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ALPHARETTA, GA, August 2, 2017 -- Schweitzer-Mauduit International, Inc. ("SWM" or the "Company") (NYSE: SWM) reported earnings results for the three month period ended June 30, 2017.

Adjusted measures are reconciled to GAAP at the end of this release. All financial measures are from continuing operations and per share data is on a diluted basis. All financial and operational comparisons are versus the comparable prior year period. Key definitions: Advanced Materials & Structures segment (AMS), Engineered Papers segment (EP), Low Ignition Propensity (LIP), Reconstituted Tobacco Leaf (RTL), and Heat-not-Burn (HnB)

Second Quarter 2017 Financial Summary

Total net sales increased 17% to $255.3 million; Advanced Materials & Structures' organic net sales (excluding Conwed acquisition) increased 10%, offsetting the expected decline in Engineered Papers
GAAP operating profit was $39.5 million, or 15.5% of net sales, up from $37.5 million, or 17.3% of net sales; adjusted operating profit was $47.0 million, or 18.4% of net sales, up from $41.5 million, or 19.1% of net sales
GAAP EPS was $0.72, down 15%; Adjusted EPS was $0.88, down 5%

Second Quarter 2017 Business Highlights

Advanced Materials & Structures segment organic net sales increased 10%, driven by accelerated momentum of specialty films growth into the transportation end-market; net sales increased 64% including the Conwed acquisition
AMS segment GAAP and adjusted operating profit margins expanded 170 and 310 basis points, respectively, reflecting strong organic sales growth, improvements in base business profitability, and acquisition synergies
Engineered Papers segment net sales decreased 5%, due mainly to anticipated volume declines in cigarette papers, including LIP, while reconstituted tobacco volume was stable; total segment volume declined 2%
EP segment GAAP and adjusted operating profit margins each decreased 230 basis points due primarily to the impact of lower LIP-related sales and manufacturing inefficiencies from lower segment volume

Dr. Jeff Kramer, Chief Executive Officer, commented, "Second quarter financial results demonstrate solid overall performance of our business with several notable highlights. AMS delivered strong organic sales growth, with accelerating double-digit growth in high-margin specialty films underpinning segment results. These surface protection products for the transportation end-market are exhibiting significant momentum, particularly in Asia, and we are exploring options to leverage SWM's international footprint to capitalize on this increasing regional demand. This growth, coupled with continued execution of our Conwed synergy plans, contributed to another quarter of robust segment margin expansion. The phased site consolidation project of a legacy AMS site is underway, and we remain confident in our ability to deliver $10 million of expected run-rate synergies by the end of next year."

"Engineered Papers performed generally as expected. Although the anticipated volume challenges for traditional RTL remain a factor, continued momentum of wrapper and binder reconstituted tobacco products and the ramp-up of Heat-not-Burn sales provided a stabilizing offset. Insights from our customers, combined with increasing product awareness and test marketing of this innovative tobacco technology, support our optimism and growth-oriented investments in HnB. While our suite of recon products delivered essentially flat volume, declines in cigarette papers, including LIP, drove an overall EP segment volume decline. Expected lower pricing, LIP royalties, and reduced efficiencies contributed to margin pressure, however, we resolved certain production issues that significantly impacted EP's first quarter profits."

Dr. Kramer concluded, "With a solid first half of 2017 behind us, we remain keenly focused on continued execution of our Conwed synergy plans, supporting the momentum in our fastest growing product lines, and overall cost management to achieve our 2017 guidance for Adjusted EPS of $3.15. Looking longer-term, with AMS achieving critical mass and non-tobacco products now representing roughly half of the company's total sales, I believe SWM is approaching an inflection point. While the past several years have been spent rebalancing the portfolio by building AMS as we navigated the headwinds in our tobacco business, we believe that we are now poised to become a growth-oriented enterprise in the years ahead. The strong cash flows, international footprint, and operational excellence expertise from our mature paper operations are a powerful complement to our expanding AMS segment and we intend to continue investing in attractive technologies, products, and end-markets to drive sustainable long-term growth."

Second Quarter 2017 Financial Results

Advanced Materials & Structures segment net sales were $117.8 million, up 64%, including the Conwed acquisition. Organic net sales increased 10%, driven by surface protection films for the transportation end-market. Conwed's overall results remained generally in line with the Company's expectations, with strong sales growth of erosion and sediment control products into the infrastructure and construction end-markets driving results. GAAP operating profit was $16.6 million, up 87%; adjusted operating profit was $23.3 million, up 94%. GAAP and adjusted operating profit margins expanded 170 and 310 basis points, respectively. The overall segment sales increase, favorable mix of surface protection products, and early-stage acquisition synergies drove margin expansion.

