Kapstone's First Quarter Income Up on Increased Production

May 2, 2012 - KapStone Paper and Packaging Corporation (KS) today reported record results for the first quarter ended March 31, 2012.

  • Net sales of $300 million up $93 million, or 45 percent, versus prior year
  • Net income of $15.6 million up 3 percent versus 2011
  • Adjusted EBITDA of $46.3 million up $7.0 million, or 18 percent, versus prior year
  • Diluted EPS of $0.33 up $0.01 per share, or 3 percent, versus 2011
  • Adjusted diluted EPS of $0.38 up $0.04 per share, or 12 percent, versus prior year

Roger W. Stone, Chairman and Chief Executive Officer, stated, "With all of our operations running well, KapStone achieved record first quarter results. Our mills produced a record 396,000 tons of paper. Production at our two legacy mills was three percent higher than a year ago benefiting from various productivity programs and strategic capital investments.

"Our USC acquisition also performed well and added $10 million in adjusted EBITDA. Average selling prices of $608 per ton decreased by $10 per ton compared to the first quarter of 2011, reflecting softness in export containerboard markets. By the end of the quarter, the export containerboard market was recovering and prices have been increasing."


Consolidated net sales of $299.8 million in the first quarter of 2012 increased by $93.1 million, or 45.0 percent, compared to $206.7 million for the 2011 first quarter, primarily due to the USC acquisition and from increased volume from our legacy operations. In the quarter, 330,000 tons of paper were sold compared to 323,000 tons a year earlier. The USC acquisition added 1.5 billion square feet of corrugated product sales in the first quarter of 2012 compared to none a year earlier. Lower average selling prices driven mainly by softness in export containerboard markets and a less favorable product mix partially offset the sales gains.

Operating income of $27.5 million for the 2012 first quarter increased by $2.0 million, or 8.0%, compared to the 2011 first quarter. The improved financial performance primarily reflects benefits from the acquisition, productivity gains and higher sales volume. Partially offsetting these gains were lower selling prices, a less favorable product mix, inflation on labor, benefits and input costs and acquisition start up expenses. The first quarter's operating income was also negatively impacted by higher stock compensation expense resulting from the March 2012 grants and the immediate expensing of a significant portion of those grants.

Interest expense was $2.4 million for the first quarter of 2012, up $1.7 million from a year ago as a result of higher debt balances associated with the acquisition. At March 31, 2012, the interest rate on the majority of the Company's debt was 2.24 percent. Amortization of debt issuance costs of $0.9 million for the first quarter of 2012 increased by $0.5 million from a year ago due to costs associated with the Company's new credit agreement. The effective tax rate for the 2012 first quarter was 36.0 percent compared to 38.6 percent for the 2011 first quarter. The lower effective tax rate is due to a higher expected benefit from the domestic manufacturing deduction. For 2012, the Company estimates its cash tax rate to be about 10 percent.

Cash Flow and Working Capital
Cash and cash equivalents increased by $12.0 million in the quarter ended March 31, 2012, to $20.1 million reflecting $19.8 million of net cash provided by operating activities, $11.2 million of cash used by investing activities and $3.4 million of cash provided by financing activities. Capital expenditures for the first quarter of 2012 totaled $10.9 million. The Company estimates $60.0 million of capital expenditures for the year.

At March 31, 2012, the Company had approximately $138.3 million of working capital and $142.2 million of revolver borrowing capacity.

In summary, Stone commented, "The integration of the USC acquisition is right on track. We have realized a significant portion of the $8 million of overhead cost savings and are working on realizing the additional operating synergies. We are experiencing the typical seasonal pickup expected in the second quarter. Our backlogs are growing, operations are excellent, and cash flows and the balance sheet are strong. Overall, KapStone is in an excellent position to continue growing profitably."

Headquartered in Northbrook, IL, KapStone Paper and Packaging Corporation is a leading North American producer of unbleached kraft paper and corrugated products. The Company is the parent company of KapStone Kraft Paper Corporation and KapStone Container Corporation which includes three paper mills and 14 converting plants across the eastern and midwestern US. The business employs approximately 2,700 people.

SOURCE: KapStone Paper and Packaging Corporation