Market Overview

Glatfelter Reports Third Quarter 2017 Results

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Glatfelter (NYSE:GLT) today reported net income of $12.1
million, or $0.27 per diluted share for the third quarter of 2017
compared with net income of $19.6 million, or $0.44 per diluted share in
the third quarter of 2016. Adjusted earnings for the third quarter of
2017 was $21.9 million, or $0.50 per diluted share compared with $24.0
million, or $0.54 per diluted share, for the same period a year ago. On
an adjusted basis, earnings before interest, taxes, depreciation and
amortization and excluding pension expense ("Adjusted EBITDA") for the
three months ended September 30, 2017 and 2016, totaled $50.6 million
and $49.1 million, respectively, an increase of 3.1%. Adjusted earnings
and Adjusted EBITDA are non-GAAP financials measures for which
reconciliations to the nearest GAAP-based measure are provided within
this release.

Consolidated net sales totaled $413.3 million and $405.3 million for the
three months ended September 30, 2017 and 2016, respectively. In the
Composite Fibers and Advanced Airlaid Materials business units, net
sales increased by 5.0% and 6.6%, respectively, on a constant currency
basis. Specialty Papers' net sales declined 4.0% in the
quarter-over-quarter comparison.

"Our third quarter results reflect continued strong performance from our
engineered materials businesses," said Dante C. Parrini, Chairman and
Chief Executive Officer. "Composite Fibers and Advanced Airlaid
Materials each posted revenue and profit growth during the quarter
compared to the prior year. Composite Fibers delivered a 17% improvement
in operating profit driven primarily by a strong recovery in shipments
of wallcover products and growth in other key product lines. Likewise,
our Advanced Airlaid Materials business generated a 29% profit
improvement with volume growth largely coming from personal hygiene and
wipes products. The strength of these businesses counterbalanced results
from Specialty Papers, which continued to be challenged by the
supply-demand and pricing pressures in the uncoated free sheet market."

Mr. Parrini continued, "Looking ahead to the fourth quarter, we expect
our engineered materials businesses to post a solid finish to the year.
We are also excited about the initial start-up of our new airlaid
facility in Fort Smith, Arkansas which we expect will allow us to meet
our target for commercial shipments beginning in the first quarter of
2018. Specialty Papers' markets remain challenging but we are working to
implement the recently announced price increase and we expect to realize
the full run-rate benefit of the cost improvement actions we took in the
third quarter. With the wrap-up of our major capital programs this year
and the growth potential in our engineered materials businesses, we
expect significantly improved cash flow in 2018."

The following table sets forth a reconciliation of net income on a GAAP
basis to an adjusted earnings basis, a non-GAAP measure:

   
Three months ended September 30
2017       2016
In thousands, except per share

Amount

   

Diluted
EPS

Amount    

Diluted
EPS

 
Net income $ 12,105 $ 0.27 $ 19,601 $ 0.44
Adjustments (pre-tax)
Cost optimization actions 6,839
Specialty Papers' environmental compliance 596 5,520
Airlaid capacity expansion costs 2,581 1,051
Timberland sales and related costs   (114 )  
Total adjustments (pre-tax) 9,902 6,571
Income taxes (1)   (123 )   (2,193 )
Total after-tax adjustments   9,779   0.22   4,378   0.10
Adjusted earnings $ 21,884 $ 0.50 $ 23,979 $ 0.54
(1)     Tax effect on adjustments calculated based on the incremental
effective tax rate of the jurisdiction in which each adjustment
originated and the related impact of valuation allowances.
 
The sum of individual per share amounts set forth above may not
agree to adjusted earnings per share due to rounding.
 
A description of each of the adjustments presented above is included
later in this release.

Third Quarter Business Unit Results

 

Composite Fibers

 
    Three months ended September 30
Dollars in thousands 2017     2016     Change
   
Tons shipped 43,789 39,068 4,721 12.1 %
Net sales $ 142,349 $ 131,678 $ 10,671 8.1 %
Operating income 16,363 13,964 2,399 17.2 %
Operating margin 11.5 % 10.6 %

Composite Fibers' net sales increased $10.7 million, or 8.1%, primarily
due to higher shipping volumes and $4.2 million of favorable currency
translation partially offset by $2.3 million from lower selling prices.

