PaperAge Magazine

Neenah Paper Reports Third Quarter 2017 Results

Neenah Paper

Nov. 7, 2017 - Neenah Paper, Inc. (NYSE:NP) today reported 2017 third quarter results.

Third Quarter Highlights

  • Revenue of $245.1 million increased 5 percent, or $12.2 million, from $232.9 million in the prior year.
  • Operating income of $29.0 million increased 8 percent, or $2.1 million, from $26.9 million in the prior year.
  • Earnings per diluted share (E.P.S.) of $1.10 increased 16 percent from $0.95 per share in 2016.
  • On an adjusted basis, E.P.S. of $1.02 in 2017 increased 3 percent from $0.99 in 2016. Adjusted E.P.S. excluded $0.12 per share in 2017 for net proceeds from an insurance settlement, and acquisition, integration, and restructuring costs of $0.04 per share in both years.
  • Cash generated from operations of $36.2 million decreased from $40.6 million in 2016 while capital spending of $8.0 million in the quarter decreased from $20.8 million in the third quarter of 2016.
  • A binding agreement was signed to acquire Coldenhove, a Netherlands-based performance materials company and leader in digital transfer media, with annual sales of $45 million. Closing occurred on November 1, with a payment of $45 million.
  • Quarterly cash dividends of $0.37 per share were paid, a 12% increase compared to the 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.

"It continues to be an eventful year at Neenah. Our team delivered solid financial results in the quarter, led by volume-driven organic gains in Technical Products. With an eye towards future growth, we recently acquired Coldenhove, further expanding the growth rate and size of our performance materials portfolio, and also added to our capabilities with the purchase of a laminator, uniquely positioned to support our double-digit growth rate in premium packaging," said John O'Donnell, Chief Executive Officer.

"Finally, development of our new North American filtration capacity continues to progress, as our focus moves from asset start-up to market acceptance, and working with customers to get their grades qualified. As we approach the end of the year, our market and financial positions are in great shape, our growth strategies extremely active, and our commitment towards delivering the value our shareholders expect remains unwavering."

QUARTERLY CONSOLIDATED RESULTS

Income Statement

Consolidated net sales increased 5 percent to $245.1 million in the third quarter of 2017 compared with $232.9 million in the third quarter of 2016. Higher revenues were primarily due to volume-driven increases in Technical Products, as well as favorable currency effects and modest growth in Fine Paper and Packaging due to higher average selling prices. On a constant currency basis, consolidated net sales grew 4 percent.

Selling, general and administrative (SG&A) expense of $21.4 million in the third quarter of 2017 increased slightly from $21.0 million in the prior year.

Operating income of $29.0 million in 2017 increased 8 percent from $26.9 million in 2016. The increase was primarily due to volume growth and improved operational efficiencies in Technical Products, as well as proceeds from an insurance settlement and benefits from currency effects. These favorable variances were partially offset by expected start-up losses in the US filtration business and higher input and transportation costs. Excluding acquisition, integration, and restructuring costs of $0.9 million in both 2017 and 2016, and net proceeds from an insurance settlement of $3.2 million in 2017, adjusted operating income of $26.7 million decreased from $28.1 million in 2016, as increased Technical Products operating income was offset by higher costs for the US filtration business and in Fine Paper & Packaging.

Net interest expense of $3.2 million in the third quarter of 2017 increased from $2.7 million in the third quarter of 2016 as a result of interest expense capitalized in 2016 for the U.S. filtration project, as well as higher rates and additional short term borrowings in 2017.

The effective income tax rate of 27 percent in the third quarter of 2017 decreased from 32 percent in the third quarter of 2016. The 2017 rate was reduced following the Company's assertion as of June 30, 2017 that it will not repatriate foreign earnings.

Income from continuing operations of $18.8 million increased 15 percent compared with $16.4 million in the third quarter of 2016. Higher income resulted from increased operating income and benefits from the lower tax rate.

Cash Flow and Balance Sheet Items

Cash provided from operations in the third quarter of 2017 was $36.2 million compared with $40.6 million in the third quarter of 2016. Decreased cash generation in 2017 resulted from an increased investment in working capital, largely accounts receivable, that offset higher income.

Capital spending of $8.0 million in the third quarter of 2017 compared to $20.8 million in the prior year, during which spending was being concluded for the U.S. filtration capacity expansion. In addition, in the third quarter of 2017 a laminating asset was acquired for $8.0 million to support continued growth in premium packaging.

Debt as of September 30, 2017 was $222.9 million compared to $220.8 million as of June 30, 2017. Cash and cash equivalents as of September 30, 2017 were $24.2 million compared to $9.2 million as of June 30, 2017.

Quarterly Segment Results

Technical Products net sales of $125.9 million increased 10 percent, from $114.1 million in the prior year. Revenue growth resulted from increased volumes for backings, label and filtration, as well as higher average selling prices and favorable currency exchange effects due to a stronger euro. On a constant currency basis, net sales increased 8 percent.

Operating income of $15.6 million in the third quarter of 2017 increased 11 percent, or $1.5 million, compared with prior year income of $14.1 million. Increased income resulted primarily from higher sales volumes, improved operational efficiencies, higher average selling prices and favorable currency effects. In addition, costs were lower due to the annual filtration maintenance down in Germany being deferred to the fourth quarter. These items more than offset costs during the U.S. filtration start-up phase and rising input prices. Operating income in 2016 included $0.1 million of integration and restructuring costs.

Fine Paper & Packaging net sales of $113.3 million in the third quarter of 2017 increased slightly from $112.9 million in the prior year. Growth resulted from higher average selling prices, which offset lower shipping volumes. Volumes declined primarily for lower-priced, non-branded grades, which also contributed to a higher priced sales mix.

Operating income of $17.8 million in the third quarter of 2017 increased $0.5 million from $17.3 million in the prior year. Operating income in 2017 included benefits from an insurance settlement of $2.9 million that was largely offset by increased transportation and input costs, and lower operating efficiencies. Excluding the insurance settlement in 2017 and integration and restructuring costs of $0.3 million for 2016, adjusted operating income of $14.9 million decreased from $17.6 million in 2016.

Unallocated Corporate costs in the third quarter of 2017 were $4.6 million, consistent with the prior year period. In 2017 and 2016, costs included $0.9 million and $0.8 million, respectively, for acquisition, 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.