Prompt:
Human: Slides for today's call are posted on our website, and we invite you to follow along.
Participants are cautioned not to place undue reliance on these statements which reflect management's opinions only as of today, February 26, 2020.
Information on potential factors and risks that could affect our actual results of operations is included in our SEC filings.
The company undertakes no obligation to revise or publicly release the results of any revision to the statements made in today's call, other than through filings made concerning this reporting period.
In addition, today's discussion will include references to non-GAAP measures.
Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance.
Starting on Slide 3.
Before discussing our financial results, I wanted to speak to our safety performance.
I'm proud to report that 2019 was the best safety year in our history, with our total recordable incident rate and other key metrics at record lows.
Over the past five years, we've seen our focus on safety drive real positive results for us, and have helped us protect our workforce better and better each year.
And our highest priority at the company is that each employee goes home uninjured every day.
Turning to our financials.
We concluded 2019 with another quarter of profitable growth in Q4, led by our environmental service segment which achieved better-than-expected results on a combination of higher landfill and incineration volumes, project wins and strengthen our field services.
On the top line, the SK branch business, and our field service group, offset some industrial and energy-related weakness and sluggishness in SK oil.
Revenues were up 1% for the quarter, and favorable business mix drove an 8% growth of adjusted EBITDA and a 100-basis-point improvement in margin.
For the full year, adjusted EBITDA grew by 10% on a 3% increase in revenue, and we generated record adjusted free cash flow of $208.5 million.
Credit for our results belongs to our entire team, who not only helped us set some financial records, but did so safely all year.
Turning to our segment results, beginning with environmental services on Slide 4.
Revenues were up modestly as our facilities and field services offset some softness in industrial and energy services.
High single-digit adjusted EBITDA growth fueled a 140-basis-point margin improvement as the segment topped 20% for the third straight quarter.
As it relates to our facilities, it was largely a volume story this quarter.
Incineration utilization increased to 89%, and landfill tonnage was up 40% from a year ago.
We had some sizable projects that fed both our incinerators and landfills.
Our average price per pound for incineration in Q4 was flat with a year ago primarily reflecting the effects of a large project that we did in Q4 2019, that delivered a significant amount of low-price volume.
Average incineration price per pound for the full year rose 11% from 2018, largely due to enhancements at our facilities which can now handle a mix of higher-value waste streams.
While there were no major emergency response events in the quarter, for the full year, we recorded approximately $15 million of ER revenue.
Moving to Slide 5.
Safety-Kleen revenue was up 2% on growth in our SK branch business and pricing of our core services which offset year-end weakness in base oil and blended pricing.
Adjusted EBITDA in the segment dipped 1% and margins declined from a year ago due to a lower pricing in SK oil and a drop in value of certain byproducts in our rerefining process in the early days of IMO 2020.
Parts washer services were up from a year ago, waste oil collection volumes were healthy at 55 million gallons, with a charge for oil rate that was higher than a year ago and above Q3's rate.
Our direct loop volumes grew by approximately 30% in the quarter, and the business accounted for 7% of total volumes sold in Q4.
Total blended product sales in Q4 were up 24% -- were 24%, up from 22% a year ago.
And for the full year, our volumes of direct lube sales grew by nearly 25%.
And we continuously, steadily grow this business.
And we believe we'll, ultimately, reach our long-term goals for blended volumes as the market for sustainable products continues to expand.
Turning to our strategic update on Slide 6.
Our outstanding team of employees is integral to our success and a competitive differentiator for Clean Harbors.
During 2018 and 2019, we made substantial investments in our workforce including greater retirement and healthcare benefits as well as higher employee compensation.
In 2020, we are again raising our 401(k) contributions and absorbing all healthcare cost increases resulting in millions more of incremental spend on our workforce.
In 2020, as we have in prior years, we're pursuing a broad array of cost savings that, we believe, will more than offset these investments.
Profitable growth remains a primary focus for us in 2020.
We've taken significant steps forward over the past three years, and we want to extend that momentum.
Our disposal recycling network will continue to be the cornerstone of our success.
In the coming year, we intend to further leverage our facilities and service locations through pricing and mix initiatives, along with greater project volumes and cross-selling opportunities.
We're also in the early stages of rolling out our new e-commerce platform to enable customers to request our products and some services online.
By taking a next-day delivery approach to delivering our products and services, we intend to make Clean Harbors and Safety-Kleen, much easier to do business with.
We've always been forward-thinking company as it relates to technology in our industry, and we think e-commerce holds great promise for us.
And in addition, we're rolling out our -- the use of our AI technology to have our customers more directly interface with our waste profile systems to expedite the approval and acceptance process for hazardous waste disposal services.
Customers will be able to use our e-commerce platform to schedule their own waste pickups.
The customer experience will be much more improved and our ability to manage orders with delivery services will be enhanced as well.
Another key strategy for this year is capitalizing on the shifting market conditions brought on by IMO 2020.
We've already seen the rule drive changes in the value of high-sulfur fuel oil as well as low-sulfur fuel oil.
However, the crude oil and base oil markets, today, remain in a state of flux, with pricing disruptions caused by the global coronavirus impacts.
While the IMO regulation took effect in January 1, ships have until March to come into compliance with the rule, so we don't think any one will have any real clarity on the impact from IMO 2020 for another couple of months.
In the interim, we're aggressively managing our spread.
With the decline in high-sulfer fuel oil that began late last year, we're continuing to push for increasing charge for oil rates on our used motor oil and maximizing our collection volumes.
In addition, in 2020, we expect to pursue emerging growth opportunities, such as PFAS and take full advantage of the growing market acceptance of our sustainability offerings.
And as I outlined on our Q3 call, we provide a broad array of sustainability-focused services that go beyond, are being the largest collector and recycler of waste oil.
Sustainability is core to our brand which is why we made it central theme of our recent marketing campaign.
Sustainability is part of Clean Harbors' DNA for 40 years and we expect it to only become a larger part of our story in years ahead.
Turning to Slide 7.
We continue to regularly evaluate all four elements of our capital allocation strategy.
In 2019, we invested just over $200 million in capital assets, added two successful bolt-on acquisitions, divested a small non-core business in Western Canada and repurchased our shares.
In terms of our debt, we refinanced the final tranche -- large tranche that was due in 2021, reducing our overall borrowing cost.
And as Mike will cover in his remarks, we enter 2020 with a strong balance sheet -- strong cash balance, and we'll look to generate our highest level of returns with that capital.
In summary, we achieved record adjusted EBITDA, adjusted free cash flow and TRIR in 2019.
The underlying dynamics in both our operating segments remain positive, and we anticipate a strong 2020 which also happens to be our 40th anniversary as a company.
And for me, personally, it's something that I'm really proud of, and we have lots of plans to celebrate that exciting milestone with the teams this year.
Turning to Slide 9, in our income statement.
As Alan indicated, we delivered good profitable growth in Q4.
We increased revenue by $12.8 million which represents 1% growth from the prior year.
Adjusted EBITDA grew by $10.3 million.
This reflects the mix of business we experienced in the quarter, pricing initiatives and operational efficiencies.
From a gross profit perspective, we saw a decline in Q4 on both an absolute dollar and percentage basis from a year ago due to business mix including the project work associated with the 2008 California wildfires and higher costs related to labor, insurance and healthcare expenses.
