarter of 2025. Higher shipment volumes were more than offset by lower SBS market pricing. Adjusted EBITDA was $2 million, slightly above our guidance, which contemplated break-even performance. As Arsen mentioned earlier, the weather event at our Augusta and Cypress Bend mills impacted EBITDA by approximately $15 million in the quarter. SG&A, as a percentage of sales, remained below our target range of 6%-7%, reflecting continued cost discipline. We believe that this is best in class in our industry.

Sherri Baker
Sherri Baker
SVP and CFO at Clearwater Paper

The conflict in the Middle East is putting pressure on chemical, wood, and transportation costs. As Arsen mentioned, we believe that these additional costs will be in the $3 million-$5 million range per quarter. Oil-derived chemicals have experienced increased price volatility, and transportation costs have been impacted by higher fuel prices. We are working to mitigate these impacts through targeted pricing actions and operational productivity, but these dynamics remain a near-term headwind to margins. We will continue to monitor developments closely and provide financial updates as appropriate. Let me also provide an update on the insurance recovery related to the Augusta acquisition. As a reminder, we obtained representation and warranty insurance with a $105 million limit through multiple insurers. We identified certain matters that were not consistent with representations made to us at the time of the transaction and notified the insurers of these breaches.

Sherri Baker
Sherri Baker
SVP and CFO at Clearwater Paper

In the fourth quarter, we received an initial settlement payment of $23 million, including approximately $6 million related to direct operating costs incurred in 2025. In the first quarter, we received a second settlement payment of more than $17 million, of which approximately $6 million relates to direct operating costs incurred in Q1 of fiscal 2026. As of March 31st, approximately $50 million of the policy limit remains. We are actively pursuing the recovery of the remaining claim amount with our insurers and will provide updates in future quarters. Turning now to our outlook. For the second quarter, we expect adjusted EBITDA in the range of breakeven to negative $10 million. This is being driven by our planned major maintenance outage at our Lewiston facility, which will have a direct cost of $22 million-$24 million.

Sherri Baker
Sherri Baker
SVP and CFO at Clearwater Paper

We expect $5 million-$7 million of higher input costs, including the impact from the Middle East conflict. Partly offsetting those headwinds will be benefits of our cost reduction initiatives and seasonal uptick in shipment volumes. Our full year assumptions remain as follows: Revenue of $1.4 billion-$1.5 billion. Flat to modest shipment growth. Approximately $70 million carryover impact from 2025 market-driven price decreases, excluding the effect of recent pricing actions or future RISI price index movements. Productivity gains, including carryover from 2025, offsetting 2%-3% of input cost inflation. Major maintenance outage costs of $45 million-$50 million consistent with 2025. Please note that the Cypress Bend outage has been moved from Q2 to Q4 of this year. Approximately $6 million of benefit related to the Cypress Bend restructuring. Capital expenditures of $65 million-$75 million.

Sherri Baker
Sherri Baker
SVP and CFO at Clearwater Paper

Targeted working capital improvement of $20 million-$30 million. SG&A maintained toward the lower end of our target range of 6%-7% of sales. Importantly, we believe that we have a path to break even or better free cash flow for the year. This includes impacts from the cost actions that we are taking, insurance recoveries, a tax refund that we are expecting, and reductions in net working capital. As Arsen mentioned earlier, we are focused on controlling the controllables, even as we work through a challenging industry environment. Let me wrap up with a few comments on our balance sheet. We have ample liquidity available to us and are managing to keep our overall debt levels relatively flat. Our 2020 notes go current in the second half of 2027, while our ABL goes current later this year.

