Market Overview

Glatfelter Reports Second Quarter 2018 Results

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YORK, Pa., July 31, 2018 (GLOBE NEWSWIRE) -- Glatfelter (NYSE:GLT) today reported a net loss of $7.4 million, or $0.17 per share for the second quarter of 2018 compared with a net loss of $5.7 million, or $0.13 per share in the second quarter of 2017.  On an adjusted basis, the net loss for the second quarter of 2018 was $4.3 million, or $0.10 per diluted share compared with a loss of $2.6 million, or $0.06 per diluted share, for the same period a year ago.  Net loss on an adjusted basis is a non-GAAP financial measure for which a reconciliation to the nearest GAAP-based measure is provided within this release. 

Consolidated net sales totaled $405.8 million and $387.3 million for the three months ended June 30, 2018 and 2017, respectively.  Composite Fibers' and Advanced Airlaid Materials' net sales increased by 1.5% and 11.3%, respectively, on a constant currency basis.  Specialty Papers' net sales declined 0.7% in the quarter-over-quarter comparison.

"Significantly higher input costs, and operational challenges in Specialty Papers, led to second-quarter results that were below our expectations," said Dante C. Parrini, Chairman and Chief Executive Officer.  "During the quarter, higher purchased pulp prices adversely impacted our results by $9 million.  While selling prices increased in all of our businesses, this was not sufficient to offset increases in raw material prices, particularly in Composite Fibers.  However, Advanced Airlaid Materials volume and net sales grew 6% and 16%, respectively, over last year.  The additional capacity from the new Fort Smith facility is ramping up and enabling us to meet demand from key customers who serve the growing North American wipes market."

Mr. Parrini said, "In addition to higher pulp prices, Specialty Papers' results were adversely affected by increased costs of the annual maintenance outages and cost penalties from a slower than expected restart.  However, the business unit successfully capitalized on an improving pricing environment, achieving a nearly $40 per ton increase in average selling prices compared with the first quarter of 2018.  With the maintenance outages now complete, we anticipate volumes and operating income to improve on the heels of strong industry operating rates and pricing momentum heading into the second half of the year." 

Mr. Parrini concluded, "While our second-quarter financial performance was weaker than expected, we are confident our engineered materials platform continues to represent significant opportunity for Glatfelter and value for our shareholders.  Our Advanced Airlaid Materials business is positioned to accelerate its growth as utilization of the new capacity increases.  In addition, we anticipate closing on our announced acquisition of Georgia-Pacific's European nonwovens business during the fourth quarter, pending regulatory approval.  This transaction is expected to be immediately accretive, and we look forward to adding its complementary products to our Airlaid Materials portfolio.  Composite Fibers will continue to face competitive market conditions and raw material cost challenges in the near term; nonetheless, we remain a leader in the end-markets served and continue to be optimistic about the market growth potential."

In June 2018, the Company announced a definitive agreement to purchase Georgia-Pacific's European nonwovens business, based in Steinfurt, Germany, for $185 million, subject to customary purchase price adjustments.  The facility produces high-quality airlaid products for the table-top, wipes, hygiene, food pad, and other nonwoven materials markets.  The Steinfurt facility is a state-of-the-art, 32,000-metric-ton-capacity manufacturing facility that employs approximately 220 people.

As previously announced, the Company is reviewing strategic alternatives for the Specialty Papers business.  This review is ongoing and there can be no assurance that it will result in a particular outcome.

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

       
    Three months ended June 30  
    2018     2017  
In thousands, except per share   Amount     EPS     Amount     EPS  
                                 
Net loss   $ (7,399 )   $ (0.17 )   $ (5,714 )   $ (0.13 )
Adjustments (pre-tax)                                
Costs related to strategic initiatives     2,172                        
Airlaid capacity expansion costs     1,672               2,495          
Cost optimization actions                   775          
Specialty Papers' environmental compliance                   216          
Timberland sales and related costs     (565 )             (74 )        
Total adjustments (pre-tax)     3,279               3,412          
Income taxes (1)     (354 )             (317 )        
U.S. Tax Reform     172                        
Total after-tax adjustments     3,097       0.07       3,095       0.07  
Adjusted loss   $ (4,302 )   $ (0.10 )   $ (2,619 )   $ (0.06 )

(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.

