PGI Reports First Quarter 2013 Results

CHARLOTTE, N.C., May 9, 2013 /PRNewswire/ -- Polymer Group, Inc. ("PGI" or the "Company") reported results of operations for the first quarter ended March 30, 2013.

First Quarter 2013 Highlights:

  • Overall Results Consistent with Expectations
    • Business fundamentals demonstrate incremental improvement 
    • Raw material cost volatility and competitive pricing environment created expected headwind
    • New growth initiatives support focus on global economic leadership and cost optimization
  • Revenue Up Sequentially on Strength of Europe and Asia
    • Net sales for the first quarter of 2013 were $287.1 million compared with $295.2 million for the first quarter of 2012 and $273.7 million for the fourth quarter of 2012. 
    • Net sales in Europe grew 3.4% compared with the prior year as underlying demand stabilized in industrial markets along with increased demand for wipes.  Net sales in Asia increased 4.2% compared with the prior year primarily driven by the healthcare market.  Lower volumes and reduced selling prices in the Americas, particularly in Latin America, reduced segment net sales by 7.8%.
    • Total sales volumes decreased 1.6% compared with the prior year and increased 1.2% over the fourth quarter of 2012 driven by demand in the industrial and wipes markets.   
  • Profitability Reflects Raw Material Volatility in Americas and Benefit of Cost Improvement Initiatives
    • Gross profit was $45.9 million during the first quarter of 2013 compared with $53.2 million in the prior year, primarily driven by lower net selling prices, higher cost of raw materials and lower volumes, partially offset by reduced labor costs reflecting the positive benefits of 2012 plant consolidation activity.  Gross profit was $45.7 million in the fourth quarter of 2012.

PGI's chief executive officer, Veronica (Ronee) M. Hagen, stated, "Consistent with our outlook for the first half of the year, we are experiencing incremental gains in the fundamentals of our business.  The raw material cost volatility and a competitive pricing environment provided headwinds, as expected.  However, we are gaining momentum with our new investment underway in Asia, extension of our economic leadership in all markets and execution of global cost optimization, all of which are now supported by new growth initiatives in each segment."

FIRST QUARTER 2013 RESULTS

Net sales were $287.1 million for the first quarter of 2013 compared with $295.2 million for the first quarter of 2012.  The decrease in net sales was primarily driven by lower net selling prices of $7.5 million in the Americas, reflecting raw material trends and a competitive pricing environment. These impacts were partially offset by higher net selling prices in Europe and Asia, which contributed $1.2 million as the result of passing through higher raw material costs and positive mix improvements.  In addition, favorable foreign currency impacts resulted in higher translation of sales generated in foreign jurisdictions, particularly in Europe and Asia.

Volumes were lower in the Americas, particularly in Latin America, impacting sales by $5.4 million.  However, the volume reduction was partially offset by increased sales of wipes and industrial products in the U.S. as demand increased with overall markets.  In addition, incremental growth of $1.3 million in Asia was primarily driven by higher volumes sold in the hygiene markets as well as healthcare product sales from the new spunmelt line installed in 2011.  Higher volumes in Europe of $1.1 million were due to the stabilization of underlying demand in our industrial markets as well as additional volume for consumer disposables, particularly wipes.  Volume in our Oriented Polymers segment increased $1.0 million attributable to higher demand in the building products market.

Gross profit was $45.9 million for the first quarter of 2013 compared with $53.2 million for the first quarter of 2012.  As a result, gross profit as a percentage of net sales for the first quarter of 2013 was 16.0% compared with 18.0% in the first quarter of 2012.  The decrease in gross margin was primarily driven by lower net selling prices.  In addition, our higher overall cost for the raw materials of resin and fibers, especially polypropylene resin, contributed to the decrease.  Lower net spread (the difference between the change in raw material costs and selling prices) and the associated lag to adjust selling prices were driven by a reduction in selling prices and higher raw material costs during the quarter, which negatively impacted profitability.  In addition, gross profit was impacted by higher manufacturing costs primarily associated with certain volume-related manufacturing inefficiencies.  However, these amounts were partially offset by the positive benefits of our plant consolidation activity in the U.S. implemented during 2012. 

