GLATFELTER REPORTS SECOND QUARTER 2011 RESULTS
Net sales increase 10 percent to $398 million, a quarterly record; Advanced Airlaid Materials operating income nearly doubles
YORK, Pennsylvania – August 2, 2011 – Glatfelter (NYSE: GLT) today reported 2011 second quarter adjusted earnings of $3.1 million, or $0.07 per diluted share, compared with $0.9 million, or $0.02 per diluted share, in the 2010 second quarter. Adjusted earnings for the 2011 second quarter benefited $0.06 per share from favorable tax adjustments. On a GAAP basis, second quarter 2011 net income totaled $2.5 million, or $0.05 per share, compared with $0.1 million, or $0.00 per share, in the second quarter of 2010. Consolidated net sales increased 9.7 percent in the year-to-year comparison and totaled $398.0 million.
“Our businesses continue to generate strong top-line growth and we made significant progress improving Advanced Airlaid Materials’ performance with net sales increasing by 25 percent and operating profit nearly doubling in comparison to last year,” said Dante C. Parrini, chairman and chief executive officer. “While our other business units also reported higher revenue, their results were below our expectations. In Composite Fibers, we experienced operating inefficiencies resulting from downtime to manage inventory levels, opportunistic maintenance spend, and challenges qualifying new grades. We incurred higher production costs as we made changes to our machine loading to create capacity to support our customers in the growing single-serve coffee market. In Specialty Papers, results were impacted by operating difficulties in our Spring Grove pulp mill and recovery boiler as well as increased costs of the annual maintenance outages. Our focus on operational excellence has been a key driver of our earnings growth over the last several quarters and I am confident that the operational issues experienced during the second quarter have been addressed and are now behind us.
For the remainder of the year, we expect market conditions to remain generally favorable including continued growth in our tea, coffee and feminine hygiene product lines. We are also focused on improving our operating performance and executing our continuous improvement initiatives which positions us well for a solid second half of the year.”
Adjusted earnings is a non-GAAP measure that excludes from the Company’s GAAP-based results certain non-core business items. The following table sets forth a reconciliation of results determined in accordance with accounting principles generally accepted in the United States of America to non-GAAP adjusted earnings discussed herein:
2011 Second-Quarter Business Unit Results
On a year-over-year basis, Specialty Papers’ net sales increased $8.0 million primarily due to a $7.4 million benefit from higher selling prices and a 2.1 percent increase in shipping volumes. During this same period, the broader uncoated free sheet market was down 3.2 percent.
During the second quarters of 2011 and 2010, the Company completed annually scheduled maintenance outages at its Chillicothe, OH and Spring Grove, PA facilities. These maintenance outages adversely impacted operating income by $20.6 million in the second quarter of 2011, compared with $19.6 million in the same quarter a year ago. These required annual outages negatively affect second-quarter results when compared with other quarters.
Specialty Papers’ 2011 second-quarter operating income decreased $2.8 million primarily due to the unfavorable impact of higher raw material, fuel and energy costs which totaled $6.5 million and higher maintenance and other operating costs that, together, more than offset the impact of higher selling prices and shipping volumes.
Composite Fibers’ net sales increased $14.4 million, or 14.1 percent reflecting a $3.6 million benefit from higher selling prices and $10.4 million from foreign currency translation. The mix of products sold was favorable as growth in tea and coffee products offset weaker demand for metallized and composite laminate products.
Composite Fibers’ second-quarter 2011 operating income increased 3.8 percent or $0.3 million. The benefit from higher selling prices was more than offset by $4.9 million of higher raw material and energy costs, primarily related to fiber prices. In addition, operating income benefited $0.1 million from a stronger Euro. While Composite Fibers was impacted in the second quarter by a few production inefficiencies, the overall operating performance of this business was a benefit of $0.5 million when compared to the same quarter of 2010.
Advanced Airlaid Materials
Advanced Airlaid Materials’ net sales increased $12.9 million, or 24.7 percent reflecting a $3.9 million benefit from higher selling prices and $4.7 million from foreign currency translation. Net sales also benefited from a 10.8 percent increase in shipments.
Operating income was $3.7 million in the second-quarter 2011, nearly doubling results from the second quarter of 2010. During the second quarter, selling price increases slightly outpaced higher input costs of $3.5 million. In addition, this unit’s overall performance benefited from previously outlined improvement initiatives including supply chain synergies, waste reduction and higher machine output. Operating income also benefited $0.3 million from currency translation due to a more favorable Euro offset somewhat by a stronger Canadian dollar.
