PaperAge Magazine

Neenah Reports Record Second Quarter 2016 Results

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Aug. 3, 2016 - Neenah Paper, Inc. (NP) today reported 2016 second quarter results.

Second Quarter Highlights

  • Revenues of $246.0 million increased 16 percent with organic and acquisition-driven growth.
  • Operating income grew 22 percent to $33.9 million ($35.3 million after excluding $1.4 million of integration and restructuring costs).
  • Earnings per diluted share from continuing operations of $1.21 compared with $0.96 per share in 2015. Excluding 2016 integration and restructuring costs of $0.05 per share, adjusted E.P.S. of $1.26 increased 31 percent.
  • Cash generated from operations of $40.3 million was used for filtration capacity expansion, debt reduction and direct returns to shareholders.

"Adjusted earnings" is a non-GAAP measure used to improve understanding and comparability of year-on-year results. Adjusted figures are reconciled to GAAP later in this release.

"Quarterly comparisons accelerated in both segments in the second quarter with improved organic volume growth, continued positive impacts from the August 2015 FiberMark acquisition and lower input costs," said John O'Donnell, Chief Executive Officer. "Key strategic initiatives remain on track, with a project to add filtration capacity in the U.S., growth in our premium packaging business, and the synergies anticipated as we execute the integration plans with FiberMark. Our substantial operational cash flow provides us the flexibility to execute these initiatives while maintaining a strong balance sheet and a meaningful return of cash to shareholders."

Quarterly Consolidated Results

Income Statement

Consolidated net sales increased 16 percent to $246.0 million compared with $211.3 million in the second quarter of 2015. Revenues increased as a result of acquired sales in all segments and organic volume growth in Technical Products, partly offset by lower average prices in both segments primarily due to a product mix which lowered revenue but had minimal bottom line impact.

Selling, general and administrative (SG&A) expense of $24.4 million in the second quarter of 2016 increased from $19.6 million in the prior year. The increase in 2016 included SG&A from acquired operations, as well as timing of other spending.

Operating income of $33.9 million in 2016 increased 22 percent compared with $27.7 million in 2015. Higher income in 2016 resulted primarily from revenue growth, lower input costs, synergies and other cost efficiencies that more than offset increased SG&A and lower selling prices. Excluding $1.4 million of costs in 2016 for integration and restructuring, adjusted operating income of $35.3 million increased 27 percent compared with the prior year.

Net interest expense of $2.7 million in the second quarter of 2016 decreased slightly from $2.9 million in the second quarter of 2015 as a result of lower average interest rates which more than offset higher average debt levels. The effective income tax rate of 34 percent in the second quarter of 2016 was equivalent to the rate in the second quarter of 2015.

Income from continuing operations of $20.7 million increased 26 percent compared with $16.4 million in the second quarter of 2015 primarily as a result of higher operating income.

During the second quarter of 2016, a net loss of $0.4 million was recognized in Discontinued Operations for settlement of final closing items following the sale of the Lahnstein mill on October 31, 2015.

Cash Flow and Balance Sheet Items

Cash provided from operations in the second quarter of 2016 was $40.3 million compared with $39.4 million in the second quarter of 2015. Increased cash generation in the current year resulted from higher earnings and a lower investment in working capital.

Capital spending was $17.3 million in the second quarter of 2016 compared with $6.9 million in the prior year. Increased spending in 2016 is due to an investment to increase transportation filtration capacity in the U.S. that is expected to be largely complete by year end.

Debt as of June 30, 2016 was $219.2 million compared to $238.8 million at March 31, 2016 and $229.4 million on December 31, 2015. Cash and equivalents as of June 30, 2016 were $4.5 million compared with $5.1 million as of March 31, 2016 and $4.2 million as of December 31, 2015.

Quarterly Segment Results

Technical Products net sales of $126.5 million increased 19 percent compared with $106.2 million in the prior year. The increase in revenues resulted from acquired sales and from organic volume growth led by transportation filtration and tape. These higher volumes and a small currency translation benefit were only partly offset by mix and modest reductions in prices for grades with contractual adjusters.

Operating income of $20.1 million in the second quarter of 2016 increased 32 percent compared with prior year income of $15.2 million. Higher operating income resulted from increased sales and lower input costs that more than offset additional SG&A from acquired operations, lower prices and $0.2 million of integration costs. Excluding integration costs, adjusted operating income of $20.3 million increased 34 percent versus the prior year.

Fine Paper & Packaging net sales were $113.7 million in the second quarter of 2016, up 8 percent compared with $105.1 million in the prior year. The increase in revenues was due to acquired sales, partly offset by lower average pricing for non-branded products.

Operating income of $18.4 million in the second quarter of 2016 increased 6 percent from $17.4 million in the prior year. Higher adjusted income in 2016 resulted from lower input costs and manufacturing efficiencies that were partly offset by increased SG&A (both acquired and due to timing of other items), lower prices and integration costs of $0.5 million. Excluding integration costs, adjusted operating income of $18.9 million increased 9 percent versus the prior year.

Other and Unallocated Corporate costs. Sales of acquired Other products were $5.8 million, with minimal operating income after including costs of $0.4 million for integration. Unallocated corporate costs in the second quarter of 2016 were $4.6 million compared with $4.9 million in prior year period. After excluding $0.3 million for integration and restructuring, adjusted unallocated corporate costs in 2016 were $4.3 million.

Neenah is a leading global specialty materials company. Key products and markets include advanced filtration media, specialized performance substrates used for tapes, labels and other products, and premium printing and packaging papers. To learn more, please visit: www.neenahpaper.com.

SOURCE: Neenah Paper, Inc.