E.P.S. of $0.46 per share, Adjusted E.P.S. of
$0.55 per share
Neenah, Inc. (NYSE:NP) today reported third quarter 2020
results.
Third Quarter Highlights
- Net sales of $190.7 million increased 18 percent versus the
second quarter with strong rebounds in each segment.
- Filtration revenues increased 9 percent versus the prior year
and contributed to a $3 million year-on-year increase in Technical
Products operating income.
- Consolidated operating income of $13.9 million compared with
$19.0 million in the prior year. Excluding adjusting items of $2.0
million in 2020 and $2.5 million in 2019, operating income
increased $15.4 million versus the second quarter, but declined
from $21.5 million in 2019 to $15.9 million in 2020.
- Adjusted operating margins returned to double-digit levels in
both segments.
- Cash generated from operations of $36.8 million increased from
$33.4 million in the prior year as a result of actions in 2020 to
carefully manage working capital and reduce spending.
- Liquidity of $182 million as of September 30, 2020 increased
from $159 million as of June 30, 2020.
- Quarterly cash dividends paid of $0.47 per share increased 4
percent from $0.45 per share in the prior year.
Adjusted earnings is a non-GAAP measure used to enhance
understanding and comparability of year-on-year results. Details on
adjusting items and a reconciliation to comparable GAAP measures
are included later in this release.
“I was pleased with third quarter results, as we significantly
increased revenues from the second quarter and both segments
returned to double-digit EBIT margins. As expected, Technical
Products led the way, with profits up over 30% versus prior year.
Our top line performance, exceptional cash generation and improved
profit are a testament to the actions we've taken to drive revenue
and manage costs and working capital,” said Julie Schertell, Chief
Executive Officer. “Additionally, we continued to advance key
initiatives that will create long-term shareholder value, including
expanding in targeted growth platforms with innovative new
products, and implementing a global manufacturing model expected to
deliver over $20 million in annual savings. I'm encouraged by our
progress and momentum, and as we head into 2021 we'll remain
focused on initiatives that accelerate growth and increase margins,
while maintaining our commitment to a strong balance sheet and
providing shareholders with an attractive dividend.”
Quarterly Consolidated Results
Income Statement
Consolidated net sales of $190.7 million in the third quarter of
2020 decreased 18 percent compared with $231.8 million in the third
quarter of 2019. The decline in revenues resulted primarily from
lower volumes caused by continued adverse impacts of COVID-19. Net
sales declined 6% in Technical Products and 33% in Fine Paper and
Packaging from the prior year period, with a more pronounced
decline in the Fine Paper and Packaging segment due to reductions
in end-use demand for commercial print papers used primarily in
advertising and marketing campaigns. Impacts from lower net selling
prices were partially offset by favorable currency effects. While
down versus prior year, third quarter consolidated net sales
increased 18% from the second quarter 2020.
Selling, general and administrative (SG&A) expense of $19.1
million in the third quarter of 2020 decreased $4.0 million
compared with $23.1 million in the prior year. Costs in 2020 were
lower due to the significant actions taken to manage spending and
reduce costs this year in areas such as marketing, travel and
payroll.
Operating income of $13.9 million in the third quarter of 2020
decreased compared to operating income of $19.0 million in 2019.
Lower income in 2020 resulted from decreased volumes due to
COVID-19 that could not be fully offset at a consolidated level by
spending reductions. While Technical Products operating income
increased, with reduced spending and a more profitable mix
offsetting unfavorable volume impacts, a larger volume decline in
Fine Paper and Packaging was only partly offset by spending
reductions. Both segments benefited modestly from lower input
prices net of selling price changes. Excluding adjusting items of
$2.0 million and $2.5 million in 2020 and 2019, respectively,
adjusted operating income of $15.9 million decreased $5.6 million
from $21.5 million in the prior year.
Net interest expense of $3.6 million in the third quarter of
2020 was higher than the $2.8 million in the third quarter of 2019.
In addition to higher debt and amortization expense, 2020 interest
included an incremental $0.4 million due to an overlap in interest
incurred in July on both our Senior Notes and Term Loan B, prior to
the redemption of the 2021 Senior Notes on July 16, 2020.
In the third quarter of 2020 and 2019, the effective income tax
rate was 23 percent and 11 percent, respectively. The tax rate in
both periods benefited from the reversal of reserves for uncertain
tax positions following expiration of statutes of limitation for
audit. In 2020, this benefit was offset by an increase in the tax
provision due to a change in the projected mix of income from
higher tax rate jurisdictions.
