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070202 Deutsche Bank Report - WPPs Q4 in 100 Words

Deutsche Bank - Equity Research

Wausau Paper { Recommendation: Buy}.

In-line.  Reported $0.15.  Excluding land gain, underlying # = $0.05.  DB @ $0.03 & FC @ $0.04.  Comps: 3Q06 = $.08, 4Q05 = $(0.13).  Towel & Tissue = record qtr, but Printing & Writing and Specialty Papers both struggled.  Pointing to $0.03-0.05 in 1Q, net of land sale gain.  FC @ $0.08.

Towel & Tissue: EBIT = $12.9MM, +$1.4MM q/q & +$3.5MM y/y.  Big improvement over already record results.  Bay West produced $18.4MM in 4Q EBITDA – $429/ton, and 37% EBITDA return on segment assets in ‘06.  Just 7% of NA AFH market = room to grow.

P&W: EBIT = $(2.0MM), -$3.2MM q/q & +$9.8MM y/y.  Nice y/y improvement over truly abysmal 4Q05, but still weak.  Large q/q decline is disturbing.  Vol's improved 3%, but EBIT slipped $36/ton q/q.  Sacrificed price/mix for vol's.

Specialty:  EBIT = $0.7MM, +$0.6MM q/q & +$0.2MM y/y.  Essentially no change to lackluster performance.

Land sales: In 4Q, sold 7K acres for after-tax gain of $4.9MM.  To date, sold 15K acres for $12MM gain – slightly ahead of original schedule to sell 42K acres for $29MM gain.

View?  Modestly disappointing.  Towel & Tissue continues to fly, but P&W and Specialty remain disappointing.  Guidance toward q/q decline in 1Q is negative surprise.  However, not ready to pull Buy rating.  We think UFS market will tighten in '07 as big players consolidate and shutter capacity.  Trimming estimates: '07 goes from $0.60 to $0.40 (1Q = $0.04), and '08 goes from $0.90 to $0.60.