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Yeah I agree on Zacks. They provide completely useless info. Don't think anyone pays attention to their recommendations.
Orchids Paper Products Company (TIS) Stock Rating Upgraded by Zacks Investment Research
Even though this is positive, I hate Zacks. I think they are full of it.
By Dan Jones - April 21, 2017
Orchids Paper Products Company (NYSEMKT:TIS) was upgraded by Zacks Investment Research from a “strong sell” rating to a “hold” rating in a report released on Wednesday.
According to Zacks, “Orchids Paper Products Company is a tissue paper company that manufacturers and converts tissue product for the private label consumer market. “
Separately, Jefferies Group LLC upped their target price on Orchids Paper Products Company from $25.00 to $26.00 and gave the company a “hold” rating in a report on Wednesday, March 8th.
Shares of Orchids Paper Products Company (NYSEMKT:TIS) opened at 24.30 on Wednesday. Orchids Paper Products Company has a 12-month low of $22.50 and a 12-month high of $36.31. The firm has a market cap of $250.34 million, a P/E ratio of 19.60 and a beta of 0.48. The firm has a 50-day moving average price of $25.20 and a 200-day moving average price of $26.12.
The firm also recently declared a dividend, which was paid on Monday, April 3rd. Investors of record on Monday, February 27th were given a dividend of $0.35 per share. The ex-dividend date was Thursday, February 23rd. Orchids Paper Products Company’s payout ratio is 88.61%.
Yeah I thought stock would be up a little today on the news. A bit surprised to see it up over 6% at one point today. Will take it! Curious to see the reaction to the Q1 report next week. Going to be a poor comp vs. last year, but the outlook should be upbeat.
The market definitely voiced its opinion of last night's lender deal.
Only 3 days in the last 12-months had higher trading volume.
One of those was the January new customer announcement of a projected 35% revenue increase.
The second was when the July 28th 8K came out announcing the quarterly results.
If you recall, the Seeking Alpha writer was calling for a $15 PPS. My guess is he already took his winnings and went elsewhere.
It's typical of what these guys do with "fake news". The story wasn't based on reality.
He left others to hold the short straw. A whole bunch of people are going to get killed here.
Share Statistics
Avg Vol (3 month) ... 116.99k
Avg Vol (10 day) ... 112.32k
Shares Outstanding ... 10.3M
Float ... 9.14M
% Held by Insiders ... 8.90%
% Held by Institutions ... 42.20%
Shares Short ... 1.93M
Short Ratio ... 15.09
Short % of Float ... 21.16%
Shares Short (prior month) ... 1.69M
Remember, the lender could have squeezed TIS into doing another equity raise, AND cancelling the dividend. The lender did neither.
That Seeking Alpha writer was full of it.
Stock looking strong on a weak market day. Wonder if those shorts are starting to sweat yet? Not sure why you would be short a company that is set to report some big revenue & earnings increases for the next several quarters. Do they cover now or wait for $30?
Early indications are the market liked the move on the loans yesterday.
The Seeking Alpha short got what he wanted.
Now we'll see TIS start to recover. November will be the defining moment when they've ramped up all the revenues from the January announcement.
They will also be nearing completion of the third production line.
You know I already added to my position.
I am adding to a trust account for a little one too.
TIS is going to handle the debt load, grow revenues, and the bottom line too.
Sounds like a perfect storm for PPS growth.
The November Q will reveal all of the benefits from the January announcement.
By then TIS will be announcing "the-next-new-customer".
Yeah great to hear from the CEO that everything is still on track:
"These covenant changes allow Orchids to focus on its business plan to increase production and sales significantly in the second half of 2017. The new business we announced in January is on track to begin shipping in late May with full implementation by July 1."
The Q1 report next week won't be pretty. Maybe we'll get one last buying opportunity. But the market looks forward, not backward. Outlook for Q2 and beyond should be very bullish. With revenues & earnings starting to ramp higher in the current quarter, I would expect the stock to move solidly higher soon. TIS popped over $30 after the Q4 report in February. And Q4 was a poor quarter! A return to $30 later this year would be a 30% gain from here. And if business ramps up like management expects, I wouldn't be surprised to see $35 or even $40 by yearend.
Orchids Paper Products Company Receives Lender Consent For Amendment Of Credit Agreements
My takeaway is not a negative. It's a positive.
TIS can raise money through the equity market if it wanted to, or if the lender demanded it. The fact that the lender is willing to do this, which is accepting a higher level of short term risk, is a very positive sign. They understand how the ramp up of the new mill is going and see the light at the end of the tunnel.
PR Newswire
April 17, 2017
PRYOR, Okla., April 17, 2017 /PRNewswire/ -- On April 11, 2017, Orchids Paper Products Company (NYSE MKT: TIS) (the "Company") entered into Amendment No. 4 (the "Credit Agreement Amendment") to its Second Amended and Restated Credit Agreement dated June 25, 2015 by and among the Company, U.S. Bank National Association ("U.S. Bank") and the other lenders party thereto (the "Credit Agreement").
Details of the amendments include:
The maximum twelve-month rolling leverage ratio is waived in the first two quarters of 2017 and allowed to increase to 5.5:1 at September 30, 2017 prior to being decreased to 4.5:1 at December 31, 2017 and reverting to 3.5:1 as originally scheduled. These are attainable targets.
The funding-advance for the Barnwell, South Carolina, mill building was made concurrent with its actual completion in April of 2017, making approximately $6.7 million available to the Company.