GAAP earnings per diluted common share (E.P.S.) of $0.46
decreased from earnings of $0.84 per share in 2019. On an adjusted
basis, E.P.S. of $0.55 in the quarter compared with $0.95 in the
prior year period.
Cash Flow and Balance Sheet Items
Cash provided from operations of $36.8 million in the third
quarter of 2020 increased from $33.4 million in the third quarter
of 2019 as actions in 2020 to decrease working capital and reduce
discretionary spending more than offset a reduction in cash flow
due to lower earnings.
Capital spending of $3.8 million in the third quarter of 2020
decreased $1.1 million compared with $4.9 million in the prior
year.
Cash and cash equivalents as of September 30, 2020 were $41.3
million compared to $26.2 million as of June 30, 2020. Debt as of
September 30, 2020 of $195.5 million compared to $381.4 million as
of June 30, 2020. Debt as of June 30 included $200 million for the
new Term Loan B facility and $176.5 million of principal and
accrued interest on the $175 million of 2021 Senior Notes, prior to
their July 16, 2020 redemption.
Quarterly Segment Results
Technical Products quarterly net sales of $123.5 million
in 2020 decreased 6 percent from $131.7 million in the prior year.
The revenue decline was primarily due to lower sales in the
performance materials business due to COVID-19 that was only partly
offset by increased filtration sales, including media for face
masks in Europe introduced earlier this year. Modestly lower net
selling prices in 2020 were partly offset by favorable currency
effects from a stronger euro.
Operating income increased $2.8 million from the prior year to
$12.3 million primarily as a result of lower manufacturing and
SG&A spending, a more profitable mix of products sold, and
modest benefits from lower input costs, net of selling prices.
Combined, these items more than offset the negative impact from
lower sales volume. Excluding unfavorable adjustments of $0.3
million in 2020, adjusted operating income increased $3.1 million
from $9.5 million to $12.6 million.
Fine Paper and Packaging quarterly net sales of $67.2
million in 2020 decreased 33 percent from $100.1 million in the
prior year. The decline was primarily due to lower volumes
resulting from COVID-19, with the largest impact in commercial
print papers used for advertising and marketing. In addition, net
selling prices were modestly lower in 2020.
Operating income decreased $7.2 million from the prior year
period to $6.0 million. Excluding unfavorable adjusting items in
2020 and 2019 of $0.7 million and $2.3 million, respectively,
adjusted operating income of $6.7 million in 2020 decreased $8.8
million from $15.5 million in the prior year primarily as a result
of lower sales and related manufacturing fixed cost inefficiencies.
The impact of lower volumes was partly offset by spending
reductions and modest benefits from lower input costs, net of
selling price changes.
Unallocated Corporate costs in the third quarter of 2020
of $4.4 million increased $0.7 million from the prior year.
Excluding unfavorable adjustments in 2020 and 2019 of $1.0 million
and $0.2 million, respectively, adjusted unallocated corporate
expenses decreased $0.1 million due to reduced SG&A
spending.
Year-to-Date
Consolidated net sales of $585.7 million for the nine months
ended September 30, 2020 decreased $139.2 million from the prior
year period. The decline in revenues resulted primarily from
significant adverse volume impacts from COVID-19. Net sales
declined 11% in Technical Products and 30% in Fine Paper and
Packaging. In addition, net selling prices were modestly lower in
2020 due both to selling price and mix. The decline in net sales
was more pronounced in the Fine Paper and Packaging segment due to
its shorter supply chain and reductions in end-use demand for
commercial print papers used in advertising and marketing.
Consolidated operating income decreased $77.2 million from the
prior year period to a loss of $21.0 million for the nine months
ended September 30, 2020. Excluding non-routine items noted below,
adjusted operating income of $43.5 million decreased $18.7 million
from $62.2 million in the prior year period due to lower sales and
related fixed manufacturing cost inefficiencies related to COVID-19
that were only partly offset by decreased spending and lower input
costs net of selling price reductions. As presented on the GAAP
reconciliation table, we recorded $64.5 million of non-routine
costs in 2020, which included a non-cash impairment for long-lived
assets, loss on extinguishment of debt, incremental costs of
responding to COVID-19, other restructuring and acquisition related
costs. Adjusting items of $6.0 million in 2019 included accelerated
depreciation due to idling of a fine paper machine, restructuring
and other non-routine costs and a SERP settlement loss.
Year-to-date net income (loss) decreased $65.6 million to a loss
of $25.8 million compared with income of $39.8 million in 2019.
After excluding 2020 after-tax adjustments of $52.9 million and
2019 after-tax adjustments of $4.5 million, the decrease in
adjusted net income of $17.2 million in 2020 was due to lower
adjusted operating income driven by the adverse impacts of the
pandemic.
