Glatfelter's First Quarter Income Rises
April 29, 2008 - Glatfelter today reported that net sales increased 8.7% to $305.5 million for the first quarter of 2008, compared with $281.0 million for the first quarter of 2007. Net income for the 2008 first quarter was $19.7 million, or $0.43 per diluted share, compared with net income of $3.3 million, or $0.07 per diluted share, for the prior-year period.
First quarter 2008 net income includes $8.7 million of gains on timberland sales and $0.4 million of acquisition integration costs, each after-tax. The results for the previous year’s first quarter included $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. Excluding these items from each period’s results, first quarter 2008 adjusted earnings per share, which constitute a non-GAAP financial measure, were $0.25 per diluted share, compared to $0.12 per diluted share in the first quarter of 2007.
“The significant improvement in year-over-year performance reflects successful implementation of our profit improvement initiatives supported by favorable demand trends and price increases,” said George H. Glatfelter II, chairman and CEO.
“With further evidence emerging of a slowing U.S. economy and record high energy costs, aggressive management of our cost structure remains necessary to ensure that our success continues. Accordingly, we are intensifying our process improvement and cost reduction initiatives across the Company and are making targeted investments at several facilities to increase productivity and output. We believe these actions will help sustain the Company’s progress despite the challenging environment,” Glatfelter said.
FIRST-QUARTER BUSINESS UNIT RESULTS
First quarter 2008 net sales in the Specialty Papers business unit totaled $200.9 million, a 2.1% increase compared with $196.9 million in the first quarter of last year. Higher average selling prices contributed $6.0 million of the increase in net sales and volumes shipped increased 4%. These price and volume increases were partially offset by expected mix changes between carbonless papers and uncoated papers, as well as lower sales of scrap paper.
Specialty Papers’ operating income for the first quarter 2008 totaled $11.4 million, a 71.6%, or $4.8 million, improvement from the same quarter of 2007. The higher operating income for the first quarter 2008 reflects progress achieved in the last half of 2007 in executing Chillicothe’s profit improvement initiatives. The benefits of higher average selling prices were offset by $9.1 million of higher costs, largely driven by fiber and energy. Unplanned operating downtime at the Spring Grove and Chillicothe facilities also reduced operating results by $1.7 million in the current year quarter.
Composite Fibers’ net sales increased 24.3% to $104.6 million for the quarter. The higher sales were primarily driven by the inclusion of the November 2007 Caerphilly acquisition, foreign currency translation and improved shipping volumes in most product lines. On a constant currency basis, average selling prices benefited net sales by $0.8 million which partially offset the impact of higher input costs.
Operating income for the Composite Fibers business unit totaled $6.1 million for the first quarter of 2008, compared to $5.0 million in the same quarter a year ago. During the fourth quarter of 2007, the Company completed a machine upgrade at its Lydney, U. K. facility, with startup extending into the first quarter of 2008, lowering production volumes and operating income by approximately $1.7 million, consistent with previously announced expectations. This upgrade is targeted at increasing capacity to serve the growing tea bag market and the Company expects to begin realizing productivity improvements from it over the next several quarters. As expected, the operation of the Caerphilly facility was slightly dilutive to first quarter 2008 earnings. As previously announced, the Company continues to expect that Caerphilly will be neutral to earnings for 2008 and slightly accretive in 2009.
Other Financial Highlights
Selling, general and administrative (“SG&A”) expenses decreased by $4.6 million in the quarter-to-quarter comparison and totaled $24.1 million in the first quarter of 2008. The comparison reflects a $6 million pre-tax charge for environmental matters included in the first quarter of 2007 and a $1.5 million recovery in a litigation matter, net of related legal fees, recorded in the first quarter of 2008. The effect of foreign currency translation and the inclusion of the Caerphilly acquisition unfavorably impacted the SG&A quarter-to-quarter comparison.
Net interest expense decreased $2.1 million in the quarter-to-quarter comparison to $4.5 million for the first quarter of 2008. The decrease was primarily due to lower debt levels and a lower interest rate environment in 2008.
The Company’s effective income tax rate reflected in adjusted earnings for the first quarter of 2008 and 2007 was 29.1% and 35.5%, respectively. The lower tax rate includes the benefit of a reduction in a valuation allowance on certain deferred tax assets.
Timberland Sales Update
During the first quarter, approximately 3,595 acres were sold for $15.0 million in cash. To date, the Company has realized $116.6 million of proceeds since the implementation of the program in 2006. Due to changes in market conditions, the Company does not expect significant sales during the remainder of 2008, but will remain opportunistic should market conditions improve or selective opportunities develop.
In Specialty Papers, the Company expects volume in the second quarter of 2008 to be in line with the same quarter of 2007, and selling prices are expected to be slightly higher than the first quarter of 2008. In Composite Fibers, shipping volumes in the second quarter of 2008 are expected to exceed 2007 second quarter levels primarily due to the Caerphilly acquisition. Selling prices are expected to be slightly higher than the first quarter of 2008. However, continuing increases in input costs, primarily driven by fiber and energy, could offset increased selling prices during the remainder of 2008 compared to the same period of 2007.
As previously announced, the Company will complete its annually scheduled maintenance outages at both its Spring Grove and Chillicothe facilities in the second quarter, with an estimated $0.22 to $0.25 per share impact. In the second quarter of 2007, the outages also impacted results by $0.22 per share.
In addition, the Company plans to complete an upgrade of a paper machine in Germany during the second quarter of 2008 to respond to the higher demand for tea and coffee papers. This will require downtime on the machine for the month of June with start up to occur during July. The Company expects this project to negatively impact EPS by $0.01 during each of second and third quarters of 2008, respectively.