Glatfelter Reports Third Quarter 2016 Earnings
"While Specialty Papers continued to improve its operating performance driving a 7% increase in operating profit, a soft demand environment in the broader uncoated freesheet market impacted shipping volume and limited the realization of price increases announced earlier this year." – Dante Parrini, Chairman and CEO, Glatfelter.
Nov. 1, 2016 - Glatfelter (NYSE: GLT) today reported third quarter of 2016 net income of $19.6 million, or $0.44 per diluted share compared with $13.5 million, or $0.31 per diluted share in the third quarter of 2015. Adjusted earnings for the third quarter of 2016 were $24.0 million, or $0.54 per diluted share compared with $20.8 million, or $0.47 per diluted share, for the same period a year ago. Adjusted earnings is a non-GAAP measure for which a reconciliation is provided within this release.
Consolidated net sales totaled $405.3 million and $420.0 million in the third quarters of 2016 and 2015, respectively. Lower selling prices unfavorably impacted the year-over-year comparison by $6.3 million and shipping volumes declined 2.1%.
“Our third quarter results reflect the continuation of challenging conditions in several of our markets,” said Dante C. Parrini, Chairman and Chief Executive Officer. “While Specialty Papers continued to improve its operating performance driving a 7% increase in operating profit, a soft demand environment in the broader uncoated freesheet market impacted shipping volume and limited the realization of price increases announced earlier this year. In Composite Fibers, shipping volumes fell short of our expectations as demand for wall cover products was softer than expected. The weakness in these businesses outweighed the steady performance of our Advanced Airlaid Materials business. Demand in our airlaid markets remains robust and our wipes volume was up significantly on both a year-over-year and sequential-quarter basis.”
Mr. Parrini continued, “Given the weak global economic environment, we remain focused on aligning our cost structure to most efficiently meet our customers' needs, deploying new products, optimizing asset utilization and delivering on our operational excellence initiatives. We will continue to balance these initiatives with targeted investments to grow our business, such as expanding our Advanced Airlaid Materials business by building out our new Fort Smith, Arkansas facility, which we expect to be on-line in early 2018.”
Third Quarter Business Unit Results
Composite Fibers' net sales decreased $2.3 million, or 1.7%, primarily due to $1.6 million from lower selling prices. Shipping volumes increased slightly in the comparison.
Composite Fibers' third quarter of 2016 operating income totaled $14.0 million, a decrease of $0.1 million compared to the year-ago period. Slightly higher shipping volumes, more efficient operations, net of market related downtime, and lower raw material and energy prices improved operating results by $3.0 million which more than offset the impact of lower selling prices. Foreign currency translation adversely impacted results by $1.5 million reflecting the less favorable impact from hedging activities in 2016 compared to 2015.
Advanced Airlaid Materials
Advanced Airlaid Materials' net sales decreased $1.3 million in the year-over-year comparison primarily due to $2.2 million of lower selling prices. Shipping volumes increased 1.8%, or 5.6% on a square meter basis, primarily due to higher shipments of wipes products.
Operating income for the third quarter of 2016, totaled $6.4 million, 5.7% lower than the comparable period a year ago. Operating income benefited by $2.3 million from lower raw material and energy prices partially offset by lower selling prices related to the impact of cost pass through arrangements. In addition, foreign currency translation unfavorably impacted the comparison by $0.7 million reflecting the less favorable impact from hedging activities in 2016 compared to 2015.
Specialty Papers' net sales decreased $11.0 million, or 5.0%, due to a 3.1% decline in shipping volumes and a $2.5 million impact from lower selling prices.
Specialty Papers' operating income totaled $18.7 million in the third quarter of 2016, or an increase of $1.2 million compared with the same period a year ago. Lower raw material and energy costs essentially offset the adverse impact of lower selling prices while improved productivity more than offset the impact of higher incentive compensation in the third quarter of 2016.
Other Financial Information
Pension expense totaled $1.4 million and $2.2 million in the third quarter of 2016 and 2015, respectively. For 2016, full year pension expense is expected to be $5.5 million. Because the Company's qualified plan remains overfunded, a cash contribution is not expected for the foreseeable future.
The Company's effective tax rate was 6.7% and 14.5% for the third quarters of 2016 and 2015, respectively. On adjusted earnings, the effective tax rate was 13.0% in the third quarter of 2016 compared to 23.8% in the same quarter a year ago. The third quarter 2016 tax rate benefited by $2.4 million primarily from investment tax credits, release of reserves due to completion of tax audits and changes in statutory tax rates.
2016 Year-to-date Results
The Company reported net income of $37.7 million, or $0.86 per diluted share, for the first nine months of 2016 compared with $30.3 million, or $0.69 per diluted share, in the first nine months of 2015. Adjusted earnings totaled $43.0 million, or $0.98 per diluted share in 2016, compared with $36.0 million, or $0.82 per diluted share, in 2015.
Balance Sheet and Other Information
Cash and cash equivalents totaled $50.8 as of September 30, 2016, and net debt was $328.2 million compared with $255.4 million at the end of 2015.
Capital expenditures are expected to total between $155 million and $170 million for 2016, including approximately $55 million to $60 million for Specialty Papers' environmental compliance projects and approximately $40 million to $45 million for the Airlaid capacity expansion project.
Adjusted free cash flow for the first nine months of 2016 was $11.8 million compared with $11.2 million in the same period of 2015.
Composite Fibers' shipping volumes in the fourth quarter of 2016 are expected be approximately 5% lower than the third quarter driven by lower sales of metalized products. Selling prices and raw material and energy prices are expected to be in-line with the third quarter. The Company anticipates the impact of machine downtime to reduce inventory levels will be largely offset by cost reduction initiatives.
Advanced Airlaid Materials' shipping volumes are expected to decline slightly compared with the third quarter. Customer selling prices and raw material and energy prices are expected to be in-line with the third quarter.
For Specialty Papers, shipping volumes in the fourth quarter are expected to be in-line with the third quarter. Lower selling prices and mix changes are expected to reduce operating profit by approximately $5 million. The impact of machine downtime to reduce inventory levels is expected to be offset by lower maintenance costs. Raw material and energy prices are expected to increase moderately.
Headquartered in York, Pennsylvania (USA), Glatfelter is a global supplier of specialty papers and fiber-based engineered materials, offering innovation, world-class service and over a century and a half of technical expertise. To learn more, please visit: www.glatfelter.com.