Glatfelter Reports Second Quarter 2017 Results
August 1, 2017 - Glatfelter (NYSE: GLT) today reported a net loss of $5.7 million, or $0.13 per share for the second quarter of 2017 compared with net income of $2.0 million, or $0.04 per diluted share in the second quarter of 2016. On an adjusted earnings basis, the loss for the second quarter of 2017 was $2.6 million, or $0.06 per share compared with adjusted earnings of $2.8 million, or $0.06 per diluted share, for the same period a year ago. Adjusted earnings is a non-GAAP measure for which a reconciliation is provided within this release.
Consolidated net sales totaled $387.3 million and $406.4 million for the three months ended June 30, 2017 and 2016, respectively. In the Composite Fibers and Advanced Airlaid Materials business units, net sales increased by 1.4% and 4.9%, respectively, on a constant currency basis. Specialty Papers' net sales declined 8.6% in the quarter-over-quarter comparison.
“We had solid growth in shipping volumes and improved performance in our engineered materials businesses during the quarter,” said Dante C. Parrini, Chairman and Chief Executive Officer. “However, our overall results for the quarter were lower than expected due to continued weakness in Specialty Papers' markets.
"Volumes in our Composite Fibers business strengthened, increasing 3% over last year's second quarter and 4% year-to-date, driven by improved demand across most product lines and particularly wall cover products. While we are seeing steady growth in the Composite Fibers business, we remain focused on our cost optimization initiatives that are expected to deliver $10 million in cost savings in 2017.
"The Advanced Airlaid Materials business performed well delivering top-line growth and improved profitability, as operating income increased 11% over the prior-year quarter and 10% for the year.
"For the remainder of 2017, we expect continued growth in shipments and strong operating performance from our engineered materials businesses. We also look forward to the incremental growth expected from our new Fort Smith, Arkansas facility coming on-line later this year with commercial shipments beginning early 2018.”
Mr. Parrini continued, “The prolonged supply-demand imbalance in the broader uncoated free sheet market is continuing to put pressure on industry operating rates and selling prices and is driving the need to address excess capacity and our cost structure. Last week, we announced aggressive cost reduction actions including the shutdown of a paper machine at our Chillicothe, Ohio, facility, and headcount reductions of approximately 120 positions across the Specialty Papers business. We anticipate these actions will deliver approximately $9 million in annual profit improvement. While these are difficult decisions, we are committed to taking the steps necessary to maintain Specialty Papers' competitiveness and position Glatfelter for long-term success.”
SECOND QUARTER BUSINESS UNIT RESULTS
Composite Fibers' net sales decreased $3.2 million, or 2.4%, primarily due to $5.2 million of unfavorable currency translation and $2.1 million from lower selling prices partially offset by higher shipping volumes.
Composite Fibers' second quarter of 2017 operating income totaled $14.7 million, a decrease of $0.6 million compared to the year-ago period. The negative impact from lower selling prices more than offset the $0.6 million benefit from higher shipping volume. Improved operations and cost reduction efforts implemented earlier this year delivered a $2.1 million benefit and were partially offset by $1.3 million of higher freight costs including expedited shipping to serve customer demand.
Advanced Airlaid Materials
Advanced Airlaid Materials' net sales increased $2.1 million in the year-over-year comparison primarily due to a 4.7% increase in shipping volumes from continued growth of personal hygiene products and wipes.
Operating income for the second quarter of 2017 totaled $7.5 million, or 11.5% higher than the comparable period a year ago. A $0.9 million benefit from higher volumes was partially offset by general cost inflation. Foreign currency translation increased operating income by $0.5 million.
Specialty Papers' net sales decreased $17.9 million, or 8.6%, due to a 5.4% decrease in shipping volumes together with a $5.3 million impact from lower selling prices.
Specialty Papers' operating loss totaled $13.8 million in the second quarter of 2017, compared with a loss of $5.8 million the same period a year ago. Specialty Papers' markets continued to be impacted by a supply-demand imbalance resulting in lower selling prices and shipping volumes adversely impacting operating results by $7.9 million coupled with market-related downtime of $5.6 million. In addition, lower energy and related sales and higher raw material and energy costs adversely impacted the year-over-year comparison by $2.9 million. Operating results for both quarters reflect the cost of annual maintenance outages at the Chillicothe, OH and Spring Grove, PA facilities which adversely impacted second-quarter 2017 and 2016 results by $22.9 million and $26.3 million, respectively. In addition to lower spending for the annual maintenance outages, this business benefited from improved operations, cost control actions, and lower incentive compensation aggregating $5.1 million.
Other Financial Information
In the second quarter of 2017, the Company recorded a provision for income taxes of $0.4 million on a pre-tax loss of $6.1 million. On an adjusted earnings basis, the benefit for income taxes totaled $0.1 million on an adjusted pre-tax loss of $2.7 million. The effective tax rate on an adjusted loss was 2.0% in the second quarter of 2017 compared to 14.7% on adjusted earnings in the same quarter a year ago. The change in the effective tax rate reflects the adverse impact of valuation allowances recorded in 2017 for deferred tax assets.
Composite Fibers' shipping volumes in the third quarter of 2017 are expected to be approximately 3% higher than the second quarter. Selling prices are expected to be in-line with the second quarter while raw material and energy prices are expected to be slightly higher. In addition, the Company expects this business unit to incur approximately $1 million of less market related downtime in the third quarter than the second quarter.
Advanced Airlaid Materials' shipping volumes in the third quarter are expected to be approximately 2% higher than the second quarter. Selling prices and raw material and energy prices are expected to increase slightly compared with the second quarter.
Specialty Papers' shipping volumes in the third quarter are expected to be approximately 5% higher than the second quarter of 2017. Selling prices are expected to decline slightly and raw material and energy prices are expected to be up slightly. In addition, the Company expects to incur $2 million to $3 million of less market related downtime in the third quarter than the second quarter. Specialty Papers will also benefit about $1 million from the cost reduction actions recently announced.
In connection with its cost reduction actions within Specialty Papers, the Company expects to record one-time charges of approximately $8 million to $9 million primarily during the third quarter, of which approximately $5 million to $6 million will be non-cash. In addition, costs associated with the Specialty Papers environmental compliance projects and Advanced Airlaid Materials capacity expansion are expected to be $1 million and $4 million, respectively.
Consolidated capital expenditures are expected to total between $130 million and $140 million for 2017 and approximate between $62 million and $72 million in 2018.
The effective tax rate on adjusted earnings is expected to be approximately 35% for the second half of 2017.
Glatfelter is a global supplier of specialty papers and fiber-based engineered materials, offering innovation, world-class service and over a century and a half of technical expertise. To learn more, please visit: www.glatfelter.com.