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Winpak Reports 2017 Third Quarter Results

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WINNIPEG, Oct. 26, 2017 /CNW/ - Winpak Ltd. (WPK) today reports consolidated results in US dollars for the third quarter of 2017, which ended on October 1, 2017.


Quarter Ended (1)


Year-To-Date Ended (1)


October 1


September 25


October 1


September 25


2017


2016


2017


2016









(thousands of US dollars, except per share amounts)
















Revenue

218,348


204,699


664,451


606,982

Net income

26,379


25,126


82,249


78,590









Income tax expense

11,277


11,004


36,498


36,629

Net finance expense (income)

281


(80)


884


(75)

Depreciation and amortization

9,469


8,607


27,716


25,329

EBITDA (2)

47,406


44,657


147,347


140,473









Net income attributable to equity holders of the Company

25,368


24,036


79,665


75,766

Net income attributable to non-controlling interests

1,011


1,090


2,584


2,824

Net income

26,379


25,126


82,249


78,590









Basic and diluted earnings per share (cents)

39


37


123


117

WINPAK (CNW Group/Winpak Ltd.)

 

Winpak Ltd. manufactures and distributes high-quality packaging materials and related packaging machines. The Company's products are used primarily for the packaging of perishable foods, beverages and in healthcare applications.

1 The 2017 fiscal year comprises 53 weeks and the 2016 fiscal year comprised 52 weeks.  Each quarter of 2017 and 2016 comprises 13 weeks with the exception of the first quarter of 2017, which comprised 14 weeks.

2 EBITDA is not a recognized measure under International Financial Reporting Standards (IFRS).  Management believes that in addition to net income, this measure provides useful supplemental information to investors including an indication of cash available for distribution prior to debt service, capital expenditures and income taxes.  Investors should be cautioned, however, that this measure should not be construed as an alternative to net income, determined in accordance with IFRS, as an indicator of the Company's performance.  The Company's method of calculating this measure may differ from other companies and, accordingly, the results may not be comparable.

(presented in US dollars)

Forward-looking statements: Certain statements made in the following report contain forward-looking statements including, but not limited to, statements concerning possible or assumed future results of operations of the Company.  Forward-looking statements represent the Company's intentions, plans, expectations and beliefs, and are not guarantees of future performance.  Such forward-looking statements represent Winpak's current views based on information as at the date of this report. They involve risks, uncertainties and assumptions and the Company's actual results could differ, which in some cases may be material, from those anticipated in these forward-looking statements.  Factors that could cause results to differ from those expected include, but are not limited to: the terms, availability and costs of acquiring raw materials and the ability to pass on price increases to customers; ability to negotiate contracts with new customers or renew existing customer contracts with less favorable terms; timely response to changes in customer product needs and market acceptance of our products; the potential loss of business or increased costs due to customer or vendor consolidation; competitive pressures, including new product development, industry capacity, and changes in competitors' pricing; ability to maintain or increase productivity levels, contain or reduce costs; foreign currency exchange rate fluctuations; changes in governmental regulations, including environmental, health and safety; changes in Canadian and foreign income tax rates, income tax laws and regulations.  Unless otherwise required by applicable securities law, we disclaim any intention or obligation to publicly update or revise this information, whether as a result of new information, future events or otherwise.  The Company cautions investors not to place undue reliance upon forward-looking statements.

Financial Performance
Net income attributable to equity holders of the Company for the third quarter of 2017 of $25.4 million or 39 cents in earnings per share (EPS) surpassed the comparable 2016 quarter by $1.3 million or 2 cents per share, an advancement of 5.5 percent. Organic volume growth and favorable foreign exchange both enhanced EPS by 1.0 cent.  This was supplemented by the impact of higher gross profit margins of 0.5 cents per share. The increase in net finance expense lowered EPS by 0.5 cents.

For the nine months ended October 1, 2017, net income attributed to equity holders of the Company climbed to $79.7 million or $1.23 per share, exceeding the 2016 corresponding result of $75.8 million or $1.17 per share by 5.1 percent.  Organic volume growth in 2017 was the main factor, advancing EPS by 10.5 cents, while foreign exchange added a further 3.0 cents.  This was augmented by reduced income taxes and restrained growth in operating expenses of 2.0 cents and 1.5 cents respectively in EPS.  Conversely, a significant drop in gross profit margin lowered EPS by 10.0 cents. The increase in net finance expense reduced EPS by 1.0 cent.