Engineered Papers segment net sales were $137.5 million, down 5%, driven by a 2% overall volume decline. A net negative price/mix impact, lower LIP licensing royalties, and unfavorable currency movements combined for the remaining 3%. The overall volume decline reflected lower cigarette papers volume, including LIP, partially offset by non-tobacco paper volume growth. Total reconstituted tobacco volume was stable. GAAP operating profit was $30.8 million, down 14%; adjusted operating profit was $31.6 million, also down 14%. GAAP and adjusted operating profit margin each declined 230 basis points. Operating profit margin was negatively affected by the decrease in high-margin LIP-related sales (volume, price, and royalties), the negative mix impact of higher volume of low-margin non-tobacco papers, and manufacturing inefficiencies from lower overall volume compared to the prior year period.

Unallocated GAAP and adjusted expenses were each $7.9 million, up 8%, due mostly to costs associated with the 1H:17 CEO transition. Unallocated expenses were 3.1% of total sales, down 30 basis points.

Consolidated net sales were $255.3 million, up 17%, but flat on an organic basis. The Conwed acquisition contributed $38.9 million of incremental net sales. GAAP operating profit was $39.5 million, up 5%, and GAAP operating profit margin was 15.5%, down 180 basis points. Adjusted operating profit was $47.0 million, up 13%, and adjusted operating profit margin was 18.4%, down 70 basis points. Adjusted EBITDA was $55.4 million, up 8%, and adjusted EBITDA margin was 21.7%, down 200 basis points.

GAAP income was $22.3 million, down 14%; this equated to GAAP EPS of $0.72. Adjusted income was $27.5 million, down 4%; this equated to Adjusted EPS of $0.88. Interest expense was $6.8 million, up $2.7 million due to the Conwed acquisition and related debt structure changes. Other income/expense was $1.8 million unfavorable versus the prior year period. The Company's effective tax rate was 31.0%, up from 26.5%, due to a higher concentration of U.S. profits, tax rate increases in certain jurisdictions, and certain discrete items. The Chinese JVs contributed $0.01 to GAAP EPS and Adjusted EPS, down $0.01. Net currency movements had a 1% negative impact on sales and an immaterial impact on operating profits; translation impact of net currency movements was negative $0.01 to both GAAP EPS and Adjusted EPS.

Non-GAAP Adjustments reflect items included in GAAP operating profit, income, and EPS, but excluded from adjusted operating profit, income, and EPS. The most significant item was purchase accounting expenses, which were $0.12 per share, up $0.05. These expenses capture the ongoing non-cash intangible asset amortization, as well as any non-cash one-time inventory step-up charges, associated with AMS acquisitions. Restructuring and impairment expenses were $0.04 per share, up $0.03, primarily due to synergy-related headcount reductions in AMS and an asset impairment in EP.

2017 Year-to-Date Financial Results

Advanced Materials & Structures segment net sales were $217.8 million, up 52%, including the Conwed acquisition, with year-to-date trends consistent with those of the second quarter. Organic net sales increased 7%, led by specialty films for the transportation end-market. Conwed's overall results for the first six months of 2017 were generally in line with the Company's expectations, driven by sales growth of erosion and sediment control products into the infrastructure and construction end-markets. GAAP operating profit was $25.5 million, up 81%; adjusted operating profit was $40.5 million, up 94%. GAAP and adjusted operating profit margins expanded 180 and 400 basis points, respectively. Total segment sales growth, favorable mix, and Conwed-related synergies contributed to the margin improvements.

Engineered Papers segment net sales were $270.8 million, down 6%. Several fundamental trends exhibited in the first quarter continued through the second quarter. Sales were impacted by a 3% overall volume decline. A net negative price/mix impact, lower LIP licensing royalties, and unfavorable currency movements combined for the remaining 3%. Lower RTL and cigarette paper volumes, including LIP, were partially offset by growth of non-tobacco paper volumes. GAAP operating profit was $57.7 million, down 19%; adjusted operating profit was $59.0 million, also down 19%. GAAP and adjusted operating profit margin declined 340 and 350 basis points, respectively. The decrease in high-margin LIP-related sales (volume, price, and royalties) and the negative mix impact of higher non-tobacco paper volume impacted margins. In addition, first quarter 2017 manufacturing inefficiencies related to production line restarts impacted year-to-date profitability.

Unallocated GAAP expenses were $17.1 million, up 4%; unallocated adjusted expenses were $16.9 million, up 5%, due to the CEO transition. Adjusted unallocated expenses were 3.5% of total sales, down 20 basis points.

Consolidated net sales were $488.6 million, up 13%, but decreased 2% on an organic basis. The Conwed acquisition contributed $65.5 million of incremental net sales. GAAP operating profit was $66.1 million, down 4%, and GAAP operating profit margin was 13.5%, down 250 basis points. Adjusted operating profit was $82.6 million, up 6%, and adjusted operating profit margin was 16.9%, down 120 basis points. Adjusted EBITDA was $99.3 million, up 2%, and adjusted EBITDA margin was 20.3%, down 230 basis points.