Composite Fibers' third quarter of 2017 operating income totaled $16.4
million, an increase of $2.4 million compared to the year-ago period.
Higher shipping volumes, higher machine utilization rates and solid
operating performance improved earnings by $5.8 million. Lower selling
prices and higher raw material costs, combined, decreased earnings by
$4.3 million. Currency translation favorably impacted results by $0.9
million.

   

Advanced Airlaid Materials

 
Three months ended September 30
Dollars in thousands 2017     2016     Change
     
Tons shipped 26,244 25,197 1,047 4.2 %
Net sales $ 67,771 $ 61,863 $ 5,908 9.6 %
Operating income 8,237 6,382 1,855 29.1 %
Operating margin 12.2 % 10.3 %

Advanced Airlaid Materials' net sales increased $5.9 million in the
quarter-over-quarter comparison primarily due to a 4.2% increase in
shipping volumes from continued growth of personal hygiene and wipes
products and $1.8 million favorable impact from currency translation.

Operating income for the third quarter of 2017 increased 29.1% in the
quarter-over-quarter comparison and totaled $8.2 million. The
improvement was driven by a $1.1 million benefit from higher volumes and
a $0.4 million favorable impact from currency translation.

   

Specialty Papers

 

 

Three months ended September 30
Dollars in thousands 2017     2016     Change
   
Tons shipped 197,080 197,260 (180 ) (0.1 )%
Net sales $ 203,206 $ 211,760 $ (8,554 ) (4.0 )%
Energy and related sales, net 1,236 1,346 (110 ) (8.2 )%
Operating income 12,474 18,737 (6,263 ) (33.4 )%
Operating margin 6.1 % 8.8 %

Specialty Papers' net sales decreased $8.6 million, or 4.0%, as its
markets continued to be impacted by a supply-demand imbalance resulting
in lower selling prices of $6.5 million.

Specialty Papers' operating income totaled $12.5 million in the third
quarter of 2017, compared with $18.7 million the same period a year ago.
Aggressive cost control actions and lower maintenance spending more than
offset the adverse impact of market-related downtime and higher
depreciation, and increased operating income by $1.8 million.

Other Financial Information

In the third quarter of 2017, the Company recorded a provision for
income taxes of $4.3 million on pre-tax income of $16.4 million. On an
adjusted earnings basis, the provision for income taxes totaled $4.4
million on an adjusted pre-tax income of $26.3 million. The effective
tax rate on adjusted earnings was 16.8% in the third quarter of 2017
compared with 13.0% in the same quarter a year ago. The current
quarter's tax provision includes a benefit of $2.4 million primarily
from a tax loss carryback opportunity and the release of U.S. tax
reserves due to the lapse of statute of limitations.

During the third quarter of 2017, the Company recorded $6.8 million of
one-time costs primarily related to the shutdown of a paper machine and
a 15% reduction in salaried workforce in the Specialty Papers business
unit. The costs incurred consisted of $4.5 million related to the
write-off of the machine and associated spare parts and the balance
represented severance costs for the salaried positions. These costs have
been excluded from the business unit results and from adjusted earnings.

2017 Year-to-Date Results

The following table sets forth a reconciliation of results determined on
a GAAP basis to adjusted earnings:

     
Nine months ended September 30
2017       2016
In thousands, except per share Amount    

Diluted
EPS

Amount    

Diluted
EPS

 
Net income $ 17,994 $ 0.41 $ 37,734 $ 0.86
Adjustments (pre-tax)
Cost optimization actions 9,627 88
Specialty Papers' environmental compliance 3,076 6,645
Airlaid capacity expansion costs 7,034 1,308
Timberland sales and related costs   (188 )  

Total adjustments (pre-tax)

19,549 8,041
Income taxes (1)   (1,122 )   (2,736 )
Total after-tax adjustments   18,427   0.41   5,305   0.12
Adjusted earnings $ 36,421 $ 0.82 $ 43,039 $ 0.98
 
(1)     Tax effect on adjustments calculated based on the incremental
effective tax rate of the jurisdiction in which each adjustment
originated and the related impact of valuation allowances.
 
