GLATFELTER REPORTS FIRST-QUARTER 2014 EARNINGS
Operating profit for growth businesses increased 56%; Ohio pulp mill production issues resolved; Severe weather conditions impacted results
YORK, Pennsylvania – April 29, 2014 – Glatfelter (NYSE: GLT) today reported first quarter 2014 net income of $14.6 million, or $0.33 per diluted share, and adjusted earnings of $14.1 million, or $0.32 per diluted share. For the first quarter of 2013, net income was $15.6 million, or $0.36 per diluted share, and adjusted earnings were $17.4 million or $0.40 per share.
Consolidated net sales totaled $455.7 million in the first quarter of 2014, a 12.5 percent increase compared with $405.2 million in the first quarter of 2013. On an organic basis, net sales increased 2.3 percent in the year-over-year comparison.
“Our first-quarter results reflect the continuing strength of our two growth businesses as they delivered a combined 6 percent increase in net sales on an organic basis,” said Dante C. Parrini, chairman and chief executive officer. “Both Composite Fibers, driven by the previously acquired Dresden business, and Advanced Airlaid Materials reported improved operating profit of 65 percent and 30 percent, respectively, over the prior year. The outlook for Composite Fibers remains positive as the business has greater capacity to meet growing market demand and Advanced Airlaid Materials continues to grow through its leadership positions in growing global hygiene markets.
“In Specialty Papers, we entered 2014 faced with significant challenges presented by pulp mill performance issues in Ohio, which when combined with the impact of severe weather, led to disappointing financial results this quarter. In March, we successfully resolved the pulp mill issues and production has returned to more normalized levels. Looking ahead, I am confident the building blocks are in place to deliver improved performance in this business, as demand for our business continues to be healthy and we are well-positioned to capitalize on improving pricing conditions.”
The following table sets forth a reconciliation of net income on a GAAP basis to adjusted earnings:
First Quarter Business Unit Results
Composite Fibers includes the financial results of Dresden prospectively from the April 30, 2013 acquisition date.
Net sales for this business increased $46.7 million, or 41.8 percent, primarily due to the inclusion of Dresden. Excluding Dresden, Composite Fibers’ net sales increased $5.4 million, or 4.8 percent, on an organic basis, primarily due to stronger shipments of tea and single-serve coffee products. Foreign currency translation favorably impacted the year-over-year net sales comparison by $3.7 million.
Composite Fibers’ first-quarter 2014 operating income increased $7.6 million due to the inclusion of Dresden partially offset by raw material and other cost inflation.
Advanced Airlaid Materials
On a year-over-year basis, Advanced Airlaid Materials’ net sales increased $5.1 million, or 7.7 percent, primarily due to a 4.9 percent increase in shipping volumes. Foreign currency translation favorably impacted the year-over-year net sales comparison by $1.5 million.
First quarter 2014 operating income increased $1.4 million, or 30 percent, compared with the year-ago quarter, primarily due to higher shipments and $1.0 million from currency translation. These favorable factors were partially offset by $0.6 million in costs, net of insurance recoveries, related to fires at this business unit’s facilities in 2013.
On a year-over-year basis, Specialty Papers’ net sales decreased $1.3 million, or 0.6 percent primarily due to mix changes. Higher average selling prices favorably affected the comparison by $1.7 million.
Operating income declined $15.9 million in the year-over-year comparison primarily due to $9.4 million of costs related to pulp mill performance issues at its Ohio facility which caused a 16 percent reduction in pulp production in the year-over-year comparison resulting in higher per ton pulp production costs as well as increased use of higher cost purchased pulp. In addition, the first quarter results were adversely impacted by $6.6 million of costs related to severe weather conditions. Energy and related sales increased $4.2 million in the year over year comparison as severe weather conditions in 2014 resulted in higher selling prices for excess power.
Other Financial Information
Pension expense totaled $1.5 million and $3.9 million for the first quarters of 2014 and 2013, respectively. The decline reflects the benefit of higher discount rates and the amortization of deferred actuarial gains related to higher returns on assets in 2013. Because the Company’s qualified plan remains overfunded, a cash contribution is not expected to be made in 2014 or in the foreseeable future.
Interest expense totaled $4.8 million and $3.8 million in the first quarters of 2014 and 2013, respectively, reflecting additional borrowings to fund the Dresden acquisition.
The Company completed the sale of 498 acres of timberlands during the first quarter of 2014 for an after-tax gain of $0.5 million.
The Company recorded an income tax provision of $2.8 million on adjusted pre-tax earnings resulting in an effective tax rate of 16.5 percent compared with an effective tax rate of 21.9 percent in the same quarter a year ago. The effective tax rate in the first quarter of 2014 reflects a greater proportion of earnings generated in lower tax foreign jurisdictions relative to the U.S. and a $2.2 million tax benefit related to the revaluation of deferred taxes. In addition, due to the expiration of the U.S. research and development tax credit at the end of 2013, no credits were recorded in the first quarter of 2014. The first quarter of 2013 effective tax rate benefited from such credits by $1.5 million.
Balance Sheet and Other Information
Cash and cash equivalents totaled $74.8 million as of March 31, 2014, and net debt was $350.0 million, compared with $319.4 million at the end of 2013. (Refer to the calculation of this measure provided in the tables at the end of this release.) The increase in net debt was primarily due to normal seasonal working capital needs typical in the first quarter of the year.
Capital expenditures totaled $14.4 million in the first quarter of 2014 compared with $31.4 million in the first quarter of 2013 which included $10.9 million for Composite Fibers’ capacity expansion project. For 2014, total capital expenditures are estimated to approximate $80 million to $90 million.
