Feb 4, 2015
Executives
Robin Yim – VP, IR John D. Hertz – SVP and CFO Linda K.
Massman – President and CEO
Analysts
Paul Quinn – RBC Capital Markets Steven Chercover – D. A.
Davidson & Co. James Armstrong – Vertical Research Partners
Operator
Welcome to Clearwater Paper Corporation’s Fourth Quarter and Fiscal Year 2014 Earnings Conference Call. As a reminder this call is being recorded today, February 04, 2015.
I would now like to turn the conference over to Ms. Robin Yim, Vice President, Investor Relations of Clearwater Paper.
Please go ahead.
Robin Yim
Thank you, Amanda. Good afternoon and thank you for joining Clearwater Paper’s fourth quarter and fiscal year 2014 earnings conference call.
Joining me on the call today are Linda Massman, President and Chief Executive Officer and John Hertz, Chief Financial Officer. Financial results for the fourth quarter were released shortly after today’s market close.
Posted on the Investor Relations page of our website at clearwaterpaper.com, you will find both the earnings press release and the presentation of supplemental information including outlook slide providing the company’s current expectations and estimates as to net sales, operating margin, and adjusted EBITDA for the first quarter of 2015. And certain cost, pricing, shipment, production, maintenance and repairs, and other factors for the first quarter and full year 2015.
Additionally we will be providing certain non-GAAP information in this afternoon’s discussion. A reconciliation of the non-GAAP information to comparable GAAP information is included in the press release or in the supplemental material provided on our website.
I would like to remind you that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements are based on current expectations, estimates, assumptions, and projections that are subject to change and actual results may differ materially from the forward-looking statements.
Factors that could cause actual results to differ materially include those risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2013 and our quarterly filings on Form 10-Q. Any forward-looking statements are made only as of this date and the company assumes no obligation to update any forward-looking statement.
John Hertz will begin today’s call with a review of the financial results for the fourth quarter and fiscal year 2014 and Linda Massman will provide an overview of the business environment and our outlook for the year and the first quarter of 2015. And then we will open up the call for the question-and-answer session.
Now I’ll turn the call over to John.
John D. Hertz
Thank you, Robin. 2014 was a year of achievements and challenges for Clearwater Paper.
We delivered record to net sales at $2 billion and adjusted EBITDA at $239 million and in adjusted EPS at $3.47 per share. Our Pulp and Paperboard division delivered record adjusted EBITDA of $173 million or 22% of net sales which is well above the Paperboard division cross cycle model of 19%.
On the consumer product side, net sales increased 3% to a record $1.2 billion but the adjusted EBITDA margin of $116 million or a 10% of net sales was down from 11% in 2013, and well below the consumer divisions cross cycle model of 17% due to a combination of pricing pressure on conventional tissue and input cost inflation on pulp, energy, and transportation. From a capital structure and allocation perspective we further reduced our weighted average cost to capital with the issuance of $300 million in 5.38% 10 year senior notes in exchange for $375 million in 7.18% senior notes.
If you combine the impact of the 2014 refinancing with that of the 2013 refinancing, we have reduced annual cash interest payments from $56 million to $29 million and we have reduced our cost of debt from 8.6% to 5%. We also returned $100 million to shareholders through our share buyback program at an average price of $63.50 per share.
Since the 2012 inception of our stock buyback program, we have repurchased 4.5 million shares for $230 million, an average price of $51.13 and reduced shares outstanding by 20%. And on December 15th we announced another $100 million stock repurchase authorization which should enable us to return at least 50% of discretionary free cash flow to shareholders in 2015.
Operationally we took actions on three fronts to address the market place pressures and to improve the cost structure of our tissue business. First, we accelerated approximately $10 million of capital expenditures into 2014 in order to standardize the back end of our converting mines and covert our warehouses from slip sheets to pallets.
Those investments are expected to significantly improve production planning flexibility and decrease transportation and warehousing cost. Second, on December 30th we announced the sale of our specialty products mills for approximately $140 million.
The estimated net proceeds of $107 million will be reinvested into capital projects for the benefit of the consumer products division which Linda will discuss in more detail and are expected to significantly improve CPD EBITDA margins. And finally, we are taking actions to reduce the number of product SKUs particularly at the low volume low margin end of the spectrum.