Year-to-date earnings (loss) per diluted common share from
continuing operations of $(1.55) in 2020 decreased from $2.33 in
2019. After excluding $3.14 per share of adjustments in 2020 and
$0.27 per share of adjustments in 2019, year-to-date adjusted
earnings per share in 2020 and 2019 were $1.59 and $2.60,
respectively.
Cash provided by operating activities of $80.4 million for the
nine months ended September 30, 2020 was $6.0 million higher than
$74.4 million in the prior year period. Actions to improve working
capital by managing inventory and to reduce discretionary spending
more than offset the impact from lower earnings.
Capital expenditures for the nine months ended September 30,
2020 were $11.8 million compared to $13.9 million in the prior year
period. For the full year 2020, aggregate annual capital
expenditures are expected to be less than $20 million.
Debt as of September 30, 2020 of $195.5 million was $5.3 million
lower compared with $200.8 million as of December 31, 2019. Cash
and cash equivalents of $41.3 million as of September 30, 2020
increased $32.3 million compared with cash and cash equivalents of
$9.0 million as of December 31, 2019.
Reconciliation to GAAP Measures
The Company will report adjustments to GAAP figures when they
are believed to improve the comparability and understanding of
results. In assessing COVID-19 impacts, only costs which were
unusual, incremental and directly attributable to mitigating the
effects COVID-19 on operations were excluded.
A reconciliation of adjusted income measures to comparable GAAP
measures is provided below:
Third Quarter
YTD
($ Millions, except share and per share
data)
2020
2019
2020
2019
GAAP Operating Income (Loss)
$
13.9
$
19.0
$
(21.0
)
$
56.2
Asset restructuring and impairment
costs
—
2.4
55.3
4.4
Other restructuring and non-routine
costs
1.4
—
4.1
1.5
COVID-19 costs
0.6
—
2.1
—
Loss on debt extinguishment
—
—
1.9
—
Acquisition and due diligence costs
—
—
1.1
—
Pension settlement and other costs
—
0.1
—
0.1
Adjusted Operating Income
$
15.9
$
21.5
$
43.5
$
62.2
GAAP Net Income (Loss)
$
7.9
$
14.4
$
(25.8
)
$
39.8
Asset restructuring and impairment
costs
—
1.8
42.0
3.3
Other restructuring and non-routine
costs
1.1
—
3.1
1.1
COVID-19 costs
0.4
—
1.6
—
Loss on debt extinguishment
—
—
1.4
—
Acquisition and due diligence costs
—
—
0.8
—
Pension settlement and other costs
—
0.1
—
0.1
Valuation allowance adjustment for income
taxes
—
—
4.0
—
Adjusted Net Income
$
9.4
$
16.3
$
27.1
$
44.3
GAAP Earnings (Loss) per Diluted Common
Share
$
0.46
$
0.84
$
(1.55
)
$
2.33
Asset restructuring and impairment
costs
—
0.11
2.50
0.20
Other restructuring and non-routine
costs
0.06
(0.01
)
0.18
0.06
COVID-19 costs
0.03
—
0.10
—
Loss on debt extinguishment
—
—
0.08
—
Acquisition and due diligence costs
—
—
0.04
—
Pension settlement and other costs
—
0.01
—
0.01
Valuation allowance adjustment for income
taxes
—
—
0.24
—
Adjusted Earnings per Share
$
0.55
$
0.95
$
1.59
$
2.60
Diluted Shares (in thousands)
16,821
16,905
16,810
16,910
Conference Call
A conference call and webcast to discuss third quarter earnings
and other matters of interest will be held as noted below.
Investors and participants who wish to actively participate in the
call should register for the earnings call in advance by visiting
http://www.directeventreg.com/registration/event/2670125
with conference ID 2670125. After registering, instructions will be
shared on how to join the call.
Interested parties are invited to listen to the call live via
webcast by visiting www.neenah.com and clicking on Investor
Relations. Supplemental Information can be found on the Company’s
web site under the Investor Relations - Presentations & Events
section. An archive of the webcast will be available on the
Company's web site until December 3, 2020.
A replay of the call will be available until November 11, 2020
and can be accessed as follows:
Encore Dial In #:
(800) 585-8367 or (416)
621-4642
Replay Access Code:
2670125
About Neenah
Neenah is a leading global specialty materials company focused
on premium niche markets that value performance and image. Key
products and markets include advanced filtration media, specialized
performance substrates used for digital transfer, tape and abrasive
backings, labels and other products, and premium printing and
packaging papers. The Company is headquartered in Alpharetta,
Georgia and its products are sold worldwide from manufacturing
operations in the United States, Europe and the United Kingdom.