Just to touch on insurance for a moment, like many companies, we are seeing costs in nearly every type of insurance rising, particularly property, auto and excess casualty.
We'll continue to drive our cost-saving initiatives to offset these higher insurance costs as well as to continue to focus on safety to lower incidents and incident severity.
On a full-year basis, gross profit increased by approximately $30 million, with gross margin essentially flat year over year.
SG&A expenses were down significantly in the quarter compared with a year ago, declining by $18.4 million which drove a 240-basis-point improvement in percentage terms.
In Q4 of 2018, we had a significant bad debt charge associated with the customer bankruptcy.
Even after that onetime item, we had a considerable improvement driven by higher revenue within both operating segments and lower corporate costs due to a series of cost-saving initiatives, moving employees to lower-cost jurisdictions and reduced incentive compensation compared with a year ago.
On a full-year basis, SG&A expenses were down 110 basis points.
For 2020, using the midpoint of our guidance range, we would expect SG&A to be up in absolute dollars from the prior year and slightly up on a percentage basis, given the onetime benefits we experienced last year.
Depreciation and amortization in Q4 was down slightly to $77.4 million.
While it was up slightly for the full year as a result of some assets we've added from tuck-in acquisitions and capital spending.
For 2020, we expect depreciation and amortization in the range of $290 million to $300 million which is consistent with the past two years.
Income from operations in Q4 increased 26% to $52.3 million reflecting the combination of our revenue growth and improved SG&A spend.
This is the same story with the full year as our annual income from operations also rose 26%.
On a GAAP basis, earnings per share was $0.43 in Q4 versus $0.29 a year ago.
Our adjusted earnings per share was $0.42.
For the full-year 2019, earnings per share was $1.74 versus $1.16 in the prior year, and adjusted earnings per share rose 50% to $1.86 from $1.26 in 2018.
Turning to the balance sheet on Slide 10.
Cash and short-term marketable securities at year-end totaled $414.4 million, up more than $85 million from September and in line with our expectations.
For the full year, we increased cash on the balance sheet by $135 million.
Our current and long-term debt obligations at year-end were about $1.56 billion, down $11 million from the prior year -- from a year ago primarily due to mandatory payments under our term loan.
Our weighted average cost of debt is about four and a half percent through a healthy mix of fixed and variable debt.
We concluded the year with a strong balance sheet, and we sit at 2.1 times levered at year-end on a net debt basis.
Turning to cash flows on Slide 11.
Cash from operations in Q4 was up slightly to $128.5 million.
capex, net of disposals, was $39.1 million, up from a year ago resulting in adjusted free cash flow in the quarter of $89.4 million.
From an annual perspective, we ended 2019 with net capex spend of $204.7 million, and adjusted free cash flow was $208.5 million, in line with our free cash flow guidance.
For 2020, we expect net capex of $195 million to $215 million which, at the midpoint, is essentially flat with the prior year.
This number excludes the capital spend of $20 million to $25 million related to the purchase of, and investments to be made in our corporate headquarters in 2020.
Given the expansion plans we have in this property, it made economic sense to make this onetime purchase of our headquarters as it recently came on the market.
During the quarter, we repurchased 59,000 shares of our stock at an average price of $84.28 a share for a total of $5 million.
For the full year, we bought back 299,000 shares at an average price of $71.65 a share for a total of $21.4 million.
We remain committed to returning capital to our shareholders through our buyback program, and we'll continue to be opportunistic based on the stock price.
Moving to guidance on Slide 12.
Based on our 2019 results and current market conditions, we expect 2020 adjusted EBITDA in the range of $545 million to $585 million.
The midpoint of that range represents a 5% increase from 2019.
Looking at our guidance from a quarterly perspective, we expect growth in Q1 adjusted EBITDA to be in line with the full year with steady growth in the business, pricing gains and operational efficiencies.
Here's our full-year 2020 guidance translates from a segment perspective.
In environmental services, we expect adjusted EBITDA to increase by a low single-digit percentage in 2020.
This growth will be driven by continued higher value weight gains in our facilities, pricing gains, projects and increases in various lines of business across multiple regions.
For Safety-Kleen, we anticipate adjusted EBITDA growth in the mid- to high-single-digit range.
We expect to see steady profitability growth in the SK branch business due to pricing and operational efficiencies.
We expect an expansion in Safety-Kleen Oil based on more effective spread management and continued increase in blended sales.
Our guidance today does not include any favorable impact from IMO 2020, as it is too early to determine its impact.
Our corporate segment -- in our corporate segment, we now expect negative adjusted EBITDA to grow by a low-single-digit percentage from 2019 due to increases in benefits as we continue to make investments in our workforce.
Based on our current guidance and working capital assumptions, we expect 2020 adjusted free cash flow in the range of $210 million to $240 million.
In summary, Q4 was a solid conclusion to 2019.
Overall, the company delivered an excellent year as we met or exceeded our guidance in all four quarters.
Margin performance and cash flow generation throughout the year were strong and consistent with our goal to deliver on our promises and hit our targets.
As Alan outlined, our core lines of business entered 2020 with healthy momentum and some favorable trends.
We expect another profitable year -- another profitable growth -- another year of profitable growth for Clean Harbors in 2020.
And finally, I wanted to mention that in addition to our normal full slate of more than a dozen conferences and investor events, we intend to host an Investor Day in the back half of this year.
We are currently targeting mid-September, but we'll issue a save-the-date announcement once we finalize a date and location.
At this event, we will showcase our broad management team strength, outline our strategies for growth for each business and provide some longer-term targets for the company.
 Assistant:

Chosen response:
compname reports q4 earnings per share of $0.43.
q4 earnings per share $0.43.
q4 adjusted earnings per share $0.42.
provides 2020 adjusted ebitda guidance of $545 million to $585 million.
adjusted free cash flow guidance of $210 million to $240 million for 2020.


Prompt:
Human: Joining me on the call today are Arsen Kitch, President and Chief Executive Officer; and Mike Murphy, Chief Financial Officer.
Please note slide two of our supplemental information covering forward looking statements.
On a consolidated basis, the company reported net sales for the first quarter of $426 million and adjusted EBITDA of $54 million.
If you highlights to mention our paperboard business continue to experience strong demand, particularly in our folding carton segment.
Based on that strong demand, we announced and began to implement price increases across our SBS product portfolio.
Our operations were affected by the February cold weather events in the south natural gas curtailments impacted production and increased energy prices.
Collectively, this negatively impacted our adjusted Eva da by approximately $6.5 million are tissue business are lower orders and shipments reflecting overall market trends.
IRI market data showed a nearly 20% decline in overall tissue dollar sales in the first quarter of 2021.
As compared to the fourth quarter of 2020.
Consumers were destocking their pantries and retailers were working through elevated inventory levels.
With a decrease in demand, our production outpaced sales, resulting in above target inventory levels.
We're taking downtime on our assets to reduce and manage inventories, particularly with today's elevated pull prices.
With regards to our balance sheet, we use the free cash flows generated during the first quarter to reduce our net debt by $21 million.
We're experiencing significant cost inflation at a temporary decrease in tissue demand.