The period during which funds may be drawn under the Draw Loan is extended to December 25, 2017 to support the continued development of the Barnwell, South Carolina project.
The maximum twelve-month rolling fixed charge coverage ratio is lowered to 1.0:1 and 1.05:1 for the quarters ended June 30, 2017 and September 30, 2017, respectively, prior to reverting to 1.2:1 as originally scheduled.
The Maintenance Capital Expenditure (as defined in the Credit Agreement) was reduced from approximately $6.0 million to $4.25 million, a more realistic figure and one that makes meeting the Fixed Charge Coverage Ratio covenant more attainable.
The definition of the Fixed Charge Coverage Ratio was modified. In combination with waivers and changes to the Leverage Ratios, these modifications provide the Company the time necessary to reduce its debt levels in an orderly manner through increased earnings from the new business previously announced, collection of certain outstanding receivables, and other potential actions which the Company is exploring.
"We are pleased to have the support of our lenders and appreciate their confidence in the Company's future," said Mr. Jeff Schoen, Chief Executive Officer. "The Company views the amendment as being supportive, particularly the waivers of the leverage-ratio covenants in the first and second quarters of 2017, bridging the period in 2017 when operations are ramping-up to meet new demand. These covenant changes allow Orchids to focus on its business plan to increase production and sales significantly in the second half of 2017. The new business we announced in January is on track to begin shipping in late May with full implementation by July 1."
The foregoing summaries are not complete and are qualified in their entirety by reference to the full text of the Amendments attached to the associated Form 8-K.
My TIS dividend was paid today. It's a nice chunk of change.
Thanks for making me aware that STEVEN BERLIN, TIS Director bought shares on the open market ... very odd amount though 898.
He owns a nice chunk too. That's a total of 16,652 or $389,823 (right now). That's a nice commitment.
https://www.sec.gov/Archives/edgar/data/1248854/000114420417018457/xslF345X03/v463353_4.xml
Director bought some shares last Thursday. Good to see. Hopefully there will be more insider buys.
https://www.sec.gov/Archives/edgar/data/1248854/000114420417018457/xslF345X03/v463353_4.xml
bigpike. Welcome to the board. Here's my thought on the whole thing in two points.
1) Short sellers are in this to make money. I'm okay with that.
It's a whole other thing to write about alternative facts. The trick to alternative facts is you include just enough real ones to make the "false facts" seem plausible.
The short seller's main point being, are the new customers who will generate a 35% increase in revenues really real?
What the shorter is really accusing TIS of is knowingly falsifying an 8K filed with the SEC.
Do I believe TIS, whose executives could go to jail if they are deceiving the investing community, or should I trust a short who is motivated by immediate gain?
2) That said I'll explain something else that's directly related.
I was also amazed that TIS was raising so much money to build a new mill at such a disproportionate cost to existing revenues. They were betting the farm so to speak.
I already owned a position in TIS. I first bought because of the rising PPS and the terrific dividend. I liked ownership, and the financial controls.
When TIS announced the new mill and the equity raise along with bank loans, the PPS tanked on dilution. It was just math at that point.
I thought the dividend was in jeopardy. I thought it would have made sense to cut the dividend, use the cash to expand, and then reinstate the dividend.
But on second thought, I realized the dividend was like bringing a grain of sand to the beach and saying it would make a difference. It would not have in comparison to the size of the loan.
TIS reaffirmed their commitment to the dividend. Their deed has been that they've paid it.
Immediately after announcing the equity raise I talked to a few related "industry insiders".
One of those groups were buyers for supermarkets. Three of them coincidentally knew TIS, the paper industry, and how some favorable deals were made for them personally.
To a "man" they all said TIS would never have gone ahead with the mill without having customers lined up. They had to be in TIS's pocket.
Moreover, they noted that the banks would have never gone ahead with making the loans without some form of letter documentation to that effect; that they had some commitments.
The loan was for an extraordinary amount of money compared to the size of the company. The lenders had to be wary. They needed to be reassured.
Before speaking with these people I was assuming something like that had to be in play too. Otherwise the analogy of betting the farm was analogous to going to the casino and betting the farm on "red". The owners would have needed to be "crazy insane". The banks too.
TIS has salespeople with customer relationships. The expansion wasn't going to be a shot in the dark with their eyes closed. Something had to be in the works.
I increased my position by a factor of 4. I agreed there was no way this was a crazy bet by TIS.
Then fast forward. It made perfect sense when TIS announced an existing customer was increasing their purchases. It would be a national company who was already happy with TIS, but buying from another source in the S.E. based on "price".
They made an agreement that when TIS could supply them at a predetermined price, and TIS was ready to deliver, they would formalize the agreement. It's exactly what my "industry insiders" told me.
In the same 8K announcing the existing customer's increased purchases, TIS announced the new customer. Combined they would raise TIS's revenues by about 35%.
The announcement confirmed "my buyers" opinions, and my gamble to increase my position. TIS wouldn't gamble the entire company on a new mill and expansion. Neither would the lenders. What would they do with a paper mill?
For the time being it will max out the Barnwell mill until all the lines are running.
So the shorter who wrote the article was at least transparent declaring they were shorting TIS.
But writing the article and profiting from it when others were panicking because of what the shorter wrote really seems like a slimy move.
Since I am not an insider I cannot guarantee a 35% revenue increase from a new customer, and an existing customer.
However, there are too many things that have fallen into place to think it really is not going to happen.
I am a long patient enough to continue collecting my dividend while they finish the mill.
