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Monday, May 01, 2017 9:04:33 AM
Orchids Paper Products Company Announces 2017 First Quarter Results And Suspends Quarterly Dividend To Preserve Financial Flexibility
"Regarding the Barnwell, South Carolina, project, the two converting lines are ramping-up to meet the new demand, and the paper mill is scheduled to be in production in June and to be immediately capable of making and selling parent roll capacity in excess of that required for converted product sales. The ramp-up of the paper mill is expected to continue throughout the third quarter."
BRENTWOOD, Tenn., May 1, 2017 /PRNewswire/ -- Orchids Paper Products Company (TIS) today reported results for the quarter ended March 31, 2017. The following tables provide selected financial results for first quarter 2017 compared to first quarter 2016 and to fourth quarter 2016.
Q1 2017
Q1 2016
Q4 2016
(Dollars in thousands, except per share data) (unaudited)
Net sales:
Converted product
$ 32,898
$ 45,252
$ 35,226
Parent rolls
2,456
2,491
2,483
Total net sales
$ 35,354
$ 47,743
$ 37,709
Gross profit
$ 1,969
$ 11,381
$ 5,680
Net (loss) income
$ (860)
$ 5,409
$ 2,621
Diluted net (loss) income per share
$ (0.08)
$ 0.52
$ 0.25
EBITDA
$ 2,741
$ 11,497
$ 5,983
Adjusted EBITDA
$ 2,811
$ 11,706
$ 6,260
Other Selected Financial Data:
Gross profit margin
5.6%
23.8%
15.1%
EBITDA margin
7.8%
24.1%
15.9%
Adjusted EBITDA margin
8.0%
24.5%
16.6%
Jeff Schoen, President and Chief Executive Officer, stated, "As we expected, the first half of 2017 was going to be a challenging period until the new business awarded started to be produced and shipped. Sales were negatively impacted in January and February by one-time inventory reductions in preparation for a restage of private label programs that started to ship in March. Costs were negatively impacted by the continued effect of start-up costs for our Barnwell, South Carolina plant. Looking to the second quarter, production of the new volume that we announced in January, representing 3.0MM cases or more of new business, has begun, which we expect to be fully implemented by the beginning of third quarter. As previously stated, we expect the new volume to generate in the area of $15 million to $20 million of EBITDA and to attain a run rate of $50 million to $60 million of EBITDA when our new capacity is sold out.
"Operating cash flow less changes in working capital provided $7.4 million in the first quarter of 2017, relative to $6.8 million the fourth quarter of 2016. We avoided stock-piling inventory and were able to exit some rented warehouse space. Despite spending $18.0 million on capital projects, we only increased financings by $11.5 million.
"Regarding the Barnwell, South Carolina, project, the two converting lines are ramping-up to meet the new demand, and the paper mill is scheduled to be in production in June and to be immediately capable of making and selling parent roll capacity in excess of that required for converted product sales. The ramp-up of the paper mill is expected to continue throughout the third quarter."
First Quarter 2017, relative to First Quarter 2016
Net sales decreased $12.4 million, or 26%, primarily due to heavy promotional activity by brand-competitors and other competitive pressures. Parent roll sales were $2.5 million in both quarters, and converted product sales decreased $12.4 million to $32.9 million. $10.2 million of the decrease in revenue was attributable to the decreased number of tons sold, and $2.2 million was attributable to a decline in the average price per ton that reflects a changing mix of customers buying a changing mix of products.
Cost of sales, exclusive of depreciation, decreased $3.6 million, or 11%. Tons sold decreased by 20% leading to a decrease of $7.0 million in cost of sales; however, the average cost per unit increased 9%, offsetting $3.4 million of this decrease. The addition of labor, overhead, and start-up costs for Barnwell, not yet being offset by production and absorption, account for the largest portion of the relative cost increase. The decline in production volumes drove decreased absorption and unfavorable efficiency variances to which we attribute roughly $4.4 million of the change in cost. Increases in repairs and maintenance, $0.5 million; direct labor, $0.4 million; and other cost increases were more than offset by savings, principally from lower fiber costs and from decreased freight costs.
Interest expense increased $0.3 million, or 97%, due principally to increased debt levels. Our interest rate is also variable and dependent upon our financial leverage. Most interest incurred continues to be capitalized to the Barnwell, South Carolina, capital project, pending its completion.
A tax benefit of $0.4 million was recognized in the first quarter of 2017 compared to tax expense of $2.8 million in the first quarter of 2016, reflecting both the decline in pre-tax earnings and the Company's recognition of tax credits. The effective combined tax rate estimated in the first quarter of 2017 is 30%.