The fiscal year of the Company ends on the last Sunday of the calendar year and is usually 52 weeks in duration.  However, the 2017 fiscal year consists of 53 weeks, with the first quarter comprising 14 weeks, one more week than the prior year.  The additional week included in the 2017 first quarter was essentially the last week of the 2016 calendar year which contained several statutory holidays. Consequently, it is estimated that this additional week contributed 2 percent to 2017 year-to-date volumes and net income results.

Revenue
Revenue in the third quarter of 2017 of $218.3 million exceeded the prior year level of $204.7 million by 6.7 percent.  Volumes, in total, were up marginally from the prior year comparable quarter, increasing by 2.8 percent.  Organic growth varied across product groups. Modified atmosphere packaging volumes were modest, advancing in the mid-single-digit range in comparison to a very strong third quarter of 2016.  After experiencing negative growth in the first half of 2017, specialty film volumes rebounded and out-distanced the prior year's third quarter by 4 percent. Lidding volumes increased in the low single-digit range with increases realized in both specialty beverage and condiment lids.  Rigid container volumes also progressed in the low single-digit range as strong sheet and tray sales were largely offset by a decline in specialty beverage shipments.  Biaxially oriented nylon volumes were similar to the prior year.  Although packaging machinery recorded a volume decline of 6 percent, the order backlog is substantial heading into the fourth quarter.  Selling price and mix changes had a favorable influence on third quarter revenue of 3.5 percent as indexed selling prices followed the increase in raw material costs that have taken place over the past twelve months.  The appreciation of the Canadian dollar in comparison to its US counterpart had a minor 0.4 percent positive effect on revenue versus the comparable prior year quarter.

For the first three quarters of 2017, revenue ascended by $57.5 million or 9.5 percent to $664.5 million from $607.0 million recorded in the corresponding prior year period.  Volumes grew by a sizeable 8.6 percent and even after accounting for the additional week in the first quarter of 2017, volume growth was approximately 7 percent.  Rigid containers led the Company, exceeding prior year volumes by more than 10 percent due to increased sales of specialty beverage, tray and condiment packaging.  Due to higher sales of sophisticated packaging for processed meat and cheese applications, modified atmosphere packaging achieved healthy volume growth in the high single-digit range.  Following the gains made with die-cut yogurt and condiment lids, mid-single-digit lidding growth was realized.  Capacity constraints within the biaxially oriented nylon product group limited volume growth to the mid-single-digit range.  Demand for specialty films was lower, causing a slight decline in shipments.  Packaging machinery and part sales were robust, growing by 12 percent from the first three quarters of 2016.  In comparison to 2016, selling price and mix changes in 2017 favorably influenced revenues by 0.7 percent while foreign exchange had virtually no impact on reported revenue.

Gross profit margins
Gross profit margins contracted in the current quarter to 30.3 percent of revenue from the 31.3 percent of revenue recorded in the third quarter of 2016.  However, selling price increases were slightly higher than the corresponding increase in raw material costs. Consequently, gross profit in dollar terms rose by 3.2 percent, keeping up with the increase in sales volume of 2.8 percent, resulting in a slight increase in EPS. 

For the first three quarters of 2017, gross profit margins of 31.2 percent of revenue dropped by 1.7 percentage points from the 2016 year-to-date level of 32.9 percent.  This caused a decrease in EPS of 10.0 cents.  The sustained rise in raw material costs, along with competitive pricing conditions with certain customers, compressed the spread between selling prices and raw material costs. 

For reference, the following presents the weighted indexed purchased cost of Winpak's eight primary raw materials in the reported quarter and each of the preceding eight quarters, where base year 2001 = 100.  The index was rebalanced as of December 26, 2016 to reflect the mix of the eight primary raw materials purchased in 2016. 

Quarter and Year

3/17

2/17

1/17

4/16

3/16

2/16

1/16

4/15

3/15

Purchase Price Index

153.1

154.4

147.8

143.9

140.2

138.1

136.4

139.1

147.7

 

The purchase price index declined slightly by 0.8 percent versus the previous quarter.   The decrease would have been even greater were it not for the temporary disruption in resin supply caused by the hurricane in the gulf coast of the United States.  Over the past twelve months, the index increased by 9.2 percent, reflecting the tightness of resin supply in the market place during this time period.  During the third quarter, nylon resin experienced the most significant increase of 6 percent while polypropylene recorded a more modest increase of 2 percent.  In contrast, resin price drops were realized on polystyrene and polyethylene of 6 percent and 3 percent respectively.