Second Quarter Business Unit Results

Composite Fibers

     Three months ended June 30  
Dollars in thousands   2018     2017     Change  
                                 
Tons shipped     40,441       41,891       (1,450 )     (3.5 )%
Net sales   $ 142,934     $ 133,137     $ 9,797       7.4 %
Operating income     13,179       14,685       (1,506 )     (10.3 )%
Operating margin     9.2 %     11.0 %                
                                 

Composite Fibers' net sales increased $9.8 million, or 7.4%, primarily due to $1.5 million from higher selling prices and $7.8 million of favorable currency translation, partially offset by lower shipping volumes.

Composite Fibers' second quarter of 2018 operating income totaled $13.2 million, a decrease of $1.5 million compared to the year-ago period.  Operating results were adversely impacted by $4.4 million of higher input costs, primarily due to significantly higher woodpulp prices, which were partially offset by efficient operations.  Currency translation favorably impacted results by $0.4 million.

Advanced Airlaid Materials

    Three months ended June 30  
Dollars in thousands   2018     2017     Change  
                                 
Tons shipped     27,005       25,507       1,498       5.9 %
Net sales   $ 72,808     $ 62,836     $ 9,972       15.9 %
Operating income     7,554       7,544       10       0.1 %
Operating margin     10.4 %     12.0 %                
                                 

Advanced Airlaid Materials' net sales increased $10.0 million in the quarter-over-quarter comparison primarily due to a 5.9% increase in shipping volumes from continued growth of personal hygiene and wipes products, $1.8 million from higher selling prices and $3.0 million favorable impact from currency translation.

Operating income for the second quarter of 2018 increased slightly in the quarter-over-quarter comparison and totaled $7.6 million.  The second-quarter 2018 operating income was impacted by $0.9 million of depreciation expense related to the investment in the Fort Smith facility.

Specialty Papers

  

 
  Three months ended June 30  
Dollars in thousands   2018     2017     Change  
                                 
Tons shipped     173,160       184,129       (10,969 )     (6.0 )%
Net sales   $ 190,031     $ 191,368     $ (1,337 )     (0.7 )%
Energy and related sales, net     945       981       (36 )     (3.7 )%
Operating loss     (20,889 )     (13,492 )     (7,397 )     54.8 %
Operating margin     (11.0 )%     (7.1 )%                
                                 

Specialty Papers' net sales decreased $1.3 million, or 0.7%, as a $4.2 million increase in selling prices was more than offset by a 6.0% decline in shipping volumes following a paper machine shutdown in the third quarter of 2017.

Specialty Papers' operating loss totaled $20.9 million in the second quarter of 2018, compared with a loss of $13.5 million in the same period a year ago.  Operating results reflect the cost of annual maintenance outages at the Chillicothe, OH and Spring Grove, PA facilities which adversely impacted results by $29.0 million compared to $22.9 million in the second quarter 2017, reflecting a broader scope of work.  In addition, this quarter's results were adversely impacted by a $6.1 million increase in raw material and energy costs, particularly purchased pulp. 

Other Financial Information

In the second quarter of 2018, the Company recorded an income tax benefit of $8.0 million on a pre-tax loss of $15.4 million.  On an adjusted pre-tax loss of $12.1 million, the income tax benefit totaled $7.8 million including a $3.1 million investment tax credit. 

2018 Year-to-Date

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

    Six months ended June 30  
    2018     2017  
In thousands, except per share   Amount     EPS     Amount     EPS  
                                 
Net income (loss)   $ (1,683 )   $ (0.04 )   $ 5,889     $ 0.13  
Adjustments (pre-tax)                                
Costs related to strategic initiatives     4,281                        
Airlaid capacity expansion costs     4,705               4,453          
Cost optimization actions                   2,788          
Specialty Papers' environmental compliance                   2,480          
Timberland sales and related costs     (1,680 )             (74 )        
Total adjustments (pre-tax)     7,306               9,647          
Income taxes (1)     (1,309 )             (999 )        
U.S. Tax Reform     (8 )                      
Total after-tax adjustments     5,989       0.14       8,648       0.19  
Adjusted earnings   $ 4,306     $ 0.10     $ 14,537     $ 0.33  

(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 $107.2 million as of June 30, 2018, and net debt was $414.0 million compared with $365.2 million at the end of 2017.  (Refer to the calculation of this measure provided in the tables at the end of this release.) 