Thinking all of this through led me to increase my position again yesterday. Why shouldn't I take advantage of the Shorter's article. I think it's based on false facts.
The story will be told over the next twelve months.
I'll have to wait and see if I'm right.
I hope this explanation helps you.
What do you make of the short sellers comments that the orders are not definite orders, but 'may be ordered'..is that technical jargon for the biz?
Orchids Paper Products Enters Oversold Territory
By Dividend Channel Staff, Thursday, March 30, 11:43 AM ET
http://www.dividendchannel.com/article/201703/orchids-paper-products-enters-oversold-territory-tis-TIS03302017rsi.htm/?utm_source=dlvr.it&utm_medium=twitter
The DividendRank formula at Dividend Channel ranks a coverage universe of thousands of dividend stocks, according to a proprietary formula designed to identify those stocks that combine two important characteristics — strong fundamentals and a valuation that looks inexpensive. Orchids Paper Products Co. (AMEX:TIS) presently has an excellent rank, in the top 25% of the coverage universe, which suggests it is among the top most "interesting" ideas that merit further research by investors.
But making Orchids Paper Products Co. an even more interesting and timely stock to look at, is the fact that in trading on Thursday, shares of TIS entered into oversold territory, changing hands as low as $22.75 per share. We define oversold territory using the Relative Strength Index, or RSI, which is a technical analysis indicator used to measure momentum on a scale of zero to 100. A stock is considered to be oversold if the RSI reading falls below 30.
In the case of Orchids Paper Products Co. , the RSI reading has hit 29.1 — by comparison, the universe of dividend stocks covered by Dividend Channel currently has an average RSI of 53.2. A falling stock price — all else being equal — creates a better opportunity for dividend investors to capture a higher yield. Indeed, TIS's recent annualized dividend of 1.40/share (currently paid in quarterly installments) works out to an annual yield of 5.67% based upon the recent $24.70 share price.
A bullish investor could look at TIS's 29.1 RSI reading today as a sign that the recent heavy selling is in the process of exhausting itself, and begin to look for entry point opportunities on the buy side. Among the fundamental datapoints dividend investors should investigate to decide if they are bullish on TIS is its dividend history. In general, dividends are not always predictable; but, looking at the history chart below can help in judging whether the most recent dividend is likely to continue.
BNK Invest?@bnkinvest - Orchids Paper Products Enters Oversold Territory $TIS #dividends http://dlvr.it/Nm8kdP
Orchids Paper Products Enters Oversold Territory $TIS #dividends https://t.co/WRK1Kzz6Ew
— BNK Invest (@bnkinvest) March 30, 2017
That's a funny coincidence, and I'm glad you took the initiative to contact TIS. Thanks for doing it.
I viewed the action as a buying opportunity. I didn't pick the bottom, but it was low enough that I ended the day in the black and am gaining a little today.
Volume (Above Average) 31,243
March 31, 2017 10:33am ET
Price
$23.88
Day's Change
0.1707 (0.72%)
Ironically, Rod Gloss's reply was the gist of what I wrote to you yesterday.
I sent the company an email yesterday informing them of the Seeking Alpha article. Actually got a brief reply from the CFO:
Harry, we are not sure why people are paying attention to unsupported rumors from a short seller. Our policy is not to respond to rumors and blogs.
Regards,
Rod Gloss, CFO
Price
$23.75
Day's Change
0.04 (0.17%)
Volume (Heavy Day) 10,007
March 31, 2017 9:37am ET
Today should be interesting to see if we rebound. If saner minds prevail.
TIS Price Target Raised to $26.00 at Jefferies Group LLC
Posted by Harper Lund on Mar 30th, 2017
Orchids Paper Products Company (NYSEMKT:TIS) had its price objective upped by Jefferies Group LLC from $25.00 to $26.00 in a research report report published on Wednesday. They currently have a hold rating on the stock.
FUNNY ... on the same day as the Shorter's article.
Amazingly, I think TIS had 5 higher volume days in the past 10 years.
We'll see what tomorrow has in store.
It would be nice to see some open market insider buying.
Funny, I ended up in the black on my addition today. I tried to pick the bottom and missed it by 90¢, but still ended up in the black.
Now that's FUN.
TIS: Orchids Paper Products Company SEC Filing - Amended Annual Report (10-K/A) March 30, 2017
https://www.sec.gov/Archives/edgar/data/1324189/000114420417017653/v463020_10ka.htm
It sure looks like TIS's PPS stabilized after some very heavy selling this morning.
Maybe a few of the sellers were institutions on programmed stop/loss trading.
I think I posted yesterday, TIS has plenty of Institutional Ownership interest ...46.57%
Maybe the many of the retail investors had stops in too, or just didn't read the company's K's and Q's.
Obviously somebody read the info since the free fall ended.
The Shorter's article didn't push it all the way to his target of $15.50.
TIS may see 5% of it's shares traded today.
Right now I see the bid and ask spread is only a penny.
No company wants to refute every piece of negative news.
This time I am in agreement with you. The article is a bit egregious since they really aren't taking into account TIS's revenue projection of a 35% increase, nor the patently false statements.
Wish we could get the company to put out a response. Saying they don't know why the stock has dropped recently. And reaffirm their bullish outlook for 2017 & 2018, talking about how business continues to ramp up. Stock would recover at least $1-$2 on that PR.
There seems to be some pushback.
23.40 now.
Manipulation at its finest! Short a thinly traded stock. Then put out a negative article on Seeking Alpha. They were shorting in recent days. Probably covering on today's drop. Hopefully the company puts out a response.