The sum of individual per share amounts set forth above may not
agree to adjusted earnings per share due to rounding.
 
A description of each of the adjustments presented above is included
later in this release.
 

Balance Sheet and Other Information

Cash and cash equivalents totaled $84.3 million as of September 30,
2017, and net debt was $385.9 million compared with $317.2 million at
the end of 2016. (Refer to the calculation of this measure provided in
the tables at the end of this release.)

Capital expenditures during 2017 and 2016 are summarized below:

           
Capital Expenditures

Three months ended
September 30

Nine months ended
September 30

In thousands 2017       2016 2017       2016
 
Airlaid capacity expansion $ 11,426 $ 2,206 $ 32,847 $ 21,067
Specialty Papers' environmental compliance projects 768 15,757 12,618 52,544
Other capital expenditures   18,931   18,594   56,707   43,337
Total capital expenditures $ 31,125 $ 36,557 $ 102,172 $ 116,948

Adjusted free cash flow for the first nine months of 2017, was $(3.9)
million compared with $11.8 million in 2016. (Refer to the calculation
of these measures provided in this release.)

During the quarter, the Company paid $9.5 million to Georgia Pacific to
settle claims related to the Fox River matter. The settlement had no
effect on our overall reserve for the Fox River matter.

Outlook

Composite Fibers' shipping volumes in the fourth quarter of 2017 are
expected to be approximately 10% lower than the third quarter driven by
normal seasonality. The majority of the impact from lower shipping
volumes is expected to be offset by improved product mix. Selling prices
and overall raw material and energy prices are expected to be in-line
with the third quarter.

Advanced Airlaid Materials' shipping volumes in the fourth quarter are
expected to be approximately 3% lower than the third quarter due to
normal seasonality. Selling prices and raw material and energy prices
are expected to increase slightly compared with the third quarter. For
2018, we anticipate shipping volumes will be 10% to 15% higher than 2017
driven by the start-up of the Fort Smith, Arkansas facility.

Specialty Papers' shipping volumes in the fourth quarter are expected to
be approximately 5% lower than the third quarter of 2017 due to normal
seasonality. Selling prices are expected to be in-line and raw material
and energy prices are expected to increase compared to the third
quarter. Specialty Papers will also benefit by $1 million more than the
third quarter from the cost reduction actions.

In addition, costs associated with the Specialty Papers environmental
compliance projects and Advanced Airlaid Materials capacity expansion
are expected to be $1 million and $3 million, respectively, during the
fourth quarter and zero and $3 million, respectively, in 2018.

Consolidated capital expenditures are expected to total between $130
million and $135 million for 2017 and approximately $65 million to $70
million in 2018.

The effective tax rate on adjusted earnings is expected to be
approximately 35% for the fourth quarter of 2017 and for 2018.

Conference Call

As previously announced, the Company will hold a conference call at
11:00 a.m. (Eastern) today to discuss its third 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:

               
What: Glatfelter's 3rd Quarter 2017 Earnings Release Conference Call
 
When: Tuesday, October 31, 2017, 11:00 a.m. (ET)
 
Number: US dial 888.335.5539
 
International dial 973.582.2857
 
Conference ID: 98637685
 
Webcast:

http://www.glatfelter.com/about_us/investor_relations/default.aspx

 
Rebroadcast Dates: October 31, 2017, 2:00 p.m. through November 14, 2017, 11:59 p.m.
 
Rebroadcast Number: Within US dial 855.859.2056
 
International dial 404.537.3406
 
Conference ID: 98637685
 

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.

