NewPage Posts 2Q Loss on Weak Demand
Aug. 12, 2009 - NewPage Corporation today announced its results of operations for the second quarter of 2009.
Net sales were $736 million in the second quarter of 2009 compared to $1,063 million in the second quarter of 2008, a decrease of $327 million, or 31%. The decrease resulted from lower sales volumes and lower average coated paper prices caused by a significant decline in advertising spending and reductions in customer inventory levels on hand. Net loss attributable to NewPage was $(6) million in the second quarter of 2009 compared to a net loss attributable to NewPage of $(21) million in the second quarter of 2008, primarily as a result of the benefit of alternative fuel mixture tax credits and reduction in raw material costs, partially offset by the lower sales volumes and lower average sales prices. Debt covenant EBITDA (earnings before interest, taxes, depreciation and amortization) was $134 million for the second quarter of 2009 compared to $137 million for the second quarter of 2008.
"The significant decline in demand for coated paper during the second quarter of 2009, in comparison to the second quarter of 2008, was primarily the result of decreased advertising spending and magazine and catalog circulation, and was largely a continuation of the same macroeconomic forces we saw in the first quarter," said Richard D. Willett, Jr., NewPage President and Chief Executive Officer. "In addition, we believe that the decline in pricing was accelerated by producers passing on the benefits of the alternative fuel mixture credit to customers and we anticipate continued pressure on paper prices for the near term."
"In an effort to balance supply with demand, we took 161,000 tons of market-related downtime during the second quarter of 2009. This is in addition to the 149,000 tons of market-related downtime we took during the first quarter of this year and the 1.1 million tons of capacity we shut down last year."
The following schedule details key performance and cost metrics for the
Coated paper sales volume - 000s tons 601 875
Price per ton of coated paper $931 $988
Market downtime - 000s tons 161 18
Maintenance expense - $ million $74 $101
Gross margin % (2.7)% 8.4%
SG&A expense - $ million $49 $62
"During the second quarter, we markedly reduced discretionary spending to sustain our business during these challenging economic times, including the market-related downtime," said Willett. "Despite the difficult economic and business conditions, we see potential improvement in the second half of 2009. Customer inventories are now at record lows after six to nine months of de-stocking. After adjusting for customer inventory changes, coated paper consumption is down approximately 15% to 20%, and therefore, flat consumption should lead to some growth in the second half of 2009 as de-stocking ceases. In addition, the United States Postal Service "summer sale" discount of 30% on incremental volume shipments and our new agreements with independent marketers and distributors in North America are expected to increase demand somewhat throughout the remainder of the year."
The net effect of the decline in demand and associated market-related downtime, as well as the continued integration costs, was a reduction in gross margin to (2.7)% for the second quarter of 2009 from 8.4% for the second quarter of 2008. "We remain focused on operating the business and providing our customers with the best products and services in the industry," added Willett. "Our employees are helping us manage through the weak market and support a number of cost productivity programs across the business. Our integration activities are nearly completed, synergies have maintained margins, and we've expanded our cost advantage with Lean Six Sigma and additional cost reduction programs in line with historical and annual benefits."
Alternative Fuel Tax Credit
As previously reported, the U.S. Internal Revenue Code allows a refundable excise tax credit for alternative fuel mixtures produced for sale or for use as a fuel in a trade or business. During the first quarter of this year, NewPage filed to be registered as an alternative fuel mixer, and in April 2009 the company received notification that the registration was approved. During the second quarter of 2009, NewPage received payments of $112 million, including $45 million for alternative fuel mixtures used in the first quarter of 2009. The company recognized $120 million of income in other (income) expense for the second quarter of 2009 for alternative fuel mixtures used through June 30, 2009. However, there can be no assurance that the program will continue in effect, that its provisions will not be changed in a manner that adversely affects the company, that operations will remain qualified to receive the incentive payments, or that claims for the incentive payments will be approved and paid.
NewPage closed the quarter with $288 million of liquidity, consisting of $6 million of cash and cash equivalents and $282 million of additional borrowing availability under the revolving credit facility.
Headquartered in Miamisburg, Ohio, NewPage Corporation is the largest coated paper manufacturer in North America, based on production capacity, with $4.4 billion in net sales for the year ended December 31, 2008. 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 have a total annual production capacity of approximately 4.4 million tons of paper, including approximately 3.2 million tons of coated paper, approximately 1.0 million tons of uncoated paper and approximately 200,000 tons of specialty paper.
SOURCE: NewPage Corp.