As noted over the previous quarters, we remain focused on our top priorities during COVID the health and safety of our people and safely operating our assets to serve as customers.
Our people's focus has been key to our success, and we will continue to be so in partnership with local health agencies we have offered on site COVID vaccinations across several of our facilities, and we're continuing to offer a $200 incentive to each employee to become vaccinated.
Let's discuss some additional details about both of our businesses.
As you recall, we estimate that approximately two thirds of paperboard demand is derived from products that are more recession resilient, and 1/3 is driven by more economically sensitive or discretionary products.
We continue to observe strengthened demand from our folding carton customers and are starting to see a recovering food service segments.
demand for food packaging products and retail paper plates has remained healthy throughout the pandemic.
We're also pleased with the market reception of our sustainability focus brands of New World Cup and reimagine folding carbon.
Both are playing a role in our favorable market position.
Our strong order book which predates Industry supply disruptions continues to be robust.
We are diligently working to implement the previously announced price increases.
fastmarkets Risi, a third party industry publication has recognized a $50 per ton increase in folding carton and a $20 per ton increase in food service grades and it's March and April publications.
During our fourth quarter earnings call, we noticed that the cold weather event in the style impacted operations at our side percent Arkansas.
This resulted in the $6.5 million direct impact to our adjusted EBITDA.
While there was while the weather event primarily impacted the first quarter, other potentially longer lasting impacts on input costs are included separately in our revised inflation expectations.
As you're aware, we scheduled our largest plant maintenance outage for 2021.
During the second quarter at our Lewiston, Idaho, we recently completed that work and are back up and running.
The overall economic impact on this outage store adjusted Eva dust in the second quarter is projected to be between 21 and $24 million as originally expected.
Our industry view remains largely the same, but I wanted to discuss the inventory overhang from 2020 and the expected temporary impact on volume in 2021.
The market for tissue in the US is traditionally two thirds at home and 1/3 away from home with around 10 million tons per year total demand.
As consumers spent more time at home in 2020, there was a shift toward at home consumption.
Throughout the pandemic, we witnessed consumer pantry loading and retailers responding by placing higher orders with existing suppliers and seeking out tertiary suppliers, both both domestic and international to meet demand.
It is difficult to estimate the level of inventory overhang with consumers and customers as there is no third party data available for this metric.
Based on receipt, tissue ship and data for 2020 and some assumptions on consumption trends.
We estimate that the industry is currently faced with more than a month of excess inventory between consumers and retailers.
While it is difficult to predict the timing for the resolution of the inventory overhang, it is likely that both consumers and retailers are working through much of the excess inventory during the first and second quarters of this year.
We have entered a new phase of the pandemic with consumers starting to return to more normal lifestyles.
This may involve increased the weight from home consumption of tissue, and destocking and consumer pantries.
Based on IRI market data, consumer purchases of tissues slowed considerably in the first quarter, but have now started to recover to pre pandemic levels.
retailers have responded to these trends by managing down their higher inventory levels, reducing their orders to suppliers like us.
This is likely a temporary adjustment after a very robust 12 months of pandemic driven demand.
While the inventory adjustment is temporary, it may result in at home industry tissue shipments dropping to below 2019 levels in 2021.
With that said, we expect long term consumption growth to continue between one to 2% per year.
with private brands continuing to gain share.
Our tissue volume trends in the first quarter and heading into the second quarter appear to reflect these industry dynamics.
We sold 11 point 7 million cases in the first quarter, which was down around 23% and 16% compared to the first and fourth quarters of 2020 and down 5% relative to the first quarter of 2019 sales at 12 point 3 million cases.
We're continuing to closely monitor channel and customer trends to ensure that we're aligned with areas in the market with the highest growth prospects.
Let's turn to our production and inventory levels.
While we did take some acid downtime in the first quarter, our production exceeded sales and inventory levels increased.
We're taking more substantial substantial downtime in the second quarter to reduce inventory levels to get closer to our targets.
While this will have a negative impact on our fixed costs absorption will help us avoid producing excess inventory at today's elevated market poll prices as well as income Supply Chain costs.
As Mike and I discuss our outlook for the second quarter, we will go into some additional detail on actions that we're taking, as we face the normalization, tissue demand and significant cost inflation.
A consolidated company summary income statement shows first quarter as well as the first quarter of 2020.
In the first quarter, our net income was $12 million.
diluted net income per share was 71 cents per share, and adjusted income of 69 cents per share.
The corresponding segment results are on slide seven are pulp and paper board business was impacted by the weather event.
While consumer products are lower demand partly offset by the benefits from the Shelby expansion.
Before we speak in more detail about our divisional performance, I wanted to remind you of some of the changes that we started making last quarter and how we portray our financial purchase.
Previously, we had shown the impact of production volume changes and associated fixed costs leveraging impact in our cost category.
We have modified that approach and are including production volume changes in our volume category.
We believe that this change will enable investors to better understand sales changes as we expect to produce similar quantities of product that we sell, which will all be in the volume category.
In tissue production exceeded sales in the first quarter of 2021.
And the reverse was true in the first quarter of 2020, which complicates comparisons to prior periods.
The cost category will better reflect the changes in raw material input pricing and inflation.
This contract sheeting business as a service and distorts our sales price of our base paperboard products.
Additionally, as a reminder, we have moved our bale pulp sales to external customers back to the producing segment.
from Consumer Products Division to the pulp and paper work division.
We've also started transferring build post from our pulp and paper board division things will better reflect the economics associate accounting changes that taking effect with our first quarter 2021 report we found that retest numbers as part of our 8k associate with our fourth quarter earnings announcement, where we read past the prior three years as well as the past eight quarters.
Slide eight is a year over year adjusted even comparison for pulp and paper board business.
We are implementing the previously announced the price increases in our SPS business and are starting to see some of the benefits relative to a year ago and have a positive shift in our net.
Our sales and production volumes were slightly off due to the impact of the weather event in the south in February.
Our costs were elevated in part due to the weather events slightly offset by lower year over year input costs.
You can review a comparison of our first quarter of 2021 performance relative to fourth quarter 2020 performance on slide 14 in the appendix.
We continue to see the benefits of a positive mix shift due to our shelbie expansion and related commercial news.
Our sales have converted chronics in the first quarter or 11 point 7 million cases representing a unit decline of 23% versus prior year.
Our production of converted product in the quarter was 13 point 5 million cases or down 3% versus the prior year.
This mismatch in sales and production has led to increases in our inventory.
We've had several year over year cost as we've benefited from ramp and our shelving mill and realized benefits from the rationalization and from some lower input and freight costs.
You can review a comparison of our first quarter of 2021 performance relative to the fourth quarter of 2020 on slide 15 in the appendix.
We have also added finished good production and other financial data on a quarterly basis to slide 6510 outlines our capital structure.
we generated approximately 20,000,020 $1 million in free cash flow to reduce our net debt and our liquidity was 282 point 7 million at the end of the first quarter.
We continue to make strides in reducing our net debt and increasing our financial flexibility.
Over the past couple of years, we've worked on our financial flexibility so that we could be well positioned during times of uncertainty in our business.
We prioritize capital allocation, repaying debt and bolstering our liquidity and turning down our debt maturities to Since access to our abl facilities based loosely on accounts receivable, inventory levels and advanced rates, and our term loans covenant life, maintenance financial covenants do not present a material constraint on our financial flexibility.