Sherri Baker
Sherri Baker
SVP and CFO at Clearwater Paper

It is our intent to extend or refinance both instruments before they go current. We are in active discussions with our banking partners and will provide an update in the coming quarters. With that, I'll turn the call back to Arsen for closing remarks.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

Thank you, Sherri. I'm proud that our team has continued to maintain its focus on running safely and effectively while reducing costs across the business. We are a lean and agile company, which is an advantage regardless of what part of the industry cycle that we're in. We have taken important steps to improve our performance, including restructuring the Cypress Bend Mill, implementing pricing actions, and advancing our product portfolio diversification. In closing, I'd like to summarize our key priorities for balance of this year. First, we will continue to focus on operating efficiently and reducing costs. Second, we will protect share with our strategic customers. Third, we're taking actions to be cash flow neutral this year. Finally, we're planning to refinance or extend maturities on our existing debt. I remain confident that this cycle will turn.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

Over time, we believe we will return to cross-cycle EBITDA margins of 13%-14% and generate more than $100 million of annual free cash flow. Most importantly, we will continue to make decisions that drive long-term shareholder value while supporting our customers, employees, and the communities in which we operate. Thank you for joining us today. We'll now open the call up for questions.

Operator

We will now begin the question and answer session. Your line will remain open for follow-up questions. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Sean Steuart with TD Cowen. Sean, your line is open. Please go ahead.

Sean Steuart
Sean Steuart
Managing Director, Equity Research at TD Cowen

Thank you. Hi, everyone. Arsen, I wanna start with the Cypress Bend restructuring. You're cutting roll production 20%.

Sean Steuart
Sean Steuart
Managing Director, Equity Research at TD Cowen

The indication was you don't expect any overall impact on shipment volumes, which I suppose implies you'll be adding volume to the other, the other mills. I guess the question is, you know, should we consider this the extent of Clearwater's supply response to a difficult market environment? If that's the case, I guess your assessment of the overall industry cost curve, you referenced what RISI is forecasting for capacity cuts through the remainder of the year. Your impression of, you know, how steep that cost curve is and how quickly the supply response could arrive.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

Thanks, Sean. There's a couple questions in there. Let me try to tackle them all. At Cypress Bend, we've reduced our roles at the mill by 20%. Headcount and other, and open roles in addition to other costs. That should drive $8 million-$12 million of annual savings at the mill. We intend to run the mill at reduced operating rates until industry conditions improve. Given that strategy, we have about 1.2 million tons of volume that we're comfortable with. At this point, we have about 1.2 million tons of annual production that we're comparable with after taking this action.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

We're now going to be focused on ensuring that we produce that 1.2 million tons and we sell it profitably to our customer base. Given that change, we believe that we're fully utilized for balance of the year. In terms of broader industry changes, if you look at the first half, the actions that have taken place have reduced production or capacity by 280,000-300,000 tons. And if you recall, we stated that this industry is over-supplied by 500,000-600,000 tons. We think that's about 50% of that over-supplied. The industry is forecasted to grow by 4%, which should add a couple hundred thousand tons of demand.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

Imports are forecasted to come down by 12%, which is probably gonna be another 50,000 tons or so. If you pull all those things together, RISI is forecasting a 90-plus percent utilization or industry operating rate by balance of the year, which should put us on a path back to a recovery.

Sean Steuart
Sean Steuart
Managing Director, Equity Research at TD Cowen

Okay. Okay, I think I get that piece of it. Second question is for Sherri. On the free cash flow bridge commentary, I think I understand the insurance piece of it. You mentioned a tax refund coming. Can you give us perspective on how much that will be and specific quarterly timing there?

Sherri Baker
Sherri Baker
SVP and CFO at Clearwater Paper

Yeah. The overall for the full year would be, $27 million-$28 million, of which we received $4 million in the first quarter. You've got roughly $23 million remaining for the balance of the year.

Sean Steuart
Sean Steuart
Managing Director, Equity Research at TD Cowen

Okay. One last question, Sherri. The debt rating downgrade from Moody's, does that have any real bearing on your interest, your borrowing costs effectively right now? Or is it be more subject to future credit facility negotiations, that type of thing?

Sherri Baker
Sherri Baker
SVP and CFO at Clearwater Paper

It would be the latter. It would be more applicable to any future refinancings.

Sean Steuart
Sean Steuart
Managing Director, Equity Research at TD Cowen

Okay. Okay, that's all I have for now. Thanks, guys.

Sherri Baker
Sherri Baker
SVP and CFO at Clearwater Paper

Thanks, Sean.

Sherri Baker
Sherri Baker
SVP and CFO at Clearwater Paper

Thank you.

