ALPHARETTA, Ga., May 10, 2017 -- Neenah Paper, Inc. (NYSE: NP) today reported 2017 first quarter results.Revenues of $242.1 million were equal to $242.1 million in the prior year.
Operating income of $27.0 million declined from $31.4 million in the prior year. Results in 2017 included $5 million of combined costs for start-up of new filtration capacity in the US and downtime at the German filtration facility.
Earnings per diluted share of $1.03 compared with $1.11 per share in 2016. Excluding 2016 integration and restructuring costs of $0.04 per share, adjusted E.P.S. was $1.15 in 2016. There were no non-GAAP adjustments to earnings in 2017.
Cash generated from operations of $22.0 million increased from $16.1 million in 2016.
Quarterly dividend payments of $0.37 per share increased 12 percent from $0.33 per share in the first quarter of 2016.
"Adjusted earnings" is a non-GAAP measure used to improve understanding and comparability of year-on-year results. Adjusted figures are reconciled to GAAP later in this release.
"Our businesses had a solid start to the year, especially knowing that Technical Products' earnings in the first half of the year would be impacted by start-up costs for our new U.S. filtration operations and short term headwinds from currency and rising input costs. The filtration facility qualification is progressing well and we continue to see enthusiastic support from our customers as we earn their approval on production from these new assets. Results in the quarter also included one-time costs for a downtime in our German filtration facility that was initiated to modify our operation and improve the safety and reliability of our saturation process," said John O'Donnell, Chief Executive Officer. "While these have a short-term impact on results, we remain confident about the long term success and returns from these investments. The substantial cash flows that our businesses consistently generate allow us to fund attractive investments, increase cash returns to shareholders and maintain a strong balance sheet, and we remain well positioned to act on future organic and strategic opportunities."
Quarterly Consolidated Results
Consolidated net sales of $242.1 million in the first quarter of 2017 were equal to 2016, as most growth in both Fine Paper and Packaging and Technical Products was offset by unfavorable currency effects and a decline in sales for Other products. On a constant currency basis, consolidated net sales increased 1 percent.
Selling, general and administrative (SG&A) expense of $24.9 million in the first quarter of 2017 decreased from $26.4 million in the prior year primarily due to timing of certain expenses.
Operating income of $27.0 million in 2017 compared with $31.4 million in 2016. The lower income in 2017 was primarily due to $3.1 million of costs resulting from the U.S. filtration business start-up, approximately $2 million of higher costs for a week of downtime and other items in Germany, and other unfavorable impacts in Technical Products from input costs and currency. These items were partially offset by increased operating income in Fine Paper and Packaging as a result of reduced SG&A, lower manufacturing costs, and higher volumes and prices. Consolidated operating income in 2016 included $1.1 million of costs for integration and restructuring. Excluding these items, last year's adjusted operating income was $32.5 million.
Net interest expense of $3.2 million in the first quarter of 2017 increased from $2.9 million in the first quarter of 2016 primarily as a result of interest expense that was capitalized in 2016 for the U.S. filtration project. The effective income tax rate of 26 percent in the first quarter of 2017 compared with 33 percent in the first quarter of 2016. The 2017 rate was lower due to excess tax benefits related to stock compensation.
Income from continuing operations of $17.6 million decreased 8 percent compared with $19.2 million in the first quarter of 2016 primarily as a result of the lower operating income in 2017, partly offset by benefits from a lower tax rate.
Cash Flow and Balance Sheet Items
Cash provided from operations in the first quarter of 2017 was $22.0 million compared with $16.1 million in the first quarter of 2016. Increased cash generation in 2017 resulted from a lower investment in working capital, partly offset by lower earnings.
Capital spending of $11.5 million in the first quarter of 2017 was similar to spending of $11.3 million in the prior year.
Debt as of March 31, 2017 was $226.3 million compared to $220.9 million on December 31, 2016. Cash and cash equivalents as of March 31, 2017 were $5.5 million compared with $3.1 million as of December 31, 2016.
Cash returns to shareholders through dividends and share repurchases totaled $13.1 million in the first quarter of 2017 and $10.9 million in the prior-year period.
Quarterly Segment Results
Technical Products net sales of $121.9 million compared with $121.5 million in the prior year. The increase in revenues resulted from volume growth led by backings, labels, and transportation filtration, and a higher average selling price due to a higher value sales mix. These items were mostly offset by unfavorable currency exchange effects. On a constant currency basis, net sales increased more than 2 percent.
Operating income of $12.5 million in the first quarter of 2017 decreased compared with prior year income of $19.2 million. Lower operating income resulted from higher manufacturing costs, including $3.1 million resulting from the U.S. filtration capacity start-up, approximately $2 million of higher filtration costs for downtime and other costs in Germany, and other unfavorable impacts from higher material costs and currency effects. These items were partially offset by benefits from higher sales volumes and lower integration and restructuring costs. Operating income in 2016 included $0.3 million of integration and restructuring costs. Excluding these costs, adjusted operating income in 2016 was $19.5 million.
Fine Paper & Packaging net sales of $114.3 million in the first quarter of 2017, compared with $113.8 million in the prior year. The increase in revenues resulted from higher volumes and increased selling prices that were largely offset by a lower priced mix due to a higher proportion of sales of non-branded products.
Operating income of $20.3 million in the first quarter of 2017 increased from $17.5 million in the prior year. Higher operating income in 2017 resulted from reduced SG&A expense, higher volumes and selling prices, and lower input and integration costs, that were partially offset by a lower priced product mix. Operating income in 2016 included integration costs of $0.3 million. Excluding these costs, adjusted operating income in 2016 was $17.8 million.
Unallocated Corporate costs in the first quarter of 2017 were $5.5 million compared with $5.3 million in the prior year period. In 2016, costs included $0.3 million for integration and restructuring. Higher costs in 2017 resulted primarily due to timing of certain items. In both 2017 and 2016, quarterly costs were higher as a result of timing of stock compensation expense.
Reconciliation to GAAP Measures
The Company will report adjustments to GAAP figures when they are believed to improve the comparability and understanding of results. In these instances, a reconciliation of adjusted income measures to comparable GAAP measures will be provided, as shown below and in the financial attachments:
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