As a result of the foregoing factors, a net loss of $0.9 million, or ($0.08) per basic share, was recognized in the first quarter of 2017 compared to net income of $5.4 million, or $0.53 per basic share, in the first quarter of 2016.
First Quarter 2017, relative to Fourth Quarter 2016
Net sales decreased $2.4 million, or 6%, as customers tended to work-off high inventory levels following heavy promotional activity by brand-competitors and other competitive pressures in prior quarters. Parent roll sales remained similar between the quarters, declining less than $0.1 million, while converted product sales decreased $2.3 million. A decline in the number of tons sold resulted in a $2.7 million decrease in net sales, while a higher average selling price per ton increased net sales by $0.3 million.
Cost of sales, exclusive of depreciation, increased $1.2 million, or 4%. Tons sold decreased by 7% leading to a decrease in cost of sales of $2.0 million; however cost increases of $3.2 million, or 11%, more than offset the decrease. The decline in production volumes drove decreased absorption and unfavorable efficiency variances to which we attribute roughly $1.3 million of the unfavorable change in cost. Additionally, approximately $1.0 million of the unfavorable change in costs of sales resulted from seasonal fluctuations and certain costs that are not expected to be reoccurring, including unfavorable variances in purchasing rebates, increased freight costs for shipments of parent rolls from Pryor to Barnwell (that will be avoidable once Barnwell's mill is operational), seasonal social security expenses, Barnwell's mill labor in training, and other unfavorable variances related to employee benefits.Mexicali's costs increased approximately $0.3 million due principally to increased fiber costs on the West Coast and increased local electrical rates, while Pryor benefited from $0.2 million of cost savings from its mix of fiber. In the fourth quarter, Barnwell had a favorable inventory adjustment of approximately $0.4 million, which was not replicated in the first quarter. Repairs and maintenance, freight costs for shipments to the West Coast, and other overhead costs increased approximately $0.4 million in net.
Interest expense remained relatively flat at $0.5 million in both the first quarter of 2017 and the fourth quarter of 2016. Most interest incurred continues to be capitalized to the Barnwell, South Carolina, project, pending its completion.
A tax benefit of $0.4 million was recognized in the first quarter of 2017, as discussed above. A tax benefit of $0.4 million was also recognized in the fourth quarter of 2016, reflecting the Company's recognition of Oklahoma,South Carolina, Indian Employment, and Foreign tax credits.
As a result of the foregoing factors, a net loss of $0.9 million was recognized in the first quarter of 2017 compared to net income of $2.6 million in the fourth quarter of 2016.
First Quarter 2017 EBITDA relative to Fourth Quarter 2016 EBITDA
To assist in summarizing the changes that occurred in first quarter of 2017, a bridge follows, intended to show the significant changes in EBITDA between the first quarter and the immediately preceding quarter, the fourth quarter of 2016. EBITDA of $6.0 million in the fourth quarter of 2016 is being compared to EBITDA of $2.7 million in the first quarter of 2017.
Average selling prices increased, contributing $0.3 million.
Sales volumes declined, reducing the gross margin by $0.7 million.
A reduction of approximately $1.3 million is attributable to unfavorable absorption and manufacturing variances in turn attributable to decreased production and sales volumes.
One-off changes and ramp-up costs of $0.9 million were incurred, e.g. labor incurred during training of new employees in Barnwell, timing of recognition of rebates, and other factors noted in the cost of sales section above.
A reduction of $0.3 million is attributable to changes in inventory adjustments at Barnwell and to increased repairs and maintenance atBarnwell that may or may not be reoccurring.
Net favorable cost adjustments of approximately $0.3 million in the fourth quarter were not reoccurring in the first quarter.
Liquidity
Q1 2017
Q1 2016
Q4 2016
(Dollars in thousands) (unaudited)
Cash Flow Provided by (Used in):
Operating cash flow net of changes in working capital
$ 7,376
$ 8,628
$ 6,803
Changes in working capital
(3,763)
235
765
Operating activities
$ 3,613
$ 8,863
$ 7,568
Investing activities
$ (18,051)
$ (20,785)
$ (14,255)
Financing activities
$ 11,465
$ 15,600
$ 6,876
Cash balance, beginning
$ 8,750
$ 4,361
$ 8,561
Cash balance, ending
$ 5,777
$ 8,039
$ 8,750
At March 31, 2017, Debt, not having been netted with unamortized deferred debt issuance costs, was $153.6 million and the Adjusted EBITDA leverage ratio was 6.2. The Banks waived the leverage ratio covenant for the first and second quarters of 2017. The total projected expenditure for the Barnwellfacility is $150 million to $155 million, of which approximately $147.0 million had been expended as of March 31, 2017.