Operator

Your next question comes from the line of Matthew McKellar with RBC. Matthew, your line is open. Please go ahead.

Matthew McKellar
Matthew McKellar
VP, Equity Research at RBC Capital Markets

Good afternoon. Thanks for taking my questions.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

Hey, Matt.

Matthew McKellar
Matthew McKellar
VP, Equity Research at RBC Capital Markets

I think you mentioned $3 million-$5 million per quarter of input cost pressure until the conflict is resolved. Is that essentially a comparison of where costs are today versus where they were in February? Does that embed any potential recovery against higher costs that I think you mentioned, whether that be through price or other mechanisms? If you could speak to what those might be, that would also be helpful. Thank you.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

Yeah. No, good questions. First, yes, it is a sequential comparison. It's versus where we were at, call it a month or two ago before the conflict started. There's really three buckets of costs. Number one is chemicals. Number two is transportation, diesel. The third one may be a little surprising, but wood. You know, we think approximately 20% of wood costs actually have to deal with transportation to get the wood out of the forest. We are seeing some cost pressure on wood as well related to higher diesel costs. Yes, $3 million-$5 million sequential.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

In terms of recovery, you know, listen, we're focused on cost reductions, so the Cypress Bend restructure should deliver about $2 million a quarter of cost reduction sequentially. As I mentioned on the call, we're also in the process of implementing a $60 price increase on our extruded products. Our extruded products are poly-coated. They use more chemicals than non-extruded products for the poly-coating, so there we're facing some unique cost pressures on those grades. We're also sold out on those grades. I think between the cost reduction in Cypress Bend and the price increase, we are attempting to recover at least some of that cost increase.

Matthew McKellar
Matthew McKellar
VP, Equity Research at RBC Capital Markets

Great. That, that's helpful. Then just a quick one on Velora. Could you just help us maybe understand how that fits into the product portfolio? Are you seeing that uptake from customers who had been on FBB so far, and where would your expectations be in terms of what share of your folding carton and food service volumes that product would eventually represent? Thanks.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

Good question as well. I view Velora, like if you'd reimagine. It, it's another tool in our toolkit, to work with our folding carton customers. They're obviously, they're participating in bids and specs with their customers, so we wanna put another tool in their toolkit. It is a grade that includes mechanical pulp. It is a lightweight grade. It is not a replacement for SBS, but it's meant to compete with FBB. If our customer's customer is looking at a lightweight FBB product, we have a solution for them. It is not incremental growth. It will take up some of our existing SBS capacity, and we haven't sized it yet, in terms of number of tons.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

We don't expect it to be a large number in the near term. We'll monitor it and see what the uptake is and then we'll figure out how much capacity to allocate to it in the long run.

Matthew McKellar
Matthew McKellar
VP, Equity Research at RBC Capital Markets

Great. Thanks for the help. I'll turn it back.

Operator

Your next question comes from the line of Mike Roxland with Truist Securities. Mike, your line is open. Please go ahead.

Mike Roxland
Mike Roxland
Managing Director, Equity Research at Truist Securities

Thanks, Arsen and Sherri and team for taking my questions.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

Hey, Mike.

Mike Roxland
Mike Roxland
Managing Director, Equity Research at Truist Securities

Hey, Arsen. Just, first question is, you know, what has the customer response been to the $60 per ton price increase on the extruded products thus far?

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

Yeah, I think we're still working through it with our customers. I'm not prepared to comment on feedback yet. I think the important points that I raised during the call is, you know, we're facing unique cost pressure on those grades because they're poly-coated. The second piece, we are sold out. Our backlogs on those products are well beyond what we normally see on our with our customers. We think between those two variables, I think we have a very strong case to implement this price increase.

Mike Roxland
Mike Roxland
Managing Director, Equity Research at Truist Securities

Got it. Were the backlogs just as strong a couple months ago? I mean, because I, if I heard you correctly, I apologize if I didn't. I mean, I know you went out with another price increase, I think, targeting March, which you now pushed out. Maybe it's the same. It's one and the same. If not, my apologies. Were backlogs the same a couple months ago, if we're talking about the same price increase? If not, like, why do you think the conditions warrant? I mean, I understand the wars, you have increasing costs, why would customers be willing to do that if they're also stretched themselves with that?

