Agricoltura
SWM ANNOUNCES THIRD QUARTER 2018 RESULTS AND DIVIDEND INCREASE
ALPHARETTA, GA, November 7, 2018 -- Schweitzer-Mauduit International, Inc. ("SWM" or the "Company") (NYSE: SWM) reported earnings results for the three month period ended September 30, 2018 and announced a 2% increase of its per share quarterly cash dividend rate to $0.44 from $0.43.
Dr. Jeff Kramer, Chief Executive Officer, commented, "Third quarter results reflected continued organic top-line growth, which was overshadowed by the challenges of an inflationary raw materials cost environment and the inherent timing lag for price recovery. That said, we are still tracking close to our full year plan, and we expect margin pressure to subside in the coming quarters following the closure of an AMS site in November and additional price increases in both operating segments."
"AMS sales increased 4%, with continued momentum in filtration led by double-digit growth in our RO water business. We are also seeing our infrastructure and construction business resume normalized growth rates after poor weather conditions caused a slow start to the year. Consistent with 2018 trends, higher sales were offset by elevated resin costs and anticipated expenses related to the Austin site closure, which created a challenging comparison to strong segment adjusted operating margin in the prior year period. While we had previously raised prices in response to higher-than-expected polypropylene resin costs, the continued escalation of those costs have made it challenging to balance the timing of additional pricing actions. We have recently implemented another round of price increases, effective during the fourth quarter, across a large portion of the AMS portfolio."
"EP segment sales declined 1% as continued positive mix and selective price increases nearly offset the tobacco-driven volume decline. Higher pulp costs continued to pressure margins, but we believe price increases in several product lines and pricing resets on several large paper contracts in early 2019 will provide some offsets."
Dr. Kramer concluded, "In September, we completed a significant balance sheet initiative, refinancing our credit facility and issuing $350 million of senior unsecured notes. By introducing unsecured debt into our capital structure and extending the term of our credit facility, we have improved our financial flexibility. In a rising interest rate environment, and with increasing global uncertainties, we were pleased to complete this transaction, achieve our objectives in an attractive manner, and welcome our new credit investors to the SWM story. The expected incremental interest and certain one-time transaction expenses in 2018 from the recent financing activities total approximately $0.05 per share and were not contemplated in our original 2018 Adjusted EPS guidance of $3.30 to $3.45. Despite substantial raw materials increases, we believe we are in position to the finish the year at the lower end of our original guidance range, excluding the impact of the financing activities, due to a combination of operational improvements, increased pricing, favorable currency, and a lower tax rate."
segment sales were $120.8 million, up 4%, with no acquisition benefit in the quarter. Double-digit growth in filtration, with particular strength in RO water, was the key driver. Infrastructure and construction, transportation, and medical sales also increased, while industrial declined. GAAP operating profit was $11.9 million, down 23%. Adjusted operating profit was $17.5 million, down 20%, with margin contracting 440 basis points to 14.5% compared to strong segment profitability in the prior-year quarter. Significantly higher resin costs and certain site closure expenses related to the Austin facility were the primary factors of the margin decline. Recently implemented price increases and the closure of the Austin site are expected to drive improved results in the fourth quarter of 2018.
egment sales were $139.5 million, down 1%, with 5% positive price/mix combining to nearly offset a volume decline of 6%, with most product lines lower versus last year. Currency provided a 1% headwind (% changes of volume/price/mix/currency do not sum to sales growth due to rounding). GAAP operating profit was $27.5 million, down 17%, and adjusted operating profit was $27.5 million, down 18%; adjusted operating profit margin contracted by 400 basis points, due primarily to higher pulp costs and other inflationary pressures and reduced manufacturing efficiencies and overhead absorption as a result of lower volume. Favorable currency movements resulted in a $1.3 million benefit to operating profit due to lower local currency costs at certain sites.