In 2014 we reduced the number of tissue product SKUs by 13% and will continue those efforts in 2015 and beyond. We believe that the combination of those three actions will yield 400 to 600 basis points improvement in CPD EBITDA margins over the next two to three years and provides a roadmap to achieving the consumer product division 17% cross cycle EBITDA margin model.
Before I get into our fiscal year and fourth quarter 2014 results I’d like to preface my comments by stating that throughout the rest of my remarks I will be distinguishing between GAAP and non-GAAP or adjusted results. The adjusted results exclude certain charges and benefits that we believe are not indicative of our core operating performance.
The reconciliation from GAAP to adjusted results is provided in the supplemental slides posted on our website. For the full year, those charges totaled $93 million and includes $41 million of goodwill and intangible write-off and other non recurring deal specific charges related to the sale of our specialty products mills.
$20 million due to the closure of both the Long Island, New York and Thomaston, Georgia converting facilities, $24 million in early retirement charges to refinance high interest rate bonds, a write off of $3 million ascribed to Clearwater Fiber, customer relationship, and $5 million from mark-to-market impact associated with Director's cash settled stock units. For the fourth quarter of 2014 there was a charge of $49 million which includes $40 million related to the sale of our specialty product mills, $4 million of cost associated with the closure of our Long Island converting facility, $3 million Clearwater Fiber related write-off, and lastly $2 million from the mark-to-mark impact associated with Director's cash settled stock units.
Starting with full year 2015 results, excuse me, 2014 results. As I previously mentioned we achieved record net sales, adjusted EBITDA, and adjusted EPS for the year.
The $239 million in adjusted EBITDA is a 19% increase over 2013 and a 12.1% adjusted EBITDA margin is a 150 basis point improvement over 2013. The improvement was attributable to higher Paperboard pricing and volumes, a higher mix of TAD tissue shipments, and the benefit of no major maintenance downtime in 2014.
Those benefits were partially offset by lower conventional tissue pricing, higher operating cost for natural gas, transportation, chemicals, wood fiber, and externally purchased pulp as well as higher SG&A expenses from increased IT spend, higher profit-dependent accruals, and equity based compensation. Now turning to the fourth quarter, net sales were $472 million down 7.6% from the third quarter and just below the low end of the consolidated outlook range we provided in our Q3 earnings call of down 4% to 7%.
As Paperboard net sales were down 12% compared to Q3 and well below our outlook of down 4% to 8% as a typical fourth quarter seasonal decline was exacerbated by labor related slowdowns at West Coast shipping ports. Compared to Q4 of 2013 sales were up 46 basis points.
Consolidated price mix was down 34 basis points versus a stable to slightly up outlook as CPD product mix was weaker than expected due to retailers sponsoring fewer than expected private label, ultra grade tissue promotions while the brands turned up the pressure on promotions. Fourth quarter adjusted gross margin of 13.2% was down 260 basis points from a comparable 15.8% in Q3 due to the weaker product mix and incremental maintenance within Paperboard.
Compared to Q4 2013 adjusted gross margin of 15.3%, transportation and higher plant maintenance for both divisions contributed to the year-over-year difference. Adjusted SG&A expense was $32 million in the fourth quarter compared to $31 million in Q3 and $29 million in Q4 2013.
The year-over-year increase in SG&A was due to higher IT spend and incentive based compensation. Adjusted corporate expense was $14 million of total SG&A in the fourth quarter and flat with Q3.
Adjusted operating income of $31 million or 6.5% margin came in just under the low-end of our fourth quarter outlook of 7% to 8.5% and down from 9.7% in Q3. The adjusted operating margin was impacted by weaker product mix and higher maintenance in the quarter.
Compared to Q4 2013 adjusted operating margin was 9.1%. As a result of all that adjusted EBITDA was $55 million or 11.5% of net sales which was just under the low-end of our outlook provided in our Q3 earnings call of $56 million to $64 million.
Net interest expense of $8 million was down from $10 million in the third quarter as expected with the full benefit of 2014 refinancing effect. Compared with fourth quarter of 2013, net interest expense decreased $3 million.
Turning to taxes, on an adjusted basis our Q4 effective tax rate was 34.2%. At the low-end of our outlook of 36% plus or minus 2% and down from 36% in the third quarter.
