GLATFELTER REPORTS STRONG FIRST QUARTER 2012 RESULTS
Adjusted EPS increases 26 percent
YORK, Pennsylvania – May 1, 2012 – Glatfelter (NYSE: GLT) today reported 2012 first quarter net income of $18.9 million, or $0.43 per diluted share, compared with adjusted earnings of $16.0 million, or $0.34 per diluted share, in the first quarter of 2011. Adjusted earnings for the first quarter of 2011 exclude gains from timberland sales and acquisition and integration costs. Consolidated net sales for the first quarter of 2012 were $397.4 million compared with $396.8 million for the first quarter of 2011.
“We are off to a strong start in 2012 with solid performance from all three of our businesses,” said Dante C. Parrini, chairman and chief executive officer. “Specialty Papers delivered a 7 percent increase in operating income led by improved operating performance, new business development, and continuous improvement initiatives. Our Advanced Airlaid Materials business continues to demonstrate progress with operating income more than doubling on a year-over-year basis and Composite Fibers also made good progress despite decreased production rates this quarter from two machine upgrades. As expected, both of these businesses experienced softer conditions in certain consumer-driven European market segments. Furthermore, our 2011 share repurchase program and the debt refinancing activities undertaken late last year are contributing to year-over-year earnings-per-share growth.”
Mr. Parrini continued, “With leading positions in our key markets, I believe we are well positioned to continue generating success from our growth strategies as we move through 2012. While economic risks persist, overall I expect market conditions in the second quarter to be consistent with the first quarter. We will continue our emphasis on customer satisfaction and operational excellence to reduce earnings risk from potential economic challenges as we did in the first quarter.”
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:
First Quarter Business Unit Results
On a year-over-year basis, Specialty Papers’ net sales increased $3.3 million due to a $3.7 million benefit from higher selling prices and an improved mix of products sold, partially offset by a 1.5 percent decline in shipping volumes. Carbonless volumes benefited from increased demand in advance of our previously announced price increase effective at the end of March 2012.
Specialty Papers’ 2012 first quarter operating income was $1.5 million higher than the same period of 2011 reflecting the benefit from higher selling prices and $1.8 million from continuous improvement initiatives, production efficiencies, and the timing of maintenance. These factors offset a $1.5 million adverse impact of higher input costs and $1.1 million of lower energy and related sales. Results for the 2011 first quarter benefited by $2.8 million from an insurance recovery and the resolution of a tax audit.
Composite Fibers’ net sales decreased $3.3 million, or 2.9 percent, primarily due to the translation of foreign currencies which unfavorably impacted the comparison by $3.4 million partially offset by a $1.1 million benefit from higher selling prices.
Composite Fibers’ first-quarter 2012 operating income decreased by $1.5 million as the benefit from higher selling prices was more than offset by unfavorable operating costs including higher energy costs, general inflation, and a $0.7 million impact from the completion of machine upgrades at two facilities. In addition, the translation of foreign currencies was $0.5 million unfavorable.
On a year-over-year basis, Advanced Airlaid Materials’ net sales increased 0.9 percent and totaled $61.6 million. The increase was primarily due to a 3.7 percent increase in volumes shipped which more than offset a $0.4 million adverse impact of lower selling prices.
First-quarter 2012 operating income increased $2.1 million compared with the year ago quarter led by a $1.5 million benefit from continuous improvement initiatives including supply chain efficiencies, waste reduction, improved throughput, and benefits from a new festooner. In addition, lower raw material and energy costs benefited results by $1.0 million.
Pension expense totaled $3.1 million and $2.4 million for the first quarters of 2012 and 2011, respectively. Since the Company’s qualified plan remains overfunded, a cash contribution is not expected to be made in 2012.
Interest expense declined $2.2 million in the year-over-year comparison primarily reflecting the redemption of $100.0 million of 7 1/8 percent bonds at the end of 2011. For the first quarter of 2012, interest expense totaled $4.3 million compared with $6.5 million in the year ago quarter.
In the first quarter of 2012, the Company’s effective tax rate was 30.3 percent compared with 29.3 percent, on adjusted earnings, in the same quarter of 2011. The higher tax rate was due, in part, to the expiration of the research and development tax credit and a change in the mix of jurisdictions in which taxable income is generated.
Capital expenditures totaled $14.2 million in the first quarter of 2012, including $4.7 million for the Composite Fibers capacity expansion project. For the full year 2012, capital expenditures are estimated to be $95 million to $105 million, including $30 million to $35 million of the $50 million investment to expand Composite Fibers’ capacity scheduled to be completed on the first quarter of 2013.
Cash and cash equivalents totaled $24.9 million as of March 31, 2012, and net debt was $197.2 million, compared with $188.7 million at the end of 2011.
Free cash flow (cash provided by operations less capital expenditures) was $(4.4) million for the first quarter of 2012 compared with $19.5 million for the first quarter of 2011. Free cash flow declined due to a $6.1 million increase in capital expenditures and the receipt of $17.8 million of cash tax benefits in the first quarter of 2011 related to cellulosic biofuel credits. (Refer to the calculation of these measures provided in this release.)
In January 2012, the Company completed the $50 million share repurchase program begun in April 2011. Under this program, 3.6 million shares were repurchased. Diluted shares outstanding for the first quarter of 2012 declined by 2.9 million shares compared with the first quarter of 2011.
For Specialty Papers, the Company expects slightly lower shipping volumes and an unfavorable mix in the second quarter of 2012 compared with the first quarter of 2012. The impact of announced selling price increases is expected to slightly outpace overall input cost increases compared to the first quarter. The Company also plans to complete the annually scheduled maintenance outages at both the Chillicothe and Spring Grove facilities in the second quarter of 2012. The outages are expected to adversely impact second quarter operating profit by approximately $21 million, pre-tax. In addition, non-shutdown related maintenance spending is expected to increase by approximately $2 million, pre-tax, compared to the first quarter.
The Company anticipates Composite Fibers’ shipping volumes to be 5 percent higher in the second quarter compared to the first quarter while selling prices are expected to be generally in line with the first quarter of 2012. However, the mix of products sold is expected to be slightly unfavorable. Input costs are expected to increase moderately.
Shipping volumes for the Advanced Airlaid Materials business unit in the second quarter of 2012 are expected to be in-line with the first quarter of 2012. Input cost increases are expected to outpace selling price changes due to the pass-through provisions in certain customer contracts but the Company expects this to be more than offset by the impact of its continuous improvement initiatives.
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 web site at the address indicated below. Information related to the conference
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.
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, and acquisition and integration related costs 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.
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 Arkansas, 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)