Business News

Schweitzer-Mauduit Announces Second Quarter 2009 Results

Thursday 06. August 2009 - Schweitzer-Mauduit International, Inc. (NYSE:SWM) ("Schweitzer-Mauduit" or "the company") today reported second quarter 2009 earnings results for the period ended June 30, 2009.

Second Quarter/Year-To-Date Financial Highlights:
— Second quarter net income of $7.1 million; $20.4 million year-to-date
— Second quarter net sales of $183.3 million; $367.4 million
year-to-date
— Second quarter adjusted EBITDA of $33.4 million (excluding
restructuring and impairment expenses); $64.1 million year-to-date
— Free cash flow of $6.1 million and $11.9 million year-to-date
— Diluted net income per share of $0.45, compared to $0.13 per share in
second quarter 2008; excluding per share restructuring and impairment
expense of $0.57 and $0.15, respectively, adjusted net income per
share of $1.02 compared to $0.28 per share in the second quarter of
2008

— Net debt decreased to $156.7 million from $167.9 at December 31, 2008

Second Quarter Operational Highlights:
— Continued strong growth in high-value products
— Expanding demand for Low Ignition Propensity (LIP) in North
America and beyond
— Growing demand for Reconstituted Tobacco Leaf (RTL) products
helped drive gains from this high-value product
— Improved operational performance, primarily from rebuilt paper machine
in France

— Achieved additional savings from ongoing cost reduction initiatives



Frederic Villoutreix, Chairman of the Board and Chief Executive Officer, commented, “Our second quarter results further build on our first quarter earnings improvement and are indicative of the successful implementation of our operating and financial strategy. We are benefiting from restructuring initiatives aimed at transforming our core manufacturing operations toward higher-value products. We drove strong results in the second quarter, exceeding our own expectations for operating profit margin gains and free cash flow.”

Mr. Villoutreix continued, “Our year-to-date performance gives us confidence in both our plan and in our ability to execute that plan. Our near term strategy will continue to focus on our ongoing transformation that better positions us to effectively manage through these uncertain economic times. We are focused on cost control, operational efficiency and the delivery of earnings growth from our high value LIP and reconstituted tobacco products. As a result of our record-level second quarter results, coupled with a less uncertain general economic outlook for the balance of the year, we now expect to achieve full-year earnings better than $3.50 per share, excluding restructuring and impairment expenses but including expected incremental operating losses ranging from $0.42 to $0.47 per share related to the closure of the Malaucene facility.”

Second Quarter 2009 Results

Net sales were $183.3 million in the three month period ended June 30, 2009, a 9% decrease over the prior-year quarter. Net sales decreased $18.7 million as a result of $19.4 million from a 15% decrease in unit sales volumes, $17.1 million in unfavorable foreign currency exchange rate impacts and $3.1 million sales losses at our Malaucene facility which is pending closure. These declines were partially offset by a $20.9 million improvement in the mix of products sold and higher average selling prices.

Operating profit was $12.0 million in the three month period ended June 30, 2009 versus an operating profit of $4.8 million in the prior-year quarter. Excluding pre-tax restructuring and impairment expenses, operating profit was $25.3 million during the second quarter of 2009 compared with $8.5 million during the second quarter of 2008. The higher operating profit was primarily due to $16.4 million from an improved mix of products sold and higher average selling prices and $6.6 million in cost saving programs and operating efficiencies. These favorable impacts were partially offset by $3.6 million in higher non-manufacturing expenses, reflecting an increase in incentive compensation accruals due to improved results as well as consulting expenses related to strategic planning activities, and $2.0 million from decreased sales volumes. Operating losses at the Malaucene facility, excluding pre-tax restructuring and impairment expenses, totaled $3.4 million during the quarter resulting in a $0.7 million negative impact on gross profit compared to the prior year quarter.