The Q4 of GAAP tax rate was a negative 5.1% as a result of the divestiture of the specialty products mills. The Q4 GAAP net loss included a loss from the sale of approximately $40 million but for tax purposes, the sale resulted in a gain of approximately $42.6 million due to stock and asset basis differences.
Fourth quarter 2014 adjusted net earnings came in at $15 million or $0.77 per diluted share. That compares to adjusted net earnings of $26 million or $1.28 per diluted share in the third quarter and $23 million or $1.09 per diluted share in the fourth quarter of 2013.
On a GAAP basis Q4 2014 was a net loss of $1.39 per share primarily due to the after tax impact of the specialty product sale. Non cash expenses in the fourth quarter of 2014 included $24 million of depreciation and amortization, $29 million related to the specialty product sale, $4 million in equity based compensation, and the $3 million Clearwater fiber charge.
Employee headcount at the end of the fourth quarter was approximately 3300. Now I will discuss the segment results.
Consumer products net sales were $292 million for the fourth quarter of 2014 down 4.7% versus the third quarter. Volumes were down 3.6% and within our outlook of sequentially down 3% to 6%.
However, we saw a 100 basis point price mix decrease versus a stable outlook because of an approximate 30% decline in customer sponsored private label tissue based promotions while branded promotions appeared to have increased 20%. Consumer products adjusted operating income for the fourth quarter of 2014 was $13 million or 5% of net sales versus $18 million or 6% in the third quarter.
Operating margin percentage was primarily impacted by the weaker price mix. Consumer products Q4 adjusted EBITDA margin decreased $4 million to $29 million or 10% of net sales from $33 million or 11% in the third quarter and remains below our CPD model of 17%.
As previously stated, we have taken a number of actions that we believe will improve CPD margins over the next two to three years. Now turning to the Pulp and Paperboard Division, Pulp and Paperboard net sales of $181 million for the fourth quarter of 2014 decreased 12% versus the third quarter.
Q4 net sales came in well below the seasonal outlook as previously mentioned due to labor related slowdowns at West Coast shipping ports and some year-end inventory management by certain customers. However, average pricing of $1017 per ton was marginally better compared to Q3.
Pulp and Paperboards Q4 adjusted operating income was $31 million or 17% of net sales as compared to $46 million or 22% of net sales in the third quarter. The decline in margin percentage versus Q3 was mostly due to higher plant maintenance and higher external energy usage while a cogeneration turbine was being repaired.
Pulp and Paperboards Q4 adjusted EBITDA margin of 21% remains above the 19% divisional objective inherent in our cost cycle financial model. Now turning to the balance sheet, capital expenditures were $42 million in the fourth quarter and $100 million for the full year.
Long-term debt outstanding at year-end was $575 million, as was the most recent measurement date of December 31, 2014, our company sponsored pension plans were under funded by approximately $17 million, an increase of $10 million from 12-31-13 due to several factors. Lower discount rates due to the drop in long-term interest rates and adjustments to actuarial tables to reflect longer life expectancy caused an increase to the viability that was partially offset by strong portfolio performance reflective of the 2014 market returns and $17 million of planned contributions.
We expect to contribute approximately $12 million in 2015. With regard to our liquidity we ended the fourth quarter with $77 million of unrestricted cash in short-term investments and $117 million available under our revolver.
During the fourth quarter we generated $37 million of cash from operating activities or 8% of net sales up from 7 million or 1% in Q3 but still below our cash flow model of 11% to 13%. Operating cash flow in the fourth quarter was negatively impacted by a $24 million increase in inventory.
Regarding master limited partnerships, we continue to examine the potential applicability to our business. Today we have had initial discussions with IRS to better understand their views on the applicability of an MLP structure to Clearwater Papers operations which did not yield any definitive conclusions at this point and as of today the IRS moratorium on private letter rulings remains.
With that I will now turn the call over to Linda Massman who will discuss the company's outlook.
Linda K. Massman
Thank you John, hello everyone and thanks for joining us today. First I will start with 2014 highlights and then discuss our high level outlook for fiscal 2015 and more specifically for the first quarter of 2015.
Our Pulp and Paperboard Division turned in a great year. The group exhibited excellent operational execution in all aspects of the business and fully leveraged the benefits of strong market.
