KapStone Paper and Packaging Posts Record First Quarter 2014 Results
"KapStone was able to deliver a record first quarter despite the negative impact from the extremely severe weather conditions." – Roger Stone, Chairman and CEO, Kapstone.
April 30, 2014 - KapStone Paper and Packaging Corporation (KS) today reported record results for the first quarter ended March 31, 2014. As compared to 2013's first quarter, results for 2014's first quarter are below:
- Net sales of $549 million up $229 million, or 72 percent
- Net income of $32 million up $14 million, or 74 percent
- Adjusted net income of $35 million up $15 million, or 72 percent
- Adjusted EBITDA of $96 million up $45 million, or 89 percent
- Adjusted EBITDA margin of 17.4 percent, up from 15.8 percent
- Diluted EPS of $0.33 up $0.14 per share, or 74 percent
- Adjusted diluted EPS of $0.36 up $0.15 per share, or 71 percent
Roger W. Stone, Chairman and Chief Executive Officer, stated, "KapStone was able to deliver a record first quarter despite the negative impact from the extremely severe weather conditions. During the quarter, we successfully completed the upgrade to the paper machine in Charleston, but due to the related downtime to complete the project, we lost 14,300 tons of production. Although operations at our legacy mills ran well in the first quarter, we struggled with some temporary operational issues at our Longview facility that have now been corrected.
"In 2014, KapStone has already accomplished several key tasks that will strengthen our company as we move forward. The March 1st kraft paper price increase of $50 per ton should yield approximately $30 million of annualized benefits once fully implemented. We have now completed two major paper machine upgrades totaling $45 million with expected simple paybacks of less than two years. We announced a voluntary separation plan at our legacy mills that is expected to reduce annual personnel costs by up to $4 million. Our strong financial performance since the acquisition of Longview enabled us to reduce our interest rates by 50 basis points on our term loans and revolving credit facility."
First Quarter Operating Highlights
Consolidated net sales of $549 million in the first quarter of 2014 increased by $229 million, or 72 percent, compared to $320 million for the 2013 first quarter. The increase is primarily due to the Longview acquisition, which contributed $227 million of additional revenue, and higher average selling prices for the legacy operations. The Company sold 673,000 tons of paper during the first quarter of 2014 compared to 420,000 tons a year earlier. The Company's average mill selling price of $685 per ton in the first quarter of 2014 increased by $32 per ton compared to the first quarter of 2013 due to the combined impact of the 2012 and 2013 containerboard and corrugated product price increases and the inclusion of Longview. Average mill selling prices increased $15 per ton from the fourth quarter of 2013, reflecting an improved seasonal product mix compared to the prior quarter.
Operating income of $58 million for the 2014 first quarter increased by $27 million, or 89 percent, compared to the 2013 first quarter. The improved financial performance primarily reflects benefits from the Longview acquisition and higher containerboard and corrugated product prices, partially offset by the severe weather impacts and higher planned outages costs. We estimate the negative impact of the weather on our operations was approximately $8 million, and the temporary operating issues at Longview negatively impacted operating earnings by approximately $3 million.
Interest expense, net, was $8 million for the first quarter of 2014, up $6 million from a year ago as a result of a higher debt balance associated with the Longview acquisition. As of April 2, 2014, the average interest rate on our term loans was 2 percent which is 50 basis points, or $6 million on an annualized basis, lower than at December 31, 2013 due to a recently amended credit facility agreement that reduced the borrowing rates, as well as an improved debt to EBITDA ratio that improved our position on the pricing grid.
The effective income tax rate for the 2014 first quarter was 34.3 percent compared to 33.8 percent for the 2013 first quarter.
Cash Flow and Working Capital
Cash and cash equivalents increased by $11 million in the quarter ended March 31, 2014, from December 31, 2013 to $24 million. The Company generated $39 million of net cash from operating activities during the first quarter and at March 31, 2014 the debt leverage ratio was 2.7 times, down from 3.8 times at the time of the Longview acquisition. Capital expenditures in the first quarter were $32 million and included $13 million for the Charleston and Longview paper machine upgrades.
At March 31, 2014, the Company had approximately $232 million of working capital and $395 million of revolver borrowing capacity.
In summary, Stone commented, "As we shift our focus from integration activities to optimizing the enterprise, I expect to see continued improvement on an already sound operating platform."
Headquartered in Northbrook, Illinois, KapStone Paper and Packaging Corporation is the fifth largest producer of containerboard and corrugated packaging products and is the largest kraft paper producer in the United States. The Company is the parent company of KapStone Kraft Paper Corporation and KapStone Container Corporation which includes four paper mills and 22 converting plants, respectively, across the US. To learn more, please visit: www.kapstonepaper.com
SOURCE: KapStone Paper and Packaging Corporation