Orchids Paper Products 2nd Quarter Earnings Up on Higher Shipments, Lower Costs
July 24, 2012 - Orchids Paper Products Company today reported second quarter 2012 financial results.
- Net sales of converted product in the second quarter of 2012 were $22.3 million, an increase of $3.6 million, or 19%, over the prior year quarter. Net sales of converted product on a year-to-date basis were $45.9 million, an increase of $9.2 million, or 25%, over the prior year period.
- Total net sales in the second quarter of 2012 increased 8% to $25.3 million, compared with $23.4 million in the same period in 2011. On a year-to-date basis, total net sales increased $4.9 million, or 11%, to $51.0 million.
- Second quarter 2012 net income was $2.2 million, an increase of $1.0 million, or 87%, compared with $1.2 million of net income in the same period of 2011. Net income for the six-month period ended June 30, 2012 was $4.8 million, an increase of $3.0 million, or 162%, compared to the $1.8 million for the six-month period of 2011. Included in both the second quarter and six-month period net income is a pre-tax loss of $336,000 related to the disposal of some older converting equipment due to the completion of several capital projects during the quarter.
- Diluted net income per share for the second quarter 2012 was $0.29 per diluted share compared with $0.16 per diluted share in the same period in 2011. On a year-to-date basis, diluted net income per share was $0.61 per share for the 2012 period compared to $0.24 per diluted share for the 2011 period. The loss related to the equipment disposal negatively affected second quarter and year-to-date 2012 diluted EPS by $0.03 per share.
Mr. Robert Snyder, President and Chief Executive Officer, stated, "We are pleased to announce our results for the second quarter. Second quarter results, which included a $336,000 loss related to the disposal of some older converting equipment, showed a strong improvement compared to the prior year results due to increased converted product shipments, improvements in our manufacturing operations and lower raw material costs.
"We are also pleased to announce that we have recently gained new business, primarily in the mid-tier category, which we estimate to be 7.5% of our second quarter run rate. We expect this new business to start shipping early in the fourth quarter of this year."
Mr. Snyder added, "The opportunity for continued growth in converted product business remains very strong as our ongoing efforts in new product and market development continue to yield positive results."
Three-month period ended June 30, 2012
Net sales in the quarter ended June 30, 2012 were $25.3 million, an increase of $1.9 million, or 8%, compared to $23.4 million in the same period of 2011. Net sales of converted product were $22.3 million in the 2012 quarter, favorable by $3.6 million, or 19%, compared to the $18.8 million of net sales in the same quarter last year. Net sales of parent rolls were $2.9 million in the second quarter of 2012, a decrease of $1.6 million, or 36%, compared to $4.6 million of parent roll sales in the same quarter last year. The increase in converted product sales resulted from a 24% increase in converted product tonnage shipped partially offset by a 4% decrease in net selling price per ton. The increase in shipments was due to a combination of new product sales which were primarily in the mid-tier market, and increased product distribution with existing customers. Net sales of parent rolls were lower primarily due to the increased requirements of our converting operations.
Earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter ended June 30, 2012 was $5.0 million, an increase of $1.3 million, or 36%, compared to $3.7 million in the same period in the prior year. As a percent of net sales, EBITDA was 19.8% in the 2012 quarter compared with 15.7% in the 2011 quarter. EBITDA for the second quarter of 2012 was negatively affected by a $336,000 charge related to the disposal of certain converting equipment. The disposal of the equipment was the result of capital expenditure projects completed during the quarter.
Gross profit for the second quarter of 2012 was $5.6 million, an increase of $1.9 million, or 51%, when compared with a gross profit of $3.7 million in the prior year quarter. Gross profit as a percent of net sales was 22.2% in the second quarter of 2012 compared to 15.9% for the same period in 2011. As a percent of net sales, gross profit increased primarily due to increased levels of converted product shipments, lower fiber prices, and lower per case converting production costs, which were partially offset by higher maintenance and repair costs in the paper manufacturing operation.
Converted product sales increased as a percent of overall sales, which had a positive effect on overall gross profit because converted product sales generally provide a higher gross profit margin than parent roll sales. Converting production costs were lower as a percentage of sales due to the increased converted product volumes during the quarter and due to improved efficiencies. Cost per ton of fiber in the second quarter of 2012 was 19% lower than the costs incurred in the same quarter of 2011, resulting in a reduction in cost of sales of approximately $1.0 million.
Selling, general and administrative expenses in the second quarter of 2012 totaled $2.1 million, an increase of $296,000, or 16%, compared to $1.8 million incurred in the same quarter of 2011. As a percent of net sales, selling, general and administrative expenses increased to 8.4% for the quarter ended June 30, 2012, compared to 7.8% in the prior year quarter. Selling, general and administrative expense increased primarily due to increased professional fees, higher commission expense due to the higher level of converted product sales, and increased accruals under our incentive bonus plan.
Interest expense for the second quarter of 2012 totaled $102,000 compared to interest expense of $191,000 in the same period in 2011. The lower level of interest expense resulted from the effects of the refinancing of the Company's credit facility in April 2011, which lowered borrowing levels and interest rates.
As of March 31, 2012, the effective tax rate for the full year is estimated to be 30.3%. This compares to the 32.7% we estimated as of the end of the first quarter of 2012. As a result, the effective rate for the second quarter of 2012 was 27.1%. This positively affected diluted earnings per share by approximately $0.02.
Total debt outstanding as of June 30, 2012 was $16.8 million and the total of cash and short-term investments stood at $7.8 million. As a result, net debt outstanding as of June 30, 2012 was $9.0 million.
On June 22, 2012, the Company paid dividends totaling $1.5 million, or $0.20 per share, to stockholders of record as of June 6, 2012.
Orchids Paper Products Company is an integrated manufacturer of tissue paper products serving the at home private label consumer market. From its operations in north east Oklahoma, the Company produces a full line of tissue products, including paper towels, bathroom tissue and paper napkins, to serve the value through premium quality market segments. The Company provides these products to retail chains throughout the United States. For more information on the company and its products, visit the company's website at: www.orchidspaper.com.
SOURCE: Orchids Paper Products Company