Selling, general and administrative expenses were $34.3 million for the first quarter of 2013 compared with $34.1 million for the first quarter of 2012.  The year-over-year increase was primarily driven by a $1.5 million increase in shipping and handling costs associated with higher amounts of shipping activity between regions as certain new products were ramping up.  Other factors contributing to the increase included $0.5 million associated with our utilization of a third-party provider for information system support as well as $0.4 million associated with the reimbursement of out-of-pocket expenses in connection with our management services agreement with Blackstone.  These amounts were partially offset by cost reduction initiatives implemented during 2012 which reduced employee-related expenses such as salaries, benefits, short-term incentive compensation, travel and severance.  Combined, these reductions totaled $1.4 million.  Other reductions included $0.6 million related to research and development, $0.2 million related to favorable changes in foreign currency rates and $0.1 million related to professional fees.  As a result, selling, general and administrative expenses as a percentage of net sales were 12.0% for the first quarter of 2013 compared with 11.6% for the first quarter of 2012. 

Special charges were $1.8 million for the first quarter of 2013 and included $1.6 million related to restructuring and plant realignment costs in addition to other cost-reduction initiatives.  Special charges were $2.4 million for the first quarter of 2012 and included $1.7 million related restructuring and plant realignment costs, $0.4 million of merger related expenses as well as other corporate expenses.

Operating income for the first quarter of 2013 was $9.4 million compared with $17.0 million in the first quarter of 2012 and $0.1 million in the fourth quarter of 2012.  The overall decrease in operating income was primarily driven by lower net spreads.  The Company reported a net loss of $6.2 million for the first quarter of 2013 compared with a net loss of $0.3 million for the first quarter of 2012 and a net loss of $15.0 million in the fourth quarter of 2012.

Adjusted EBITDA for the first quarter of 2013 was $29.0 million compared with $36.8 million for the first quarter of 2012 and $26.6 million for the fourth quarter of 2012.  Adjusted EBITDA, a non-GAAP financial measure, is defined and reconciled to net income below.

FINANCIAL METRICS

Net debt (defined as total debt less cash balances) as of March 30, 2013 was $531.4 million compared with $501.8 million as of December 29, 2012.  Capital expenditures for the first quarter of 2013 were $14.3 million.  Operating working capital (defined as accounts receivable plus inventories less trade accounts payable and accrued liabilities) was $43.6 million as of March 30, 2013, or 3.8% of net sales, compared with $29.6 million as of December 29, 2012, or 2.7% of net sales.

NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA (as defined below) is used in this release as a "non-GAAP financial measure," which is a measure of the company's financial performance that is different from measures calculated and presented in accordance with GAAP within the meaning of applicable Securities and Exchange Commission rules.  A non-GAAP financial measure, such as EBITDA or Adjusted EBITDA, should not be viewed as an alternative to GAAP measures of performance such as (1) net income determined in accordance with GAAP or (2) operating cash flows determined in accordance with GAAP.  The calculation of Adjusted EBITDA may not be comparable to the calculation of similarly titled measures reported by other companies.

As defined in the company's indenture and credit agreements, Adjusted EBITDA is generally calculated as net income (loss) before interest expense, income and franchise taxes and depreciation and amortization, further adjusted to exclude the effects of currency and certain unusual, non-cash, non-recurring and other items permitted in calculating covenant compliance under the indenture governing the Senior Secured Notes and the credit agreement governing our ABL facility.  With certain exceptions, it is also generally consistent with the metric used by management as a performance measurement for certain performance-based incentive compensation plans.  In addition, the company considers Adjusted EBITDA an important supplemental measure of its performance and believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in its industry.

Polymer Group, Inc. is a global, technology-driven developer, producer and marketer of engineered materials, and one of the world's leading producers of nonwovens.  With the broadest range of process technologies in the nonwovens industry, PGI is a global supplier to leading consumer and industrial product manufacturers.  The company operates 13 manufacturing and converting facilities in 9 countries throughout the world.

EARNINGS CONFERENCE CALL

PGI will conduct an investor conference call, including presentation slides, starting at 10:30 a.m. ET on Monday, May 13, 2013.  A live webcast of the conference call and presentation material can be accessed by visiting PGI's investor relations website at www.polymergroupinc.com.  The number to call for the live interactive teleconference is (866) 825-3209 or (617) 213-8061 and entering the passcode, 66703285.  A replay of the conference call will be available until May 20, 2013, by dialing (888) 286-8010 or (617) 801-6888 and entering the passcode, 72149441.  Shortly after the conclusion of the conference call, a webcast replay will be made available at www.polymergroupinc.com.