As a result we set new records in production, adjusted EBITDA dollars, and margin percentage. The consumer product side remained a challenge due to tough market conditions.
In 2014 we were faced with ongoing competitive pressure from increased brand promotional activity and also went through a competitive bidding process with each of our largest customers. Those things together with higher input cost and a limited ability to pass through cost inflations led to margin compression.
But despite that challenging environment, our CPD team had a great year. They achieved record net sales, maintained all of our major customers with longer-term arrangement, reached our full TAD shipment run rate in the third quarter, and shipped a record number of retail tissue cases in 2014.
As we progressed through 2014 and it became clear that elevated competitive pressures and costing inflation [ph] within the consumer business would not likely abate. We determined that some significant and swift actions needed to be taken to reduce the consumer divisions cost structure to put us in the best position to achieve a 17% EBITDA margin model.
Doing so has become our number one strategic priority. We are addressing that now and how we are organized, reducing the complexity of our supply chain, trimming the breadth of our product offerings, improving the cost competitiveness of our mill network, focusing on capital investments that we believe can really move the needle on cost reduction and efficiency, and moving our cost reduction focus culture to the next level.
To that end we have taken the following actions; we established a cross divisional supply chain function to improve and streamline our purchasing and supply management to help drive out cost system wide, achieve operational efficiencies, and improve customer service performance. We have started conversations with customers on the rationalization of low volume SKUs and partnering with them in the transition to SKUs highly favored by the consumer and we have reached a 13% skew reduction to date.
We closed our Long Island distribution and converting plant and redeployed the converting equipment to more strategic locations. As John mentioned we sold the specialty products group and we will reallocate that capital back to the benefit of our consumer products business which we believe can yield significant operating margin improvements.
In 2015, we plan to spend approximately $85 million funded by the proceeds from the sale of our specialty products business on strategic ROI positive capital projects. The investments include projects to explore the improvement of pulp optimization at our Lewiston Pulp mill.
We believe the resultant increase in output and quality would enable the tissue side of the business to be fully integrated from a softwood pulp standpoint which will lower our pulp cost and eliminate input cost volatility associated with buying external softwood pulp. Other investments include robotics for warehouse automation, high speed bath and towel converting equipment, and paper machine upgrades.
We deployed the incremental 2014 capital investments that John discussed and we are taking the next steps from lean manufacturing to total productivity maintenance or TPM, that we expect will increase our capacity to grow while continuing to grow and develop our skilled and highly engaged workforce. The team will be focused on improving unit cost through high yield, stable manufacturing processes.
These actions are our roadmap to achieving our model, cross cycle consolidated EBITDA margin of 15% within the next two to three years. Turning to our view of the market environment for each of our businesses and starting with the North American tissue market.
In 2014 U.S. tissue cases shipped as reported by IRI were flat compared to 2013 due to weather related issues in the first quarter of 2014.
Private label grew one point of share while the national brands lost a point. Private label is now approximately 27% of the total retail tissue market.
At Clearwater Paper, we grew our market share to 8.1% of the U.S. tissue market in from 7.3% in 2013 with the addition of our TAD tissue facility in Shelby.
Looking to 2015 we expect the U.S. tissue market to grow from 1% to 2% in line with the long-term trends and believe that private label will continue to gain share.
RISI recently released the 2015 forecast for net new retail tissue capacity that is expected to come online and they reduced the prior estimates by 54% or 230,000 tons due to a push out of 3 machines to 2016. Based on its new forecast approximately 198,000 tons of retail tissue is now scheduled to come online with more than two thirds of that capacity expected in the fourth quarter.
RISI's revised forecast supports the balanced deployment [ph] environment in 2015. Turning to North American Paperboard, the outlook for 2015 remains positive supported by a stronger U.S.
economy and a secular trend replace foam cups and containers with eco-friendly alternative continues, with New York City being the latest to adopt the ban on the use of expandable polystyrene in 2015. We continue to monitor to China’s potential impact on SDS but the broader risk appears to be the impact of the strong U.S.
dollar which will make the U.S. market much more attractive to all global SDS producers.
Turning to Clearwater Paper’s 2015 outlook, I’d like to start with a broader impact of oil and pulp prices on our business for 2015 as compared to 2014. Lower oil prices should provide a net cost benefit ranging from $6 million to $8 million in petroleum based chemical and packaging.
