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ALPHARETTA, GA, Nov 2, 2017 -- Schweitzer-Mauduit International, Inc. ("SWM" or the "Company") (NYSE: SWM) reported earnings results for the three month period ended September 30, 2017 and announced a 2% increase of its per share quarterly cash dividend rate to $0.43 from $0.42.

Adjusted measures are reconciled to GAAP at the end of this release. Financial measures are from continuing operations and per share data is on a diluted basis. 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)

Third Quarter 2017 Financial Summary

Total net sales increased 23% to $257.8 million; Advanced Materials & Structures' organic net sales (excluding Conwed acquisition) increased 4% and Engineered Papers' net sales also increased 4%
GAAP operating profit was $38.5 million, or 14.9% of net sales, up from $30.8 million, or 14.7% of net sales; adjusted operating profit was $45.4 million, or 17.6% of net sales, up from $35.1 million, or 16.8% of net sales
GAAP EPS was $0.84, up 38%, and Adjusted EPS was $1.00, up 35%; both benefited from an $0.11 non-operating gain from an asset sale (excluding the gain, GAAP and adjusted EPS were each up 20%)


Third Quarter 2017 Business Highlights

Advanced Materials & Structures segment organic net sales increased 4%, with continued growth of specialty films for transportation leading the portfolio; net sales increased 60% including the Conwed acquisition
AMS segment GAAP and adjusted operating profit margins expanded 130 and 280 basis points, respectively, reflecting organic sales growth, operating leverage, and the addition of Conwed and related synergies
Engineered Papers segment net sales increased 4% despite a segment volume decline of 3%; positive mix from LIP volume growth and currency benefits more than offset the anticipated RTL volume decline and pricing reductions
EP segment GAAP and adjusted operating profit margins decreased 60 and 120 basis points, respectively, due primarily to the expected RTL volume decline

Dr. Jeff Kramer, Chief Executive Officer, commented, "Our business continued to perform well overall in the third quarter, with continued sales momentum and margin expansion in AMS and relatively stable results from EP. Consistent with recent quarters, specialty film demand was strong as sales traction from new channels in Asia continued to bolster our results. In addition, Conwed synergy execution successfully progressed toward our $10 million annualized cost reduction goal by the end of next year. Our most synergistic acquisition to date is on track with our expectations to drive value creation as we optimize the scaled AMS platform."

"Engineered Papers continued to perform as expected, with strong LIP volume growth compared to a soft quarter last year and a temporary customer inventory build in the U.S. LIP growth, combined with pockets of strength in other cigarette papers, helped offset the anticipated volume challenges for traditional RTL. Regarding other reconstituted tobacco products, wrapper and binder sales remained solid and Heat-not-Burn volume for next generation tobacco products continued to ramp up. We are actively working across our customer base on the development of customized HnB products to meet the projected growing demand in this innovative category."

Dr. Kramer concluded, "As we close out 2017, our near-term priorities remain execution on the Conwed integration synergies, manufacturing efficiencies, and growth initiatives across the businesses to deliver on our previously announced 2017 Adjusted EPS guidance of $3.15. Key strategic growth investments, including a new film line in Europe, the development of specialty filtration papers, and HnB product roll-outs, are all hitting their respective milestones with expected benefits in 2018. We are at an exciting juncture in our evolution as we head into next year, with a scaled and growing AMS segment designed to more than offset the long-term volume and pricing headwinds in the tobacco-driven EP segment. Our free cash flow has remained healthy, supporting another dividend increase, and our outlook for sustainable long-term growth is significantly improved as a result of these transformative strategic actions."

Third Quarter 2017 Financial Results

Advanced Materials & Structures segment net sales were $116.2 million, up 60%, including the Conwed acquisition (Conwed net sales were $40.7 million). Organic net sales increased 4%, driven by double-digit growth of surface protection films for transportation. Filtration sales weakness was partially offset by strength in medical. Conwed results remained generally in line with our expectations, driven by strong sales growth of building and agricultural products into the infrastructure and construction end-markets. GAAP operating profit was $15.4 million, up 77%; adjusted operating profit was $22.0 million, up 88%. GAAP and adjusted operating profit margins expanded 130 and 280 basis points, respectively. The organic sales increase, favorable mix, and the Conwed acquisition (including synergies) contributed to margin expansion.

Engineered Papers segment net sales were $141.6 million, up 4%; positive mix effects from strong LIP performance coupled with positive currency movements more than offset the 3% overall segment volume decline, pricing concessions, and as expected lower third-party LIP royalties. The overall volume decline reflected higher cigarette papers volume, including double-digit growth in LIP papers due to low volume in the prior year quarter and a customer inventory build, and higher non-tobacco sales, which were offset by lower traditional RTL volume. GAAP operating profit was $32.3 million, up 1%; adjusted operating profit was $32.7 million, down 2%. GAAP and adjusted operating profit margin declined 60 and 120 basis points, respectively. Operating profit margin was negatively affected by lower RTL volume, pricing, and LIP royalties, which were partially offset by LIP growth and favorable currency movements.

Unallocated GAAP and adjusted expenses were $9.2 million and 9.3 million, down 7% and 6%, respectively, due primarily to favorable timing of third-party consulting services. GAAP and adjusted Unallocated expenses were both 3.6% of total sales, down 110 basis points.

