Cellu Tissue Holdings Swings to 2nd Quarter Profit
Oct. 8, 2009 (Press Release) - Cellu Tissue Holdings, Inc. yesterday reported net income of $2.7 million for the quarter ended August 27, 2009 compared to a loss of $0.2 million in the second quarter 2008.
"The Company has continued to execute its strategy of leveraging our vertically integrated hardroll tissue manufacturing to grow our tissue converting operations," said Russell C. Taylor, president and CEO of Cellu Tissue Holdings. "As a result of continued improvement in the business, we believe we will exceed the high end of our previously communicated Adjusted EBITDA guidance of $75 million to $80 million for the current fiscal year."
As previously announced, in the second quarter of fiscal year 2009, the Company completed its acquisition of the Long Island, New York and Thomaston, Georgia tissue converting operations of Atlantic Paper & Foil (APF). Accordingly, the results for the three and six months ended August 27, 2009 are impacted by the effects of APF's operating results, as highlighted below.
Second Quarter 2010 Financial and Operating Results
Net sales for the Fiscal 2010 three month period increased $4.8 million, or 3.6%, to $137.8 million from $133.0 million for the comparable prior year period. During the Fiscal 2010 three month period, we sold 89,328 tons of tissue hardrolls, machine-glazed tissue hardrolls and converted tissue products, an increase of 4,291 tons, or an increase of 5.0% over the comparable prior year period. During the quarter, we in-sourced an additional 6,046 tons of hardrolls for our converting operations that were previously purchased on the hardroll market in the prior year. This served to reduce external hardroll shipments by a similar amount and improved our overall sales mix due to higher selling prices for converted tissue products. This is consistent with our strategy to increase the vertical integration of the acquired operations, supporting improved quality control and profitability. Net selling price per ton decreased to $1,519 during the current period from $1,554 during the prior year period. This decrease in price primarily reflects the downward pricing pressure brought on by lower pulp prices, which was partially offset by the impact of mix improvements.
Gross profit was $22.6 million for the Fiscal 2010 three month period, or an increase of $11.6 million from $11.0 million in the comparable prior year period. As a percentage of net sales, gross profit increased to 16.4% in the Fiscal 2010 three month period from 8.3% in the fiscal 2009 three month period. The improvement was primarily driven by the overall volume, mix and selling price changes as discussed above, as well as favorable improvements in pulp pricing and lower energy costs.
Income from operations for the second quarter ended August 27, 2009 was $16.2 million compared to $5.7 million for the comparable period in the prior fiscal year. The overall increase is the result of the increase in gross profit as noted above, offset partially by higher selling, general and administrative expense in connection with increased incentive compensation expense.
During the second quarter of Fiscal 2010 the Company refinanced its long-term debt, which resulted in higher overall interest rates and extended the overall maturity of the majority of long-term debt. The new 11-1/2% Senior Secured Notes due in 2014 ("2014 Notes") generated cash proceeds of $245.7 million. These proceeds were primarily used to retire all of the 9-3/4% Senior Secured Notes due in 2010 ("2010 Notes"). Interest expense for the current quarter was $12.3 million, compared to $6.1 million in the prior year period. The current quarter includes the effects of extinguishing our 2010 Notes and the issuance of our 2014 Notes. Non-recurring costs of the refinancing include both the write-off of deferred financing fees of $2.2 million and incremental interest expense of $1.7 million due to the period of time that elapsed between the issuance of the 2014 Notes and the extinguishment of the 2010 Notes. The remaining increase is primarily attributable to the higher interest rates and debt issuance costs related to the 2014 Notes.
SEGMENT OPERATING RESULTS
Net sales for our tissue segment were $107.8 million during the Fiscal 2010 three month period, an increase of $4.4 million, or 4.2% from $103.4 million in the comparable prior year period. The increase was due primarily to increased sale volumes, an improved mix with respect to converting tons sold, and moderate price improvement. Net selling price per ton increased to $1,625 for the Fiscal 2010 three month period from $1,605 for the Fiscal 2009 three month period. This increase in net selling price per ton was primarily the result of improvements in product mix as a result of higher converted tissue sales, and to a smaller extent, an increase in converted product selling prices, partially offset by downward pricing pressure brought on by lower pulp prices. The increase in converting tons sold reflects continued organic growth in our converting business and results from the APF Acquisition for the full three month period in Fiscal 2010, compared to only two months of ownership in the Fiscal 2009 three month period. For the Fiscal 2010 three month period, we sold 66,312 tons of tissue compared to 64,416 tons in the Fiscal 2009 three month period.
Operating income was $15.4 million compared to $6.1 million, driven by the factors discussed above, and was also due to reduced fiber and energy prices and increased sales of our converted tissue products, which leveraged our ability to incrementally use more internally manufactured hardrolls.
Net sales for our machine-glazed tissue segment for the Fiscal 2010 three month period were $27.9 million, a decrease of $0.8 million or 2.8%, compared to $28.7 million in the comparable prior year period. Tons sold during the fiscal 2010 period increased 11.6%, but this increase was offset by a decline in selling prices associated with lower pulp prices. Net selling price per ton was $1,213 for the Fiscal 2010 three month period compared to $1,393 per ton for the Fiscal 2009 three month period. For the Fiscal 2010 three month period, we sold 23,016 tons of machine-glazed tissue compared to 20,621 tons in the Fiscal 2009 three month period.
Operating income was $1.3 million in the current quarter compared to $0.3 million in the Fiscal 2009 period. The improvement was primarily attributable to lower pulp and energy prices, along with favorable machine productivity.
Net sales and operating income for our foam segment was $2.1 million and $0.6 million in the fiscal 2010 period, respectively, compared to $0.9 million and $0.2 million in the prior year period. The increase was primarily due to the timing of the APF Acquisition and lower resin prices, the primary raw material used to manufacture our foam products.
Earnings before interest, taxes, depreciation, amortization and special items (Adjusted EBITDA) for the second quarter ended August 27, 2009 totaled $23.3 million, compared to $13.2 million for the comparable period in the prior fiscal year.
Cellu Tissue Holdings, Inc. is a leading North American producer of consumer-oriented private label tissue products with a growing presence in the value retail tissue market.
SOURCE: Cellu Tissue Holdings, Inc.