Glatfelter Reports First-Quarter 2016 Earnings
"Our Advanced Airlaid Materials and Specialty Papers businesses reported operating income increases of 25 percent and 58 percent, respectively, compared with the first quarter of 2015, with improved operations and increased shipping volumes." — Dante Parrini, Chairman and CEO, Glatfelter.
May 3, 2016 - Glatfelter (NYSE: GLT) today reported first-quarter 2016 net income of $16.2 million, or $0.37 per diluted share compared with $13.9 million, or $0.32 per diluted share in the first quarter of 2015. Adjusted earnings for the first quarter of 2016 were $16.3 million, or $0.37 per diluted share, a 23 percent increase compared with $13.4 million, or $0.30 per diluted share, for the same period a year ago.
Consolidated net sales totaled $402.2 million and $417.5 million in the first quarters of 2016 and 2015, respectively. Currency translation adjustments unfavorably impacted the year-over-year comparison by $5.2 million.
“Glatfelter is off to a solid start in 2016 as a result of our focus on operational excellence and leadership positions in key markets,” said Dante C. Parrini, Chairman and Chief Executive Officer. “Our Advanced Airlaid Materials and Specialty Papers businesses reported operating income increases of 25 percent and 58 percent, respectively, compared with the first quarter of 2015, with improved operations and increased shipping volumes. The strong performance of these two businesses was partially offset by lower operating income in the Composite Fibers business, which was impacted by softer demand during the quarter for food and beverage products after a strong 2015.”
Mr. Parrini continued, “Glatfelter is fully committed to building upon our market leadership positions across all of our business units. To accelerate our growth as a leading global engineered materials company, we have been making select, strategic investments — including a new, state-of-the-art Advanced Airlaid Materials production facility in Fort Smith, Arkansas, which is expected to be completed in late 2017.
"Our airlaid business continues to grow with key customers in the feminine hygiene, adult incontinence and specialty wipes markets. In Specialty Papers, our manufacturing performance is improving, we expect to see the impact of recently announced price increases predominantly during the second half of the year, and we anticipate completing our environmental compliance projects by the end of the year. Although Composite Fibers had a challenging first quarter, this business is core to our growth strategy due to its positions in growing markets and close relationships with a broad, industry-leading, customer base.”
FIRST-QUARTER BUSINESS UNIT RESULTS
Composite Fibers' net sales declined $11.8 million, or 8.7 percent, due to $3.0 million of lower selling prices, $4.5 million of unfavorable currency translation and lower shipping volumes.
Composite Fibers' first-quarter 2016 operating income decreased $3.5 million to $11.2 million compared to the year-ago period. Operating results were adversely impacted by the impact of lower selling prices and $0.6 million from unfavorable mix and shipping volumes partially offset by a $1.3 million benefit from lower raw material and energy prices. Changes in currency exchange rates unfavorably impacted operating income by $1.1 million.
Advanced Airlaid Materials
Advanced Airlaid Materials' net sales decreased $1.5 million in the year-over-year comparison as $3.8 million of lower selling prices from the pass through of lower raw material costs more than offset higher shipping volumes. Shipping volumes increased 2.0 percent primarily due to higher shipments of adult incontinence and wipes products.
First-quarter 2016 operating income totaled $6.6 million, an increase of $1.3 million, or 24.5 percent compared to the same quarter a year ago and the operating margin widened 240 basis points. Operating income includes $3.6 million of lower raw material and energy costs and improved operations offset by lower selling prices reflecting the impact of cost pass through arrangements. Foreign currency translation favorably impacted the comparison by $0.9 million.
Specialty Papers' net sales decreased $2.0 million, or 0.9 percent due to a $4.2 million impact from lower selling prices partially offset by a 3.6 percent increase in shipping volumes. The business unit's shipments were a record for a first quarter and again outperformed the broader uncoated free sheet market which increased 1.7 percent.
Operating income totaled $15.0 million, an increase of $5.5 million, or 58.3% in the year-over-year comparison reflecting a $5.7 million benefit from lower raw material and energy prices and $4.8 million from improved operations. The favorable factors were partially offset by the impact of lower selling prices as well as a $1.4 million decrease in energy and related sales.
Other Financial Information
Pension expense decreased to $1.2 million compared with $2.8 million in the year-earlier quarter reflecting the impact of higher discount rates partially offset by lower assumed returns on plan assets. For 2016, full year pension expense is expected to be $4.6 million. Because the Company's qualified plan remains overfunded, a cash contribution is not expected for the foreseeable future.
The Company recorded an income tax provision of $5.1 million resulting in an effective tax rate of 23.9 percent compared with 24.5 percent on adjusted earnings in the same quarter a year ago.
Balance Sheet and Other Information
Cash and cash equivalents totaled $70.3 million as of March 31, 2016, and net debt was $293.8 million compared with $255.4 million at the end of 2015.
Capital expenditures are expected to total between $150 million and $170 million for 2016, including approximately $40 million to $45 million for each of the Airlaid capacity expansion and Specialty Papers' environmental compliance projects.
Adjusted free cash flow for the first quarter of 2016 was a use of $8.1 million compared with a use of $18.4 million in the same quarter of 2015.
Composite Fibers' shipping volumes are expected to be approximately 10 percent higher in the second quarter than the first quarter of 2016. Selling prices and raw material and energy prices are expected to be in-line with the first quarter.
Advanced Airlaid Materials' shipping volumes, selling prices and average raw material prices in the second quarter of 2016 are expected to be in-line with the first quarter.
For Specialty Papers, the Company expects shipping volumes in the second quarter of 2016 to decline by approximately 5 percent compared with the first quarter. Overall selling prices are expected to increase slightly compared with the first quarter of 2016 as the recently announced price increases begin to be realized. Input costs are expected to be in-line with the first quarter.
The Company also plans to complete the annual maintenance outages at its U.S. facilities in the second quarter of 2016. The outages are expected to adversely impact operating profit by approximately $25 million to $27 million, pre-tax, compared with $33.4 million in the second quarter of 2015.
Corporate costs in the second quarter of 2016 are expected to be approximately $2 million higher than the first quarter of 2016.
Headquartered in York, Pennsylvania, Glatfelter is a global manufacturer of specialty papers and fiber-based engineered materials. 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. To learn more, please visit: www.glatfelter.com.