Longleaf Partners, managed by Southeastern Asset Management, released its “Small-Cap Fund” fourth-quarter 2025 investor letter. A copy of the letter can be downloaded here. Longleaf experienced several environments throughout its experience in small-cap investing. This year, the underlying developments in the Fund’s holdings were more promising than the actual stock price returns when compared to the target of inflation plus 10% and the unusual performance of the Russell 2000. In Q4 2025, the Fund returned ...

Financial Performance - Clearwater Paper Corporation reported earnings per share of $2.39, significantly exceeding the estimated loss of $0.48 per share [1] - The company reported revenue of approximately $386 million, slightly above the estimated $383 million, reflecting flat year-over-year net sales with higher volumes offset by lower pricing [2] - For the year, Clearwater Paper achieved net sales of $1.6 billion, marking a 12% increase from 2024, driven by a 14% increase in volumes due to the full-year operation of the Augusta facility [2] Financial Metrics - The company has a trailing price-to-earnings (P/E) ratio of 11.32, indicating a complex financial picture due to a full-year net loss from continuing operations [3] - Clearwater Paper's price-to-sales ratio is 0.19, suggesting a relatively low valuation compared to sales [3] - The enterprise value to sales ratio is 0.38, reflecting the market's valuation of the company's worth relative to its sales [3] Debt and Liquidity - Clearwater Paper maintains a debt-to-equity ratio of 0.44, indicating a moderate level of debt compared to its equity [4] - The current ratio stands at 2.10, suggesting that the company has more than twice the amount of current assets compared to its current liabilities, indicating good short-term financial health [4]

Financial Data and Key Metrics Changes - Net sales increased by 12% year-over-year, reaching $1.6 billion, driven by a 14% increase in shipments [4][18] - Adjusted EBITDA improved to $107 million, an increase of $71 million compared to the previous year, attributed to cost control and execution [4][18] - SG&A expenses decreased to 6.5% of net sales from 8.4% in 2024, reflecting improved cost discipline [5] Business Line Data and Key Metrics Changes - The company successfully integrated the Augusta Mill and separated its tissue business ahead of schedule [4] - Major maintenance outage costs totaled $50 million, significantly lower than the previous year due to better planning [5][18] - The company repurchased $17 million worth of shares during the year, with $79 million remaining under its authorization [5] Market Data and Key Metrics Changes - Industry shipments of SBS were largely flat year-over-year, with a competitor adding over 500,000 tons of new capacity, leading to decreased operating rates [8] - The company faced a $50 million price headwind due to pricing pressures, with an estimated $70 million pricing headwind expected in 2026 [10][11] - RISI projects a recovery in SBS operating rates and pricing in 2026, with an expected increase of $60 per ton [11] Company Strategy and Development Direction - The company is focused on maintaining financial flexibility and optimizing capital allocation, including refinancing its 2020 notes [6] - Plans to launch a new lightweight paperboard product line, Viora, in the second quarter, aimed at competing with FBB [14] - The company is evaluating external options to add CRB to its portfolio to diversify end market exposure [16] Management Comments on Operating Environment and Future Outlook - Management noted that the paperboard industry is facing challenging supply and demand dynamics, particularly in SBS, with demand recovery not materializing as expected [7] - The company remains optimistic about demand growth in 2026, citing signs of recovery from CPG and QSR companies [35] - Management emphasized the need for price increases to offset inflation and maintain investment in assets [12][13] Other Important Information - The company ended the year with over $400 million in liquidity, positioning it to weather the current downturn [5][25] - The company expects adjusted EBITDA to be approximately break-even for the first quarter of 2026 due to operational disruptions and higher costs from severe weather [20] Q&A Session Summary Question: Insights on grade switching from CRB to SBS - Management acknowledged that customers are exploring grade switching due to cost pressures, but noted that it is still in early stages [31][32] Question: Confidence in demand improvement - Management expressed optimism based on customer feedback and signs of growth, despite previous challenges in 2025 [34][36] Question: Plans for extended curtailments - Management indicated that no specific decisions have been made yet regarding extended curtailments, but they are evaluating options [37][38] Question: Supply management and potential closures - Management stated that they are considering further cost reductions and evaluating long-term decisions regarding underutilized capacity [42][43] Question: Liquidity and share buybacks - Management confirmed that maintaining a strong balance sheet is a priority, and share repurchases will be considered when free cash flows improve [44]

