KapStone Paper and Packaging Reports Record Third Quarter Results on Strong Sales Volumes

Consolidated net sales of $598 million in the third quarter of 2014 increased by $59 million, or 11 percent compared to $539 million for the 2013 third quarter.

Oct. 29, 2014 - KapStone Paper and Packaging Corporation today reported record results for the third quarter ended September 30, 2014. As compared to 2013's third quarter, results for 2014's third quarter are below:

  • Net sales of $598 million up $59 million, or 11 percent
  • Net income of $54 million up $10 million, or 22 percent
  • Adjusted EBITDA of $132 million up $15 million, or 13 percent
  • Adjusted EBITDA margin of 22.0 percent, up from 21.7 percent
  • Diluted EPS of $0.56 up $0.10 per share, or 22 percent
  • Adjusted diluted EPS of $0.60 up $0.08 per share, or 15 percent

Roger W. Stone, Chairman and Chief Executive Officer, stated, "KapStone continued the positive momentum from the second quarter of 2014 into the third quarter and achieved all-time record quarterly results.

"Productivity gains resulting from improved operations and synergy benefits have increased KapStone's EBITDA over the past year. Our capital expenditures are delivering the expected results, and we continue to prudently invest in our operations. During the third quarter, the $50 per ton Kraft paper price increase was fully implemented. At the end of the quarter, we implemented an accounts receivable securitization program which should reduce cash interest expense by $2 million over the next 12 months."

Third Quarter Operating Highlights

Consolidated net sales of $598 million in the third quarter of 2014 increased by $59 million, or 11 percent compared to $539 million for the 2013 third quarter. The increase is primarily due to the Longview acquisition, which contributed $43 million of additional revenue. Higher sales volumes and prices for the legacy operations also contributed to the increase in revenues. The Company sold 715,000 tons of products during the third quarter of 2014 compared to 634,000 tons a year earlier. The Company's average mill selling price of $689 per ton in the third quarter of 2014 increased by $7 per ton compared to the third quarter of 2013 primarily due to the impact of a $50 per ton kraft paper price increase announced in March of 2014 which was fully realized by the end of September.

Operating income of $94 million for the 2014 third quarter increased by $13 million, or 16 percent, compared to the 2013 third quarter. The improved financial performance primarily reflects benefits from significantly higher productivity improvements in mill operations, the Longview acquisition, higher prices and sales volumes partially offset by inflation on labor and input costs, the timing of annual maintenance outages and the cost associated with a voluntary separation plan.

Interest expense, net, was $7 million for the third quarter of 2014, down $1 million from a year ago as a result of lower interest rates. As of September 30, 2014, the average interest rate on our borrowings was 1.83 percent which is 67 basis points, or $8 million on an annualized basis, lower than at December 31, 2013 due to a recently amended credit facility agreement that reduced the borrowing rates, improved debt to EBITDA ratio that improved our position on the interest rate pricing grid and the receivables securitization program. Based on using the proceeds from the receivable securitization program to pay down our term loans, the Company wrote off $3.0 million of deferred debt issuance costs in the current quarter.

The effective income tax rate for the 2014 third quarter was 33.9 percent compared to 37.9 percent for the 2013 third quarter. The lower income tax rate reflects a benefit from additional R&D tax credits for prior years. The Company's cash tax rate is forecasted at 35 percent for 2014.

Cash Flow and Working Capital

Cash and cash equivalents increased by $56 million in the quarter ended September 30, 2014, from June 30, 2014 to $106 million. The Company generated $97 million of net cash from operating activities during the third quarter. At September 30, 2014 the debt leverage ratio was 2.65 times, down from 3.80 times at the time of the Longview acquisition. Capital expenditures in the third quarter were $39 million.

At September 30, 2014, the Company had approximately $345 million of working capital and $395 million of revolver borrowing capacity.

Conclusion

In summary, Stone commented, "We continued our shift from integration to optimizing the enterprise during the third quarter. Our operating platform will continue to strengthen and provide improved results."

Headquartered in Northbrook, Illinois, KapStone Paper and Packaging Corporation is the fifth largest producer of containerboard and corrugated packaging products and is the largest kraft paper producer in the United States. The Company is the parent company of KapStone Kraft Paper Corporation and KapStone Container Corporation which includes four paper mills and 22 converting plants, respectively, across the US. To learn more, please visit: www.kapstonepaper.com

SOURCE: KapStone Paper and Packaging Corporation