Glatfelter's Third Quarter Earnings Up on Strong Specialty Papers Business
Oct. 31, 2012 - Glatfelter today reported 2012 third quarter adjusted earnings of $19.4 million, or $0.44 per diluted share, compared with $12.8 million, or $0.28 per diluted share, in the 2011 third quarter. On a GAAP basis, third quarter 2012 net income totaled $20.1 million, or $0.46 per share, compared with $13.0 million, or $0.28 per share, in the third quarter of 2011. Consolidated net sales in the third quarter of 2012 totaled $404.4 million, a 2.9 percent decrease from the third quarter of 2011 primarily due to unfavorable foreign currency translation. On a constant currency basis, net sales were slightly higher.
"Our third quarter results reflect solid performance from our Specialty Papers business which delivered top-line growth," —Dante C. Parrini, Chairman and CEO, Glatfelter.
“Our third quarter results reflect solid performance from our Specialty Papers business which delivered top-line growth, again outperforming the broader uncoated freesheet market, and it significantly increased operating income,” said Dante C. Parrini, chairman and chief executive officer.
“Additionally, our Composite Fibers and Advanced Airlaid Materials businesses, although challenged by difficult economic conditions in Europe, each reported improved operating results, largely due to lower input costs and our ongoing focus on continuous improvement initiatives. We increased adjusted earnings per share by 57 percent and business unit operating income by 16 percent, reflecting the strength of our diversified business model and our North American market positions.
"Further, in early October 2012, we completed a $250 million offering of 5.375 percent notes, replacing our existing notes. Together with the 2011 refinancing of our revolving credit facility, this transaction significantly reduces our cost of capital and maintains our very strong financial position.”
THIRD QUARTER BUSINESS UNIT RESULTS
On a year-over-year basis, Specialty Papers’ net sales increased 3.2 percent as volumes shipped increased 2.5 percent and higher selling prices contributed $0.7 million.
Specialty Papers’ 2012 third quarter operating income increased $4.4 million, or 26.2 percent compared with the 2011 third quarter due to a $3.5 million benefit from lower input costs, primarily purchased fiber and energy costs. These factors were partially offset by a $1.0 million decline in the net margin from energy and renewable energy credit sales.
Composite Fibers’ net sales decreased $14.0 million, or 11.2 percent, primarily due to the translation of foreign currencies, which unfavorably impacted the comparison by $9.2 million, and slightly lower selling prices which adversely impacted the comparison by $0.5 million. Shipping volumes were 2.4 percent lower.
Composite Fibers’ third quarter 2012 operating income increased by $0.2 million in the year-over-year comparison. Lower raw material and energy costs benefited results by $1.8 million. Unfavorable foreign currency translation impacted operating income by $1.0 million in the year-over-year comparison.
Advanced Airlaid Materials
On a year-over-year basis, Advanced Airlaid Materials’ net sales decreased $5.3 million, or 8.1 percent, primarily due to a $4.4 million unfavorable impact from the translation of foreign currencies. Volumes shipped decreased 1.1 percent and lower average selling prices adversely impacted results $1.1 million in the comparison.
Third quarter 2012 operating income increased $0.4 million, or 10.5 percent, compared with the year-ago quarter primarily due to a $2.7 million benefit from lower raw material and energy costs partially offset by lower selling prices and $1.3 million from unfavorable foreign currency translations.
Other Financial Information
Pension expense totaled $2.9 million and $4.1 million for the third quarters of 2012 and 2011, respectively, including a $2.0 million one-time settlement charge recorded in the third quarter of 2011. Since the Company’s qualified plan remains overfunded, a cash contribution is not required to be made in 2012.
Interest expense declined $2.3 million to $4.2 million in the year-over-year comparison reflecting the redemption of $100.0 million of 7 1/8 percent bonds at the end of 2011.
The Company completed the sale of 979 acres of timberlands during the third quarter of 2012 and realized a $1.5 million pre-tax gain.
In the third quarter of 2012, the Company recorded an income tax provision of $6.4 million on adjusted pre-tax earnings resulting in an effective tax rate of 24.9 percent. In the comparable quarter a year ago, the Company recorded an income tax provision of $4.5 million resulting in an effective tax rate of 26.2 percent.
“I expect the challenging economic conditions will persist throughout the fourth quarter, particularly in Europe, and will therefore continue to impact Composite Fibers’ and, to a lesser extent, Advanced Airlaid Materials’ results. We also expect to see normal seasonality in our business which will adversely impact our results compared to the third quarter,” said Mr. Parrini.
For Specialty Papers, the Company expects shipping volumes to decline slightly in the fourth quarter of 2012 compared with the third quarter of 2012, due to normal seasonality. Selling prices are expected to be slightly lower and input costs are expected to be in line with the third quarter.
The Company anticipates Composite Fibers’ shipping volumes to be approximately 5 percent lower in the fourth quarter compared to the third quarter due to normal seasonality and soft economic conditions in Europe, while selling prices and input costs are expected to be generally in line with the third quarter of 2012. As a result of the October 2012 fire sustained at its Scaer, France facility, the Company expects to incur costs approximating $4 million to $6 million related to repairs, cleaning and downtime due to the incident. Although the fire is expected to be covered by insurance, the timing of recording costs versus recognition of the insurance recovery is likely to be different under applicable accounting standards.
Shipping volumes for the Advanced Airlaid Materials business unit in the fourth quarter of 2012 are expected to be slightly lower than the third quarter of 2012. Average selling prices are expected to be slightly lower driven by lower input costs in the fourth quarter compared with the third quarter.
In addition, the Company expects to take its normal seasonal downtime in the fourth quarter of 2012.
In connection with the previously announced refinancing of $200.0 million of its 7.125 percent senior notes, the Company expects to record a charge totaling approximately $5.0 million, after-tax, related to an early redemption premium and the write-off of unamortized deferred financing costs. The Company replaced these notes with the issuance of $250 million of 5.375 percent senior notes due October 2020.
Headquartered in York, Pennsylvania (USA), Glatfelter is a global manufacturer of specialty papers and fiber-based engineered materials, offering over a century of experience, technical expertise and world-class service. U.S. operations include facilities in Spring Grove, Pennsylvania and Chillicothe and Fremont, Ohio. International operations include facilities in Canada, Germany, France, the United Kingdom and the Philippines, a representative office in China and a sales and distribution office in Russia. Glatfelter’s sales approximate $1.6 billion annually. Additional information may be found at www.glatfelter.com.