International Paper Company (IP) Q1 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2012 International Paper Earnings Conference Call. [Operator Instructions] Thank you. Mr. Glenn Landau, you may begin your conference.

Good morning, and thank you for joining International Paper's First Quarter Earnings Conference Call. Our key speakers this morning are John Faraci, Chairman and Chief Executive Officer; and Carol Roberts, Senior Vice President and Chief Financial Officer. During this call, we will make forward-looking statements that are subject to risks and uncertainties, which are outlined on Slide 2 of our presentations. We will also present certain non-U.S. GAAP financial information. A reconciliation of those figures to U.S. GAAP financial measures are available on our website. Our website also contains copies of the first quarter 2012 earnings press release and today's presentation slides. So with that, I will now turn the call over to Mr. John Faraci.

Thanks, Glenn, and good morning, everybody. As we usually do, over the next 10 to 15 minutes, Carol Roberts and I will review our first quarter results with you, performances of our individual businesses, then we'll open up for your questions. And we've got several of our business leaders here today to take some of those questions. So let me start right in. To start off, International Paper earned $0.57 a share in the first quarter. It's the second best first quarter we've had since 2000, the best being last year. We continue to generate strong free cash flow and, importantly, got off to, I think, an excellent start, integrating Temple operations where we closed in mid-February. And we've accomplished a great deal in the first 6 weeks. While our results were in line with -- slightly favorable for our expectations, we experienced a normal seasonal weakness that you always have in the first quarter coming out of the holidays in our U.S. businesses. And it's -- the first quarter is also slow in Latin America. The main driver for year-over-year, as Carol will explain, were lower pulp paper packaging prices, primarily in export markets. And we supply those export markets out of North America, out of Brazil and through our Russian joint venture. With that said, all the global markets really bottomed in the quarter from a pricing perspective and, on average, we're trending up as we exited the quarter and moved in April. So the pricing actions in the export markets are beginning to take hold. We really bottomed out in the first quarter. We've also made very good progress on our strategic initiatives during the quarter. The Temple-Inland synergies began to improve from day one, allowing us to basically get through the first quarter with Temple being…

Thanks, John, and good morning, everyone. Let's take a look at the first quarter financial bridge, and we'll move from first quarter of '11 to first quarter of '12. As John just shared, we earned $0.57 a share from continuing operations before special items. And the good news is volume was up slightly, but we did see price erosion of about $0.20 year-over-year, and that was associated with the pass-through of market pulp price declines, as well as paper and packaging export price declines, mostly negotiated in the fourth quarter of '11. Some came into the first quarter of '12, and we'll talk about that a little bit more at the end. We did see modest relief on input cost at $0.02 per share, which did help cover the higher pension-related corporate expenses. Relative to Temple-Inland, as John spoke to partial quarter earnings, including synergies, fully offset the incremental interest associated with the acquisition. So definitely a very good start. And finally, our share of the Ilim equity earnings, adjusted for the elimination of the one-quarter lag in reporting, was down year-over-year on lower pricing. But we did have a favorable impact due to currency exchange rates in the quarter. So moving to Slide 7. Let me just touch on input costs for a moment. Input costs in the quarter versus last year were modestly lower, $12 million total for the company with fiber and energy being the positives, offsetting higher chemicals and freight costs. Our Industrial Packaging business was the beneficiary of most of this due to lower OCC and energy costs, and that amounted to $27 million upside for them, while our Printing Papers and Consumer Packaging were all $15 million and even [ph] accordingly. And that was driven by higher chemical and freight cost, offsetting the positive.…

Yes. Thanks, Carol. And I'm on the slide that's got a lot of yellow with a little bit of red and some green on it, which is basically framing up our outlook for the second quarter, and then I'll talk about the rest of the year. So looking ahead to the second quarter, we're going to be moving into a seasonally stronger period of the year. That said, the GDP growth numbers this morning weren't all that impressive. It did feel like closer to 2% GDP growth, but we are going to see some seasonal improvement because the first quarter is one of the seasonally slow ones. We'll see that in North America, and we'll see it in Brazil. In Brazil, that'll give us a more favorable domestic export mix. So far, in April, U.S. box demand is, I'd say, modestly outpacing last year on an average-day basis. And we expect that trend to continue throughout the quarter. Additionally, though, Industrial Packaging earnings are going to be impacted by both the full quarter of Temple-Inland as well as increased synergy capture, which will start to fall through to the bottom line in a much bigger way as we come out of the second quarter. Moving to pricing, as Carol just shared, we expect further price realizations throughout the quarter associated with our announced increases for papers in North America and Brazil and Russia, containerboard exports from our North American operations, as well as global market pulp and fluff pulp exported out of North America. That said, the second quarter is our heaviest maintenance outage quarter of the year. It's about 40% of our global annual spend in the second quarter. That's an incremental $105 million or about $0.16 a share versus the first quarter. And think of that as equally…

Thanks, John. Operator, we're ready to take questions.