Financial Data and Key Metrics Changes - Net sales increased by 12% year-over-year, reaching $1.6 billion, driven by a 14% increase in shipments from the Augusta Mill [4][18] - Adjusted EBITDA improved to $107 million, an increase of $71 million compared to the previous year, attributed to strong cost control and execution [4][18] - SG&A expenses decreased to 6.5% of net sales from 8.4% in 2024, reflecting improved cost discipline [5][18] - Net income from continuing operations for Q4 was $3 million or $0.20 per diluted share, while the full year net loss was $53 million or $3.28 per diluted share [17][18] Business Line Data and Key Metrics Changes - The company successfully integrated the Augusta Mill and separated its tissue business ahead of schedule, contributing to overall performance [4] - Major maintenance outage spending was $50 million, significantly lower than the previous year due to improved planning and execution [5][18] Market Data and Key Metrics Changes - Industry shipments of SBS were largely flat year-over-year, with a competitor adding over 500,000 tons of new capacity, leading to decreased operating rates and margin pressure [8][12] - RISI reported a $100 per ton decrease in the SBS folding carton index, although the company experienced a smaller decline of $21 per ton [10] Company Strategy and Development Direction - The company is focused on maintaining financial flexibility and optimizing capital allocation, including refinancing options for its 2020 notes [6] - A new lightweight paperboard product line, Viora, is set to launch in Q2, aimed at competing with FBB [14] - The company is evaluating external options to add CRB to its portfolio to diversify market exposure [16] Management's Comments on Operating Environment and Future Outlook - Management noted that the paperboard industry is facing challenging supply and demand dynamics, particularly in SBS, with expectations for demand recovery in 2026 [7][12] - The company anticipates a pricing headwind of approximately $70 million in 2026 due to carryover from 2025 [10][20] - Management expressed confidence in returning to cross-cycle EBITDA margins of 13%-14% and generating over $100 million in annual free cash flow in the future [23] Other Important Information - The company repurchased $17 million worth of shares during the year, with $79 million remaining under its authorization [5] - The company maintained a strong balance sheet with over $400 million in liquidity at year-end [5][23] Q&A Session Summary Question: Insights on grade switching from CRB to SBS - Management acknowledged that customers are exploring grade switching due to cost pressures, but noted that it is still in early stages [29] Question: Confidence in demand improvement - Management highlighted positive signs from CPG and QSR companies regarding growth and foot traffic, despite previous shipment challenges [31] Question: Plans for extended curtailments - Management indicated that no concrete decisions have been made regarding extended curtailments, but they are evaluating options [34] Question: Liquidity and buyback strategy - Management emphasized prioritizing investments in assets and maintaining a strong balance sheet before considering share repurchases [41] Question: Input cost risks - Management stated that they do not foresee risks related to fiber costs and expect to offset inflation through productivity improvements [45][46] Question: Working capital improvements - Management indicated that the $20 million working capital improvement will be heavily weighted towards the back half of the year [48]

Financial Data and Key Metrics Changes - Net sales increased by 12% year-over-year to $1.6 billion, driven by a 14% increase in shipments from the Augusta Mill acquisition [4][16] - Adjusted EBITDA improved to $107 million, an increase of $71 million compared to the previous year, attributed to strong cost control and execution [4][16] - SG&A expenses decreased to 6.5% of net sales from 8.4% in 2024, reflecting improved cost discipline [5] Business Line Data and Key Metrics Changes - The company successfully integrated the Augusta Mill and separated its tissue business ahead of schedule, contributing to overall performance [4] - Major maintenance outage costs totaled $50 million, significantly lower than the previous year due to better planning and execution [5][16] Market Data and Key Metrics Changes - Industry shipments of SBS were flat year-over-year, while a competitor added over 500,000 tons of new capacity, leading to decreased operating rates and pricing pressure [7][10] - RISI reported a $100 per ton decrease in the SBS folding carton index, although the company experienced a smaller decline of $21 per ton [9] Company Strategy and Development Direction - The company plans to diversify its product portfolio, including the launch of a new lightweight paperboard product line, Viora, in Q2 [13] - A potential investment of $60 million in CUK at the Cypress Bend facility is under consideration, aimed at capturing additional market share [13][14] - The company is focused on maintaining financial flexibility and optimizing capital allocation, including refinancing existing notes [6] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a recovery of SBS demand in 2026, supported by expected decreases in imports and a net capacity reduction [11] - The company anticipates a pricing headwind of approximately $70 million in 2026 due to carryover from 2025 [10][18] - Management emphasized the need for sustainable margins and cash flows to reinvest in capital-intensive assets [20] Other Important Information - The company ended the year with over $400 million in liquidity, positioning it well to navigate the current supply-driven downturn [5][20] - The company repurchased $17 million worth of shares during the year, with $79 million remaining under its authorization [5] Q&A Session Summary Question: Insights on grade switching from CRB to SBS - Management noted that customers are exploring grade switching due to cost pressures, with SBS currently priced lower than CRB and CUK [26] Question: Confidence in demand improvement - Management highlighted that CPG and QSR companies are optimistic about growth, which supports confidence in demand recovery [28] Question: Plans for extended curtailments - Management has not made specific decisions regarding extended curtailments but is evaluating options to balance supply and demand [31] Question: Liquidity and share buybacks - Management reiterated that maintaining a strong balance sheet and investing in assets are priorities, with share repurchases considered when free cash flow improves [38]

