Glatfelter's Q4 net income jumps to US$16.5M from US$7.0M in year-ago period on 11.1% increase in net sales, to US$434.8M; operating profit hike of 95% for composite fibers, advanced airlaid materials combined offset 60% decline for specialty papers
February 13, 2014
– Glatfelter (NYSE: GLT) today reported 2013 full year adjusted earnings per diluted share of $1.40 (GAAP $1.52) compared with $1.25 per diluted share in 2012 (GAAP $1.36). For the 2013 fourth quarter Glatfelter reported adjusted earnings of $15.0 million, or $0.34 per diluted share, compared with $11.2 million, or $0.26 per diluted share, in the 2012 fourth quarter. On a GAAP basis, fourth quarter 2013 net income totaled $16.5 million, or $0.37 per diluted share, compared with $7.0 million, or $0.16 per diluted share, in the fourth quarter of 2012.
Consolidated net sales in the fourth quarter of 2013 totaled $434.8 million compared with $391.4 million in the fourth quarter of 2012. On an organic and constant currency basis, net sales increased 1.1 percent in the fourth quarter of 2013 compared to the fourth quarter of 2012.
“Our growth businesses of Composite Fibers and Advanced Airlaid Materials delivered significantly higher operating profit during the fourth quarter,” said Dante C. Parrini, chairman and chief executive officer. “Healthy growth in their key markets of tea, single-serve coffee and feminine hygiene, together with solid operations and the impact of the Dresden acquisition, led those business units to a combined 95 percent improvement in quarterly operating profit compared to a year ago. I am obviously very disappointed with the 60 percent decline in operating profit for Specialty Papers. During the quarter, a 12 percent reduction in pulp production at our Ohio facility led to results that were substantially below our expectations and the year-ago period. We are aggressively taking corrective actions to address this issue and we expect to see improvements as we go forward.”
Parrini continued, “The full year 2013 was a very successful year for Glatfelter as we reported record revenues, significantly grew earnings, completed a significant acquisition and generated substantial free cash flow. As I look ahead, we will continue to execute our strategy which is delivering meaningful results for our shareholders. We have invested in both organic growth opportunities and acquisitions to capitalize on our leading positions in growing markets such as tea, single serve coffee, feminine hygiene and nonwoven wall cover. The market environment for Specialty Papers is improving and we are well positioned to take advantage of these conditions. At the same time, we continue to drive operational excellence across our businesses – all of which should enable us to generate substantial earnings growth and healthy free cash flow in 2014.”
Q4 2014 Results
Fourth Quarter Business Unit Results
Composite Fibers Results
Composite Fibers’ results include the financial results of Dresden prospectively from the April 30, 2013 acquisition date.
Net sales for this business increased $45.2 million, or 42.9 percent, primarily due to the inclusion of Dresden. Excluding Dresden, Composite Fibers’ net sales increased $7.7 million, or 7.3 percent on a constant currency basis, primarily due to stronger shipments of tea and single-serve coffee products.
Composite Fibers’ fourth-quarter 2013 operating income increased $8.5 million primarily due to $6.0 million of operating income from the inclusion of Dresden in 2013, lower raw material and energy costs and improved product mix.
Foreign currency translation favorably impacted operating income by $0.2 million compared with the prior-year quarter.
Advanced Airlaid Materials
Airlaid Materials Results
On a year-over-year basis, Advanced Airlaid Materials’ net sales increased $4.4 million, or 4.3 percent on a constant currency basis, primarily due to a 5.4 percent increase in shipping volumes, led by feminine hygiene, and a $1.7 million benefit from foreign currency translation. The effect of contractual pricing arrangements resulted in lower average selling prices which adversely impacted the net sales comparison by $1.1 million.
Fourth quarter 2013 operating income increased $2.8 million, or 56.2 percent, compared with the year-ago quarter, primarily due to higher shipments, a $1.7 million energy rebate and a $0.6 million benefit from foreign currency translation.
Specialty Papers Results
On a year-over-year basis, Specialty Papers’ net sales decreased $6.2 million, or 2.8 percent, primarily due to the $1.1 million impact of lower average selling prices, 1.7 percent lower shipping volumes and mix changes in the comparison to the fourth quarter of 2012.
Operating income declined $10.7 million in the year-over-year comparison primarily due to $4.7 million of costs related to pulp mill performance issues at its Ohio facility. The operating issues caused a 12 percent reduction in pulp production resulting in higher per ton pulp production costs as well as increased use of higher cost purchased pulp. In the fourth quarter of 2012, operating income benefited from a $1.4 million LIFO inventory valuation adjustment.
Other Financial Information
Pension expense totaled $3.6 million and $3.0 million for the fourth quarters of 2013 and 2012, respectively. Because the Company’s qualified plan remains overfunded, a cash contribution was not required to be made in 2013 and is not expected to be required for the foreseeable future.