Capital expenditures during 2018 and 2017 are summarized below:

Capital Expenditures   Three months ended
June 30
    Six months ended
June 30
 
In thousands   2018     2017     2018     2017  
                                 
Airlaid capacity expansion   $ 1,299     $ 11,871     $ 12,619     $ 21,421  
Specialty Papers' environmental compliance projects     -       4,156       -       11,850  
Normal capital expenditures     9,077       18,237       24,325       37,776  
Total capital expenditures   $ 10,376     $ 34,264     $ 36,944     $ 71,047  

Adjusted free cash flow for the six months of 2018, was $(24.3) million compared with $(9.0) million in 2017.  (Refer to the calculation of this measure provided in the tables at the end of this release.) 

Outlook

Composite Fibers' shipping volumes in the third quarter of 2018 are expected to be approximately 8% higher than the second quarter.  Selling prices as well as raw material and energy prices are expected to increase slightly.

Advanced Airlaid Materials' shipping volumes in the third quarter of 2018 are expected to be in-line with the second quarter of 2018, and selling, raw material and energy prices are expected to increase slightly.  For the full-year 2018, we anticipate shipping volumes to be 6% to 8% higher than 2017 as the ramp-up of new volumes has been delayed slightly by qualification processes.  We anticipate taking downtime in the third quarter to align supply with demand, resulting in an adverse impact to operating income of approximately $1 million.

Specialty Papers' shipping volumes in the third quarter are expected to be 8% higher than the second quarter of 2018.  Average selling prices are expected to increase by approximately $20 per ton and we expect raw material and energy prices to increase slightly.

Consolidated capital expenditures for the year are expected to be between $60 million and $62 million.

The effective tax rate on adjusted earnings is expected to be approximately 35% in the second half of 2018.

Conference Call

As previously announced, the Company will hold a conference call today at 11:00 a.m. (Eastern) 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 website at the address indicated below.  Information related to the conference call is as follows:

   
What: Glatfelter's 2nd Quarter 2018 Earnings Release Conference Call
   
When: Tuesday, July 31, 2018, 11:00 a.m. (ET)
   
Number: US dial 888.335.5539
   
  International dial 973.582.2857
   
Conference ID: 6158757
   
Webcast: http://www.glatfelter.com/about_us/investor_relations/default.aspx 
   
Rebroadcast Dates: July 31, 2018, 2:00 p.m. through August 14, 2018, 11:59 p.m.
   
Rebroadcast Number: Within US dial 855.859.2056
   
  International dial 404.537.3406
   
Conference ID: 6158757
   

Interested persons who wish to hear the live webcast should go to the website prior to the starting time to register and ensure any necessary audio software is installed.

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 Arkansas, Pennsylvania and Ohio. International operations include facilities in Canada, Germany, France, the United Kingdom and the Philippines, and sales and distribution offices in the U.S., 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
June 30
    Six months ended
June 30
 
In thousands, except per share   2018     2017     2018     2017  
Net sales   $ 405,773     $ 387,342     $ 816,420     $ 778,055  
Energy and related sales, net     944       981       2,372       2,110  
Total revenues     406,717       388,323       818,792       780,165  
Costs of products sold     385,114       358,588       748,283       694,801  
Gross profit     21,603       29,735       70,509       85,364  
Selling, general and administrative expenses     31,561       31,545       68,624       66,422  
Gains on dispositions of plant, equipment                                
  and timberlands, net     (579 )     (58 )     (2,133 )     (26 )
Operating income (loss)     (9,379 )     (1,752 )     4,018       18,968  
Non-operating income (expense)                                
Interest expense     (5,814 )     (4,476 )     (11,009 )     (8,484 )
Interest income     26       45       80       158  
Other, net     (257 )     98       (28 )     910  
Total non-operating expense     (6,045 )     (4,333 )     (10,957 )     (7,416 )
Income (loss) before income taxes     (15,424 )     (6,085 )     (6,939 )     11,552  
Income tax provision (benefit)     (8,025 )     (371 )     (5,256 )     5,663  
Net income (loss)   $ (7,399 )   $ (5,714 )   $ (1,683 )   $ 5,889  
                                 