The net result is that we believe that we have a stable financial structure with ample liquidity and a few years before we have any required principal payments.
Slide 11 provides a perspective on our second quarter outlook and some other key drivers for the full year 2021.
Our expectations assume that we continue to operate our assets without significant COVID related disruptions.
As previously discussed, demand visibility and tissue as well as inflation expectations have and will continue to be challenging and unpredictable for a while.
As we mentioned previously, our pulp and paper for business has been diligently working to implement the previously announced price increases.
We expect that the benefit of this will continue to be reflected in the next couple of quarters.
The planned major maintenance outage at Lewiston in April, which is included in our paperboard business is complete, and it's expected to impact earnings by 21 to $24 million.
Consistent with our initial expectations.
Tissue demand is expected to weaken further from the first quarter shipments of 11 point 7 million cases, as our shipments in April are at 3.1 million cases compared to a monthly average in the first quarter of 2021 a 3.9 million cases to address our elevated inventory levels, and expected lower demand from our customers in the short term.
We are materially reducing production flow anticipated shipments in the second quarter.
To put this into context.
The amount of quote unquote lack of ordered downtime in the second quarter of 2021 is expected to exceed 1/3 of our peak demonstrated production of 15 point 9 million cases in the second quarter of 2020.
The lack of fixed cost absorption and related expenses are expected to be meaningful period cost in the second quarter due to the magnitude of the downtime.
We started observing raw material price inflation in the first quarter and expected to expecting that to accelerate into the second quarter.
We estimate that the impact would be approximately 9 million to $30 million in the second quarter relative to the first quarter.
Due to tissue sales and production declines.
Second quarter out of its costs and higher inflation.
Our second quarter adjusted EBIT dot could be close to breakeven.
While we're not providing specific annual guidance for 2021 there are several drivers assumptions and variables that we'd like to update from our commentary during our fourth quarter call.
We're expecting continued positive impact from the previously announced SBS price increases.
And our paperport business plan major maintenance outage is expected reduce earnings for 2021 compared to 2020 by 25 to $30 million.
Similar to our previous guidance to the impact of the weather events in the south, we've decided to move the Cypress an outage from the fourth quarter into the third quarter.
We've updated this guidance on slide 20, where we broke out the timing by quarter which reflects our current plan and made a negative impact from the weather events in the first quarter of 2021 a 6.5 million.
Previously we spoke to our anticipated tissue buying declines of high single to low double digit percentages year over year.
Considering demand today, we're revising this assumption to mid double digit decline year over year for 2021 as the consumer and retailer pullback has been more significant than anticipated.
While demand forecasting continues to be challenging as the market works through the inventory overhang.
We believe these issues to be temporary nature.
By we're encouraged by our sales pipeline given the pull back and demand across channels than demand ramp from these wins will be delayed.
As customers are working through existing inventory in their supply chains with wider consumer demand.
We're expecting even higher input costs including pulp, packaging, energy and freight versus our previous expectations of 40 to 50 million or revised estimate based on our current assessment of the market to 65 to 75 million of inflation in 2021 versus 2020.
Polk continues to be the main driver.
We're taking various proactive measures to reduce costs, improve sales and manage inventories, which are some will address in his closing remarks.
For the full year 2021.
We're also anticipating the following expect interest expense.
As between 68 and 3536 and $38 million.
We continue to expect depreciation amortization to be between 106 and $110 million.
We have revised our capital expenditure expectations downward from 60 to 65 million to 55 to 16 million.
And our effective tax rate is expected to be 25 to 26%.
And we expect to utilize some of our current tax attributes, which amounts to 16 million to reduce cash taxes.
We did receive approximately 8 million of that 16 million in the first quarter and an additional 3 million in April.
I would like to discuss the actions that we're taking across the company to combat higher inflation and lower tissue demand.
In our paperboard business, we're focused on implementing the previously announced paperboard price increases and maximizing production to meet demand.
In our tissue business, we're working with customers to offset higher costs through previously announced price increases and upcoming product changes.
We have a robust pipeline of new tissue volume and are actively pursuing additional sales opportunities across both businesses, we're working through ways to reduce costs both in the short and long term.
from looking at our network cost structure to optimizing polemics to lower variable costs.
we're managing our cash flows by taking significant downtime across our tissue operation, and a careful slow down and planned capital expenditures in 2021.
At the beginning of the second quarter, we also launched a transformation effort focused on improving our core operations in the medium to long term.
The transformation team is made up of dedicated internal resources supported by top tier consulting firm aimed at achieving the full potential of Clearwater paper over the next several years.
The team is now focused on identifying and evaluating opportunities for improvement across the company.
I look forward to discussing this effort with you in the upcoming quarters.
We have been will continue to take appropriate actions to position our business for the future, while balancing the needs to respond to current market conditions.
Let me remind you of why I think these businesses are well positioned in the long run.
We believe that the key strengths of this business are the following.
First, we operate well invested assets with a geographic footprint enabling us to efficiently serve as customers on both coasts.
We have a diverse customer base, which serves and markets that have largely stable demand.
Second, knocking vertically integrated enables us to focus on independent customers with unparalleled service and quality commitment.
Third, we believe through product and brand development, the business is well positioned to take advantage of trends toward more sustainable packaging and food service products.
Lastly, our paper for business has demonstrated an ability to generate good margins and solid cash flows.
Our Consumer Products Division is a leader within the growing private branded tissue market.
From our vantage point, we believe the key strengths of this business are the following.
First, we have a national footprint with an ability to supply a wide range of product categories and quality tiers, which is an attractive sales proposition to our customer patience is a key differentiator trends away from branded products to private brands.
Private brands issue share in the US rose to over 30% from 18% in 2011.
While these trends are impressive, we're still a long way from where many European countries are for private brands represent over half of total tissue share.
Lastly, tissue with an economically resilient and youth based product.
Historically, demand has not been negatively impacted by economic uncertainty.
After we get beyond the temporary distortions in our tissues supply chain at the retailer and consumer level, we're optimistic that this business will generate meaningful cash flows and returns over the long run.
While we're faced with some headwinds in 2021.
We're building our business to be successful both in the near and long term, and believe that we will come out of point 21 a better operation than where we started.
Our balance sheet is well positioned to support us with strong liquidity, limited financial maintenance covenants, and debt maturities which are a few years away.
We're working with our board to develop a medium to long term capital allocation plan and look forward to sharing those thoughts including internal investments, external investments, and the return of capital to shareholders as we approach our 2.5x target leverage ratio.
 Assistant:

Chosen response: q1 revenue $426 million.


Prompt:
Human: Joining me on the call today are Arsen Kitch, President and Chief Executive Officer; and Mike Murphy, Chief Financial Officer.
Financial results for the third quarter 2020 were released shortly after today's market close.
On a consolidated basis, the company reported net sales for the third quarter of $457 million and adjusted EBITDA of $77 million, which represents growth of approximately 3% and 145% respectively over the third quarter of last year.
A few business highlights to mention.
Our tissue business drove results with both higher sales and production volumes, to meet elevated demand.
Lower input costs, particularly in pulp were also a tailwind on a year-over-year basis.