Expenses and Other
Operating expenses, exclusive of foreign exchange impact, increased at a similar overall rate relative to the corresponding increase in sales volumes, thereby having a negligible impact on EPS.  The maturation of foreign exchange forward contracts at more favorable rates compared to the third quarter of 2016 more than offset the negative impact of the stronger Canadian dollar in the current quarter.  Consequently, foreign exchange raised EPS by 1.0 cent.  The Company entered into an agreement in January 2017 to sell certain extended term accounts receivable without recourse to a financial institution in exchange for cash.  Accordingly, net finance expense increased and lowered EPS by 0.5 cents

On a year-to-date basis, operating expenses, adjusted for foreign exchange, increased by 7.0 percent in contrast to the 8.6 percent advancement in sales volumes.  Although share-based incentive expenses were heightened, disciplined spending in other operating expense categories, in addition to lower pre-production expenses, more than offset those costs, leading to incremental EPS of 1.5 cents.  Additionally, foreign exchange had a positive effect on EPS of 3.0 cents as the pre-tax gains realized on the maturing foreign exchange forward contracts in 2017 represented a $1.9 million turnaround from the prior year.  The effective income tax rate dropped by more than 1 percentage point, adding 2.0 cents to EPS.  Lastly, net finance expense reduced EPS by 1.0 cent.

Summary of Quarterly Results



















Thousands of US dollars, except per share amounts (US cents)




Q3


Q2


Q1


Q4


Q3


Q2


Q1


Q4


2017


2017


2017


2016


2016


2016


2016


2015

















Revenue

218,348


217,752


228,351


215,550


204,699


204,129


198,154


205,746

Net income attributable to equity holders

of the Company
















25,368


25,745


28,552


28,578


24,036


25,166


26,564


27,635

EPS

39


40


44


44


37


39


41


43

 

Capital Resources, Cash Flow and Liquidity
The Company's cash and cash equivalents balance ended the third quarter of 2017 at $263.3 million, a modest increase of $12.8 million from the end of the previous quarter.  Winpak continued to generate robust cash flows from operating activities before changes in working capital of $47.5 million.  Working capital consumed $11.6 million in cash as trade payables and other liabilities declined by $12.7 million.  Coinciding with the retirement of the previous President and CEO, the liability with respect to the share-based incentive plan was settled.  Cash was utilized for plant and equipment additions of $11.6 million, income tax payments of $9.6 million, dividends of $1.5 million and other items totaling $0.4 million.

For the first nine months of 2017, the cash and cash equivalents balance rose by $52.1 million from the start of the year.  Cash flows generated from operating activities before change in working capital were exceptional at $146.5 million.  The net investment in working capital amounted to $9.0 million.  In support of the organic sales volume growth and because of the significant rise in raw material costs, inventories grew by $10.0 million.  On the other hand, trade and other receivables receded by $5.8 million as the Company sold certain accounts receivable to a financial institution for cash.  Other uses of cash included plant and equipment additions of $40.6 million, income tax payments of $38.1 million, dividends of $4.4 million and other items amounting to $2.3 million.

Looking Forward
The Company remains positive for growth in sales volume and earnings for the remainder of 2017.  Sales volumes are anticipated to grow at a pace similar to that of the third quarter.  From a gross profit margin perspective, customer indexed selling price increases implemented during the third quarter and at the start of the fourth quarter, following the raw material cost increases over the past six months, will expand gross profit margins for the next quarter.  Due to the temporary disruption in resin supply caused by the hurricane in the gulf coast of the United States, resin prices for polyethylene, polypropylene, polystyrene and certain specialty resins increased in the latter part of the third quarter and the initial stages of the fourth quarter.  These higher resin prices will elevate cost of goods sold in the upcoming quarter and put downward pressure on gross profit margins.  As a result of the foregoing factors, gross profit margins are expected to tighten further from the levels realized in the third quarter.  In the short term, there is uncertainty in the industry as to when these resin price increases may possibly start to recede.  In regards to continued sales volume growth, Winpak will need to secure new business as well as maintain and increase volumes with current customers when renewing contracts.  Competitive pressure for lower selling prices in the Company's product markets has intensified and this environment will possibly result in a contraction in gross profit margins from present levels by as much as one to two percentage points in 2018.  To counteract the likely reduction in gross profit margins, the Company will focus on improving manufacturing performance to elevate production competencies and efficiencies as well as optimizing operating expense leverage. 