Caution Concerning Forward-Looking Statements

Any statements included in this press release which pertain to future
financial and business matters are "forward-looking statements" within
the meaning of the safe harbor provisions of the United States Private
Securities Litigation Reform Act of 1995. The Company uses words such as
"anticipates", "believes", "expects", "future", "intends", "plans",
"targets", and similar expressions to identify forward-looking
statements. Any such statements are based on the Company's current
expectations and are subject to numerous risks, uncertainties and other
unpredictable or uncontrollable factors that could cause future results
to differ materially from those expressed in the forward-looking
statements including, but not limited to: changes in industry, business,
market, and economic conditions in the U.S., demand for or pricing of
its products, market growth rates and currency exchange rates. In light
of these risks, uncertainties and other factors, the forward-looking
matters discussed in this press release may not occur and readers are
cautioned not to place undue reliance on these forward-looking
statements. The forward-looking statements speak only as of the date of
this press release and Glatfelter undertakes no obligation, and does not
intend, to update these forward-looking statements to reflect events or
circumstances occurring after the date of this press release. More
information about these factors is contained in Glatfelter's filings
with the U.S. Securities and Exchange Commission, which are available at www.glatfelter.com.

About Glatfelter

Glatfelter is a global supplier of specialty papers and engineered
materials, offering innovation, world-class service and over a century
and a half of technical expertise. Headquartered in York, PA, the
Company employs approximately 4,200 people and serves customers in over
100 countries. U.S. operations include facilities in Pennsylvania and
Ohio. International operations include facilities in Canada, Germany,
France, the United Kingdom and the Philippines, and sales and
distribution offices in China and Russia. Glatfelter's sales approximate
$1.6 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.

 

P. H. Glatfelter Company and subsidiaries

Consolidated Statements of Income

(unaudited)

 
   

Three months ended
September 30

   

Nine months ended
September 30

In thousands, except per share 2017     2016 2017     2016
Net sales $ 413,325 $ 405,301 $ 1,191,380 $ 1,213,932
Energy and related sales, net   1,236   1,346   3,346   4,013
Total revenues 414,561 406,647 1,194,726 1,217,945
Costs of products sold   359,826   345,477   1,052,626   1,056,209
Gross profit 54,735 61,170 142,100 161,736
Selling, general and administrative expenses 33,399 35,747 100,484 104,796

(Gains) losses on dispositions of plant, equipment and
timberlands, net

  (24 )   5   (50 )   31
Operating income 21,360 25,418 41,666 56,909
Non-operating income (expense)
Interest expense (4,547 ) (3,895 ) (13,031 ) (11,964 )
Interest income 51 52 209 204
Other, net   (478 )   (573 )   (906 )   (956 )
Total non-operating expense   (4,974 )   (4,416 )   (13,728 )   (12,716 )
Income before income taxes 16,386 21,002 27,938 44,193
Income tax provision   4,281   1,401   9,944   6,459
Net income $ 12,105 $ 19,601 $ 17,994 $ 37,734
 
Earnings per share
Basic $ 0.28 $ 0.45 $ 0.41 $ 0.87
Diluted 0.27 0.44 0.41 0.86

Cash dividends declared per common share

$ 0.13 $ 0.125 $ 0.39 $ 0.375
Weighted average shares outstanding
Basic 43,617 43,576 43,601 43,552
Diluted 44,182 44,133 44,410 44,059
 
 

Business Unit Financial Information

(unaudited)

 
Three months ended September 30                                              
Dollars in millions Composite Fibers Advanced Airlaid Materials Specialty Papers Other and Unallocated Total
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
Net sales $ 142.3 $ 131.7 $ 67.8 $ 61.9 $ 203.2 $ 211.8 $ $ $ 413.3 $ 405.3
Energy and related sales, net           1.2   1.3       1.2   1.3
Total revenue 142.3 131.7 67.8 61.9 204.4 213.1 414.6 406.6
Costs of products sold   115.0   105.8   57.2   53.5   179.7   180.1   7.9   6.1   359.8   345.5
Gross profit (loss) 27.3 25.9 10.6 8.4 24.7 33.0 (7.9 ) (6.1 ) 54.7 61.2
SG&A 10.9 11.9 2.4 2.0 12.2 14.3 7.9 7.5 33.4 35.7

