HOME | EDITORIAL CALENDAR | SUBSCRIPTION SERVICES | EVENTS CALENDAR | PAPER INDUSTRY LINKS | CONTACT US

Glatfelter Third Quarter Earnings Up Sharply

Nov. 2, 2006 (Press Release) - Glatfelter today reported net sales of $277.5 million for the third quarter ended September 30, 2006, compared with $146.8 million for the third quarter of 2005. Net income for the 2006 third quarter was $5.4 million, or $0.12 per diluted share, up 46.5% from $3.7 million, or $0.08 per diluted share, for the prior-year period. The 2006 results include the impact of the Company's Lydney and Chillicothe acquisitions, which were completed in March and April of 2006, respectively.

Third-quarter 2006 net income includes shutdown and restructuring charges of $1.9 million, acquisition integration costs of $3.6 million along with $0.3 million in gains on dispositions of timberlands, all after taxes. Net income for the previous year's third quarter included $0.3 million of tax expense related to previous dispositions of timberlands.

Excluding these items from each period's results, adjusted earnings per share, which constitute a non-GAAP financial measure, increased 156% to $0.23 per diluted share for the 2006 third quarter, compared with $0.09 per diluted share for the prior-year period. For a reconciliation of adjusted earnings to GAAP earnings, see the tabular presentation at the end of this release.

"We are pleased with the results from our legacy operations, especially the Composite Fibers business unit which saw substantial volume improvements. Within the Specialty Paper business unit, our Chillicothe operation did not generate the level of earnings that we had expected. While we are disappointed in the performance of this facility, we are confident the Chillicothe acquisition will create meaningful long-term value for shareholders. We are intensely focusing our efforts at this facility on an operations improvement plan to achieve productivity and yields that are in line with our long-term targets. As previously announced, our Lydney acquisition is in a Phase II review by the European Commission, and therefore, we have not progressed with our planned integration initiatives on this front." said George H. Glatfelter II, Chairman and Chief Executive Officer.

Third-Quarter Business Unit Results

In the third quarter of 2006, Glatfelter's Specialty Papers business unit reported a net sales increase to $202.1 million with operating income of $10.1 million, up from $100.5 million and $5.4 million, respectively, a year earlier. Net sales from carbonless products related to the Chillicothe acquisition represented $94.9 million of this increase. An overall favorable pricing environment generated a $5.6 million benefit in the third quarter compared with the year-earlier quarter. While prices increased in the book, envelope and engineered products markets, the Company, as expected, saw no significant impact from carbonless price increases announced during the quarter. Shipping volume excluding carbonless products declined slightly in the quarter compared to a year ago. Production costs increased for the quarter, driven by higher raw material and energy costs of $1.2 million. Chillicothe generated operating income during the third quarter of $3.6 million including $1.5 million of favorable pricing related to book products included in the price variance noted above.

In Composite Fibers, net sales were $75.4 million for the 2006 third quarter, with operating income of $5.1 million, compared with $46.3 million and $1.9 million, respectively, for the prior-year period. Volume increased 20% in this business unit excluding the impact of Lydney with significant increases seen across all market segments. This favorably impacted operating income by $6.1 million. Prices averaged lower in the third quarter by $1.5 million compared with a year earlier, but have stabilized since the end of 2005. Energy and raw material costs were $1.9 million higher than a year ago with further increases expected. Benefits from our EURO Program reduced operating costs by $1.9 million during the quarter.

Year-to-Date Results

Net sales for the nine-month period ended September 30, 2006 were $717.8 million, up from $436.0 million a year earlier. The Company reported a net loss of $27.2 million, or $0.61 per share, for the 2006 period, compared with net income of $11.7 million, or $0.26 per share for the first nine months of 2005. The 2006 first nine month results include, all on an after-tax basis, shutdown and restructuring charges of $34.0 million, acquisition integration costs of $6.8 million and a debt redemption premium of $1.8 million. Insurance recoveries and gains on dispositions of timberlands aggregated $1.0 million, after-tax, compared with $1.2 million for the same period in 2005.