GAAP and adjusted expenses were each $8.3 million, down 10% and 11%, respectively. Adjusted unallocated expenses were 3.2% of total sales, down 40 basis points.
sales were $260.3 million, up 1% (no acquisition benefit). GAAP operating profit was $31.1 million, down 21%, and GAAP operating profit margin was 11.9%, down 330 basis points. Adjusted operating profit was $36.7 million, down 21% and adjusted operating profit margin was 14.1%, down 380 basis points. Adjusted EBITDA was $46.5 million, down 17%, and adjusted EBITDA margin was 17.9%, down 370 basis points.
GAAP income was $40.9 million, up 59%; this equated to GAAP EPS of $1.33. Adjusted income was $24.5 million, down 20%; this equated to Adjusted EPS of $0.77. Interest expense was $7.3 million, as lower outstanding debt balances essentially offset higher effective interest rates and a $0.5 million write-off of unamortized debt issuance costs as a result of the credit facility refinancing. Other income was $11.2 million, up from $3.3 million, and included a $10.2 million gain from the revaluation of a contingent consideration liability related to the Conwed acquisition. The Company reported an income tax benefit of $5.6 million during the third quarter, due to a $13.0 million favorable adjustment related to the 2017 Tax Act in the U.S.; adjusting for this item, tax rate was 21.2%, down from 27.0%, due primarily to the impact of new tax legislation in the U.S. The Chinese JVs generated a $0.01 gain for both GAAP EPS and Adjusted EPS, versus a breakeven result in the prior year period. Net currency movements had less than a 1% negative impact on sales and a $1.5 million positive impact on operating profits; the translation impact of net currency movements was negative $0.01 to both GAAP EPS and Adjusted EPS.
reflect items included in GAAP operating profit, income, and EPS, but excluded from adjusted operating profit, income, and EPS. The largest item was a $0.43 non-cash per share benefit from to a favorable tax adjustment to the Company's initial estimated impact of the 2017 Tax Act in the U.S. Other significant items included a $0.25 per share non-cash gain related to the revaluation of a contingent consideration liability related to the 2017 acquisition of Conwed, and purchase accounting expenses of $0.11 per share (purchase accounting expenses reflect 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 $0.01 per share.
segment sales were $360.1 million, up 8%, including the 3-week partial period benefit from the Conwed acquisition in 2018. Pro forma (assuming SWM had owned Conwed for the full first quarter of 2017) organic growth was 5%. Strong sales increases in filtration, medical, and transportation products were key drivers while infrastructure and construction was flat and industrial declined slightly. GAAP operating profit was $39.5 million, down 3%. Adjusted operating profit was $56.3 million, down 10%, with margin contracting 310 basis points to 15.6%. Accelerated depreciation and anticipated manufacturing inefficiencies related to the Austin site closure and higher resin costs were the primary negative factors.
egment sales were $432.5 million, up 5%, with favorable currency movements of $16.5 million, or 4%. Overall volume decreased 3%, driven by lower reconstituted tobacco volumes while cigarette and non-tobacco papers were down less than 1%. Price and mix combined for a 4% sales increase. GAAP operating profit was $94.7 million, up 2%, and adjusted operating profit was $94.9 million, up 1%; adjusted operating profit margin declined 100 basis points. The decrease was primarily driven by higher pulp costs and other inflationary pressures, which offset improved manufacturing efficiency versus a prior year period that was negatively impacted by certain production issues (during first quarter 2017). Favorable currency movements resulted in a $6.4 million benefit to operating profit.
GAAP and adjusted expenses were each $26.0 million, down 1%. Adjusted unallocated expenses were 3.3% of total sales, down 20 basis points.
sales were $792.6 million, up 6%, and 5% on an organic basis (pro forma assuming SWM had owned Conwed for the full first quarter of 2017). GAAP operating profit was $108.2 million, up 1%, and GAAP operating profit margin was 13.7%, down 70 basis points. Adjusted operating profit was $125.2 million, down 4%, and adjusted operating profit margin was 15.8%, down 170 basis points. Adjusted EBITDA was $155.1 million, down 1%, and adjusted EBITDA margin was 19.6%, down 150 basis points.