The argument in that article is weak. Focusing on the past, not on the future. Completely ignoring the ramp up in capacity underway due to the significant new business won in January. And that revenues/earnings will see huge increases in the coming quarters. 6% dividend yield to boot.
I love a good short as much as the next guy. And there's plenty of overvalued junk out there in this expensive market. But sure don't understand why you would dare short TIS here, with some tremendous looking comps on the way. TIS shot up over $30 on the Q4 report just last month. Will be back in the $30's by yearend. What a deal in the $22's. Thank you Seeking Alpha!
Orchids Paper: Equity Holders Are About To Get 'Wiped'
Naturally, the writer has a short position. He wrote a scathing article with several alternative facts.
He claims the Barnwell plant ramp up is botched, whereas everything is happening as mgmt laid out a year ago.
He also claims they delayed a dividend which is patently false.
Another patently false statement is this:
In addition, Orchids' sales team failed to develop new demand for the Barnwell plant ahead of its completion at the same time its existing customers disappointed on expected orders.
As evidenced by this:
https://ir.orchidspaper.com/all-sec-filings#document-3530-0001144204-17-003432
Item 7.01. Regulation FD Disclosure.
As advised during the third-quarter earnings call, Orchids Paper Products Company (the “Company” or “Orchids”) has been actively engaged in several retailer private-label bid-processes. Now, in an effort to provide additional and useful information to its shareholders, Orchids is announcing that it has been awarded a significant amount of new business in the form of bid awards from new and existing customers (the “Award”), pursuant to which converted-product cases may be ordered via purchase order. Winning bids included both conventional and structured tissue products expected to be produced in Orchid’s new plant in Barnwell, SC as well as the Pryor, OK facility. The Company anticipates that purchase orders under the Award may ultimately represent approximately a 35% increase in the annualized sales volume of converted-product cases, based on customer forecasts and relative to third quarter 2016 actual sales volumes, with full implementation in the third quarter of 2017.
I may add again later today.
To see all of the charts and graphs, click here:
https://seekingalpha.com/article/4058655-orchids-paper-equity-holders-get-wiped
Top Idea
Mar. 29, 2017 5:00 AM ET
Summary
* Once a handsomely profitable regional tissue manufacturer, Orchids’ margin structure has been fundamentally impaired, yet its shares trade at an 86% premium to peers.
* Dividend hungry investors attracted by TIS’ headline yield are unwittingly holding a company that has levered up considerably just as each of its markets worsen.
* Profitability is collapsing as reduced volumes, price competition, and large-scale capacity additions drive negative operating leverage.
* Interest rates on debt recently spiked 40% in exchange for covenant relief, dividend was announced then “delayed," and Orchids continues to hemorrhage cash on an ill-timed, poorly executed growth plan.
* Management is flailing and we anticipate trouble in 1H17. Estimates are largely unachievable and we cannot forecast a scenario where the dividend is sustained, the pillar on which valuation stands.
Orchids ("Orchids", "TIS", or "the company") is a highly-levered producer of paper towels and toilet paper trading at 11.2x next year's EBITDA, a considerable premium to peers. The company had historically operated a single, handsomely profitable facility serving the US Midwest. A confluence of factors at this facility drove industry-leading margins and a premium valuation multiple.
Over the past few years, Orchids has taken several steps to expand its footprint, including levering up to build what we believe was an ill-timed, poorly executed greenfield facility in the Southeast just as six competitors announced expansions in that area. Orchids has serially missed analyst estimates, received a covenant waiver in exchange for a much higher interest rate, "delayed" its dividend, and botched execution on its new plant.
Moreover, for TIS to meet analyst expectations over the next several years, it must receive pricing well above levels achieved throughout its history at an EBITDA per unit also above any levels historically experienced. As Orchids' difficulties compound, we cannot mathematically forecast a scenario whereby Orchids does not have to cut its dividend, the last proverbial pillar upon which its current valuation stands.
Historically Profitable Single Facility
TIS had historically operated a single facility serving the US Midwest in Pryor, Oklahoma. The "Pryor facility" has a capacity of 83k tons annually and is unique for several reasons, allowing it to earn outsized margins in an industry that is otherwise highly commoditized. These factors include:
* 75% of shipments are picked up by customers, thereby reducing freight cost
* Tax credits due to its situation on former Native American land
* Low input costs given an exclusive supply agreement with nearby Dixie Pulp & Paper, low wage employment market, and cheap electricity.
Questionable Expansion Plan
In November 2013, Orchids' board of directors brought in a new CEO (Jeffrey Schoen) tasked with repeating the success of the Pryor facility in other US regions. In Schoen's own words:
My goal is to increase the value of Orchids to reflect a $50-$60 stock price, as I am incented to do so with market-based options. To accomplish that, Orchids has needed to expand its footprint. -Jeffrey Schoen, 2Q15 Earnings Call
In June of 2014, TIS announced an agreement with Fabrica. Fabrica is a large tissue manufacturer based in Mexicali, just south of the California/Mexico border. The Fabrica deal involved several elements:
* Asset purchase agreement: Orchids issued 412k shares of its stock ($12m) for a paper machine, two converting lines, Fabrica's customer list, and a non-compete.
* Supply agreement: Orchids paid $16m cash and 274k shares of its stock ($8m) in exchange for the right to purchase capacity from Fabrica at cost plus a markup.
* Equipment lease: Orchids charges Fabrica a rental fee based on the number of tons Fabrica ships to Orchids.
