Glatfelter reports first quarter profit
May 1, 2007 - Glatfelter today reported net sales of $281.0 million
for the first quarter ended March 31, 2007, compared with $160.6
million for the first quarter of 2006. Net income for the 2007 first
quarter was $3.3 million, or $0.07 per diluted share, compared with a
loss of $11.9 million, or $0.27 per diluted share, for the prior-year
First-quarter 2007 net income includes $1.9 million in gains from
the sale of timberlands, a $3.7 million charge to increase the
Company's reserve for environmental matters at the Fox River, $0.1
million in shutdown and restructuring charges, and $0.4 million in
acquisition integration costs, all after taxes. The results for the
previous year's first quarter included $17.9 million of Neenah
facility shutdown charges and $1.0 million of restructuring charges,
on an after-tax basis. Excluding these items from each period's
results, first-quarter 2007 adjusted earnings per share, which
constitute a non-GAAP financial measure, were $0.12 per diluted share,
compared to $0.16 per diluted share in the first quarter of 2006.
"Our results for the quarter were below our expectations, largely
reflecting challenges associated with the Chillicothe acquisition,"
said George H. Glatfelter II, Chairman and Chief Executive Officer.
"However, the balance of our Specialty Papers Business Unit performed
well, benefiting from a more favorable pricing environment and the
solid operating performance at our Spring Grove facility. Further, our
Composite Fibers Business Unit continues to perform very well, as
demonstrated by a 59% growth in operating income year-over-year from
the momentum generated by the Lydney acquisition."
"With respect to Chillicothe, although we made significant
improvements in total production volume and raw material usage,
overall progress has been insufficient to achieve our accretion
expectations. In addition we experienced an unplanned equipment outage
at this facility that adversely impacted results. We are taking
further actions to improve yields and the overall cost structure at
Chillicothe and expect to begin to see the benefit from these actions
in the second half of the year."
First-Quarter Business Unit Results
First quarter net sales in the Company's Specialty Papers business
unit increased $94.6 million to $196.9 million. Carbonless and Forms
net sales related to the Chillicothe acquisition represented $91.2
million of the increase.
Operating income totaled $6.7 million, up slightly from $6.5
million the same quarter a year ago. Price increases in the book,
envelope and engineered products markets positively impacted operating
income by $4.7 million in the first quarter compared with the
year-earlier quarter. In addition, operating income reflects a $1.2
million increase in carbonless prices, which was announced in
mid-2006. The full benefit of the carbonless price increase is
expected to be realized by mid-2007. Shipping volumes, excluding
carbonless products, were flat in the quarter compared to a year ago.
Specialty Papers' production costs increased in the quarterly
comparison primarily due to $1.5 million of higher coal costs and $0.8
million of higher fiber costs at our Spring Grove facility. These cost
increases were partially offset by the improved productivity at the
facility with paper production increasing 2.6% and pulp production
increasing 4.4%. Chillicothe generated operating income during the
first quarter of $0.2 million including $0.9 million of favorable
pricing related to book products included in the price variance noted
above. These results include an unplanned pulp mill production outage
and weather related costs which reduced operating income by an
aggregate $1.8 million.
Paper machine yields at Chillicothe have increased significantly
over the past 6 months as a result of the Company's operational
improvement initiatives but continue to be below our expectations. The
lower than expected yields, the inability to fully reuse generated
scrap, and an equipment outage at the Company's pulp mill resulted in
greater pulp purchases and higher raw material costs during the
quarter. To improve Chillicothe's overall cost structure, the Company
is taking actions designed to:
- Optimize paper machine scheduling;
- Streamline paper production flows;
- Implement targeted investments and process changes to improve
utilization of paper machine broke (scrap);
- Expand scope of yield and material usage improvement projects;
- Expand previously initiated cost reduction efforts.
The Company expects to begin to see the benefit from these actions
in the second half of the year and is continuing to identify
additional opportunities for further improvements.
In Composite Fibers, net sales were $84.1 million for the 2007
first quarter, with operating income of $5.0 million, up from $58.3
million and $3.1 million, respectively, from the prior-year period.
Lydney contributed $17.5 million of additional revenue in the
On a constant currency basis, average selling prices increased
$1.7 million, and volumes increased approximately 4.3%, excluding the
impact of Lydney, with increases seen in food and beverage and
metalized. Energy and raw material costs were $1.5 million higher than
a year ago.
Timberland Sales Update
The Company continues to move forward with its timberland
monetization program. During the first quarter, approximately 1,520
acres were sold for $3.8 million in cash. The Company has contracts or
agreements in principle for the sale of an additional $25 million of
timberlands that are expected to close in 2007.
The Company's Timberland Strategy, which was initiated at the
beginning of 2006, is expected to generate proceeds in excess of $150
million over the next two- to four-years assuming, among other
factors, acceptable market conditions and a carefully executed plan of
disposition in order to maximize the value realized. To date, the
Company has realized $20.9 million of these proceeds and continues to
target $50 million of timberland sales proceeds for the full year
Other Financial Highlights
Selling, general and administrative ("SG&A") expenses increased
$12.0 million in the quarter-to-quarter comparison and totaled $28.7
million in the first quarter of 2007. The increase was due to a $6.0
million charge to increase the Company's reserve for the Fox River
environmental matter, and the inclusion of the Chillicothe and Lydney
operations in the current period's results.
Interest expense increased $3.9 million in the quarter-to-quarter
comparison totaling $7.3 million for the first quarter of 2007. The
increase was due to higher levels of debt incurred to finance
Effective January 1, 2007, the Company adopted the provisions of
FASB Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109" ("FIN 48"). The
cumulative effect of applying the provisions of this Interpretation
was reported as an adjustment to the beginning of year retained
earnings in the amount of $3.0 million. The Company's effective income
tax rate on adjusted earnings for the first quarter of 2007 and 2006
was 35.5% and 35.9%, respectively.
For 2007, Glatfelter expects a stable to improving pricing
environment in both Specialty Papers and Composite Fibers. For the
second quarter, shipping volumes are expected to improve somewhat from
the first quarter although second quarter volumes are expected to be
slightly lower than the 2006 second quarter. During the second quarter
of 2006, the Company operated its Neenah, WI facility, which was
shutdown on June 30, 2006.
As previously announced, the Company will complete annually
scheduled maintenance outages at both its Spring Grove and Chillicothe
facilities in the second quarter, with an estimated $0.22 to $0.24 per
share impact. The Company continues to expect that Lydney and
Chillicothe acquisition integration costs will be approximately $3.0
million to $4.0 million in 2007, of which approximately $0.6 million
has been incurred to date.
The Company expects to achieve its previously provided accretion
target for Chillicothe of $0.45 to $0.50 per year in 2008. The Company
continues to expect Lydney to add, on an annualized basis by the
fourth quarter of 2007, approximately $9 million of operating income,
including $2 million of depreciation and amortization.
Commenting on the Company's outlook Mr. Glatfelter said, "We are
seeing improving market conditions in Specialty Papers and we expect
continued solid performance from our Composite Fibers Business Unit.
We are aggressively focused on improving the cost structure and
operations at Chillicothe and expect to begin to see the benefit from
these actions in the second half of the year. Although progress toward
achieving our goals has been slower than anticipated we continue to be
excited about the Chillicothe acquisition. We are convinced
Chillicothe will ultimately deliver the level of accretion we