First quarter 2017 relative to first quarter 2016: Operating cash flows excluding changes in working capital decreased $1.3 million compared to the first quarter of 2016, primarily reflecting the decrease in net income, net of changes in deferred taxes. Changes in working capital used $3.8 million of operating cash flows in the first quarter of 2017 compared to providing $0.2 million of operating cash flows in the first quarter of 2016. Increased borrowings in both periods were used to finance investments in the Barnwellfacility. In 2015, the Company received $12.0 million of restricted cash from financings, of which $4.8 million was used in first quarter 2016 for theBarnwell facility and was, accordingly, included in Investing activities. The Company paid dividends of $3.6 million in the first quarter of 2016, which is included in Financing activities.
First quarter 2017 relative to fourth quarter 2016: Operating cash flows excluding changes in working capital increased $0.6 million compared to the fourth quarter of 2016, primarily reflecting changes in deferred income taxes net of the decrease in net income. Changes in working capital used $3.8 million of operating cash flows in the first quarter of 2017 compared to providing $0.8 million of operating cash flows in the fourth quarter of 2016. Increased borrowings in both periods were used to finance investments in theBarnwell facility. The Company paid dividends of $3.6 million in the fourth quarter of 2016, which is included in Financing activities.
Dividend
Orchids is committed to our growth strategy of expanding capacity, expanding our markets and sales, and leveraging our low costs of production. Even though we expect to see step-change improvements in earnings and cash flow in the third and fourth quarters, the Board considered it prudent and the responsible course of action to suspend the quarterly dividend to preserve financial flexibility and ensure our capital is allocated to further the success of our business. In the Board's judgment, at this time, the better use of cash is to invest in the Barnwell, South Carolina project and to directly address the financial leverage ratios.
The declaration and payment of future dividends to holders of our common stock will be based upon many factors, including our financial condition, earnings, capital requirements of our businesses, legal requirements, regulatory constraints, industry practice, restrictions under the Company's credit agreements, and other factors that the Board of Directors deems relevant. The Board of Directors retains the power to modify, suspend or cancel the Company's dividend policy in any manner and at any time as it may in its discretion deem necessary or appropriate.
"Regarding the Barnwell, South Carolina, project, the two converting lines are ramping-up to meet the new demand, and the paper mill is scheduled to be in production in June and to be immediately capable of making and selling parent roll capacity in excess of that required for converted product sales. The ramp-up of the paper mill is expected to continue throughout the third quarter."
BRENTWOOD, Tenn., May 1, 2017 /PRNewswire/ -- Orchids Paper Products Company (TIS) today reported results for the quarter ended March 31, 2017. The following tables provide selected financial results for first quarter 2017 compared to first quarter 2016 and to fourth quarter 2016.
Q1 2017
Q1 2016
Q4 2016
(Dollars in thousands, except per share data) (unaudited)
Net sales:
Converted product
$ 32,898
$ 45,252
$ 35,226
Parent rolls
2,456
2,491
2,483
Total net sales
$ 35,354
$ 47,743
$ 37,709
Gross profit
$ 1,969
$ 11,381
$ 5,680
Net (loss) income
$ (860)
$ 5,409
$ 2,621
Diluted net (loss) income per share
$ (0.08)
$ 0.52
$ 0.25
EBITDA
$ 2,741
$ 11,497
$ 5,983
Adjusted EBITDA
$ 2,811
$ 11,706
$ 6,260
Other Selected Financial Data:
Gross profit margin
5.6%
23.8%
15.1%
EBITDA margin
7.8%
24.1%
15.9%
Adjusted EBITDA margin
8.0%
24.5%
16.6%
Jeff Schoen, President and Chief Executive Officer, stated, "As we expected, the first half of 2017 was going to be a challenging period until the new business awarded started to be produced and shipped. Sales were negatively impacted in January and February by one-time inventory reductions in preparation for a restage of private label programs that started to ship in March. Costs were negatively impacted by the continued effect of start-up costs for our Barnwell, South Carolina plant. Looking to the second quarter, production of the new volume that we announced in January, representing 3.0MM cases or more of new business, has begun, which we expect to be fully implemented by the beginning of third quarter. As previously stated, we expect the new volume to generate in the area of $15 million to $20 million of EBITDA and to attain a run rate of $50 million to $60 million of EBITDA when our new capacity is sold out.
