Neenah Paper Reports Second Quarter 2017 Results
"Each of our businesses delivered top line growth in the second quarter, overcoming currency headwinds and global capacity constraints as we ramp-up our new U.S. filtration capacity." — John O'Donnell, CEO, Neenah Paper, Inc.
August 3, 2017 - Neenah Paper, Inc. (NYSE:NP) on Aug. 2 reported 2017 second quarter results.
Second Quarter Highlights
- Revenues of $248.7 million were a record and increased $2.7 million from $246.0 million in the prior year.
- Operating income of $29.2 million declined from $33.9 million in the prior year. Results in 2017 included $3.3 million of costs for the start-up of new filtration capacity in the U.S.
- Earnings per diluted share from continuing operations (E.P.S.) of $1.46 increased from $1.24 per share in 2016 as reduced operating income in 2017 was offset by the benefit of a lower tax rate following the Company's assertion to not repatriate foreign income.
- Adjusted E.P.S. of $1.22 in 2017 declined from $1.29 in 2016. Adjusted earnings excluded integration and restructuring costs of $0.05 per share in 2016 and excluded tax benefits of $0.24 per share in 2017 related to the portion of the benefit applicable to prior year earnings.
- Cash generated from operations of $23.4 million decreased from $41.0 million in 2016 while capital spending of $7.7 million in the quarter decreased from $17.3 million in the second quarter of 2016.
- Quarterly cash dividends of $0.37 per share increased 12% from the same prior year period.
"Adjusted earnings" is a non-GAAP measure used to improve understanding and comparability of year-on-year results. Adjusted figures are reconciled to GAAP later in this release.
"Each of our businesses delivered top line growth in the second quarter, overcoming currency headwinds and global capacity constraints as we ramp-up our new U.S. filtration capacity. Customer qualification of this filtration facility continues to progress well and start-up costs of $3 million in the quarter were in line with projections. Bottom line results also reflected a timing lag as we implement selling price increases to offset the rise in input costs in the first half of the year," said John O'Donnell, Chief Executive Officer.
"With our strong financial position and continued success in targeted categories like filtration, performance materials and premium packaging, we remain confident about future investment opportunities for organic and strategic growth that can deliver value for our shareholders."
Quarterly Consolidated Results
Consolidated net sales increased 1 percent to $248.7 million in the second quarter of 2017 compared with $246.0 million in the second quarter of 2016 primarily due to increased volumes and a higher value mix of products sold. These gains were only partly offset by unfavorable currency effects. On a constant currency basis, consolidated net sales increased 2 percent.
Selling, general and administrative (SG&A) expense of $24.6 million in the second quarter of 2017 increased slightly from $24.4 million in the prior year.
Operating income of $29.2 million in 2017 declined from $33.9 million in 2016. The decline was primarily due to higher manufacturing costs resulting from the U.S. filtration business start-up, higher input costs, unplanned downtime in Fine Paper and Packaging, and unfavorable currency effects in Technical Products. These unfavorable variances were partially offset by higher volume in Fine Paper and Packaging, an improved mix and manufacturing efficiencies in Technical Products, and lower integration and restructuring costs in both segments. Consolidated operating income in 2016 included $1.4 million of costs for integration and restructuring.
Net interest expense of $3.0 million in the second quarter of 2017 increased from $2.7 million in the second quarter of 2016 primarily as a result of interest expense that was capitalized in 2016 for the U.S. filtration project.
The effective income tax rate of 5 percent in the second quarter of 2017 decreased from 31 percent in the second quarter of 2016. The 2017 rate was reduced following the Company's assertion that it will not repatriate foreign earnings. This resulted in the reversal of previously provided deferred income taxes totaling $6.4 million. Prospectively, the estimated effective tax rate is approximately 29 percent.
Income from continuing operations of $25.0 million increased 17 percent compared with $21.4 million in the second quarter of 2016 primarily as a result of benefits from the lower tax rate.
Cash Flow and Balance Sheet Items
Cash provided from operations in the second quarter of 2017 was $23.4 million compared with $41.0 million in the second quarter of 2016. Decreased cash generation in 2017 resulted from a higher investment in working capital, largely in accounts receivable, and lower earnings.
Capital spending of $7.7 million in the second quarter of 2017 was lower compared to $17.3 million in the prior year, during which spending was being concluded for the U.S. filtration capacity expansion.
Debt as of June 30, 2017 was $220.8 million compared to $226.3 million as of March 31, 2017 and $220.9 million on December 31, 2016. Cash and cash equivalents as of June 30, 2017 were $9.2 million compared with $5.5 million on March 31, 2017 and $3.1 million as of December 31, 2016.
Cash returns to shareholders, primarily through dividends, totaled $6.3 million in the second quarter of 2017 and $5.6 million in the prior-year period.
Quarterly Segment Results
Technical Products net sales of $127.3 million increased from $126.5 million in the prior year. Revenue growth resulted from a higher priced sales mix and growth in backings, label and certain filtration products. These items were partly offset by unfavorable currency exchange effects and lower volumes for transportation filtration, where capacity is temporarily constrained until products are qualified on the new U.S. asset. On a constant currency basis, net sales increased 2.2 percent.
Operating income of $16.0 million in the second quarter of 2017 decreased $4.1 million compared with prior year income of $20.1 million. Lower operating income resulted primarily from higher manufacturing costs, which included $3.3 million resulting from the U.S. filtration capacity start-up and $3.0 million due to higher input costs. These items were partially offset by benefits from improved manufacturing efficiencies, a higher value sales mix, and lower integration and restructuring costs. Operating income in 2016 included $0.2 million of integration and restructuring costs.
Fine Paper & Packaging net sales of $115.7 million in the second quarter of 2017 increased from $113.7 million in the prior year. Revenues growth resulted from higher volumes and increased selling prices that were partly offset by a lower priced mix. Increased volumes reflected more direct sales of non-branded products as well as double digit growth in premium packaging.
Operating income of $17.5 million in the second quarter of 2017 decreased $0.9 million from $18.4 million in the prior year. Lower operating income in 2017 resulted from higher manufacturing costs, which included $0.8 million of higher input costs and additional costs for unplanned downtime. These items were partially offset by increased volumes, higher selling prices and lower integration costs. Operating income in 2016 included integration costs of $0.5 million.
Unallocated Corporate costs in the second quarter of 2017 were $4.5 million compared with $4.6 million in the prior year period. In 2016, costs included $0.3 million for integration and restructuring.
Neenah is a leading global specialty materials company, focused on premium niche markets. Key products and markets include advanced filtration media, specialized performance substrates used for tapes, labels and other products, and premium printing and packaging papers. To learn more, please visit: www.neenahpaper.com.
SOURCE: Neenah Paper, Inc.