Glatfelter Posts First Quarter Loss on Input Costs
May 4, 2010 - Glatfelter today reported 2010 first quarter adjusted earnings of $8.7 million, or $0.19 per diluted share, which excludes acquisition and integration costs, compared with $11.2 million, or $0.24 per diluted share, in the 2009 first quarter. 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.
On a GAAP basis, results for the first quarter were a net loss of $0.4 million, or $0.01 per share, compared with net income of $11.5 million, or $0.25 per diluted share, for the same quarter last year. The 2010 first quarter results include $9.1 million, after-tax, of acquisition and integration related costs associated with the Concert Industries Corp. acquisition completed in February 2010. The 2009 first quarter net income benefited from $0.4 million in after-tax gains from the sale of timberlands. Consolidated net sales for the first quarter of 2010 were $337.3 million, a 15.7 percent increase compared with $291.6 million for the first quarter of 2009, reflecting improved demand and the inclusion of Concert, now operated and reported as the Company’s Advanced Airlaid Materials business unit.
“Each of our businesses is beginning to benefit from stronger order patterns as the economy improves,” said George H. Glatfelter II, Chairman and Chief Executive Officer. “During the quarter, volumes shipped in our Specialty Papers business increased 4 percent and the Composite Fibers business was up 11 percent compared with a year ago reflecting improving market demand and successful business development initiatives. As a result, our operating rates are at or near capacity. However, it was an uncharacteristically challenging quarter from an operating perspective and rising input costs, particularly purchased pulp, put some pressure on margins. Recent announcements of selling price increases are expected to address much of this challenge going forward.
“In addition, we remain very excited about the growth opportunities associated with the Concert acquisition. Although in the very early stages, our integration activities are proceeding on schedule and without interruptions.”
FIRST QUARTER BUSINESS UNIT RESULTS
The $8.1 million increase in net sales was due to higher volumes shipped but lower average selling prices negatively impacted net sales by $2.0 million in the quarter-over-quarter comparison.
Specialty Papers’ 2010 first quarter operating profit declined $2.4 million compared with the prior-year quarter primarily due to higher maintenance and other costs associated with production interruptions and the impact of severe weather conditions. These unfavorable factors were partially offset by benefits from the lack of market-related downtime this quarter, improved shipping volume and mix, and a $1.6 million increase in the sale of renewable energy credits.
The improvement in Composite Fibers’ net sales reflects strengthening demand in most of its product lines. On a constant currency basis, lower average selling prices adversely affected net sales by $0.8 million, and the translation of foreign currencies favorably affected net sales by approximately $5.7 million.
Lower energy costs, primarily natural gas, favorably affected this business unit’s profitability by $3.4 million; however production inefficiencies driven, in part, by severe weather partially offset this benefit. On a net basis, Composite Fibers’ operating profit increased $0.8 million in the quarter-to-quarter comparison.
Advanced Airlaid Materials
Results for Advanced Airlaid Materials are included from February 12, 2010, the date of the Concert acquisition. Reported results were adversely impacted by $1.2 million as a result of charging cost of products sold for the write-up of acquired inventory to fair value.
Other Financial Information
Consolidated selling, general and administrative expenses totaled $34.7 million, a $10.2 million increase primarily due to acquisition and integration related costs associated with the Concert acquisition.
Interest expense totaled $5.7 million for the first quarter of 2010, an increase of $0.5 million primarily due to additional expense related to the issuance of $100.0 million in bonds in February 2010 used to fund, in part, the Concert acquisition.
The Company recorded a $3.4 million loss associated with forward foreign currency contracts that hedged the Canadian dollar purchase price of the Concert acquisition. This amount is reflected in the caption “Other-net” for the three months ended March 31, 2010 in the accompanying Consolidated Statements of Income.
For the first quarter of 2010, the Company’s effective tax rate on adjusted earnings was 27.2 percent compared with 22.5 percent in the same quarter of 2009.
Balance Sheet and Other Information
Capital expenditures totaled $6.1 million in the 2010 first quarter compared with $5.2 million in the same quarter of 2009. Capital expenditures are expected to be approximately $45 million to $50 million for 2010.
Cash and equivalents totaled $26.6 million as of March 31, 2010 and net debt, excluding cash collateralized borrowings, was $311.5 million, an increase of $229.0 million compared with December 31, 2009, reflecting the Concert acquisition with a purchase price of $235.8 million. Free cash flow (cash provided by operations less capital expenditures) during the first quarter of 2010 was $14.2 million. In April 2010, the Company received a $54.9 million federal income tax refund in connection with the filing of its 2009 corporate income tax return which included the benefit of alternative fuel mixture credits.
On April 29, 2010, the Company completed a new, four-year $225 million revolving credit agreement with a consortium of banks. The new agreement replaces its current facility, which was scheduled to mature in April 2011.
For Specialty Papers, the Company expects shipping volumes to be flat in the second quarter of 2010 compared with the first quarter of 2010 and selling prices are expected to increase in the same comparison. In addition, purchased pulp costs are expected to be higher in the second quarter of 2010 compared to the first quarter of 2010, which will offset the benefit of higher selling prices. The Company also reported that it plans to complete the annually scheduled maintenance outages at both the Chillicothe and Spring Grove facilities in the second quarter of 2010. The outages are expected to adversely impact second-quarter results by approximately $0.26 to $0.28 per share.
For Composite Fibers, the Company anticipates shipping volumes in the second quarter of 2010 to be approximately 5 percent higher than the first quarter of 2010. Selling prices are expected to be relatively in line with the first quarter and input costs are expected to be higher due to continued increases in wood pulp prices which are expected to offset the impact of higher shipping volumes.
Shipping volumes for the Advanced Airlaid Materials business unit in the second quarter of 2010 are expected to remain relatively in line with the run-rates reported in the first quarter, adjusted for a full quarter of volume. In addition, the effect of stepping-up the basis of inventory from the application of purchase accounting is expected to be $0.1 million for the second quarter. The Company continues to expect the acquisition will be modestly accretive to 2010 earnings, excluding acquisition and integration costs. For the remainder of 2010, integration costs are expected to approximate $2 million to $3 million.
Mr. Glatfelter commented, “I believe our Company is well positioned to benefit from the improving economic conditions seen in many markets we serve. In addition to the improving economy, we are excited about our prospects for 2010, which is the result of the work we have done to grow our market opportunities and global reach organically and through acquisition. We remain focused on integrating the Concert acquisition, and leveraging our broad and diverse product line to deliver value for our investors, customers and other stakeholders.”
Headquartered in York, PA, Glatfelter is a global manufacturer of specialty papers and engineered products,