Business News

Pregis Announces Second Quarter 2008 Financial Results

Thursday 14. August 2008 - Pregis Corporation, a leading international manufacturer, marketer, and supplier of protective packaging products and specialty packaging solutions, today announced its financial results for the second quarter of 2008.

The Company’s net sales in the second quarter were $275.2 million, an increase of 13.9% over net sales of $241.5 million in the second quarter of 2007. Excluding the impact of favorable foreign currency translation and the revenues from two acquisitions made in the second half of 2007, the quarter’s net sales increased 1.6% compared to the prior year quarter.

Gross profit margin, as a percent of net sales, was 21.4% in the second quarter of 2008, compared to 25.1% in the second quarter of 2007. The decline in gross margin is largely a result of significantly increased costs of resin, fuel and other raw materials in the 2008 period, which approximated $10 million of unfavorability compared to the second quarter of 2007. Resin costs for North America as measured by the CMAI index were 31% higher than costs in the first half of 2007.

Commenting on the Company’s results for the second quarter, Mike McDonnell, President and Chief Executive Officer, stated, “Our results continue to be negatively impacted by economic weakness in North America and Europe as well as by escalating raw material and fuel costs. We continue to aggressively raise selling prices to offset the cost increases. While we have had some success in achieving price increases, they have not been sufficient to offset the increased costs. As such, we have announced additional selling price increases for the third quarter of over 20% for North America and over 10% for the European market. In these times of unprecedented raw material and fuel cost inflation, we are striving to realize the full amount of the third quarter price increases with minimal lag in order to restore our margins. In addition, we are committed to further price increases to offset the impact of additional commodity cost inflation as well as recover the significant cost increases absorbed in the first half of this year.”

Mr. McDonnell continued, “In addition to aggressively increasing selling prices, we are driving significant productivity and cost reduction initiatives. During the second quarter, we implemented a company-wide restructuring program, which is in addition to the overhead reduction initiatives which we implemented at the end of last year and the first quarter of this year. The restructuring program is well underway and we will begin to see the impact from the program in the second half of this year. Our quarter’s results reflect $2.6 million of pre-tax severance charges related to these programs, and we expect to incur additional pre-tax severance charges of approximately $2.1 million over the remainder of 2008. We expect these programs to generate annual savings in excess of $20 million.”

For the second quarter of 2008, operating income was $7.3 million compared to $14.2 million in the second quarter of 2007, with the reduction driven primarily by increased raw material and fuel costs as well as the $2.6 million restructuring charge relating to the Company’s various cost reduction initiatives.

For the six month period, net sales grew to $534.5 million, an 11.2% increase compared to net sales of $480.5 million for the comparable 2007 period. Excluding the impact of favorable foreign currency translation and revenues from two acquisitions made in the second half of 2007, net sales for the six months of 2008 were relatively flat compared to the prior year period. Gross profit margin declined to 21.7% for the 2008 six month period compared to 25.3% for the 2007 period, also due primarily to the increased costs of resin, fuel and other raw materials, which approximated $20 million of unfavorability in the year-to-date period.

Segment Performance

Comments on segment net sales performance for the second quarter of 2008 are as follows:

— Net sales of the protective packaging segment increased by
$23.8 million, or 15.4%. The 2008 second quarter sales growth was
driven by favorable foreign currency translation, as well as the
incremental sales generated by the Petroflax and Besin entities
acquired in the second half of 2007. The segment also achieved pricing
improvement, primarily from price increases implemented in the U.S.
businesses in the first quarter as well as modest volume growth.
Excluding the impact of favorable foreign currency effects and
acquisitions, net sales for the segment increased 2.1%.
— Net sales of the flexible packaging segment increased $7.0 million, or
15.8%. The segment’s increase in sales volume was partially offset by
unfavorable product mix as a greater portion of the sales volume was
lower priced unprinted films. Excluding the impact of favorable
foreign currency, 2008 net sales for the segment increased 1.0%.
— Net sales of the hospital supplies segment increased $3.4 million, or
18.5%, driven by growth in procedure packs as well as the segment’s
geographic expansion efforts, partially offset by price erosion
resulting from the competitive market environment. Excluding the
impact of favorable foreign currency effects, net sales for the segment
increased 2.2% in the quarter.
— Net sales of the rigid packaging segment increased $0.5 million, or
2.3%. Excluding the impact of unfavorable foreign currency effects in
the quarter, net sales for the segment increased 3.1% in the quarter,
due mainly to higher sales volume of films and thermoformed products,
partially offset by price erosion resulting from the competitive market
environment.

A summary of a significant measure required by the Company’s indentures is presented in the supplemental information at the end of this release.