GAAP income was $36.0 million, down 24%; this equated to GAAP EPS of $1.17. Adjusted income was $47.3 million, down 11%; this equated to Adjusted EPS of $1.54. Interest expense was $12.6 million, up $3.9 million due to the Conwed acquisition and related debt structure changes. Other income/expense was $4.2 million unfavorable versus the prior year period due in part to the $1.8 million gain in 1Q:16 related to the sale of water rights, with no comparable gain recognized this year. The Company's effective tax rate was 32.3%, up from 27.0%, due to a higher concentration of U.S. profits, tax rate increases in certain jurisdictions, and certain discrete items. The Chinese JVs contributed $0.01 to GAAP EPS and Adjusted EPS, down $0.01. Net currency movements had an immaterial impact on sales and operating profits; translation impact of net currency movements was negative $0.02 to both GAAP EPS and Adjusted EPS.

Non-GAAP Adjustments reflect items included in GAAP operating profit, income, and EPS, but excluded from adjusted operating profit, income, and EPS. The most significant item was purchase accounting expenses, which were $0.30 per share, up $0.17. These expenses primarily capture the ongoing non-cash intangible asset amortization, as well as any non-cash one-time inventory step-up charges, associated with AMS acquisitions. Restructuring and impairment expenses were $0.07 per share, up $0.01.

Cash Flow, Debt, & Dividend

Year-to-date cash provided by operating activities was $44.8 million, down $7.5 million. The Company's working capital-related cash outflows were $28.0 million, up $9.7 million, as a result of AMS segment organic sales growth, inventory builds related to the planned relocation of certain AMS production assets, and timing related to tax payments. Capital spending and capitalized software totaled $20.9 million, up $10.3 million, due primarily to investments for specialty filtration paper production and the addition of Conwed. Free cash flow was $23.9 million, down $17.8 million due to working capital timing and higher capital spending. The Company expects free cash flow in the second half of 2017 to significantly exceed the first half. Year-to-date, the Company has paid dividends to shareholders totaling $25.8 million

Net debt was $623.3 million on June 30, 2017, versus $333.0 million at December 31, 2016 due mainly to the January 2017 closing of the Conwed acquisition. Pursuant to the debt covenants and certain adjustments to foreign cash balances contained in the Company's credit facility, the Company's net debt to adjusted EBITDA was approximately 3.2x as of June 30, 2017.

The Company announced that a quarterly cash dividend of $0.42 per share will be payable on September 22, 2017 to stockholders of record as of August 25, 2017.

2017 Financial Outlook

In February 2017, the Company issued annual guidance of $3.15 for 2017E Adjusted EPS. This equated to $2.52 of GAAP EPS based on initial estimates of $0.09 per share of restructuring expenses and $0.54 per share of non-cash purchase accounting expenses related to AMS segment acquisitions that are excluded from Adjusted EPS.

The Company now expects 2017 capital expenditures and capitalized software spending to exceed $40 million. The Company previously expected approximately $35 million. The expected increase is primarily due to an acceleration of certain investments related to growth opportunities and cost reduction projects across both segments, including synergies related to the Conwed acquisition.

Conference Call

SWM will hold a conference call to review second quarter 2017 results with investors and analysts at 8:30 a.m. Eastern time on Thursday, August 3, 2017. The earnings conference call will be simultaneously broadcast over the Internet at www.swmintl.com. To listen to the call, please go to the Company's Web site at least 15 minutes prior to the call to register and to download and install any necessary audio software. For those unable to listen to the live broadcast, a replay will be available on the Company's Web site shortly after the call.

SWM will use a presentation in conjunction with its conference call. The presentation can be found on the Company's Web site in advance of the earnings conference call. The presentation can also be accessed via the earnings conference call webcast.

About SWM

SWM is a leading global provider of highly engineered papers, films, nets, and non-wovens for a variety of applications and industries. As experts in manufacturing materials made from fibers, resins, and polymers, we provide our customers critical components that enhance the performance of their end products. The Advanced Materials & Structures segment focuses on resin-based rolled goods for the filtration, transportation, infrastructure & construction, medical, and industrial end-markets. This segment was established in 2013 as part of a strategic transformation intended to diversify SWM's historical concentration in the tobacco industry and reposition the Company for long-term growth. The Company currently generates approximately half of its total sales outside the tobacco industry. The Engineered Papers segment remains primarily focused on supplying major cigarette manufacturers with a variety of specialty papers. SWM and its subsidiaries conduct business in over 90 countries and employ approximately 3,400 people worldwide. For further information, please visit SWM's Web site at www.swmintl.com.

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