Glatfelter (NYSE: GLT) today reported a net loss of $5.7
million, or $0.13 per share for the second quarter of 2017 compared
with net income of $2.0 million, or $0.04 per diluted share in the
second quarter of 2016. On an adjusted earnings basis, the loss for
the second quarter of 2017 was $2.6 million, or $0.06 per share
compared with adjusted earnings of $2.8 million, or $0.06 per
diluted share, for the same period a year ago. Adjusted earnings is
a non-GAAP measure for which a reconciliation is provided within
this release.
Consolidated net sales totaled $387.3 million and $406.4 million
for the three months ended June 30, 2017 and 2016,
respectively. In the Composite Fibers and Advanced Airlaid
Materials business units, net sales increased by 1.4% and 4.9%,
respectively, on a constant currency basis. Specialty Papers’ net
sales declined 8.6% in the quarter-over-quarter comparison.
“We had solid growth in shipping volumes and improved
performance in our engineered materials businesses during the
quarter,” said Dante C. Parrini, Chairman and Chief Executive
Officer. “However, our overall results for the quarter were lower
than expected due to continued weakness in Specialty Papers’
markets. Volumes in our Composite Fibers business strengthened,
increasing 3% over last year’s second quarter and 4% year-to-date,
driven by improved demand across most product lines and
particularly wall cover products. While we are seeing steady growth
in the Composite Fibers business, we remain focused on our cost
optimization initiatives that are expected to deliver $10 million
in cost savings in 2017. The Advanced Airlaid Materials business
performed well delivering top-line growth and improved
profitability, as operating income increased 11% over the
prior-year quarter and 10% for the year. For the remainder of 2017,
we expect continued growth in shipments and strong operating
performance from our engineered materials businesses. We also look
forward to the incremental growth expected from our new Fort Smith,
Arkansas facility coming on-line later this year with commercial
shipments beginning early 2018.”
Mr. Parrini continued, “The prolonged supply-demand imbalance in
the broader uncoated free sheet market is continuing to put
pressure on industry operating rates and selling prices and is
driving the need to address excess capacity and our cost structure.
Last week, we announced aggressive cost reduction actions including
the shutdown of a paper machine at our Chillicothe, Ohio, facility,
and headcount reductions of approximately 120 positions across the
Specialty Papers business. We anticipate these actions will deliver
approximately $9 million in annual profit improvement. While these
are difficult decisions, we are committed to taking the steps
necessary to maintain Specialty Papers’ competitiveness and
position Glatfelter for long-term success.”
The following table sets forth a reconciliation of net income
(loss) on a GAAP basis to an adjusted earnings basis, a non-GAAP
measure:
Three months ended June 30
2017
2016 In thousands, except per share
Amount EPS Amount
DilutedEPS
Net income (loss)
$ (5,714 ) $
(0.13 ) $ 1,965 $ 0.04 Adjustments (pre-tax)
Specialty Papers' environmental compliance
216 1,088 Airlaid
capacity expansion costs
2,495 201 Cost optimization actions
775 — Timberland sales and related costs
(74
) — Total adjustments (pre-tax)
3,412 1,289
Income taxes (1)
(317 ) (487 ) Total
after-tax adjustments
3,095 0.07
802 0.02 Adjusted earnings (loss)
$
(2,619 ) $ (0.06 ) $ 2,767 $
0.06 (1) Tax effect on adjustments calculated based on the
incremental effective tax rate of the jurisdiction in which each
adjustment originated and the related impact of valuation
allowances.
The sum of individual per share amounts
set forth above may not agree to adjusted earnings per share due to
rounding.
A description of each of the adjustments
presented above is included later in this release.
Second Quarter Business Unit Results
Composite Fibers
Three months ended June 30 Dollars in
thousands
2017 2016
Change Tons shipped
41,891
40,676 1,215 3.0 % Net sales
$ 133,137 $ 136,386 $
(3,249 ) (2.4 )% Operating income
14,685 15,306 (621 ) (4.1
)% Operating margin
11.0 % 11.2 %
Composite Fibers’ net sales decreased $3.2 million, or 2.4%,
primarily due to $5.2 million of unfavorable currency translation
and $2.1 million from lower selling prices partially offset by
higher shipping volumes.