Additional information can be found at the Company’s web site,
www.neenah.com.
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this press release may constitute
“forward-looking” statements as defined in Section 27A of the
Securities Act of 1933 (the “Securities Act”), Section 21E of the
Securities Exchange Act of 1934 (the “Exchange Act”), the Private
Securities Litigation Reform Act of 1995 (the “PSLRA”), or in
releases made by the U.S. Securities and Exchange Commission
(“SEC”), all as may be amended from time to time. Statements
contained in this press release that are not historical facts may
be forward-looking statements within the meaning of the PSLRA and
caution is given to investors that any forward-looking statements
are not guarantees or indicative of future performance. These
forward-looking statements rely on a number of assumptions
concerning future events and are subject to risks, uncertainties
and other factors, many of which are outside the Company's control
and could cause actual results to materially differ from such
statements. Such risks, uncertainties and other factors include,
but are not necessarily limited to, those set forth under the
captions “Cautionary Note Regarding Forward-Looking Statements”
and/or “Risk Factors” of the latest Form 10-K filed with the SEC as
periodically updated by subsequently filed Form 10-Qs (these
securities filings can be located at www.neenah.com). Unless
specifically required by law, the Company assumes no obligation to
update or revise these forward-looking statements to reflect new
events or circumstances. These cautionary statements are being made
pursuant to the Securities Act, the Exchange Act and the PSLRA with
the intention of obtaining the benefits of the “safe harbor”
provisions of such laws.
NEENAH, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In millions, except share and
per share data)
(Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Net sales
$
190.7
$
231.8
$
585.7
$
724.9
Cost of products sold
155.5
187.1
475.1
585.8
Gross profit
35.2
44.7
110.6
139.1
Selling, general and administrative
expenses
19.1
23.1
66.5
75.3
Asset restructuring and impairment
costs
—
2.4
55.3
4.4
Other restructuring and non-routine
costs
1.4
—
4.1
1.5
COVID-19 costs
0.6
—
2.1
—
Loss on debt extinguishment
—
—
1.9
—
Acquisition and due diligence costs
—
—
1.1
—
Pension settlement and other benefit
costs
—
0.1
—
0.1
Other expense - net
0.2
0.1
0.6
1.6
Operating income (loss)
13.9
19.0
(21.0
)
56.2
Interest expense - net
3.6
2.8
9.5
9.0
Income (loss) before income
taxes
10.3
16.2
(30.5
)
47.2
Provision (benefit) for income taxes
2.4
1.8
(4.7
)
7.4
Net income (loss)
$
7.9
$
14.4
$
(25.8
)
$
39.8
Earnings (Loss) Per Common
Share
Basic
$
0.46
$
0.85
$
(1.55
)
$
2.35
Diluted
$
0.46
$
0.84
$
(1.55
)
$
2.33
Weighted Average Common Shares
Outstanding (in thousands)
Basic
16,802
16,837
16,810
16,850
Diluted
16,821
16,905
16,810
16,910
NEENAH, INC. AND
SUBSIDIARIES
BUSINESS SEGMENT DATA
(In millions)
(Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Net Sales:
Technical Products
$
123.5
$
131.7
$
371.8
$
418.1
Fine Paper and Packaging
67.2
100.1
213.9
306.8
Consolidated
$
190.7
$
231.8
$
585.7
$
724.9
Operating Income (Loss):
Technical Products
$
12.3
$
9.5
$
(18.8
)
$
33.3
Fine Paper and Packaging
6.0
13.2
16.7
38.0
Unallocated corporate costs
(4.4
)
(3.7
)
(18.9
)
(15.1
)
Consolidated
$
13.9
$
19.0
$
(21.0
)
$
56.2
RECONCILIATION OF SEGMENT
OPERATING INCOME (LOSS)
(In millions)
(Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Technical Products
GAAP Operating Income (Loss)
$
12.3
$
9.5
$
(18.8
)
$
33.3
Asset restructuring and impairment
costs
—
—
51.6
—
Other restructuring and non-routine
costs
0.1
—
0.5
0.4
COVID-19 costs
0.2
—
0.9
—
Loss on debt extinguishment
—
