KapStone Paper and Packaging Reports Third Quarter 2016 Results
"In the third quarter of 2016, we announced price increases on domestic containerboard, corrugated products, and extensible grade export kraft paper. We estimate that these increases should be fully implemented by the end of the first quarter of 2017." – Roger W. Stone, Chairman and CEO, Kapstone.
Nov. 1, 2016 - KapStone Paper and Packaging Corporation (KS) today reported results for the third quarter ended September 30, 2016. As compared to 2015's third quarter, results for 2016's third quarter are below:
- Net sales of $777 million down $31 million, or 4 percent
- Net income of $31 million down $3 million, or 9 percent
- Diluted EPS of $0.32 down $0.03 per share, or 9 percent
Non U.S. GAAP financial measures for the 2016 third quarter are as follows:
- Adjusted EBITDA of $108 million down $18 million, or 15 percent
- Adjusted net income of $37 million down $13 million, or 26 percent
- Adjusted diluted EPS of $0.37 down $0.14 per share, or 28 percent
Roger W. Stone, Chairman and Chief Executive Officer, stated, "KapStone's operations performed well in the third quarter with our mills producing 700,000 tons of paper. Net earnings, however, were lower year-over-year primarily reflecting lower prices and a less favorable product mix. In the third quarter of 2016, we announced price increases on domestic containerboard, corrugated products, and extensible grade export kraft paper. We estimate that these increases should be fully implemented by the end of the first quarter of 2017, providing substantial benefits to KapStone.
"During the third quarter, we made significant progress increasing our future integration between our mills and corrugated operations. Upon attaining the expected run rates, the acquisition of Central Florida Box and additional strategic investments should provide an incremental 85,000 tons of integration over the next eighteen months.
"Finally, a very strong operating cash flow of $123 million in the third quarter enabled KapStone to make a $65 million prepayment on our term loans and funded $26 million of strategic investments to increase mill integration."
< class="subhead">Third Quarter Operating Highlights
Consolidated net sales of $777 million in the third quarter of 2016 were $31 million, or 4 percent lower than $808 million for the 2015 third quarter. This decrease was due to $31 million of lower prices and a less favorable mix in the paper and packaging segment. Higher sales volumes in the paper and packaging segment were offset by lower volumes in the distribution segment. The Company's average mill selling price of $626 per ton in the third quarter of 2016 decreased by $45 per ton, or about 7 percent, compared to the third quarter of 2015 due to index-driven lower domestic containerboard prices, lower export containerboard and kraft paper prices and a less favorable product mix.
Operating income of $55 million for the 2016 third quarter decreased by $7 million, or 11 percent, compared to the 2015 third quarter. The lower operating earnings primarily reflect lower prices for domestic and export containerboard and export kraft paper prices, and a less favorable product mix. These factors were partially offset by lower fiber and fuel costs, lower management incentives, and costs due to the 2015 work stoppage at the Longview mill.
Interest expense, net, was $10 million for the third quarter of 2016, about flat with a year ago. Our weighted average interest rate as of September 30, 2016 was 2.1 percent compared to 1.8 percent as of September 30, 2015.
The effective income tax rate for the 2016 third quarter was 28.9 percent compared to 32.5 percent for the 2015 third quarter. The 2016 third quarter effective income tax rate includes a favorable discrete tax adjustment reflecting higher energy tax credits.
< class="subhead">Cash Flow and Working Capital
Cash and cash equivalents increased by $2 million during the 2016 third quarter to $9 million at September 30, 2016. Operating activities provided $123 million during the 2016 third quarter including seasonally improved working capital. Investing activities used $53 million consisting of $27 million of capital expenditures and $26 million of strategic investments. Financing activities used $68 million including a $65 million debt prepayment and $10 million of cash dividends.
On August 17, 2016, our Board of Directors approved a regular $0.10 per share cash dividend which was paid on October 13, 2016.
At September 30, 2016, the Company had approximately $419 million of working capital and $471 million of revolver borrowing capacity.
In summary, Stone commented, "With our strong cash flows, KapStone is in an excellent position to continue growing profitably."
SOURCE: KapStone Paper and Packaging Corporation