[Operator Instructions] Your first question is coming from the line of Steve Chercover with D.A. Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: First of all, I just wanted to ask, did your results in the first quarter surprise you at all? Were they perhaps a bit better than you might have thought?

I don't think we have -- it always turns out, Steve, that you -- we got there probably in a slightly different way than we thought we would. I think we left a little money on the table in terms of our mill operations. We had a great running quarter in Printing Papers in North America. We ran really well in Russia. We left a little money on the table in Industrial Packaging and some of the IP legacy mills, the Temple mills. So with the global balance we have, we're always going to have pluses and minuses relative to expectations. But I -- we're pleased with how the quarter came out and, again, looking at free cash flow, I think that's the -- kind of the important number for us. Steven Chercover - D.A. Davidson & Co., Research Division: Indeed. And then with respect to the expenses associated at Franklin and the Sun JV, did they peak in the first quarter? Are they behind you or just going to trend down?

They're pretty much flat. We're running with -- more like a couple of million dollars a month at Franklin. Steven Chercover - D.A. Davidson & Co., Research Division: Is that mill producing commercial grade now?

No.

No. We'll start up mid-year.

That was Tim answering the question. [indiscernible]

But we can trade back and forth.

Your next question is coming from the line of Gail Glazerman with UBS.

A quick question on corporate expense. The first quarter was a lot higher than I would have expected, unless I'm missing some adjustment, and it's a huge percentage of your overall annual guidance. Was there something kind of unusual driving that? And what would drive it back down?

Gail, I think we had spoke to -- the corporate expense is higher due to pension expense. And so it's on Page 26, if you look at the -- in the appendix, it shows the corporate expense.

Yes. But it's looks like $69 -- $65 million or $69 million for the first quarter, which would be a lot higher than that run rate. I mean, I kind of would assume it would come back down then.

Yes. It should even out through time. So there could be a little timing there on things, but the $220 million is the good estimate to use for the year.

Okay. And just looking at the demand environment a little. When you look at industrial production, performance in consumer nondurables is significantly underperforming. And it seems to be reflected in overall box volumes, as well as Consumer Packaging volumes. Is there anything structural that you think is going on? Is there anything you're hearing from your customers?

No, I'll let Mark comment on what he sees in corrugated, but we've -- the GDP numbers are a little over 2%. That kind of feels like last year. It's slowed a bit from the fourth quarter, with box demand was up 0.5% last year. And we're kind of going along that path sideways.

Yes, John. I would agree with that. I mean, we are seeing nothing really structural in that. I think some of those nondurable categories, quite honestly, are affected by short-term issues like gasoline prices and other things. But we aren't seeing anything structural, and we are pretty much tracking -- our box business is tracking with the market, which is our strategy.

Okay. And just one last one. Given the performance of Temple -- the Temple assets in the first quarter, is there any change to kind of the original guidance that you gave that would be kind of a slight drag or a neutral this year?

Well, if we're neutral in the first quarter on 2 months of financials with $10 million of merger benefits, I think you can do the math yourself. We'll talk more about that at Investor Day at the end of May, but we're pretty pleased with where we are.

Your next question is coming from the line of Anthony Pettinari with Citi.

Looking at 2Q outages in Industrial Packaging in terms of downtime, obviously, last year, you had a little bit of a unique comp with the Vicksburg flood. When you add Temple's downtime and you kind of you look at it apples-to-apples, would you expect to take significantly less tons down or kind of a similar number? Or maybe more tons based on what you're seeing in the market?

Well, I think -- I'm not sure if you're asking about last year's second quarter. I mean, what we have in the chart here is really what we forecast all-in, both IP and legacy and Temple mills for maintenance outages. And I think -- is this the third quarter? Is this the second quarter for...

Last year.

Last year. So it looks to be pretty similar.

Okay. In terms of total tonnage, it would be sort of a similar number to 2Q last year. Okay. And then I was wondering if you could maybe give a little color on what you're seeing in terms of domestic box markets. It looks like pricing was flat. And I'm wondering if your -- if you think you're in a position to gain a little box business, given that you have sort of an expanded product offering or you may be losing a little business with customers who, maybe, bought from IP and Temple and are trying to diversify suppliers. Or sort of what are you seeing in the marketplace in boxes?