Composite Fibers’ second quarter of 2017 operating income
totaled $14.7 million, a decrease of $0.6 million compared to the
year-ago period. The negative impact from lower selling prices more
than offset the $0.6 million benefit from higher shipping volume.
Improved operations and cost reduction efforts implemented earlier
this year delivered a $2.1 million benefit and were partially
offset by $1.3 million of higher freight costs including expedited
shipping to serve customer demand.
Advanced Airlaid Materials
Three months ended June 30 Dollars in
thousands
2017 2016
Change Tons shipped
25,507 24,365 1,142 4.7 % Net sales
$ 62,836 $
60,756 $ 2,080 3.4 % Operating income
7,544 6,768 776 11.5 %
Operating margin
12.0 % 11.1 %
Advanced Airlaid Materials’ net sales increased $2.1 million in
the year-over-year comparison primarily due to a 4.7% increase in
shipping volumes from continued growth of personal hygiene products
and wipes.
Operating income for the second quarter of 2017 totaled $7.5
million, or 11.5% higher than the comparable period a year ago. A
$0.9 million benefit from higher volumes was partially offset by
general cost inflation. Foreign currency translation increased
operating income by $0.5 million.
Specialty Papers
Three months ended June 30 Dollars in
thousands
2017 2016
Change Tons shipped
184,129
194,702 (10,573 ) (5.4 )% Net sales
$ 191,368 $
209,270 $ (17,902 ) (8.6 )% Energy and related sales, net
981 2,001 (1,020 ) (51.0 )% Operating loss
(13,780
) (5,763 ) (8,017 ) 139.1 % Operating margin
(7.2
)% (2.8 )%
Specialty Papers’ net sales decreased $17.9 million, or 8.6%,
due to a 5.4% decrease in shipping volumes together with a $5.3
million impact from lower selling prices.
Specialty Papers’ operating loss totaled $13.8 million in the
second quarter of 2017, compared with a loss of $5.8 million the
same period a year ago. Specialty Papers’ markets continued to be
impacted by a supply-demand imbalance resulting in lower selling
prices and shipping volumes adversely impacting operating results
by $7.9 million coupled with market-related downtime of $5.6
million. In addition, lower energy and related sales and higher raw
material and energy costs adversely impacted the year-over-year
comparison by $2.9 million. Operating results for both quarters
reflect the cost of annual maintenance outages at the Chillicothe,
OH and Spring Grove, PA facilities which adversely impacted
second-quarter 2017 and 2016 results by $22.9 million and $26.3
million, respectively. In addition to lower spending for the annual
maintenance outages, this business benefited from improved
operations, cost control actions, and lower incentive compensation
aggregating $5.1 million.
Other Financial Information
In the second quarter of 2017, the Company recorded a provision
for income taxes of $0.4 million on a pre-tax loss of $6.1 million.
On an adjusted earnings basis, the benefit for income taxes totaled
$0.1 million on an adjusted pre-tax loss of $2.7 million. The
effective tax rate on an adjusted loss was 2.0% in the second
quarter of 2017 compared to 14.7% on adjusted earnings in the same
quarter a year ago. The change in the effective tax rate reflects
the adverse impact of valuation allowances recorded in 2017 for
deferred tax assets.
2017 Year-to-Date Results
The following table sets forth a reconciliation of results
determined on a GAAP basis to adjusted earnings:
Six months ended June 30
2017
2016 In thousands, except per share
Amount
DilutedEPS
Amount
DilutedEPS
Net income
$ 5,889 $ 0.13 $
18,133 $ 0.41 Adjustments (pre-tax) Specialty Papers' environmental
compliance
2,480 1,125 Airlaid capacity expansion costs
4,453 257 Cost optimization actions
2,788 88
Timberland sales and related costs
(74 )
— Total adjustments (pre-tax)
9,647 1,470 Income
taxes (1)
(999 ) (543 ) Total after-tax
adjustments
8,648 0.19 927
0.02 Adjusted earnings
$ 14,537 $
0.33 $ 19,060 $ 0.43 (1) Tax effect on adjustments
calculated based on the incremental effective tax rate of the
jurisdiction in which each adjustment originated and the related
impact of valuation allowances.