Adjusted free cash flow was $(24.2) million in the first quarter of 2014 compared with $(10.4) million in the same quarter of 2013. (Refer to the calculation of these measures provided in this release.)
In February 2014, the Company increased its quarterly cash dividend by 10 percent to $0.11 per common share. The Company also repurchased $1.6 million, or 55,703 shares, of common stock during the quarter under its $25 million share repurchase program. Since the two-year program was approved in May 2012, $6.0 million has been used.
Composite Fibers’ shipping volumes are anticipated to be approximately 5 percent higher in the second quarter of 2014 compared to the first quarter of 2014. The benefit of higher shipping volumes is expected to be offset by lower capacity utilization during the quarter. In addition, selling prices are expected to be generally in line with the first quarter of 2014, and input costs are expected to be slightly higher.
Shipping volumes for Advanced Airlaid Materials in the second quarter of 2014 are expected to be flat compared with the first quarter of 2014. Average raw material prices are expected to be slightly higher than the first quarter of 2014 resulting in slightly higher selling prices consistent with our pass through arrangements.
For Specialty Papers, the Company expects shipping volumes in the second quarter of 2014 to be in line with the first quarter of 2014. Overall higher selling prices are expected to add $2 million to $3 million to operating profit compared to the first quarter of 2014 due to the realization of announced price increases. Input costs are expected to be in line with the first quarter of 2014. The Company also plans to complete the annually scheduled maintenance outages at its facilities in the second quarter of 2014. The outages are expected to adversely impact operating profit by approximately $28 million, pre-tax, compared with $22 million in the second quarter of 2013 due to an expanded scope of work.
As previously announced, the Company will hold a conference call at 11:00 a.m. (Eastern) today to discuss its first quarter results. The Company’s earnings release and an accompanying financial supplement, which includes significant financial information to be discussed on the conference call, will be available on Glatfelter’s Investor Relations website at the address indicated below. Information related to the conference call is as follows:
Interested persons who wish to hear the live webcast should go to the website prior to the starting time to register, download and install any necessary audio software.
Caution Concerning Forward-Looking Statements
Any statements included in this press release which pertain to future financial and business matters are “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. The Company uses words such as “anticipates”, “believes”, “expects”, “future”, “intends” and similar expressions to identify forward-looking statements. Any such statements are based on management’s current expectations and are subject to numerous risks, uncertainties and other unpredictable or uncontrollable factors that could cause future results to differ materially from those expressed in the forward-looking statements including, but not limited to: changes in industry, business, market, political and economic conditions in the U.S. and other countries in which the Company does business, demand for or pricing of its products, changes in tax legislation, governmental laws, regulations and policies, initiatives of regulatory authorities, technological changes and innovations, market growth rates, and cost reduction initiatives. In light of these risks, uncertainties and other factors, the forward-looking matters discussed in this press release may not occur and readers are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date of this press release and Glatfelter undertakes no obligation, and does not intend, to update these forward-looking statements to reflect events or circumstances occurring after the date of this press release. More information about these factors is contained in Glatfelter’s filings with the U.S. Securities and Exchange Commission, which are available at www.glatfelter.com.
Reconciliation of GAAP Financial Information to Non-GAAP Financial Information
This press release includes a discussion of earnings before the effects of certain specifically identified items, which is referred to as adjusted earnings, a non-GAAP measure. The Company uses non-GAAP adjusted earnings to supplement the understanding of its consolidated financial statements presented in accordance with GAAP. Non-GAAP adjusted earnings is meant to present the financial performance of the Company’s core operations, which consists of the production and sale of specialty papers, composite fibers papers and airlaid non-woven materials. Management and the Company’s Board of Directors use non-GAAP adjusted earnings to evaluate the performance of the Company’s fundamental business in relation to prior periods. The performance of the Company’s operations is evaluated based upon numerous items such as tons sold, average selling prices, gross margins and overhead, among others. Gains on the sale of timberlands, alternative fuel mixture credits, acquisition and integration related costs, and restructuring charges, among others, are excluded from the Company’s calculation of non-GAAP adjusted earnings because management believes each of these items is unique and not part of the Company’s core business, and will only impact the Company’s financial results for a limited period of time. Gains from timberland sales are distinct from revenues generated from product sales. Unlike items such as cost of raw materials and overhead costs, acquisition and integration related costs, and restructuring charges are unique items that do not represent direct costs incurred in the manufacture and sale of the Company’s products.
Unlike net income determined in accordance with GAAP, non-GAAP adjusted earnings does not reflect all charges and gains recorded by the Company for the applicable period and, therefore, does not present a complete picture of the Company’s results of operations for the respective period. However, non-GAAP adjusted earnings provides a measure of how the Company’s core operations are performing, which management believes is useful to investors because it allows comparison of such operations from period to period. Non-GAAP adjusted earnings should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with GAAP.
Glatfelter is a global supplier of specialty papers and engineered materials, offering innovation, world-class service and over a century and a half of technical expertise. Headquartered in York, PA, the Company employs approximately 4,200 people and serves customers in over 100 countries. U.S. operations include facilities in Pennsylvania and Ohio. International operations include facilities in Canada, Germany, France, the United Kingdom and the Philippines, and sales and distribution offices in China and Russia. Glatfelter’s sales approximate $1.6 billion annually and its common stock is traded on the New York Stock Exchange under the ticker symbol GLT. Additional information may be found at www.glatfelter.com.
Corporate Headquarters (York, PA)