Neenah Reports Second Quarter 2018 Results
"In the second quarter, our Technical Products segment continued to deliver very strong top and bottom line performance, and we made significant progress restoring the attractive margins of Fine Paper and Packaging. – John O'Donnell, President and CEO, Neenah, Inc.
Aug. 8, 2018 - Neenah, Inc. (NYSE: NP) [yesterday] reported 2018 second quarter results.
Second Quarter Highlights
- Revenues increased 9 percent to a record $271.3 million compared with $248.7 million in the prior year.
- A loss per diluted common share (E.P.S.) of $0.29, which included $1.47 per share of adjusting items, compared with earnings of $1.46 per share in 2017. The adjusting items in 2018 were comprised of non-cash costs for impairment related to the planned sale of the Brattleboro mill and associated facilities, a settlement charge related to withdrawing from a multi-employer pension plan, and integration and restructuring costs. The Brattleboro sale is part of a broader effort to increase efficiencies in the Fine Paper and Packaging business.
- Adjusted E.P.S. in 2018 of $1.18 decreased 3 percent compared with $1.22 per share in 2017. Adjusted E.P.S. in 2018 excluded costs of $1.47 per share noted above, and in 2017 excluded a benefit of $0.24 per share related to prior period tax adjustments.
- Cash generated from operations of $31.7 million increased 35 percent from $23.4 million in the second quarter of 2017.
- Quarterly cash dividends of $0.41 per share increased 11 percent compared with the prior year period.
"Adjusted earnings" is a non-GAAP measure used to enhance understanding and comparability of year-on-year results and are reconciled to GAAP figures later in this release.
"In the second quarter, our Technical Products segment continued to deliver very strong top and bottom line performance, and we made significant progress restoring the attractive margins of Fine Paper and Packaging. With each business focused on price realization, operating performance and working capital efficiencies, results were also evident in improved operating cash flows," said John O'Donnell, Chief Executive Officer.
"We're expanding organically in targeted markets like filtration, premium packaging and performance materials, and profitably increasing Neenah's overall growth rate. As we head into the seasonally slower second half of the year with persistent input cost pressures, our competitive and financial positions remain strong and our teams are focused on additional actions that can deliver increased value for our shareholders."
QUARTERLY CONSOLIDATED RESULTS
Consolidated net sales of $271.3 million in the second quarter of 2018 increased 9 percent compared with $248.7 million in the second quarter of 2017. Revenue gains resulted from higher Technical Products volumes (including volume from the November 2017 acquisition of Coldenhove), increased selling prices and a higher value mix in both segments, and favorable currency effects. These items more than offset lower Fine Paper and Packaging volume.
Selling, general and administrative (SG&A) expense of $25.2 million in the second quarter of 2018 increased from $24.5 million in the prior year as a result of acquired SG&A, partly offset by lower spending in Fine Paper and Packaging.
An operating loss of $4.3 million in the second quarter of 2018 compared to operating income of $29.2 million in 2017. The $33.5 million decrease in income was mainly due to adjustments of $33.3 million, consisting of the $32.0 million of impairment, $1.0 million of pension settlement costs and $0.3 million of integration and restructuring costs. Excluding these items, adjusted operating income of $29.0 million was in line with last year as higher input, distribution and manufacturing costs were mostly offset by volume growth, increased selling prices and currency.
Net interest expense of $3.3 million in the second quarter of 2018 increased from $3.0 million in the second quarter of 2017. The increased expense in 2018 was primarily due to incremental borrowings to finance the Coldenhove acquisition.
The effective income tax rate was negative 37% in the second quarter of 2018 and 5% in the second quarter of 2017. The change was primarily due to the impact of the adjustments in 2018, which reduced pre-tax income. Excluding the impact of adjustments in both years, the tax rate in the second quarter of 2018 was 21% and similar to the rate in the second quarter of 2017, which included a benefit from the Company's assertion that it will not repatriate foreign earnings. On an ongoing basis, tax rates are lower in 2018 as a result of the Tax Cuts and Jobs Act of 2017, which reduced the U.S. federal statutory corporate tax rate from 35% to 21% effective January 1, 2018.
Cash Flow and Balance Sheet Items
Cash provided from operations in the second quarter of 2018 was $31.7 million. Compared with $23.4 million in the second quarter of 2017, cash flow increased primarily due to reduced investments in working capital in 2018.
Capital spending of $8.2 million in the second quarter of 2018 compared to $7.7 million in the prior year.
Debt as of June 30 was $253.5 million, down from $270.3 million as of March 31 and compared with $255.5 million as of December 31, 2017. Cash and cash equivalents as of June 30 were $7.2 million compared to $6.4 million as of March 31 and $4.5 million as of December 31, 2017.
Quarterly Segment Results
Technical Products net sales of $150.2 million increased 18 percent, from $127.3 million in the prior year. Revenue growth resulted from acquired volume, organic increases in transportation filtration, backings, labels and specialties, higher net selling prices and favorable currency exchange effects due to a stronger euro.
Operating income of $15.8 million in the second quarter of 2018 decreased $0.2 million compared with prior year income of $16.0 million. Income in 2018 included $1.8 million of the previously noted adjustments. Excluding these costs, adjusted operating income increased $1.6 million, as higher sales volumes, increased selling prices, a higher-value mix and favorable currency effects more than offset higher input and distribution costs and lower manufacturing efficiencies.
Fine Paper and Packaging net sales of $115.8 million in the second quarter of 2018 were approximately equal to net sales of $115.7 million in the prior year. Increased selling prices, volume growth in premium packaging and the consumer channel, and a higher-value mix were mostly offset by volume declines in commercial print, including marginal business.
Operating income decreased $26.3 million from $17.5 million in the prior year to a loss of $8.8 million in the second quarter of 2018. The decrease was mainly due to $25.5 million of the previously noted adjustments. Excluding these costs, adjusted operating income decreased $0.8 million due to higher input and distribution costs, lower manufacturing efficiencies and reduced sales volumes that were only partly offset by higher selling prices and reduced SG&A spending.
Unallocated Corporate and Other costs in the second quarter of 2018 were $11.3 million compared with $4.3 million in the prior year period. The primary reason for the increased cost was $6.0 million of impairment and pension settlement costs assigned to the Other segment. Unallocated corporate expense was $5.1 million in 2018 compared with $4.5 million in the prior year period.
Neenah's complete quarterly and year-to-date results can be found on the company's website: www.neenah.com.
Headquartered in Alpharetta, Georgia, Neenah is a leading global specialty materials company, focused on premium niche markets that value performance and image. Key products and markets include advanced filtration media, specialized performance substrates used for digital transfer, tape and abrasive backings, labels and other products, and premium printing and packaging papers. To learn more, please visit: www.neenah.com.
SOURCE: Neenah, Inc.