PaperAge Magazine

Appvion Reports Third Quarter 2016 Results

Appvion Appvion's CEO, Kevin Gilligan, said strong sales for the Company's thermal TLE products helped to counter the impact of lower demand for Appvion's carbonless and thermal receipt papers during third quarter 2016.

Nov. 7, 2016 - Appvion's third quarter 2016 net sales of $169.2 million were $11.4 million lower than third quarter 2015 primarily due to lower total shipment volume and unfavorable market pricing. Thermal papers net sales were $101.6 million which was $2.2 million higher than third quarter 2015. Carbonless papers net sales of $67.6 million declined $13.6 million compared to third quarter 2015.

Current quarter shipments of thermal papers decreased approximately 2% in third quarter 2016 compared to third quarter 2015. Shipments of tag, label and entertainment papers (TLE) were more than 14% higher than in third quarter 2015, while shipments of receipt paper declined approximately 20% compared to the same period last year. Sequentially, third quarter 2016 thermal papers volume grew over 4% compared to second quarter 2016, with volumes for both TLE and receipt papers improving from the previous quarter.

Carbonless papers shipment volume in third quarter 2016 was approximately 11% lower than third quarter 2015; however, within the carbonless segment, specialty papers continued its strong growth with a volume increase of nearly 28% compared to third quarter 2015.

Appvion recorded third quarter 2016 operating income of $3.4 million compared to operating income of $4.2 million for third quarter 2015. Current quarter operating income was negatively impacted by a $4.5 million mark-to-market unfavorable variance associated with the Company's retiree benefit plans compared to the same period last year, lower shipment volumes across both paper segments and unfavorable pricing in the carbonless papers segment. The Company also paid $2.1 million for advisory services supporting its profit improvement efforts. The negative impact of those factors on earnings was offset by improved pricing for thermal receipt paper, lower raw material costs, improved operational performance, ongoing cost-savings initiatives, and lower selling, general and administrative (SG&A) expenses.

Appvion's net sales for the first nine months of 2016 were $523.3 million; $7.3 million lower than the first nine months of 2015. Year-to-date shipment volume for thermal papers was approximately 6% higher than the same period last year with TLE volume increasing approximately 12% while receipt paper volume was relatively flat. Year-to-date shipment volume for carbonless papers declined approximately 12% compared to the same period in 2015. Despite volume declines in this segment, specialty papers volume growth gained traction and increased nearly 15% compared to the same period last year.

The Company reported operating income of $16.9 million for the first nine months of 2016 compared to operating income of $7.0 million for the same period last year. Increased volume, improved pricing and product mix in the thermal papers segment, lower spending associated with the annual maintenance downtime taken at the Roaring Spring, Pennsylvania mill, continued improvements in operating performance, execution of cost-savings initiatives, and lower SG&A expenses all contributed to the year-over-year improvement. The positive impact of those improvements was somewhat offset by lower volume and price in the carbonless papers segment, a $3.0 million mark-to-market unfavorable variance associated with the Company's retiree benefit plans compared to the same period last year, and $3.4 million for advisory services supporting profit improvement efforts.

Kevin Gilligan, Appvion's chief executive officer, said strong sales for the Company's thermal TLE products helped to counter the impact of lower demand for Appvion's carbonless and thermal receipt papers during third quarter 2016. Sales for thermal TLE products grew more than 13% compared to third quarter 2015. Volume for TLE products was up more than 14% compared to third quarter 2015. Gilligan said that such growth is consistent with the Company's strategy to place greater focus on thermal TLE product sales growth while working to improve the profitability of the thermal receipt paper business.

The Company is also working to expand its portfolio of specialty papers.

Gilligan also stated the Company's ongoing efforts to achieve and sustain operational performance improvements contributed significantly to third quarter and year-to-date 2016 improvements to operating earnings. Consistently strong manufacturing performance combined with continued reduction in SG&A expenses more than offset the financial impact of volume declines for year-to-date earnings.