Excluding these items, adjusted earnings was $0.32 per diluted share for the first nine months of 2006, compared with $0.24 per diluted share for the prior-year period.

By business unit, year-to-date 2006 net sales increased to $507.9 million for the Specialty Papers business unit, and operating income was $10.7 million, compared with $287.7 million and $8.5 million, respectively, for the prior-year period. Net sales for Composite Fibers were $209.9 million for the 2006 nine-month period, and operating income was $11.3 million, compared with $148.2 million and $7.5 million, respectively, for the year-earlier period.

Chillicothe Improvement Plan

"We understand that the successful integration of Chillicothe is crucial to the success of our business plan. As we adjusted to the increased book production volume and wider range of products at this facility, we initially underestimated the length of time it would take to accomplish this transformation and the pace at which it would become accretive to earnings. As a result, we have taken a number of actions to improve performance going forward and we are already seeing positive results," said Mr. Glatfelter.

  • The Company has installed new leadership at Chillicothe with deep experience in book paper manufacturing. This new team will oversee accelerated training for production efficiencies and process improvements.
  • By re-invigorating and enhancing Chillicothe's preventative maintenance program, the Company is expected to increase paper machine up-time and reduce off-quality paper production.
  • Management plans to complete previously planned capital investments of $3.8 million during the next two quarters to improve operating efficiencies and product quality.

"We are committed to this plan and expect to continue to make positive strides toward our goals," Mr. Glatfelter said. "Although we are behind schedule in 2006, our expectations for significant synergies in 2007 and for the long term have not changed."

Timberland Sales Update

The Company continues to move forward with its timberland monetization program and has a number of promising initiatives underway. Based on current market conditions, the Company expects to close approximately $15 million of sales in the fourth quarter and at least $50 million in 2007. In addition to the 40,000 acres of higher, better use property the Company previously announced it would be selling, it is now also marketing 20,000 acres of properties in Pennsylvania.

Other Financial Highlights

Cost of products sold during the third quarter of 2006 include $0.8 million of the $3.0 million of costs related to the shutdown of the Neenah facility.

Selling, general and administrative ("SG&A") expenses totaled $24.6 million in the third quarter of 2006 compared to $18.1 million in the same quarter a year ago. The increase was due to approximately $5.6 million of acquisition integration costs and $4.5 million from the inclusion of the Chillicothe and Lydney acquisitions in the current period's results of operations. In addition, SG&A expenses in the third quarter of 2005 included a $2.7 million charge for certain matters related to the Company's former Ecusta division and the comparison was favorably affected by lower year-over-year professional and legal fees.

Interest expense totaled $7.0 million for the third quarter of 2006, an increase of $3.7 million in the quarter-to-quarter comparison. The increase was primarily due to the incurrence of debt to finance the acquisitions.

The Company's effective income tax rate for the third quarter of 2006 and 2005 was 14% and 42%, respectively. The lower effective rate in 2006 was primarily due to the impact of changes in certain state tax laws on deferred tax liabilities.

Outlook

"We continue to proceed with our strategy to improve our legacy business, grow our business through the successful integration of acquisitions, and maximize the value of our timberland assets," Mr. Glatfelter said. "Chillicothe plays an important role in that strategy and we are confident that we are on the right path for long-term profitable growth for our Company. We are determined to overcome the short-term challenges we have experienced with our acquisitions to gain the synergies expected."

For the fourth quarter of 2006 and into 2007, the Company expects a stable pricing environment in both Specialty Papers and Composite Fibers. Downtime is expected to be higher in the fourth quarter during the holiday period compared to the third quarter, but consistent with levels experienced in the fourth quarter of 2005. Shipping volumes are expected to be lower in the fourth quarter compared to the third quarter due to seasonality.

Based on its revised estimates, the Company expects the Chillicothe acquisition to be neutral to slightly accretive for full-year 2006, and $0.45 to $0.50 accretive in 2007. In the fourth quarter of 2006, the Company expects to incur pre-tax integration and shutdown charges aggregating approximately $2 million. In 2007, integration costs are estimated to total $2.0 million.

SOURCE: Glatfelter




PaperAge. Copyright © O'Brien Publications, Inc. All rights reserved.