Neenah Paper Third Quarter Earnings Slip
Nov. 8, 2006 (Press Release) - Neenah Paper, Inc. today reported income from continuing operations for the third quarter 2006 of $4.6 million, or $0.31 per diluted common share, compared with income from continuing operations of $7.0 million, or $0.47 per diluted common share, for the third quarter of 2005. While profits increased in each of the company's paper segments, hedging and currency effects related to pulp operations resulted in lower total income. Net sales for the third quarter 2006 increased 11 percent versus the prior year to $141.4 million, with increases occurring in all business segments.
Commenting on results, Sean Erwin, Chairman and Chief Executive Officer said, "We are pleased that during a quarter in which we had a significant amount of strategic activity, each of our paper segments and our Pictou pulp mill delivered year-on-year growth in volume, net sales and profits versus the prior year. Our operational cash flows in the quarter allowed us to fund the Terrace Bay transaction and minimize external financing needs for the FiberMark Germany acquisition. With these strategic actions now complete, we are focused on delivering value through growth in our paper businesses, integration of the German operations and continued improvements in Pictou's cost position."
Fine Paper third quarter 2006 net sales increased three percent compared with the third quarter 2005, to $53.8 million. The increase was due to three percent higher volumes and improved selling prices. Operating income for the current quarter increased four percent, to $12.8 million, compared to the third quarter 2005. The higher operating income resulted from increased volumes, higher selling prices and lower selling and administrative expenses, all of which offset increased pulp costs. As in 2005, third quarter results reflected seasonally lower volumes and scheduled mill downtime.
Technical Products net sales of $33.5 million in the third quarter of 2006 increased 17 percent compared with the same period of 2005. The higher sales resulted from a 12 percent increase in volumes, including growth in higher value products, and improved selling prices. Operating income for the quarter of $0.9 million compared with $0.2 million in the third quarter of 2005. The improved operating income resulted from increased volumes and selling prices, which offset higher pulp and other raw material costs. Results for Technical Products reflected costs for annual mill maintenance downtime in the third quarters of both 2006 and 2005.
Net sales for Pulp continuing operations in the third quarter 2006 were $54.2 million, a 14 percent increase compared with the same period of 2005. The improved sales primarily resulted from higher selling prices and an 11 percent increase in volumes, the latter partly due to timing of customer deliveries and shipments from inventory. Sales were reduced by $4.4 million in the quarter as a result of losses on pulp price hedges. Operating losses of $0.3 million in the third quarter 2006 compared to operating income of $4.6 million in the same quarter of 2005. The decline was principally due to the combined impacts of hedging and currency-related effects. Pictou mill operating income remained positive as higher selling prices and volumes offset the impact of a stronger Canadian dollar and increased raw material and energy costs. Segment results increased $1.5 million as a result of amortization of the deferred gain on the previously disclosed sale of Nova Scotia timberlands. At the time of sale in June 2006, $9.0 million related to the gain on the sale was deferred and is being subsequently amortized through December 2007.
For the nine months ending September 2006, net sales of $417.1 million increased five percent compared to the same period in 2005, reflecting increases in all three segments. Year to date income from continuing operations was $92.2 million, or $6.22 per diluted common share, compared with $25.0 million, or $1.69 per diluted share, in 2005. Net income in 2006 included gains of $5.17 per diluted common share related to the sale of timberlands. Excluding gains on the timberlands sale, earnings per share from continuing operations for the first nine months were $1.05 in 2006 and compared to $1.69 in 2005. Lower results in 2006 were caused by a stronger Canadian dollar, increased raw material and energy costs, losses on pulp hedging, and higher corporate expenses from the adoption in January 2006 of SFAS 123R to expense stock-based compensation and from amortization of costs associated with installing a new ERP system. These costs were partly offset by increased selling prices and cost savings programs across all segments.
The transfer of the company's Terrace Bay pulp operations, excluding related pension plan and certain post-retirement obligations, was completed on August 29, 2006. Results from Terrace Bay have been classified as discontinued operations for all periods presented.
Pre-tax losses for discontinued operations in the third quarter of 2006 were $30.8 million and compared to pre-tax operating losses of $13.9 million in the third quarter of 2005. Results in 2006 included a charge of approximately $26 million related to curtailment and partial settlement losses for the pension plan. An additional charge of approximately $40 million is expected at the time of final plan settlement. However, the final accounting charge will depend in part on interest rates and returns for plan assets as of the date of settlement.
Cash payments totaling $10.8 million, associated with the curtailment and partial settlement of the pension plan, were made in the third quarter to the pension trust for the purchase of annuity contracts to settle pension liabilities for current retirees. Additional cash funding of approximately $6 million may be required at the time of final plan settlement.
Year to date, pre-tax losses from discontinued operations were $52.5 million in 2006 and $27.6 million for the same period in 2005. The higher losses in 2006 reflect charges incurred in connection with the transfer of the Terrace Bay operations and related settlement losses for the pension plan.
As a result of the scheduled annual maintenance down at the Pictou mill, fourth quarter costs for pulp will be higher compared to the third quarter. Losses from pulp hedging contracts will continue. However, all pulp hedge contracts will be settled by December 2006. Fourth quarter results will include Neenah Germany, which was acquired from FiberMark on October 11, 2006.
SOURCE: Neenah Paper Inc.