The sum of individual per share amounts
set forth above may not agree to adjusted earnings per share due to
rounding.
A description of each of the adjustments
presented above is included later in this release.
Balance Sheet and Other Information
Cash and cash equivalents totaled $69.4 million as of
June 30, 2017, and net debt was $372.5 million compared with
$317.2 million at the end of 2016. (Refer to the calculation of
this measure provided in the tables at the end of this
release.)
Capital expenditures during 2017 and 2016 are summarized
below:
Capital
Expenditures Three months ended
June 30
Six months ended
June 30
In thousands
2017 2016
2017
2016 Specialty Papers' environmental
compliance projects
$ 4,156 $ 22,393
$
11,850 $ 36,786 Airlaid capacity expansion
11,871
5,175
21,421 18,861 Other capital expenditures
18,237 9,529
37,776 24,744 Total
capital expenditures
$ 34,264 $ 37,097
$
71,047 $ 80,391
Adjusted free cash flow for the first six months of 2017, was
$(9.0) million compared with $7.6 million in 2016. (Refer to the
calculation of these measures provided in this release.)
During the quarter, we reached a settlement agreement with
Georgia Pacific for claims against each other in the Fox River
environmental matter. Under this settlement, we agreed to pay
Georgia Pacific $9.5 million in August 2017. The settlement had no
effect on our overall reserve for the Fox River liability.
Outlook
Composite Fibers’ shipping volumes in the third quarter of 2017
are expected to be approximately 3% higher than the second quarter.
Selling prices are expected to be in-line with the second quarter
while raw material and energy prices are expected to be slightly
higher. In addition, the Company expects this business unit to
incur approximately $1 million of less market related downtime in
the third quarter than the second quarter.
Advanced Airlaid Materials’ shipping volumes in the third
quarter are expected to be approximately 2% higher than the second
quarter. Selling prices and raw material and energy prices are
expected to increase slightly compared with the second quarter.
Specialty Papers’ shipping volumes in the third quarter are
expected to be approximately 5% higher than the second quarter of
2017. Selling prices are expected to decline slightly and raw
material and energy prices are expected to be up slightly. In
addition, the Company expects to incur $2 million to $3 million of
less market related downtime in the third quarter than the second
quarter. Specialty Papers will also benefit about $1 million from
the cost reduction actions recently announced.
In connection with its cost reduction actions within Specialty
Papers, the Company expects to record one-time charges of
approximately $8 million to $9 million primarily during the third
quarter, of which approximately $5 million to $6 million will be
non-cash. In addition, costs associated with the Specialty Papers
environmental compliance projects and Advanced Airlaid Materials
capacity expansion are expected to be $1 million and $4 million,
respectively.
Consolidated capital expenditures are expected to total between
$130 million and $140 million for 2017 and approximate between $62
million and $72 million in 2018.
The effective tax rate on adjusted earnings is expected to be
approximately 35% for the second half of 2017.
Conference Call
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:
What: Glatfelter’s 2nd Quarter 2017 Earnings
Release Conference Call When: Tuesday, August 1, 2017, 11:00
a.m. (ET) Number: US dial 888.335.5539 International
dial 973.582.2857 Conference ID: 45999721 Webcast:
http://www.glatfelter.com/about_us/investor_relations/default.aspx
Rebroadcast Dates: August 1, 2017, 2:00 p.m. through August
14, 2017, 11:59 p.m. Rebroadcast Number: Within US dial
855.859.2056 International dial 404.537.3406
Conference ID: 45999721
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”, “plans”, “targets”, and similar expressions to
identify forward-looking statements. Any such statements are based
on the Company’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, and economic
conditions in the U.S., demand for or pricing of its products,
market growth rates and currency exchange rates. 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.
About Glatfelter
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 4,300 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.