Operational Trends (Volume, Pricing and Cost)

Volume weakness throughout the quarter supports Schweitzer-Mauduit’s view of a continued challenging business environment. Schweitzer-Mauduit was able to offset the impact of the second-quarter volume decline on its financial results due to the actions of the last several years to decrease higher cost capacity, especially in the U.S. and France. Schweitzer-Mauduit’s volume decline during the quarter primarily reflects the exit of certain non-tobacco paper products in Brazil, reduced base tipping paper sales following the shutdown of the Lee Mills in the U.S. combined with decreased demand in the North American markets, especially the U.S. which was impacted by a tripling of the U.S. federal excise tax on cigarettes and cigars in April.

During the second quarter, Schweitzer-Mauduit continued to benefit from favorable pricing and currency impacts. Sales volume declines, operating losses at the company’s China joint venture and increasing losses at Malaucene are still the company’s biggest challenges for the balance of the year. Unit sales volume of tobacco-related papers declined 10%, including the impact from shifting production of certain papers to our China joint venture. This rate of volume decline is roughly in-line with Schweitzer-Mauduit’s major U.S. customers’ reported changes in units of cigarettes produced which reflects lower consumption as a result of the poor global economic conditions and tax increases. The 49% rate of LIP regulation in effect in the North American market throughout the second quarter caused a doubling of sales volume, as compared to the prior year quarter, of this high value product. Sales volume growth at the company’s new paper joint venture in China accelerated during the second quarter and Schweitzer-Mauduit expects further progress through the year. The company remains confident of the long-term success of this investment despite the continued expectation of a loss for the full year 2009.

Increases in inflationary costs of energy, labor and materials during the quarter were mostly offset by lower wood pulp costs compared to the second quarter of 2008. Despite $3.9 million in lower wood pulp costs, inflationary cost increases in total caused an overall $0.5 million negative impact on operating profit compared to the prior year.

Year-to-Date Cash Flow and Quarterly Dividend

Net cash provided by operations totaled $22.9 million for the first six months of 2009, compared with $12.3 million in the prior-year period.

Net debt at June 30, 2009, was $156.7 million compared with $167.9 million at December 31, 2008. Total debt was 34.2% of capital.

Capital spending was $4.6 million and $24.0 million during the six month periods ended June 30, 2009 and 2008, respectively. The decrease in capital spending was primarily due to expenditures of $11.0 million in the 2008 period for a paper machine rebuild. Capital spending for 2009 is now projected to range from $10 to $15 million. Other cash needs, including pension funding, employee severance payments associated with restructuring actions and capitalized software spending, are now projected to range from $25 to $30 million during 2009. Net debt is expected to decrease in the third quarter of 2009.

Schweitzer-Mauduit announced today a quarterly common stock dividend of $0.15 per share. The dividend will be payable on September 28, 2009 to stockholders of record on August 24, 2009.

Restructuring and Impairment Expenses

During April 2009, the company announced plans to close its finished tipping paper production facility in Malaucene, France. Consultations with the Work’s Council were concluded on July 22, 2009 and, as a result, management expects to reduce employment by approximately 210 people by the fourth quarter of 2009. These actions resulted in restructuring expense of $12.2 million during the second quarter of 2009 mostly related to employee severance accruals. We expect to record approximately $13 million of restructuring expenses during the remainder of 2009 related to this plan. The decision to close the Malaucene facility reflects that previous efforts to improve operating results for this location were not successful and highlights Schweitzer-Mauduit’s strategy to rationalize its global manufacturing footprint and refocus resources to achieve leading positions in core product categories that provide opportunity for competitive advantage. Following the divestiture of this finished tipping paper facility in France, all of Schweitzer-Mauduit’s focus will be on product lines that represent core technologies and in which we hold a number one or two world-wide market position.

In the second quarter, the company also recorded $1.0 million of restructuring expense related to severance accruals in connection with general staff reductions in France. In the quarters ended June 30, 2009 and 2008, the company incurred $13.3 million and $3.7 million in expenses related to all restructuring actions.