* Board representation: Mario Garcia, founder of Fabrica, was given a board seat on Orchids' board.
Fabrica agreed to supply a base of 19.8k tons with a two-year additional 7.7k ton option. Orchids would then market that tissue in the Southwest, thereby expanding its footprint to the left side of the country.
Further, in April 2015, Orchids announced the greenfield construction of a 32k ton facility in Barnwell, South Carolina ("Barnwell"). The project was expected to cost $120m, a whopping 53% of TIS' then current market value. To finance construction, Orchids raised $34.5m through the issuance of 1.5m shares and took on a term loan, initially expecting that debt would peak at $110m.
Analysts cheered Orchids' strategy. This time last year, analysts were projecting $60m of EBITDA in 2017. The analysts were ostensibly extrapolating the success of Pryor across the rest of the business, although as indicated earlier, there are several specific reasons why Pryor is uniquely profitable.
It appears, however, that each segment of Orchids' business (Southwest, Midwest, Southeast) has fallen under significant pressure.
Life Happened While Making Plans
Just as Orchids stretched its balance sheet to build Barnwell, negative trends developed in each of its respective markets.
Southwest - Supply Availability Drops
Orchids' supply agreement with Fabrica was for 19,800 base tons with a two-year option to purchase an additional 7,700 tons. As the Fabrica deal came up for renegotiation in June of 2016, the two parties failed to reach an agreement. What happened?
Fabrica is a large tissue manufacturer operating in a low-cost environment. When the optional tonnage came up for renegotiation, Fabrica wanted to extract pricing from Orchids to share in the significant margin they witnessed at Orchids. Orchids held firm and Fabrica walked away from the bargaining table. This had the impact of reducing available tons sourced from Fabrica by 28%. This had a pronounced impact on gross margin given that Fabrica is the largest tissue manufacturer in Mexico with scale and cost advantages, thus volumes purchased were at higher-than-average margins.
Moreover, Orchids had taken over a large account from Fabrica concurrent with the 2014 supply agreement. This customer, HEB Grocery Company, was immediately catapulted into a top customer for TIS, representing 15% of sales in 2015. As Fabrica shipments declined, HEB is no longer reported as key customer.
Midwest - Competition Intensifies
Orchids began to experience intensified competitive pressure from branded product manufacturers promoting products through price reductions, specifically Georgia-Pacific. This had the effect of shifting customer mix away from private label, which reduced Orchids' shipments of converted tissue and increased shipments of commodity tissue rolls that the company had manufactured. This reduction in tons shipped due to competition coupled with a reduction in tons purchased from Fabrica caused total tons to shrink by enough that Orchids opted to stop reporting quarterly tons shipped. We had to wait for the 10-K which revealed that 2H16 over 2H15 tons declined by more than 13%. For a "growth" business with a growth multiple, this is bad news.
Further, Orchids derives half of its revenue from just two customers, Family Dollar (14%) and Dollar General (36%). Both Family Dollar (Owned by DLTR) and Dollar General (NYSE:DG) have experienced steadily declining same store sales comps, also a bad harbinger for Orchids' "growth" trajectory.
Southeast - Intensified Competition Coupled with Botched Execution
As Barnwell was being built, competitors announced several hundred thousand tons of planned capacity expansion in Orchids' new southeast region.
* Clearwater announced 70k tons in Shelby, NC
* First quality announced 64k tons in Anderson, SC
* Resolute announced 66k tons in Calhoun, TN
* ST Tissue announced 45k tons in Franklin, VA
* Von Drehle added 30k tons in Natchez, MS
* Kruger is planning to expand in Memphis, TN
In addition, Orchids' sales team failed to develop new demand for the Barnwell plant ahead of its completion at the same time its existing customers disappointed on expected orders. Inventory days have grown by 39% as competition in the Midwest heats up, customer growth slows, and the sales team tries to drum up business for Barnwell in a market experiencing significant capacity increases.
This Ain't 2013: Orchids Now Has A High Degree of Operating AND Financial Leverage
In 2013, Orchids had $15.1m of debt and generated $18.4m of operating income. From 2013 to 2016, Orchids increased its debt by $124m, yet its operating income is higher by only $280k due to negative developments across its disparate markets. The recent 13% y-y reduction in 2H16 revenue drove a 34% reduction in gross margin per ton. This is obviously dangerous given the following two realities:
* Orchids is a price-taker operating a fixed cost business in an intensifying competitive environment.
* Orchids will likely exit 1Q17 at more than 5.5x leverage as measured by debt/EBITDA.
Whereas management originally projected total debt to peak at $110m, Orchids is already at $141m and will be higher after 1Q. Orchids' debt could peak at more than $150m, which is $40m higher than initially expected. A $40m delta would represent 18% of Orchids' market cap at announcement. How did management misjudge project cost by nearly a fifth of the value of the entire company? In any event, Orchids is already running into trouble under the weight of its massive debt. The company's original credit agreement contained a maximum 3.5x leverage covenant. When it was clear that Orchids was going to breach, its bank issued a waiver in exchange for a 40% higher interest rate (5.2% vs. 3.7% prior). Orchids' higher debt load multiplied by higher interest rates results in an incremental $5.5m of cash interest in 2017. ?Specifically, from the end of 2015 to the end of 2016, TIS' total debt has increased by 84% from $74m to $137m. Moreover, we project that TIS' total debt will peak at $177m if they only pay three dividends this year. TIS' higher average debt in 2017 multiplied by a higher interest rate results in $8.4m of total interest expense in 2017. This represents an incremental $5.5m of cash interest vs. $2.9m paid in 2016.