The building expansions at the Company's specialty films operation in Senoia, Georgia and rigid container facility in Sauk Village, Illinois were completed in the preceding quarter.  New extrusion capacity at the Sauk Village, Illinois plant and converting capacity at the Senoia, Georgia and Vaudreuil, Quebec operations will commence in the fourth quarter.  Extrusion capacity at the Senoia, Georgia location will come on stream in the first quarter of 2018.  Capital spending for the first nine months reached $40.6 million and is expected to be approximately $60 million for 2017.  Winpak remains focused on organic growth with capital investment in its infrastructure and new technologies to expand upon current product offerings and lower production costs.  The Company will continue to assess acquisition opportunities when the proper strategic fit and price are present and complement Winpak's core competencies in sophisticated packaging for food and healthcare applications to add long-term shareholder value.

Winpak Ltd.
Interim Condensed Consolidated Financial Statements
Third Quarter Ended: October 1, 2017

These interim condensed consolidated financial statements have not been audited or reviewed by the Company's independent external auditors, KPMG LLP.  For a complete set of notes to the condensed consolidated financial statements, refer to www.sedar.com or the Company's website, www.winpak.com.

WinpakLtd.





Condensed Consolidated Balance Sheets





(thousands of US dollars) (unaudited)












October 1


December 25



2017


2016






Assets










Current assets:






Cash and cash equivalents


263,313


211,225


Trade and other receivables


118,337


124,148


Income taxes receivable


2,693


564


Inventories


113,541


103,516


Prepaid expenses


4,013


3,024


Derivative financial instruments


1,178


308



503,075


442,785






Non-current assets:






Property, plant and equipment


422,554


409,147


Intangible assets


14,442


14,501


Employee benefit plan assets


7,059


6,721


Deferred tax assets


878


1,060



444,933


431,429

Total assets


948,008


874,214






Equity and Liabilities










Current liabilities:






Trade payables and other liabilities


67,776


71,448


Income taxes payable


17


6,226


Derivative financial instruments


79


348



67,872


78,022






Non-current liabilities:






Employee benefit plan liabilities                                  


10,700


9,253


Deferred income


15,635


15,424


Provisions


760


760


Deferred tax liabilities


47,220


43,486



74,315


68,923

Total liabilities


142,187


146,945






Equity:






Share capital


29,195


29,195


Reserves


805


(29)


Retained earnings                                                                


751,612


676,478

Total equity attributable to equity holders of the Company


781,612


705,644

Non-controlling interests


24,209


21,625

Total equity


805,821


727,269

Total equity and liabilities


948,008


874,214

 

Winpak Ltd.









Condensed Consolidated Statements of Income









(thousands of US dollars, except per share amounts) (unaudited)









Quarter Ended


Year-To-Date Ended



October 1


September 25


October 1


September 25



2017


2016


2017


2016










Revenue


218,348


204,699


664,451


606,982

Cost of sales


(152,168)


(140,568)


(457,119)


(407,133)

Gross profit


66,180


64,131


207,332


199,849










Sales, marketing and distribution expenses


(16,876)


(16,107)


(51,063)


(46,985)

General and administrative expenses


(8,183)


(6,869)


(26,241)


(22,055)

Research and technical expenses


(4,007)


(4,308)


(11,694)


(12,924)

Pre-production expenses


(244)


(782)


(369)


(1,138)

Other income (expenses)


1,067


(15)


1,666


(1,603)

Income from operations


37,937


36,050


119,631


115,144

Finance income


585


177


1,314


434

Finance expense


(866)


(97)


(2,198)


(359)

Income before income taxes


37,656


36,130


118,747


115,219

Income tax expense


(11,277)


(11,004)


(36,498)


(36,629)

Net income for the period


26,379


25,126


82,249


78,590










Attributable to:










Equity holders of the Company


25,368


24,036


79,665


75,766


Non-controlling interests                                                              


1,011


1,090


2,584


2,824



26,379


25,126


82,249


78,590










Basic and diluted earnings per share - cents


39


37


123


117



















Condensed Consolidated Statements of Comprehensive Income 





(thousands of US dollars) (unaudited)











Quarter Ended


Year-To-Date Ended



October 1


September 25


October 1


September 25



2017


2016


2017


2016










Net income for the period


26,379


25,126


82,249


78,590










Items that will not be reclassified to the statements of income:









Cash flow hedge losses recognized


-


(23)


-


(3)

Cash flow hedge (gains) losses transferred to property, plant and equipment


-


(33)


-


19

Income tax effect


-


-


-


-



-


(56)


-


16

Items that are or may be reclassified subsequently to the statements of income:









Cash flow hedge gains (losses) recognized


768


(387)


2,205


1,629

Cash flow hedge (gains) losses transferred to the statements of income


(657)


(86)


(1,066)


804

Income tax effect


(30)


127


(305)


(650)



81


(346)


834


1,783

Other comprehensive income (loss) for the period - net of income tax


81


(402)


834


1,799

Comprehensive income for the period


26,460


24,724


83,083


80,389










Attributable to:










Equity holders of the Company                                                                         


25,449


23,634


80,499


77,565


Non-controlling interests                     


1,011


1,090


2,584


2,824



26,460


24,724


83,083


80,389

 

WinpakLtd.