Gilligan also noted that as of October 3, 2016, Appvion fulfilled its contractual obligation for the Company's share of the costs associated with the cleanup of the Lower Fox River by making its last payment.

Thermal Papers

Third quarter 2016 thermal papers net sales totaled $101.6 million compared to net sales of $99.4 million for the same period in 2015. Third quarter 2016 operating income was $2.5 million compared to a third quarter 2015 operating loss of $0.1 million. Slightly lower shipment volumes negatively impacted current quarter earnings by $0.6 million; however, that was more than offset by favorable pricing and product mix of $3.8 million. Continued improvements in operating performance and execution of cost-savings initiatives, as well as lower SG&A expenses and other spending, combined to add $1.0 million to third quarter 2016 earnings compared to the same quarter last year. In addition, the thermal papers segment had a $1.6 million mark-to-market unfavorable variance associated with the Company's retiree benefit plans compared to the same period last year.

During the first nine months of 2016, thermal papers net sales totaled $304.3 million, an increase of $27.3 million compared to the same period of the prior year. Operating income for the first nine months of 2016 was $11.3 million compared to an operating loss of $6.7 million for the segment during the same period last year. Current nine-month period results include a $1.0 mark-to-market unfavorable variance associated with the Company's retiree benefit plans compared to the same period last year.

Carbonless Papers

Third quarter 2016 carbonless papers net sales totaled $67.6 million, a decrease of $13.6 million compared to the same period in 2015. In third quarter 2016, carbonless papers recorded operating income of $3.9 million compared to operating income of $6.7 million reported for third quarter 2015. Third quarter earnings were $4.6 million lower due to reduced shipment volumes and $4.9 million unfavorable due to pricing and product mix. Continued improvements in operating performance and execution of cost-savings initiatives, as well as lower SG&A expenses and other spending, added $9.4 million to third quarter 2016 earnings compared to the same quarter last year. In addition, the carbonless papers segment had a $2.7 million mark-to-market unfavorable variance associated with the Company's retiree benefit plans compared to the same period year last year.

During the first nine months of 2016, carbonless net sales totaled $219.0 million, a decrease of 13.7% from the same period in 2015. For the first nine months of 2016, Appvion reported operating income of $13.2 million compared to $21.7 million of operating income for the same period in 2015. Current nine-month period results included a $1.8 mark-to-market unfavorable variance associated with the Company's retiree benefit plans compared to the same period last year.

Other (Unallocated)

Unallocated corporate charges totaled $3.0 million in third quarter 2016 and $2.4 million in third quarter 2015. Year-to-date 2016 expense was $7.6 million compared to $8.0 million for the first nine months of 2015. Year-to-date 2016 expense of $3.4 million for advisory services supporting profit improvement efforts included a $1.6 million charge to unallocated expenses, while $1.0 million was allocated to the thermal papers segment and $0.8 million was allocated to the carbonless papers segment.

Balance Sheet

At the end of the third quarter 2016, the Company held cash balances of $3.7 million compared to cash balances of $1.8 million at year-end 2015. Net debt was $430.4 million compared to $413.5 million at year-end 2015.

Outlook

Gilligan said that strong demand for the Company's thermal TLE grades has driven sequential growth of shipment volumes in each of the past five quarters. The Company expects that growth to continue through fourth quarter 2016. Demand for its thermal receipt paper is expected to be consistent with third quarter volume; however, the Company expects pricing to continue to be competitive in fourth quarter 2016.

The Company expects a decline in carbonless product volume for fourth quarter 2016 to be consistent with historical market decline trends and that comparative quarterly results will no longer require an adjustment for the loss of a significant customer account during the second half of 2015. However, the Company expects total volume for its carbonless papers segment to exceed segment volume for third quarter 2016 due to continued sales and volume growth of the Company's specialty papers. Gilligan added, "We expect to continue to deliver improved operational performance and cost reductions as we have for the past several quarters."

Appvion is headquartered in Appleton, Wisconsin and produces thermal, carbonless, security, inkjet, digital specialty and colored papers. To learn more, please visit: www.appvion.com.

SOURCE: Appvion