Neenah Paper

Neenah Paper Reports 2011 First Quarter Results

Neenah Paper, Inc. today reported income from continuing operations of $0.45 per diluted common share in the first quarter of 2011, compared to income of $0.48 per share in the first quarter of 2010. Income in 2011 included costs of $0.09 per share related to the early redemption of $65 million of Senior Notes. Without this, adjusted income from continuing operations for the first quarter of 2011 was $0.54 per diluted common share, up 13 percent versus the same period of 2010.

Net sales of $173 million in the first quarter of 2011 increased three percent from a year ago. After excluding $2.4 million of pre-tax costs for the early redemption of Senior Notes, adjusted operating income of $17.2 million increased five percent from $16.4 million in the first quarter of 2010.

"We were pleased with the solid bottom line results and year-on-year gains from both business segments in the first quarter as our teams overcame more than $9 million of higher input costs," said John O'Donnell, Chief Operating Officer. Mr. O'Donnell will assume the role of Chief Executive Officer following the company's annual shareholder meeting on May 18. He continued, "In addition, we successfully completed important initiatives in the quarter, including start up of a second meltblown line in Germany to support growth in premium filtration products, expanded direct sales of fine paper envelopes, and redemption of almost one-third of our Senior Notes, which will significantly reduce interest expense."

Quarterly Segment and Other Financial Results

Technical Products net sales of $105.4 million in the first quarter of 2011 increased eight percent compared to $97.7 million in the first quarter of 2010. Increased sales in 2011 resulted from both a more favorable mix and higher selling prices. Volumes were essentially unchanged from the prior year as strong growth in higher-value products including transportation filtration, label, and abrasive backing were offset by a reduction in shipments of lower value tape products. Benefits from the improved mix and higher average prices were partly offset by a $1 million decrease in sales resulting from currency translation due to a weaker Euro in 2011.

Operating income for Technical Products of $10.5 million in the first quarter of 2011 increased 13 percent compared to $9.3 million in the first quarter of 2010. The higher operating income in 2011 resulted from the more favorable product mix, with growth in premium filtration, abrasive backing and labels, as well as improved cost efficiencies and higher selling prices. These factors more than offset $7 million of higher input costs resulting from increased prices of pulp, latex and energy.

Fine Paper
net sales of $67.3 million in the first quarter of 2011 decreased three percent compared to $69.6 million in the first quarter of 2010, as benefits from an improved mix and higher selling prices were not able to fully offset the impact of ten percent lower volumes. The volume decline in 2011 was due to a reduction in shipments of lower value non-branded business as well as reduced market demand. These factors were only partly offset by increased sales to targeted new markets such as label and packaging. The favorable mix and selling prices reflected an increased proportion of higher value products, such as premium branded products and envelopes.

Operating income for Fine Paper of $10.5 million in the first quarter of 2011 increased 11 percent compared to $9.5 million in the first quarter of 2010. The higher income in 2011 was a result of the more profitable product mix, increased selling prices and manufacturing cost efficiencies that were able to offset the impact of lower volume and more than $2 million of higher input costs.

Consolidated selling, general and administrative (SG&A) expense of $17.0 million in the first quarter of 2011 compared to $16.3 million in the prior year. Unallocated corporate expense of $6.2 million in the first quarter of 2011 compared to $2.4 million in the first quarter of 2010. Unallocated costs in 2011 included $2.4 million for the early redemption of $65 million of Senior Notes. Spending in 2010 was low due to timing of certain items and one-time credits for a litigation settlement.

Net interest expense was $4.5 million in the first quarter of 2011, down more than 20 percent compared to $5.7 million in the first quarter of 2010 as a result of both reduced debt levels and lower interest rates. Debt was reduced by approximately $75 million in March 2010 following the sale of the Company's remaining timberlands. Additional reductions in interest expense in future quarters of 2011 are expected as a result of lower debt levels following the recently completed early redemption of Senior Notes.

The effective income tax rate for the first quarter of 2011 was 32 percent, which was the same rate as the first quarter of 2010.

Cash flow provided from operations
in the first quarter of 2011 was $1.4 million compared to $14.3 million in the first quarter of 2010. Lower cash flow from operations in 2011 resulted from increased investments in working capital from seasonally low year-end levels and in order to support sales growth.

Capital spending of $8.2 million in the first quarter of 2011 increased compared to $2.3 million spent in the first quarter of 2010. Capital expenditures in 2011 included approximately $3 million for the completion of a second meltblown line in Germany.

Debt at March 31, 2011 of $215 million was down $30 million compared to $245 million at December 31, 2010. The decrease in debt in 2011 resulted from the early redemption of $65 million of Senior Notes on March 10, 2011 that was financed through use of approximately $34 million of available cash and borrowing against the Company's existing revolving credit facility.

Discontinued Operations


In the first quarter of 2011, discontinued operations reflected a loss of $0.1 million for an adjustment to Canadian tax obligations. Prior to its sale in March 2010, discontinued operations included results from the company's timberlands operations. In the first quarter of 2010, income from discontinued operations was $134.6 million. Income in 2010 included a $74.1 million pre-tax gain from the sale of the timberlands and reclassification of $87.9 million from accumulated other comprehensive income into earnings for foreign currency translation gains which were recognized as a result of the Company's substantially complete liquidation of its Canadian investments.

Conference Call

Neenah Paper will hold a webcast to discuss first quarter earnings and other matters of interest at 11 a.m. Eastern time on Tuesday, May 10. Stockholders and other interested parties are invited either to listen live to the webcast or participate actively in the call by dialing (888) 893-0989 from the U.S. and Canada or (706) 758-4223 for international callers. All participants should use conference ID 63047399.

A replay of the call will be available through the Company's web site until June 10, 2011 and may also be accessed by dialing (800) 642-1687 in the U.S. or (706) 645-9291 internationally, using conference ID 63047399.

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