Orchids Paper Products Company First Quarter 2014 Net Income Down on Pricing, Costs
April 22, 2014 - Orchids Paper Products Company (NYSE MKT: TIS) today reported first quarter 2014 financial results.
- Net sales totaled $27.8 million, an increase of $1.2 million, or 4%, compared with $26.6 million in the first quarter of 2013. Converted product sales increased $1.5 million, or 6%, from $24.6 million in 2013 to $26.2 million in 2014.
- EBITDA was $6.0 million in the first quarter of 2014, a decrease of $105,000, or 2%, compared to $6.2 million in 2013. EBITDA for 2014 included approximately $102,000 of additional non-cash expenses related to stock options granted to management during the quarter. Excluding those expenses, EBITDA would have been $6.2 million in 2014 and 2013.
- Converted product shipments were 1,927,000 cases, exceeding the first quarter of 2013 of 1,863,000 cases by 3%.
- Net income was $2.6 million, a decrease of $450,000, or 15%, compared with $3.1 million of net income in the same period of 2013.
- Diluted net income per share for the first quarter 2014 was $0.32 per diluted share compared with $0.39 per diluted share in the same period in 2013. Changes in the estimated annual effective tax rate in the first quarter of 2014 compared to 2013 decreased diluted EPS by $0.03 per share. The stock option expenses stated above decreased diluted earnings per share in the 2014 quarter by an additional $0.01 per share.
Mr. Jeff Schoen, President and Chief Executive Officer, stated, "In the first quarter of 2014, we delivered a solid quarter, despite challenges in parent roll pricing and fiber costs. Converted product sales and total net sales were higher than the same quarter in the prior year and our penetration into the premium tier market continued to increase, with 45% of our cases shipped being premium tier products."
Mr. Schoen added, "We remain confident that a strong base of business has been established for the coming year. Our quality products and customer-focused approach continue to provide new opportunities for 2014 and beyond. Additionally, the $30.4 million of capital projects we announced in November of 2013 are underway and will significantly increase our capacity to prepare for future growth, and improve our manufacturing flexibility and cost structure. These projects will increase our ability to produce higher quality grades of value and premium tier products supporting our vision of being recognized as a 100% retailer-focused, national supplier of high quality consumer tissue products in the value, premium, and ultra-premium tier product categories."
THREE-MONTH PERIOD ENDED MARCH 31, 2014
Net sales in the quarter ended March 31, 2014 were $27.8 million, an increase of $1.2 million, or 4%, compared to $26.6 million in the same period of 2013. Net sales of converted product were $26.2 million in the 2014 quarter, favorable by $1.5 million, or 6%, compared to the $24.6 million of net sales in the same quarter last year. Net sales of parent rolls decreased to $1.6 million in the first quarter of 2014 compared with $2.0 million in the same quarter last year. The increase in converted product sales was primarily due to a 3% increase in converted product tonnage shipped and a 4% increase in net selling prices per ton. The increase in shipments was primarily due to increased sales in the mid/premium tier markets.
Earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter ended March 31, 2014 was $6.0 million, a decrease of $105,000, or 2%, compared to $6.2 million in the same period in the prior year. As a percent of net sales, EBITDA was 21.8% in the 2014 quarter compared with 23.1% in the 2013 quarter. During the first quarter of 2014, $102,000 in additional non-cash expenses related to stock options granted to management were incurred. Excluding those expenses, EBITDA and EBITDA as a percent of net sales would have been $6.2 million and 22.3%, respectively.
Gross profit for the first quarter of 2014 was $6.0 million, a decrease of $509,000, or 8%, when compared with a gross profit of $6.5 million in the prior year quarter. Gross profit as a percent of net sales was 21.7% in the first quarter of 2014 compared to 24.5% for the same period in 2013. As a percent of net sales, gross profit decreased primarily due to higher fiber costs, higher overhead costs in our converting operation and lower parent roll selling prices.
Selling, general and administrative expenses in the first quarter of 2014 totaled $2.2 million, a decrease of $94,000, or 4%, compared to the same period in the prior year. The decrease was primarily due to lower accruals under our incentive bonus program, lower artwork and design fees and lower expenses related to director's stock options, which were partially offset by higher professional fees and higher commission expense due to the improved level of converted product sales. Selling, general and administrative expenses as a percent of net sales in the 2014 quarter were 7.8% compared to 8.5% for the prior year quarter.
Interest expense for the first quarter of 2014 totaled $13,000 compared to interest expense of $93,000 in the same period in 2013. The lower level of interest expense resulted from capitalization of $73,000 of interest on significant projects during the quarter and lower amounts outstanding under the Company's credit facility.
As of March 31, 2014, the effective tax rate for the full year is estimated at 31.1%. The actual effective tax rate for the first quarter was 30.9%, as compared to the 25.8% effective tax rate estimated as the end of the first quarter of 2013. The annual estimated effective tax rate in 2014 is higher than the 2013 effective tax rate due to the expiration of the Indian employment tax credit ("IEC") at the end of 2012 and the end of 2013. Recognition of a $222,000 IEC for 2012 was deferred until the first quarter of 2013 as the American Taxpayer Relief Act of 2012, which extended the IEC through 2013, was not signed into law by the President of the United States until 2013. Therefore, the IEC for both 2012 and 2013 were recorded in the 2013 effective tax rate. Additionally, no IEC has been recognized in the 2014 estimated effective tax rate, as the IEC expired at the end of 2013 and has not been extended for 2014.
Orchids Paper Products Company is an integrated manufacturer of tissue paper products serving the at home private label consumer market. To learn more visit: www.orchidspaper.com.
SOURCE: Orchids Paper Products Company