Consumables

Glatfelter Reports Strong Second Quarter 2012 Results

Wednesday 01. August 2012 - - Adjusted earnings per share increased 71% -

Glatfelter (NYSE: GLT) today reported 2012 second quarter adjusted earnings of $5.3 million, or $0.12 per diluted share, compared with $3.1 million, or $0.07 per diluted share, in the 2011 second quarter. On a GAAP basis, second quarter 2012 net income totaled $13.4 million, or $0.31 per share, compared with $2.5 million, or $0.05 per share, in the second quarter of 2011. Consolidated net sales in the second quarter of 2012 totaled $384.7 million, a decrease of 3.3 percent from the second quarter of 2011.
“Despite the difficult, global macroeconomic conditions, we are pleased to report another quarter of strong earnings, with adjusted earnings per share increasing 71 percent compared with a year ago,” said Dante C. Parrini, chairman and chief executive officer. “Our second quarter results reflect the strategic benefits of our diversified and balanced business portfolio. The strong North American market positions across each of our businesses coupled with the success of our ongoing continuous improvement initiatives and stringent cost control more than offset the impact of the generally weak European economy. Our results also reflect the benefits from our share repurchase program and debt refinancing undertaken late last year which are contributing to year-over-year earnings-per-share growth.”
Mr. Parrini continued, “With current economic conditions expected to persist, particularly in Europe, we will remain focused on operational excellence, accelerating our continuous improvement initiatives and improving the product solutions we deliver to our customers. I expect this will allow us to continue to generate healthy earnings and cash flows in the second half of the year.”
Adjusted earnings is a non-GAAP measure that excludes from the Company’s GAAP-based results certain non-core business items. The following table sets forth a reconciliation of results determined in accordance with accounting principles generally accepted in the United States of America to non-GAAP adjusted earnings discussed herein:


For the three months ended June 30
2012 2011
In thousands, except per share
After tax
income
Diluted EPS
After tax
income
Diluted EPS

Net income $ 13,432 $ 0.31 $ 2,501 $ 0.05
Conversion of Alternative fuel mixture/Cellulosic
biofuel credits (4,440 ) (0.10 ) – –
Timberland sales and related costs (3,696 ) (0.08 ) 69 –
Acquisition and integration related costs – – 518 0.01
Adjusted earnings $ 5,296 $ 0.12 $ 3,088 $ 0.07
The sum of individual per share amounts set forth above may not agree to adjusted earnings per share due to rounding.
Second-Quarter Business Unit Results
Specialty Papers


For the three months ended June 30
Dollars in thousands 2012 2011 Change

Tons shipped 186,797 191,763 (4,966 ) (2.6 )%
Net sales $ 214,113 $ 216,708 $ (2,595 ) (1.2 )%
Energy and related sales, net 1,630 2,060 (430 ) (20.9 )%
Operating income (loss) 4,244 (92 ) 4,336 –
Operating margin 2.0 % –
t by a $2.6 million benefit from higher selling prices.
During the second quarters of 2012 and 2011, the Company completed annually scheduled maintenance outages at its Chillicothe, OH and Spring Grove, PA facilities. The outages adversely impacted operating income by $19.9 million in the second quarter of 2012, compared with $20.6 million in the same quarter a year ago.
Specialty Papers’ 2012 second quarter operating income increased by $4.3 million compared with the 2011 second quarter due to the benefit from higher selling prices, $2.0 million from lower raw material and energy prices, and $1.9 million from continuous improvement initiatives and production efficiencies. These factors were partially offset by $1.6 million of higher selling, general and administrative costs primarily related to corporate support services and incentive compensation.
Composite Fibers


For the three months ended June 30
Dollars in thousands 2012 2011 Change

Tons shipped 22,975 22,938 37 0.2 %
Net sales $ 108,625 $ 116,372 $ (7,747 ) (6.7 )%
Operating income 7,916 9,250 (1,334 ) (14.4 )%
Operating margin 7.3 % 7.9 %
Composite Fibers’ net sales decreased $7.7 million, or 6.7 percent, primarily due to the translation of foreign currencies which unfavorably impacted the comparison by $9.4 million while selling prices were substantially unchanged.
Composite Fibers’ second-quarter 2012 operating income decreased by $1.3 million primarily due to the negative impact from foreign currency translation totaling $1.3 million. Operating results were also negatively impacted by an aggregate $0.9 million due to start-up costs associated with the completion of machine upgrades at two facilities as well as costs associated with intermittent, external power supply interruptions at one of its facilities. The business unit was able to offset the impact of these factors with benefits from ongoing continuous improvement initiatives.
Advanced Airlaid Materials

For the three months ended June 30
Dollars in thousands 2012 2011 Change

Tons shipped 22,730 22,281 449 2.0 %
Net sales $ 61,955 $ 64,904 $ (2,949 ) (4.5 )%
Operating income 4,614 3,727 887 23.8 %
Operating margin 7.4 % 5.7 %