Interest expense totaled $4.8 million and $6.1 million in the fourth quarters of 2013 and 2012, respectively. The 2012 fourth quarter amount includes $1.9 million related to the write-off of unamortized deferred debt issuance costs incurred in connection with the refinancing of bonds. After adjusting to exclude this charge, interest expense increased primarily due to additional borrowings to fund the Dresden acquisition.
The Company completed the sale of 704 acres of timberlands during the fourth quarter of 2013 for an after-tax gain of $1.3 million.
In the fourth quarter of 2013, the Company recorded an income tax provision of $3.7 million on adjusted pre-tax earnings resulting in an effective tax rate of 19.8 percent. In the comparable quarter a year ago, the income tax provision totaled $5.6 million and the effective tax rate was 33.4 percent. The effective tax rate in 2013 reflects a greater proportion of earnings generated in lower tax foreign jurisdictions relative to the U.S., benefits from lapse in statutes of limitations and the impact of research and development credits in 2013.
2013 Full Year Results
On a GAAP basis, net income totaled $67.2 million, or $1.52 per diluted share, compared with net income of $59.4 million, or $1.36 per diluted share, in 2012. Adjusted earnings in 2013 were $61.8 million or $1.40 per diluted share compared with $54.8 million or $1.25 per diluted share in 2012
Highlights of the year included:
• Net sales increased to a record $1.7 billion;
• Adjusted earnings per share increased 12%;
• Completed the $211 million acquisition of Dresden Papier, a leading supplier to the growing nonwoven wall cover markets;
• Continued to invest in organic growth, including completing a $50 million capacity expansion project for Composite Fibers;
• Composite Fibers operating profit increased 73% or 22% on an organic basis;
• Advanced Airlaid Materials’ operating profit increased 19%;
• Specialty Papers’ shipping volumes increased 1.4% outperforming the broader uncoated free sheet market for the 9th consecutive year;
• $94 million of adjusted free cash flow generated by improved earnings, effective working capital management and disciplined capital investments;
• 8.8% return on invested capital exceeded the Company’s weighted average cost of capital; and
• Increased common stock dividend by 11%.
The results of operations for both years include the impact of significant unusual items. The following table provides a reconciliation of net income on a GAAP basis to adjusted earnings:
Balance Sheet and Other Information
Cash and cash equivalents totaled $122.9 million as of December 31, 2013, and net debt was $319.4 million, compared with $152.3 million at the end of 2012. (Refer to the calculation of this measure provided in the tables at the end of this release.) The increase in net debt was primarily due to the $211 million Dresden acquisition (net of cash acquired.
Capital expenditures totaled $103.0 million in 2013, including $33.6 million to expand Composite Fibers’ capacity. The comparable amounts for 2012 were $58.8 million and $16.5 million, respectively. For 2014, total capital expenditures are estimated to approximate $80 million to $90 million.
Adjusted free cash flow was $94.3 million in 2013 compared with $77.3 million in 2012. (Adjusted free cash flow is defined as cash provided by operations less capital expenditures and adjusted to exclude Composite Fibers’ capacity expansion project and the cash impact from alternative fuel mixture and cellulosic biofuel credits. Refer to the calculation of these measures provided in this release.)
Composite Fibers’ shipping volumes are anticipated to be approximately 10 percent higher in the first quarter of 2014 compared to the fourth quarter of 2013. In addition, selling prices are expected to be generally in line with the fourth quarter of 2013, and input costs are expected to be slightly higher.
Shipping volumes for the Advanced Airlaid Materials business unit in the first quarter of 2014 are expected to be approximately 5 percent higher than the fourth quarter of 2013. Average selling prices are expected to decline due to pricing provisions in certain customer contracts. Input costs are expected to be generally in line with the fourth quarter of 2013.
For Specialty Papers, the Company expects shipping volumes to increase slightly in the first quarter of 2014 compared with the fourth quarter of 2013. Overall higher selling prices are expected to add $3 million to operating profit compared to the fourth quarter of 2013 due to the realization of announced price increases. Input costs are expected to be in line with the fourth quarter of 2013 and the Company expects to incur approximately $3 million of cost penalties associated with severe weather.
The Company expects pension expense in 2014 to decrease to approximately $6.2 million compared with $14.2 million in 2013.
As previously announced, the Company will hold a conference call at 11:00 a.m. (Eastern) today to discuss its fourth-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 website at the address indicated below. Information related to the conference call is as follows:
Glatfelter’s 4th Quarter 2013 Earnings Release Conference Call
Thursday, February 13, 2014, 11:00 a.m. (ET)
US dial (888)335-5539
International dial (973)582-2857
February 13, 2014, 2:00 p.m. through February 27, 2014, 11:59 p.m.
Within US dial (855)859-2056
International dial (404)537-3406
Interested persons who wish to hear the live webcast should go to the website prior to the starting time to register, download and install any necessary audio software.
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