Good question, Anthony. I mean, there's -- the box business is always moving around, given the size of the market and the diversity of the segments. But we pretty much are tracking with the market. So we win some and we lose some. We had -- 1/2 of our business was in -- was actually exposed to segments that actually grew quite nicely in the first quarter. And the other half was in segments that didn't grow as much. We don't see any specific issues around businesses trading hands just because of the Temple-Inland merger. Obviously customers at both companies shared, and we're working real hard to keep that business where we can. And if we lose any, we're going to replace it. But our strategy is to grow with the market, and our performance in the first quarter is pretty much tracking that.

Yes, Anthony. On Page 30, and you probably already caught up with it, we were very pleased, and this is with Temple-Inland in. We were up with the market 6/10 of a percent and, importantly, our box pricing from the fourth quarter to the first quarter was flat. So we feel good about that part of it.

Okay. And maybe just one last question. Is there one specific segment, maybe in agriculture, where Temple gives you some capabilities that you didn't have before?

I think there's a couple of segments that come to mind. Temple adds to our capability in sort of the fast-moving consumer goods. And that's big companies, big customers and smaller customers. And we will be a lot stronger in the retail packaging segment as well, with a lot more capabilities than we had before.

To add to that, we've got a much more expansive footprint now in Mexico. And we got into Mexico with Weyerhaeuser. We've now added to that with Temple. We like that. And our ag business, particularly in California, is substantially bigger now. It's a seasonal business, but this year is going to be a good season out in California on the fruit side.

Your next question is coming from the line of Phil Gresh with JPMorgan. Phil M. Gresh - JP Morgan Chase & Co, Research Division: A couple of questions, one, just on Ilim. As you plan to bring this capacity on line, wondering how you think about the dependence on China there. I mean, it's obviously not a big piece of global softwood supply, but it's a reasonably sized piece of China. And with China a bit overstocked right now, just wondering how you're thinking about managing that over the long-term.

China is going to be a net importer of fiber for as far as we can see. And with 8% growth in the economy, there's still incremental demand. I mean, it's basically all about supply and demand. But China is importing fiber now and, I'd say, probably 80% to 90% of their incremental demand is going to be on imported fiber. That either going to be logs, chips, pulp or wastepaper. So we really like our position. We're the lowest-cost softwood delivered to northern China on the planet, and that's not going to change. And so over the long term, with a low-cost facility making high-quality pulp, we like our position right next to the biggest market in the world. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Okay. And then just on wood fiber cost, they ticked up a little bit in the quarter. I'm assuming some of that's just seasonal. But just wondering how you think about that longer term, let's say, in an environment where housing comes back, you get some more residual wood chips, which is a positive. But are you at all cautious around potential for higher wood costs longer term if housing comes back? Or how do you guys think about that?

We think of it as the opposite. When housing comes back, you get 2 things: you get the residual chips, which take pressure off roundwood that comes in the long-distance; and you get what we call the pulpwood spin-off. 80% of harvest an acre is saw timber, 20% of it is pulpwood. That pulpwood is not getting harvested now because housing is still pretty depressed. So what's going to happen when the housing market comes back is we'll end up tightening our drain area. And so we won't go as far for fiber, which will be good. And fiber costs always go up in the fourth quarter because it's seasonal. We can't get into the hardwood lands, we're taking wood out of inventory. So we're doubling handling it. That's just a normal seasonal trend. I'd say, structurally, we're positioned probably for flat to lower fiber costs on the virgin fiber side going forward, which we think is an advantage for our virgin-based businesses, particularly in containerboard.

Your next question is coming from the line of Chip Dillon with Vertical Research Partners.

Wanted to ask you about Ilim. I know you report Ilim on a 1-quarter lag operationally, but was the foreign exchange gain actually something that occurred during the first calendar quarter and that's why the line item is a lot stronger than we thought? Or was it something that you would have known back earlier, say, in January, February?

Chip, this is Carol. Actually, we closed the quarter lag this quarter. So going forward and from starting with this quarter, we're reporting Ilim current. So the results that we reported for Ilim were actually what we achieved in the first quarter. Relative to the currency, it happened in the quarter. And it's -- the end of the quarter, how you get to it, how it's happening through the quarter. And you just don't know how currency is going to come out, but the ruble strengthened and then stabilized. So it happened in the quarter. It's -- right now, the ruble is kind of flat, so kind of hard to predict what it's going to be at the end of the next quarter.