"Operating cash flow less changes in working capital provided $7.4 million in the first quarter of 2017, relative to $6.8 million the fourth quarter of 2016. We avoided stock-piling inventory and were able to exit some rented warehouse space. Despite spending $18.0 million on capital projects, we only increased financings by $11.5 million.
"Regarding the Barnwell, South Carolina, project, the two converting lines are ramping-up to meet the new demand, and the paper mill is scheduled to be in production in June and to be immediately capable of making and selling parent roll capacity in excess of that required for converted product sales. The ramp-up of the paper mill is expected to continue throughout the third quarter."
First Quarter 2017, relative to First Quarter 2016
Net sales decreased $12.4 million, or 26%, primarily due to heavy promotional activity by brand-competitors and other competitive pressures. Parent roll sales were $2.5 million in both quarters, and converted product sales decreased $12.4 million to $32.9 million. $10.2 million of the decrease in revenue was attributable to the decreased number of tons sold, and $2.2 million was attributable to a decline in the average price per ton that reflects a changing mix of customers buying a changing mix of products.
Cost of sales, exclusive of depreciation, decreased $3.6 million, or 11%. Tons sold decreased by 20% leading to a decrease of $7.0 million in cost of sales; however, the average cost per unit increased 9%, offsetting $3.4 million of this decrease. The addition of labor, overhead, and start-up costs for Barnwell, not yet being offset by production and absorption, account for the largest portion of the relative cost increase. The decline in production volumes drove decreased absorption and unfavorable efficiency variances to which we attribute roughly $4.4 million of the change in cost. Increases in repairs and maintenance, $0.5 million; direct labor, $0.4 million; and other cost increases were more than offset by savings, principally from lower fiber costs and from decreased freight costs.
Interest expense increased $0.3 million, or 97%, due principally to increased debt levels. Our interest rate is also variable and dependent upon our financial leverage. Most interest incurred continues to be capitalized to the Barnwell, South Carolina, capital project, pending its completion.
A tax benefit of $0.4 million was recognized in the first quarter of 2017 compared to tax expense of $2.8 million in the first quarter of 2016, reflecting both the decline in pre-tax earnings and the Company's recognition of tax credits. The effective combined tax rate estimated in the first quarter of 2017 is 30%.
As a result of the foregoing factors, a net loss of $0.9 million, or ($0.08) per basic share, was recognized in the first quarter of 2017 compared to net income of $5.4 million, or $0.53 per basic share, in the first quarter of 2016.
First Quarter 2017, relative to Fourth Quarter 2016
Net sales decreased $2.4 million, or 6%, as customers tended to work-off high inventory levels following heavy promotional activity by brand-competitors and other competitive pressures in prior quarters. Parent roll sales remained similar between the quarters, declining less than $0.1 million, while converted product sales decreased $2.3 million. A decline in the number of tons sold resulted in a $2.7 million decrease in net sales, while a higher average selling price per ton increased net sales by $0.3 million.
Cost of sales, exclusive of depreciation, increased $1.2 million, or 4%. Tons sold decreased by 7% leading to a decrease in cost of sales of $2.0 million; however cost increases of $3.2 million, or 11%, more than offset the decrease. The decline in production volumes drove decreased absorption and unfavorable efficiency variances to which we attribute roughly $1.3 million of the unfavorable change in cost. Additionally, approximately $1.0 million of the unfavorable change in costs of sales resulted from seasonal fluctuations and certain costs that are not expected to be reoccurring, including unfavorable variances in purchasing rebates, increased freight costs for shipments of parent rolls from Pryor to Barnwell (that will be avoidable once Barnwell's mill is operational), seasonal social security expenses, Barnwell's mill labor in training, and other unfavorable variances related to employee benefits.Mexicali's costs increased approximately $0.3 million due principally to increased fiber costs on the West Coast and increased local electrical rates, while Pryor benefited from $0.2 million of cost savings from its mix of fiber. In the fourth quarter, Barnwell had a favorable inventory adjustment of approximately $0.4 million, which was not replicated in the first quarter. Repairs and maintenance, freight costs for shipments to the West Coast, and other overhead costs increased approximately $0.4 million in net.
Interest expense remained relatively flat at $0.5 million in both the first quarter of 2017 and the fourth quarter of 2016. Most interest incurred continues to be capitalized to the Barnwell, South Carolina, project, pending its completion.
A tax benefit of $0.4 million was recognized in the first quarter of 2017, as discussed above. A tax benefit of $0.4 million was also recognized in the fourth quarter of 2016, reflecting the Company's recognition of Oklahoma,South Carolina, Indian Employment, and Foreign tax credits.
