Bway posts fiscal Q1 net loss of US$10.7M, versus net income of about US$800,000 a year ago, on integration, rationalization of acquisitions, raw materials costs; net sales up 9.9% to US$240.7M, but overall volume flat

Graziela Medina Shepnick

ATLANTA , February 9, 2011 (press release) – BWAY Holding Company, a leading North American supplier of general line rigid containers, today reported net sales for the first quarter ended December 31, 2010 of $240.7 million, an increase of 9.9% compared to $219.0 million for the same quarter last year. Acquisitions accounted for $16.1 million of the increase with the remaining $5.6 million attributable to selling price and mix changes. Overall volume for the quarter was flat when compared to the same quarter of fiscal 2010.

The Company also reported adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, and certain other items noted in the accompanying GAAP reconciliation) for the first quarter of fiscal 2011 of $16.8 million compared to $26.3 million for the first quarter last year. The decrease in adjusted EBITDA is primarily attributable to the Company's plastic packaging segment and resulted essentially from three primary factors:

    * On October 8, 2010 the Company acquired Plastican, Inc., a U.S. producer of plastic pails with 2009 net sales of approximately $90 million. Following the close of the transaction, the Company dramatically curtailed production at Plastican facilities in order to reduce excessively high inventories, which was planned as part of the acquisition strategy. Plastican plants operated at a loss as a result of fixed costs not being covered through absorption. Plastican plants resumed a normal level of operations during the Company's second fiscal quarter.


    * The Company continued to experience a negative impact from resin cost increases during the first quarter of fiscal 2011, some of which were implemented on a retroactive basis, creating timing issues associated with passing-through the changes in the form of selling price increases. In contrast, resin prices decreased during the first quarter last year providing a benefit to the Company's plastic packaging segment.  


    * Gains in volume were more than offset by weaker productivity levels and higher cost due in part to ongoing plant rationalization initiatives and integration activities related to recent acquisitions.


Commenting on first quarter results, Ken Roessler, BWAY's President and Chief Executive Officer stated that, "Despite the factors that led to lower first quarter earnings, we remain very positive about the Company's prospects for fiscal 2011. We expect full year adjusted EBITDA, including contributions from recently acquired businesses, to be in the range of $150.0 to $155.0 million compared to $140.9 million last year. Our projections are based on expectations for improved operating results, including continued cost reduction and productivity initiatives, other actions currently underway specifically targeting margin improvement for the Company's plastic packaging segment, and the realization of synergies associated with recently acquired businesses."

First quarter gross margin (excluding depreciation and amortization) was $22.3 million compared to $32.1 million for the same period last year. The decrease is primarily attributable to the variables discussed above.

Depreciation and amortization expense for the first quarter of fiscal 2011 was $21.7 million compared to $13.7 million for the same quarter last year. The increase is primarily attributable to higher depreciation and amortization resulting from a write-up of assets to fair value following the June 2010 sale of the Company to affiliates of Madison Dearborn Partners, LLC (the "MDP Transaction"), recent acquisitions, and to recent capital expenditures.

Selling and administrative expense was $5.7 million for the quarter, equal to the first quarter of fiscal 2010. Increases in costs as the result of recent acquisitions were offset by lower overall spending and favorable timing of certain expenses.

The Company recorded restructuring charges of $0.3 million and $2.0 million for the first quarter of fiscal 2011 and 2010, respectively. The charges were primarily related to previously announced plant closures, a key synergy of recent acquisitions. During fiscal 2010 the Company finalized the closure of three manufacturing plants and moved production volume into other of the Company's plants. During the first quarter of fiscal 2011, the Company initiated the closure of a plastic packaging segment plant located in Phoenix, AZ, which was part of the October 2010 Plastican acquisition.  Volume and equipment from the plant is being moved primarily to BWAY's Cedar City, UT plant. The Company will maintain a warehouse in Phoenix, AZ to serve local customers.

First quarter interest expense was $13.7 million for fiscal 2011, compared to $8.9 million for the same period last year. The increase is attributable to a higher level of debt, with associated higher average interest rates, resulting from the financing of the MDP Transaction.

During the first fiscal quarter of 2011, the Company recorded $0.5 million of business acquisition cost associated with the October 2010 acquisition of Plastican, Inc. and the December 20, 2010 acquisition of Phoenix Container, Inc. (single plant operation in North Brunswick, NJ). During the first fiscal quarter of 2010, the Company recorded $0.5 million of business acquisition cost primarily associated with the October 2009 acquisition of a plastic packaging plant from Ball Corporation.  

Other (income) expense for the first quarter was $(1.1) million compared to $0.4 million for the same quarter last year. Foreign exchange was the primary element during both quarters.

Net loss for the quarter was $10.7 million compared to net income for the first quarter last year of $0.8 million. The decrease is attributable to the items discussed above.

Business Segments

Metal Packaging

Sales for the Company's metal packaging segment were $144.7 million for the first quarter of fiscal 2011, compared to $143.1 million in the year-earlier period. The increase in sales was driven largely by higher raw material cost driven selling prices and favorable product mix, partially offset by lower volume. Excluding the effects of the recent acquisitions, overall volumes decreased approximately 2.6% compared to the first quarter last year. In addition, prior year first quarter included three additional days as a result of changing the metal segment accounting period to a calendar month end.

Metal packaging segment earnings (excluding depreciation and amortization) were $20.1 million, or 13.9% of segment sales for the first quarter of fiscal 2011, compared to $20.4 million, or 14.3% of segment sales for the same quarter of fiscal 2010. The decrease in segment earnings is largely attributable to the effect of lower volume.

Plastic Packaging

Sales for the Company's plastic packaging segment were $96.0 million for the first quarter of fiscal 2011, compared to $75.9 million for the year-earlier period. The increase resulted largely from the October 2010 acquisition of Plastican, Inc., higher base business volume, and higher resin cost driven selling prices. Excluding the effect of acquisitions, volume increased approximately 3.8% over the first quarter last year.

Plastic packaging segment loss (excluding depreciation and amortization) for the quarter was $0.2 million, compared to segment earnings of $9.8 million for the first quarter of fiscal 2010. The decrease is attributable to the factors described above.  

Corporate

Cash and cash equivalents decreased from $101.3 million at the beginning of the first quarter to $6.4 million at the end of the quarter. The decrease in cash and cash equivalents, in addition to an increase in long-term debt described below, resulted from cash used to fund the October 2010 acquisition of Plastican, Inc. and the December 2010 acquisition of Phoenix Container, and from typical first fiscal quarter changes in working capital.

Long-term debt increased during the first quarter by $43.8 million primarily as the result of a $25.0 million increase in term loans under the Company's credit agreement, and a $20.0 million draw on the Company's $75.0 million revolving credit facility. At the end of the first quarter the Company had approximately $50.0 million of undrawn revolver capacity.

Capital expenditures for the first quarter of fiscal 2011 were $9.1 million, compared to $5.5 million for the first quarter last year. The increase is primarily due to the implementation of SAP in the Company's metal packaging segment plants, expenditures related to plant rationalizations, and opportunistic investments in the Company's plastic packaging segment.

About BWAY Holding Company

BWAY Holding Company is a leading North American supplier of general line rigid containers. The Company operates 23 plants throughout the United States and Canada serving industry leading customers on a national basis.

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