PaperAge Magazine

Orchids Paper Products Company Posts Record Setting Results in 2015

Orchids Paper Products "Following our record setting results in the third quarter of 2015, our fourth quarter performance resulted in annual records in Net Sales, Adjusted Net Income and Adjusted EBITDA." – Jeff Schoen, President and CEO, Orchids.

Feb. 3, 2016 - Orchids Paper Products Company today reported third quarter and full 2015 financial results.

Jeff Schoen, President and Chief Executive Officer, stated, "Orchids achieved a record setting year in 2015. Following our record setting results in the third quarter of 2015, our fourth quarter performance resulted in annual records in Net Sales, Adjusted Net Income and Adjusted EBITDA. Our results for the quarter were negatively affected by an incident that damaged a section of one of our converting lines, which restricted production in the face of strong open orders, causing a reduction in sales in the quarter. This is an insured incident which we believe will result in an approximate $1.0 million claim, or $0.06 per share, related to these lost sales under our business interruption insurance, which has not been included in our 2015 results."

Mr. Schoen continued, "In 2015, we continued to work toward our vision to be recognized as a national supplier of high quality consumer tissue products in the value, premium and ultra-premium tier product segments. This year, we began to execute our long-term goal to increase Orchids' Adjusted EBITDA and earnings per share by maximizing sales and profitability across our manufacturing sites in Oklahoma and South Carolina and our operations in Mexico. We successfully implemented a new converting line and a new paper machine in our Oklahoma location, resulting in capacity and cost improvements, and began construction on our greenfield site in South Carolina. Additionally, our first full-year of sales from our supply agreement with Fabrica provided a significant increase in sales and EBITDA, as expected.

“We believe the opportunity for growth in our converted product business is strong, and we will continue to focus on maximizing sales, improving the manufacturing capacity of our current assets while also improving operating costs, and bringing converted product production on-line in South Carolina. Our South Carolina facility is progressing as planned, with start-up of the first converting line expected in February and start-up of the second line in the second quarter of 2016. Engineering of the paper machine is underway and it is expected to become operational in early 2017."

Three-month period ended December 31, 2015

Net sales of converted product decreased primarily due to:

  • lower than planned production from our Oklahoma facility due to an incident on one of our main converting lines, which took the line out of commission for approximately eight weeks during the quarter. The line went back into operation in December at a reduced rate of production. At present, the line is operating close to pre-incident run rates. Estimated lost sales in the quarter due to the production shortfall are approximately 300,000 cases.

Net sales of parent rolls increased due primarily to:

  • demolition of two older paper machines in the fourth quarter of 2014. The resulting decrease in production capacity resulted in having no excess parent rolls to sell on the open market during the prior year quarter.

Gross profit as a percent of net sales increased primarily due to:

  • higher margins under the supply agreement with Fabrica, resulting from a strong US dollar exchange rate with the Mexican peso, SKU optimization and price increases in the "away from home" business.
  • margins on parent roll sales. The start-up of the new paper machine in Oklahoma lowered operating costs and resulted in increased parent roll tonnage available for sale.
  • lower production costs in our paper making operation.

Gross profit was negatively affected by:

  • lower production due to the converting line incident. Due to the lower production and strong open orders, we estimate lost sales and the resultant margins on approximately 300,000 cases. This incident is covered by a business interruption insurance policy, under which we expect to recover approximately $1.0 million when settled. Additionally, we recorded the $100,000 deductible on the property and casualty insurance claim to repair and maintenance costs during the quarter.
  • higher fiber costs. The combination of price changes and mix of fiber consumed in the fourth quarter of 2015 resulted in an approximate $152,000 decrease in gross profit.
  • higher converted product production costs, due primarily to higher repairs and maintenance expense and higher labor costs.
  • higher depreciation.

Twelve-month period ended December 31, 2015

Net sales of converted product increased primarily due to:

  • the full-year effect of shipments under the supply agreement with Fabrica.
  • an 8% increase in shipments from our Oklahoma site.

Net sales of converted product were negatively affected by:

  • a 5% decrease in net selling price per ton due to a change in mix of converted products sold, including "away from home" sales associated with the Fabrica transaction, which typically have a lower selling price than "at home" sales.

Net sales of parent rolls increased primarily due to:

  • a 51% increase in tons shipped due to the increased production in 2015 from our new paper machine project, as discussed above.
  • a 13% increase in selling price per ton.

Gross profit as a percent of net sales decreased primarily due to:

  • the effects of the Oklahoma paper machine project on our first quarter results.
  • higher fiber costs. Average fiber prices across our fiber basket increased by 4% in 2015, resulting in an approximate $2.4 million decrease in gross profit. Additionally, we consumed approximately 3,000 tons of purchased parent rolls at a cost of approximately $3.4 million in 2015.
  • higher converted product production costs, primarily due to higher labor and repairs and maintenance expense.
  • The effects of the converting line incident, as discussed above.

Orchids Paper Products Company is a national supplier of high quality consumer tissue products primarily serving the at home private label consumer market. The company produces a full line of tissue products, including paper towels, bathroom tissue and paper napkins. To learn more visit: www.orchidspaper.com.

SOURCE: Orchids Paper Products Company