Earnings (loss) per share                                
Basic   $ (0.17 )   $ (0.13 )   $ (0.04 )   $ 0.14  
Diluted     (0.17 )     (0.13 )     (0.04 )     0.13  
Cash dividends declared                                
 per common share   $ 0.13     $ 0.13     $ 0.26     $ 0.26  
Weighted average shares outstanding                                
Basic     43,770       43,604       43,735       43,593  
Diluted     43,770       43,604       43,735       44,449  
                                 

We adopted the provisions of Accounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07") which requires entities to present the service cost component of net periodic benefit costs in operating profit along with other employee compensation costs.  All other components of net periodic benefit costs are to be presented below the determination of operating income in "Other, net".  As a result of applying the ASU, Costs of products sold for the second quarter of 2017 was increased by $0.7 million and Selling, general and administrative expenses were reduced by $0.4 million and the offsetting net reclassification reduced Non-operating expense by $0.3 million.  The comparable amounts for the first six months of 2017 were $2.0 million, $0.7 million and $1.3 million, respectively.  The adoption of the ASU only required reclassification of amounts of net periodic benefit costs and did not impact the amount of net income reported.

   
   
Business Unit Financial Information  
(unaudited)  
   
Three months ended June 30                                                                                
Dollars in millions   Composite Fibers     Advanced Airlaid Materials     Specialty Papers     Other and Unallocated     Total  
    2018     2017     2018     2017     2018     2017     2018     2017     2018     2017  
Net sales   $ 142.9     $ 133.1     $ 72.8     $ 62.8     $ 190.0     $ 191.4     $     $     $ 405.8     $ 387.3  
Energy and related sales, net                             0.9       1.0                   0.9       1.0  
Total revenue     142.9       133.1       72.8       62.8       190.9       192.4                   406.7       388.3  
Costs of products sold     118.0       107.6       62.8       53.0       200.6       195.6       3.7       2.4       385.1       358.6  
Gross profit (loss)     24.9       25.5       10.0       9.8       (9.7 )     (3.2 )     (3.7 )     (2.4 )     21.6       29.7  
SG&A     11.7       10.8       2.4       2.3       11.2       10.3       6.3       8.1       31.6       31.5  
(Gains) losses on dispositions of plant, equipment                                                                                
  and timberlands, net                                         (0.6 )     (0.1 )     (0.6 )     (0.1 )
Total operating income (loss)     13.2       14.7       7.6       7.5       (20.9 )     (13.5 )     (9.4 )     (10.5 )     (9.4 )     (1.8 )
Non operating expense                                         (6.0 )     (4.3 )     (6.0 )     (4.3 )
Income (loss) before income taxes   $ 13.2     $ 14.7     $ 7.6     $ 7.5     $ (20.9 )   $ (13.5 )   $ (15.4 )   $ (14.8 )   $ (15.4 )   $ (6.1 )
                                                                                 
Supplementary Data                                                                                
Net tons sold (thousands)     40.4       41.9       27.0       25.5       173.2       184.1                   240.6       251.5  
Depreciation, depletion and amortization   $ 7.2     $ 7.0     $ 3.5     $ 2.3     $ 8.2     $ 7.7     $ 1.2     $ 0.7     $ 20.1     $ 17.7  
Capital expenditures     2.8       2.1       2.5       12.9       4.5       15.8       0.6       3.5       10.4       34.3  


