Glatfelter's Q3 net income down 67.0% year-over-year to US$13M, where year-ago results included US$23.1M credit profit; sales up 10.0% to US$416.5M with revenue increases in composite fibers, advanced airlaid materials segments

YORK, Pennsylvania , November 1, 2011 (press release) – Glatfelter (NYSE:GLT - News) today reported financial results for the third quarter ended September 30, 2011, with sales increasing 10 percent to a record $416.5 million, versus $379.1 million a year ago.

Adjusted earnings were $12.8 million, or $0.28 per diluted share, compared with $16.7 million, or $0.36 per diluted share, in the third quarter of 2010. On a GAAP basis, third-quarter 2011 net income was $13.0 million, or $0.28 per diluted share, versus $39.4 million or $0.85 per diluted share, in the same period of 2010. The 2010-third quarter GAAP-basis results benefited from cellulosic biofuel production credits totaling $23.1 million, or $0.50 per diluted share.

“Our strong top-line growth in the third quarter reflects the continued success of our Composite Fibers and Advanced Airlaid Materials businesses, the global growth engines for Glatfelter,” said Dante C. Parrini, chairman and chief executive officer. “Composite Fibers delivered a 20 percent increase in revenue led by growth in the single-serve coffee and tea markets, while Advanced Airlaid Materials grew revenue by 14 percent driven by the feminine hygiene market. Likewise, we are pleased with the continued progress the Advanced Airlaid Materials business is making to improve its profitability. This was accomplished while also constructing and beginning the start-up of a second proprietary festooning line in Gatineau, Canada.”

Mr. Parrini continued, “Significant input cost inflation of $15 million impacted results for the quarter, especially for our Specialty Papers business which was also impacted by severe weather conditions associated with Tropical Storm Lee and higher maintenance costs to improve paper machine reliability. We are, however, seeing a pull back of input costs especially for purchased pulp which we expect will help us in the fourth quarter.”

Adjusted earnings is a non-GAAP measure that excludes from the Company’s GAAP-based results certain non-core business items. The following table sets forth a reconciliation of results determined in accordance with accounting principles generally accepted in the United States of America to non-GAAP adjusted earnings discussed herein:

three months ended September 30
    2011 2010
In thousands, except per share   After tax income   Diluted EPS   After tax income   Diluted EPS
                 
Net income   $13,026     $0.28     $39,437     $0.85  
Cellulosic biofuel and alternative fuel mixture credits           (23,100 )   (0.50 )
Acquisition and integration related costs           407     0.01  
Timberland sales and related transaction costs   (245 )   (0.01 )        
Adjusted earnings   $12,781     $0.28     $16,744     $0.36  


The sum of individual per share amounts set forth above may not agree to adjusted earnings per share due to rounding.

2011 Third-Quarter Business Unit Results

Specialty Papers

For the quarter ended September 30        
Dollars in thousands   2011   2010   Change
                 
Tons shipped   199,583     195,350     4,233     2.2 %
Net sales   $225,410     $217,334     $8,076     3.7  
Energy and related sales, net   2,840     3,313     (473 )   (14.3 )
Operating income   16,965     22,978     (6,013 )   (26.2 )
Operating margin   7.5 %   10.6 %        


On a year-over-year basis, Specialty Papers’ net sales increased $8.1 million primarily due to a $4.6 million benefit from higher selling prices and a 2.2 percent increase in shipping volumes. Specialty Papers’ shipments continued its seven-year track record of outperforming the broader uncoated free sheet market, which was down 3.6 percent in the year-over-year comparison.

Specialty Papers’ 2011 third-quarter operating income declined $6.0 million compared to the 2010-third quarter primarily due to the unfavorable impact of rising input costs outpacing benefits of higher selling prices. Input costs increased an aggregate $8.4 million in the year-over-year comparison. Operations in Spring Grove, PA were interrupted during the quarter by Tropical Storm Lee, which caused unplanned downtime and excess costs aggregating $1.1 million. In addition, maintenance-related costs were higher in the comparison to 2010 due to spending incurred to improve paper machine reliability.

Composite Fibers

For the quarter ended September 30    
Dollars in thousands 2011   2010   Change
               
Tons shipped 24,105     22,846     1,259   5.5 %
Net sales $124,852     $103,727     $21,125   20.4  
Operating income 10,057     9,700     357   3.7  
Operating margin 8.1 %   9.4 %        


Composite Fibers’ net sales increased $21.1 million, or 20.4 percent reflecting a 5.5 percent increase in shipping volume led by single-serve coffee and tea products. In addition, higher average selling prices added $2.7 million and foreign currency translation contributed $7.7 million.

Composite Fibers’ third-quarter 2011 operating income increased 3.7 percent or $0.4 million. The benefit from higher selling prices was more than offset by $3.8 million of higher raw material and energy costs, primarily related to abaca and synthetic fiber prices. The results include $0.4 million of costs incurred related to recently announced initiatives to expand its inclined-wire production capacity to support the growing single-serve coffee and tea markets. Adjusted to exclude these non-recurring strategic costs, operating income increased 7.3 percent in the comparison.

Advanced Airlaid Materials

For the quarter ended September 30    
Dollars in thousands   2011   2010   Change
                 
Tons shipped   23,052     22,053     999   4.5 %
Net sales   $66,232     $58,036     $8,196   14.1  
Operating income   4,133     1,164     2,969   n/m  
Operating margin   6.2 %   2.0 %  


Advanced Airlaid Materials’ net sales increased $8.2 million, or 14.1 percent reflecting a 4.5 percent increase in shipping volume, a $2.9 million benefit from higher selling prices and $2.7 million from foreign currency translation.