GAAP income was $87.6 million, up 42%; this equated to GAAP EPS of $2.84. Adjusted income was $80.1 million, up 3%; this equated to Adjusted EPS of $2.58. Interest expense was $20.1 million, as lower outstanding debt balances essentially offset higher effective interest rates and a $0.5 million write-off of unamortized debt issuance costs as a result of the credit facility refinancing. Other income was $10.4 million, up from $0.6 million, and included a $10.2 million gain from the revaluation of a contingent consideration liability related to the Conwed acquisition. The Company reported a year-to-date effective tax rate of 10.6%, driven by a $13.0 million favorable adjustment related to the 2017 Tax Act in the U.S.; adjusting for this item, the effective tax rate was 23.8%, down from 30.2%, due primarily to the impact of new tax legislation in the U.S. The Chinese JVs generated a $0.02 loss for both GAAP EPS and Adjusted EPS, versus a $0.01 gain in the prior year period. Net currency movements had a 3% positive impact on sales and a $7.4 million positive impact on operating profits; the translation impact of net currency movements was positive $0.06 to both GAAP EPS and Adjusted EPS.
reflect items included in GAAP operating profit, income, and EPS, but excluded from adjusted operating profit, income, and EPS. The largest item was a $0.43 non-cash per share benefit from to a favorable tax adjustment to the Company's initial estimated impact of the 2017 Tax Act in the U.S. Other significant items included purchase accounting expenses of $0.39 per share, down $0.05 (purchase accounting expenses reflect the ongoing non-cash intangible asset amortization, as well as any non-cash one-time inventory step-up charges, associated with AMS acquisitions) and a $0.25 per share non-cash gain related to the revaluation of a contingent consideration liability related to the 2017 acquisition of Conwed. Restructuring and impairment expenses were $0.03 per share, down $0.06.
Year-to-date 2018 cash provided by operating activities was $93.0 million, flat with prior year. The Company's working capital-related cash outflows were $31.3 million, up $9.5 million, due mainly to higher receivables associated with higher sales. Capital spending and capitalized software totaled $20.9 million, down $9.2 million, due mainly to timing of capital projects. Free cash flow increased to $72.1 million, from $63.1 million in the prior year period, due mostly to lower capital spending. Year-to-date, the Company has paid dividends to stockholders totaling $39.7 million.
Total debt was $640.8 million on September 30, 2018, down $43.4 million from year end 2017; net debt was $550.3 million on September 30, 2018, down $27.0 million from year end 2017. At the end of the third quarter, the Company issued $350 million of senior unsecured notes and refinanced and extended its credit facility. Pursuant to the debt covenants, the Company's net debt to adjusted EBITDA was approximately 2.6x as of September 30, 2018, down from 3.0x at year-end 2017.
The Company announced a 2.3% increase of its quarterly cash dividend per share to $0.44 per share from $0.43. The dividend will be payable on December 21, 2018 to stockholders of record as of November 30, 2018.
In February 2018, the Company issued Adjusted EPS guidance of $3.30 to $3.45, which equated to $2.73 to $2.88 of GAAP EPS. Due mainly to significant raw material cost increases throughout the year, the Company expects 2018 Adjusted EPS to finish at the lower end of guidance, excluding the impact of the debt refinancing. The impacts of the incremental interest and other related expenses associated with the debt refinancing were not contemplated in initial guidance, and are expected to reduce 2018 GAAP and adjusted EPS by $0.05.
SWM will hold a conference call to review third quarter 2018 results with investors and analysts at 8:30 a.m. Eastern time on Thursday, November 8, 2018. 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 under the Investor Relations section in advance of the earnings conference call. The presentation can also be accessed via the earnings conference call webcast.