So I guess when you look at the quarter you just reported, I guess, net of the gain, it's roughly $14 million. That's actually 2 quarters of results, right? But it also includes the low point of the first quarter, which I would imagine. So how does that shake out going to the second? I mean, obviously, it's a better environment, but you're only going to be reporting one quarter's results. Is that correct?

No, Chip. What we do is you actually go back and you -- you go back in '11 and you push all the quarters back to the appropriate -- so the results we reported were just for the first quarter of '12.

Got you. That's very helpful. And then secondly on the Temple situation...

We restated '11. So as part of doing all this, we restated the '11 numbers to put them all on the current quarter.

Got you. And then just moving on to Temple-Inland. I know it's only been a couple of months or so, but are you seeing anything incrementally, especially on the box plant side, with transportation that might give you either greater confidence and the ultimate synergy number, or maybe even cause this to be greater than you originally thought?

Mark, do you want to comment on that?

Sure. Chip, we are seeing what we thought we would see, which is tremendous opportunity when you put these 2 networks together. And I think in this specific area, you're asking about in-freight. I would say, yes, we are seeing more than we had originally modeled, and we're just putting the finishing touches on kind of estimating where that's going to be. And I'm going to share that, as John said, on May 24. That and a number of other synergy areas on -- during our Investor Day.

There are huge freight [ph] opportunities, Chip.

Your next question is coming from the line of Mark Connelly with CLSA. Kurt Schoen - Credit Agricole Securities (USA) Inc., Research Division: This is actually Kurt Schoen filling in for Mark. SO it's interesting to see the white...

Can you speak up, Kurt? Kurt Schoen - Credit Agricole Securities (USA) Inc., Research Division: So it's interesting to see that white paper margins are holding up well in Europe and Brazil, given recent economic weakness in those markets. What is your outlook for margins in those businesses going forward? And how does that differ from your U.S. white paper outlook?

Tim, you want to comment on that?

Yes, I'll comment. No, I think -- actually, our margins in North America are holding up pretty well, too. The biggest impact on margins in the quarter -- I can't really speak to Europe, but I'll speak to North America and Brazil, is really around export paper pricing. Export markets started decreasing in the fourth quarter, and then continued that into the first part of the first quarter of this year before starting to rebound. So we look at Brazil, and you've got about 50% of the capacity that's exposed to export markets between Latin America and Europe, primarily. So those margins will recover in the second quarter, and we think they'll be strong in the balance of the year.

Our business in Europe -- our Paper business has really tilted to the east, most of our paper productions in Poland and Russia. We've got one mill in Western Europe and France. So we really don't see the impact of the slowdown in Western Europe as much as in -- as much in our Paper businesses as we see in our corrugated box business, which is France, Italy, Spain and then Turkey and Morocco. Kurt Schoen - Credit Agricole Securities (USA) Inc., Research Division: And just following up in white paper. Over the next year, do you expect your mix of cut size and roll to change in any meaningful way given the shrinkage in the roll market?

I don't know. I -- no expectations at this point, but I wouldn't want to speculate on what we might do or where we might do it. I think -- we just looked at demand in the first quarter and thought demand looked a little bit better than we had expected coming into it. So here in North America, we feel pretty good with the mix that we've got today.

Your next question is coming from the line of George Staphos with Bank of America.

John, I want to just go back quickly first to the comment on input cost. So is the $25 million using current run rate negative variance in 2Q versus 1Q the total that one could calculate right now? Or would nat gas prices offset most of that? What's the appropriate interpretation of that?

Nat gas is going to offset some of it.

Okay, fair enough. Second question, and you touched on this a bit, we had heard from our own freight contacts, and you mentioned today, that the mills within industrial this last quarter didn't run as well perhaps as normally they do within International Paper. You called out, I think, $20 million year-on-year variance. And if we look a little bit later on, the slide deck, I guess on Page 41, it was actually a fairly steep sequential drop off. $75 million. And I guess, to the extent that you can comment, what was driving that negative variance either year-on-year or sequentially in mill ops within Industrial Packaging?

Mark, you want to comment on that?