P. H. Glatfelter Company and
subsidiaries Consolidated Statements of Income
(unaudited) Three months ended
June 30
Six months ended
June 30
In thousands, except per share
2017 2016
2017 2016 Net sales
$ 387,342 $
406,413
$ 778,055 $ 808,631 Energy and related sales,
net
981 2,001
2,110 2,667
Total revenues
388,323 408,414
780,165 811,298 Costs
of products sold
357,887 365,691
692,800 710,732 Gross profit
30,436 42,723
87,365 100,566 Selling, general and administrative expenses
31,999 37,191
67,085 69,049
(Gains) losses on dispositions of plant,
equipment and timberlands, net
(58 ) 2
(26 ) 26 Operating income
(loss)
(1,505 ) 5,530
20,306 31,491
Non-operating income (expense) Interest expense
(4,476
) (3,953 )
(8,484 ) (8,069 ) Interest income
45 61
158 152 Other, net
(149 )
317
(428 ) (383 ) Total other
expense
(4,580 ) (3,575 )
(8,754 ) (8,300 ) Income (loss) before income
taxes
(6,085 ) 1,955
11,552 23,191 Income tax
provision (benefit)
(371 ) (10 )
5,663 5,058 Net income (loss)
$ (5,714
) $ 1,965
$ 5,889 $ 18,133
Earnings
(loss) per share Basic
$ (0.13 ) $ 0.05
$ 0.14 $ 0.42 Diluted
(0.13 ) 0.04
0.13 0.41
Cash dividends declared per common
share
$ 0.13 $ 0.125
$ 0.26 $ 0.25
Weighted average shares outstanding Basic
43,604
43,558
43,593 43,539 Diluted
43,604 44,062
44,449 43,963
Business Unit Financial Information (unaudited)
Three months ended June 30 Dollars in millions Composite
Fibers Advanced Airlaid Materials Specialty Papers Other and
Unallocated Total
2017 2016
2017 2016
2017
2016
2017 2016
2017 2016 Net sales
$
133.1 $ 136.4
$ 62.8 $ 60.8
$
191.4 $ 209.3
$ — $ —
$ 387.3 $
406.4 Energy and related sales, net
— —
— — 1.0 2.0
— — 1.0 2.0 Total revenue
133.1 136.4
62.8 60.8
192.4 211.3
—
— 388.3 408.4 Costs of products sold
107.6 109.0
53.0 51.8
195.9 202.9
1.4 2.0
357.9 365.7 Gross profit (loss)
25.5 27.4
9.8 9.0
(3.5 ) 8.4
(1.4 ) (2.0 )
30.4 42.7 SG&A
10.8 12.1
2.3 2.2
10.3 14.2
8.6 8.7
32.0 37.2
(Gains) losses on dispositions of plant,
equipment and timberlands, net
— — — —
— — (0.1 )
— (0.1 ) — Total
operating income (loss)
14.7 15.3
7.5 6.8
(13.8 ) (5.8 )
(9.9 ) (10.7 )
(1.5 ) 5.5 Non operating expense
—
— — — —
— (4.6 ) (3.6 )
(4.6 ) (3.6 ) Income (loss) before income
taxes
$ 14.7 $ 15.3
$ 7.5 $ 6.8
$ (13.8 ) $ (5.8 )
$ (14.5
) $ (14.3 )
$ (6.1 ) $ 2.0
Supplementary Data Net tons sold (thousands)
41.9
40.7
25.5 24.4
184.1 194.7
— —
251.5 259.7 Depreciation, depletion and amortization
$ 7.0 $ 7.2
$ 2.3 $ 2.4
$
7.7 $ 6.5
$ 0.7 $ 0.7
$ 17.7 $
16.8 Capital expenditures
2.1 2.3
12.9 6.1
15.8 28.7
3.5 -
34.3 37.1
Six months ended June 30
Dollars in millions Composite Fibers Advanced Airlaid Materials
Specialty Papers Other and Unallocated Total
2017 2016
2017 2016
2017 2016
2017 2016
2017 2016
Net sales
$ 258.2 $ 259.9
$ 122.7 $
121.5
$ 397.1 $ 427.2
$ — $ —
$
778.1 $ 808.6 Energy and related sales, net
—
— — — 2.1
2.7
— — 2.1
2.7 Total revenue
258.2 259.9
122.7 121.5
399.2 429.9
— — 780.2 811.3 Costs of
products sold
207.2 210.3
103.5
104.1
376.0 394.0
6.1
2.3
692.8 710.7 Gross profit (loss)
51.0 49.6
19.2 17.4
23.2 35.9
(6.1
) (2.3 )
87.4 100.6 SG&A
21.9 23.2
4.6 4.2
23.8 26.6
16.8 15.0
67.1 69.0
Losses on dispositions of plant, equipment
and timberlands, net
— — — —
— — — —
— — Total operating income (loss)
29.1 26.4
14.6 13.2
(0.6 ) 9.3
(22.9 ) (17.3 )
20.3 31.5 Non operating
