PaperAge Magazine

Neenah Reports Third Quarter 2016 Results

Neenah Paper

Nov. 8, 2016 - Neenah Paper, Inc. (NP) today reported 2016 third quarter results.

Third Quarter Highlights

  • Revenues of $232.9 million increased 1 percent, led by growth in Technical Products. Operating income grew 10 percent to $26.9 million as margins expanded due to lower costs and increased sales.
  • Earnings per diluted common share from continuing operations of $0.95 increased 22 percent compared with $0.78 per share in 2015. Excluding 2016 and 2015 integration and restructuring costs of $0.04 per share and $0.11 per share, respectively, adjusted E.P.S. of $0.99 in 2016 increased 11 percent compared with $0.89 per share in 2015.
  • Cash generated from operations of $40.6 million increased from $35.0 million in 2015.

"Adjusted earnings" is a non-GAAP measure used to improve understanding and comparability of year-on-year results.

"While global economic growth remains subdued, our teams continue to serve our customers and manage costs to deliver the consistent bottom line results our shareholders have come to expect," said John O'Donnell, Chief Executive Officer. "In addition, we are completing key initiatives that will drive significant long-term value. Our strong quarterly cash flows have helped fund high-returning organic initiatives like the addition of new transportation filtration capacity in the U.S., increased cash returns to shareholders, and a strong balance sheet to enable future strategic investments."

Quarterly Consolidated Results

Income Statement

Consolidated net sales increased 1 percent to $232.9 million compared with $231.6 million in the third quarter of 2015. Net sales increased as a result of incremental revenues related to the August 1, 2015 FiberMark acquisition and organic volume growth in Technical Products. These were partly offset by a decline in average net selling prices, due mostly to the mix of products sold in both segments, and lower volumes in Fine Paper and Packaging.

Selling, general and administrative (SG&A) expense of $21.0 million in the third quarter of 2016 decreased from $21.2 million in the prior year primarily due to timing of certain expenses.

Operating income of $26.9 million in 2016 increased 10 percent compared with $24.4 million in 2015. Higher income in 2016 resulted from increased volume, reduced manufacturing costs due to lower material prices, acquisition synergies and improved operational efficiencies, as well as lower integration and restructuring costs. Combined, these items more than offset impacts from a lower-priced sales mix. Excluding $1.2 million and $2.9 million of costs in 2016 and 2015, respectively, for integration and restructuring, adjusted operating income of $28.1 million increased 3 percent compared with the prior year.

Net interest expense of $2.7 million in the third quarter of 2016 decreased slightly from $2.9 million in the third quarter of 2015 as a result of lower debt levels. The effective income tax rate of 32 percent in the third quarter of 2016 compared with 37 percent in the third quarter of 2015. The 2015 rate was unusually high due to an adjustment to the amount of state R&D credits expected to be utilized, while the rate in 2016 declined by 1.75% due to the adoption of ASU 2016-09. Income from continuing operations of $16.4 million increased 21 percent compared with $13.5 million in the third quarter of 2015 primarily as a result of the higher operating income and lower tax rate in 2016.

Cash Flow and Balance Sheet Items

Cash provided from operations in the third quarter of 2016 was $40.6 million compared with $35.0 million in the third quarter of 2015. Increased cash generation in the current year resulted from higher earnings and a lower investment in working capital, partly offset by higher pension contributions.

Capital spending was $20.8 million in the third quarter of 2016 compared with $13.1 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 completed by year-end.

Debt as of September 30, 2016 was $211.2 million compared to $219.2 million at June 30, 2016 and $229.4 million on December 31, 2015. Cash and cash equivalents as of September 30, 2016 were $7.3 million compared with $4.5 million at June 30, 2016 and $4.2 million as of December 31, 2015.

Cash returns to shareholders through dividends and share repurchases totaled $8.3 million in the third quarter of 2016 and $7.3 million in the prior-year period.

Quarterly Segment Results

Technical Products net sales of $114.1 million increased 5 percent compared with $108.9 million in the prior year. The increase in revenues resulted from acquired sales and organic volume growth led by transportation filtration, and tape and abrasive backings. Sales growth due to higher volumes was only partly offset by lower net selling prices due to mix and modest reductions in selling prices for grades with contractual adjusters for certain input costs.

Operating income of $14.1 million in the third quarter of 2016 increased 28 percent compared with prior year income of $11.0 million. Higher operating income resulted from increased volume, improved manufacturing costs due to lower material prices, acquisition synergies and operational efficiencies, and reduced integration and restructuring costs. Combined, these items more than offset incremental SG&A from acquired operations and lower net selling prices. Excluding integration costs of $0.1 million in 2016 and $1.1 million in 2015, adjusted operating income of $14.2 million increased 17 percent versus the prior year.

Fine Paper & Packaging net sales were $112.9 million in the third quarter of 2016, down 3 percent compared with $116.9 million in the prior year. The decrease in revenues resulted from a lower-priced mix of products sold and a decline in shipments. While quarterly sales volumes were the highest thus far in 2016, they included a higher proportion of non-branded products and compared with an all-time record quarter in 2015.

Operating income of $17.3 million in the third quarter of 2016 increased 1 percent from $17.2 million in the prior year. Higher operating income in 2016 resulted from lower manufacturing material prices and reduced SG&A and integration costs that were mostly offset by a lower-priced mix of products sold and reduced shipments. Excluding integration costs of $0.3 million in 2016 and $0.9 million in 2015, adjusted operating income of $17.6 million decreased 3 percent versus the prior year.

Unallocated Corporate costs in the third quarter of 2016 were $4.6 million compared with $3.6 million in prior year period. Higher costs in 2016 resulted primarily due to non-capitalizable costs related to the transportation filtration project prior to its start up.

Headquartered in Alpharetta, Georgia, Neenah's key products and markets include advanced filtration media, specialized performance substrates used for tapes, labels and other products, and premium printing and packaging papers. The company has manufacturing operations in the United States, Germany and the United Kingdom. To learn more, please visit: www.neenahpaper.com.

SOURCE: Neenah Paper, Inc.