All of the expected benefits from lower diesel prices are offset by the expected increase in line haul rates due to a continued tight transportation market which should result in a stable transportation cost year-over-year. Based on RISI's outlook for lower forecasted pulp prices and discounts, we anticipate savings in the range of $7 million to $8 million a year.
I would also point your attention to an input cost sensitivity chart that we provided on page 19 of our supplemental which outlines the various cost inputs and their impact on EBITDA due to a change in unit price based on 2014 volumes. Moving to our divisional outlook which is outlined on page 16 of our supplemental earnings presentation, starting with CPD.
With the sale of the specialty products operations we expect that consumer products net sales and adjusted EBITDA will be down in 2015 on an overall basis. When you think about the impact of the sale to our P&L note that 2014 specialty products net sales and adjusted EBITDA for the last 12 months ending November 2014, was $218 million and $80 million respectively.
We expect that removing specialty products will have a favorable year-over-year impact on price mix, external pulp and chemical cost on a nominal and per ton basis, and maintenance and SG&A cost on a nominal basis. However it will negatively impact packaging and transportation on a per ton basis.
There is approximately $7 million of stranded overhead that remains from the specialty product sales that will be rationalized and subject to further corporate action over the first half of 2015. To give you a baseline of CPD results excluding specialty products, CPD 2014 results without specialty is included on page 15 of the supplemental slides.
Focusing now on the continuing retail tissue business, from our 2015 outlook is for 1% to 2% higher shipment volumes and a slightly improved price mix as TAD shipments will be at a full run rate for the entire year. On the cost side we expect to see lower pulp prices and higher chemical cost as the chemicals used at CPD are not petroleum based.
Transportation cost should remain stable as an expected increase in line haul rates will likely offset any benefits from lower diesel prices and energy cost are expected to remain stable as lower natural gas prices will be offset by higher electricity rates and increased TAD production. Our 2015 Paperboard outlook is for a 1% to 3% increase in shipment volumes and for price mix that is stable to up 1%.
On the cost side wood fiber cost in the southeast continue to be elevated and we will have higher plant maintenance ranging from $20 million to $30 million. We expect to see 13 million to 15 million in Q1 associated with Lewiston and the remainder in Q2 at Arkansas.
Please note that we will have 11 days of paper machine downtime in Q1 and 5 days in Q2 related to the major maintenance work. On the positive side we expect cost for chemicals and energy to be heading lower due to falling oil prices.
And we expect a stable outlet for transportation and operating supplies. For 2015, capital expenditures, the pursuit of the CPD cost structure improvement will require more capital investment than our recent capital spending levels.
So our outlook for capital investment in 2015 is $155 million. Plan includes the previously mentioned $85 million of strategic capital plus $70 million in base maintenance CAPEX.
The maintenance CAPEX spend is $20 million above our historical $20 million level as we will use a major maintenance down time to opportunistically install capital additions that would otherwise disrupt operations. And at the corporate level we have one more year of further investments in upgrades and enhancements to our ERP system.
Now to our Q1 outlook for consumer products business excluding specialty products from Q4, we are expecting fairly stable shipment volumes and pricing mix compared to the fourth quarter of flat to up 1% for both variables. The outlook is for stable pulp cost as we don’t expect to see prices for outlook pulp turning down in the quarter.
Transportation, operating and packaging supplies are expected to be down. All other variables such as chemicals, energy, maintenance and repairs, and SG&A are expected to remain stable.
Turning to the first quarter outlook for our pulp and paperboard division, we expect to see a 1% to 5% improvement in shipment volumes and the price mix remained stable to up 1%. Input cost are expected to remain stable except for chemical cost which should turn lower in the quarter and maintenance spending will increase by $13 million to $15 million for major maintenance in Idaho versus Q4.
Looking at the consolidated business for Q1 versus Q4, excluding the sale of the specialty products, we expect net sales to increase 1% to 3%. Our consolidated operating margin to be in the range of 3% to 5%, and adjusted SG&A to be flat with Q4, adjusted corporate spending to be $13 million to $14 million, net interest expense to be about $8 million in an adjusted tax rate of 36% plus or minus 2 percentage points.
