Caraustar Reports 2Q Loss on Restructuring Costs
Aug. 1, 2008 - Caraustar Industries today said that sales from continuing operations for the second quarter ended June 30, 2008 were $217.0 million compared to sales of $221.2 million for the same quarter in 2007. Net loss from continuing operations for the second quarter of 2008 was $3.6 million, or $0.13 per share, compared to a 2007 second quarter loss of $2.5 million, or $0.09 per share. The second quarter 2008 and 2007 results from continuing operations included pre-tax restructuring and impairment costs of approximately $5.8 million, or $0.13 per share, and $3.7 million, or $0.08 per share, respectively. The $2.8 million decrease in pre-tax operating results was primarily attributable to higher restructuring and impairment costs of $2.1 million.
Caraustar announced on July 22, 2008 the closure of its Chattanooga Paperboard mill, which is expected to save approximately $9.0 million (pre-tax) in costs annually. The company expects to incur total pre-tax charges of approximately $7.1 million associated with the mill closure. Non-cash impairment of fixed assets in the amount of approximately $5.1 million was recorded in restructuring and impairment costs as of June 30, 2008. Cash costs of approximately $2.0 million related primarily to severance will be expensed in the third quarter 2008.
On July 24 2008, Caraustar sold its fifty-percent interest in Premier Boxboard Limited, LLC (PBL) to its joint venture partner, Temple Inland, Inc. for $62 million pre-tax. The company used approximately $31 million of the proceeds to repay all outstanding debt under its Senior Credit Facility and had excess sale proceeds of approximately $31 million as well as availability under the revolving portion of the facility of approximately $42 million post-transaction.
Paperboard volume was essentially unchanged year-over-year. There was an increase in same-mill coated recycled boxboard (CRB) volume of 0.6 thousand tons. Caraustar's overall same-mill volume was down 1.2 percent, and utilization was 90.5 percent, favorably contrasting with industry volume which was down 7.9 percent with utilization at 88.6 percent. Quarter-over-quarter, mill margins decreased $33 per ton, eroded primarily by increased fiber costs of $15 per ton and higher fuel and energy costs of $14 per ton. Tube and core pricing was up $27 per ton versus the same period last year.
Michael J. Keough, president and chief executive officer of Caraustar, commented, "Caraustar's operating results before restructuring costs were positive for the quarter. We are less than satisfied with these results but pleased that our considerable efforts are mitigating the impact of a sluggish economy. We are also somewhat encouraged by recent industry announcements that show market dynamics changing with the removal of over 300,000 tons of URB mill capacity. In addition to the industry capacity reductions, Caraustar removed approximately 60,000 tons of URB capacity with the closure of the Chattanooga Paperboard mill. We believe these actions will positively impact industry capacity utilization going forward.
"We announced price increases effective in July of $40 per ton on URB grades and $50 per ton on CRB grades as well as the need to pass through, via freight surcharges, increased transportation costs. These increases were driven by higher input costs resulting from current marketplace and economic conditions. Prices on converted paperboard products were also increased six percent, effective mid-August. If energy, freight and other costs continue to increase, additional price increases and cost recovery measures will be required. Volumes were soft in the second quarter but are anticipated to improve in the third quarter, which is supported by recent order increases, particularly for specialty products and folding cartons.
"Management is working diligently on refinancing its 7.375 percent Senior Notes. Completing the sale of our interest in PBL was a first step and raised a portion of the funds necessary to refinance the company's Senior Notes. We have engaged J.P. Morgan Securities Inc. to assist in evaluating financial alternatives and expect to announce additional components of the refinancing as we complete them."
Caraustar's fifty-percent owned interest in the PBL mill contributed $1.1 million in equity in income from unconsolidated affiliates in the second quarter 2008 versus $0.4 million in the second quarter of 2007. Cash distributions were $1.0 million in the second quarter 2008 compared to zero for the same period last year. Subsequent to quarter-end, the company received a distribution of $1.6 million prior to the aforementioned sale of its interest in PBL to Temple-Inland. Both the increase in earnings and cash distributions were attributable to increased margins, which compensated for slightly decreased volume.
SOURCE: Caraustar Industries, Inc.