Management is in Flail-Mode
The competitive landscape is clearly evolving to the detriment of Orchids and CEO Jeffrey Schoen's tone on the 4Q16 earnings call was a poor attempt to hide this reality. During the call, Schoen points out that Orchids has two options as competition in the Southeast heats up:
* Sell commodity unconverted tissue rolls ("Parent Rolls") into the market
* Ship converted product from South Carolina to markets in the West
A key part of the Barnwell margin structure, however, is reduced freight! Moreover, a key reason for recent margin deterioration is a mix-shift toward commodity Parent Rolls from finished converted product. Thus, these two comments by themselves make it difficult to extrapolate the attractive margin structure from the Pryor facility to the Barnwell facility.
As Orchids' debt-load balloons and its market projections deteriorate, management is trying to soften the blow by promising future volumes. In conjunction with Orchids' amended credit agreement, management issued an 8-k stating Orchids has been "awarded" significant new business. Upon digging through the filing, we found that converted product cases may be ordered pursuant to these "awards." This language is obfuscated, misleading, and commensurate with management's over-promise/under-deliver style. In fact, Orchids has missed all estimated metrics by a wide margin for the last three quarters.
Forward Analyst Projections are Likely Unachievable
But what is the downside to the short thesis? What happens if Orchids is able to plow through the morass without permanent damage to the business? We turned our attention to the expectations currently baked into the stock using a simple exercise to test the feasibility of analyst assumptions going forward. Specifically, we took analyst revenue and EBITDA estimates and divided both by total tons of capacity in order to derive the implied unit economics. We compared the result to Orchids' historical experience. We found that in order to meet analyst projections, Orchids will have to generate considerably higher revenue and EBITDA per ton than the company has ever generated.
If we assume 134.3k tons of capacity (82.5k Pryor + 19.8k Fabrica + 32.0k Barnwell) and 90% utilization, we arrive at a reasonable figure of 120.9k tons of capacity per annum. Analysts are expecting $270m of revenue in 2019, implying an average price per ton of $2,234. TIS' ASP over the last six years however, has been $1,884. Thus, analyst projections are a considerable stretch as pricing competition heats up and competing capacity is added.
The same analysis applied to EBITDA yields a similar result. Analysts are expecting $57.4m of EBITDA in 2019. If we divide this into capacity of 120.9k tons, the result is $475 per ton. TIS has, however, historically generated average EBITDA of only $350 per ton. Moreover, analyst estimates are likely quite a stretch given that we think Barnwell will be less profitable than Pryor in addition to existential environmental margin pressures.
Dividend Cut is Likely Imminent
After six consecutive years of paying a stable/growing dividend, we cannot mathematically forecast a scenario in 2017 in which Orchids can sustain its dividend. Specifically, from the generous $27m of operating cash flow we project in 2017, which already includes incrementally higher interest expense, Orchids has considerable earmarked cash uses including additional capex to finish Barnwell, maintenance capex on existing facilities, and required principal payments.
Management has already effectively cut its dividend by delaying payment in order to comply with its interest coverage ratio. Not surprisingly, management has been quick to point out that Orchids is not bound by any policy requiring a dividend payment. It seems we're slowly being set up for the elimination of the dividend. The "delay" notwithstanding, news outlets such as Bloomberg and CapitalIQ continue to forecast a runrate dividend and implied yield which appears attractive at 5.5%. We believe this attractive headline yield has lured unsuspecting dividend-hungry investors unaware that the underlying business and end-markets are facing significant challenges.
What is the stock worth?
Orchids has historically been outwardly more expensive than its publicly traded direct competitors. The same remains true today. However, it's our opinion that this premium is no longer warranted as margins contract from historical levels and the equity is now highly levered. In short, the business has changed but the valuation has not. And, the valuation disparity is not a simple rounding error; Orchids' equity is 5 turns (86%) more expensive on an EV/EBITDA basis than its public peers.
We believe that as the company continues to hemorrhage cash, miss analyst estimates, and cut its dividend, shares will ultimately trade down to our DCF-based target price of $15.50, representing 40% downside from today's price. We also note that this implies an EBITDA multiple in line with peers.
Disclosure: I am/we are short TIS.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
Ah now I see the culprit. Nothing wrong with the company. Short article on Seeking Alpha this morning. But they're completely ignoring the expected ramp up in business??
https://seekingalpha.com/article/4058655-orchids-paper-equity-holders-get-wiped
I think we're stabilizing.
Unless there is some undisclosed bad news, someone is manipulating our lightly traded stock and planning to buy at a much lower price.
Based on what we know, I am happy with my buy, but I would have liked to save 50¢ more.
This is all happening on small trades too.
There are no big lots on the BID or ASK.
Almost like panic selling. Stock crashing to a new 52-week low just as business is ramping up? Maybe one heck of a buying opportunity? I don't get it. I thought the stock was attractive when I first started buying at $27.
I cannot imagine what's going on today?
Thanks for making me aware. I added at 23.675
There's your $24. Jeez stock sure is weak. While the rest of the market is rocking. I don't get it. Did we miss some bad news?
I feel the same way. If we drop to $24 I will add again to my already nice position.
I love the dividend when it shows up in my account every quarter. It's a nice chunk of change.
I guess the revenue add that's coming is really under the radar. After all, the projected 35% revenue bump doesn't show up on screens.
So I think the "new" potential investing community can't find the details.
