ALPHARETTA, Ga. - Neenah Paper, Inc. (NYSE: NP) today reported 2014 second quarter results. 

Second Quarter Highlights

• Record quarterly sales, operating income, E.P.S. and cash flow.
• Consolidated sales increased 9 percent, with 7 percent volume growth.
• Earnings per diluted common share increased 14 percent, from $0.77 to $0.88, and adjusted earnings up similarly, from $0.80 to $0.90. Adjusted earnings exclude $0.02 per share in 2014 for restructuring and acquisition related costs and $0.03 per share in 2013 for debt refinancing, restructuring/integration costs and a pension settlement charge.  
• Free cash flow (cash from operations less capital spending) of $32 million.
• Announced second dividend increase for 2014 and renewed share buyback program.
• Acquired Crane Technical Materials on July 1, 2014 for a cash payment of $72 million.

"Adjusted earnings" is a non-GAAP measure and used to improve comparability of year-on-year results. Adjusted figures are reconciled to GAAP later in this release.

"Our businesses performed well in the second quarter, with impressive volume-based revenue increases in both segments that generated double digit earnings growth and significantly increased cash flow. These results were anchored by continued success in our core businesses and boosted by meaningful progress in targeted defensible, growing niches," said John O'Donnell , Chief Executive Officer. "Our balance sheet remains strong and we'll continue to optimize capital deployment among high-returning organic investments, value-adding acquisitions and direct cash returns to shareholders through an attractive dividend."

Quarterly Consolidated Results

Income Statement

Net sales of $230.4 million in the second quarter of 2014 grew 9 percent compared with $212.3 million in the second quarter of 2013 as Technical Products revenues increased 10 percent and Fine Paper revenues grew 7 percent. Sales growth in 2014 resulted primarily from higher volumes, as well as favorable currency translation and increased net selling prices.  

Consolidated selling, general and administrative (SG&A) expense was $20.4 million in the second quarter of 2014 compared with $19.2 million in the second quarter 2013. The increase was primarily related to differences in timing of certain expenses between years.   

Operating income of $25.9 million in the second quarter of 2014 grew 15 percent compared with $22.6 million in the second quarter of 2013. Higher income resulted from top-line growth and increased margins that more than offset higher input and other costs.

Net interest expense of $2.9 million in the second quarter of 2014 decreased from $3.1 million in the second quarter of 2013 as a result of lower average interest rates following the refinancing of the Company's Senior Notes in May 2013.  

The effective income tax rate of 35 percent in the second quarter of 2014 compared with 34 percent in the second quarter of 2013.

Cash Flow and Balance Sheet

Cash provided from operations in the second quarter of 2014 was $37.1 million compared with $27.6 million generated in the second quarter of 2013. Increased cash generation in 2014 resulted primarily from increased earnings and reductions in working capital. 

Capital spending of $4.8 million in the second quarter of 2014 compared with $5.0 million in the prior year period. Full year spending in 2014 is projected to be approximately $30 million.

Debt as of June 30, 2014 was $193.5 million compared to $205.0 million as of March 31, 2014 and compared with $211.9 million as of December 31, 2013. Cash and equivalents as of June 31, 2014 were $92.3 million, compared with $77.2 million as of March 31, 2014 and $73.4 million as of December 31, 2013.

Cash flows in the second quarter of 2014 were used to reduce debt, build cash and pay quarterly dividends. On July 1, 2014, approximately $72 of cash on hand was used to finance the purchase of Crane Technical Materials.

Quarterly Segment Results

Technical Products net sales of $116.9 million in the second quarter of 2014 increased 10 percent compared with prior year sales of $105.8 million. The higher sales resulted from an 8 percent increase in volume and favorable currency translation effects of 3 percent, partly offset by slightly lower net prices. Sales grew in all product groups, with filtration up 9 percent, backings up 9 percent and specialties up 13 percent. Volumes benefitted from share gains and improved economic conditions.

Operating income for Technical Products of $13.2 million in the second quarter of 2014 increased 11 percent compared with $11.9 million in the second quarter of 2013. The higher income in 2014 resulted primarily from sales growth. In 2014, operating income included approximately $0.5 million for restructuring costs. Excluding these costs, operating income in 2014 increased 15 percent versus 2013.   

Fine Paper net sales were $106.6 million in the second quarter of 2014, up 7 percent compared with $100.0 million in the prior year. Sales growth in 2014 resulted from a 6 percent gain in volume and slightly higher net selling prices. Volume growth reflected increases in core premium brands as well as very strong growth in targeted growth areas including premium packaging, digital grades and international sales.         

Operating income of $17.3 million in the second quarter of 2014 increased 12 percent compared with $15.5 million in the prior year. The higher income in 2014 resulted from increased sales and lower selling and administrative costs that combined offset higher manufacturing costs, including more than $1 million of higher input costs.    

Unallocated Corporate and Other includes unallocated corporate costs and results from acquired non-premium paper grades. Unallocated corporate costs in the second quarter of 2014 were $4.5 million compared with $4.2 million in prior year period. In 2014, costs included $0.2 million related to the acquisition of Crane Technical Materials. In 2013 costs included $0.7 million for debt refinancing, integration/restructuring costs and a pension settlement charge. 

Sales of Other non-premium paper grades were $6.9 million in 2014, with an operating loss of $0.1 million compared with 2013 sales of $6.5 million and an operating loss of $0.6 million.

Year to Date

Year-to-date net sales of $455.5 million in 2014 increased 7 percent compared with $425.5 million in 2013. The increased revenues resulted from a 10 percent gain in Technical Products sales, reflecting volume growth across all product categories and favorable currency translation, and a four percent increase in Fine Paper, due to increased volumes and higher net selling prices.

Operating income of $48.9 million in 2014 increased 9 percent compared with $44.8 million in 2013 and resulted from growth in sales volume, higher average selling prices and favorable currency translation. These items more than offset approximately $6 million of higher input costs, primarily due to higher energy costs for Fine Paper in the first quarter of 2014.

Net Income from continuing operations was $28.2 million in 2014 compared with $24.9 million in 2013. Increased income in 2014 resulted primarily from higher operating income. Year to date earnings per diluted common share of $1.66 increased 10 percent from $1.51 in 2013. After excluding costs for restructuring and acquisitions in 2014, and costs for debt refinancing and pension settlement charges in 2013, adjusted earnings per share increased nine percent to $1.69 in 2014, compared with $1.55 in the prior year. 

Cash provided by operating activities of $51.9 million for the six months ended June 30, 2014 was $21.9 million higher than the prior year period.  The favorable comparison was primarily due to improved working capital efficiencies and higher earnings from continuing operations.

Year-to-date capital spending of $9.1 million compared with $9.7 million in the prior year.

Full Release