On a year-over-year basis, Advanced Airlaid Materials’ net sales decreased $2.9 million or 4.5 percent primarily due to a $4.3 million unfavorable impact from the translation of foreign currencies. Volumes shipped increased 2.0 percent and average selling prices declined slightly in the comparison.
Second-quarter 2012 operating income increased $0.9 million, or 23.8 percent, compared with the year ago quarter primarily due to a $2.0 million benefit from lower raw material and energy costs partially offset by $0.8 million from unfavorable foreign currency translations.
Other Financial Information
Pension expense totaled $2.7 million and $1.6 million for the second quarters of 2012 and 2011, respectively. Since the Company’s qualified plan remains overfunded, a cash contribution is not required to be made in 2012.
Interest expense declined $2.3 million in the year-over-year comparison primarily reflecting the redemption of $100.0 million of 7 1/8 percent bonds at the end of 2011. For the second quarter of 2012, interest expense totaled $4.2 million compared with $6.5 million in the year ago quarter.
The Company completed the sale of 3,345 acres of Pennsylvania timberlands during the second quarter of 2012 and realized a $6.4 million pre-tax gain. Aggregate cash proceeds totaled $6.6 million after closing costs.
In March 2010, the Company was approved by the Internal Revenue Service to be registered as a producer of cellulosic biofuel under the Internal Revenue Code. The cellulosic biofuel credit was equal to $1.01 per gallon of black liquor produced in its operations during 2009. In the second quarter of 2012, the Company made the decision to convert certain of the previously utilized refundable alternative fuel mixture credits, which were equal to $0.50 per gallon, to the non-refundable cellulosic biofuel credit and intends to amend its 2009 federal income tax return to claim the credit for a portion of the black liquor gallons produced in 2009. This resulted in a net benefit to income taxes in the second quarter of 2012 of $4.4 million.
In the second quarter of 2012, the Company recorded an income tax provision of $2.1 million on adjusted pre-tax earnings resulting in an effective tax rate of 28.0 percent. In the comparable quarter a year ago, the Company recorded an income tax benefit of $2.8 million on adjusted pre-tax earnings of $0.3 million. The 2011-second quarter income tax benefit was primarily due to the favorable resolution of certain foreign tax audits, partially offset by adjustments to the carrying value of deferred taxes in connection with changes in state tax laws.
2012 First-Half Results
For the first six months of 2012, on a GAAP basis, the Company reported net income of $32.3 million or $0.74 per diluted share, compared with $19.9 million or $0.43 per diluted share in the same period of 2011. The results of operations for both periods include the impact of significant unusual and non-recurring items. The following table sets forth a reconciliation of results determined on a GAAP basis to adjusted earnings:
xx
The sum of individual per share amounts set forth above may not agree to adjusted earnings per share due to rounding.
Consolidated net sales for the first half of 2012 were $782.0 million, a 1.6 percent decrease compared with $794.8 million for the same period of 2011, primarily reflecting unfavorable foreign currency translations.
Balance Sheet and Other Information
Capital expenditures totaled $30.6 million in the first half of 2012, including $7.3 million for the Composite Fibers capacity expansion project. For the full year 2012, capital expenditures are estimated to be $90 million to $95 million, including approximately $30 million of the $50 million investment to expand Composite Fibers’ capacity scheduled to be completed in the first quarter of 2013.
Cash and cash equivalents totaled $23.4 million as of June 30, 2012, and net debt was $194.6 million, compared with $188.7 million at the end of 2011.
Free cash flow (cash provided by operations less capital expenditures) was $(2.1) million for the first six months of 2012 compared with $20.4 million for the first six months of 2011. Free cash flow in 2011 included $17.8 million related to cellulosic biofuel production credits. (Refer to the calculation of these measures provided in this release.)
In May 2012, the Company announced a two-year, $25 million share buyback program authorized by its Board of Directors. Through June 30, 2012, the Company repurchased approximately 172 thousand shares of common stock for approximately $2.6 million.
Outlook
For Specialty Papers, the Company expects shipping volumes to increase by approximately 5 percent in the third quarter of 2012 compared with the second quarter of 2012. The impact of selling price increases announced earlier in the year is expected to slightly outpace overall input cost increases compared to the second quarter. During the second quarter the business completed its annual maintenance outages at a cost of $19.9 million. For the third quarter, maintenance spending is expected to be approximately $2.5 million higher than normal quarterly rates due to ongoing initiatives to enhance this business unit’s machine reliability and operating efficiencies.
The Company anticipates Composite Fibers’ shipping volumes to be slightly higher in the third quarter compared to the second quarter while selling prices and input costs are expected to be generally in line with the second quarter of 2012. In addition, start-up issues associated with two machine upgrades completed in the first half of 2012 are expected to be resolved during the third quarter and cost control measures are expected to benefit results.
Shipping volumes for the Advanced Airlaid Materials business unit in the third quarter of 2012 are expected to be slightly higher than the second quarter of 2012, while selling prices and input cost are expected to be in-line with the second quarter. The Company expects ongoing benefits from its continuous improvement initiatives.