CEO: John Crowe
CFO: Steve Dean
Interviewer: Good day from Wall Street. This is Juan Costello, senior analyst with the Wall Street Reporter. And joining us today are John Crowe, the CEO for Buckeye Technology along with the company’s Chief Financial Officer, Steven Dean. The company trades on the New York Stock Exchange and their Ticker Symbol is BKI. Thanks for joining us today gentlemen.
John Crowe: You are welcome, Juan.
Interviewer: Great, now starting off give us a brief history and overview here of the company for some of our listeners that are new to your story.
John Crowe: Well, Buckeye Technologies was a spun-off from Procter & Gamble in 1993 went private initially then back to public in 1995. We have been in the specialty fibers business beginning with cotton fibers as early as the 1920s and got into wood specialty fibers in the 1950s. So we have a long history of doing business in the fibers industry, primarily focused on specialty fibers for niche markets worldwide 70% of our business is outside the U.S. so we are a major exporter.
Interviewer: Great, and so yeah talk about the four different segments that you cover and where we maybe able to find your products?
John Crowe: Okay, the we report in two segments, the Specialty Fibers which includes three categories it’s the fluff pulp what we call the dissolving pulp or chemical cellulose and then it’s the, what we call technical products customized fibers. Our bread and butter is really the chemical cellulose, fluff pulp is many people can do that but then our chemical specialty area we are pretty unique there, most of those markets are markets that we only have one or two competitors no more than three, and there are markets where the fibers going to thing is sophisticated as compensation filament in LCD screen or food casings that has the big strong fibers that contain the meat before it’s cooked and then it’s peeled off once the meat is cooked, it goes into almost any kind of [indiscernible] [02:25] you can think of, from ice-cream to pharmaceutical tablets, then it goes into high performance tires that have to have a rayon cord, these are pretty unique markets, they are niche markets they are not real large markets but in many cases they are growing better than GDP and in some cases they are growing faster than that, and that’s our bread and butter and again there is only one or two people can do that. They make most of the papers that goes into auto and oil filters we make most of the world’s cotton currency paper substrate.
And then our Non-woven business its primary we are the leader in Non-woven wipes in North America and I would like to say that whole world is wiping something so wipes business has been pretty strong. And then in Europe we are in very niche market called Tabletop for disposable napkins and disposable table coverings. So that’s kind of an overview on of our key markets, again those are basically four categories reported in two segments Specialty and Non-woven.
Steven Dean: You know I think one other key thing about the Buckeye is that we are really diversified internationally. We produced about 80% of our products in the U.S. and about two thirds of our sales are outside the U.S., we got the one German facility in [indiscernible] [03:50] but aside from that we are very heavy exporters.
Interviewer: And what else would you guys say makes the company unique from some of the other players in the sector?
John Crowe: I would say our unique assets are large woods specialty mill in North Florida is one of two kraft dissolving wood pulp mills in North America and these mills are very sophisticated, thru would be very hard to duplicate [indiscernible] it would be difficult [indiscernible] [04:20] capital to build one would be almost prohibit and the construction of one. Then also we have the world’s most unique cotton, linter pulp and cotton fibers for the high end, very high end specialty here at Memphis, Tennessee. It’s been here since the 1920s very unique. And then we have the world’s largest Airlaid nonwoven’s machine in Mt. Holly, North Carolina outside Charlotte. So we have very good technical expertise in our people but we also have some very unique and special assets.
Interviewer: Certainly and perhaps you guys could walk us through your background and experience there and talk a little bit about the strength of the management team.
John Crowe: Okay, well we do have a good cross section of expertise, most of our managers are engineers with chemical engineering or mechanical engineering background or a few of us like me with Mathematics background. I have been in this business 33 years, I came to Buckeye, Procter & Gamble Buckeye in 1979, I was part of the startup of a large mill in Georgia for fluff pulp that supports the absorbing products market. So we have been making fluff pulp for long time and Buckeye that it is one of the products that there is more commodity like than our other specialty products and so that’s really where we focused our growth we have got an expansion project going on at our Holly Mill to convert more of our fluff pulp to high end. So I have been in operations for 20 of the 33 years and then I have been in the commercial end of it and then the executive end for the last 11 years.
Interviewer: Steve you want to tell me a little bit about your background?
Steven Dean: Yes. I have been in the finance and accounting area for 30 plus years, I actually was in other industries before I joined Buckeye, I started out with Hewlett-Packard for about 10 years and I was with Thomas and Betts 10 years and then I have been with Buckeye for 13 years now since 2006 as the CFO.
John Crowe: Well, we have several PhD chemists PhD’s working in our research and development. We have a very unique research and development it was where Procter & Gamble did all of their fibers research when we became an independent company we were basically, we were able to keep that facility right here at Memphis, Tennessee, so it’s been something that has been very special to us. We do most of the R&D for our customers also and that’s why it makes it [barrier] [07:03] to entry again very difficult for competitor to go through a long qualification period with customers that we have had for sometime as long as 85 years in some cases.
