GLATFELTER REPORTS SECOND-QUARTER 2014 EARNINGS
YORK, Pennsylvania – July 29, 2014 – Glatfelter (NYSE: GLT) today reported second quarter 2014 net income of $4.7 million, or $0.11 per diluted share, and adjusted earnings of $3.8 million, or $0.09 per diluted share. For the second quarter of 2013, net income was $0.9 million, or $0.02 per diluted share, and adjusted earnings were $5.1 million or $0.12 per diluted share.
Consolidated net sales totaled $445.3 million in the second quarter of 2014, a 4.5 percent increase compared with $426.0 million in the second quarter of 2013 primarily driven by the Dresden acquisition and foreign currency translation.
“Our second quarter results reflect the continued progress of our growth businesses as Composite Fibers and Advanced Airlaid Materials reported operating income increases of 5 percent and 17 percent, respectively,” said Dante C. Parrini, chairman and chief executive officer. “Specialty Papers’ revenue increased slightly reflecting the realization of announced price increases and we successfully completed the expanded annual maintenance outages in May and June in-line with expectations.”
Mr. Parrini continued, “As we move into the second half of the year, we look forward to sustaining improved operating performance in Specialty Papers and returning earnings to a more normalized level. In our Advanced Airlaid Materials business, demand has been strong all year and we expect it to continue. In Composite Fibers, certain product segments are experiencing challenging market conditions. However, the steps we have taken to improve productivity and reduce costs are expected to allow us to continue generating solid profitability. While pockets of market uncertainty exist, I believe our leadership positions in key growth markets and focus on operating execution and cost control will lead to improved operating results throughout the balance of the year.”
The following table sets forth a reconciliation of net income on a GAAP basis to adjusted earnings:
Second 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 unit increased $14.4 million, or 10.1 percent, primarily due to the inclusion of a full quarter of Dresden’s results in 2014. Foreign currency translation favorably impacted the year-over-year net sales comparison by $6.0 million.
Composite Fibers’ second-quarter 2014 operating income increased $0.9 million to $17.3 million. Selling prices were down $3.4 million due to increased market competition for wallcover and metalized products. A full quarter of shipments from the Dresden acquisition and a positive mix shift improved operating income by $2.6 million. Improved operating efficiencies and lower input costs combined benefited earnings by $1.4 million.
Advanced Airlaid Materials
On a year-over-year basis, Advanced Airlaid Materials’ net sales increased $4.0 million, or 6.1 percent, primarily due to a 4.0 percent increase in shipping volumes. Foreign currency translation favorably impacted the year-over-year net sales comparison by $2.0 million.
Second quarter 2014 operating income increased $0.9 million, or 17.4 percent, compared with the year-ago quarter, primarily due to higher shipments of hygiene products and $0.7 million from currency translation. These favorable factors were partially offset by cost inflation and higher freight costs to meet North American customer demand from our European facility.
On a year-over-year basis, Specialty Papers’ net sales increased $0.9 million, or 0.4 percent primarily due to a $6.0 million benefit from higher average selling prices offset by lower shipping volumes.
For the second quarter of 2014, Specialty Papers’ operating loss increased to $7.2 million compared with $3.9 million in the second quarter of 2013. The Company completed annually scheduled maintenance outages at its Chillicothe, OH and Spring Grove, PA facilities which adversely impacted results by $28.2 million and $21.7 million in the second quarters of 2014 and 2013, respectively. The $6.5 million increase reflects a broader scope of work and increased purchased pulp consumption. In addition, higher prices for raw materials and energy negatively impacted operating results by $1.7 million.
Other Financial Information
Pension expense totaled $1.8 million and $3.2 million for the second 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 required to be made in 2014 nor is a contribution expected in the foreseeable future.
