Business News

Pregis Announces Fourth Quarter and Full Year 2008 Financial Results

Friday 27. March 2009 - Pregis Corporation, a leading international manufacturer, marketer, and supplier of protective packaging products and specialty packaging solutions, today announced its 2008 fourth quarter and full year financial results.

For the fourth quarter of 2008, the Company generated net sales of $219.6 million, a decrease of 13.4% versus net sales of $253.7 million in the fourth quarter of 2007. Excluding incremental revenue from 2007 acquisitions, as well as a $20 million impact of unfavorable foreign currency translation, as the U.S. dollar strengthened significantly against the euro and pound sterling, net sales for the quarter decreased 6.8%.

For the full year, 2008 net sales increased 4.1% to $1.019 billion as compared to $979.4 million in 2007. Excluding a $21 million impact of favorable foreign currency translation on a year-to-date basis and incremental revenue from 2007 acquisitions, 2008 net sales decreased 1.1%.

Gross profit margin, as a percent of net sales, was 20.7% in the fourth quarter of 2008, compared to 23.9% in the fourth quarter of 2007. The margin decline was primarily the result of decreased sales volumes due to weakened demand across our segments, offset in part by the impact of selling price increases implemented in the third quarter of 2008 as well the impact of our 2008 cost reduction initiatives. For the full year, our gross profit margin, as a percent of net sales, decreased to 21.6% for 2008 compared to 24.4% for 2007. The decline for the year was primarily due to increased costs of resin, fuel and other raw materials, combined with the significant decline in volumes in the latter part of the year, offset by the impact of selling price increases and cost reduction initiatives.

The Company generated an operating loss in the fourth quarter of 2008 of $12.3 million, compared to operating income of $4.9 million for the fourth quarter of 2007. The fourth quarter operating loss reflects a $19.1 million non-cash goodwill impairment charge within one of the Company’s specialty packaging businesses driven by the anticipation of a significant reduction in future revenue from a customer that had historically comprised a material portion of the reporting unit’s annual revenues. Adjusted for this goodwill impairment charge, unfavorable foreign currency translation of $1.3 million, restructuring activity of $1.5 million, and a related curtailment gain of $3.7 million, operating income for the fourth quarter of 2008 was $5.8 million. This represents a decline of approximately 34% compared to operating income of $8.8 million for the fourth quarter of 2007, also adjusted for restructuring activity of $2.8 million, a $3.1 million write-off of third party due diligence and legal costs related to a potential acquisition that was not consummated, and an unusual insurance gain of $2.0 million. The fourth quarter’s decline in earnings was driven by a reduction in sales volumes, offset in part by cost savings from the Company’s various productivity and cost reduction programs as well as favorable impact from the Company’ third quarter selling price increases.

Operating income for the full year of 2008 was $13.3 million, compared to 2007 operating income of $46.0 million. For the full year, 2008 operating income, adjusted for the aforementioned fourth quarter goodwill impairment charge of $19.1 million, favorable foreign currency translation of $2.0 million, restructuring activity of $9.3 million, and a related curtailment gain of $3.7 million, was $36.0 million. This represents a decline of approximately 27% compared to 2007 operating income of $49.2 million, also adjusted for restructuring activity of $2.9 million, a $3.1 million write-off of third party due diligence and legal costs related to a potential acquisition that was not consummated, and an unusual insurance gain of $2.8 million. For the year, the decline in earnings was driven by higher costs of resin and other raw materials through much of the year, mitigated in part by the benefit of the Company’s selling price increases and productivity and cost reduction programs.

Commenting on the Company’s results, Mike McDonnell, President and Chief Executive Officer, stated, “2008 featured some of the most challenging market conditions this industry has ever faced. Rapidly escalating raw materials costs had a significant negative impact on our performance in the first half of the year, while unprecedented economic weakness in both the North American and European economies negatively impacted us in the second half, particularly in the fourth quarter. However, despite these significant headwinds we still generated solid earnings and cash flow. We took aggressive pricing action in response to the escalating raw material costs and remain committed to maintaining pricing discipline. In addition, we successfully implemented a number of aggressive productivity and cost reduction initiatives which will benefit our business going forward.”

Mr. McDonnell continued, “We enter 2009 with the expectation that it will be a very challenging year, given the continuing economic uncertainty. Although we were very successful in 2008 in reducing costs through our various cost reduction and restructuring initiatives, we recognize that based on our 2009 outlook, additional cost reductions are required. To this point, we are implementing additional restructuring initiatives to reduce our cost structure by optimizing our manufacturing footprint and our organizational structure and operating processes. This next phase of our restructuring should be fully implemented by mid-2009. We estimate that these new initiatives should drive 2009 year-over-year savings of approximately $15 million to $20 million, which will help offset the economic weakness we believe will continue throughout 2009.”

Segment Performance

In the fourth quarter of 2008, the Company hired a new executive to manage the operations of the flexible packaging, hospital supplies and rigid packaging businesses as an integrated unit, in support of the Company’s strategy to drive synergies across these businesses. In the fourth quarter of 2008, the Company began reporting the operations of its flexible packaging, hospital supplies and rigid packaging business as one reportable segment, Specialty Packaging, to be aligned with the aforementioned changes in its internal management structure. As a result, the Company now reports two reportable segments:

— Protective Packaging – This segment manufactures, markets, sells and
distributes protective packaging products in North America and Europe.
Its protective mailers, air-encapsulated bubble products, sheet foam,
engineered foam, inflatable airbag systems, honeycomb products and
other protective packaging products are manufactured and sold for use
in cushioning, void-fill, surface-protection, containment and blocking
& bracing applications.
— Speciality Packaging – This segment provides innovative packaging
solutions for food, medical, and other specialty packaging
applications primarily in the European market.




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

— Net sales of the protective packaging segment decreased by $25.5
million, or 15.3%. The 2008 fourth quarter sales decline was driven
by a 16% volume decline attributed to the weakened economic conditions
in both the U.S. and European markets, along with unfavorable foreign
currency translation. The volume declines were partially offset by
improved pricing in the segment’s U.S. and European operations,
reflecting the benefit of selling price increases implemented in the
third quarter of 2008. Excluding the impacts of unfavorable foreign
currency effects and incremental revenue growth from acquisitions, net
sales for the segment decreased 12.1%.
— Net sales of the specialty packaging segment decreased $8.5 million,
or 9.9%. The decrease was due primarily to unfavorable foreign
currency translation. Excluding the impact of unfavorable foreign
currency, the segment’s 2008 fourth quarter net sales increased 3.0%,
driven by higher sales volumes in fresh-food flexible packaging
products, flexible films and surgical procedure packs.