Appleton swings to Q1 net income of US$2.1M from net loss of US$64.9M in year-ago period, including savings from supply agreement with Domtar; net sales down 4% year-over-year to US$210.8M as sales are discontinued to non-strategic markets
Debra Garcia
APPLETON, Wisconsin
,
May 6, 2013
(press release)
–
The following schedule presents adjusted operating income for the three-month periods ended March 31, 2013 and April, 1 2012. First Quarter Business Unit Results (dollars in thousands):
First quarter 2013 sales of thermal papers were 13.9% higher than the previous year quarter and 5.4% higher than fourth quarter 2012.
Appleton reported first quarter 2013 operating income of $17.9 million compared to an operating loss of $50.0 million during first quarter 2012. First quarter 2013 results include savings from the strategic supply agreement with Domtar while prior year results included restructuring expense and other related costs of $61.3 million related to ceasing papermaking operations at its West Carrollton, Ohio facility. In addition, current quarter selling, general and administrative expenses (“SG&A”) were $3.7 million lower than first quarter 2012 due to lower distribution costs, compensation and employee benefits expense, bad debts expense and commissions expense. First quarter 2012 spending also included $0.4 million of costs associated with the discontinued business combination transaction.
Appleton delivers improved earnings
Mark Richards, Appleton’s chairman, president and chief executive officer, said the Company’s first quarter performance met expectations and enabled the company to deliver improved earnings.
Adjusted operating income was $20.3 million, an increase of $7.7 million or 61% compared to the same period in 2012. The Company reported adjusted EBITDA of $27.8 million, which was $4.8 million or 21% higher than first quarter 2012. Those earnings exclude the transition costs associated with the Domtar base paper supply agreement announced in February 2012.
“Continued strong growth from our thermal papers segment and improved product mix and pricing were the key contributors to earnings improvements,” said Richards. Thermal paper sales grew nearly 14% and volume increased almost 15% compared to first quarter 2012. Improvements to price and product mix across the Company’s entire product line contributed approximately $6 million to the quarter’s adjusted EBITDA.
Encapsys EBITDA, which was up nearly 24% despite a slight decline in sales and volume, also contributed to the Company’s improved earnings. Richards noted that the Encapsys division performed well and maintained strong cost controls.
Carbonless sales declined 21% compared to first quarter 2012 and carbonless volume dropped 28% largely due to lower shipments of carbonless rolls. The Company’s second quarter 2012 decision to discontinue selling carbonless paper into certain non-strategic international markets accounted for more than half of the sales volume decline on a comparative basis. However, adjusted EBITDA for the carbonless segment rose 20% compared to first quarter 2012 reflecting improved pricing and product mix.
First quarter 2013 operating results were also positively impacted by favorable product mix and raw materials pricing as well as lower SG&A spending.
Thermal Papers
Current quarter thermal papers net sales increased 13.9%, compared to the prior year quarter, largely due to a nearly 15% increase in shipment volumes. Tag, label and entertainment (“TLE”) product shipments increased nearly 9% over the prior year. Thermal receipt paper volume in the first quarter was more than 20% higher than the prior year and, for the third consecutive quarter, thermal receipt paper shipment volumes have increased compared to the previous quarter, reflecting improved economics in thermal receipt paper markets.
Balance Sheet
At the end of first quarter 2013, the Company held cash balances of $1.8 million compared to cash balances of $1.9 million at year-end 2012, and $3.7 million of cash was provided by operations. Working capital increased by $2.4 million, primarily due to a decrease in accounts payable and other accrued liabilities of $1.1 million. During first quarter 2013, the Company contributed $5.0 million to the pension fund and invested $3.7 million in capital projects. Net debt was $516.6 million, up $2.9 million from year-end 2012.
The Company had approximately $68 million of liquidity at the end of the current quarter.
Outlook
Appleton expects continued strong sales and operating income from its thermal papers segment due to increased demand across its entire thermal product folio. Since January 1, Appleton has announced plans to increase coating capacity for its thermal receipt paper products by approximately 35,000 tons to meet increased market demand for its thermal products and to prepare for a potential withdrawal by a competitor from the U.S. market.
In early April, the U.S. Commerce Department issued its final determination and imposed a duty of 75.36% on lightweight thermal paper sold a competitor.
Richards said he expects the carbonless segment to continue its drive for earnings improvement despite lower expected sales, based on improved product mix, increased average prices and aggressive cost management.
Second quarter sales and earnings for the Encapsys division could be negatively affected by stronger than expected first quarter results which pulled some sales and earnings forward from second quarter. Encapsys sales and earnings are expected to be essentially flat in 2013, compared to 2012, as the Company prepares for expected growth in 2014 and beyond due to new product launches and geographical expansion.
Implementation of the base paper supply agreement with Domtar, across all the Company’s product lines, is more than 90% complete. The Company will work to complete that implementation during 2013 and to capture all of the $25 to $30 million in savings forecasted for the project.
Appleton expects to complete the process of changing its name to Appvion, Inc. with a formal announcement on May 13. The new name is a combination of the term “applied innovation” and reflects more than a century of success the Company has achieved in creating value for its customers through the use of coating formulations, coating applications and microencapsulation.
Earnings release conference call
Appleton will host a conference call to discuss its first quarter 2013 results on Tuesday, May 7, 2013, at 11:00 a.m. ET. The call will be broadcast through its Web site,
www.appletonideas.com/investors. A replay will be available through May 20.
About Appleton
Appleton creates product solutions through its development and use of coating formulations, coating applications and Encapsys microencapsulation technology. The Company produces thermal, carbonless and security papers and Encapsys products. Appleton, headquartered in Appleton, Wisconsin, has manufacturing operations in Wisconsin, Ohio and Pennsylvania, employs approximately 1,700 people and is 100 percent employee-owned. For more information, visit
www.appletonideas.com.
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