Consolidated net sales were $257.8 million, up 23%, and 4% on an organic basis. The Conwed acquisition contributed $40.7 million of incremental net sales. GAAP operating profit was $38.5 million, up 25%, and GAAP operating profit margin was 14.9%, up 20 basis points. Adjusted operating profit was $45.4 million, up 29%, and adjusted operating profit margin was 17.6%, up 80 basis points. Adjusted EBITDA was $59.1 million, up 29%, and adjusted EBITDA margin was 22.9%, up 100 basis points.

GAAP Income was $25.7 million, up 37%; this equated to GAAP EPS of $0.84. Adjusted income was $30.7 million, up 35%; this equated to Adjusted EPS of $1.00. Interest expense was $7.4 million, up $3.5 million due to the Conwed acquisition and related debt structure changes. Other income was $4.1 million, up $3.4 million due primarily to a $4.8 million pretax gain, or $0.11 per share, from an asset sale. The Company's effective tax rate was 27.0%, down from 38.8%, due to favorable discrete items in the current year, versus unfavorable discrete items in the prior year period. The Chinese JVs were neutral to GAAP EPS and Adjusted EPS, down from a $0.06 contribution due to sales timing and challenging market conditions. Net currency movements had a 2% positive impact on sales and a $1.7 million positive impact on operating profits; translation impact of net currency movements was positive $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 $0.14 per share, up $0.08. 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 $0.02 per share, down $0.01, and were primarily related to synergy-driven headcount reductions in AMS.

Year-to-Date 2017 Financial Results

Advanced Materials & Structures segment net sales were $334.0 million, up 55%, including the Conwed acquisition (Conwed net sales were $106.2 million), with year-to-date trends generally consistent with those of the third quarter. Organic net sales increased 6%, led by specialty films for transportation; this growth was partially offset by softness in filtration sales. Conwed's overall results 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 $40.9 million, up 79%; adjusted operating profit was $62.5 million, up 92%. GAAP and adjusted operating profit margins expanded 160 and 360 basis points, respectively. Total segment organic sales growth, favorable mix, and the Conwed acquisition (including synergies) contributed to margin expansion.

Engineered Papers segment net sales were $412.4 million, down 3%, mainly due to a 3% overall volume decline. Price/mix was neutral and expected lower LIP royalties were offset by positive currency movements. Lower RTL and cigarette paper volumes were partially offset by growth of non-tobacco paper volumes. GAAP operating profit was $90.0 million, down 13%; adjusted operating profit was $91.7 million, down 14%. GAAP and adjusted operating profit margin declined 250 and 280 basis points, respectively. The decrease in high-margin LIP and RTL sales and manufacturing inefficiencies resulting from lower overall segment volume impacted year-to-date profitability. In addition, year-to-date profitability was impacted by high costs in the first quarter of 2017 related to certain production line restart issues.

Unallocated GAAP expenses were $26.3 million, flat compared to the prior year; adjusted unallocated expenses were $26.2 million, up 1%. GAAP and adjusted Unallocated expenses were both 3.5% of total sales, down 60 basis points.

Consolidated net sales were $746.4 million, up 16%, but were flat on an organic basis. The Conwed acquisition contributed $106.2 million of incremental net sales. GAAP operating profit was $104.6 million, up 5%, and GAAP operating profit margin was 14.0%, down 160 basis points. Adjusted operating profit was $128.0 million, up 13%, and adjusted operating profit margin was 17.1%, down 50 basis points. Adjusted EBITDA was $158.4 million, up 10%, and adjusted EBITDA margin was 21.2%, down 120 basis points.

GAAP Income was $61.7 million, down 6%; this equated to GAAP EPS of $2.01. Adjusted income was $78.0 million, up 4%; this equated to Adjusted EPS of $2.54. Interest expense was $20.0 million, up $7.4 million due to the Conwed acquisition and related debt structure changes. Other income was $3.2 million, down $0.8 million. The Company's effective tax rate was 30.2%, down slightly from 30.6%. The Chinese JVs contributed $0.01 to GAAP EPS and Adjusted EPS, down $0.07 due to sales timing and challenging market conditions. Net currency movements had an immaterial impact on sales and $1.3 million positive impact on operating profits; translation impact of net currency movements was neutral 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 $0.44 per share, up $0.25. 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 $0.09 per share, flat compared to the prior year.

Cash Flow, Debt, & Dividend

Year-to-date cash provided by operating activities was $93.2 million, up $10.1 million. The Company's working capital-related cash outflows were $21.8 million, up $7.4 million, primarily resulting from increased receivables associated with higher sales, inventory builds related to facility relocations, and higher cash tax payments. Capital spending and capitalized software totaled $30.1 million, up $10.9 million, due primarily to investments for specialty filtration paper production and the addition of Conwed. Free cash flow was $63.1 million, essentially flat with the prior year period. Year-to-date, the Company has paid dividends to shareholders totaling $38.7 million.

Net debt was $593.4 million on September 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 2.9x as of September 30, 2017.

The Company announced a 2.4% increase of its quarterly cash dividend to $0.43 per share from $0.42 per share. the dividend will be payable on December 22, 2017 to stockholders of record as of December 1, 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 expects 2017 capital expenditures and capitalized software spending to exceed $40 million.

Conference Call

SWM will hold a conference call to review third quarter 2017 results with investors and analysts at 8:30 a.m. Eastern time on Thursday, November 2, 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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