expense
— — —
— — — (8.8
) (8.3 )
(8.8 ) (8.3 )
Income (loss) before income taxes
$ 29.1 $ 26.4
$ 14.6 $ 13.2
$ (0.6 ) $ 9.3
$ (31.7 ) $ (25.6 )
$ 11.6 $
23.2
Supplementary Data Net tons sold (thousands)
80.7 77.6
50.3 48.9
381.4 400.5
—
— 512.4 527.0 Depreciation, depletion and
amortization
$ 13.8 $ 14.3
$ 4.6 $ 4.7
$ 14.9 $ 13.2
$ 1.7 $ 1.2
$
35.0 $ 33.4 Capital expenditures
6.8
8.6
23.5 20.7
34.0 50.8
6.7 0.3
71.0 80.4
The sum of individual amounts set forth above may not agree to
the consolidated financial statements included herein due to
rounding.
Selected Financial Information
(unaudited) Six months ended June 30 In
thousands
2017 2016
Cash Flow
Data Cash provided (used) by: Operating activities
$
28,764 $ 36,640 Investing activities
(70,964 )
(80,638 ) Financing activities
52,466 (3,126 )
Depreciation, depletion and amortization
34,967 33,411
Capital expenditures
71,047 80,391
June
30 December 31
2017 2016
Balance Sheet Data Cash
and cash equivalents
$ 69,442 $ 55,444 Total assets
1,641,781 1,521,259 Total debt
441,894 372,608
Shareholders’ equity
685,032 653,826
Reconciliation of GAAP Financial Information to Non-GAAP
Financial Information
This press release includes a measure 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. For purposes of determining adjusted earnings, the
following items are excluded:
- Specialty Papers environmental
compliance. These adjustments reflect non-capitalized, one-time
costs incurred by the business unit directly related to the
compliance with the U.S. EPA Best Available Retrofit Technology
rule and the Boiler Maximum Achievable Control Technology rule.
This adjustment includes costs incurred during the transition
period in which the newly installed equipment was brought
on-line.
- Airlaid capacity expansion costs. These
adjustments reflect non-capitalized, one-time costs incurred
related to the start-up of a new airlaid production facility in Ft.
Smith, Arkansas.
- Cost optimization actions. This
adjustment reflects charges incurred in connection with initiatives
to optimize the cost structure of certain business units in
response to changes in business conditions. The costs are primarily
related to headcount reduction efforts, asset write-offs and
certain contract termination costs.
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. 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.
Calculation of Adjusted Free
Cash Flow Three months ended
June 30
Six months ended
June 30
In thousands
2017 2016
2017
2016 Cash from operations
$ 21,203 $
25,199
$ 28,764 $ 36,640 Less: Capital expenditures
(34,264 ) (37,097 )
(71,047 ) (80,391 )
Add back: Airlaid capacity expansion
11,871 5,175
21,421 18,861 Add back: Specialty Papers' environmental
compliance projects
4,156 22,393
11,850 36,786
Exclude: Cellulosic biofuel/Alternative fuel mixture credits
— — — (4,277 ) Adjusted free
cash flow
$ 2,966 $ 15,670
$ (9,012
) $ 7,619
Net Debt
June 30 December 31 In thousands
2017 2016
Current portion of long-term debt
$ 10,400 $ 8,961
Long term debt
431,494 363,647 Total
441,894 372,608 Less: Cash
(69,442 )
(55,444 ) Net Debt
$ 372,452 $ 317,164
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GlatfelterInvestors:John P. Jacunski, 717-225-2794orMedia:Eileen
L. Beck, 717-225-2793
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