Six months ended June 30                                                                                
Dollars in millions   Composite Fibers     Advanced Airlaid Materials     Specialty Papers     Other and Unallocated     Total  
    2018     2017     2018     2017     2018     2017     2018     2017     2018     2017  
Net sales   $ 284.5     $ 258.2     $ 142.4     $ 122.7     $ 389.5     $ 397.1     $     $     $ 816.4     $ 778.1  
Energy and related sales, net                             2.4       2.1                   2.4       2.1  
Total revenue     284.5       258.2       142.4       122.7       391.9       399.2                   818.8       780.2  
Costs of products sold     232.7       207.2       122.5       103.5       387.1       375.6       6.0       8.5       748.3       694.8  
Gross profit (loss)     51.8       51.0       19.9       19.2       4.8       23.6       (6.0 )     (8.5 )     70.5       85.4  
SG&A     23.3       21.9       5.1       4.6       23.3       23.6       16.9       16.3       68.6       66.4  
(Gains) losses on dispositions of plant, equipment                                                                                
  and timberlands, net                                         (2.1 )           (2.1 )     -  
Total operating income (loss)     28.5       29.1       14.8       14.6       (18.5 )           (20.8 )     (24.7 )     4.0       19.0  
Non operating expense                                         (11.0 )     (7.4 )     (11.0 )     (7.4 )
Income (loss) before income taxes   $ 28.5     $ 29.1     $ 14.8     $ 14.6     $ (18.5 )   $     $ (31.8 )   $ (32.1 )   $ (6.9 )   $ 11.6  
                                                                                 
Supplementary Data                                                                                
Net tons sold (thousands)     80.5       80.7       53.3       50.3       361.6       381.4                   495.4       512.4  
Depreciation, depletion and amortization   $ 14.6     $ 13.8     $ 6.3     $ 4.6     $ 16.3     $ 14.9     $ 2.3     $ 1.7     $ 39.5     $ 35.0  
Capital expenditures     7.9       6.8       15.6       23.5       11.0       34.0       2.4       6.7       36.9       71.0  

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)  
   
    Six months ended June 30  
In thousands   2018     2017  
                 
Cash Flow Data                
Cash provided (used) by:                
Operating activities   $ 38
    $ 28,764  
Investing activities     (34,628 )     (70,964 )
Financing activities     28,790       52,466  
                 
Depreciation, depletion and amortization     39,511       34,967  
Capital expenditures     36,944       71,047  


    June 30     December 31  
    2018     2017  
Balance Sheet Data                
Cash and cash equivalents   $ 107,189     $ 116,219  
Total assets     1,737,097       1,730,795  
Total debt     521,159       481,396  
Shareholders' equity     686,952       708,928  
                 

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:

  • Costs related to strategic initiatives. These adjustments primarily reflect one-time professional and legal fees incurred directly related to evaluating certain strategic initiatives.
  • 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 and implementation of a new business system.
  • 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.
  • 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.
  • U.S. Tax Reform. These adjustments reflect amounts estimating the impact of the Tax Cuts and Jobs Act ("TCJA") which was signed into law on December 22, 2017.  The TCJA includes, among many provisions, a tax on the mandatory repatriation of earnings of the Company's non-U.S. subsidiaries and a change in the corporate tax rate from 35 % to 21%.

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 Free Cash Flow   Three months ended
June 30
    Six months ended
June 30
 
In thousands   2018     2017     2018     2017  
                                 
Cash from operations   $ (7,623 )   $ 21,203     $ 38     $ 28,764  
Less: Capital expenditures     (10,376 )     (34,264 )     (36,944 )     (71,047 )
  Add back: Airlaid capacity expansion     1,299       11,871       12,619       21,421  
  Add back: Specialty Papers' environmental compliance projects           4,156             11,850  
Adjusted free cash flow   $ (16,700 )   $ 2,966     $ (24,287 )   $ (9,012 )


Net Debt   June 30     December 31  
In thousands   2018     2017  
                 
Current portion of long-term debt   $ 10,982     $ 11,298  
Long term debt     510,177       470,098  
Total     521,159       481,396  
Less: Cash     (107,189 )     (116,219 )
Net Debt   $ 413,970     $ 365,177  


 
Contacts:  
Investors: Media:
John P. Jacunski Eileen L. Beck
(717) 225-2794 (717) 225-2793

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