Business News

Neenah Paper Reports 2010 Third Quarter Results

Thursday 04. November 2010 - Neenah Paper, Inc. (NYSE:NP) today reported a 30 percent increase in income from continuing operations in the third quarter of 2010. Earnings per diluted common share of $0.30 in the third quarter of 2010 compared to earnings of $0.23 per share in the third quarter of 2009. Net sales of $161.5 million in the third quarter of 2010 rose eight percent compared to the third quarter of 2009, while consolidated operating income of $11.7 million in the current quarter increased nine percent compared to $10.7 million in the third quarter of 2009.

Commenting on results, Sean Erwin, Chairman and Chief Executive Officer, said “We are pleased with our performance again this quarter. Our businesses are executing well, with volume growth above market rates, an improved product mix and continued cost reductions. The success of these efforts is seen in our ability to grow earnings and expand margins this quarter, overcoming an $11 million year-on-year impact from record high pulp prices. Our strong business performance and cash flow generation resulted in further declines in net debt, which is now 34 percent below the beginning of the year.”

Quarterly Segment and Other Financial Results

Technical Products net sales of $94.8 million in the third quarter of 2010 increased nine percent compared to $87.1 million in the third quarter of 2009. Sales volumes were up six percent, led by growth in abrasive, graphics and identification and wall covering products. Increased average selling prices reflected an improved mix of more advanced, higher value products and price increases implemented over the past year. Partly offsetting the benefits of higher volumes and prices was a weaker Euro, which reduced third quarter sales in 2010 by approximately $6 million, or seven percent.

Operating income was $7.0 million in the third quarter of 2010, an increase of 35 percent from $5.2 million in the prior year period. The improvement in both operating income and margins resulted from increased volumes and operating efficiencies and higher average selling prices, including benefits from the more favorable mix. These items combined to offset more than $7 million of higher input costs in 2010, primarily for pulp and latex, as well as costs for scheduled maintenance downs.

Fine Paper third quarter 2010 net sales of $66.7 million grew six percent compared to $63.0 million in 2009. The increase in sales resulted from both a three percent increase in volumes and higher net selling prices. Sales reflected continued increases in core premium branded products and double-digit gains in targeted growth markets, including international, labels and luxury packaging.

Operating income was $8.7 million in the third quarter of 2010 compared to $9.6 million in the prior year. Operating income decreased nine percent in 2010 as benefits from higher selling prices, volumes and a more efficient cost structure did not fully offset more than $5 million of increased manufacturing input costs, primarily for pulp.

Consolidated selling, general and administrative (SG&A) expense was $16.6 million in the third quarter of 2010 and decreased $1.5 million compared to the prior year period. The lower expense in 2010 resulted from cost reduction initiatives as well as timing of expenses. Unallocated corporate expense of $4.0 million in the third quarter of 2010 compared to $4.1 million in the prior year.

Net interest expense of $4.8 million in the third quarter of 2010 was $0.6 million less than the prior year period, due to lower average debt levels in 2010.

The effective tax rate was 32 percent for the third quarter of 2010 compared to a rate of 36 percent in the third quarter of 2009.

Cash flow provided from operations was $13.7 million in the third quarter of 2010, consistent with the first and second quarters of 2010, but below $19.2 million in the third quarter of 2009. Cash flow was higher in 2009 as a result of declines in working capital in that year. Capital spending was $6.2 million in the third quarter of 2010 and $1.8 million in the third quarter of 2009.

Net debt as of September 30, 2010 was $208 million, consisting of debt of $247 million less cash and cash equivalents of $39 million. Net debt decreased by $110 million from $318 million in the third quarter of 2009 as a result of using proceeds from the March 2010 sale of timberlands and cash generated from operations to reduce debt.

Year to Date

Net sales of $497.4 million in 2010 grew 19 percent from $419.4 million in 2009. The $78.0 million increase in year-to-date sales in 2010 was due to higher volumes in both segments, which reflected improved market conditions and increased net selling prices resulting from both price increases and a higher value mix.

Operating income of $41.8 million in 2010 compared to $5.1 million in 2009. Operating income in 2009 included a charge of $17.6 million related to the May 2009 closure of the fine paper mill in Ripon, California. Excluding charges for the Ripon mill closure, operating income increased $19.1 million, or more than 80 percent, in 2010 as a result of increased volumes, cost improvements and higher selling prices, which combined were more than able to offset approximately $23 million of higher input costs.

Cash flow provided from operating activities through September 2010 was $42.4 million, a reduction of $12.0 million compared to $54.4 million in the prior year. Cash flows in 2009 included a $32 million reduction in working capital as a result of lower inventory and receivables levels following the economic crisis, as well as a $10.9 million refund received for U.S. income taxes. Excluding working capital changes, cash from operations increased $19.7 million in 2010 primarily due to increased operating earnings.

Year-to-date capital spending in 2010 of $10.9 million compared to $6.0 million in the prior year period when spending was restricted during the economic crisis.

Discontinued Operations

For the nine months ended September 30, 2010, income from discontinued operations was $134.0 million, primarily from a gain on the sale of timberlands and commensurate reclassification of foreign currency translation gains from accumulated other comprehensive income into earnings, following the company’s substantially complete liquidation of its Canadian investments in March 2010. Losses from discontinued operations for the first nine months of 2009 were $0.2 million.