They won't come back until the revenues are realized. So for selfish reasons, I hope the PPS drops even more
I wonder if on May 15th we see an increase in these holdings?
As of Feb 14, 2017 for the period ending Dec 31, 2016.
Institutional Ownership ... 46.57%
Total Shares Outstanding (millions) ... 10
Total Value of Holdings (millions) ... $123
... HOLDERS ... SHARES
Increased Positions ... 48 ... 615,084
Decreased Positions ... 38 ... 631,554
Held Positions ... 12 ... 3,551,140
Total Institutional Shares ... 98 ... 4,797,778
I don't get it either. One where I'd like to know what are you buying that looks better than TIS down here?
Didn't think we'd slide to the $24's when revenues and earnings are about to start ramping up sharply in Q2. Guess investors don't have patience anymore. Within a few months (if that long) the stock will be back over $30. By yearend TIS could easily be trading 50% higher. One of the better deals in a market that looks rather expensive.
It's as if the investing world forgot all about this 8K and what it said.
https://ir.orchidspaper.com/all-sec-filings#document-3530-0001144204-17-003432
It's head shakingly crazy that investors have no interest in hanging around for the estimated 35% revenue gains to materialize while collecting a very generous Annual Dividend / Yield ... $1.40 / 5.48% for their patience.
Item 7.01. Regulation FD Disclosure.
As advised during the third-quarter earnings call, Orchids Paper Products Company (the “Company” or “Orchids”) has been actively engaged in several retailer private-label bid-processes. Now, in an effort to provide additional and useful information to its shareholders, Orchids is announcing that it has been awarded a significant amount of new business in the form of bid awards from new and existing customers (the “Award”), pursuant to which converted-product cases may be ordered via purchase order. Winning bids included both conventional and structured tissue products expected to be produced in Orchid’s new plant in Barnwell, SC as well as the Pryor, OK facility. The Company anticipates that purchase orders under the Award may ultimately represent approximately a 35% increase in the annualized sales volume of converted-product cases, based on customer forecasts and relative to third quarter 2016 actual sales volumes, with full implementation in the third quarter of 2017.
TIS Volume (Heavy Day) 104,558
March 29, 2017 2:42pm ET
Price $24.78
Day's Change -0.76 (-2.98%)
Trade & Industry Dev? @TIDRoundup - Orchids Paper Products to Establish HQ in Brentwood #Tennnessee, Hire 25 http://ow.ly/mgcF309SayX @TNECD @williamson_inc #siteselection #mfg
Orchids Paper Products to Establish HQ in Brentwood #Tennnessee, Hire 25 https://t.co/jcbh87uShZ @TNECD @williamson_inc #siteselection #mfg pic.twitter.com/kcP5caLU1f
— Trade & Industry Development (@TIDRoundup) March 13, 2017
Orchids Paper Products Company (TIS) Price Target Increased to $26.00 by Analysts at Jefferies Group LLC
https://www.americanbankingnews.com/2017/03/14/orchids-paper-products-company-tis-price-target-increased-to-26-00-by-analysts-at-jefferies-group-llc-2.html
You're totally level headed in your assessment.
I couldn't have said it better myself. TIS is flying under the radar while it grows. I can't imagine why more people don't want to hang around and collect the dividend while they finish the mill.
It's not easy to bet the entire company and build a new mill. But they did it and then hit a home run by selling out production before the mill is finished.
We're just waiting for reality to catch up to commitments.
I've been gladly adding shares here. TIS popped over $30 after the earnings report last month. Didn't expect to see it back near $25. Hard to believe the stock is actually below where it was when they announced that terrific news in January. Company awarded significant new business which should result in a 35% increase in sales, which you posted about:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=128104428
I'll keep accumulating. Upcoming Q1 will stink, so maybe it gets even cheaper. But the outlook should be very bullish with sales ramping up starting in Q2. Seems like only a matter of time before TIS is back up in the $30-$35 range, if not higher. And we get a 5.5% dividend yield while we wait.
Boredom made people forget that TIS sold out the S.C. mill before it's even open.
If there is a chance for me to buy more at $24 because other investors forgot how good the company is, I will welcome it.
Price $28.61...Day's Change $2.95 (+11.48%) Volume (Heavy Day) 308,648
Item 7.01. Regulation FD Disclosure.
As advised during the third-quarter earnings call, Orchids Paper Products Company (the “Company” or “Orchids”) has been actively engaged in several retailer private-label bid-processes. Now, in an effort to provide additional and useful information to its shareholders, Orchids is announcing that it has been awarded a significant amount of new business in the form of bid awards from new and existing customers (the “Award”), pursuant to which converted-product cases may be ordered via purchase order. Winning bids included both conventional and structured tissue products expected to be produced in Orchid’s new plant in Barnwell, SC as well as the Pryor, OK facility. The Company anticipates that purchase orders under the Award may ultimately represent approximately a 35% increase in the annualized sales volume of converted-product cases, based on customer forecasts and relative to third quarter 2016 actual sales volumes, with full implementation in the third quarter of 2017.
Although there is no guarantee of volume, the common practice in the industry is to award business based on a bid process designated by the customer with clear volume expectations and timing for shipment communicated to the supplier as part of the award process. Orchids’ experience has been that volumes under purchase orders which it receives under winning bids generally approach the volumes identified in the Awards.