Our service levels in tissue started to recover to pre-COVID levels, as we continued to work with customers to fulfill orders and replenish inventory levels.
Our paperboard business continue to deliver stable performance, managing through uneven end-market segments with solid execution.
Our current backlogs are in line with previous years and we successfully launched ReMagine folding carton brand, offering recycled content in SBS Board.
In the third quarter, we used the free cash flows generated to reduce our net debt by an additional $40 million and we refinanced our 2023 notes with a new 2028 notes.
On slide four as I noted, these last two quarters, we remain focused on our top priorities during COVID, the health and safety of our employees and safely operating our assets to service our customers.
We continue to operate with appropriate safeguards against COVID, including temperature checks, quarantine protocols, sanitation practices, social distancing guidelines, face covering requirements, remote work, travel restrictions and enhanced benefits.
Our human resources and manufacturing leadership teams are doing an exceptional job of proactively monitoring the health of our workforce and ensuring that we have the proper staffing levels in place.
Our efforts and risk mitigation strategies are making a difference in helping to reduce the risk of COVID at our sites.
I would like to express my deepest gratitude to all of our people for their extraordinary efforts and perseverance through these challenging times.
I will now share what we saw from both the tissue and paperboard businesses in the third quarter.
Let's start with our Consumer Products division on slide five.
As we have previously noted, at-home tissue demand remained elevated during the quarter.
We continue to believe that this is being driven by the shift from away from home to at-home consumption, as many people continue to work and learn from home.
We noted on our previous earning call that because of these consumption changes, we were seeing retail sales per IRI panel data stabilize at above pre-COVID levels.
In the third quarter that resulted in low double-digit retail sales growth relative to the 2019 quarter.
We expect that year-over-year increase had continued to moderate as retailers replenished their inventories, consumers de-stocked their pantries and people adjust to living with the pandemic.
Our industry view remains largely the same, so I will summarize in a few key points to provide some context.
First, recall that the market for tissue in the US is traditionally two-third at-home and one-third away-from-home.
Many states economies began to reopen, which we believe drove some of the normalization and demand in the third quarter.
We expect continued uncertainty associated with these reopening and travel patterns, making it challenging to predict demand drivers for these end markets during the next few quarters.
It is also difficult to predict what a new normal might look like as the pandemic eventually subsides.
Second, while it is too early to discern trends on branded share relative to private branded share.
We are noticing the paper towel demand is tracking ahead of the overall tissue category while facial demand is lagging.
We will continue to monitor these trends in the coming months and quarters due to the continued uncertainty in consumer demand associated with COVID.
Third, as we noted last quarter, SKU rationalization has occurred, creating additional production.
We believe that lower SKU counts benefit both retailers and manufacturers like us.
While we have seen some customers desiring a recovery of SKUs, we do not anticipate SKU counts to go back to pre-COVID levels in the near to medium term.
Our tissue results in the third quarter were robust.
We shipped 14.5 million cases, which was up around 10% compared to the third quarter of 2019, but down 9% over the second quarter of 2020, as expected.
We continue to execute for our customers and are pleased with production efficiency and fixed cost leverage achieved.
We have largely replenished inventories throughout the supply chain and are seeing in-stock conditions improve.
In addition, to meet peak demand during the pandemic, we believe that some of our customers need short-term commitments to alternative suppliers and tertiary brands to meet demand, including imported products.
As a result, we believe that these customers have greater than normal inventory levels in several product categories that they are now working to reduce.
We have also adjusted our sales and customer mix over the last six months to better position our business for growth in a long-run.
That has led us to exit several customers to reduce complexity and improve our network.
While we have a robust pipeline of new business for next year, these strategic moves are expected to have a volume drag in the next couple of quarters.
Mike will further address the impact of these trends on our businesses and financial outlook section of our discussion.
As you recall, we estimate that approximately two-thirds of paperboard demand is derived from products that are more recession-resilient and one-third is driven by more economically sensitive or discretionary products.
Our business including customer demand has been stable despite economic uncertainties.
Our folding carton customers, especially those with exposure to food and healthcare packaging continue to see strong demand and our foodservice customers, especially those with exposure to quick service restaurants and away-from-home dining, as well as commercial printers continue to see weaker demand.
Our exposure to diverse end-market segments helped provide stability for our order book in the quarter.
We did not have a planned major maintenance outage in the third quarter of 2020 like we did in 2019, which drove improved operations.
Our current sales backlogs are consistent with previous years, indicating stable demand.
While we're encouraged by our solid performance in the quarter, we're navigating through some uncertain market conditions.
On our last earnings call, we introduced the ReMagine brand of SBS folding carton paperboard with up to 30% post-consumer recycled fiber that is FDA-compliant for food contact.
Together with our NuVo SBS brand of cup stock with up to 35% post-consumer recycled fiber, we're meeting our customers and consumer preferences for more recycled content in an already highly sustainable form of paper-based packaging without compromising on consumer safety and product quality.
The consolidated company summary income statement is depicted under the third quarter as well as the first three quarters of 2020 and 2019.
In the third quarter, diluted net income per share was $1.28 per share and adjusted EBITDA was $77 million.
The corresponding segment results are on slide eight.
Our Paperboard business continued its strong adjusted EBITDA performance while consumer products benefited from significant sales growth and fixed cost leverage associated with production growth and favorable input costs.
In the second quarter of 2019, we started our Shelby, North Carolina, paper machine and incurred as anticipated, start-up costs related to lower production throughput, higher waste and other costs which persisted during the remainder of 2019.
As a reminder, we achieved the targeted production rate of our new paper machine in the second quarter of 2020 and we are continuing to capture the benefits associated with the project, including ramping our converting lines, realizing supply chain benefits and achieving sales wins and mix improvements.
While we're not providing a specific dollar amount for these costs and benefits, the continued realization of the Shelby investment is an important factor in our performance improvement.
Our mix continues to improve as Shelby has come online, more than offsetting some year-over-year price impacts.
We are benefiting from the volume increases related to the production ramp which helped to meet elevated demand.
Overall fixed cost leverage from increased production, lower input costs and improved mix positively impacted our tissue business in the third quarter of 2020, relative to the third quarter of 2019.
You can review a comparison of our third quarter 2020 performance relative to the second quarter of 2020 on slide 16 in the appendix.
Slide 10 contains some additional context to the outstanding performance in our tissue business and we are building off the data we shared last quarter.
The slide contains IRI panel data, which is a snapshot of retail sales of tissue measured in dollars.
The line shows monthly change on a year-over-year basis while the data on the box shows a quarterly view versus last year.
It is estimated that $1 retail sales grew 34% in the first quarter, 23% in the second quarter and 12% in the third quarter.
You can see in the data that pantry loading phenomenon at the end of the first and beginning of second quarters, that has given away to a more stable demand picture for our retail customers.
During our last quarter's call, we anticipated the IRI panel data to be up in the 10% to 15% range in the third quarter and it was close to 12%.
In the fourth quarter, we would expect year-over-year sales growth to continue to moderate.
This expectation is highly uncertain and dependent on consumer behavior, retail buying patterns and COVID-related restrictions.
Our sales in the third quarter were 14.5 million cases, representing a unit decline of 9% versus the second quarter and unit growth of 10% versus prior year as expected.
