Glatfelter Posts Third Quarter Profit
Oct. 30, 2007 - Glatfelter today reported net sales of $291.9 million for the third quarter of 2007, compared with $277.5 million for the third quarter of 2006. Net income for the 2007 third quarter was $7.8 million, or $0.17 per diluted share, compared with $5.4 million, or $0.12 per diluted share, for the prior-year period.
Third quarter 2007 net income includes a $12.3 million charge to increase the Company’s reserve for the environmental matter at the Fox River, $0.3 million in costs related to the integration of its acquisitions completed in 2006 as well as $1.4 million in gains from the sale of timberlands, all of which are after tax amounts. The third quarter 2006 results included 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. Excluding these items from each period’s results, third quarter 2007 adjusted earnings per share, which constitutes a non-GAAP financial measure, were $0.42 per diluted share, compared to $0.23 per diluted share in the third quarter of 2006. For a reconciliation of adjusted earnings to GAAP earnings, refer to the tabular presentation at the end of this release.
“The stronger performance in each of our business units demonstrates that we are successfully executing on Glatfelter’s growth strategies,” said George H. Glatfelter II, Chairman and Chief Executive Officer. “Our improvement plan for Chillicothe helped drive a 46% increase in operating income for the Specialty Papers business unit, and Composite Fibers delivered another solid quarter of results. We are confident that by remaining focused on our goals to further improve efficiencies and by leveraging Glatfelter’s market position, we can meet the challenges of rising input costs and continue the momentum we have created.”
THIRD QUARTER BUSINESS UNIT RESULTS
Third quarter 2007 net sales in the Company’s Specialty Papers business unit totaled $207.9 million compared with $202.1 million in the year-earlier quarter. Net sales increased due to a 5.6% improvement in shipping volumes and higher selling prices, partially offset by mix changes. Specialty Papers’ operating income for the 2007-third quarter totaled $14.7 million, a $4.6 million improvement from the same quarter of 2006.
The improvement in operating income was driven by success in executing the Chillicothe profit improvement initiatives, which significantly reduced production costs at this location, as well as productivity gains at the Spring Grove facility. The benefit of higher average selling prices, which totaled $3.5 million, were more than offset by higher input costs totaling $5.7 million largely driven by wood, pulp, coal and oil.
Commenting on the Company’s profit improvement plans at the Chillicothe facility Mr. Glatfelter stated, “Our profit improvement initiatives at Chillicothe remain on schedule. We are realizing measurable benefits as seen in this quarter’s results from cost reduction initiatives, improved productivity and reduced raw material usage.”
In Composite Fibers, net sales increased 11.4% to $84.0 million for the 2007 third quarter and operating income increased 60% to $8.2 million.
On a constant currency basis, average selling prices benefited net sales and operating income by $1.0 million and volumes were essentially flat in the comparison. In addition, an improved product mix favorably impacted operating income. The translation effect of foreign currencies benefited net sales by approximately $5.1 million in the quarter-to-quarter comparison. Energy and raw material prices were $1.1 million higher than a year ago.
The improvement in Composite Fibers’ operating income largely reflects the realization of benefits generated from the integration of the Lydney acquisition and improved product pricing. During the third quarter, costs of products sold benefited by $1.4 million from an energy tax credit and an insurance recovery related to a 2005 event.
Other Financial Highlights
Selling, general and administrative (“SG&A”) expenses increased $17.6 million in the quarter-to-quarter comparison and totaled $42.2 million in the third quarter of 2007. The increase was mainly due to a $20.0 million charge to increase the Company’s reserve for the environmental matter at the Fox River, partially offset by a reduction of integration related costs. The increase in the Fox River reserve reflects the Company’s current assessment of additional costs to be incurred at the site.
During the third quarter of 2007, the Company recorded a $5.3 million tax benefit from the revaluation of deferred tax assets and liabilities as a result of a reduction from 25% to 15% in the German corporate income tax rate. The Company’s effective income tax rate reflected in adjusted earnings for the third quarter of 2007 and before the effects of the benefit from the German tax law change was 26.6% compared with 29.9% in the year earlier quarter.
The Company’s net debt declined $34.4 million in comparison to the second quarter of 2007 and has declined $40.2 million since year end 2006. Cash generated from operations during the third quarter of 2007 totaled $40.1 million compared with a use of $14.0 million in the comparable quarter a year ago.
Timberland Sales Update
During the third quarter of 2007 approximately $2.5 million of timberland sales were completed for a total of $11.6 million since the beginning of 2007 and the Company has additional contracts for the sale of between $67 million to $70 million of timberlands that are expected to close during the fourth quarter of 2007.
Year to Date Results
For the first nine months of 2007, the Company’s net income totaled $13.1 million or $0.29 per diluted share, compared to a loss of $27.2 million and a $0.61 loss per diluted share in the same period of 2006. The year-to-date results for 2007 includes a charge of $16.0 million for the Fox River environmental matter, $1.5 million in acquisition integration costs and $0.1 million in shutdown and restructuring charges, and $6.8 million in gains from the sale of timberlands, all after taxes. Reported results for the first nine months of 2006 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. Excluding these items, adjusted earnings was $0.52 per diluted share for the first nine months of 2007, compared with $0.32 per diluted share for the prior-year period.
The Company expects pricing in its Specialty Papers business unit to increase moderately over the next several quarters as a result of announced price increases in the marketplace. The benefits of higher selling prices are expected to be largely offset by the impact of higher input costs, particularly fiber and energy. Shipping volumes in this business unit for the fourth quarter of 2007 are expected to trend lower on a sequential quarter basis reflecting seasonally lower demand.
In Composite Fibers, average selling prices are expected to remain stable or increase slightly over the next several quarters. Volumes in the fourth quarter are expected to be flat in the quarter over quarter comparison.
The Company continues to expect to achieve its accretion target for Chillicothe of $0.45 to $0.50 per year in 2008.