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 3,600 people worldwide. For further information, please visit SWM's Web site at www.swmintl.com .
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws that are subject to the safe harbor created by such laws and other legal protections. Forward-looking statements include, without limitation, those regarding 2018 guidance and future performance, future impact of hagher raw materials costs, future market and EPS trends, future EPS contributions of our China JVs and RTL, AMS margins, sales and volume trends, growth prospects, capital spending, currency rates and trends and impact on EPS, 2018 momentum, impact of recently initiated price increases, future cash flows, the Tax Act, effective tax rates, 2018 LIP sales trends, future RTL volumes, LIP pricing and royalties, diversification efforts of our AMS segment, future results of legacy AMS operations, future growth of non-tobacco sales, and other statements generally identified by words such as "believe," "expect," "intend," "guidance," "plan," "forecast," "potential," "anticipate," "confident," "project," "appear," "future," "should," "likely," "could," "may," "typically," "will," and similar words. These statements are not guarantees of future performance and certain risks, uncertainties (some of which are beyond the Company's control) and assumptions that may cause actual results to differ materially from our expectations as of the date of this release. These risks include, among other things, those set forth in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2017, our Quarterly Report on Form 10-Q for the period ended June 30, 2018, and other reports filed with the SEC, which can be found at the SEC's website www.sec.gov, as well as the following factors:
All forward-looking statements made in this document are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this document, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.
Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance unless expressed as such, and should only be viewed as historical data.
For additional factors and further discussion of these factors, please see SWM's Annual Report on Form 10-K for the period ended December 31, 2017, our Quarterly Report on Form 10-Q for the period ended June 30, 2018, and other reports we file from time to time, which can be found at the SEC's website www.sec.gov. The discussion of these risks is specifically incorporated by reference into this release. The financial results reported in this release are unaudited.
Certain financial measures and comments contained in this press release exclude restructuring expenses, certain purchase accounting adjustments related to AMS segment acquisitions, interest expense, income tax provision, capital spending, capitalized software, and depreciation and amortization. This press release also provides certain information regarding the Company's financial results excluding currency impacts. This information estimates the impact of changes in foreign currency rates on the translation of the Company's current financial results as compared to the applicable comparable period and is derived by translating the current local currency results into U.S. Dollars based upon the foreign currency exchange rates for the applicable comparable period. Financial measures which exclude or include these items have not been determined in accordance with accounting principles generally accepted in the United States (GAAP) and are therefore "non-GAAP" financial measures. Reconciliations of these non-GAAP financial measures to the most closely analogous measure determined in accordance with GAAP are included in the financial schedules attached to this release.
The Company believes that the presentation of non-GAAP financial measures in addition to the related GAAP measures provides investors with greater transparency to the information used by the Company's management in its financial and operational decision-making. Management also believes that the non-GAAP financial measures provide additional insight for analysts and investors in evaluating the Company's financial and operational performance in the same way that management evaluates the Company's financial performance. Management believes that providing this information enables investors to better understand the Company's operating performance and financial condition. These non-GAAP financial measures are not calculated or presented in accordance with, and are not intended to be considered in isolation or as alternatives or substitutes for, or superior to, financial measures prepared and presented in accordance with GAAP, and should be read only in conjunction with the Company's financial measures prepared and presented in accordance with GAAP. The non-GAAP financial measures used in this release may be different from the measures used by other companies.
(Tables to Follow)
SOURCE SWM:
CONTACT
Andrew Wamser
Chief Financial Officer
+1-770-569-4271
Or
Mark Chekanow
Director of Investor Relations
+1-770-569-4229
Web site: http://www.swmintl.com
* Adjusted Operating Profit (Loss), a non-GAAP financial measure, is calculated by adding Restructuring & Impairment Expenses and Purchase Accounting Adjustments to Operating Profit.
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