Kapstone Reports Record 2nd Quarter Earnings on Strong Sales, Production
Aug. 4, 2011 - KapStone Paper and Packaging Corporation [yesterday] reported record results for the second quarter ended June 30, 2011.
- Net sales of $215 million, up $16 million or 8 percent, versus 2010
- Average revenue per ton of $633, up $48 or 8 percent, versus 2010
- Diluted EPS of $0.38, up $0.23 or 153 percent, versus 2010
- Adjusted EBITDA of $44 million, up $19 million or 76 percent, versus Q2 2010
Roger W. Stone, Chairman and Chief Executive Officer, stated, "Record net sales of $215 million and record adjusted EBITDA of $44 million demonstrate the growing success of KapStone. Sales benefited from price increases on two product lines partially implemented in the second quarter that should be fully realized in the third quarter. Our mills had an excellent quarter and achieved a new average daily production record of 3,600 tons. Increased productivity coupled with cost savings initiatives reduced our cost per ton by $15 compared to a year ago."
SECOND QUARTER OPERATING HIGHLIGHTS
Record net sales for the quarter ended June 30, 2011 of $214.8 million were up $15.7 million over the same period a year ago. The increase in net sales was driven by $15.8 million of higher average selling prices, $2.0 million from increased volume, and $1.9 million from favorable exchange rates. A less favorable product mix reduced sales by $1.9 million reflecting lower percentages of DuraSorb® and kraft paper sales.
Operating income of $30.6 million for the 2011 quarter increased by $18.1 million compared to the 2010 quarter primarily on $15.8 million of higher average selling prices, $4.8 million of productivity gains, $1.9 million due to favorable exchange rates and $0.8 million of lower stock compensation expenses. Higher depreciation and amortization of $1.7 million, less favorable product mix of $1.3 million and inflation of $0.9 million, primarily on freight and chemical costs, partially offset the gains.
Interest expense of $0.6 million for the second quarter of 2011 decreased by $0.2 million over the comparable quarter in 2010 and reflected lower debt levels. At June 30, 2011, the interest rate on the majority of the Company's debt is 1.69 percent.
The effective tax rate for the 2011 second quarter was 38.6 percent compared to 33.7 percent for the 2010 second quarter. The 2011 effective tax rate is higher due to a lower expected benefit from the domestic manufacturing deduction. The 2010 effective tax rate included a benefit from a discrete adjustment related to a refundable tax credit from the inorganic content of black liquor.
For income tax purposes, the Company has taken the position that the alternative fuel mixture tax credit is not taxable as it is similar to an excise tax refund. Since the Internal Revenue Service ("IRS") has issued no specific guidance in this area, the Company has recorded a $68 million liability for an unrecognized tax benefit. The IRS's examination of the Company's 2007-2009 tax returns is ongoing.
CASH FLOW AND WORKING CAPITAL
Cash and cash equivalents increased by $27.3 million to $49.8 million as of June 30, 2011, reflecting $40.6 million provided by operating activities offset by $8.2 million used in investing activities and $5.1 million used in financing activities.
Total debt outstanding as of June 30, 2011, was $106.5 million and was reduced by $5.3 million during the second quarter of 2011.
At June 30, 2011, the Company had approximately $110.6 million of working capital and $88.6 million of revolver borrowing capacity.
In summary, Stone commented, "As we enter the second half of the year, we believe that KapStone will benefit from the realizations of our announced price increases. We will continue to pursue operational excellence. Our backlogs remain at healthy levels."
Headquartered in Northbrook, IL, KapStone Paper and Packaging Corporation is a leading North American producer of unbleached kraft paper products and linerboard. The Company is the parent company of KapStone Kraft Paper Corporation which includes paper mills in Roanoke Rapids, NC and North Charleston, SC, a lumber mill in Summerville, SC, and five chip mills in South Carolina. The business employs approximately 1,600 people.
SOURCE: KapStone Paper and Packaging Corporation