The Company expects purchase orders under the Award to be received in the first and second quarters of 2017 with fully implemented volumes shipped in the third quarter of 2017. Orchids has begun to receive purchase orders for late first quarter shipment with subsequent purchase orders expected in the second quarter of 2017. The majority of the awarded business will begin to ship in late second quarter 2017. The Company is currently in the process of art work approval, item set up, and production planning to meet targeted ship dates designated by the customers in order to meet these expectations. Orchids continues to actively participate in additional private-label bids, the results of which are expected to become known late in the first quarter of 2017, and sales, if awarded, to be advanced in the third and fourth quarters of 2017. Orchids anticipates discussing additional new business, if any, during its quarterly investors’ calls.
The information in this Item 7.01 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Cautionary Note Regarding Forward-Looking Statements
This Form 8-K includes statements that may constitute “forward looking statements.” These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of assumptions, risks, uncertainties and other factors, including (i) that the customers issue purchase orders for the volumes and within the time frames that the Company anticipates based upon the bid Awards, (ii) the Company’s ability to complete the construction project of our South Carolina facility and the installation and ramp up of the paper machine and converting lines, and (iii) the Company’s ability to deliver the converted products within the specifications and time required by applicable purchase orders, which may cause the actual results to be materially different from those expressed or implied in the forward-looking statements. Other important factors are discussed under the caption “Forward-Looking Statements” and “Risk Factors “in the Company’s Form 10-K for the year ended December 31, 2015 and in subsequent filings made prior to or after the date hereof. The Company does not intend to review or revise any particular forward-looking statement in light of future events.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ORCHIDS PAPER PRODUCTS COMPANY
Date: January 23, 2017 By: /s/ Rodney D. Gloss
Rodney D. Gloss
Chief Financial Officer
Entry into a Material Definitive Agreement.
On January 19, 2017, Orchids Paper Products Company (the “Company”) entered into Amendment No. 3 (the “Amendment”) to its Second Amended and Restated Credit Agreement dated June 25, 2015 by and among the Company, U.S. Bank National Association (“U.S. Bank”) and the other lenders party thereto (the “Credit Agreement”).
The Amendment, among other things, (i) increases the amount each lender is committed to make available to the Company; (ii) modifies the pricing grid applicable to interest rates and the unused commitment fee under the Credit Agreement in order to provide for an additional pricing level applicable based on the total leverage ratio of the Company; (iii) amends the financial covenant in the Credit Agreement related to maintenance of a maximum total leverage ratio by increasing the permitted total leverage ratio for fiscal quarters ending on or prior to March 31, 2018; and (iv) amends the terms of the Draw Loan (as defined in the Credit Agreement) to provide for additional advance amounts available to the Company for the purposes of acquiring or improving real estate.
More particularly:
· The total loan commitment was increased from $167.2 million to $176.1 million.
· The fees paid for the amendment total $0.2 million.
· The maximum twelve-month rolling leverage ratios are allowed to increase to 5.75 to 1 prior to being decreased to 3.5:1, as originally scheduled.
· Eurocurrency interest rate margins vary with the degree of leverage and range between 1.25% and 4.0%.
Obligations under the Credit Agreement remain secured by substantially all of the Company’s assets. Also, the Credit Agreement continues to include representations and warranties, and affirmative and negative covenants customary for financings of this type, including, but not limited to, limitations on additional borrowings, additional investments and asset sales.
The foregoing summary is not complete and is qualified in its entirety by reference to the full text of the Amendment, a copy of which is attached as Exhibit 10.1 to this Form 8-K and is incorporated herein by reference.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under and Off-Balance Sheet Arrangement of a Registrant.
The information provided in Item 1.01 of this Form 8-K is incorporated by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits. See the Exhibit Index which is hereby incorporated by reference.
Could Orchids Paper Products Company Recover After Today’s Gap Up?
by Staff Contributor — June 30, 2016
The stock of Orchids Paper Products Company (NYSEMKT:TIS) gapped up by $0.05 today and has $50.21 target or 41.00% above today’s $35.61 share price. The 8 months technical chart setup indicates low risk for the $369.19 million company. The gap was reported on Jun, 30 by Barchart.com. If the $50.21 price target is reached, the company will be worth $151.37M more. Gaps up are useful for using as a support level and to some extent as a tradeable event. If investors already hold the stock and experience a price gap up, then its usually a good idea to hold the stock for a stronger up move. Back-tests of these patterns indicate that two-thirds of the times the stock performance improves after the gap. The area gaps close 89% of the time, the breakaway gaps, 2%, the continuation gaps 4% and the exhaustion gaps 61%. The stock increased 2.30% or $0.8 during the last trading session, hitting $35.61. About 87,277 shares traded hands or 39.82% up from the average. Orchids Paper Products Company (NYSEMKT:TIS) has risen 18.66% since November 23, 2015 and is uptrending. It has outperformed by 21.20% the S&P500.
Analysts await Orchids Paper Products Company (NYSEMKT:TIS) to report earnings on August, 3. They expect $0.38 EPS, up 11.76% or $0.04 from last year’s $0.34 per share. TIS’s profit will be $3.94M for 23.43 P/E if the $0.38 EPS becomes a reality. After $0.54 actual EPS reported by Orchids Paper Products Company for the previous quarter, Wall Street now forecasts -29.63% negative EPS growth.
Out of 4 analysts covering Orchids Paper Products Co (NYSEMKT:TIS), 4 rate it a “Buy”, 0 “Sell”, while 0 “Hold”. This means 100% are positive. Orchids Paper Products Co has been the topic of 4 analyst reports since October 15, 2015 according to StockzIntelligence Inc.
TIS...$34.86...All-time closing high>>>Annual Dividend/Yield>>>$1.40/4.18%
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