Condensed Consolidated Statements of Changes in Equity








(thousands of US dollars) (unaudited)


















Attributable to equity holders of the Company





















Share

capital

 

Reserves

Retained

earnings

 

Total

Non-

controlling

interests

 

Total equity









Balance at December 28, 2015


29,195

(1,208)

576,359

604,346

19,045

623,391










Comprehensive income for the period










Cash flow hedge gains, net of tax


-

1,234

-

1,234

-

1,234



Cash flow hedge losses transferred to the
statements of income, net of tax


-

19

-

19

-

19



Cash flow hedge losses transferred to
property, plant and equipment 


-

546

-

546

-

546


Other comprehensive income


-

1,799

-

1,799

-

1,799


Net income for the period


-

-

75,766

75,766

2,824

78,590


Comprehensive income for the period


-

1,799

75,766

77,565

2,824

80,389










Dividends                                                                              


-

-

(4,453)

(4,453)

(1,277)

(5,730)









Balance at September 25, 2016


29,195

591

647,672

677,458

20,592

698,050

























Balance at December 26, 2016


29,195

(29)

676,478

705,644

21,625

727,269










Comprehensive income for the period










Cash flow hedge gains, net of tax


-

1,615

-

1,615

-

1,615



Cash flow hedge gains transferred to the statements
of income, net of tax


-

(781)

-

(781)

-

(781)


Other comprehensive income


-

834

-

834

-

834


Net income for the period


-

-

79,665

79,665

2,584

82,249


Comprehensive income for the period


-

834

79,665

80,499

2,584

83,083










Dividends


-

-

(4,531)

(4,531)

-

(4,531)









Balance at October 1, 2017


29,195

805

751,612

781,612

24,209

805,821

 

Winpak Ltd.









Condensed Consolidated Statements of Cash Flows









(thousands of US dollars) (unaudited)











Quarter Ended


Year-To-Date Ended



October 1


September 25


October 1


September 25



2017


2016


2017


2016










Cash provided by (used in):


















Operating activities:










Net income for the period


26,379


25,126


82,249


78,590


Items not involving cash:











Depreciation


9,730


8,834


28,487


25,995



Amortization - deferred income


(419)


(390)


(1,249)


(1,164)



Amortization - intangible assets


158


163


478


498



Employee defined benefit plan expenses


830


793


2,673


2,615



Net finance expense (income)


281


(80)


884


(75)



Income tax expense


11,277


11,004


36,498


36,629



Other


(720)


11


(3,505)


(1,477)




Cash flow from operating activities before the following


47,516


45,461


146,515


141,611


Change in working capital:











Trade and other receivables


(2,945)


(3,408)


5,811


(13,317)



Inventories


3,387


(1,156)


(10,025)


(8,805)



Prepaid expenses


610


797


(989)


(566)



Trade payables and other liabilities


(12,693)


10,446


(3,819)


6,456











Employee defined benefit plan contributions


(100)


(101)


(1,204)


(1,138)


Income tax paid


(9,618)


(9,263)


(38,077)


(37,837)


Interest received


586


148


1,259


346


Interest paid


(794)


(2)


(1,943)


(64)




Net cash from operating activities


25,949


42,922


97,528


86,686










Investing activities:










Acquisition of plant and equipment - net


(11,584)


(20,002)


(40,612)


(48,163)


Acquisition of intangible assets


(31)


(42)


(418)


(171)



(11,615)


(20,044)


(41,030)


(48,334)










Financing activities:










Dividends paid


(1,503)


(1,500)


(4,410)


(4,381)


Dividend paid to non-controlling interests in subsidiary


-


-


-


(1,277)



(1,503)


(1,500)


(4,410)


(5,658)










Change in cash and cash equivalents


12,831


21,378


52,088


32,694










Cash and cash equivalents, beginning of period


250,482


176,343


211,225


165,027










Cash and cash equivalents, end of period


263,313


197,721


263,313


197,721

 

SOURCE Winpak Ltd.

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