Glatfelter Reports Second Quarter 2018 Results
July 31, 2018 - Glatfelter (NYSE: GLT) today reported a net loss of $7.4 million, or $0.17 per share for the second quarter of 2018 compared with a net loss of $5.7 million, or $0.13 per share in the second quarter of 2017. On an adjusted basis, the net loss for the second quarter of 2018 was $4.3 million, or $0.10 per diluted share compared with a loss of $2.6 million, or $0.06 per diluted share, for the same period a year ago. Net loss on an adjusted basis is a non-GAAP financial measure for which a reconciliation to the nearest GAAP-based measure is provided within this release.
Consolidated net sales totaled $405.8 million and $387.3 million for the three months ended June 30, 2018 and 2017, respectively. Composite Fibers' and Advanced Airlaid Materials' net sales increased by 1.5% and 11.3%, respectively, on a constant currency basis. Specialty Papers' net sales declined 0.7% in the quarter-over-quarter comparison.
“Significantly higher input costs, and operational challenges in Specialty Papers, led to second-quarter results that were below our expectations,” said Dante C. Parrini, Chairman and Chief Executive Officer. “During the quarter, higher purchased pulp prices adversely impacted our results by $9 million. While selling prices increased in all of our businesses, this was not sufficient to offset increases in raw material prices, particularly in Composite Fibers. However, Advanced Airlaid Materials volume and net sales grew 6% and 16%, respectively, over last year. The additional capacity from the new Fort Smith facility is ramping up and enabling us to meet demand from key customers who serve the growing North American wipes market.”
Mr. Parrini said, “In addition to higher pulp prices, Specialty Papers' results were adversely affected by increased costs of the annual maintenance outages and cost penalties from a slower than expected restart. However, the business unit successfully capitalized on an improving pricing environment, achieving a nearly $40 per ton increase in average selling prices compared with the first quarter of 2018. With the maintenance outages now complete, we anticipate volumes and operating income to improve on the heels of strong industry operating rates and pricing momentum heading into the second half of the year.”
Mr. Parrini concluded, “While our second-quarter financial performance was weaker than expected, we are confident our engineered materials platform continues to represent significant opportunity for Glatfelter and value for our shareholders. Our Advanced Airlaid Materials business is positioned to accelerate its growth as utilization of the new capacity increases. In addition, we anticipate closing on our announced acquisition of Georgia-Pacific's European nonwovens business during the fourth quarter, pending regulatory approval. This transaction is expected to be immediately accretive, and we look forward to adding its complementary products to our Airlaid Materials portfolio. Composite Fibers will continue to face competitive market conditions and raw material cost challenges in the near term; nonetheless, we remain a leader in the end-markets served and continue to be optimistic about the market growth potential.”
In June 2018¸ the Company announced a definitive agreement to purchase Georgia-Pacific's European nonwovens business, based in Steinfurt, Germany, for $185 million, subject to customary purchase price adjustments. The facility produces high-quality airlaid products for the table-top, wipes, hygiene, food pad, and other nonwoven materials markets. The Steinfurt facility is a state-of-the-art, 32,000-metric-ton-capacity manufacturing facility that employs approximately 220 people.
As previously announced, the Company is reviewing strategic alternatives for the Specialty Papers business. This review is ongoing and there can be no assurance that it will result in a particular outcome.
SECOND QUARTER BUSINESS UNIT RESULTS
Composite Fibers' net sales increased $9.8 million, or 7.4%, primarily due to $1.5 million from higher selling prices and $7.8 million of favorable currency translation, partially offset by lower shipping volumes.
Composite Fibers' second quarter of 2018 operating income totaled $13.2 million, a decrease of $1.5 million compared to the year-ago period. Operating results were adversely impacted by $4.4 million of higher input costs, primarily due to significantly higher woodpulp prices, which were partially offset by efficient operations. Currency translation favorably impacted results by $0.4 million.
Advanced Airlaid Materials
Advanced Airlaid Materials' net sales increased $10.0 million in the quarter-over-quarter comparison primarily due to a 5.9% increase in shipping volumes from continued growth of personal hygiene and wipes products, $1.8 million from higher selling prices and $3.0 million favorable impact from currency translation.
Operating income for the second quarter of 2018 increased slightly in the quarter-over-quarter comparison and totaled $7.6 million. The second-quarter 2018 operating income was impacted by $0.9 million of depreciation expense related to the investment in the Fort Smith facility.
Specialty Papers' net sales decreased $1.3 million, or 0.7%, as a $4.2 million increase in selling prices was more than offset by a 6.0% decline in shipping volumes following a paper machine shutdown in the third quarter of 2017.
Specialty Papers' operating loss totaled $20.9 million in the second quarter of 2018, compared with a loss of $13.5 million in the same period a year ago. Operating results reflect the cost of annual maintenance outages at the Chillicothe, OH and Spring Grove, PA facilities which adversely impacted results by $29.0 million compared to $22.9 million in the second quarter 2017, reflecting a broader scope of work. In addition, this quarter's results were adversely impacted by a $6.1 million increase in raw material and energy costs, particularly purchased pulp.
Other Financial Information
In the second quarter of 2018, the Company recorded an income tax benefit of $8.0 million on a pre-tax loss of $15.4 million. On an adjusted pre-tax loss of $12.1 million, the income tax benefit totaled $7.8 million including a $3.1 million investment tax credit.
Composite Fibers' shipping volumes in the third quarter of 2018 are expected to be approximately 8% higher than the second quarter. Selling prices as well as raw material and energy prices are expected to increase slightly.
Advanced Airlaid Materials' shipping volumes in the third quarter of 2018 are expected to be in-line with the second quarter of 2018, and selling, raw material and energy prices are expected to increase slightly. For the full-year 2018, we anticipate shipping volumes to be 6% to 8% higher than 2017 as the ramp-up of new volumes has been delayed slightly by qualification processes. We anticipate taking downtime in the third quarter to align supply with demand, resulting in an adverse impact to operating income of approximately $1 million.
Specialty Papers' shipping volumes in the third quarter are expected to be 8% higher than the second quarter of 2018. Average selling prices are expected to increase by approximately $20 per ton and we expect raw material and energy prices to increase slightly.
Consolidated capital expenditures for the year are expected to be between $60 million and $62 million.
The effective tax rate on adjusted earnings is expected to be approximately 35% in the second half of 2018.
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.