—
0.1
—
Adjusted Operating Income
12.6
9.5
34.3
33.7
Fine Paper and Packaging
GAAP Operating Income
6.0
13.2
16.7
38.0
Asset restructuring and impairment
costs
—
2.4
3.7
4.4
Other restructuring and non-routine
costs
0.3
(0.1
)
2.0
0.9
COVID-19 costs
0.4
—
1.0
—
Adjusted Operating Income
6.7
15.5
23.4
43.3
Unallocated Corporate Costs
GAAP Operating Loss
(4.4
)
(3.7
)
(18.9
)
(15.1
)
Other restructuring and non-routine
costs
1.0
0.1
1.6
0.2
COVID-19 costs
—
—
0.2
—
Loss on debt extinguishment
—
—
1.8
—
Acquisition and due diligence costs
—
—
1.1
—
Pension settlement and other benefit
costs
—
0.1
—
0.1
Adjusted Operating Loss
(3.4
)
(3.5
)
(14.2
)
(14.8
)
Consolidated
GAAP Operating Income (Loss)
13.9
19.0
(21.0
)
56.2
Asset restructuring and impairment
costs
—
2.4
55.3
4.4
Other restructuring and non-routine
costs
1.4
—
4.1
1.5
COVID-19 costs
0.6
—
2.1
—
Loss on debt extinguishment
—
—
1.9
—
Acquisition and due diligence costs
—
—
1.1
—
Pension settlement and other benefit
costs
—
0.1
—
0.1
Adjusted Operating Income
$
15.9
$
21.5
$
43.5
$
62.2
NEENAH, INC. AND
SUBSIDIARIES
SELECTED BALANCE SHEET
DATA
(In millions)
(Unaudited)
September 30, 2020
December 31, 2019
ASSETS
Current Assets
Cash and cash equivalents
$
41.3
$
9.0
Accounts receivable - net
99.8
102.6
Inventories
107.8
122.8
Prepaid and other current assets
14.8
18.3
Total Current Assets
263.7
252.7
Property, Plant and Equipment -
net
322.1
380.6
Lease Right-of-Use Assets
20.7
13.9
Deferred Income Taxes
22.8
13.4
Goodwill and Other Intangibles -
net
148.1
149.8
Other Noncurrent Assets
18.9
17.4
Total Assets
$
796.3
$
827.8
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities
Debt payable within one year
$
4.8
$
2.6
Lease liabilities payable within one
year
2.9
1.9
Accounts payable
49.8
48.9
Accrued expenses
57.9
47.0
Total Current Liabilities
115.4
100.4
Long-term Debt
190.7
198.2
Noncurrent Lease Liabilities
18.9
13.0
Noncurrent Employee Benefits
84.7
93.1
Deferred Income Taxes
12.8
12.9
Other Noncurrent Obligations
6.8
3.9
Total Liabilities
429.3
421.5
Stockholders’ Equity
367.0
406.3
Total Liabilities and Stockholders’
Equity
$
796.3
$
827.8
NEENAH, INC. AND
SUBSIDIARIES
SELECTED CASH FLOW
DATA
(In millions)
(Unaudited)
Nine Months Ended September
30,
2020
2019
Operating Activities
Net income (loss)
$
(25.8
)
$
39.8
Depreciation and amortization
28.2
30.2
Stock-based compensation
3.4
4.8
Deferred income tax provision
(benefit)
(11.3
)
1.1
Asset impairment costs
52.3
—
Loss on debt extinguishment
1.9
—
Pension settlement and other benefit
costs
—
0.1
Loss on asset dispositions
—
0.1
Provision for uncollectible accounts
receivable
0.7
—
Non-cash effects of changes in liabilities
for uncertain income tax positions
—
(0.5
)
Decrease in working capital
28.7
1.4
Pension and other postretirement
benefits
(0.3
)
(2.2
)
Long-term payroll taxes
2.9
—
Other
(0.3
)
(0.4
)
Net cash provided by operating
activities
80.4
74.4
Investing Activities
Capital expenditures
(11.8
)
(13.9
)
Purchase of marketable securities
(0.1
)
(0.3
)
Other
(0.3
)
(0.7
)
Cash used in investing activities
(12.2
)
(14.9
)
Financing Activities
Long-term borrowings
291.2
155.5
Repayments of long-term debt
(294.3
)
(188.8
)
Debt issuance costs
(5.4
)
(0.4
)
Cash dividends paid
(23.9
)
(22.9
)
Shares purchased
(3.8
)
(5.1
)
Cash used in financing activities
(36.2
)
(61.7
)
Effect of exchange rates on cash and
cash equivalents
0.3
(0.3
)
Net increase (decrease) in cash and
cash equivalents
32.3
(2.5
)
Cash and cash equivalents, beginning of
the year
9.0
9.9
Cash and cash equivalents, end of
period
$
41.3
$
7.4
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201103005718/en/
Neenah, Inc. Bill McCarthy Vice President —
Investor Relations 678-518-3278
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