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

I think our original price increase back in March was $50 on folding and $60 on cup. This is a revision. We're at $60 across extruded, all extruded products, which includes some poly-coated folding carton as well as poly-coated cup. Yes, our backlogs on those grades have grown, and we're actually pressured on how to satisfy customer demand at this point. They've grown since then, and costs have also grown. That's, so it's a bit of a revision from what we talked about back in March.

Mike Roxland
Mike Roxland
Managing Director, Equity Research at Truist Securities

Okay. Got it. In terms of CUK, it sounds like, you know, you've, you mentioned the engineering work is now complete. It required an investment of $60 million, the timeline of 12 to 18 months. I mean, can you give a sense as to whether you're willing to Like, what would get you over the hump to pull the trigger to move forward with producing CUK at Cypress Bend? Secondly, what optionality do you have also with , anCRBd where would you be looking to do that as well?

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

Yeah. Good, good questions, Mike. On, on CUK, you know, I think frankly just has to do with the balance sheet and cash flows at this point, right? It's a $60 million investment, when we're working very hard at this point in the cycle to remain cash flow neutral. It's a matter of allocating the capital and the cash, which at this point we'd have to borrow. That's, that's the CUK decision. We think it's a good project. We think we have a place in that part of the market. It's just figuring out the right time to make the call.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

On CRB, as you know, Mike, SBS mills would have a difficult time converting to CRB, given the differences in the back end of the mill. It's a matter of, you know, it's either looking at M&A in the long run or looking at some additional partnerships or supply agreements or something along those lines to get some CRB into our portfolio. The CRB one around M&A, I think that's a longer-term thinking because, you know, frankly, right now we're focused on ensuring that we have a strong balance sheet to get this through this part of the industry cycle.

Mike Roxland
Mike Roxland
Managing Director, Equity Research at Truist Securities

Got it. No, I appreciate that, Ars. One, just a quick follow-up. Even with respect to CUK, if I say the $60 million is probably unlikely, given that you don't want to stretch your balance sheet any further, given the fact that there is still risk in SBS, and you know, a lot of uncertainty with respect to how this excess capacity is going to be absorbed. Right? I mean, the $60 million, the conversion, in other words, the conversion to CUK is probably unlikely in the near term as well because you don't want to stretch yourselves further.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

I think we're gonna keep reviewing it. We think it's a good project. I think $60 million right now is a bit of a stretch. We're gonna look really hard to see how we can get CUK into our portfolio. At this point, we have an engineer project. You know, frankly, we're pushing the team to figure out what other paths we have to create CUK, to make CUK in our facilities, maybe spending less than $60 million.

Mike Roxland
Mike Roxland
Managing Director, Equity Research at Truist Securities

Got it. One final question, I'll turn it over. You know, I know you're pretty constructive, but maybe if the situation is getting better by the end of the year, you're seeing easing. If market conditions remain challenging, and let's say the biggest player refuses to do anything further with respect to, you know, cutting capacity. What else can be done or what can you do from a portfolio perspective?

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

Listen, Mike, I'm not gonna try to speculate what we would or wouldn't do. I think right now we focused on a few actions. You know, we talked about price, we talked about cost reductions. We did the Cypress Bend restructure. I think in the long run, we'll continue to assess our cost structure and our assets to make sure that we're in a good spot. I think we're optimistic that we're seeing enough green shoots for a recovery in our corner of the market and our industry here as we progress through the year.

Mike Roxland
Mike Roxland
Managing Director, Equity Research at Truist Securities

Got it. Understood. Good luck in 2Q and the rest of the year.

Arsen Kitch
Arsen Kitch
President and CEO at Clearwater Paper

Thank you.

Operator

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Executives
    • Arsen Kitch
      Arsen Kitch
      President and CEO
    • Cheri Ellison
      Cheri Ellison
      VP of Strategy and Corporate Finance
    • Sherri Baker
      Sherri Baker
      SVP and CFO
Analysts
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