PaperAge Magazine

Orchids Paper Products Reports Fourth Quarter, Full Year 2016 Results

Orchids Paper Products Company "Orchids recently won private label bids and branded business that, all things being equal, are expected to increase sales volumes of converted products by over 35% in the second half of 2017." – Jeff Schoen, President and CEO, Orchids Paper Products Company.

Feb. 14, 2017 - Orchids Paper Products Company today reported results for the fourth quarter and year ended December 31, 2016.

Jeff Schoen, President and Chief Executive Officer, stated, "Despite intense competitive pressures, year-over-year adjusted EBITDA increased 2%, the adjusted EBITDA margin increased from 19.4% to 20.3%, and Cost of sales, exclusive of depreciation, decreased 4.4% while Sales declined only 2.3%. In other words, improved cash margins and cost cutting helped offset the impact of the decline in sales.

On the whole, the fourth quarter of 2016 was characterized by a continuation of trends previously noted in the second and third quarters, principally competitive pressures that did not abate. As discussed in the third quarter earnings calls, Orchids has been active in several retailers' private label bids as part of our plan to increase breadth and depth in Orchids customer base. As previously announced, Orchids recently won private label bids and branded business that, all things being equal, are expected to increase sales volumes of converted products by over 35% in the second half of 2017. These developments lead us to remain optimistic about our ability to achieve our goal to grow Orchids' annual earnings per share (EPS) to within the approximate range of $2.50 to $3.50. We estimate that, based on current trends, our running rate EPS figure will enter this range by early 2018 and be toward the higher end of this range by the end of 2018.

I am also pleased that, as previously announced, our bankers agreed to relax our covenant restrictions for a temporary period and increase our debt availability to allow us to bridge the next few quarters to our greater level of operations, inclusive of the completion of the capacity expansion in Barnwell, South Carolina. Regarding this project, the two converting lines are ramping-up to meet the new demand, and the paper mill is still scheduled for completion around the end of the first quarter of 2017, with the major ramp-up of the paper mill occurring in second quarter of 2017. The total projected expenditure for the facility remains at $150 million of which approximately $119.2 million had been expended as of December 31, 2016."

Fourth Quarter 2016, relative to Fourth Quarter 2015

Net sales decreased $4.2 million, or 10%, primarily due to heavy promotional activity by brand-competitors and other competitive pressures. Parent roll sales increased by $0.7 million while converted product sales decreased by $4.9 million. Of the $4.9 million decrease, $3.7 million was attributable to the decreased number of tons sold, and $1.2 million was due to a decline in the average price per ton that principally reflects the mix of customers buying the products.

Cost of sales, exclusive of depreciation, decreased $2.1 million, or 7%. The decrease in sales volumes, contributed to the relative decrease in Cost of sales, as did spreading fixed overhead over a lower volume and approximately $0.6 million in additional costs for our Mexicali operations, which reflected increased costs for fiber, electricity, and overhead that were only partially offset by favorable foreign exchange impacts upon peso-denominated costs.

Interest expense increased $0.3 million, or 112%, due principally to increased debt levels and financial leverage.

Other expenses increased $0.5 million principally due to the recognition of a $0.4 million foreign exchange loss on the valuation of VAT and income tax receivables. As the balances of these receivables have been diminished, this economic loss is not expected to be reoccurring to this extent.

As discussed further below, the Company's recognition of tax credits lessened tax expense by $2.1 million, contributing this greater amount to net income. As a consequence, principally of these factors, net income declined from $3.7 million to $2.6 million, or 29%.

Orchids Paper Products Company's full results are available on its website: www.orchidspaper.com.

Orchids Paper Products Company is a supplier of high quality consumer tissue products primarily serving the at home private label consumer market. The Company produces a full line of tissue products, including paper towels, bathroom tissue and paper napkins. To learn more, please visit: www.orchidspaper.com.

SOURCE: Orchids Paper Products Company