Neenah Reports Third Quarter 2019 Results
Nov. 5, 2019 - Neenah, Inc. (NYSE: NP) [on Nov. 5] reported third quarter 2019 results.
Third Quarter Highlights
- Net sales of $231.8 million decreased 10 percent compared with $256.2 million in the prior year. On a constant currency basis and excluding the impact of the December 2018 sale of the Brattleboro mill, net sales were down 6 percent.
- GAAP earnings per diluted common share (E.P.S.) of $0.84 compared with earnings of $0.75 per share in 2018.
- On an adjusted basis, 2019 quarterly E.P.S. of $0.95 increased from $0.76 in the prior year period. Adjusting items in 2019 consisted primarily of accelerated depreciation and other costs related to the idling of a fine paper machine. Adjusted E.P.S. is a non-GAAP measure used to enhance understanding and comparability of year-on-year results. Details on adjusting items and a reconciliation to comparable GAAP measures are included later in this release.
- Cash generated from operations of $33.4 million increased from $23.9 million in the third quarter of 2018. Cash flows in 2019 were used to reduce debt in the quarter by $19.1 million.
- Quarterly cash dividends paid of $0.45 per share increased 10 percent from $0.41 per share in the prior year.
"We continued to improve operating margins and delivered increased profits in the quarter through our actions to manage costs and pricing as input costs began to moderate from year-ago levels. Combined, these items more than offset impacts from volume challenges that reflected weaker market conditions," said John O'Donnell, Chief Executive Officer. "Our teams remain focused on optimizing cash flows, ensuring our solid financial position and strong balance sheet. This strategy provides Neenah with both the strength to weather a less certain global economic environment, and the ability to act prudently on value-adding investment opportunities."
Quarterly Consolidated Results
Consolidated net sales of $231.8 million in the third quarter of 2019 decreased 10 percent compared with $256.2 million in the third quarter of 2018. The decline in revenues resulted from lower volumes, reflecting weaker global market conditions in both segments, the divestiture of the Brattleboro mill in December 2018, and unfavorable currency translation effects. These items were only partly offset by increased selling prices in both segments. On a constant currency basis and excluding the sale of Brattleboro, sales declined 6 percent compared with the prior year.
Selling, general and administrative (SG&A) expense of $23.1 million in the third quarter of 2019 decreased from $23.6 million in the prior year.
Operating income of $19.0 million in the third quarter of 2019 increased $2.5 million compared to $16.5 million in 2018. Excluding pre-tax adjusting items of $2.5 million in 2019 and $0.7 million for 2018, adjusted operating income of $21.5 million in 2019 increased $4.3 million from $17.2 million in 2018. The increase was mainly due to higher selling prices, lower input costs, a more profitable Technical Products mix and lower SG&A, partly offset by lower sales and production volumes. Both years included higher maintenance and other costs related to annual planned maintenance downs.
Net interest expense of $2.8 million in the third quarter of 2019 declined compared with $3.2 million in the third quarter of 2018 as a result of reduced debt and lower interest rates in 2019.
The effective income tax rate was 11 percent in the third quarter of 2019 and 3 percent in the third quarter of 2018. The tax rate in 2019 included a $1.2 million reversal of U.S. federal and state reserves for uncertain tax positions following expiration of statutes of limitation for audit. The tax rate in 2018 benefited from a higher amount of credits to tax expense for pension contributions and excess tax benefits on stock compensation, and the impact of these and other benefits being magnified due to lower pre-tax book income in 2018.
Cash Flow and Balance Sheet Items
Cash provided from operations in the third quarter of 2019 was $33.4 million and increased significantly compared with $23.9 million in the third quarter of 2018. Higher cash flows in 2019 resulted primarily from improvements in working capital, lower contributions to post-employment retirement plans and increased earnings.
Capital spending of $4.9 million in the third quarter of 2019 decreased from $12.3 million in the prior year, which included spending on a large safety and environmental filtration project in Germany that was completed during the plant shutdown in the fourth quarter.
Debt as of September 30, 2019 was $204.6 million and decreased $19.1 million from $223.7 million as of June 30, 2019. Cash and cash equivalents as of September 30, 2019 were $7.4 million and compared to $8.1 million as of June 30, 2019.
Quarterly Segment Results
Technical Products quarterly net sales of $131.7 million in 2019 decreased 7 percent from $142.3 million in the prior year, and were down 5 percent on a constant currency basis. The revenue decline resulted primarily from lower backings volumes and $3.0 million of unfavorable foreign currency effects, partly offset by higher selling prices and a higher value sales mix.
Operating income of $9.5 million in the third quarter of 2019 decreased $1.4 million compared with prior year income of $10.9 million. Excluding $2.6 million of favorable adjusting items for 2018, adjusted operating income of $9.5 million in 2019 increased $1.2 million from $8.3 million in the prior year. Adjusted operating income increased as a result of lower input costs, increased selling prices, and a higher value mix, which more than offset lower sales, lower production volumes and associated manufacturing fixed cost inefficiencies, and higher SG&A expense.
Fine Paper and Packaging quarterly net sales of $100.1 million in 2019 decreased 11 percent, from $112.5 million in the prior year. Excluding the impact of the divestiture of the Brattleboro operation last December, sales were down 6 percent. The decline was due to lower commercial print volume (including impacts due to a significant change with a major distributor) and a less favorable sales mix that were only partly offset by higher selling prices and growth in the consumer segment.
Operating income of $13.2 million in the third quarter of 2019 increased $1.9 million from $11.3 million in the prior year. Excluding $2.3 million of non-routine costs in 2019 primarily related to idling a paper machine and $1.9 million of costs in 2018 primarily related to the Brattleboro mill impairment loss, adjusted operating income of $15.5 million in 2019 increased $2.3 million from $13.2 million in the prior year as a result of lower input costs and higher selling prices, partly offset by lower volumes and a less favorable sales mix.
Unallocated Corporate costs in the third quarter of 2019 of $3.7 million decreased $1.4 million from the prior year period. Excluding 2019 adjustments of $0.2 million for pension settlement and restructuring costs, and 2018 adjustments of $0.8 million for restructuring costs, adjusted unallocated corporate expenses decreased $0.8 million, primarily due to timing of certain items.
Other segment operating results in the third quarter of 2018 were a loss of $0.6 million for a portion of the Brattleboro impairment loss. Following the sale of the Brattleboro mill in December 2018, the Other segment is no longer being recognized.
Neenah's complete third quarter and year-to-date 2019 results can found on the company's website: www.neenah.com.
Neenah is a leading global specialty materials company focused on premium niche markets that value performance and image. Key products and markets include advanced filtration media, specialized performance substrates used for digital transfer, tape and abrasive backings, labels and other products, and premium printing and packaging papers. The Company is headquartered in Alpharetta, Georgia and its products are sold in over 80 countries worldwide from manufacturing operations in the United States, Europe and the United Kingdom. To learn more, visit: www.neenah.com.
SOURCE: Neenah, Inc.