Orchids Paper Reports Fourth Quarter, Full Year 2012 Results

Feb. 6, 2013 - Orchids Paper Products Company today reported year-end 2012 financial results.

Summary:

  • Full year net sales increased $3.0 million, or 3%, to $100.8 million, marking the first time the Company has achieved more than $100 million in net sales. Total net sales in the fourth quarter of 2012 decreased 6% to $24.0 million, compared with $25.7 million in the same period in 2011.
  • Full year net sales of converted product were $90.5 million, a new twelve-month record, which represented an increase of $8.6 million, or 10%, over 2011. Net sales of converted product in the fourth quarter of 2012 were $21.8 million, a decrease of $2.0 million, or 8%, over the prior year quarter.
  • Full year net income for 2012 was $9.3 million, an increase of $3.1 million, or 49%, compared to the $6.2 million in 2011. Fourth quarter 2012 net income was $2.2 million, a decrease of $561,000, or 21%, compared with $2.7 million of net income in the same period of 2011.
  • Full year diluted net income per share was $1.18 per share for the 2012 period compared to $0.80 per diluted share for 2011. Diluted net income per share for the fourth quarter 2012 was $0.28 per diluted share compared with $0.35 per diluted share in the same period in 2011. Earnings per share for the fourth quarter of 2012 were negatively affected by approximately $0.02 per share due to a change in the estimated full-year effective tax rate. Earnings per share in the fourth quarter of 2011 were increased by $0.03 per share due to a change in the estimated full-year effective tax rate.

Mr. Robert Snyder, President and Chief Executive Officer, stated, "We are pleased to announce that our full year results include record sales levels for both converted product and total net sales, with converted product shipments of just over 7 million cases. This achievement continues our long-term trend of increasing sales. Shipments of the previously announced new business gains of approximately 1.1 million cases are proceeding within our expectations and we are off to a strong start in 2013. Additionally, we have secured additional new business that we expect will increase our annual run rate by the third quarter of 2013 to approximately 9 million cases."

Mr. Snyder added, "Our expected business growth in 2013 is the result of our continued success in penetrating the mid and premium tier market. These successes are a result of the diligent efforts of our team to further product development, implement our market strategy and deliver best in class customer service. The market for business opportunities continues to be strong and we are optimistic about our future growth."

Three-month period ended December 31, 2012

Net sales in the quarter ended December 31, 2012 were $24.0 million, a decrease of $1.7 million, or 6%, compared to $25.7 million in the same period of 2011. Net sales of converted product were $21.8 million in the 2012 quarter, unfavorable by $2.0 million, or 8%, compared to the $23.8 million of net sales in the same quarter last year. Net sales of parent rolls were $2.2 million in the fourth quarter of 2012, an increase of $380,000, or 20%, compared to $1.9 million of parent roll sales in the same quarter last year. The decrease in converted product sales resulted from a 10% decrease in converted product tonnage shipped partially offset by a 2% increase in net selling price per ton. The decrease in shipments was primarily due to promotional sales activities in the 2011 quarter which did not repeat in the current year quarter. The increase in parent roll sales resulted from an 18% increase in tonnage shipped and a 2% increase in net selling price per ton. Net sales of parent rolls were higher primarily due to the reduced requirements of our converting operations during the quarter.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter ended December 31, 2012 was $5.4 million, a decrease of $142,000, or 3%, compared to $5.5 million in the same period in the prior year. As a percent of net sales, EBITDA was 22.3% in the 2012 quarter compared with 21.4% in the 2011 quarter.

Gross profit for the fourth quarter of 2012 was $5.4 million, a decrease of $157,000, or 3%, when compared with a gross profit of $5.6 million in the prior year quarter. Gross profit as a percent of net sales was 22.6% in the fourth quarter of 2012 compared to 21.8% for the same period in 2011. As a percent of net sales, gross profit increased primarily due to lower fiber prices and lower maintenance and repair costs in the paper manufacturing operation, being partially offset by the lower sales of converted product and higher converting production per unit costs during the quarter.