Other Financial Information
In the second quarter of 2011, the Company recorded a $2.9 million income tax benefit on a pretax loss of $0.4 million. The benefit was primarily due to the resolution of certain foreign tax audits, partially offset by adjustments to the carrying value of deferred taxes in connection with changes in state tax laws.
2011 First-Half Results
For the first six months of 2011, on a GAAP basis, the Company reported net income of $19.9 million or $0.43 per diluted share, compared with a loss of $0.3 million or $0.01 per diluted share in the same period of 2010. 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 net income or loss on a GAAP basis to adjusted earnings:
Consolidated net sales for the first half of 2011 were $794.8 million, a 13.5 percent increase compared with $700.1 million for the same period of 2010, reflecting generally stronger shipping volumes in all of our businesses, higher selling prices and a favorable impact from foreign currency translation.
Capital expenditures totaled $27.9 million in the first half of 2011 compared with $15.4 million in the same period of 2010. Capital expenditures are expected to be approximately $60 million to $65 million for 2011.
Cash and cash equivalents totaled $108.3 million at June 30, 2011 and net debt, excluding cash collateralized borrowings, was $187.6 million, a decrease of $13.0 million compared with year-end 2010. Free cash flow (cash provided by operations less capital expenditures) was $20.4 million for the first half of 2011 and $67.2 million for the first half of 2010. Free cash flow in 2011 and 2010 included $20.7 million and $54.9 million, respectively, of cash tax benefits related to cellulosic biofuel and alternative fuel mixture credits. (Net debt and free cash flow are non-GAAP measures. Refer to the calculation of these measures provided in this release).
In April 2011, the Company announced a $50 million share buyback program authorized by its Board of Directors. Through June 30, 2011, the Company repurchased 318,608 shares of common stock for approximately $4.7 million. The program does not obligate the Company to repurchase any particular amount of common stock and it may be modified or suspended at any time at the Board’s discretion.
For Specialty Papers, the Company expects shipping volumes in the third quarter of 2011 to be approximately five percent ahead of the second quarter and selling prices are expected to increase at a faster pace than input costs. During the second quarter the business completed its annual maintenance outages at a cost of $20.6 million and during the current quarter the business will complete normal third quarter maintenance outages with an estimated cost of $2.5 million.
For Composite Fibers, the Company anticipates shipping volumes to be approximately five percent higher than the second quarter including shipments of tea and coffee products increasing approximately ten percent. Selling prices for the third quarter are expected to be in-line with the second quarter with input costs rising modestly which is largely attributable to a timing lag between price realization and input cost changes.
Shipping volumes for the Advanced Airlaid Materials business unit in the third quarter of 2011 are expected to increase by approximately five percent compared with the second quarter. Selling prices and input costs are expected to be largely in-line with the second quarter levels.
During the third quarter of 2011, the Company will record a $2.0 million one-time pre-tax charge for the normal pension accounting expense associated with the retirement of the Company’s former CEO.
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 web site 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. These statements are based on management’s current expectations and are subject to numerous risks, uncertainties and other unpredictable or uncontrollable factors which may cause actual results or performance to differ materially from the Company’s expectations. Various risks and factors that could cause future results to differ materially from those expressed in forward-looking statements include, but are not limited to: changes in industry, business, market, political and economic conditions in the U.S. and other countries in which Glatfelter does business, demand for or pricing of its products, changes in tax legislation, governmental laws, regulations and policies, initiatives of regulatory authorities, acquisition integration risks, technological changes and innovations, market growth rates, cost reduction initiatives, and other factors. In light of these risks, uncertainties and other factors, the forward-looking events 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.
P. H. Glatfelter Company and subsidiaries
Consolidated Statements of Income
Business Unit Financial Information
Selected Financial Information
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 overhead, and operating margins, among others. Gains on the sale of timberlands, acquisition and integration related costs, charges for environmental reserves and shutdown and restructuring charges 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 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 provide 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.
Free cash flow and net debt are also non-GAAP financial measures, however, the calculation of each is derived directly from information included in the Company’s GAAP based consolidated financial statements. The Company believes these provide meaningful measures of the Company’s financial position and of its ability to generate sufficient levels of cash flow to support its business strategies.
The following tables set forth the calculations of free cash flow and net debt.
Non-GAAP adjusted earnings, free cash flow and net debt should not be considered in isolation from, or as substitutes 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)