Safe Harbor Statement

Except for historical information contained herein, the matters set forth in this press release are forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that involve certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.  These forward-looking statements speak only as of the date of this release.  Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include: general economic factors including, but not limited to, changes in interest rates, foreign currency translation rates, consumer confidence, trends in disposable income, changes in consumer demand for goods produced, and cyclical or other downturns; cost and availability of raw materials, labor and natural and other resources and the inability to pass raw material cost increases along to customers; changes to selling prices to customers which are based, by contract, on an underlying raw material index; substantial debt levels and potential inability to maintain sufficient liquidity to finance our operations and make necessary capital expenditures; the ability to meet existing debt covenants or obtain necessary waivers; achievement of objectives for strategic acquisitions and dispositions; the ability to achieve successful or timely start-up of new or modified production lines; reliance on major customers and suppliers; domestic and foreign competition; information and technological advances; risks related to operations in foreign jurisdictions; and changes in environmental laws and regulations, including climate change-related legislation and regulation.  Investors and other readers are directed to consider the risks and uncertainties discussed in documents filed by Polymer Group, Inc. with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q.  

 


POLYMER GROUP, INC.

 Consolidated Statements of Operations

(In Thousands)





Unaudited






Three Months
Ended
March 30, 2013

Three Months
Ended
December 29, 2012

Three Months
Ended
March 31, 2012





Net sales

$

287,082


$

273,651


$

295,171


Cost of goods sold

(241,216)


(227,985)


(241,984)


Gross profit

45,866


45,666


53,187


Selling, general and administrative expenses

(34,342)


(38,422)


(34,131)


Special charges, net

(1,804)


(6,688)


(2,419)


Other operating, net

(340)


(467)


361


    Operating income (loss)

9,380


89


16,998


Other income (expense):




Interest expense

(12,084)


(12,340)


(12,848)


Foreign currency and other, net

(1,420)


(1,039)


62


Income (loss) before income taxes

(4,124)


(13,290)


4,212


Income tax (provision) benefit

(2,103)


(1,743)


(4,477)


Net income (loss)

$

(6,227)


$

(15,033)


$

(265)


 

POLYMER GROUP, INC.

Condensed Consolidated Balance Sheets

(In Thousands)





Unaudited






March 30,


December 29,


2013


2012





ASSETS








Current assets:




Cash and cash equivalents

$

74,627



$

97,879


Accounts receivable, net

139,848



131,569


Inventories, net

96,892



94,964


Other current assets

43,884



37,246


Total current assets

355,251



361,658






Property, plant and equipment, net

477,958



479,169


Goodwill and intangible assets, net

154,349



156,271


Other noncurrent assets

26,077



24,971


Total assets

$

1,013,635



$

1,022,069






LIABILITIES AND SHAREHOLDERS' EQUITY








Current liabilities:




Accounts payable and accrued liabilities

$

193,176



$

196,905


Current portion of long-term debt and short-term borrowings

22,874



20,290


Other current liabilities

4,195



4,320


Total current liabilities

220,245



221,515






Long-term debt

583,199



579,399


Other noncurrent liabilities

80,656



81,953


Total liabilities

884,100



882,867






Total equity

129,535



139,202


Total liabilities and equity

$

1,013,635



$

1,022,069


 

POLYMER GROUP, INC.

Selected Financial Data

(In Thousands)


Unaudited










Three Months
Ended March 30,
2013

Three Months
Ended December
29, 2012

Three Months
Ended March 31,
2012

Selected Financial Data




Depreciation and amortization

$

15,545


$

16,631


$

15,167


Amortization of loan acquisition costs

607


609


685


Capital expenditures

14,317


11,479


13,312


U.S. manufacturing line operating lease expense

2,067


2,067


2,067


Non-cash compensation

236


222


204






Special charges, net




Restructuring and plant realignment costs

$

1,646


$

6,066


$

1,747


Blackstone acquisition costs



361


Colombia flood



57


Other

158


622


254


Total

$

1,804


$

6,688


$

2,419










Adjusted EBITDA

Three Months
Ended March 30,
2013

Three Months
Ended December
29, 2012

Three Months
Ended March 31,
2012

The following table reconciles Adjusted EBITDA from the most comparable GAAP measure:




Net income (loss)

$

(6,227)


$

(15,033)


$

(265)


Interest expense

12,084


12,340


12,848


Income and franchise tax

2,121


1,875


4,494


Depreciation and amortization

15,545


16,631


15,167


Purchase accounting adjustments


230


262


Non-cash compensation

236


221


204


Special charges, net

1,804


6,688


2,419


Foreign currency and other, net

1,840


1,639


(422)


Severance and relocation expenses

245


280


767


Unusual or non-recurring charges, net

100


469


106


Business optimization expenses

50


137


420


Management, monitoring and advisory fees

1,155


1,111


750


Adjusted EBITDA

$

28,953


$

26,588


$

36,750


 

SOURCE Polymer Group, Inc.



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