Packaging

Pregis Announces Fourth Quarter and Full Year 2010 Financial Results

Thursday 24. March 2011 - Pregis Corporation, a leading international manufacturer, marketer, and supplier of protective packaging products and specialty packaging solutions, today announced its 2010 fourth quarter and full year financial results.

For the fourth quarter of 2010, the Company generated net sales of $221.7 million, an increase of 4.3% versus net sales of $212.6 million in the fourth quarter of 2009. Excluding the impact of unfavorable foreign currency translation, resulting from the U.S. dollar strengthening against the euro and pound sterling on a year-over-year basis, and the sales associated with our acquisition of IntelliPack, the quarter’s net sales were higher by 7.1% compared to the prior year quarter. This sales increase was driven by increased volumes resulting from the Company’s growth initiatives and the impact of selling price increases implemented in 2010.
For the full year, 2010 net sales increased 9.0% to $873.2 million as compared to $801.2 in 2009. Excluding the impact of unfavorable foreign currency translation, and the acquisition of IntelliPack, 2010 net sales increased 9.8%, due to the impact of increased volumes resulting from the Company’s growth initiatives as well as the impact of economic recovery, along with the impact of selling price increases implemented in 2010.
Gross margin as a percent of net sales was 21.3% in the fourth quarter of 2010, compared to 22.2% in the fourth quarter of 2009. For the full year, gross margin as a percent of net sales decreased to 21.6% for 2010 compared to 23.9% for 2009. The year-over-year decline in gross margin as a percent of net sales was driven by increased key raw material costs, partially offset by year-over-year selling price increases. Full year average resin costs in North America and Europe, as measured by their respective indices, were 27% and 39% higher in 2010 as compared to 2009, respectively.
The Company generated an operating loss of $2.6 million in the fourth quarter of 2010 which compared with operating income of $2.5 million for the same quarter 2009. This decrease in operating income was primarily a result of increased key raw material costs, higher restructuring costs in our European operations as we continue to upgrade management and drive cost reduction initiatives, as well as increased depreciation expense, partially offset by year-over-year selling price increases and the impact of higher sales volumes. Adjusted EBITDA, or “Consolidated Cash Flow” as defined by our indentures, is a significant operating measure used by the Company to measure its operating performance and liquidity. Adjusted EBITDA was $18.9 million in the fourth quarter of 2010 compared to $17.9 million for the same period in 2009. The higher year-over-year Adjusted EBITDA was primarily a result of year-over-year selling price increases, the impact of higher sales volumes, and the acquisition of IntelliPack, partially offset by increased key raw material costs.
Operating income for the full year of 2010 was $2.8 million, compared to 2009 operating income of $14.9 million. This decrease in operating income was primarily due to increased key raw material costs, partially offset by the impact of higher sales volumes, the acquisition of IntelliPack, and the year-over-year impact of selling price increases. Adjusted EBITDA for full year 2010 was $76.7 million compared to $85.3 million for full year 2009. The lower year-over-year Adjusted EBITDA was primarily a result of the same drivers impacting operating income as described above.
Commenting on the Company’s results, Glenn Fischer, President and Chief Executive Officer, stated, “In the fourth quarter, we continued to drive our growth initiatives, particularly in inflatable and foam-in-place systems. However, its positive impact was more than offset by significant year-over-year increases in our key raw material costs, which were higher compared with the fourth quarter 2009 by over 24% in North America and 30% in Europe based on their respective indices. Higher key raw materials costs negatively impacted us by over $11 million in the fourth quarter and almost $42 million for full year 2010.”
Mr. Fischer continued, “Consistent with the trends throughout 2010, resin costs continued to increase in the fourth quarter in both North America and Europe and have continued to increase in the first quarter of 2011 as well. We implemented selling price increases in North America in late fourth quarter, and have implemented additional increases in the first quarter of 2011 in North America and Europe as well. Market support for these selling price increases remains mixed.”
Segment Performance
Comments on segment net sales and EBITDA performance for the fourth quarter of 2010 is as follows:
— Net sales of the protective packaging segment increased by $10.7
million, or 8.0%. This increase was driven primarily by increased
volumes resulting from the Company’s growth initiatives and the
IntelliPack acquisition, partially offset by unfavorable foreign
currency translation. Excluding the unfavorable foreign currency
translation and the IntelliPack acquisition, net sales for the fourth
quarter 2010 increased 8.2%.
— EBITDA of the protective packaging segment increased $4.1 million
compared to the same quarter of 2009. This increase was primarily due
to higher sales volumes, impact of selling price increases, and the
IntelliPack acquisition, partially offset by increased key raw material
costs.
— Net sales of the specialty packaging segment decreased $1.7 million, or
2.1% compared to the same quarter 2009. This decrease was primarily
driven by unfavorable foreign currency translation. Excluding the
unfavorable foreign currency translation, net sales for the fourth
quarter 2010 increased 5.2% year-over-year driven by higher volumes from
the Company’s growth initiatives and the impact of selling price
increases.
— EBITDA of the specialty packaging segment decreased $6.4 million
primarily due to increased key raw material costs, higher bad debt
expense, and unfavorable currency, partially offset by increased sales
volumes.
A summary of Adjusted EBITDA, a significant measure required by the Company’s indentures and used by the Company to measure its operating performance and liquidity, is presented in the supplemental information at the end of this release.
New Credit Facility
On March 23, 2011, Pregis and its subsidiaries entered into a $75 million ABL credit facility with Wells Fargo Capital Finance as Agent. The facility is subject to a borrowing base (including eligible accounts receivable and inventory) and includes a $30 million UK facility. The facility also provides for future uncommitted increases of its maximum amount, not to exceed $40 million. The facility matures on the earlier of March 22, 2016 and the date that is 90 days prior to the maturity of the existing high yield notes of Pregis Corporation (as such notes may be refinanced prior to such maturity date). The advances under the ABL credit facilities bear interest, at our option, equal to adjusted LIBOR, plus an applicable margin, or a base rate, plus an applicable margin. The applicable margin for LIBOR loans ranges from 2.5% to 3%, depending on our average quarterly excess availability. The applicable margin for the base rate loans is 100 basis points lower than the applicable margin for the LIBOR loans.
Obligations under the US facility are guaranteed by Pregis and substantially all of its US subsidiaries and are secured by a first priority security interest in substantially all of the assets (other than certain excluded property) of Pregis and its US subsidiaries and by capital stock of substantially all of Pregis’ US subsidiaries and 65% of voting stock (and 100% of the nonvoting stock) of its first-tier foreign subsidiaries. Obligations under the UK facility are guaranteed by Pregis and substantially all of its foreign and domestic subsidiaries and are secured by substantially all of the assets (other than certain excluded property) of Pregis and its foreign and domestic subsidiaries and by capital stock of substantially all of Pregis’ foreign and domestic subsidiaries. The facility contains customary representations, warranties, covenants and events of default, including monthly compliance with a “springing” fixed charge coverage ratio of 1.1 to 1.0 if the excess availability of Pregis and its subsidiaries falls below a certain level. The ABL credit facility is also subject to mandatory prepayments out of certain asset sales, insurance, and condemnation proceeds if the excess availability of Pregis and its subsidiaries falls below a certain level.