NewPage Posts 3rd Quarter Loss on Weak Demand
Nov. 12, 2008 - NewPage Corp. today announced its results of operations for the third quarter of 2008, including the financial results of Stora Enso North America (SENA) that was acquired on December 21, 2007. Net sales were $1,126 million in the third quarter of 2008 compared to $545 million in the third quarter of 2007, an increase of $581 million, or 107%, primarily as a result of the acquisition. Net loss was $(61) million in the third quarter of 2008 compared to net income of $16 million in the third quarter of 2007. Debt covenant EBITDA (earnings before interest, taxes, depreciation and amortization) was $151 million for the third quarter of 2008 compared to $79 million for the third quarter of 2007.
"The advertising markets that consume our coated paper products are in a significant retrenchment caused by a declining and uncertain retail and business climate," said Mark A. Suwyn, NewPage chairman and chief executive officer.
"Our customers, printers, magazine and book publishers, and catalogers, are dealing with significant reductions in their businesses and higher costs that, in turn, reduced demand for coated paper roughly 19% year over year. We have taken many steps to ensure we are making only what our customers need and not over-supplying the market. To deal with the lower demand, we've taken market-related downtime, including a 40,000 ton reduction we announced yesterday, shut down several paper machines, reduced our capital spending rate, maintained our focus on driving costs down across the board and aggressively moved forward on our integration plans with the mills we bought late last year," Suwyn said.
The following schedule details key performance and cost metrics for the
Coated paper volume - 000s tons 893 576
Price per ton of coated paper $1,005 $884
Market downtime - 000s tons 13 0
Maintenance expense - $ million $94 $44
Gross margin 8.1% 13.8%
SG&A expense - % of net sales 5.5% 5.1%
"During the third quarter, we closed our paper operations in Kimberly and Niagara, Wisconsin," said Richard D. Willett, Jr., NewPage president and chief operating officer. "When business softened significantly during the second quarter, we focused on operating the rest of the NewPage mills in the most cost effective manner possible without losing our ability to deliver the high-quality products our customers have come to expect. We were able to accomplish this because our integration work gave us the ability to make most products on multiple paper machines. Lean Six Sigma projects and productivity initiatives are helping to reduce the effects of inflation. Our workforce is actively engaged in doing everything they can to achieve efficiencies and conserve resources. The integration of our operations is on schedule. All of these actions enable us to manage through this weak market while providing a platform for more favorable results when the market recovers."
Gross margin declined from the third quarter of last year because of higher costs primarily as a result of inflation in the cost of wood, energy, chemicals and transportation, as well as restructuring charges.
"The good news in the third quarter has been a decline in the price of crude oil," added Willett. "Many chemicals used in the papermaking process are petroleum-based and fluctuate with the price of crude oil, as well as shipping costs. Because of existing contracts, the costs of certain chemicals lag behind changes in oil prices and therefore we will not see the full effects of lower crude oil prices on chemicals and transportation costs until sometime next year."
As a result of previously announced restructuring plans, cost of sales included pretax charges of $14 million in the third quarter of 2008, consisting of $9 million of accelerated depreciation expense, $4 million of inventory write-offs and $1 million of employee-related costs. There was also $1 million of employee-related costs included in SG&A. In addition, the company incurred $27 million of integration-related expenses during the quarter. "Our integration activities continued throughout the quarter and we remain on track to meet our long-term target in annualized synergies from the SENA acquisition. However, full realization of the synergies may be somewhat delayed by the slowdown in demand and volume," said Willett.
NewPage closed the quarter with $419 million of liquidity, consisting of $87 million of cash and $332 million of additional borrowing availability under the revolving credit facility.
About NewPage Corporation
Headquartered in Miamisburg, Ohio, NewPage Corporation is the largest coated paper manufacturer in North America, based on production capacity, with $4.7 billion in pro forma net sales for the year ended December 31, 2007. The company's product portfolio is the broadest in North America and includes coated freesheet, coated groundwood, supercalendered, newsprint and specialty papers. These papers are used for corporate collateral, commercial printing, magazines, catalogs, books, coupons, inserts, newspapers, packaging applications and direct mail advertising.
NewPage owns paper mills in Kentucky, Maine, Maryland, Michigan, Minnesota, Wisconsin and Nova Scotia, Canada. These mills currently have a total annual production capacity of approximately 4.5 million tons of paper, including approximately 3.3 million tons of coated paper, approximately 900,000 tons of uncoated paper and approximately 300,000 tons of specialty paper.
SOURCE: NewPage Corporation