All these variables combined are expected to result in Q1 EBITDA range of $37 million to $43 million remembering it is lower than Q4 due to $13 million to $15 million for maintenance and the loss of EBITDA due to the specialty products business. The key variables we see determining where we land in that range are first, pulp and wood fiber prices; second, brand promotional activities; third, any changes in customer and consumer demand; fourth, actual maintenance expenditures; and fifth, the timing of resolution to labor issues at the West Coast shipping ports.
In conclusion, 2015 will be a year of continuous improvement to our operating platform as we set the stage for margin improvement particularly in our consumer business. While market conditions are more challenging than ever, we believe we are well positioned in Pulp and Paperboard and consumer products both of which are poised for growth and we are excited about the prospects ahead of us.
And finally I would like to thank our employees for another solid year of hard work and for their loyalty and commitment to Clearwater Paper's success. Thank you for listening to our prepared remarks and we will now take your questions.
Operator
[Operator Instructions]. Our first question comes from Paul Quinn with RBC Capital Markets.
Your line is open.
Paul Quinn
Yes, thanks very much and just couple of questions. One, versus your previous outlook versus exactly what you did in your actuals, looks like shipment volumes were down significantly in Paperboard, just wondering what happened there and whether you built -- is that the reason for the inventory build on the working capital side?
John D. Hertz
Hi, Paul this John. Yes, it is on the Paperboard side.
A lot of it had to do with the labor slowdown in West Coast shipping ports and that relates to shipments that we are packaging [ph] that we have going to Japan. There was kind of in the last two weeks of December a fairly significant slowdown in shipments and it was more kind of aberration than a comment on what's going on Paperboard market.
And some of that came from consignment customers and we think there is probably some inventory management going on in part of some of our customers. And that did contribute to the working capital increases as it relates to inventory.
And in addition to that within Paperboard we’ve been fighting to get log supply down in Arkansas all year long with wet winter and supply is kind of freed up in the fourth quarter and they opportunistically kind of built up their log supply since we look into the 2015 year.
Paul Quinn
Okay, so we shouldn’t read into the 12% lower shipments in Paperboard as indicative of a weaker market, it is more of the shipping related issues that you encountered?
John D. Hertz
Yes, I think so. I mean I think when we look at the Paperboard market, the backlogs industry wide are not as strong as they were last year but last year it was seasonably strong.
But as you look over period of time their backlogs are very healthy and there continues to be positive data points for example the New York City ban on phone going to hopefully all Paperboard but alternatives anyway by July of this year.
Paul Quinn
Okay and then just flipping a word to the tissue side, looks like congratulations on the sale of specialty side, I know there was some grief and expect margins to pick up there, you mentioned a number operational things that you’re working on. One of them was reducing SKUs which you’ve seen it at 13% reduction I think, what is your goal there and where are you in terms of number SKUs in that product line?
Linda K. Massman
I’d say, Paul this is rough numbers because that means we are going to look for opportunities continually but I’d say we probably have about 70% to 80% of it captured already. I mean at least identified not executed, okay.
And we’re still working with some of the customers to get that through and we’ll see that impact as we move into 2015. But we’ll continue to look at that because as we have those low volume SKUs it increases complexity which increases our cost of manufacturing and we need to ring that back in.
Paul Quinn
Okay and then just on the mentioned branded promotional activity, have we seen any sort of back off in that or has that been consistent all the way through 2014 and what’s your outlook for 2015 here?
Linda K. Massman
In total, the promotions have actually picked up a little bit in Q4 I would say and is kind of across the board. We thought it might stabilize before we got into the back half of the year but it hasn’t.
It actually increased in some key areas in the fourth quarter and obviously had impact on our results. So, it very likely might be the new normal.
It’s hard to say. I tell you I think what we are doing internally is just focusing on what we control and that is servicing our customers well and I think we have done a great job with that through the year with regard to retaining businesses that have been out to bid or the accounts that have been up to bid and then setting the stage for a really strong 2015 for customer service.
Paul Quinn
Okay and the last question I had, you mentioned your cross cycle margin goal is 2 to 3 years away, what are the big levers there that would allow you to accelerate that, bring that forward?
Linda K. Massman
Okay, so lot of those projects there is a big variety of projects in there. If there were any one project we probably would have done it long before now.