(Gains) losses on dispositions of plant, equipment and
timberlands, net

                   
Total operating income (loss) 16.4 14.0 8.2 6.4 12.5 18.7 (15.8 ) (13.6 ) 21.4 25.4
Non operating expense               (5.0 )   (4.4 )   (5.0 )   (4.4 )
Income (loss) before income taxes $ 16.4 $ 14.0 $ 8.2 $ 6.4 $ 12.5 $ 18.7 $ (20.8 ) $ (18.0 ) $ 16.4 $ 21.0
 
Supplementary Data
Net tons sold (thousands) 43.8 39.1 26.2 25.2 197.1 197.3 267.1 261.5
Depreciation, depletion and amortization $ 7.1 $ 6.9 $ 2.5 $ 2.4 $ 8.0 $ 6.4 $ 3.8 $ 0.6 $ 21.4 $ 16.3
Capital expenditures   3.8   5.1   12.6   4.3   10.2   26.7   4.5   0.5   31.1   36.6
 
Nine months ended September 30
Dollars in millions Composite Fibers Advanced Airlaid Materials Specialty Papers Other and Unallocated Total
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
Net sales $ 400.6 $ 391.6 $ 190.4 $ 183.4 $ 600.3 $ 638.9 $ $ $ 1,191.4 $ 1,213.9
Energy and related sales, net           3.3   4.0       3.3   4.0
Total revenue 400.6 391.6 190.4 183.4 603.6 642.9 1,194.7 1,217.9
Costs of products sold   322.2   316.0   160.7   157.5   555.7   574.1   14.0   8.6   1,052.6   1,056.2
Gross profit (loss) 78.4 75.6 29.7 25.9 47.9 68.8 (14.0 ) (8.6 ) 142.1 161.7
SG&A 32.9 35.1 6.9 6.2 36.0 40.9 24.7 22.6 100.5 104.8

Losses on dispositions of plant, equipment and timberlands, net

                   
Total operating income (loss) 45.5 40.5 22.8 19.7 11.9 27.9 (38.7 ) (31.2 ) 41.7 56.9
Non operating expense               (13.7 )   (12.7 )   (13.7 )   (12.7 )
Income (loss) before income taxes $ 45.5 $ 40.5 $ 22.8 $ 19.7 $ 11.9 $ 27.9 $ (52.4 ) $ (43.9 ) $ 27.9 $ 44.2
 
Supplementary Data
Net tons sold (thousands) 124.5 116.7 76.6 74.1 578.4 597.7 779.5 788.5
Depreciation, depletion and amortization $ 20.9 $ 21.2 $ 7.1 $ 7.0 $ 22.9 $ 19.7 $ 5.4 $ 1.8 $ 56.3 $ 49.7
Capital expenditures   10.6   13.7   36.1   25.0   44.2   77.4   11.3   0.8   102.2   116.9
 

The sum of individual amounts set forth above may not agree to the
consolidated financial statements included herein due to rounding.

 
 

Selected Financial Information

(unaudited)

 
   

Nine months ended September 30

In thousands 2017     2016
 
Cash Flow Data
Cash provided (used) by:
Operating activities $ 52,796 $ 59,437
Investing activities (102,055 ) (117,293 )
Financing activities 72,654 2,974
 
Depreciation, depletion and amortization 56,343 49,725
Capital expenditures 102,172 116,948
 
September 30 December 31
2017 2016
Balance Sheet Data
Cash and cash equivalents $ 84,287 $ 55,444
Total assets 1,696,794 1,521,259
Total debt 470,147 372,608
Shareholders' equity 710,596 653,826
 