Our production in the quarter was 15.3 million cases, were down 4% versus the second quarter and up 19% versus prior year.
Our production levels had benefited from the Shelby ramp and SKU rationalization.
The cost leverage from the significant increase in production along with improved costs in freight and logistics led to continued strong results.
Slide 11 is a year-over-year adjusted EBITDA comparison for our paperboard business.
Lower pricing reflected in Macy's reported price decrease in February was partially offset by favorable mix.
The absence of a planned major maintenance outage at our Idaho mill was also a major driver of year-over-year improvement.
Overall, our team brand our operations well in the quarter and continue to deliver stable results.
You can review a comparison of our third quarter 2020 performance relative to the second quarter of 2020 performance on slide 17 in the appendix.
Our performance in the third quarter exceeded our expectations with stronger sales and production volumes in tissue and continued stability in paperboard, despite weak economic conditions.
These factors combined with outstanding operational execution delivered robust results.
Slide 12 provides a perspective on our fourth quarter outlook.
As previously discussed, tissue outlook is largely a function of sales demand.
As Arsen mentioned, we recently exited some customers and specific products to better position us for the future.
Additionally, several of our large customers placed heavy orders with us and other suppliers in the third quarter, leaving them with high inventories in several product categories.
As a result, we're seeing order pace slow in October as customers are adjusting their supply chains.
Our October shipments were around 4 million cases, which is down from an average of 4.8 million cases per month in the third quarter of 2020 and 4.4 million cases per month in the fourth quarter of 2019.
We are anticipating our tissue sales to be at or below fourth quarter 2019 levels.
Our production will also decline to meet this level of demand, so that our inventories do not exceed targeted levels, which will impact our fixed cost absorption that had benefited Clearwater throughout much of 2020.
Input costs are expected to continue to be largely benign except for some increasing freight expenses.
And as we mentioned previously, our paperboard business remained stable in total and while we continue to prepare for potential COVID recession-related weakness, our portfolio of customers and end-market segment exposure continues to position us well through the end of October.
If assumptions around demand as well as largely stable prices and raw material inputs hold, we would anticipate fourth quarter adjusted EBITDA to be in the range of $52 million to $62 million.
This range also assumes that we continue to operate our assets without significant COVID-related disruptions.
For the full year 2020, we anticipate the following.
Interest expense between $46 million and $48 million, which is a slight decrease to the past expectations due to debt repayments.
Depreciation is expected to be between $109 million and $112 million.
Capital expenditures are trending toward $45 million and we still do not expect to be a net cash taxpayer in 2020.
While we're not prepared to provide specific guidance for 2021, there are several variables to keep in mind.
Planned major outage expenses are expected to reduce our earnings in 2021 compared to 2020 by $25 million to $30 million.
We've updated this guidance on slide 22, which represents a slight increase relative to prior guidance of $23 million to $27 million.
This is due partly to a new project to replace the head box on one of our Lewiston paper machines, which will require some additional downtime.
Based on third-party pulp forecast, we are anticipating around a $50 per ton increase in pulp.
As a reminder, we purchased approximately 300,000 tons of pulp each year.
Capex is expected to trend closer to our historical averages of approximately $50 million.
Slide 13 outlines our capital structure.
We utilized approximately $40 million of free cash flow to reduce our net debt, which included a $40 million voluntary prepayment of our term loans and our liquidity was $277 million.
In the quarter, we refinanced our 2023 notes with a new 2028 note maturity, providing approximately 5.5 additional years of tenure at a rate we deemed to be attractive at 4.75%.
We also achieved the mass [Phonetic] amendment through our ABL facility, providing some reporting and other flexibilities.
S&P recognized our improving credit trend and removed us from negative outlook.
We continue to make strides, reducing our net debt and increasing our financial flexibility.
I would like to reiterate our value proposition, which we discussed on our previous earnings call and mentioned to investors throughout the quarter.
We believe Clearwater Paper is very well positioned across two attractive and complementary businesses.
Our Consumer Products division is a leader within the growing private branded tissue market.
From our vantage point, we believe the key strengths of this business are the following.
First, we have a national footprint with an ability to supply a wide range of product categories and quality tiers, which is an attractive sales proposition to our customers.
Our expertise in manufacturing, supply chain and transportation is a key differentiator, especially during challenging times like today.
Second, there are long-term trends away from branded products to private brands.
These have typically been amplified during recessions.
Private brand tissue share in the US rose to over 30% in 2019, up from 18% in 2011.
While these trends are impressive, we're still a long way from where many European countries are, where private brands represent over half of total tissue share.
Lastly, tissue is an economically resilient and need-based product.
Historically, demand has not been negatively impacted by economic uncertainty.
Turning to our Paperboard division.
We believe that the key strengths of this business are the following.
First, we operate well-invested assets with a geographic footprint enabling us to efficiently service customers on both posts.
We have a diverse customer base that serve end markets that have largely stable demand.
Second, not being vertically integrated enables us to focus on independent customers with unparalleled service and quality commitment.
Third, we believe the business is well positioned to take advantage of trends toward more sustainable packaging and food service products.
Lastly, our paperboard business has demonstrated an ability to generate good margins and solid cash flows.
Overall, our large capital investments are behind us and we're prioritizing cash flows to reduce debt, as we demonstrated in the third quarter with a net debt reduction of approximately $40 million, bringing our net reduction thus far in 2020 to over $140 million.
We intend to continue to deleverage by delivering benefits from our Shelby investment, continuing with operational improvements, aggressively managing working capital and prudently allocating capital.
While we expect to have lower tissue shipments in the coming quarters, we're making sound strategic moves to support our customers and their success and continue to position our business for success in the long-run.
We believe that this strategy is the best way to create value for equity and debt holders.
 Assistant:

Chosen response:
q3 earnings per share $1.28.
q3 sales $457 million versus refinitiv ibes estimate of $461.6 million.
in q4, demand for tissue products is expected to soften relative to q3 of 2020.


Prompt:
Human: We certainly hope you and your family continue to remain safe and healthy, in what remains a challenging environment.
As usual, we have a few reminders before we go into results.
These statements are based on management's current expectation, but may differ from actual results or outcomes.
In addition, we may refer to certain non-GAAP financial measures.
Turning to today's discussion of our results.
I'll start by covering our usual top line commentary, with highlights in each of our segments.
Kevin will then address our total company results, as well as our FY '21 outlook.
Finally, Linda will offer her perspective and we'll close with Q&A.
For the total company, Q1 sales increased 27%, reflecting about a point of benefit from the acquisition of majority interest in our joint venture in the Kingdom of Saudi Arabia, and about a point of headwinds from unfavorable foreign exchange impact.
This quarter's 27% organic sales growth is supported by double digit sales growth in eight of our 10 businesses.
I'll now go through our results by segment.
In our Health and Wellness segment, Q1 sales were up 28%, reflecting double digit growth in all three businesses.
Our Cleaning business had another quarter of double digit growth behind continued strong demand, for our disinfecting products.
While we continue to make progress expanding supply, we're still not at a point where we can fully meet ongoing elevated demand.
Despite those constraints, our Clorox brand continues to see increases in both household penetration and repeat rates.
We've been investing behind this momentum to convert new users to loyal consumers, and we've been seeing very strong return on our investment.
