Wausau Paper 2nd Quarter Loss Narrows
July 27, 2009 - Wausau Paper today reported that in the second quarter:
- Adjusted quarterly earnings of $0.15 per share reached their strongest level in nearly 5 years.
- Towel & Tissue achieved record quarterly operating profits of $13.8 million while Printing & Writing and Specialty Products reported significant year-over-year improvement, excluding facility closure charges.
- Execution against Printing & Writing’s profit recovery plan continued with the opening of a new Midwest distribution center.
- Cost reduction and cash conservation initiatives drove a $40 million reduction in debt as compared to the first quarter.
The company reported a second-quarter net loss of $1.9 million, or $0.04 per share, compared with a net loss of $9.6 million, or $0.20 per share, in the prior year. Net sales and shipments both decreased 14 percent to $262.2 million and 177,000 tons, respectively, due to anticipated volume reductions resulting from facility closures and continuing demand weakness in several market categories.
Second-quarter results include after-tax facility closure charges of $13.4 million, or $0.27 per share, related primarily to the May closure of Specialty Products’ Jay, Maine, paper mill and the previously announced fourth-quarter closure of Printing & Writing’s Appleton, Wisconsin, converting facility; after-tax gains of $3.6 million, or $0.07 per share, related to a tax credit for the use of alternative fuel mixtures at Specialty Products’ Mosinee, Wisconsin, facility; and after-tax gains of $0.4 million, or $0.01 per share, related to the sale of timberlands.
Prior-year second-quarter results included after-tax charges of $8.8 million, or $0.18 per share, related to the closure of a Printing & Writing mill in Groveton, New Hampshire, and Specialty Products’ roll wrap operations; and timberland sales gains of $0.8 million, or $0.02 per share. Excluding these items, adjusted second-quarter 2009 net earnings were $7.5 million, or $0.15 per share, compared with a net loss of $1.6 million, or $0.03 per share, last year.
Adjusted net earnings for the first six months of 2009 were $10.9 million, or $0.22 per share, compared with a prior-year net loss of $4.7 million, or $0.10 per share. Adjusted net earnings is a non-GAAP measure and three-month and six-month results are reconciled to GAAP earnings below.
Commenting on performance for the quarter, Thomas J. Howatt, president and CEO, said, “Adjusted net earnings reached their highest level in nearly five years with each of our three business units reporting year-over-year improvement. These results reflect the benefit of restructuring initiatives completed over the last two years designed to improve our competitive position and profitability, cost reductions implemented earlier this year, and reduced fiber and energy prices.”
Mr. Howatt continued, “Coupled with aggressive cash conservation measures, these initiatives generated cash sufficient to reduce debt by $40 million during the second quarter, substantially improving liquidity and balance sheet strength despite recessionary business conditions. With little change in economic conditions expected in the near-term, we remain focused on improving our position in core markets while continuing to contain costs, tightly manage capital spending and reduce debt.”
BUSINESS UNIT RESULTS
Printing & Writing reported a second-quarter operating profit of $0.8 million compared with an operating loss of $16.6 million last year, while net sales and shipments declined 9 percent and 5 percent, respectively, due primarily to demand weakness. Current-quarter results include pre-tax facility closure charges of $0.6 million related primarily to the Appleton converting facility. Prior-year results included pre-tax Groveton mill closure charges of $13.8 million. Influenced by a reported 15 percent decline in year-to-date demand for uncoated freesheet papers and an objective to reduce paper inventories, Printing & Writing executed second-quarter market-related downtime equivalent to 15,000 tons, or approximately 20 percent, of production capacity. As a result, paper inventories declined 13,000 tons, finishing the quarter at target levels. With the successful second-quarter start-up of its Bedford Park, Illinois distribution center, Printing & Writing’s converting and distribution initiative remains on schedule for fourth-quarter completion. In addition, the fiber-handling project at the Brokaw, Wisconsin, mill is expected to be completed in the third quarter, further reducing costs and improving operational efficiencies. These projects are expected to contribute toward the business unit achieving cost-of-capital return levels over the second half of the year.
Specialty Products’ second-quarter operating loss of $10.6 million includes pre-tax charges of $20.8 million related to closure of the Jay mill and pre-tax gains of $5.7 million from an alternative fuel mixture tax credit. Prior-year operating loss was $1.9 million. Net sales and shipments declined 27 percent and 26 percent, respectively, due to facility closures and continued order weakness, which resulted in market-related downtime of 4,000 tons, or approximately 6 percent, of production capacity. Closure of the Jay facility is expected to improve Specialty Products’ profitability by reducing high-cost production capacity and concentrating the business unit’s most profitable grades at remaining facilities. Transition from a three-mill to a two-mill manufacturing system is proceeding smoothly with the completion of grade transfers expected by the end of the third-quarter. At the same time, Specialty Products is focused on four core market categories – liner, tape, food and industrial – to drive long-term growth and profitability.
The Internal Revenue Code provides for an excise tax credit for the use of qualified alternative fuel mixtures in a taxpayer’s trade or business. The credit is scheduled to expire on December 31, 2009. In May of this year, Specialty Products’ Mosinee mill was approved by the Internal Revenue Service as a producer and consumer of a qualified alternative fuel mixture which is used as a fuel source to generate energy in the Mosinee mill. Second-quarter results include $5.7 million of net pre-tax benefit for the period from which qualified alternative fuel mixing began (February 23, 2009) through June 30, 2009.
Towel & Tissue’s record second-quarter operating profit of $13.8 million substantially exceeded prior-year profit of $8.3 million despite an estimated 8 percent decline in demand for “away-from-home” towel and tissue products. Net sales were even with prior-year while shipments declined 2 percent. Operating margins increased to 16 percent for the quarter as higher-margin value-added product shipments increased 7 percent, fiber and energy continued their favorable cost trend, and the initial benefits of the towel machine rebuild at the Middletown, Ohio, mill were realized. Full benefits of the $32.5 million machine rebuild are expected to be achieved by the end of 2009.
Commenting on the third-quarter outlook, Mr. Howatt said, “We remain focused on enhancing the long-term competitive position of our businesses while meeting the immediate challenges created by a recession-driven economy. Our second-quarter results reflect progress with both of these critical objectives. The restructuring and capital investment initiatives have improved product mix, reduced manufacturing costs and increased the fundamental earnings power of our businesses while cost reduction and cash conservation measures have significantly increased liquidity and the strength of our balance sheet.” Mr. Howatt continued, “Despite significant economic uncertainty and a modest rebound in fiber and energy prices, we expect third-quarter adjusted net earnings to approximate second-quarter adjusted net earnings of $0.15 per share.” Adjusted net earnings in the third quarter of 2008 were $0.08 per share.
About Wausau Paper
Wausau Paper, with revenues of $1.2 billion in fiscal 2008, produces and markets fine printing and writing papers, technical specialty papers, and “away-from-home” towel and tissue products.
SOURCE: Wausau Paper