MEMPHIS, Tenn, USA, Jan 29, 2013 - Buckeye Technologies Inc. (NYSE:BKI) today announced second quarter net sales of $204.3 million and adjusted net income* of $23.6 million. Adjusted EPS* of $0.60 compared to $0.69 in 2Q-FY12 and $0.62 in 1Q-FY13. Net insurance recovery in 2Q-FY13 was $0.04 per share less than expected.
Net sales for the quarter were down $17.1 million or 8% compared to the year ago quarter. While shipment volume was up 6% year over year, product mix was unfavorable as we shipped about 12,000 tons into the viscose staple fiber market during the quarter as a result of weak demand in some of our high-end markets, particularly from the European tire cord market. The sale of the Merfin Systems converting business in the third quarter of fiscal 2012 accounted for $4.3 million of this reduction in net sales.
Adjusted operating income* of $36.4 million was down $6.7 million compared to the year ago quarter, largely due to unfavorable product mix, in spite of a $6.8 million net insurance benefit related to the June steam drum failure outage at Foley.
Adjusted net income* of $23.6 million, or $0.60 per share, excludes after-tax restructuring and asset impairment charges of $10.7 million or $0.27 per share relating to the closure of our Delta airlaid nonwovens plant, which ceased production in November. Adjusted net income* was down $4.3 million or $0.09 per share compared to the prior year periodâ€™s $27.9 million or $0.69 per share, which excluded after-tax costs of $3.6 million or $0.09 per share relating to the cellulosic biofuel credit, and after-tax impairment costs of $29.7 million or $0.74 per share relating to the sale of Merfin Systems and the closure of our cotton specialty fibers plant in Americana, Brazil.
Comparison with 1Q 2013
Comparing 2Q 2013 to 1Q 2013, sales were up $7.4 million or 4%. This was driven by a 31% increase in shipment volume from the Foley specialty wood fibers facility compared to a first quarter heavily impacted by the June steam drum failure outage. Shipment volume from our Memphis specialty cotton fibers plant was down 16% in spite of a small pick-up in demand for acetate pulp from the LCD market, and Nonwovens shipment volume was off 8% due to the end of production at our Delta plant and normal seasonal weakness. Adjusted operating income* was down $2.6 million as the favorable impact from the final insurance settlement related to the June outage and increased shipment volume was not enough to offset the unfavorable product mix impact and lower fluff pulp prices. Adjusted EPS* of $0.60 was only down $0.02 versus the first quarter.
Cash Flow and Capital Allocation
Cash flow provided by operating activities was $25.0 million for the quarter. Capital expenditures, at $23.8 million, remained at a high level as Buckeye continues work on the specialty conversion and oxygen delignification projects at its Foley Mill. We also continued to return cash to shareholders during the quarter, with $9.2 million in share repurchases and $3.4 million in dividends paid out during the quarter. Long-term debt increased by $17.4 million but cash also increased by $10.1 million since September 30. Our free cash flow is forecasted to improve considerably during the next six months as black liquor tax credit paybacks, funding of our employee 401K plans, bonus payouts, and Foley property tax payments are all behind us for the fiscal year, and we expect to realize a little over $20 million in proceeds from the sale of the Delta property in February.
Business Conditions and Outlook
Chairman and Chief Executive Officer John B. Crowe said, â€œOur second quarter fiscal 2013 earnings came in a bit weaker than expected, with adjusted EPS* below the low end of our earnings call guidance by $0.05. The net positive impact of the final insurance settlement related to the June steam drum failure at our Foley mill, which was received in December, was $0.11, or $0.04 lower than we had anticipated. Otherwise, compared to the high end of our earnings expectations going into this quarter, the main difference was that selling prices on shipments of specialty wood pulp into the viscose staple fiber market were lower than expected, and fluff pulp prices were lower than predicted due to an increase in spot business. We continued to experience weaker market conditions during the quarter in a few specialty fibers markets such as European high performance tire cord, acetate filament, and LCD screens. In order to offset weaker sales into these markets and bring our inventory levels back down, we chose to sell into the viscose staple fiber market for the first time in over two years. We are now experiencing some improvement in the tire cord market with orders up compared to the second quarter. We had good production and shipment volumes in our second quarter. Total shipment volume was up 6% compared to the year ago quarter, driven by increased shipments of specialty wood fibers, fluff pulp, and nonwovens.â€
Mr. Crowe went on to say, â€œDuring the quarter, we continued to make good progress on our Specialty Expansion and Oxygen Delignification Projects at our Foley facility. Both are important projects which will be key contributors for revenue growth and cost reduction, and are expected to come on-line in April and July 2013 respectively. We currently expect the demand weakness we have been experiencing in several of our markets to continue into the third quarter before starting to improve. As a result, we expect our third quarter adjusted EPS will be about the same as second quarter earnings excluding the insurance benefit, before improving in the fourth quarter. Our long-term prospects remain positive and we are well-positioned to meet the challenges of a sluggish economy and take advantage of opportunities that present themselves.â€
Conference Call Details
Buckeye has scheduled a conference call for Wednesday morning, January 30, at 9:00 a.m. ET to discuss second quarter performance. Persons interested in listening by telephone may dial in at (888) 427-9376 within the United States. International callers should dial (719) 325-2215. Supplemental material for the call will be available on the Companyâ€™s website at www.bkitech.com or at www.streetevents.com.
Buckeye, a leading manufacturer and marketer of specialty fibers and nonwoven materials, is headquartered in Memphis, Tennessee, USA. The Company currently operates facilities in the United States, Germany, and Canada. Its products are sold worldwide to makers of consumer and industrial goods.
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