Reconciliation of GAAP Financial Information to Non-GAAP Financial
Information

This press release includes a measure of earnings before the effects of
certain specifically identified items, which is referred to as adjusted
earnings, a non-GAAP measure. The Company uses non-GAAP adjusted
earnings to supplement the understanding of its consolidated financial
statements presented in accordance with GAAP. Non-GAAP adjusted earnings
is meant to present the financial performance of the Company's core
operations, which consist of the production and sale of specialty
papers, composite fibers papers and airlaid non-woven materials.
Management and the Company's Board of Directors use non-GAAP adjusted
earnings to evaluate the performance of the Company's fundamental
business in relation to prior periods. For purposes of determining
adjusted earnings, the following items are excluded:

  • Cost optimization actions. These adjustments reflect charges
    incurred in connection with initiatives to optimize the cost structure
    of certain business units in response to changes in business
    conditions. The costs are primarily related to headcount reduction
    efforts, asset write-offs and certain contract termination costs.
  • Specialty Papers environmental compliance. These adjustments
    reflect non-capitalized, one-time costs incurred by the business unit
    directly related to the compliance with the U.S. EPA Best Available
    Retrofit Technology rule and the Boiler Maximum Achievable Control
    Technology rule. This adjustment includes costs incurred during the
    transition period in which the newly installed equipment was brought
    on-line.
  • Airlaid capacity expansion costs. These adjustments reflect
    non-capitalized, one-time costs incurred related to the start-up of a
    new airlaid production facility in Fort Smith, Arkansas.
  • Timberland sales and related costs. These adjustments exclude
    gains from the sales of timberlands as these items are not considered
    to be part of our core business, ongoing results of operations or cash
    flows. These adjustments are irregular in timing and amount and may
    significantly impact our operating performance.

Unlike net income determined in accordance with GAAP, non-GAAP adjusted
earnings does not reflect all charges and gains recorded by the Company
for the applicable period and, therefore, does not present a complete
picture of the Company's results of operations for the respective
period. However, non-GAAP adjusted earnings provide a measure of how the
Company's core operations are performing, which management believes is
useful to investors because it allows comparison of such operations from
period to period. Non-GAAP adjusted earnings should not be considered in
isolation from, or as a substitute for, measures of financial
performance prepared in accordance with GAAP.

         
Calculation of Adjusted EBITDA, excluding pension

Three months ended
September 30

Nine months ended
September 30

2017     2016 2017     2016
 
Net income $ 12,105 $ 19,601 $ 17,994 $ 37,734
Income tax provision 4,281 1,401 9,944 6,459
Depreciation and amortization 21,376 16,314 56,343 49,725
Interest expense, net 4,496 3,843 12,822 11,760
Pension expense 1,661 1,370 4,975 4,126
 
Adjustments to earnings
Cost optimization actions, net of depreciation 3,626 - 5,902 88
Specialty Papers' environmental compliance 596 5,520 3,076 6,645
Airlaid capacity expansion costs 2,581 1,051 7,034 1,308
Timberland sales and related costs   (114 )   -   (188 )   -
Adjusted EBITDA, excluding pension $ 50,608 $ 49,100 $ 117,902 $ 117,845
 
       
Calculation of Adjusted Free Cash Flow

Three months ended
September 30

Nine months ended
September 30

In thousands 2017     2016 2017     2016
 
Cash from operations $ 24,032 $ 22,797 $ 52,796 $ 59,437
Less: Capital expenditures (31,125 ) (36,557 ) (102,172 ) (116,948 )
Add back: Airlaid capacity expansion 11,426 2,206 32,847 21,067
Add back: Specialty Papers' environmental compliance projects 768 15,757 12,618 52,544
Exclude: Cellulosic biofuel/Alternative fuel mixture credits         (4,277 )
Adjusted free cash flow $ 5,101 $ 4,203 $ (3,911 ) $ 11,823
 
       
Net Debt September 30 December 31
In thousands 2017 2016
 
Current portion of long-term debt $ 11,122 $ 8,961
Long term debt   459,025   363,647
Total 470,147 372,608
Less: Cash   (84,287 )   (55,444 )
Net Debt $ 385,860 $ 317,164
 

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