Glatfelter Swings to Second Quarter Profit
Aug. 7, 2007 - Glatfelter today reported net sales of $288.1 million for the second quarter ended June 30, 2007, compared with $279.7 million for the second quarter of 2006. Net income for the 2007 second quarter was $2.0 million, or $0.04 per diluted share, compared with a loss of $20.7 million, or a $0.46 loss per diluted share, for the prior-year period. The results for both periods reflect the impact of regularly scheduled annual maintenance outages at both the Chillicothe, OH and Spring Grove, PA facilities.
Second-quarter 2007 net income includes $3.5 million in gains from the sale of timberlands and $0.7 million in acquisition integration costs, all after taxes. The second-quarter 2006 results included Neenah related shutdown charges of $14.9 million, acquisition integration costs of $2.3 million and a $1.8 million charge for the early redemption of outstanding debt, all after taxes. These second quarter 2006 charges were partially offset by a $0.6 million after-tax gain on the sale of timberlands and $0.1 million of insurance recoveries. Excluding these items from each period's results, second-quarter 2007 adjusted earnings per share, which constitute a non-GAAP financial measure, were a net loss of $0.02 per diluted share, compared to a net loss of $0.05 per diluted share in the second quarter of 2006. For a reconciliation of adjusted earnings to GAAP earnings, refer to the tabular presentation at the end of this release.
"Our second quarter results reflect improvements in the Specialty Papers business unit and another quarter of strong results in the Composite Fibers business unit," said George H. Glatfelter II, Chairman and Chief Executive Officer. "Integration of the Lydney acquisition is progressing very well and ahead of plan, Composite Fibers' profitability is improving, and demand for food and beverage products continues to grow. In Specialty Papers, the Chillicothe optimization plans continue to progress and we expect the benefit of these actions to be seen beginning in the second half of the year."
SECOND-QUARTER BUSINESS UNIT RESULTS
Second quarter 2007 net sales in the Company's Specialty Papers business unit totaled $202.6 million compared with $203.5 million in the year-earlier quarter. Specialty Papers' operating loss for the 2007-second quarter totaled $2.3 million reflecting a $3.6 million improvement from the same quarter of 2006.
Operating income benefited from a $3.6 million increase in average selling prices across all product lines and improved productivity at the Spring Grove facility. During the second quarters of 2007 and 2006, the Company completed annually scheduled maintenance outages in its Spring Grove, PA and Chillicothe, OH facilities. These planned required outages result in increased maintenance spending and reduced production leading to unfavorable manufacturing variances that negatively affect costs of products sold. The maintenance outages adversely impacted gross profit by approximately $15.3 million in the second quarter of 2007, which was at the low-end of the Company's expectations, compared to $17.4 million in the same quarter a year ago. These favorable factors were partially offset by higher production costs primarily due to material usage and lower machine yields on book publishing products. In addition, raw material prices increased by $3.3 million largely driven by pulp and energy.
Commenting on the Company's profit improvement plans at the Chillicothe facility Mr. Glatfelter stated, "During the quarter we made progress with the implementation of our improvement program particularly with respect to material usage and cost reduction efforts. Later in 2007, we also expect to realize benefits from actions taken to further improve productivity and machine yields."
In Composite Fibers, net sales increased 12% to $85.5 million for the 2007 second quarter and operating income increased 121% to $6.8 million.
On a constant currency basis, average selling prices increased $2.3 million and volumes increased approximately 2.6%, with increases seen in food and beverage, technical specialties and metalized papers. Energy and raw material prices were $0.7 million higher than a year ago.
The improvement in Composite Fibers' operating income largely reflects momentum generated from the integration benefits of Lydney acquisition. During the quarter, the Company achieved this acquisition's $9 million annual run rate contribution to operating income ahead of schedule. The Company had previously targeted the fourth quarter of 2007 to achieve these benefits.
Timberland Sales Update
During the second quarter of 2007 approximately $6.0 million of timberland sales were completed. Timberland sales completed since the beginning of 2007 total $9.4 million, and the Company has contracts for the sale of an additional $35 million of timberlands that are expected to close in 2007. The Company now expects timberland sales for 2007 to total approximately $80 million significantly exceeding its previously announced target.
Other Financial Highlights
Selling, general and administrative ("SG&A") expenses declined $1.2 million in the quarter-to-quarter comparison and totaled $23.8 million in the second quarter of 2007. The decrease was largely due to the absence of integration related costs incurred in the prior year quarter.
Net pension income totaled $2.9 million in the second quarter of 2007 compared to $4.2 million in the comparable quarter a year ago.
For the second half of 2007, the Company expects a stable to slightly improving pricing environment in both Specialty Papers and Composite Fibers. In Specialty Papers, shipping volumes for the remainder of 2007 are expected to be in line with, or improve slightly from, 2006. In Composite Fibers, volumes are expected to be flat in the year over year comparison, however with a more favorable, higher margin mix of products.
As previously announced, the Company expects to achieve its accretion target for Chillicothe of $0.45 to $0.50 per year in 2008.