Orchids Paper Posts First Quarter Profit
April 30. 2009 - Orchids Paper Products Company [yesterday] reported net income for the three months ended March 31, 2009 of $2.8 million, or $0.42 per diluted share, the third consecutive quarterly record, compared with $611,000, or $0.09 per diluted share, in the same period in 2008. Net sales for the first quarter of 2009 were $23.6 million, an increase of 17% over the $20.3 million reported for the same quarter of 2008.
Net sales of converted product in the first quarter of 2009 were $21.0 million, an increase of 23% compared to the $17.1 million of net sales in the same period in 2008, while net sales of parent rolls decreased $600,000, or 18% to $2.6 million compared to $3.2 million in the same quarter of 2008. The increase in converted product net sales was primarily the result of a 23% increase in the net selling price per ton which was slightly offset by a 1% decrease in tonnage shipped. Product content changes completed during 2008 were the primary reason for the lower tonnage shipped. Parent roll revenues decreased primarily due to a 14% decrease in tonnage shipped and a 4% decrease in the selling price per ton. The decrease in parent roll sales is primarily due to a softened parent roll market.
Earnings before interest, taxes, depreciation and amortization (EBITDA) was $5.4 million for the quarter ended March 31, 2009, the third consecutive quarterly record, and represented an increase of $3.3 million, or 163%, compared to the $2.1 million of EBITDA in the quarter ended March 31, 2008. As a percentage of net sales, EBITDA was 22.9% in the 2009 quarter compared with 10.2% in the 2008 quarter.
Gross profit in the quarter ended March 31, 2009, increased $3.7 million, or 139%, to $6.4 million compared to $2.7 million in the same quarter last year. Gross profit as a percentage of net sales in the 2009 quarter was 27.2% compared to 13.2% in the 2008 quarter. The primary reasons for the increase in gross profit as a percentage of net sales are the higher selling prices for converted products and the lower cost of wastepaper. In addition, improved productivity in the converting operation resulted in a 16% increase in cases shipped in the 2009 period compared to the same period in 2008, which basically offset the effects of product content changes on the amount of tonnage shipped.
Paper production costs decreased approximately 16% in the three months ended March 31, 2009, compared to the same period in 2008, primarily due to a 30% decrease in the cost of wastepaper, resulting in an approximately $1.4 million increase in gross profit. Lower natural gas prices and lower direct labor charges in converting were largely offset by higher converting overhead costs. Converting overhead costs increased in the 2009 quarter over the 2008 quarter primarily due to increased maintenance and repair costs and the cost of outside warehousing.
Selling, general and administrative expenses in the three months ended March 31, 2009, increased $400,000, or 32%, to $1.8 million compared to $1.4 million in the prior year quarter. Higher accruals under the Company's incentive bonus program, higher sales commission expense due to increased sales levels, increased packaging-related selling costs, higher legal and professional fees and costs associated with additions to the senior management team were the major reasons for the increase. As a percentage of net sales, selling, general and administrative expenses increased to 7.7% in the first quarter of 2009 compared to 6.8% in the same quarter of 2008.
Interest expense decreased $252,000 to $159,000 in the quarter ended March 31, 2009, compared to $411,000 in the quarter ended March 31, 2008. Lower LIBOR interest rates and lower margins over LIBOR, reflecting improved financial performance, were the primary reasons for the decrease in interest expense.
"We are pleased with our results for the first quarter of 2009, as we achieved a third consecutive record net earnings and EBITDA levels in a quarter which is typically softer than the rest of the year," said Robert Snyder, Orchid's president and CEO. "In addition to our converting operation producing a record number of cases this quarter, production and shipments of converted product increased approximately 15% and 16%, respectively, over the first quarter of 2008. As you can see by our record shipments, the at-home tissue market for our customers remains strong.
"We are pleased with the continued strengthening of our balance sheet and cash flow from operations. During the quarter, we reduced our net debt (funded debt less cash) by $3.7 million, from $24.0 million at December 31, 2008 to $20.3 million at March 31, 2009. In addition, we have reduced our funded debt-to-EBITDA ratio as defined in our credit agreements, from 1.85:1 as of the end of 2008 to 1.41:1 at the end of the first quarter of 2009. This improvement in our financial condition may be especially important if we determine the need to expand our current warehouse which would require funding," Snyder said.
SOURCE: Orchids Paper Products Company