Glatfelter Posts Solid 1st Quarter Earnings
April 28, 2009 - Glatfelter today reported first quarter of 2009 adjusted earnings of $11.2 million, or $0.24 per diluted share, compared with $11.4 million, or $0.25 per diluted share, in 2008 despite a $0.07 per share adverse impact from the change in pension expense. The 2009 first quarter results include a $0.02 per share impact from pension expense while a year ago adjusted earnings included a $0.05 per share benefit from pension income. 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.
Net income on a GAAP basis for the first quarter was $11.5 million, or $0.25 per diluted share, compared with net income of $19.7 million, or $0.43 per diluted share, for the same quarter last year. The 2009 first-quarter net income benefited from $0.4 million in after-tax gains from the sale of timberlands, while the first-quarter 2008 benefited by $8.7 million from the sale of timberlands and had $0.4 million of acquisition integration costs. Consolidated net sales during the first quarter of 2009 were $291.6 million, a 4.6 percent decrease compared with $305.5 million for the first quarter of 2008, primarily due to foreign currency changes.
“We had another very successful quarter," said George H. Glatfelter II, Chairman and Chief Executive Officer. “Our broad product portfolio, product development capabilities, and compelling value proposition to our customers have enabled us to deliver strong results despite severe economic challenges. While certain markets, such as carbonless and composite laminates, have been significantly impacted by the global recession, we were able to successfully address this downward pressure through operating flexibility, effective management of our product mix and by growing selective segments of our business to offset declines in others. In this respect, our specialized business model has demonstrated considerable and distinctive resiliency to the external challenges that have confronted the broader economy.”
Specialty Papers. Net sales from the company’s Specialty Papers business unit declined by $1.3 million to $199.6 million for the first quarter of 2009, compared with $200.9 million for the first quarter of 2008. Volumes shipped increased slightly in the quarter-to-quarter comparison, with growth in envelope and other uncoated products offsetting declines in carbonless products, however the mix was unfavorable. Higher average selling prices contributed $7.5 million to sales in the quarter-over-quarter comparison.
Ongoing cost reduction and productivity improvement initiatives continued to generate results and contributed an additional $7.4 million to operating income during the quarter. However, prices for energy and raw materials continued to be above 2008 levels and reduced operating income by $3.3 million. In addition, the Company estimates that market-related downtime adversely impacted operating income by $1.6 million in the first quarter of 2009 compared with the same period a year ago. As a result, overall operating income increased $6.9 million, or 60.5 percent, to $18.4 million during the first quarter of 2009, compared with $11.4 million in the first quarter of 2008.
Composite Fibers. Net sales from the Composite Fibers business unit declined $12.6 million, or 12.1 percent, to $91.9 million in the first quarter of 2009. Demand for tea and coffee filter papers increased 4.4 percent, although this growth was more than offset by lower shipments of composite laminates and metallized products which declined 31.0 percent and 15.6 percent, respectively, primarily due to continued weakness in the overall economy. On a constant currency basis, higher average selling prices contributed approximately $4.2 million to net sales; however, the translation of foreign currencies unfavorably affected net sales by approximately $14.3 million.
The Composite Fibers business unit was adversely impacted by higher energy and raw material costs totaling approximately $4.6 million. In addition, this unit’s 2009 first-quarter performance was adversely impacted by approximately $1.4 million in costs from downtime due to weak demand for metallized products and composite laminate products partially offset by improved paper machine performance at the Company’s Lydney facility.
Other Financial Highlights
Net pension expense of $1.7 million was recorded in the first quarter of 2009, compared with net pension income of $3.8 million in the same quarter a year ago due to the decline in the value of the Company’s pension assets in 2008 as a result of the adverse conditions in the global equity and debt markets. This negatively impacted earnings by $0.07 per share in the comparison. The Company expects pension expense to total $6.7 million for 2009 compared to pension income of $16.1 million in 2008. However, the Company does not expect to be required to make cash contributions to its qualified defined benefit pension plans during 2009.
Consolidated selling, general and administrative expenses totaled $24.5 million, an increase of approximately $0.4 million. Benefits from the Company’s cost control initiatives were offset by the adverse impact of the increase in pension expense discussed above.
For the first quarter of 2009, the Company’s effective tax rate on adjusted earnings was 22.5 percent compared with 29.1 percent in the same quarter of 2008. This lower rate was primarily driven by changes in the mix of jurisdictions in which earnings are generated.
Balance Sheet and Other Information
During the first quarter of 2009, capital expenditures totaled $5.2 million compared with $9.3 million in 2008. This decrease reflects the decision to significantly reduce discretionary spending due to the current economic environment. Capital expenditures are expected to be approximately $35 million for 2009 compared with $52.5 million for the full-year 2008.
Net debt, excluding cash collateralized borrowings, was $221.2 million at March 31, 2009, an increase of $10.8 million compared with December 31, 2008. At March 31, 2009, the Company had $24 million of cash and $182 million of borrowing capacity under its revolving credit agreement which matures in April 2011.
Alternative Fuel Credits
Glatfelter may be eligible for an excise tax refund under the Internal Revenue Code for alternative fuel mixtures used as a fuel in a taxpayer’s business. The credit is equal to $0.50 per gallon of alternative fuel contained in the mixture and is refundable in cash to the taxpayer. The Company began mixing black liquor and diesel fuel in late February 2009 and filed an application to be registered as an alternative fuel mixer with the Internal Revenue Service in March 2009. The Company continues to accumulate the necessary information to file for refunds; however, before any cash is received, the registration application requires approval by the Internal Revenue Service. There can be no assurances that the Company’s application will be approved, that the regulations that allow the credit will remain unchanged, or that the Company will be successful in receiving payments under the program.
Mr. Glatfelter commented, “To date, our business has demonstrated considerable resiliency to the global economic challenges that have impacted our industry. We intend to remain focused on executing the strategies that have served us well in these times, specifically, leveraging our new product development capabilities and flexible operating platforms, while focusing on cost control and generating operational efficiencies. However, considerable uncertainty remains in the global economy, and, as we move further into 2009, we are certain to face many challenges. As a result, we remain committed to maintaining the strength of our balance sheet by aggressively managing cash flows.”
For Specialty Papers, the Company noted that it expects volumes in the second quarter of 2009 to be approximately 5% lower than the 2009 first quarter and that selling prices for most products in the second quarter will be relatively in line with the first quarter of 2009. Further, the Company added it expects to incur additional downtime in this business unit as a result of managing capacity in response to demand changes. The Company also reported that it will complete in the second quarter of 2009 the annually scheduled maintenance outages at both the Chillicothe and Spring Grove facilities. The outages are expected to impact second quarter results by approximately $0.22 to $0.25 per share. In the second quarter of 2008, the outages impacted results by $0.22 per share.
In the Composite Fibers business unit, the Company anticipates shipping volumes in the second quarter of 2009 to be higher than the first quarter as demand for its Metallized products increases. Selling prices and input costs are expected to be in line with the 2009 first quarter. Composite Fibers facilities will schedule additional market-driven downtime on select paper machines during the second quarter to reduce inventory levels, resulting in overall higher costs when compared with second-quarter 2008.