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
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
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
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.
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
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.
"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.