Cost per ton of fiber in the fourth quarter of 2012 was 21% lower than the costs incurred in the same quarter of 2011, resulting in a reduction in cost of sales of approximately $1.0 million. Converted product sales decreased as a percentage of overall sales, which had a negative effect on overall gross profit because converted product sales generally provide a higher gross profit margin than parent roll sales. Decreased production of converted products during the quarter had a negative impact on absorption of fixed costs, resulting in increased per unit converted product costs.

Selling, general and administrative expenses in the fourth quarter of 2012 totaled $2.0 million, an increase of $122,000, or 6%, compared to $1.9 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 December 31, 2012, compared to 7.4% in the prior year quarter.

Interest expense for the fourth quarter of 2012 totaled $99,000 compared to interest expense of $104,000 in the same period in 2011.

As of December 31, 2012, the estimated effective tax rate for the full year is 30.9%. This is higher than the 30.0% we estimated as of the end of the third quarter of 2012. As a result of finalizing our annual tax estimate during the quarter, the effective rate for the fourth quarter of 2012 was 34.6%. This negatively affected diluted earnings per share in the fourth quarter of 2012 by approximately $0.02 per share.

Total debt outstanding as of December 31, 2012 was $16.2 million, which when offset by the total of cash and short-term investments of $10.7 million, resulted in net debt of $5.5 million. On December 18, 2012, the Company paid dividends totaling $1.9 million, or $0.25 per share, to stockholders of record as of December 3, 2012. The Company paid dividends totaling $6.4 million, or $0.85 per share, to stockholders during the twelve months ended December 31, 2012.

Twelve-month period ended December 31, 2012

Net sales for the twelve-month period ended December 31, 2012 increased $3.0 million, or 3%, to $100.8 million when compared to the $97.8 million reported for the prior year period. Net sales of converted product were $90.5 million for the 2012 period, an increase of $8.6 million, or 10%, when compared to the prior year period. As a result of the increased converted product sales, net sales of parent rolls for 2012 decreased $5.6 million, or 35%, to $10.3 million compared to $15.9 million in the prior year period. Converted product sales increased due to a 12% increase in tonnage shipped being partially offset by a 1% decrease in net selling prices per ton. The decrease in parent roll sales resulted from a 37% decrease in tonnage shipped being partially offset by a 3% increase in net selling price per ton.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the twelve-month period ended December 31, 2012 was $21.3 million, an increase of $5.1 million, or 31%, compared to $16.2 million in the same period in the prior year. As a percent of net sales, EBITDA was 21.2% in the 2012 period compared with 16.6% in the 2011 period.

Gross profit for the twelve-month period ending December 31, 2012 was $22.6 million, an increase of $6.6 million, or 41%, over the $16.0 million for the 2011 period. The improvement is primarily the result of lower fiber prices, higher converted product sales and lower per unit converting production costs, which were partially offset by higher maintenance and repair costs in the paper manufacturing operation.

Our cost of fiber for 2012 was approximately 23% lower than the cost for the prior year, which had the effect of reducing our cost of sales by approximately $5.0 million. Converted product sales increased as a percent of overall sales, which had a positive effect on overall gross profit margins due to the product mix shift to higher margin converted product sales from lower margin parent roll sales. Converting production costs per case decreased primarily due to an 11% increase in the number of cases produced during 2012 and due to improved operating efficiencies. Maintenance and repair costs in the paper manufacturing operation were higher than prior year by approximately $822,000.

Selling, general and administrative expenses for the twelve-month period ended December 31, 2012 were $8.5 million, an increase of $1.6 million, or 24%, compared to the prior year period. As a percent of net sales, selling, general and administrative expenses were 8.4% for the 2012 period compared to 7.0% for the 2011 period. The increased expenses were primarily due to higher professional fees, higher expense under our incentive bonus program due to our higher earnings and higher artwork related expenses due to our new product development efforts, as well as increased commission expense due to higher levels of converted product sales.

Interest expense for the twelve-month period ended December 31, 2012 was $407,000 compared to the $647,000 reported for the 2011 period. The reduction was due to the refinancing of the Company's debt facility in April 2011.

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