Sure. George, on this sequential, that $76 million that you'd talked about, a big portion of that was really related to the way we revalue inventory and manage that inventory reserve. But from an operational standpoint, we did move a few things from the fourth quarter to the first quarter, just timing of certain jobs. But cutting to the chase on how we ran, the big difference between sequential and last year's first quarter was at 4 of our mills, and as John mentioned, they happen to all be legacy IP mills, we had one-time reliability events that we've solved and they're behind us, ranging from problems with a boiler to some mechanical problems. So nothing chronic. One-time reliability events. But they're expensive. And we've got them behind us.

So would it be fair that as we look to 2Q versus 1Q, most of that variance is, therefore, turned and basically to nil. Would that be fair?

I think we've got -- our objective obviously is to recover from some of that, but we've got a few things that are lingering into the second quarter.

Okay. Last question and I'll turn it over. Just stepping back on Ilim, you've obviously now synchronized the results to be in line with the rest of International Paper. You are going to have Paul Herbert also presenting at the Analyst Day coming up in May. It seems like, perhaps, you're trying to highlight Ilim a bit more to investors. Maybe you agree with the premise of that, maybe you don't. But if you do, kind of what are the implications of the moving up of the timing of the results, and again, trying to maybe increase our appreciation for Ilim within International Paper?

George, we think investors don't fully appreciate the inherent value of the Ilim investment and its impact on International Paper, and we understand why. We haven't -- it's equity accounted. It's not a consolidated joint venture given the structure that we have, which is a 50-50 structure. We're kind of at the back end now with a $1 billion of capital spending that's not on Ilim's balance sheet. IP didn't fund it. We think this is a great story. We've invested $650 million, taken out close to $250 million in dividends over the last 5 years. We're coming up on the 5-year anniversary of the Ilim joint venture and poised to add another paper machine and significantly expand our market pulp production. So if we think about International Paper right now, for the next 5 to 10 years, we think Russia's going to be an important part of our future. It's an emerging market so it's different than the rest of the world. But we know how to operate there. We operate the way we need to. And I think giving investors more clarity on that from the people running it is -- will be a good thing.

Could you see it being consolidated, John, in the next 5 years?

We're happy with the joint venture structure. And with the joint venture structure we have, with 50-50 ownership of that joint venture, it will not be consolidated, and no reason to believe that will change. As you know, our partners have a put agreement that they chose not to exercise. And we're glad we have partners. We're well aligned strategically. The business is commercially successful, and we're running it well. We're adding value, and I think IP is adding value and our partners are adding value to the JV.

Yes. It shows from the results.

Your next question is coming from the line of Mark Wilde of Deutsche Bank.

John, just curious. There have been some reports domestically and offshore about you guys looking at acquisitions. Without getting specific, I wonder if you could just tell us how you're thinking about sort of acquisitions versus debt reduction over the next 12 months?

Well, first of all, I'll let Tom Kadien comment on India because it's a -- I think that's where some of that stuff was coming from.

There's not a lot of validity to the -- what's been coming out of the papers in India. We're evaluating the business that we just closed on about 4, over 4.5 months ago. We're pleased with how it's going so far, but we're not ready to go off and do anything else in India other that improve what we've already got.

I think that people try and create expectations for evaluation for themselves. But back to the overall cash allocation strategy, Mark, it continues to be one of balance. We'll talk a lot more about that on Investor Day. We've took on some additional debt with Temple. We've financed that in a way that we're going to -- we can pay it back quite quickly; most of it is term debt. And obviously, with the sale of the 3 industrial packaging mills that we need to sell, which are part of the consent decree to get the approval to close, plus the sale of building [ph] products, plus the strong free cash flow we're generating in the company, we've got enough cash to do what we want to do on the balance sheet side and to consider other things, which will be a balanced use of cash with -- acquisitions, we're not on an acquisition hunt. We're on a -- make International Paper as it is the best company it can be and generate some value for shareowners. And some of that will come by returning cash to shareowners.

Okay. And then just turning to kind of a broader view of the company, you've really done a tremendous amount over the last several years to turn IP into much more of a packaging company. And if you look across the packaging market, it seems like whether it's cans or plastic bottles or folding cartons or flexible packaging, a lot of those businesses have all moved to more of a cost pass-through model. And the model for containerboard, which is maybe a $12 billion business for you guys, is still largely based on one journalist's estimate of market prices every month. And I just like to get your thoughts on whether you can change that model in your biggest business, whether you could see that changing over the next 3 to 5 years.

