Tredegar reports Q2 net income of US$5M, down 23%, as sales rise 14.8% to US$126.5M on higher volumes, mainly in surface protection and personal care materials, more favorable sales mix and pass-through of higher costs
August 3, 2010
– Tredegar Corporation (NYSE:TG) reported second-quarter net income of $5.0 million (15 cents per share) compared to $6.5 million (19 cents per share) in the second quarter of 2009. Income from manufacturing operations in the second quarter was $6.2 million (19 cents per share) versus $8.5 million (25 cents per share) in the second quarter last year. Second-quarter sales increased to $185.0 million from $158.1 million in 2009.
Nancy M. Taylor, Tredegar’s president and chief executive officer, said: “We continue to be encouraged by the second consecutive quarter of year-over-year volume growth in our films business, fueled by strong sales of our surface protection and personal care products. Our aluminum extrusions business held its own in the midst of the continuing decline of the nonresidential construction market. The management team at Bonnell continues to focus on managing costs and remains poised to take advantage of opportunities when the nonresidential sector strengthens.”
Ms. Taylor continued: “We are committed to our values of operational excellence, leadership, and innovation, and will continue to execute against our various business strategies in order to create long-term shareholder value. Tredegar remains financially strong with a new $300 million revolving credit facility that provides the company with the flexibility to pursue its long-term growth strategies.”
Second-quarter net sales (sales less freight) increased primarily due to higher volumes, most notably in surface protection and personal care materials, a more favorable sales mix in the second quarter of 2010 compared to the second quarter of 2009, and increased selling prices as a result of the pass-through of higher average resin costs to customers. Strong demand in the LCD (liquid crystal display) market continues to be the primary catalyst for increased volumes in higher-value surface protection materials. Operating profit from ongoing operations, which continues to fluctuate quarter to quarter, increased slightly in the second quarter of 2010 compared with the prior year. This increase was primarily due to the favorable impact of increased sales volumes in surface protection and personal care materials, partially offset by the unfavorable effect of the lag in the pass-through of higher resin costs as average resin prices continued to increase in the second quarter of 2010. The company estimates that the impact of the quarterly lag in the pass-through of average resin costs on operating profits from ongoing operations was a negative $2.7 million in the second quarter of 2010 and was not significant in the second quarter of 2009. In addition, selling, general and administrative expenses increased in the second quarter in support of key products and programs. Operating profits in the second quarter of 2010 were also adversely affected by initial production inefficiencies associated with internal realignments to match capacity with growing customer demand.
Net sales for the six months ended June 30, 2010 increased in comparison to the same period in the prior year primarily due to the higher volumes noted above. Operating profit from ongoing operations for the first half of 2010 increased 20.8% from the same period in the prior year, primarily due to higher sales volumes in surface protection and personal care materials, partially offset by the unfavorable impact of the lag in the pass-through of higher resin costs in 2010. The estimated impact of the resin pass-through lag was a negative $5.0 million for the first six months of 2010 versus a favorable $3.0 million for the first six months of 2009.
Capital expenditures in Film Products were $5.8 million in the first half of 2010 compared with $7.1 million in the first half of last year. Film Products currently projects that capital expenditures will be approximately $18 million in 2010. Depreciation expense was $16.8 million in the first half of 2010 and $15.9 million in the first half of 2009, and is projected to be approximately $35 million in 2010.
Net sales in the second quarter and first half of 2010 increased in comparison to 2009 due to higher average selling prices driven by an increase in aluminum prices. Second-quarter net sales were also favorably impacted by a slight uptick in volumes. Sales volume in the first six months of 2010 continued to be lower than volume in the comparable prior year period as extremely challenging conditions in nonresidential construction led to a decline in volumes of approximately 10% in this market. The unfavorable change in the operating income from ongoing operations reported for 2010 compared with 2009 reflects lower margins resulting from a less favorable sales mix.
