Orchids Paper Products Posts Record Third Quarter Results on Improved Sales

Net sales in the quarter ended September 30, 2014 were $44.4 million, an increase of 49% compared to $29.8 million in the same period of 2013.

Oct. 29, 2014 - Orchids Paper Products Company today reported third quarter 2014 financial results.

Jeff Schoen, President and Chief Executive Officer, stated, "Results in the third quarter and 2014 year-to-date improved significantly over the respective periods in 2013 as a result of new business, the improvement in western sales due to the Fabrica partnership we entered into in June, and a recovery of existing business from the second quarter of 2014.

"As stated last quarter, we expect the second half of 2014 to be a record setting one, which the third quarter results support. Furthermore, our partnership with Fabrica to supply our west coast sales is exceeding our expectations and has immediately added value to shareholders in the third quarter."

"Strategically, the previously announced expansion plan is progressing as planned and is expected to increase our capacity for future growth, improve our manufacturing flexibility and lower our cost structure. A new paper machine is on track to be at full production rates by the beginning of the second quarter of 2015 and is expected to deliver approximately $6 million of additional EBITDA."

Three-month period ended September 30, 2014

Net sales in the quarter ended September 30, 2014 were $44.4 million, an increase of 49% compared to $29.8 million in the same period of 2013. Net sales of converted product were $43.2 million in the 2014 quarter, an increase of 53% compared to $28.2 million in the in the same quarter last year. Net sales of parent rolls decreased 19%, from $1.6 million in the third quarter of 2013 to $1.3 million in the same quarter of 2014. The increase in converted product net sales was primarily due to a 57% increase in converted product tonnage shipped, which was partially offset by a 3% decrease in net selling price per ton. The decrease in selling price was due to a change in mix of converted products sold.

During the third quarter of 2014, we incurred $390,000 in additional non-cash expenses related to stock options granted to management, $207,000 of costs to demolish two paper machines that are being replaced with a new paper machine expected to start up in the first quarter of 2015 and be at full production by the beginning of the second quarter of 2015, and $84,000 of additional expenses related to the Fabrica transaction that occurred in the second quarter of 2014. As such, earnings before interest, taxes, depreciation and amortization adjusted to exclude these expenses (Adjusted EBITDA) was $9.2 million, or 20.7% of net sales, in the third quarter of 2014, compared to $7.0 million, or 23.5% of net sales for the same period in the prior year. Net income adjusted to exclude these expenses was $4.3 million, an increase of $565,000, or 15%, compared with $3.8 million of net income in the same period of 2013, and diluted net income per share as adjusted to exclude these expenses was $0.49 per diluted share for the third quarter of 2014 compared with $0.47 per diluted share in the same period in 2013.

Gross profit for the third quarter of 2014 was $8.8 million, an increase of $1.6 million, or 23%, when compared with a gross profit of $7.1 million in the prior year quarter. Gross profit as a percent of net sales was 19.8% in the third quarter of 2014 compared to 24.0% for the same period in 2013. As a percent of net sales, gross profit decreased primarily due to higher paper production costs, higher depreciation, and lower parent roll sales prices. Paper production costs increased primarily due to lower production in our paper production operation following the shutdown of two of our older paper machines in September, which had a negative effect on absorption of fixed overhead costs, and higher fiber costs.

Selling, general and administrative expenses in the third quarter of 2014 totaled $2.5 million, an increase of $419,000, or 20%, compared to the same period in the prior year. The increase was primarily due to increased non-cash expenses related to stock options granted to management in 2014, as discussed above, which were partially offset by lower commission expense due to the mix of converted products sold. Adjusted for the acquisition related costs and non-cash compensation expense, selling, general and administrative expenses were $67,000 lower in the current year quarter compared to the prior year quarter. Selling, general and administrative expenses as a percent of net sales in the 2014 quarter were 5.7% compared to 7.1% for the prior year quarter.

Interest expense for the third quarter of 2014 totaled $90,000 compared to interest expense of $92,000 in the same period in 2013. Interest expense for 2014 excludes $43,000 of interest capitalized on significant projects during the quarter. The higher level of interest expense resulted from higher debt balances due primarily to additional debt incurred in conjunction with the Fabrica transaction.

As of September 30, 2014, the estimated effective tax rate for the full year is 32.4%, as compared to the 32.0% effective tax rate estimated as the end of the second quarter of 2014. The actual effective tax rate for the third quarter was 32.6%.

Orchids Paper Products Company is an integrated manufacturer of tissue paper products serving the at home private label consumer market. To learn more visit: www.orchidspaper.com.

SOURCE: Orchids Paper Products Company