Kapstone Paper and Packaging Posts Record 2nd Quarter Results on Strong Volumns
Aug. 2, 2012 - KapStone Paper and Packaging Corporation [yesterday] reported record results for the second quarter ended June 30, 2012.
- Net sales of $306 million up $91 million, or 43 percent, versus prior year
- Net income of $18.4 million up 1.3 percent versus 2011
- Adjusted EBITDA of $50 million up $6 million, or 13 percent, versus prior year
- Diluted EPS of $0.39 up $0.01 per share, or 3 percent, versus 2011
- Adjusted diluted EPS of $0.42 up $0.03 per share, or 8 percent, versus prior year
- Unfavorable foreign exchange rates impacted EPS by $0.03 versus prior year
- $50 million voluntary loan repayment made in second quarter of 2012
Roger W. Stone, Chairman and Chief Executive Officer, stated, "Our operations ran well during the quarter resulting in record second quarter results. Our mills produced a record 390,000 tons of paper for the quarter. The USC acquisition also performed well and added $10 million in adjusted EBITDA. Average selling prices of $623 per ton increased by $15 per ton compared to the first quarter of 2012, reflecting product mix improvements and a recovery of export containerboard prices as expected. Record free cash flow enabled us to make a $50 million voluntary loan repayment which will greatly reduce future interest charges.
"Finally in mid-July we announced a $50 per ton increase for containerboard effective with shipments beginning in mid-August."
SECOND QUARTER OPERATING HIGHLIGHTS
Consolidated net sales of $306.3 million in the second quarter of 2012 increased by $91.5 million, or 42.6 percent compared to $214.8 million for the 2011 second quarter. The increase is primarily due to the USC acquisition which added $97.2 million of additional revenue based on selling 1.6 billion square feet of corrugated products compared to none in 2011. In 2012's second quarter, 324,000 tons of paper were sold compared to 329,000 tons a year earlier. The Company's average selling price decreased by $10 primarily from lower export containerboard prices which have been recovering since bottoming out in March.
Operating income of $32.5 million for the 2012 second quarter increased by $1.8 million, or 6.0 percent, compared to the 2011 second quarter. The improved financial performance primarily reflect benefits from the acquisition partially offset by lower selling prices, lower sales volume, unfavorable foreign exchange rates, inflation on input costs and acquisition start up expenses.
Unfavorable foreign exchange rates resulting from the strengthening of the U.S. dollar compared to the euro reduced diluted earnings per share by approximately $0.03.
Interest expense, net was $2.3 million for the second quarter of 2012, up $1.7 million from a year ago as a result of higher debt balances associated with the acquisition. At June 30, 2012, the interest rate on the majority of the Company's debt was 2.24 percent. Amortization of debt issuance costs of $0.9 million for the second quarter of 2012 increased by $0.5 million from a year ago due to costs associated with the Company's new credit agreement.
The effective tax rate for the 2012 second quarter was 36.0 percent compared to 38.6 percent for the 2011 second quarter and increased diluted earnings per share by $0.02. The lower effective tax rate is due to a higher expected benefit from the domestic manufacturing deduction. For 2012, the Company estimates its cash tax rate to be about 10 percent reflecting utilization of net operating losses and the cellulosic biofuel tax credit.
Cash Flow and Working Capital
Cash and cash equivalents decreased by $10.4 million in the quarter ended June 30, 2012, to $9.7 million reflecting $57.2 million of net cash provided by operating activities, $16.5 million of cash used by investing activities and $51.0 million of cash used by financing activities which included a $50.0 million voluntary loan prepayment.
Capital expenditures for the second quarter of 2012 totaled $16.5 million. The Company estimates $64.0 million of capital expenditures for the year.
In May 2012, the Company amended its credit agreement by increasing the amount available under its "accordion" provision from $300.0 million to $450.0 million.
At June 30, 2012, the Company had approximately $131.3 million of working capital and $142.4 million of revolver borrowing capacity.
In summary, Stone commented, "We experienced the typical seasonal pickup expected in the second quarter. Our backlogs are strong and our operations are running well. Our cash flows and balance sheet are strong and provide us with much flexibility. We are in an excellent position to continue to grow the Company profitably."
Headquartered in Northbrook, IL, KapStone Paper and Packaging Corporation is a leading North American producer of unbleached kraft paper and corrugated products. The Company is the parent company of KapStone Kraft Paper Corporation and KapStone Container Corporation which includes three paper mills and 14 converting plants across the eastern and midwestern U.S. The business employs approximately 2,700 people.
SOURCE: KapStone Paper and Packaging Corporation