Glatfelter Reports Strong Third Quarter Results
Nov. 4, 2008 - Glatfelter today reported record quarterly net sales of $339.8 million for the third quarter ended September 30, 2008, a 16.4% increase compared with $291.9 million for the third quarter of 2007.
Adjusted earnings for the third quarter of 2008 totaled $19.5 million, or $0.43 per diluted share. The comparable amounts for the third quarter of 2007 were $19.0 million and $0.42 per diluted share, which included a $0.12 per share benefit from the revaluation of deferred taxes as a result of a reduction in the German corporate income tax rate. Net income on a GAAP-basis for the 2008 third quarter was $21.7 million, or $0.47 per diluted share, compared with net income of $7.8 million, or $0.17 per diluted share, for the same quarter of last year.
Third quarter 2008 net income benefited from $2.4 million in gains from timberland sales which were partially offset by $0.2 million in acquisition integration costs, each after taxes. Third quarter 2007 net income included a $12.3 million charge to increase the Company’s reserve for the environmental matter at the Fox River, $0.3 million of acquisition integration costs as well as $1.4 million in gains from the sale of timberlands, all of which are after tax amounts. Adjusted earnings is a non-GAAP measure that excludes from the Company’s GAAP-based results certain non-core business items. For a reconciliation of adjusted earnings to GAAP earnings, refer to the tabular presentation at the end of this release.
”I am very pleased with this quarter’s strong financial results,” said George H. Glatfelter II, Chairman and Chief Executive Officer. “Our performance was driven by strong demand, improved selling prices and, most importantly, ongoing operational improvement. In this regard, our results continued to reflect the solid execution of our strategies within each business unit and our emphasis on improving cost management and asset utilization. The benefits from these initiatives were most evident at our Chillicothe facility, which contributed to a 56% increase in Specialty Papers’ operating income compared to the third quarter of 2007.”
Specialty Papers’ net sales increased $18.1 million, or 8.7%, compared to the third quarter of 2007 due to higher average selling prices together with strong shipping volumes that increased 5% primarily in the envelope and engineered products markets. Higher average selling prices contributed $12.5 million to Specialty Papers’ revenue increase during the third quarter of 2008.
These factors were partially offset by higher prices for energy and raw materials totaling $13.2 million. Cost reduction and productivity improvement initiatives generated a $7.2 million benefit during the quarter. As a result, operating income increased $8.2 million, or 56%, during the third quarter of 2008 compared to 2007.
Net sales in the Composite Fibers business unit increased $29.8 million, or 35.5% and operating income was up 2%, in the comparison. Net sales increased primarily due to the November 2007 Caerphilly acquisition, a 10.6% increase in shipments of food and beverage products and higher selling prices. On a constant currency basis, higher average selling prices contributed $6.5 million to operating income in the third quarter 2008 and the translation of foreign currencies benefited net sales by $5.5 million. The cost of raw materials, primarily pulp and energy, was $6.2 million higher than a year ago.
Operating income for the third quarter 2008 increased slightly compared to a year ago. However, the 2008 third quarter’s results included $0.7 million of accelerated depreciation recorded on paper machine components to be replaced in connection with the previously announced $38 million machine rebuild to be completed in late 2009 and the third quarter 2007 results benefited from $1.4 million in non-recurring energy tax credits and an insurance recovery. On a comparable basis operating income increased $2.3 million, or 33%.
Other Financial Highlights
Selling, general and administrative (“SG&A”) expenses decreased by $17.4 million in the quarter-to-quarter comparison and totaled $24.8 million in the third quarter of 2008. The decrease was largely due to a $20.0 million charge recorded in the third quarter of 2007 to increase the Company’s reserve for the environmental matter at the Fox River. In the quarter-to-quarter comparison, excluding this charge, SG&A increased $2.6 million primarily due to the inclusion of the Caerphilly acquisition and currency translation adjustments.
Interest expense in the third quarter of 2008 totaled $5.7 million, a decline of $1.9 million compared with the same quarter of 2007. The decrease in interest expense was due to lower debt outstanding together with a lower interest rate environment.
For the third quarter of 2008, the Company’s effective tax rate on adjusted earnings was 31% compared with 27% on adjusted earnings in the same quarter of 2007, before giving effect to the tax benefit recorded in connection with the change in the German corporate income tax rate.
In the Specialty Papers business unit, the Company expects softening demand in the fourth quarter due primarily to normal seasonality and, to a lesser extent, overall economic conditions. As a result, shipments during the fourth quarter are expected to be slightly lower than the same period of 2007. Costs are expected to moderate slightly in the fourth quarter, driven by cost reductions in oil and other commodities. However, the expiration of certain raw material contracts at the end of 2008 is expected to negatively impact production costs in the upcoming year.
Within the Composite Fibers business unit, the Company expects a continuation of strong demand for food and beverage and technical specialty products. The Company anticipates fiber costs in this business unit to decline slightly. Other input costs, including natural gas and other costs tied to the energy markets, are expected to remain at present levels into the second quarter of 2009 due to supply agreements that are currently in place.
Mr. Glatfelter commented, “The strong performance we are delivering, growth opportunities in our Composite Fibers business unit and our proven ability to successfully execute our strategies give us confidence in our business. However, like others, we are not immune to the impact of the current economic environment. We will continue to focus on supply-side market discipline, solid business execution and aggressive cost control. These activities remain top priorities for the entire business as we look forward to the fourth quarter and into 2009.”