As a result of the foregoing factors, a net loss of $0.9 million was recognized in the first quarter of 2017 compared to net income of $2.6 million in the fourth quarter of 2016.
First Quarter 2017 EBITDA relative to Fourth Quarter 2016 EBITDA
To assist in summarizing the changes that occurred in first quarter of 2017, a bridge follows, intended to show the significant changes in EBITDA between the first quarter and the immediately preceding quarter, the fourth quarter of 2016. EBITDA of $6.0 million in the fourth quarter of 2016 is being compared to EBITDA of $2.7 million in the first quarter of 2017.
Average selling prices increased, contributing $0.3 million.
Sales volumes declined, reducing the gross margin by $0.7 million.
A reduction of approximately $1.3 million is attributable to unfavorable absorption and manufacturing variances in turn attributable to decreased production and sales volumes.
One-off changes and ramp-up costs of $0.9 million were incurred, e.g. labor incurred during training of new employees in Barnwell, timing of recognition of rebates, and other factors noted in the cost of sales section above.
A reduction of $0.3 million is attributable to changes in inventory adjustments at Barnwell and to increased repairs and maintenance atBarnwell that may or may not be reoccurring.
Net favorable cost adjustments of approximately $0.3 million in the fourth quarter were not reoccurring in the first quarter.
Liquidity
Q1 2017
Q1 2016
Q4 2016
(Dollars in thousands) (unaudited)
Cash Flow Provided by (Used in):
Operating cash flow net of changes in working capital
$ 7,376
$ 8,628
$ 6,803
Changes in working capital
(3,763)
235
765
Operating activities
$ 3,613
$ 8,863
$ 7,568
Investing activities
$ (18,051)
$ (20,785)
$ (14,255)
Financing activities
$ 11,465
$ 15,600
$ 6,876
Cash balance, beginning
$ 8,750
$ 4,361
$ 8,561
Cash balance, ending
$ 5,777
$ 8,039
$ 8,750
At March 31, 2017, Debt, not having been netted with unamortized deferred debt issuance costs, was $153.6 million and the Adjusted EBITDA leverage ratio was 6.2. The Banks waived the leverage ratio covenant for the first and second quarters of 2017. The total projected expenditure for the Barnwellfacility is $150 million to $155 million, of which approximately $147.0 million had been expended as of March 31, 2017.
First quarter 2017 relative to first quarter 2016: Operating cash flows excluding changes in working capital decreased $1.3 million compared to the first quarter of 2016, primarily reflecting the decrease in net income, net of changes in deferred taxes. Changes in working capital used $3.8 million of operating cash flows in the first quarter of 2017 compared to providing $0.2 million of operating cash flows in the first quarter of 2016. Increased borrowings in both periods were used to finance investments in the Barnwellfacility. In 2015, the Company received $12.0 million of restricted cash from financings, of which $4.8 million was used in first quarter 2016 for theBarnwell facility and was, accordingly, included in Investing activities. The Company paid dividends of $3.6 million in the first quarter of 2016, which is included in Financing activities.
First quarter 2017 relative to fourth quarter 2016: Operating cash flows excluding changes in working capital increased $0.6 million compared to the fourth quarter of 2016, primarily reflecting changes in deferred income taxes net of the decrease in net income. Changes in working capital used $3.8 million of operating cash flows in the first quarter of 2017 compared to providing $0.8 million of operating cash flows in the fourth quarter of 2016. Increased borrowings in both periods were used to finance investments in theBarnwell facility. The Company paid dividends of $3.6 million in the fourth quarter of 2016, which is included in Financing activities.
Dividend
Orchids is committed to our growth strategy of expanding capacity, expanding our markets and sales, and leveraging our low costs of production. Even though we expect to see step-change improvements in earnings and cash flow in the third and fourth quarters, the Board considered it prudent and the responsible course of action to suspend the quarterly dividend to preserve financial flexibility and ensure our capital is allocated to further the success of our business. In the Board's judgment, at this time, the better use of cash is to invest in the Barnwell, South Carolina project and to directly address the financial leverage ratios.
The declaration and payment of future dividends to holders of our common stock will be based upon many factors, including our financial condition, earnings, capital requirements of our businesses, legal requirements, regulatory constraints, industry practice, restrictions under the Company's credit agreements, and other factors that the Board of Directors deems relevant. The Board of Directors retains the power to modify, suspend or cancel the Company's dividend policy in any manner and at any time as it may in its discretion deem necessary or appropriate.
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