Capital expenditures for Aluminum Extrusions were $1.6 million in the first six months of 2010 compared with $8.5 million in the same period of last year. Capital expenditures are projected to be approximately $4.4 million in 2010. Depreciation expense was $4.7 million in the first half of 2010 compared with $3.8 million in the first half of 2009, and is projected to be approximately $9.1 million in 2010.
In the first quarter of 2010, Tredegar added an additional segment, Other, comprised of the start-up operations of Bright View Technologies Corporation (Bright View) and Falling Springs, LLC (Falling Springs). We acquired the assets of Bright View, a late-stage developmental company, on February 3, 2010. Bright View is a developer and producer of high-value microstructure-based optical films for the LED (light emitting diode) and fluorescent lighting markets. Falling Springs develops, owns and operates multiple mitigation banks. Through the establishment of perpetual easements to restore, enhance and preserve wetlands, streams or other protected environmental resources, these mitigation banks create saleable credits that are used by the purchaser of credits to offset the negative environmental impacts from private and public development projects.
Net sales for this segment can fluctuate from quarter-to-quarter as Bright View is a late-stage developmental company and Falling Springs’ revenue can vary based upon the timing of developmental projects within its market. Operating losses from ongoing operations were $1.5 million in the second quarter of 2010 and $2.1 million in the first half of 2010.
Corporate Expenses, Interest and Taxes
Pension expense was $44,000 in the second quarter of 2010 and $88,000 in the first six months of 2010, an unfavorable change of $801,000 and $1.6 million, respectively, from net pension income recognized in the comparable periods of 2009. Most of the pension impact on earnings is reflected in “Corporate expenses, net” in the net sales and operating profit by segment table. Corporate expenses, net increased in 2010 versus 2009 primarily due to the unfavorable impact of pension expense noted above and the timing of adjustments for certain performance-based incentive compensation programs.
In June 2010, we entered into a new $300 million four-year, unsecured revolving credit facility, which replaced our previous revolving credit facility that was due to expire on December 15, 2010. Details of the facility were filed with the Securities and Exchange Commission. Interest expense, which includes the amortization of debt issue costs, increased $38,000 in the second quarter of 2010 compared to the second quarter of 2009.
The effective tax rate used to compute income taxes from manufacturing operations was 37.8% in the second quarter of 2010 compared with 29.4% in the second quarter of 2009, and 40.2% in the first six months of 2010 compared with 33.4% for the first six months of 2009. The increase in the current year-to-date tax rate is primarily attributed to the recognition of a reserve for an uncollectible tax indemnification receivable.
Overall results for continuing operations for the quarter include special items. After-tax charges for plant shutdowns, asset impairments and restructurings, and gains and losses from the sale of assets and other items resulted in an after-tax net loss of one cent per share and an after-tax net loss of six cents per share in the second quarters of 2010 and 2009, respectively. An after-tax net loss of 15 cents per share was reported in the first six months of 2009 (with no net gain or loss reported for first six months of 2010). In addition, a non-cash goodwill impairment charge of $30.6 million (after-tax), or 90 cents per share, was recorded for Aluminum Extrusions in the first quarter of 2009. Further details regarding these items are provided in the financial tables included with this press release.
CAPITAL STRUCTURE AND ADJUSTED EBITDA
Net cash (cash and cash equivalents in excess of debt) was $51.7 million at June 30, 2010, compared with net cash of $89.5 million at December 31, 2009. In the first half of 2010, cash was used to repurchase 2.1 million shares of our common stock for $35.1 million and to purchase the assets of Bright View. Adjusted EBITDA, a key valuation and borrowing capacity measure, was $86.8 million in the twelve months ended June 30, 2010. See notes to financial statements and tables for reconciliations to comparable GAAP measures.
IndustryIntel Editor’s Note: In an omitted table, the company reported Q2 net sales of US$126.5 million. For the same period a year ago, the company reported net income of US$108.7 million.
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