I’d say supply chain is one area where we have some flexibility in how we deploy this that would include some of warehouse robotics. I would say some of the paper machine upgrades depending on how we deploy that capital, we’ve already moved forward some of the capital associated with the back end of our converting equipment with regard to beggars [ph] and wrappers.
So those are probably the, I would say the biggest levers we have in moving us forward and being able to finagle how quickly that happens.
Paul Quinn
Great, that’s all I had, best of luck. Thanks.
John D. Hertz
Thanks Paul.
Operator
Our next question comes from Steven Chercover with D. A.
Davidson. Your line is open.
Steven Chercover
Good afternoon and thanks for providing the slides about an hour earlier than normal.
John D. Hertz
You’re welcome Steve.
Steven Chercover
My first question is, I want to verify the volume that was sold by my calculations about 192,000 tons that drive with you?
John D. Hertz
Which business are we talking about?
Steven Chercover
I am talking about the tissue and machine glazed paper that you sold to Dunn?
John D. Hertz
Okay. I thought you met fold in the quarter.
Steven Chercover
Divested operational.
John D. Hertz
About 180,000 tons I would say give or take.
Steven Chercover
Okay, had there been something that have been shot in any of those facilities earlier.
Linda K. Massman
No.
John D. Hertz
No.
Steven Chercover
Okay. So obviously given just almost 200,000 tons and about $200 million in sales, you are only getting just over $1000 a ton on that stuff so we should see the ASPs move up pretty substantially going forward?
John D. Hertz
Price mix will definitely improve, yes.
Steven Chercover
Great and then I might have just missed it but can your clarify how your pulp balance will change having sold those tons. As I recall you were short of about 400,000 tons of market pulp a year so is that almost cut in half?
John D. Hertz
Yes, I would say I think on the consumer side of our external purchases, about 40% presale was softwood pulp. We can now I guess repurpose what we are sending to some of those mills to make on a retained retail mills.
And probably bring the percentage of external purchases down to 20%
Linda K. Massman
And Steven our total basis we should probably be buying little over close to and around 230,000 tons externally and that would make up about 20% for the total company, 45% for CPD.
Steven Chercover
Great, thank you for that. And this is a loaded question because I actually like this position but considering that you’re selling almost more than half of what comprised Cellu Tissue, do you rethink how you might have even approached that whole business or the assets that remain sufficiently compelling that you are glad you did it.
Linda K. Massman
I think Steven it’s always a little challenging when you go back in and play I am sure quarter back after the fact. But given the market dynamics we were faced with at the time of Cellu Tissue acquisition, I think we were able to bring onboard a broader mix of customers and channels that we didn’t previously have.
And we have despite selling off these mills retained all of that business and have it managed across a smaller network of mills. So I would argue its optimized our productivity and brought us a much broader customer base than they otherwise would have had.
Steven Chercover
Great, okay. And then why would the SG&A be higher post divestiture.
I mean you got rid of 5 facilities plus Long Island, is this part of the IT spend?
John D. Hertz
IT is a big contributor and we started on this journey kind of at the end of -- mid 2013 or end of 2012 I guess it was. And this is kind of our, I guess end of the line and there is some fairly decent IT spend that’s happening to kind of the complete the IT roadmap that we started on.
I think you’re also probably seeing some incremental equity related expense associated with higher stock price and what that does to the stock comp number. And profit dependent expenses.
Steven Chercover
Okay and then you made a great effort to explain the maintenance impact and I just want to make sure that I am smart enough to understand what you are telling us. So we are 13 million to 15 million more expenditures in Q4 and the full year is 20 million to 23 million higher than 2014 with the remainder of that coming in Q2.
John D. Hertz
Correct.
Linda K. Massman
That’s right.
Steven Chercover
Alright, very good, I’ll get back in the queue. Thank you.
Operator
[Operator Instructions]. Our next question comes from James Armstrong with Vertical Research.
Your line is open.
James Armstrong
Good afternoon. My first question is really around the Lewiston Pulp capacity, you mentioned in the call that you expect to debottleneck that mill, could you give us a range of how much debottlenecking you can do and the timing around it?
Linda K. Massman
James, I don’t think we’re ready to do that right now. I would just say that it is part of the 300 to 400 basis point expansion that we think we can get, part of it contributed to the CPD business.