On the innovation front, our bleach complexion effort is now complete.
The Clorox fabric sanitizer platform and Clorox disinfecting wet mopping cloth, both continue to show strong growth.
On a related note, our wet mopping cloth, along with our Clorox and Clorox Scentiva branded disinfecting wipes and Pine-Sol multi-surface cleaner, all recently received approval from the EPA, for kill claims against the virus that causes COVID-19 on hard non-porous surfaces.
Our professional products business also had double-digit sales growth behind strong shipments across all of our disinfecting product lines.
A key driver of growth this quarter was the total Clorox Total 360 system, which uses an electrostatic technology to deliver disinfectants to large, hard to reach areas.
To support sales and continued momentum in this business, we're bringing online, new production capacity this month, for the disinfectant used in these devices.
In addition, we've created a dedicated out of home team, that focuses on growth opportunities in new channels and spaces, to further build on strategic alliances with already established, with Uber Technologies, United Airlines, AMC Theaters and Cleveland Clinic.
Lastly, within this segment, our Vitamins, Minerals and Supplements business grew sales by double digits this quarter.
This strong growth was driven by shipments to replenish retail inventories, following the recent supply disruptions, and by shipments in support of our RenewLife brand relaunch.
Our priorities this year are, to continue to improve service levels, in order to capture the strong consumption trend; execute the RenewLife brand relaunch with excellence; and deliver consumer meaningful innovation.
Turning to the Household segment; Q1 sales were up 39% with growth in all three businesses.
Grilling sales more than doubled this quarter, due mainly to strong consumption behind the grilling occasions and increased household penetration.
Sales growth this quarter was also driven partly by customer replenishment of inventory.
We've been very pleased to see the strong turnaround of this business, reflected in our continued share growth, strong collaboration with the retailers, and successful entry into the pellet category, with our Kingsford pellets continuing to build distribution and share.
With recent increases in grilling occasions and new households, including millennials, we're optimistic about the prospects of this business, and will invest behind this momentum to drive long-term profitable category growth.
Glad sales were up by double-digits in Q1, behind ongoing strong demand for our products, as consumers continue to spend more time at home.
We're building on this momentum with a consistent stream of innovation, including our new Glad ForceFlex with Clorox trash bags, which launched in September.
This product eliminates Food and bacterial odors throughout the trash bags, and has already earned more than 1,000 five star ratings online from consumers.
Our Glad ForceFlex trash bags with unique fragrances and colors, which launched in Q3, also continue to perform well, and are among top selling new items at major retailers.
Cat Litter sales grew in Q1, driven mainly by strong online shipments in innovation, supported by higher advertising investments.
We're encouraged by our return to share growth in Fresh Step, behind the continued strong performance of Fresh Step Clean Paws innovation platform and the strong start of Fresh Step with Gain Original Scented Litter with the power of Febreze.
In our Lifestyle segment, Q1 sales increased 17% with double-digit growth in two of three businesses.
Brita sales were up by double-digits for the third consecutive quarter.
The growth is driven by -- mainly by continued strong consumption, especially in larger sized systems and long last systems and filters.
Sales growth was also driven partly by customer replenishment of inventory, an effort our team has been very focused on.
Household penetration for Brita continues to grow, which gives us more reason to invest further.
We'll be introducing a new and improved LongLast Plus filter, that allows water to flow faster and captures more contaminants, along with a new pitcher.
The Food business also saw double-digit sales growth, behind ongoing strong consumption of our Hidden Valley Ranch products, which continues to benefit from more at-home eating occasions.
This is another business where we're seeing household penetration growth.
We will continue to invest in innovation, and are encouraged to see a strong start to our new Hidden Valley Ranch secret sauce dressing.
Finally Burt's Bees sales decreased this quarter.
As the business continued to be impacted by lower store traffic, especially in parts of the store, where Burt's Bees products are typically found.
We've since accelerated our online strategy and strengthened our presence in the fast growing cough and cold category, with the launch of a new line of Rescue Balm with turmeric.
While we expect the categorywide challenges to persist in the short term, we have strong confidence in the Burt's Bees brand and its long-term growth prospects, supported by a robust innovation platform.
Now turning to International; Q1 sales grew 18%, driven by ongoing elevated demand for our products, disinfecting products, and essential household products across nearly every geography.
Organic sales grew 17%, reflecting about 9 points of benefit from the Saudi JV acquisition and about 8 points of unfavorable foreign currency headwinds.
Our international business has very strong momentum and we're looking to build on that through investments that accelerate our IGNITE Strategy.
Increasing the stake in our Saudi JV is just an example of that.
Another example is the international expansion of our Clorox disinfecting wipes, which are now being supported by a dedicated supply chain, separate from that in the U.S.
This will allow us to better meet ongoing elevated demand in our existing international markets where we currently offer wipes, and to launch this consumer preferred form into new geographies.
I sincerely hope you and your families are well.
I'm pleased with our very strong start to the fiscal year, reflecting broad based strength across our portfolio, with double-digit volume, sales and profit growth in each of our reporting segments.
Additionally, each reporting segment delivered gross margin expansion, contributing to our eighth consecutive quarter of gross margin expansion for the company.
Turning to our first quarter results; first quarter sales were up 27%, driven by 22 points of organic volume growth and 5 points of favorable price mix.
Sales results also included one point of growth from acquiring majority control of our Saudi joint venture, offset by one point of FX headwinds.
On an organic basis, sales grew 27%.
Gross margin for the quarter increased 400 basis points to 48% compared to 44% in the year ago quarter.
First quarter gross margin included the benefit of strong volume growth, as well as 170 basis points of cost savings and 150 basis points of favorable mix.
These factors were partially offset by 300 basis points of higher manufacturing and logistics costs, which were similar to last quarter, included temporary COVID-19 spending.
Selling and administrative expenses as a percentage of sales came in at 12% compared to 14% in the year ago quarter.
Primarily from increased operating leverage.
advertising and sales promotion investment levels as a percentage of sales, came in at about 9%, equal to the year ago quarter.
We're spending for our U.S. retail business coming in at 11% of sales.
Importantly, this represented about a 30% increase in advertising support this quarter, compared to the year ago period, reflecting stronger investments to support our ambition to accelerate long-term profitable growth.
Our first quarter effective tax rate was 21%, compared to 22% in the year ago quarter, primarily driven by the impact of our increased ownership of our Saudi joint venture.
Net of all these factors, we delivered diluted net earnings per share of $3.22 versus $1.59 in the year ago quarter, an increase of 103%.
Excluding the contribution from our Saudi joint venture acquisition, Q1 diluted earnings per share grew 66%.
Our strong cash flow, was due to profitable sales growth, partially offset by higher employee incentive compensation payments made in the first quarter, which were related to our fiscal year '20 performance.
Turning to our fiscal year outlook; we now anticipate fiscal year sales to grow between 5% to 9%, reflecting our strong Q1 results, as well as our raised expectations for the balance of the fiscal year, including double-digit growth in Q2.
And as we noted last quarter, we continue to anticipate deceleration in the back half of fiscal year '21, as we lap double-digit growth in the same period in fiscal year '20, when we saw the initial spike in COVID-19.
Importantly we continue to assume or back half sales results will be significantly stronger relative to pre-pandemic sales levels.