Forward Looking Statements Fourth Quarter Earnings Release Materials February 18, 2026 ARSEN KITCH President, Chief Executive Officer and Director SHERRI BAKER Senior Vice President and Chief Financial Officer Cautionary Statement Regarding Forward Looking Statements This presentation of supplemental information contains, in addition to historical information, certain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities E ...

Company Overview - Clearwater Paper is one of the five largest producers of paperboard in North America, holding approximately 11% of the available production capacity in 2025[17]. - The company has approximately 1,900 employees and is committed to attracting and retaining talent through competitive pay and benefits[43]. - The company operates five sheeting operations with a total capacity of approximately 185,000 tons of sheeted paperboard, and its Lewiston, Idaho operation can produce 90,000 tons of baled pulp[146]. Acquisitions and Divestitures - The company completed the acquisition of a paperboard manufacturing facility in Augusta, Georgia for approximately $710.6 million in May 2024 and divested its tissue business for $1.06 billion in cash in October 2024[19]. - The Augusta acquisition was completed for approximately $710.6 million, contributing to the company's operational results from May 1, 2024, through December 31, 2025[192]. - The company expects to consider further acquisitions as part of its broader growth objectives following its strategic focus on the paperboard packaging sector[18]. Financial Performance - For the year ended December 31, 2025, net sales increased to $1,555.4 million, a 12% increase from $1,383.6 million in 2024, primarily due to the inclusion of Augusta operations[178]. - Adjusted EBITDA from continuing operations for 2025 was $107.2 million, a significant increase of 198% compared to $36.0 million in 2024[178]. - The cost of sales for 2025 was $1,439.8 million, reflecting a 10.1% increase from $1,307.5 million in 2024, driven by higher input costs and labor expenses[182]. - Gross profit for 2025 was $115.6 million, up 52% from $76.1 million in 2024, attributed to improved operating performance and higher sales volume[178]. - Cash generated from operations in 2025 was $12.3 million, a decrease from $61.4 million in 2024, primarily due to the divestiture of tissue operations[196]. - Cash used in investing activities was $100.4 million in 2025, compared to cash generated of $167.7 million in 2024, with $88.8 million spent on capital expenditures[197]. - Net cash flows from financing activities were $39.3 million in 2025, with $82.0 million borrowed and $18.6 million repaid under credit agreements[199]. Market and Industry Dynamics - The North American paperboard market is approximately 10 million tons, with Solid Bleached Sulfate (SBS) paperboard constituting nearly 50% of this market[14]. - The majority of paperboard sales are directed to packaging converters in North America, emphasizing product quality, customer service, and price as competitive factors[28]. - The paperboard industry experienced significant weakness in 2025 due to increasing supply, affecting product pricing and sales volumes[166]. - Consumer preferences are shifting towards sustainable materials, necessitating substantial investments in innovative, eco-friendly packaging solutions[55]. Environmental and Sustainability Initiatives - The company aims to reduce Scope 1 and Scope 2 greenhouse gas emissions by 30% and Scope 3 emissions by 25% by 2030[44]. - Clearwater Paper's product development includes innovations in lightweight folding carton paperboard and compostable food service products, with a focus on sustainability[34]. Risks and Challenges - The company experienced increased price competition and a significant drop in demand in 2025, adversely affecting paperboard revenue and gross margins[56]. - The ongoing consolidation in the North American paperboard industry may lead to a loss of customers and sales, negatively impacting financial performance[58]. - The company relies on a limited product range, primarily SBS paperboard, which exposes it to greater risks from adverse developments in the pulp and paperboard industry[52]. - Cybersecurity risks pose a threat to operations, with potential impacts on manufacturing, sales, and financial conditions[72]. - Extreme weather events, such as Hurricane Helene, have previously resulted in operational suspensions, highlighting vulnerability to climate-related risks[77]. - The company relies on a limited number of third-party suppliers for raw materials, which poses risks related to pricing, availability, and quality[82]. - Energy prices have fluctuated widely, impacting operational costs; significant energy shortages or cost increases could adversely affect financial results[80]. - Future labor disruptions could significantly disrupt operations, especially as collective bargaining agreements expire[87]. Debt and Financial Obligations - As of December 31, 2025, the company had approximately $347 million of outstanding indebtedness and could incur substantial additional indebtedness in the future[120]. - Availability under the ABL Credit Agreement was approximately $143 million as of December 31, 2025, with a fixed charge coverage ratio of approximately 0.6x, below the required 1.1x[127]. - The average interest rate on variable rate borrowings under the credit agreements is 4.81%[207]. - The fair value of long-term debt at December 31, 2025, was $322.2 million[207]. Pension and Healthcare Liabilities - The company contributed approximately $3.5 million to multiemployer pension plans in 2025, with potential future contributions being unpredictable[101]. - A withdrawal from the IAM National Pension Fund could result in a withdrawal liability of approximately $4.6 million if the company were to completely withdraw[104]. - The PACE Industry Union-Management Pension Fund has been in critical status, with the number of participating employers decreasing from 49 in 2019 to 42 in 2024[105]. - If the company were to withdraw from PIUMPF, the estimated withdrawal liability would be approximately $5.6 million per year on a pretax basis, with a present value of approximately $71.4 million[107]. - The company has no current plans to withdraw from PIUMPF and has not recognized any withdrawal liability in its financial statements[113]. Future Outlook - The company expects to generate revenue between $1.45 billion and $1.55 billion for the full year of 2026, with input cost inflation anticipated at roughly 2% to 3%[190]. - Expected cash paid for capital expenditures in 2026 is projected to be between $65 million and $75 million[198].

