Glatfelter Reports Rise in 4th Quarter Net Income
Feb. 19, 2008 - Glatfelter today reported net sales of $287.4 million for the fourth quarter of 2007, compared with $268.6 million for the fourth quarter of 2006. Net income was $50.4 million, or $1.11 per diluted share, compared with $15.0 million, or $0.33 per diluted share, for the prior-year period.
Fourth quarter 2007 net income includes, on an after tax basis, $37.2 million in gains from the sale of timberlands and the year-earlier quarter included $8.0 million in timberland gains. Also, in the fourth quarter of 2006 the Company recorded $1.2 million in shutdown and restructuring charges and acquisition integration costs of $1.8 million, all after taxes. Excluding these items from each period’s results, fourth quarter 2007 adjusted earnings per share, which constitutes a non-GAAP financial measure, were $0.29 per diluted share, compared to $0.22 per diluted share in the fourth quarter of 2006. For a reconciliation of adjusted earnings to GAAP earnings, refer to the tabular presentation at the end of this release.
“Our revenue and earnings growth, including a 32% increase in adjusted EPS for the fourth quarter, reflects solid performance in both business units,” said George H. Glatfelter II, Chairman and Chief Executive Officer. “In Specialty Papers, we achieved strong volumes and continued to make progress improving Chillicothe’s performance. As a result, we remain well positioned to achieve our accretion targets in 2008. The Composite Fibers business unit also had a solid quarter, although this performance was masked by a fire that temporarily interrupted production at our Lydney facility. Within Composite Fibers, we remain excited about the recent acquisition of Metallised Products Limited, which expands our offering in this high-value niche market.”
FOURTH QUARTER BUSINESS UNIT RESULTS
Specialty Papers’ operating income for the fourth quarter 2007 totaled $14.9 million, an 81% or $6.7 million improvement from the same quarter of 2006. The improvement in operating income was driven by success in executing the Chillicothe improvement initiatives, particularly paper machine performance, yield improvements and raw material usage. Fourth quarter net sales totaled $194.9 million, a 4.9% increase compared with $185.8 million in the year-earlier quarter. Higher average selling prices contributed $4.3 million of the increase in net sales and volumes shipped increased 7.6%. The benefit of higher average selling prices were more than offset by higher input costs totaling $7.9 million largely driven by energy, pulp and wood.
Composite Fibers’ net sales increased 11.7% to $92.5 million for the quarter driven by improved shipping volume and favorable foreign currency translation. Operating income for the Composite Fibers business unit totaled $5.9 million for the fourth quarter of 2007, compared to $6.2 million in the same quarter a year ago.
On a constant currency basis, average selling prices benefited net sales by $0.2 million and volumes increased 4.9%, including the Caerphilly acquisition. Operating income was adversely impacted by $0.6 million due to a fire at the Lydney mill, which interrupted production for 6 days. As expected, the November 30, 2007 acquisition of Metallised Products Limited, now operating as Glatfelter Caerphilly, was slightly dilutive to fourth quarter 2007 results. As previously announced, the Company expects the acquisition to be neutral to earnings in 2008 and slightly accretive in 2009.
Other Financial Highlights
Selling, general and administrative (“SG&A”) expenses decreased $4.7 million in the quarter-to-quarter comparison and totaled $21.4 million for the fourth quarter of 2007. The decrease was mainly due to $2.8 million of integration costs included in the prior year quarter.
The Company’s effective income tax rate reflected in adjusted earnings for the fourth quarter of 2007 and 2006 was 22.9% and 21.9%, respectively.
The Company’s net debt declined $92.3 million, or 25%, since the end of 2006. Cash generated from operations during the fourth quarter of 2007 totaled $42.6 million compared with $17.9 million in the same quarter a year ago.
Timberland Sales Update
During the fourth quarter of 2007 approximately $74.1 million of timberland sales were completed for a gain of $67.5 million. Timberlands sold in 2007 totaled $87.3 million. Since the implementation of the Company’s timberland monetization program in 2006, $104.4 million of timberland has been sold.
Year to Date Results
Net sales for 2007 were $1.1 billion, a 16% increase from $986.4 million a year earlier. The Company reported net income of $63.5 million, or $1.40 per diluted share in 2007, compared with net loss of $12.2 million, or ($0.27) per diluted share in 2006. The year-to-date results for 2007 include $44.1 million in gains from the sale of timberlands, and charges of $16.0 million for the Fox River environmental matter and $1.6 million in acquisition integration, shutdown and restructuring costs, all after taxes. Reported results for 2006 include, all on an after-tax basis, shutdown and restructuring charges of $35.2 million, acquisition integration costs of $8.6 million and a debt redemption premium of $1.8 million and insurance recoveries and gains on the Company’s dispositions of timberlands aggregated $8.9 million. Excluding these items, adjusted earnings per share, which is a non-GAAP measure, increased 47.3% to $0.81 per diluted share for 2007, compared with $0.55 per diluted share for the prior year. For a reconciliation of adjusted earnings to GAAP earnings, refer to the tabular presentation at the end of this release.
The Company continues to successfully execute a number of its key strategic focus points including:
- Successfully implementing the Chillicothe Profit Improvement Plan which was focused on optimizing the facility’s productivity and efficiency. As a result, the Company is on track to achieve its annual accretion target of $0.45 to $0.50 per share in 2008.
- Aggressively integrating the Lydney mill acquisition achieving the $9 million annual run rate contribution to operating income six months ahead of schedule.
- Generating revenue growth in targeted markets resulted in a 16% growth in net sales and record $1.1 billion of annual revenue.
- Enhancing the Company’s product mix in growing, high-margin niche markets by acquiring Metallised Products Limited, a $54 million manufacturer of metallized paper products based in Caerphilly, Wales. In addition to substantially increasing the company’s European production scale, the acquisition complements Composite Fibers’ existing metallized paper production capacity based in Gernsbach, Germany.
- Significantly improving cash flow and strengthening the Company’s balance sheet by a $92.3 million reduction in net debt.
Mr. Glatfelter continued, “During 2007, Glatfelter experienced strong growth and profitability with a 47% increase in adjusted EPS. As we look to 2008, we remain confident that the continued execution of our optimization and growth strategies will further strengthen our operations and improve efficiencies in both of our businesses and increase value for our shareholders."
In Specialty Papers, the Company expects volume to improve slightly in the first quarter of 2008 compared to the same quarter of 2007. While there are indications that economic growth in the U.S. has slowed and may slow further, this has not yet had a meaningful impact on Glatfelter’s business. Selling prices are expected to be slightly higher than the fourth quarter of 2007. In Composite Fibers, average selling prices and volumes in the first quarter of 2008 are expected to be above 2007 first quarter levels.
However, the Company has continued to experience significant increases in input costs, driven primarily by energy and fiber, which are expected to more than offset increases to selling prices at least during the first quarter of this year. In addition, Composite Fibers completed a machine upgrade during December 2007 with the startup extending into January 2008. This startup affected production volume during January and will negatively impact operating results during the first quarter by approximately $1.7 million.