First thing I'd say, we're still International Paper. We're not International Packaging. And the company isn't going to change. With respect to pricing, I don't think it's probably a good place for us to be commenting on this call or -- I mean, this is kind of a forum on how prices are determined in the marketplace. It's really -- at the end of the day, it's all around supply and demand. And overtime, the shape and the cost structure does have an impact on pricing. And I think when -- we think we're advantaged on that because we see OCC prices buy us up over time. 65% of our capacity in North America is virgin-based, and we're going to benefit from that. So in a world market that's OCC short, and with China being so fiber short, pulp for paper and softwood for packaging, we like where we're at. So the -- it may not be that our month-to-month pricing is triggered off cost, but, over time, it certainly is. And the cost curve is changing and we're -- I think we're advantaged by that.

Okay. All right. Then the last question I had is just going back down to Brazil. When you first started the corporate transformation, we were -- you were highlighting EBITDA margins down in Brazil of somewhere between 35% and 40%. We're significantly below that now, I think, largely because of currency issues. But what's a reasonable bogey for that business, John?

What are you thinking about for the business?

Well, we'll share more about this when we have Investor Day. But I think mid-30s is still a reasonable target, and that's what we're going to be focused on over the next couple of years. Currency has had an impact. Export exposure, especially out of the region, has had a big impact. And what happens over the next couple of years is -- volume comes back into region at higher margins, and we'll see where the currency goes. Little we can do about that. But I think mid-30s is a reasonable target for that business.

Margins have come down, but really, what we're doing is we're -- we've built a business there that is really, I think, well positioned to be the leader in the Latin American paper market, as the Latin American paper market, which is growing at 4% to 5% a year, continues to grow. The Brazil that we bought with Champion was basically a Brazilian business. And what we're doing is we're using Brazil as a platform to serve Latin America because it's a low-cost place to serve Latin America. And our EBITDA in dollars is growing quite a bit. Our margins have come down, but, as Tim said, selling more in the region is going to improve our margins. And this boiler project we've got going, just that by itself is, I think, a $40 million impact on our bottom line.

Yes. It's a huge impact. So more details when we get to May. But yes, cost structure and geographic mix improvement are big levers in terms of getting to a higher, more sustainable margin in the business.

All right. And Tim, just any thoughts. I think you have to make a decision on that option around that second machine down there at Tres Lagoas over the next 12 months. Any -- just any thoughts about that?

Well, we like what we got with the first machine, and we're currently going through the evaluation process on economics and financials. But the market growth dynamic is very good in the region, as John just said, in the 4% to 5% range. So we haven't made a firm decision. But assuming that it'll look similar to the first machine we've built, it's something that we're very excited about.

Your final question is coming from the line of Mark Weintraub with Buckingham Research.

It's going to be a pedestrian [ph] one to start, but one of your big competitors had talked about the first part of April being pretty strong in the box business. Can you share what you've seen?

Sure, Mark. This is Mark Sutton. April is, I think John mentioned it earlier, is starting off pretty decent. It's above March, but it's very similar to last April. And I think last April, probably the tougher comp than we've had recently. But we've improved through the quarter. We exited the quarter mimicking the market. But we would say April so far is up over March and very similar to last April.

Okay. And then on a different line of inquiry, your U.S. pulp business is not a big business for you, but it kind of stood out there because you were actually EBITDA negative in the business. And I realize it's cyclically, it's not as strong in a position as it might be. But prices don't look like they've been that low. And it's kind of strange, where you do so well in so many of your business competitively, to have that as such an outlier. Any thoughts on how that can change? And is there a wide dispersion of profitability from facility to facility? Or is it pretty similar across the board?

No. We do have disparity across the board. And as we grow the fluff mix, we're going to see higher, more consistent types of margin across the business. The big -- one of the big drivers in the quarter was just Franklin's start-up cost, which was roughly $9 million in the quarter that we did not fully anticipate. One of the things I would say is that mills don't age particularly well when they're sitting idle, even though you do things that try to preserve the asset. And so when we got in, we found pumps, motors, valves, things that's just needed attention. And the right thing to do is deal with it now so that we have a really good start-up.

And when you look at those EBITDA margins, I think you're looking at the appendix on Page 35, those are fully loaded with all the business and corporate overhead as well. So don't think about it as negative cash. It just -- we try to allocate much of our corporate cost or overhead cost to the businesses as we can. Still on a number we like.

There are no further questions at this time. I will now turn the floor back to Mr. Landau for closing remarks.

Well, thank you for joining us for our first quarter conference call. We'll officially close the call now. Any follow-up questions can be directed to myself or, for Media, Tom Ryan, at phone numbers in the appendix. Thank you, and good evening.

Thank you for joining today's conference call. You may now disconnect.