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]

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q3 2025 was $18 million, at the high end of the guidance range of $10 to $20 million, with year-to-date adjusted EBITDA from continuing operations at $87 million, up from $26 million in the same period last year [4][13] - Net sales reached $399 million, a 1% increase year over year, driven by a 3% increase in paperboard shipment volumes, partially offset by lower market pricing [13] - Net loss from continuing operations was $54 million, or $3.34 per diluted share, primarily due to a $48 million non-cash goodwill impairment [13][14] - The company generated $34 million in cash from operations during the quarter and approximately $3.5 million in free cash flows, with a net leverage ratio of 2.7 times and available liquidity of $455 million [15] Business Line Data and Key Metrics Changes - The company successfully completed all three planned major maintenance outages for 2025, with the Lewiston outage costing $24 million and the Augusta outage costing $16 million [4][5] - Fixed cost reduction initiatives are tracking to around $50 million in savings for the year, exceeding the original estimate of $30 to $40 million [5] Market Data and Key Metrics Changes - The industry is facing margin pressure due to low utilization rates, projected to be in the low 80% range by year-end, significantly below the normalized cross-cycle average of 90 to 95% [6] - RECI forecasts a net capacity reduction of approximately 350,000 tons in the first half of 2026, which could drive utilization rates above 90% [7][18] Company Strategy and Development Direction - The company is exploring adding coated unbleached kraft (CUK) swing capability to one of its solid bleached sulfate (SBS) machines, with an estimated capital requirement of approximately $50 million and a projected return of over 20% [11][12] - The company remains focused on defending its SBS market share and preserving the strength of its balance sheet, with plans to revisit the CUK investment decision in the future [12][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term fundamentals of the paperboard market, emphasizing the demand for sustainable and renewable packaging solutions [19] - The company expects adjusted EBITDA for Q4 2025 to be between $13 to $23 million, anticipating slightly lower paperboard shipments due to seasonality [16] Other Important Information - The company repurchased $2 million of shares, bringing the total to $20 million against a $100 million authorization [15] - Initial assumptions for 2026 include revenue of around $1.45 to $1.55 billion and capital expenditures of $65 to $75 million [17] Q&A Session Summary Question: Decision to hold the CUK swing capacity project - The decision to hold the project is based on prioritizing a strong balance sheet and maintaining a leverage ratio in the 1 to 2% range, with a focus on running SBS mills [22][23] Question: Market outlook for SBS and import relief - The company is cautiously optimistic about market rebalancing and has observed a 10% decrease in European imports year to date, indicating potential import relief [24][25] Question: Maintenance schedule for 2026 - The maintenance costs for 2026 are expected to be similar to 2025 levels, with specific schedules to be finalized and communicated in February [26][27] Question: Incremental strength in shipments and product categories - The company noted strong performance in food service sales, with optimism from customers and potential import relief contributing to demand [31][32] Question: Working capital improvements for 2026 - The target for working capital improvements of over $20 million will primarily focus on inventory reductions, expected to be achieved in the second half of the year [36][38]