During the second-quarter 2013, the Company incurred acquisition and integration related costs totaling $4.8 million, pre-tax or $4.0 million after-tax. All such costs are excluded from the determination of non-GAAP adjusted earnings. Approximately $1.1 million, pre-tax, was related to the step-up in fair value of acquired inventory existing at the acquisition date and sold during the second quarter and is recorded as a component of costs of products sold and the remaining costs are included in selling, general and administrative expenses in the accompanying consolidated statements of income.
Interest expense totaled $4.8 million and $4.5 million in the second quarters of 2014 and 2013, respectively.
The Company completed the sale of 437 acres of timberlands during the second quarter of 2014 for an after-tax gain of $0.9 million.
The Company recorded an income tax provision of $1.0 million on adjusted pre-tax earnings resulting in an effective tax rate of 20.5 percent compared with an effective tax rate of 28.2 percent in the same quarter a year ago. The effective tax rate in the second quarter of 2014 reflects a greater proportion of earnings generated in lower tax foreign jurisdictions relative to the U.S.
2014 Year-to-date Results
For the first six months of 2014, adjusted earnings totaled $17.9 million, or $0.41 per diluted share, compared with $22.5 million, or $0.51 per diluted share, in 2013. On a GAAP basis, the Company reported net income of $19.3 million, or $0.44 per diluted share, compared with net income of $16.6 million, or $0.38 per diluted share, in 2013. The results of operations for both periods include the impact of significant unusual and non-recurring items. The following table sets forth a reconciliation of results determined on a GAAP basis to adjusted earnings:
Consolidated net sales for the first half of 2014 were $901.1 million, an 8.4 percent increase compared with $831.2 million for the same period of 2013. Organic growth totaled 2.2 percent and the remainder was related to the Dresden acquisition.
Balance Sheet and Other Information
Cash and cash equivalents totaled $28.0 million as of June 30, 2014, and net debt was $387.4 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.)
Capital expenditures totaled $30.2 million in the first half of 2014 compared with $60.8 million in the first half of 2013 which included $25.6 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 $(50.3) million in the first half of 2014 compared with $3.6 million in the same period of 2013 due to an increase in working capital and cash paid for income taxes. (Refer to the calculation of these measures provided in this release.)
During 2014, the Company repurchased $9.5 million, or 360 thousand shares, of common stock under its share repurchase program. On May 1, 2014, the Company announced that its Board of Directors approved a $25 million increase to the share repurchase program and extended the expiration date to May 1, 2016. Under the revised program, the Company may repurchase up to $50 million of its outstanding common stock, of which $14.0 million had been utilized through June 30, 2014.
In the third quarter of 2014, Composite Fibers’ shipping volumes are expected to be slightly higher than the second quarter of 2014. Selling prices and raw material and energy costs are expected to be in line with the second quarter of 2014.
Shipping volumes for Advanced Airlaid Materials in the third quarter of 2014 are expected to be slightly higher than the second quarter of 2014. Average raw material prices are expected to be slightly higher than the second quarter of 2014 resulting in higher selling prices consistent with our pass-through arrangements.
For Specialty Papers, the Company expects shipping volumes in the third quarter of 2014 to be approximately 5 percent higher than the second quarter of 2014 reflecting normal seasonal patterns. Overall selling prices are expected to be slightly higher in the third quarter as previously announced price increases are implemented. Input costs are expected to be in-line with the second quarter of 2014.
As previously announced, the Company will hold a conference call at 11:00 a.m. (Eastern) today to discuss its second 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, 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 (NYSE: GLT) is a leading global supplier of engineered materials. The Company’s high-quality, innovative and customizable solutions are found in tea and single-serve coffee filtration, personal hygiene and packaging products as well as home improvement and industrial applications. Headquartered in York, PA, the Company’s net sales approximate $950 million annually with customers in over 100 countries and approximately 2,300 employees worldwide. Operations include eleven manufacturing facilities located in the United States, Canada, Germany, France, the United Kingdom and the Philippines. Additional information about Glatfelter may be found at www.glatfelter.com.
Corporate Headquarters (York, PA)