Company Performance Goals - The company projects a revenue range of $1.45 billion to $1.55 billion for 2026, with a target capacity utilization rate maintained at a high level of 80% [2] - Planned capital expenditures are set between $65 million and $75 million, with an aim to reduce inventory by approximately $20 million through working capital optimization [2] Industry Policy and Environment - It is expected that the industry will see a net capacity reduction of 350,000 tons in the first half of 2026, which will drive utilization rates back above 90% [3] - Tariffs and a weaker dollar may suppress imports (currently over 700,000 tons annually), promoting market rebalancing [3] Strategic Advancement - The company aims for an adjusted EBITDA margin of 13% to 14% across cycles, with a free cash flow conversion rate of 40% to 50% (assuming revenues of $1.8 billion to $1.9 billion, resulting in annual free cash flow exceeding $100 million) [4] Project Progress - The previously shelved CUK conversion capacity project, with an expected investment of $50 million, has been postponed to prioritize the balance sheet, with future reassessment dependent on industry conditions and financial metrics [5]

Group 1 - Top Wall Street analysts have revised their outlook on several prominent stocks, indicating a shift in market sentiment [1] - The article suggests that investors should consider the opinions of analysts when evaluating the potential of EAT stock [1]

Fund Performance - Longleaf Partners Small-Cap Fund returned 2.03% in Q3 2025, underperforming the Russell 3000's 8.18% and the Russell 2000's 12.39% [1] Clearwater Paper Corporation Overview - Clearwater Paper Corporation (NYSE:CLW) is a bleached paperboard manufacturer with a market capitalization of $286.12 million, closing at $17.84 per share on December 01, 2025 [2] - The stock experienced a one-month return of -2.03% and a 52-week loss of 33.78% [2] Investment Insights on Clearwater Paper Corporation - Clearwater Paper was a detractor for the fund in Q3 2025 due to management's indication of weaker demand in the solid bleached sulfate (SBS) paperboard market amid economic uncertainty [3] - The SBS market is currently oversupplied and below mid-cycle levels, which poses challenges for the company [3] - Management is considering reallocating capacity to different substrates and has a history of effective capital allocation [3] - Factors such as competitor closures, tariffs on European imports, and recent foreign exchange movements could help balance the market [3] - Share repurchase remains an attractive option as the business trades at a low single-digit multiple of growing mid-cycle free cash flow [3] Hedge Fund Interest - Clearwater Paper Corporation is not among the 30 most popular stocks among hedge funds, with 20 hedge fund portfolios holding the stock at the end of Q3 2025, down from 23 in the previous quarter [4] - While Clearwater Paper has potential, certain AI stocks are viewed as offering greater upside potential with less downside risk [4]