Consumables

Neenah Paper Reports 2014 First Quarter Results

Thursday 08. May 2014 - Sales increase 6% to a record $225 million with adjusted E.P.S. of $0.79

Neenah Paper, Inc. (NYSE: NP) today reported 2014 first quarter results.
First Quarter Highlights
Net sales increase 6 percent to a record $225 million behind gains in both segments.
Technical Products delivers volume-driven sales growth of 10 percent with 41 percent increase in earnings.
Fine Paper top line grows 2 percent although earnings lower due to a spike in energy prices resulting from severe U.S. winter weather.
Adjusted earnings per diluted share of $0.79 up 7 percent from $0.74 in the prior year. Including $0.01 per share in both periods for integration and restructuring costs, GAAP earnings from continuing operations increase from $0.73 to $0.78 per share.
Free cash flow of $11 million used for debt reduction, cash build and to support increased dividend levels in 2014.
“Adjusted earnings” is a non-GAAP measure and is used to improve comparability of year-on-year numbers. Adjusted figures are reconciled to comparable GAAP figures later in this release.
“We started the year very well, as our global Technical Products business delivered a record quarter anchored by strong volume growth across all product groups and improved manufacturing performance. In Fine Paper, we offset more than half of $5 million of mostly energy-related higher input costs through operational efficiencies and a top line that reflected good performance in core brands, double-digit growth in luxury packaging and higher selling prices,” said John O’Donnell, Chief Executive Officer. “Our earnings coupled with improved working capital efficiencies boosted quarterly cash flows by $13 million versus last year and increased returns on invested capital. With our strong balance sheet, we continue to look for investments that provide attractive returns, while also increasing our cash returns to shareholders.”
First Quarter Consolidated Results
Net sales of $225.1 million in the first quarter of 2014 grew 6 percent compared with $213.2 million in the first quarter of 2013. Consolidated sales growth reflected a 10 percent increase in Technical Products revenues, driven by volume growth across all product categories, and a 2 percent increase in Fine Paper sales, primarily from higher selling prices and an improved mix.
Consolidated operating income of $23.0 million in the first quarter of 2014 grew 4 percent compared with $22.2 million in the first quarter of 2013. Operating income included costs of $0.3 million in 2014 and $0.1 million in 2013 for restructuring and integration. Revenue growth, improved manufacturing efficiencies and lower selling and administrative costs in 2014 more than offset higher costs for energy and fiber of approximately $5 million.
Consolidated selling, general and administrative (SG&A) expense was $19.9 million in the first quarter of 2014 compared to $21.0 million in the first quarter 2013. Costs were higher in 2013 due to timing of certain charges.
Net interest expense of $2.8 million in the first quarter of 2014 increased from $2.6 million in the first quarter of 2013 as a result of higher debt levels following the issuance of $175 million of  5.25% Senior Notes in May 2013.
The effective income tax rate of 35 percent in the first quarter of 2014 compared to a rate of 38 percent in the first quarter of 2013. The full year adjusted tax rate in 2013 was also 35 percent.
Earnings from continuing operations of $0.78 per diluted common share compared with earnings of $0.73 per share in the first quarter of 2013. After excluding restructuring and integration costs of $0.01 per share in both periods, adjusted earnings increased 6 percent from $0.74 per share in the first quarter of 2013 to $0.79 per share in the first quarter 2014. Higher earnings in 2014 resulted from sales growth, improved operating and administrative efficiencies and a lower tax rate.
Cash Flow and Balance Sheet
Cash provided from operations in the first quarter of 2014 was $14.8 million compared to $2.4 million generated in the first quarter of 2013. Increased cash generation in 2014 resulted primarily from decreased levels of investments in working capital.
Capital spending of $4.3 million was lower in the first quarter of 2014 compared with $4.7 million in the prior year period.
Debt as of March 31, 2014 was $205.0 million compared to $211.9 million as of December 31, 2013 and compared to $186.5 million as of March 31, 2013. Cash and equivalents as of March 31, 2014 were $77.2 million compared to $73.4 million as of year-end and compared to $3.8 million as of March 31, 2013.
Net debt (debt less cash) at March 31, 2014 decreased $10.7 million compared with December 31, 2013 and declined by $54.9 million compared to March 31, 2013.
Cash flows in the first quarter of 2014 were used to reduce debt, build cash and fund increased dividend payments.
Quarterly Segment Results
Technical Products net sales of $117.5 million in the first quarter of 2014 increased 10 percent compared with prior year sales of $107.0 million. The higher sales resulted from 8 percent volume growth and favorable currency translation effects of 3 percent, partly offset by a lower-priced mix. Strong volume growth was seen across all categories, with the largest impacts from increased sales of filtration and specialty products.
Operating income for Technical Products of $13.7 million in the first quarter of 2014 increased 41 percent compared with $9.7 million in the first quarter of 2013. The higher income in 2014 resulted from top line growth and improved manufacturing efficiencies, as well as lower selling and administrative costs. Input costs were mixed, with increased costs for energy and fibers offset by lower chemical and other material costs.
Fine Paper net sales of $101.5 million in the first quarter of 2014 increased 2 percent compared with $99.4 million in the prior year. Sales growth in 2014 resulted from a higher value mix of products sold and increased selling prices, partly offset by a 1 percent decrease in volume. Volume reflected double-digit growth in premium packaging and an added month of sales for Southworth brands acquired on January 31, 2013 offset by declines in overall market demand and reduced volumes for certain non-branded grades.
Operating income of $13.3 million in the first quarter of 2014 was down from $16.3 million in the prior year. The $3.0 million decline in income resulted from $4.8 million of higher input costs, primarily for natural gas and pulp, that were partly offset by benefits from higher average selling prices and improved manufacturing efficiencies. Higher natural gas prices and increased usage resulted from unusually high demand due to severe winter weather in the US during the quarter.
Unallocated Corporate and Other includes unallocated corporate costs and results from acquired non-premium paper grades. Unallocated corporate costs in the first quarter of 2014 were $3.8 million compared with $4.1 million in prior year period. Sales of non-premium paper grades were $6.1 million in 2014, with an operating loss of $0.2 million; in 2013 sales were $6.8 million, with operating income of $0.3 million.
Discontinued Operations
There was no income or loss from Discontinued Operations in the first quarter of 2014. Income from discontinued operations in the first quarter of 2013 was $2.6 million as a result of a refund for excess payments made previously to the pension plan of Neenah’s former Canadian pulp operations.