Business News

Neenah Paper Reports 2010 Second Quarter Results

Wednesday 11. August 2010 - Neenah Paper, Inc. (NYSE:NP) today reported income from continuing operations in the second quarter of 2010 of $0.41 per diluted common share compared to a loss of $0.58 per share in the second quarter of 2009. Prior year results included a charge of $0.79 per share associated with closing the company’s Ripon, California fine paper mill.

Net sales of $168.6 million in the second quarter of 2010 increased 25 percent compared to the second quarter of 2009, with double-digit growth in both the Technical Products and Fine Paper segments. Consolidated operating income of $13.7 million in the second quarter of 2010 compared to an operating loss of $10.5 million in the prior year. Excluding charges of $18.0 million in 2009 for the Ripon mill closure, operating income in the second quarter of 2010 increased more than 80 percent from the prior year.

Commenting on results, Sean Erwin, Chairman and Chief Executive Officer, said “We were very pleased with results again this quarter. Our operating performance continues to reflect the success of our teams in executing strategies to grow our top and bottom line, as well as improved business conditions. Increased sales, along with actions we’ve taken to implement a leaner cost structure, have resulted in a significant improvement in income despite higher prices for pulp and other input costs. These higher profits, coupled with working capital efficiencies and modest capital spending, allowed us to further reduce debt and raised our year-to-date return on capital more than 10 percent.”

Quarterly Segment and Other Financial Results

Technical Products net sales of $99.7 million in the second quarter of 2010 increased 35 percent compared to $73.9 million in the second quarter of 2009. Sales increased across all products groups, with filtration achieving a quarterly sales record. Sales were also up significantly for tape and abrasives, as demand from key global customers increased as a result of improved economic conditions in 2010. Average net prices in 2010 were higher, reflecting an improved mix of more advanced higher value products and increased selling prices. The increase in sales from higher volumes and price/mix was only partly offset by a weaker Euro, which reduced sales in 2010 by approximately $4 million, or four percent.

Operating income was $8.5 million in the second quarter of 2010 and compared to $3.3 million in the prior year period. The improvement in operating income and margins resulted from increased volumes and operating efficiencies and higher average selling prices. These items offset approximately $6 million of higher manufacturing input costs, primarily for pulp and latex.

Fine Paper second quarter 2010 net sales of $68.9 million grew 12 percent compared to $61.3 million in 2009. The increased sales resulted from a nine percent growth in shipments and higher net selling prices. Volume growth reflected improved economic conditions, as well as good performance in premium branded products and increased sales to international customers and in targeted new markets.

Operating income was $9.2 million in the second quarter of 2010 and increased $19.2 million from a $10.0 million operating loss in the second quarter of 2009. Excluding charges of $18.0 million related to the 2009 closing of the Ripon mill, operating income increased $1.2 million, or 15 percent, from the prior year. The higher profits were achieved despite a $4 million increase in pulp costs and additional expense to increase reserves for bad debts as a result of a customer bankruptcy. Benefits from increased volume, higher selling prices and a more efficient cost structure combined to offset these cost increases.

Consolidated selling, general and administrative (SG&A) expense was $18.7 million in the second quarter of 2010 and increased $2.1 million compared to the prior year period as a result of the increase in bad debt reserves and higher spending associated with sales growth. Unallocated corporate expense of $4.0 million for the three months ended June 30, 2010 was $0.2 million higher than the prior year.

Net interest expense of $5.0 million in the second quarter of 2010 was $0.3 million less than the prior year, due to lower average debt levels in 2010. Interest expense was $0.7 million less than the first quarter of 2010 due to reduced debt of approximately $80 million following the March 2010 sale of the Company’s remaining timberlands.

The effective tax rate was 28 percent for the second quarter of 2010 and compared to a rate of 46 percent in the second quarter of 2009. The 2009 second quarter rate was higher as a result of the impact of the Ripon mill closure.

Cash flow provided from operations was $14.4 million in the second quarter 2010 and compared to $5.8 million in the second quarter of 2009. Increased cash flow in 2010 was primarily a result of higher earnings. Capital spending was $2.4 million in the second quarter of 2010 and $1.4 million in the second quarter of 2009. Available free cash flow was used to pay down debt and increase cash.

Net debt as of June 30, 2010 was $211 million, consisting of debt of $243 million less cash and cash equivalents of $32 million. Net debt decreased from $333 million in the second quarter of 2009 as a result of using cash generated from operations and proceeds from the March 2010 sale of timberlands to pay down debt. Net debt decreased from $223 million as of March 31, 2010 as cash flows generated in the current quarter were also used to reduce net debt.

Year to Date

Net sales of $335.9 million in 2010 increased 25 percent from sales of $269.3 million in 2009. Sales in both Fine Paper and Technical Products increased in 2010 due to higher volumes, which reflected improved market conditions in 2010.

Operating income of $30.1 million in 2010 increased $35.7 million compared with an operating loss of $5.6 million in 2009. Excluding charges for the Ripon mill closure, operating income increased $17.7 million in 2010 as a result of increased volumes and operating efficiencies, an improved cost structure, higher selling prices and a more favorable mix that combined were able to offset the impact of higher manufacturing input costs.

Cash flow from operations was $28.7 million in 2010 and compared to $35.2 million in the prior year. Cash flow in 2009 included $23.5 million from a decrease in working capital, of which $10.9 million was a refund received for U.S. income taxes. In 2010, working capital increased $2.8 million as a result of higher sales. Excluding changes in working capital, year-to-date cash from operations increased $19.8 million in 2010.

Capital spending was $4.7 million and compared to $4.2 million in the prior year period.

A reconciliation of adjusted income measures to GAAP income measures for the three- and six-month periods ending June 30 are shown below:

Continuing Operations Second Quarter Year to Date
2010 2009 2010 2009
Operating Income (Loss) $ 13.7 $ (10.5 ) $ 30.1 $ (5.6 )
Restructuring Charge – 18.0 – 18.0
Adjusted Operating Income $ 13.7 $ 7.5 $ 30.1 $ 12.4

Income (Loss) $ 6.3 $ (8.6 ) $ 13.6 $ (9.3 )
Restructuring Charge – 11.6 – 11.6
Adjusted Net Income $ 6.3 $ 3.0 $ 13.6 $ 2.3

Diluted Earnings (Loss) per Share $ 0.41 $ (0.58 ) $ 0.88 $ (0.63 )
Restructuring Charge – 0.79 – 0.79
Adjusted Diluted Earnings per Share $ 0.41 $ 0.21 $ 0.88 $ 0.16

Diluted Shares 15,527 14,652 15,367 14,651
Discontinued Operations

For the six months ended June 30, 2010, net income from discontinued operations of $134.6 million resulted primarily from the sale of the timberlands and the reclassification of foreign currency translation gains from accumulated other comprehensive income into earnings, following the company’s substantially complete liquidation of its Canadian investments. Net income for the first six months of 2009 was less than $0.1 million.