Neenah Paper Third Quarter Net Income Up on Improved Sales
Fine Paper net sales of $102.6 million in the third quarter of 2013 increased four percent compared with prior year sales of $99.1 million.
Nov. 7, 2013 - Neenah Paper, Inc. yesterday reported earnings from continuing operations of $0.68 per diluted common share in the third quarter of 2013 compared with earnings of $0.55 per share in the third quarter of 2012. After excluding net impacts of a research and development tax credit in 2013 and other unusual costs in both years, adjusted earnings in the third quarter of 2013 were $0.61 per diluted common share and compared to adjusted earnings of $0.56 per share in the third quarter of 2012. Adjusted earnings are reconciled to comparable GAAP figures later in this release.
Net sales of $214.1 million in the third quarter of 2013 increased four percent compared with the third quarter of 2012. Operating income of $16.4 million was also ahead of the prior year period as mid-single digit growth in Fine Paper and Technical Products was partly offset by higher unallocated corporate expense. Net income of $11.4 million in 2013 grew from $9.1 million in the prior year as a result of higher operating income, lower interest expense and reduced tax expense after including the tax credit.
"Both of our business segments performed well in the quarter, with each delivering solid top line growth and an improved bottom line. Technical Products expanded globally behind strong filtration and specialty tape growth, while Fine Paper continued to generate attractive returns through a more efficient operating platform and a higher value mix of products,” said John O’Donnell, Chief Executive Officer.
“Cash flow from operations was an impressive $35 million, anchored by strong business earnings and supplemented by improvements in working capital. Our cash generation and strong balance sheet are providing the financial flexibility to deliver on our commitment to increase cash returns to shareholders while pursuing value-adding growth investments in performance-oriented technical products.”
QUARTERLY SEGMENT AND OTHER FINANCIAL RESULTS
Technical Products net sales were $104.4 million in the third quarter of 2013 and increased six percent compared with $98.7 million in the prior year period. The higher sales resulted from increased volume, favorable currency effects and a more favorable product mix. Gains were led by double-digit growth in filtration, as well as increases in tape and labels that combined were partly offset by lower sales of industrial and building products. Selling prices were lower in the third quarter of 2013 as a result of contractual price adjusters for certain customers based on input costs, as well as more competitive conditions in some markets.
Operating income for Technical Products of $6.7 million in the third quarter of 2013 increased five percent compared with $6.4 million in the third quarter of 2012. The higher income in 2013 resulted from improved manufacturing efficiencies, higher volumes and lower input costs that were partly offset by lower selling prices.
Fine Paper net sales of $102.6 million in the third quarter of 2013 increased four percent compared with prior year sales of $99.1 million. Volumes decreased slightly in the quarter as growth in acquired brands and luxury packaging grades was offset by a decline in lower value non-branded business. Net sales increased overall in 2013 as benefits from an improved mix of products sold and higher selling prices more than offset the lower volume.
Operating income of $13.3 million in the third quarter of 2013 was up four percent compared to $12.8 million in 2012. The increased income in the current year resulted from improved manufacturing efficiencies, a higher value mix and increased selling prices that more than offset higher input prices and increased selling and distribution costs in support of acquired brands.
Unallocated Corporate and Other includes unallocated corporate costs and results from acquired non-premium paper grades. Unallocated corporate costs were $3.9 million in the third quarter of 2013 and $3.4 million in the prior year period. The unfavorable comparison with the prior year reflected lower costs in 2012 due to timing of expenses. Sales of acquired non-premium grades were $7.1 million in 2013, with operating income of $0.3 million; in 2012, sales were $8.5 million, with operating income of $0.5 million.
Consolidated selling, general and administrative (SG&A) expense was $19.8 million in the third quarter of 2013 compared to $18.5 million in the third quarter of 2012. Higher costs in 2013 included added costs to support acquired Fine Paper brands as well as lower costs in 2012 due to timing of corporate spending items.
Net interest expense of $2.6 million in the third quarter of 2013 compared to $3.3 million in the same quarter of 2012. The decline in interest expense in 2013 resulted primarily from lower interest rates in 2013 following the early redemption and refinancing of the Company’s Senior Notes in May 2013.
The effective income tax rate for the third quarter of 2013 of 17 percent compared to a rate of 29 percent in the third quarter of 2012. The lower rate in 2013 was primarily due to recognition of $1.4 million of research and development tax credits. For the full year, the effective tax rate excluding this credit is expected to be approximately 35 percent.
Cash provided by operations in the third quarter of 2013 was $34.5 million compared to $32.1 million generated in the third quarter of 2012. Increased cash generation in 2013 resulted from higher income and improved working capital efficiencies compared to the prior year. Capital spending of $10.7 million in the third quarter of 2013 compared with $6.5 million in the prior year period. Planned capital spending for the year is expected to be within the company’s targeted range of $25 to $30 million.
Debt and Cash and Cash Equivalents as of September 30, 2013 were $193.1 million and $48.2 million compared to June 30, 2013 balances of $192.8 million and $26.9 million, respectively. The increase in cash balances in the third quarter of 2013 primarily resulted from cash provided by operations less capital spending and dividends.
YEAR TO DATE
Year-to-date net sales of $639.6 million in 2013 increased four percent compared to $616.2 million in 2012. The increased revenues resulted from a seven percent gain in Fine Paper sales, primarily reflecting volume growth mostly from acquired brands as well as a higher value mix of products sold. Technical Products sales also increased by two percent as a result of favorable currency impacts, volume growth, and a higher value product mix. Other segment sales declined eleven percent primarily as a result of lower volumes of these non-strategic grades.
Operating income of $61.2 million in 2013 increased from $54.5 million in 2012. Higher income in 2013 resulted from increased income in Fine Paper and lower Unallocated Corporate Expense. Fine Paper increased due to volume growth and a higher value mix while Unallocated Corporate Expense primarily reflected lower costs in 2013 for pension settlements. Income from continuing operations was $36.3 million in 2013 and $30.8 million in 2012. Increased income in 2013 resulted from higher operating income as well as lower interest expense in 2013 and benefits in 2013 from the R&D tax credit. Income from discontinued operations of $2.6 million in 2013 was due to a refund following the final settlement and closure of the pension plan of Neenah’s former Terrace Bay pulp operation.
Cash provided by operating activities of $64.5 million for the nine months ended September 30, 2013 was $42.6 million higher than cash provided by operating activities of $21.9 million in the prior year period. The favorable comparison was primarily due to a $21.5 million year-over-year decrease in our investment in working capital as well as payments in 2012 for acquisition costs related to the purchase and integration of the Wausau brands ($11.3 million) and SERP benefits ($6.9 million).
Year-to-date capital spending of $20.4 million compared to $15.8 million in the prior year.
Neenah, headquartered in Alpharetta, Georgia, is a leader in premium image and performance-based products, including filtration, specialized substrates used for tapes, labels and other products, and high-end printing papers. For additional information visit: www.neenah.com.
SOURCE: Neenah Paper