Operating income was $4.1 million in the third-quarter 2011, the third consecutive quarter of higher profitability and nearly a three-fold improvement from results in the same quarter of 2010. During the third quarter, selling price increases outpaced higher input costs of $2.4 million. In addition, this business’s overall performance benefited from previously outlined improvement initiatives including supply chain synergies, waste reduction and higher machine output.

2011 Year-to-Date Results

For the first nine months of 2011, on a GAAP basis, the Company reported net income of $33.0 million or $0.71 per diluted share, compared with $39.2 million or $0.85 per diluted share in the same period of 2010. The following table sets forth a reconciliation of net income on a GAAP basis to adjusted earnings:

Nine months ended September 30
    2011 2010
In thousands, except per share  
After tax
income
 
Diluted
EPS
 
After tax
income
 
Diluted
EPS
                 
Net income   $32,953     $0.71     $39,166     $0.85  
Cellulosic biofuel and alternative fuel mixture credits           (23,100 )   (0.50 )
Acquisition and integration related costs   793     0.02     8,728     0.18  
Foreign currency hedge on acquisition price           1,673     0.04  
Timberland sales and related transaction costs   (1,895 )   (0.04 )   (99 )    
Adjusted earnings   $31,851     $0.69     $26,368     $0.57  


The sum of individual per share amounts set forth above may not agree to adjusted earnings per share due to rounding.

Consolidated net sales for the first nine months of 2011 were $1,211.2 million, a 12.2 percent increase compared with $1,079.2 million for the same period of 2010, reflecting generally stronger shipping volume in all of our businesses, higher selling prices and the favorable impact from foreign currency translation. In addition, the 2011 amount includes nine months of the Advanced Airlaid Materials business unit compared with seven and one half months in 2010.

Balance Sheet and Other

Capital expenditures totaled $44.6 million in the first nine months of 2011 compared with $23.3 million in the same period of 2010. Capital expenditures are expected to be approximately $60 million to $65 million for 2011.

Cash and cash equivalents totaled $98.3 million at September 30, 2011 and net debt, excluding cash collateralized borrowings, was $197.8 million, a decrease of $2.7 million compared with year-end 2010. Free cash flow (cash provided by operations less capital expenditures) was $36.5 million for the first nine months of 2011 and $100.1 million for the comparable period of 2010. Free cash flow in 2011 and 2010 included $17.8 million and $54.9 million, respectively, of cash tax benefits related to cellulosic biofuel and alternative fuel mixture credits. (Net debt and free cash flow are non-GAAP measures. Refer to the calculation of these measures provided in this release).

In April 2011, the Company announced a $50 million share buyback program authorized by its Board of Directors. Through September 30, 2011, the Company repurchased 2.0 million shares of common stock for approximately $27.5 million reducing 2011-third quarter average diluted shares outstanding by 908,260 shares. The Company is not obligated to repurchase any particular amount of common stock and the program may be modified or suspended at any time at the Board’s discretion.

In the 2011-third quarter the Company recorded an after-tax charge of $1.2 million, or $0.03 per share, associated with the retirement of the Company’s former chief executive officer. Such costs are not allocated to a business unit and are reported as “Other and Unallocated” in our table of Business Unit Financial Information.

Outlook

For Specialty Papers, the Company expects shipping volumes in the fourth quarter of 2011 to be approximately five percent less than the third quarter reflecting normal seasonality; selling prices are expected to be in line with the third quarter. Input costs are expected to be in line with the third quarter, with the exception of significantly lower purchased pulp prices. The Company expects full year 2011 operating income for this unit to approximate full year 2010.

For Composite Fibers, the Company anticipates shipping volumes to be slightly lower in the fourth quarter compared to the 2011 third quarter reflecting seasonality in the metallized papers market. Selling prices and input costs are expected to be largely in line with the third quarter.

Shipping volumes for the Advanced Airlaid Materials business unit in the fourth quarter of 2011 are expected to decline approximately five percent compared to third quarter levels due to normal seasonality. In addition, selling prices and input costs are expected to be largely in-line with the third quarter levels. The benefits from continuous improvement initiatives and efficiency gains should offset the impact of lower volumes.

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 web site at the address indicated below. Information related to the conference call is as follows:

What:  
Glatfelter’s 3rd Quarter 2011 Earnings Release Conference Call
      When:   Tuesday, November 1, 2011, 11:00 a.m. Eastern Time
      Number:   US dial 888.335.5539
          International dial 973.582.2857
      Conference ID:   17582471
      Webcast:   http://www.glatfelter.com/about_us/investor_relations/default.aspx
      Rebroadcast Dates:   November 1, 2011 12:00 through November 15, 2011 11:59 p.m.
      Rebroadcast Number:   Within US dial 855.859.2056
          International dial 404.537.3406
      Conference ID:   17582471


About Glatfelter

Headquartered in York, PA, Glatfelter is a global manufacturer of specialty papers and fiber-based engineered materials, offering over a century of experience, technical expertise and world-class service. U.S. operations include facilities in Spring Grove, PA and Chillicothe and Fremont, OH. International operations include facilities in Canada, Germany, France, the United Kingdom and the Philippines, a representative office in China and a sales and distribution office in Russia. Glatfelter’s sales approximate $1.5 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.

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.