Neenah Paper increases sales 11%
Thursday, November 12, 2009
Press release from the issuing company
ALPHARETTA, Ga. -- Neenah Paper, Inc. today reported adjusted earnings, excluding special items, of $0.29 per diluted common share in the third quarter of 2009, up more than 50 percent from $0.18 per share in the third quarter of 2008 and also significantly higher than second quarter 2009 earnings.
"We continued our sequential improvement in performance in the third quarter, with sales increasing 11 percent versus the second quarter and adjusted operating income above both second quarter and levels of a year ago, which preceded the economic crisis," said Sean Erwin, Chairman and Chief Executive Officer. "Improving business conditions, benefits of more than $6 million from our cost reduction programs and lower input prices have resulted in increased profits and margins in each of our businesses. This in turn contributed to strong operating cash flows which allowed us to reduce debt by more than $15 million this quarter."
Special items excluded from the calculation of adjusted income include tax expense of $1.0 million, or $0.07 per share, in the third quarter of 2009, pre-tax restructuring costs of $18.0 million, or $0.79 per share, in the second quarter of 2009 for the closure of the Ripon Fine Paper mill, and a pre-tax gain of $3.5 million, or $0.16 per share, in the third quarter of 2008 primarily from the sale of surplus Fine Paper assets. Adjusted income is a non-GAAP measure and is reconciled to comparable GAAP measures later in this release.
Income from continuing operations was $3.4 million, or $0.23 per diluted common share, in the third quarter 2009 and $5.0 million, or $0.34 per diluted common share, in the third quarter 2008.
Quarterly Segment and Other Financial Results
Fine Paper third quarter 2009 net sales of $63.0 million increased from $61.3 million in the second quarter, but were below third quarter 2008 sales of $81.7 million. Increased sales versus the second quarter were a result of higher volumes, which reflected stabilizing market conditions. Decreased year on year sales were due to continued lower market demand for premium writing, text and cover papers.
Operating income of $9.6 million in the third quarter of 2009 compared to adjusted operating income of $8.0 million in the second quarter of 2009 and $7.5 million in the third quarter of 2008. Increased income, and operating margins which reached 15 percent in the third quarter of 2009, resulted from actions taken to reduce costs and improve efficiencies, including the shutdown of the Ripon mill in June 2009 and from lower input prices. These benefits more than offset the impact of lower volumes in 2009 compared to 2008.
Technical Products net sales were $87.1 million in the third quarter of 2009, up from $73.9 million in the second quarter but below $103.9 million in the third quarter of 2008. Sales increased versus the second quarter in virtually all product lines as market conditions improved. The decline in sales compared with prior year was primarily a result of weaker market demand across most product groups, although certain categories, including filtration and medical packaging volumes, were higher in the third quarter of 2009. Currency translation reduced sales by $3.0 million compared with the prior year period as a result of a weaker Euro in 2009.
Operating income of $5.2 million in the third quarter of 2009 increased from $3.3 million in the second quarter of 2009 and also exceeded the $4.1 million reported in the third quarter of 2008. Higher income and margins in the third quarter of 2009 were a result of savings from cost initiatives and lower input prices that combined were able to offset the impact of lower volumes and a decline in average net selling prices.
Consolidated selling, general and administrative (SG&A) expense of $18.1 million in the third quarter 2009 compared to an unusually low prior year level of $16.6 million and reflected timing and higher costs related to certain employee benefits in 2009. Unallocated corporate expense of $4.1 million in the third quarter of 2009 was similarly higher when compared with $2.9 million in the third quarter of 2008.
Net interest expense of $5.4 million in the third quarter of 2009 declined from $6.3 million in the prior year as a result of reduced debt levels and lower interest rates.
The effective tax rate for the third quarter of 2009 was 36 percent, including the previously mentioned $1.0 million of added expense primarily for interest on prior year taxes. Excluding the additional expense, the effective tax rate in the third quarter of 2009 was approximately 17 percent and compared with 17 percent in the third quarter of 2008.
Cash flow provided from operations in the third quarter of 2009 was $19.2 million. In the third quarter of 2008, cash used in operations was $(0.5) million. Operating cash flows increased in 2009 primarily as a result of changes in working capital and higher operating income. Capital spending of $1.8 million in the third quarter of 2009 was also significantly lower than $5.8 million spent in the prior year quarter. Available free cash flow was used to reduce debt, which declined by $15 million in the quarter, from $338 million at June 30, 2009, to $323 million at September 30, 2009.
Year to Date
Year-to-date net sales of $419.4 million in 2009 compared with year-to-date sales of $585.7 million in 2008. Sales in 2009 for both Fine Paper and Technical Products decreased as a result of lower volumes resulting from the global economic downturn and corresponding weaker market demand.
Operating income of $5.1 million in 2009 compared to income of $44.4 million in 2008. Income in 2009 included $17.6 million for restructuring charges associated with the May shutdown of the Ripon mill. Income in 2008 included gains of $10.7 million for sales of assets and settlement of Terrace Bay employee benefit plans. Excluding these items, year-to-date adjusted operating income was $22.7 in 2009 and $33.7 million in 2008. Lower operating income in 2009 resulted from reductions in volumes and operating schedules, particularly in the first half of the year, that were only partly offset by lower input prices, cost reduction initiatives and higher net realized selling prices.