As we move along and right now we’re studying the effectiveness of some of the different options we have and until we finalize I think it’s premature to make those estimates.
John D. Hertz
There is capital expenditures that mean to happen over a 2 to 3 year timeframe. So as it relates specifically to that, that’s more back end loaded versus front end loaded.
James Armstrong
Okay, that helps. And then in the tissue business how much of your tissue is now sold as TAD and how much can of your tissue can you sell as TAD at going forward?
Linda K. Massman
Well we have about a 100,000 tons of TAD currently and so that’s our full capacity. We’re running first full year at full rate for TAD so this will be the year that we get to see how much we can convert into to sell cases.
James Armstrong
Okay and then just following up on the corporate expense line. As we go into 2016 and beyond, how much should corporate expense fall after the ERP system gets implemented?
John D. Hertz
Oh I want to make sure that I don’t mess up the capital side versus the expense side, but I think you should look for $1 million to $2 million reduction all else being equal related to IT.
James Armstrong
Okay, that helps. Thank you very much.
John D. Hertz
And that was for the quarter.
James Armstrong
Okay.
Operator
Our next question comes from Steven Chercover with D. A.
Davidson. Your line is open.
Steven Chercover
I am back. Two little follow ups please, so you said in Pulp and Paperboard where your EBITDA margins are 21%, that’s about 200 basis points above the cycle expectation and I am just wondering why that is, is this kind of the costs are currently running below trend or the maintenance is below normal hopefully it’s not as prices are too high?
John D. Hertz
Well it is the strongest pricing environment we’ve had I think, definitely since I’ve been around and so the market just has been very, very strong for the last year to 9 months or so. That obviously helps.
We did not have any major maintenance downtime in 2014 so that obviously helps. And then just from a production standpoint, recall we spend out a -- to focus at Paperboard was to really focus on operations and efficiency and that’s what we’ve done and we continue to.
If you look at the slide in terms of our production output overtime you can see that continue to creep up. So I think it’s all those things.
Steven Chercover
Okay and then just finally to calibrate the EBITDA potential of the enterprise now. Years ago 300 million was the target you came close to a run rate, obviously you’ve divested just under 20 million of EBITDA and this year we’ve got $20 million more so.
I know you don’t want to give full year guidance but should we be thinking in the vicinity of 260 million in EBITDA for 2015 and despite the divestiture when everything said and done you are still at $300 million full year target once you’re getting your cross cycle targets?
John D. Hertz
I don’t want to give a full year EBITDA dollar target at this point. I think if you probably noticed, our focus now is kind of more on the margin percentage side of the equation.
You highlighted some things that you do need to take into account obviously, the lack of the specialty product, EBITDA dollars, the fact we are going to have 20 million to 23 million more in maintenance. I don’t know if there is other major items I would point out as you think about full year 2015.
Steven Chercover
Okay but once upon a time we had visibility that was run way beyond 300 million. So if we take away the 20 million, that 300 million target is still very much in place?
John D. Hertz
I think we are, from Linda’s comments on the consumer side from a input cost inflation standpoint and the pricing pressures that we saw last year from a competitive standpoint in the conventional space. And then just think about overall cost inflation since the 2011 timeframe that we had previously talked about going back to the time when we set the 300 million goal, that basically everything has kind of gone against us.
So if everything stays like that, that makes it kind of harder to like stress we should have in 300 million. To extent that turns and we start to get some wind at our back, then that helps that.
Steven Chercover
Great, well let's hope for some wind. Alright, thank you.
John D. Hertz
Alright, thanks Steve.
Operator
Ladies and gentlemen that does conclude our question-and-answer session. At this time I will turn the call over to Ms.
Massman for any closing or additional remarks.
Linda K. Massman
Great, thank you. As you can hear we are very excited about the prospects of our business, the opportunities to increase operating efficiency across the company, and to continually improve and provide excellent service support and high quality products to our customers.
Thank you for joining us today and for your continued interest in Clearwater Paper. On a final note, we will be presenting at the Bank of America Merrill Lynch Conference in March and we hope to see you there.
Thank you.
Operator
Ladies and gentlemen, that does conclude the Clearwater Paper fourth quarter and fiscal year 2014 earnings conference call. We do appreciate your participation.