Interviewer: Certainly and so what are some of the goals and milestones that you and the team are hoping to accomplish over the course of the next year?
John Crowe: Well we worked hard in the last several years, number one to focus on paying down the leverage, we were highly leveraged in 2003 and we have paid our debt down as we share publicly that by the end of this month the end of our fiscal year that ends June 30th we should be nearing zero net debt leverage. So we are under leverage which gives us good position to do what we would like to do and that is to look at the high rate of return projects, we have been able to because we have delivered, we started paying dividend almost two years ago we have increased it four times, more recently we have been repurchasing shares to add value and return cash to our shareholders.
And then we also have a strategic growth team that’s focused on the right joint venture, the right M&A and the right partnership that will compliment our current assets and allow us to grow. We have dealt with underperforming assets at the end of this year we will have sold three assets; closing two of them selling one that was operating it was a very good operation but not core to the Buckeye’s future growth. So our real opportunity is to fill up our current facilities, remaining facilities fill them up, run at full capacity and look at what are the right assets to [vote] [08:46] on to Buckeye. Primarily sticking to our core competency and that’s these high purity and high end fiber’s market.
We have had some financial targets over the years and we have accomplished most of them — current rate of return on capital last year was 13.6% it will be above 15 this year, our cost of capital we peg at 11%, our gross margins are approaching 25% which is our new goal to be greater than 25%, we have kept our leverage down, Steven would tell you, he would be comfortable going up to two and half times leverage and right now we are about 0.1, 0.2 times leverage. So we have some opportunity there. Cash flow has been a strength of this business and it will continue to be something we focus on. And then we want our adjustments, earning per share growth of 10% on average over the years. We are focused on getting cost out of our system, we continue to focus on what we call three C’s Cost, Customer, and Cash. And most of our employees have bonus, annual bonus component that does focus on Quality, Safety, and Cash flow. So everybody is highly involved in managing the basics of the business.
Interviewer: Well certainly and so as you guys continue to hear from the street and speak with investors and the financial community, do you believe that the company’s story and message and the upside that you just described is completely understood and appreciate by them, and not what you wish investors better understood about the company?
John Crowe: Well that’s a great question and I think we are misunderstood because we tend to get compared to companies that aren’t really good comparisons to us, I would like to think of us as more of especially chemical company because of our, that our customers buy our products for the chemistry properties primarily, but we do get lumped in sometimes with just pulp and paper and that’s not really what I would say is the best comparison. We do get compared from time to time to company called Rainer they are – so they carry higher multiples but they do have a very competitive specialty fibers they call it their performance fibers and that’s a good comparison for us in terms of how they performed there and how we perform, we are each other’s major competitor.
I think the thing that we encourage investors to look at is the strong cash flow that we generate, how we use that cash flow in a balanced approach, paying the dividend, returning value to the shareholder by repurchasing shares and then doing high rate of return projects like our energy projects, our transformer project. And then future opportunity for us is in biochemical area and we have a joint venture with the University of Florida and have started up pilot plan to explore opportunities to take byproducts or waste streams today that we burn for energy and turn them into high value added chemicals going forward.
So those are the key things that we would like to point out to investors that we generate lot of cash, we have a balanced approach to how we use that cash and we have a focus growth strategy to grow the business going forward and so we feel pretty good about the position we are in, to deliver real value to our shareholders.
Interviewer: Well, great answer. And once again joining us today are John Crowe, the CEO for Buckeye Technologies Inc. me as well as the company CFO Steven Dean. The company trades on New York Stock Exchange, Ticker Symbol is BKI. Currently trading at $2751 share, their market capital is north of one billion. And before we conclude here gentlemen to recap some of your key points why do you believe investor should consider the company as a good investment opportunity today?
John Crowe: I gave my reasons let me ask, put Steven on the spot and let him speak to it.
Steven Dean: Well you know, I think it is just kind of recap some of the points that John already mentioned, our net debts rapidly approaching zero due to the strong cash flow we generate, we have dealt with our underperforming and none core assets which allows us to focus on high return growth sides of the business. Our nonwoven business is early transition stages of consolidation and increased capacity utilization which will improve business result cash flow and ROSC there. Memphis Cotton Business has unique competitive advantage in the highest value chemical cellulose market in the world and our wood business is less than a year away from completing the 42000 tons specialty wood expansion which will significantly increase our EBITDA in cash flow, we have said that project alone should add $20 million plus of EBITDA to our annual earning strength.
John Crowe: And the only thing I would add is and I have mentioned it earlier we are evaluating strategic growth opportunities which would include the right acquisition, joint ventures and partnerships that meet a strict set of accretion criteria for cash flow and earnings per share. And these would be things that would complement our core competency and drive our profitable sustainable growth strategy.
Interviewer: Well we certainly look forward to continue to track the company’s growth as well as report on your upcoming progress. And I would like to thank you both for taking the time to join us today and update our investor audience on BKI.
John Crowe: Thank you Juan.
Steven Dean: Thank you Juan.