Neenah Paper Posts Second Quarter Profit
Aug. 7, 2013 - Neenah Paper, Inc. (NP) today reported adjusted earnings from continuing operations of $0.80 per diluted common share in the second quarter of 2013 compared with $0.85 per share in the second quarter of 2012. Excluding adjustments, GAAP earnings in the second quarter were $0.77 per diluted common share in both periods. Adjusted earnings excluded costs of $0.03 per share in 2013 primarily for refinancing the Company’s senior notes. In 2012, adjusted earnings excluded costs of $0.08 per share to integrate acquired brands.
For the second quarter, net sales of $212.3 million in 2013 were up slightly compared to 2012 as increased Fine Paper sales offset lower sales of Other products. Operating income of $22.6 million in 2013 compared to $22.0 million in the prior year as increases in Fine Paper similarly offset lower operating income from Other products. Net income of $12.8 million in 2013 compared to $12.7 million in the prior year and reflected higher operating income and lower interest expense partly offset by a higher effective tax rate.
"We are pleased with results in the quarter as we continue to see meaningful benefits from optimization of our expanded Fine Paper business and solid performance in Technical Products, anchored by filtration, our largest category,” said John O’Donnell, Chief Executive Officer. “Our earnings, coupled with improved working capital efficiencies, translated into $28 million of cash from operations in the quarter. This cash flow generation and an even stronger balance sheet following our recent debt refinancing have allowed us to increase our cash returns to shareholders while continuing to pursue opportunities that deliver added value.”
QUARTERLY SEGMENT AND OTHER FINANCIAL RESULTS
Technical Products net sales were $105.8 million in the second quarter of 2013 compared with $106.9 million in the prior year period. While sales increased for filtration, tape and labels, declines in industrial and other products offset these gains and reflected weaker economic conditions outside the US. The net decline in volume offset benefits in 2013 from a higher value mix and currency translation.
Operating income for Technical Products of $11.9 million in the second quarter of 2013 compared with $12.3 million in the second quarter of 2012. The change in income reflected increased manufacturing costs and lower sales volumes in 2013 that were largely offset by a higher value mix of products sold and decreased selling, administrative and other expenses.
Fine Paper net sales of $100.0 million in the second quarter of 2013 compared with prior year sales of $96.3 million. Higher sales in 2013 resulted from acquired brands, growth in luxury packaging and a higher value mix of products sold. These items more than offset lower sales of non-branded business.
Operating income of $15.5 million in the second quarter of 2013 compared to $13.3 million in 2012. After excluding $0.1 million and $1.9 million respectively in 2013 and 2012 for costs to integrate acquired brands, operating income increased from $15.2 million in 2012 to $15.6 million in 2013 as a result of growth in higher value products and improved manufacturing efficiencies, which combined more than offset higher input prices and increased selling and distribution costs.
Unallocated Corporate and Other includes unallocated corporate costs and results from acquired non-premium paper grades. Unallocated corporate costs were $4.2 million in the second quarter of 2013 and $4.2 million in the prior year period. After excluding $0.7 million in 2013 for early debt retirement and pension settlement costs, and $0.2 million in 2012 for early debt retirement costs, unallocated costs were $0.5 million lower in 2013. Sales of acquired non-premium grades were $6.5 million in 2013, with an operating loss of $0.6 million; in 2012, sales were $8.5 million, with operating income of $0.6 million. Reduced profits on these grades in 2013 resulted from lower sales and higher costs.
Consolidated selling, general and administrative (SG&A) expense was $19.2 million in the second quarter of 2013 compared to $19.1 million in the second quarter of 2012. Higher costs in 2013 to support acquired Fine Paper brands was offset by lower corporate and other spending.
Net interest expense of $3.1 million in the second quarter of 2013 compared to $3.5 million in the same quarter of 2012. The decline in interest expense in 2013 resulted from reductions in interest rates following early redemptions of 2014 Senior Notes that were financed with lower cost borrowings.
The effective income tax rate of 34 percent for the second quarter of 2013 compared to a rate of 31 percent in the second quarter of 2012. The increased rate primarily resulted from U.S. taxation on higher levels of repatriated cash in 2013.
Cash provided by operations in the second quarter of 2013 was $27.6 million compared to $3.4 million generated in the second quarter of 2012. Increased cash generation in 2013 resulted primarily from improved working capital efficiencies compared to the prior year when working capital increased with the integration of acquired brands. Capital spending of $5.0 million in the second quarter of 2013 compared with $5.8 million in the prior year period.
Debt as of June 30, 2013 was $192.8 million compared to $186.5 million as of March 31, 2013. Cash and equivalents as of June 30, 2013 was $26.9 million compared to $3.8 million as of March 31, 2013. The $16.8 million reduction in net debt (defined as debt less cash) during the second quarter of 2013 resulted from increased operating cash flows. Changes in debt and cash balances in the quarter also reflected the early redemption of 2014 Senior Notes completed in May 2013.
YEAR TO DATE
Year-to-date net sales of $425.5 million in 2013 increased four percent compared to $409.9 million in 2012. The increased revenues resulted from a nine percent gain in Fine Paper sales, primarily reflecting six percent volume growth mostly from acquired brands, as well as a higher value mix of products sold.
Technical Products sales were relatively unchanged from the prior year as a higher value mix and favorable currency effects were offset by an approximate one percent decline in volumes and lower selling prices on some grades. Other segment sales also declined seven percent primarily as a result of lower volumes.
Operating income of $44.8 million in 2013 increased from $38.2 million in 2012. Higher income in 2013 resulted from increases in Fine Paper, due both to lower integration costs and increased sales, as well as from reduced unallocated corporate costs, which included lower costs for pension settlements. Net income was $27.5 million in 2013 and $21.6 million in 2012. Increased income in 2013 resulted from higher operating income as well as lower interest expense, which combined offset an increase in the effective tax rate. Net income in 2013 includes $2.6 million in discontinued operations for a refund of excess payments made to the pension plan of Neenah’s former Canadian pulp operations.
Cash provided by operating activities was $30.0 million for the first six months of 2013 compared to use of cash of $10.2 million in 2012. Excluding the net impact in both years from special items, which include costs of acquired inventories, integration costs, one-time pension payments, and excess tax benefits from stock-based compensation (fully offset under Financing Activities), cash provided by operations in 2013 was $20.3 million higher than the prior year to date period. The increase was primarily due to improved working capital efficiencies in 2013. Year-to-date capital spending of $9.7 million compared to $9.3 million in the prior year period.
Neenah is a leader in premium image and performance-based products, including filtration, specialized substrates used for tapes, labels and other products, and high-end printing papers. Products are marketed under well-known brands such as CLASSIC®, ASTROBRIGHTS®, ENVIRONMENT®, CRANE®, ROYAL SUNDANCE®, Southworth® KIMDURA®, Gessner®, JET-PRO® SofStretch™ and varitess®. Neenah is headquartered in Alpharetta, Georgia and its products are sold in over 70 countries worldwide from manufacturing operations in the United States and Germany. Additional information can be found at the company's web site, www.neenah.com.
SOURCE: Neenah Paper