We also continue to anticipate about one point of contribution from our Saudi joint venture, offset by one point of foreign exchange headwinds.
On an organic sales basis, our outlook assumes 5% to 9% growth.
We expect fiscal year gross margin to be about flat, reflecting the benefit of strong cost savings and higher sales, offset by rising commodity and transportation costs, as well as temporary costs related to COVID-19.
For perspective, we expect gross margin expansion in the front half, followed by a contraction over the balance of the fiscal year, as we lap gross margin expansion of 250 basis points delivered in the back half of fiscal year '20, driven by strong operating leverage from robust shipment growth during the initial phase of the pandemic.
We continue to expect fiscal year selling and administrative expenses to be about 14% of sales, as we continue to invest aggressively in long-term growth initiatives.
Additionally, we continue to anticipate fiscal year advertising spending to be about 11% of sales, spending closer to 10% in the front half of the year and 12% in the back half, in support of our robust innovation program.
We now expect our fiscal year tax rate to be between 21% to 22%.
Net of these factors, we now expect fiscal year '21 diluted earnings per share to increase between 5% to 8% or $7.70 to $7.95 reflecting our assumption for stronger top line performance, partially offset by a rising cost environment.
As we shared last quarter, our fiscal year diluted earnings per share outlook continues to include a contribution of $0.45 to $0.53 from our increased stake in our Saudi Arabia joint venture, primarily driven by a one-time non-cash gain.
Excluding the impact of the Saudi acquisition, our fiscal year diluted earnings per share reflects strong investments behind the robust momentum we're seeing broadly in our portfolio.
We're engaging new consumers, supporting back half innovation plans and expanding our portfolio into new channels and markets, all in support of our ambition to accelerate long-term profitable growth.
In closing, I'm pleased with our very strong start to fiscal year '21, [Indecipherable] both top and bottom line performance across our reporting segments.
This provides a strong foundation for a continued momentum, which we plan to drive through aggressive investments in our IGNITE Strategy, in support of creating long-term shareholder value.
I hope you are well and in good spirits, as we continue to navigate this pandemic.
It's great to be joining you on my first call as CEO, especially after the tremendous first quarter we delivered.
Our results show what Clorox does best.
We serve people who count on our brands, especially during a time when they need to feel safe, and when their home is the center of their world.
This reinforces my first message; our outstanding results are a reflection of our team's dedication to serving consumers and communities.
I am incredibly proud to see the broad based strength in our portfolio, with double-digit sales and profit growth in all reporting segments.
In the last eight months, all eyes have been on Clorox disinfecting products, and our brands delivered once again this quarter, with double-digit sales growth in our Cleaning and Professional Products businesses, reflecting continued higher usage of products in homes, businesses and healthcare settings.
And now, we're also shining a brighter light on the terrific performance delivered by other parts of our portfolio, with double-digit sales growth in eight of 10 businesses, demonstrating the important role our brands play in addressing people's everyday needs.
It's particularly gratifying to see great results from our Grilling and Glad businesses, as the team has been relentless in driving progress on our business plans, including meaningful innovation.
Based on double-digit top line increases and significant margin expansion in our first quarter, we delivered very strong earnings growth for our shareholders and I'm happy we were able to raise our fiscal year outlook.
These results would not be possible without the passion and commitment of our Clorox teammates around the world.
While I feel good about our financial performance for the quarter, there is one thing that continues to keep me up at night.
Our ongoing focus to meet unprecedented demand for much of our portfolio.
We're certainly encouraged by the progress we're making in a number of businesses, including having Clorox Bleach mostly back on store shelves, but there is more work to be done.
I can assure you that our teams are leaving no stone unturned across all businesses experiencing elevated demand.
We're continuing to focus on products that can be made faster, and investing significantly in third party supply sources in an efforts to expedite our products to retailers.
Our consumers, retail partners and communities are counting on us, and I want people to know that maximizing supply continues to be top priority.
Next the Clorox team and I will play 1% offense behind our strong portfolio of leading brands consumers love, in support of our ambition to accelerate long-term profitable growth.
I feel privileged to be CEO of this special company and I have my sights set on extending our momentum longer term.
In this uncertain environment, people are turning to brands they trust, and we're proud to have trusted brands in our categories.
We're seeing this play out in strong helpful penetration, not just in our disinfecting products, but in many parts of our portfolio.
For perspective, the percentage of our total portfolio was stable or growing household penetration has more than doubled year-over-year, and as I look beyond the pandemic and try to answer the question of whether or not we can sustain our strong results, I'm encouraged by the trends we're seeing, particularly consumer behaviors formed during the last seven months.
They are good indicators our brands will continue to play a meaningful role in people's daily life.
For example, people are prioritizing Health and Wellness, drinking more water and taking vitamins and supplements.
Focusing on safety and hygiene, cleaning and disinfecting, in and out of their homes.
Staying home more, including cooking, grilling, spending time with family and adopting a pet.
Spending more time online with about 90% of people saying they've shopped online since the pandemic.
There are strong signs these behaviors will stick over the long term, as people have been building these habits for three times longer than it normally takes routines to form.
And while early, we're encouraged by the strong repeat rates we're seeing across our portfolio, among core and new consumers.
This is the time for 100% offense and that means investing significantly behind our global portfolio, including through advertising and market leading innovation.
Increasing capital spending to expand production capacity in the near and long term and partnering with retailers, to enhance shopping experiences and grow our categories.
With the strength of our global portfolio, the sustained consumer behaviors we're seeing and our significant investments to drive growth, Clorox is in a great position to keep winning with consumers.
And finally the defining opportunity for Clorox is simple, to serve even more people around the world, with the strategy that helps us make the most of who we are and where we have strategic advantage.
Our IGNITE Strategy puts people at the center of everything we do, and fundamentally we will address consumer needs and follow them in the most meaningful ways we can.
Here's what I would highlight; Clorox is a Health and Wellness company at heart.
With the strength of our brands and capabilities in disinfecting, we're in a great position to extend our role in public health.
We'll continue to lean into the strategic alliances we've established with leading brands to keep their customers safe, and we'll certainly pursue more of these types of relationships with other organizations, to increase our support for people outside of their homes.
I'm also excited about expanding Clorox disinfecting wipes in International, supported by a dedicated supply chain that will allow us to scale this business in our existing markets and enter new geographies.
More than ever, people are online and we believe digital behavior is here to stay.
Clorox has leaned into e-commerce and digital marketing early, so that people can engage with our brands, in a more personal and relevant way.
As people navigate a tough economy with pressures from unemployment and less discretionary spending, they'll continue to turn to brands they trust, and we'll continue to earn their trust and loyalty by focusing on superior value.
And what's also important to me, is that we continue to be committed to growing the right way, guided by our values and with ESG embedded into our business.
It's how we help our people, our communities and our planet thrive, now and in the future.
 Assistant:

Chosen response:
compname reports q1 earnings per share $3.22.
q1 earnings per share $3.22.
in q1, sales increased 27%, driven by double-digit growth in eight of 10 business units due to covid-19.
first-quarter gross margin increased 400 basis points to 48% from 44% in year-ago quarter.
sees 5% to 9% sales growth in 2021.
sees $7.70 to $7.95 diluted earnings per share range in 2021.