PaperAge Magazine

Orchids Paper Products Company Reports 2016 Third Quarter Results

Orchids Paper Products, Pryor, OK

Oct. 26, 2016 - Orchids Paper Products Company (NYSE MKT: TIS) today reported results for the third quarter of 2016.

Jeff Schoen, President and Chief Executive Officer, stated: "Orchids year-to-date 2016 performance has improved significantly as bottom-line metrics such as Gross profits (+9.5%), Net income (+3%), Adjusted EBITDA (+13%), and Operating cash flow less changes in working capital (+51%), have all increased significantly over the same period last year. At the same time, competitive pressures continued in third quarter 2016 which negatively impacted sales volume.

“On a positive note, sales volume picked-up in September, and we expect sales volume to continue to increase into fourth quarter 2016 due to new distribution and recovery of private label business with existing customers. As we look forward, Orchids has increased its sales force by 40% to promote Orchids' capabilities to gain new customers and gain a broader base of private label and branded products within new distribution channels.

“Regarding the Barnwell, South Carolina project, the two converting lines have been completed, and are ramping-up. The paper mill is still scheduled for completion by the end of the first quarter of 2017, with the major ramp-up occurring in second quarter 2017.

Overall, we remain optimistic about our ability to achieve our long-term goal to grow Orchids' annual earnings per share to approximately $2.50 to $3.40."

Third Quarter 2016, relative to Second Quarter 2016

Net sales of converted product decreased 3% primarily due to increased competitive pressures and continued heavy promotional activity on branded products. Net sales of parent rolls increased from $0.1 million to $1.3 million as we began to sell excess inventory.

Gross profit as a percent of net sales decreased 2% and the Adjusted EBITDA margin decreased 3%, both primarily due to the shift in product mix, selling more parent rolls and less converted product. Additionally, $1.1 million of insurance proceeds related to an incident in 2015 decreased cost of sales in second quarter 2016, increasing earnings in the baseline figure.

Third Quarter 2016, relative to Third Quarter 2015

Net sales of converted product decreased 12% primarily due to heavy promotional activity on branded products and increased competitive pressures. Parent roll production, though higher than in 2015, was used in part for the Barnwell, South Carolina start-up and in part to increase finished-goods inventory, thereby foregoing margin we would have received on parent-roll sales in favor of margin we expect to gain when we sell this tonnage as converted product.

Gross profit as a percent of net sales decreased 5% and Adjusted EBITDA margin decreased 5%, both primarily due to spreading fixed and semi-variable costs over a decreased sales volume. Overhead costs related to the Barnwell, South Carolina facility start-up increased from virtually nothing to approximately $1.5 million in the third quarter of 2016.

Nine-month period ended September 30, 2016 compared to same period in 2015

Net sales of converted product increased 2% primarily due to strong first quarter 2016 sales to private label customers and strong sales on the West Coast.

Gross profits increased 9% and Adjusted EBITDA increased 13% primarily due to:

  • An increase in average price per ton of 3% in 2016 compared to 2015. This is largely related to the product mix sold.
  • Lower fiber costs resulted in approximately a $1.7 million increase in gross profit.
  • 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, partially offset by higher costs in the second quarter of 2016 when we reached our annual tonnage limit under the Supply Agreement. The Supply Agreement limit reset for a new fiscal year on July 1st.
  • Cost reductions in our Oklahoma converting operation. Additionally, we received $1.1 million of business interruption insurance proceeds in the second quarter of 2016 which was applied to cost of sales.
  • Changes in production volumes directly impact the absorption of fixed and semi-variable costs. Increased production in our Oklahoma paper making operation contributed $0.6 million of favorable overhead absorption, however decreased production in converting led to unfavorable overhead absorption of $2.1 million.
  • The unfavorable Barnwell, South Carolina, overhead absorption variance is $3.0 million.

The full report is available on Orchids Paper Products Company's website www.orchidspaper.com.

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

SOURCE: Orchids Paper Products Company