NewPage Third Quarter Income Up on Sales
Nov. 8, 2007 - NewPage Corp. today announced its financial results for the third quarter of 2007. Net sales were $545 million in the third quarter of 2007 compared to $522 million in the third quarter of 2006, an increase of 4.4%. The increase was driven by favorable coated paper sales volume, partially offset by a decrease in average coated paper prices and a decrease in sales of uncoated paper and market pulp. Coated paper sales volumes increased from 528,000 tons in the third quarter of 2006 to 576,000 tons in the third quarter of 2007. Average coated paper prices decreased from $907 per ton in the third quarter of 2006 to $884 per ton in the third quarter of 2007. The company did not take any market-related downtime for coated paper in the third quarter of 2007 or 2006.
Net income was $16 million in the third quarter of 2007 compared to net income of $2 million in the third quarter of 2006. EBITDA was $79 million for the third quarter of 2007 compared to $70 million for the third quarter of 2006. Significant items in 2006 included an unrealized non-cash loss of $2 million for the basket option contract.
"With continuing increased input costs, additional industry capacity was closed during the quarter. We recently announced two price increases that we began to realize in the third quarter and we expect to see additional benefits from these announced increases in the fourth quarter of 2007," said Mark A. Suwyn, chairman of the board and chief executive officer of NewPage. "We believe that these effects will be partially offset by continued low-priced Asian imports as some Asian producers appear to be trying to circumvent the new antidumping and countervailing duties imposed on coated freesheet paper imports from China, Indonesia and South Korea. We expect that business drivers, such as continuing capacity rationalization, gross domestic product growth, lower Canadian and European imports resulting from the strengthening of the Canadian dollar and Euro relative to the U.S. dollar, and continued advertising spending, remain favorable to us."
On October 18, the U.S. Department of Commerce announced final antidumping and countervailing duty margins on imports from China, Indonesia and South Korea. "We are pleased with the outcome of the final antidumping and countervailing duty decisions issued by the Department of Commerce," added Suwyn. "This is truly an historic event. For the first time ever, the Commerce Department imposed a countervailing duty on imports from China. This reversed 23 years of precedent at the Department and gives U.S. industries another tool to combat unfair trade from China."
Cost of sales for the third quarter of 2007 was $470 million compared to $466 million for the third quarter of 2006. Gross margin for the third quarter of 2007 increased to 13.8% compared to 10.8% for the third quarter of 2006. The lower gross margin in 2006 was driven by higher maintenance expense attributable to the planned maintenance shutdown at the Escanaba operations during the third quarter of 2006. Coated paper mix was favorable in the quarter, and energy costs in the third quarter of 2007 decreased slightly over the third quarter of 2006 partially offset by an increase in the costs for certain papermaking chemicals. Maintenance expense at the mills totaled $44 million and $50 million in the third quarter of 2007 and 2006, respectively.
Selling, general and administrative expenses were $27 million for the third quarter of 2007 compared to $21 million for the third quarter of 2006. This was driven primarily by an increase in legal expenses and compensation and benefits. As a percentage of net sales, selling, general and administrative expenses increased to 5.1% in the third quarter of 2007 compared to 4.0% in the third quarter of 2006.
Interest expense for the third quarter of 2007 was $32 million compared to $34 million for the third quarter of 2006. The slight decrease was primarily a result of lower outstanding debt balances and a reduction in the interest rate spread on the term loan after the amendment in January 2007.
On September 21, NewPage Corporation and Stora Enso Oyj announced the signing of a definitive agreement by which NewPage will acquire Stora Enso's paper manufacturing operations in North America. Under the terms of the agreement, Stora Enso Oyj will receive approximately $1.5 billion in cash, a $200 million note, and a 19.9% equity interest in the combined company. The transaction is subject to customary regulatory approvals and is expected to close by the first quarter of 2008.
"We are excited about the announced acquisition as it will accelerate our overall cost reduction programs and help us achieve sustainable financial returns above our cost of capital," said Richard D. Willett, Jr., president and chief operating officer. "We expect synergies from the combination of NewPage and Stora Enso North America to exceed $265 million of annualized cost savings. These cost synergies, combined with our increased scale, will enable us to make further high-return investments in low cost capacity, increase supply chain efficiencies and product availability for our customers and provide enhanced environmental leadership within the coated paper industry."
NewPage Corporation, headquartered in Miamisburg, Ohio, is a leading U.S. producer of coated papers in North America. The company produces coated papers in sheets and rolls with many finishes and weights to offer design flexibility for a wide array of end uses. With 4,300 employees, NewPage operates integrated pulp and paper manufacturing mills located in Escanaba, Michigan; Luke, Maryland; Rumford, Maine; and Wickliffe, Kentucky; and a converting and distribution center in Chillicothe, Ohio. The mills have a combined annual capacity of approximately 2.2 million tons of coated paper.
SOURCE: NewPage Corp.