KapStone Reports Second Quarter Results

Jul 29, 2015, 16:15 ET from KapStone Paper and Packaging Corporation

NORTHBROOK, Ill., July 29, 2015 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE: KS)("KapStone", or the "Company") today reported results for the second quarter ended June 30, 2015. As compared to 2014's second quarter, results for 2015's second quarter are below:

  • Net sales of $671 million up $81 million, or 14 percent
  • Net income of $34 million down $17 million, or 33 percent
  • Adjusted net income of $42 million down $14 million, or 24 percent 
  • Adjusted EBITDA of $110 million down $16 million, or 13 percent
  • Adjusted EBITDA margin of 16.4 percent, down from 21.4 percent   
  • Diluted EPS of $0.35 down $0.18 per share, or 34 percent  
  • Adjusted diluted EPS of $0.44 down $0.14 per share, or 24 percent

Roger W. Stone, Chairman and Chief Executive Officer, stated, "KapStone's mill operations performed very well this quarter, delivering record second quarter production despite the loss of 10,400 tons due to the planned Roanoke Rapids mill outage. Our corrugated products shipments year-to-date were up 4 percent on an average weekly basis over the same period in 2014.  The stronger dollar, however, negatively impacted our export sales, resulting in lower sales prices for saturating kraft, export containerboard, and extensible grade kraft paper and a less favorable product mix.

"We closed on the Victory Packaging acquisition on June 1, 2015, and our quarterly results include Victory's operations for 30 days. Victory's results for June were very positive, with revenues of $93 million and adjusted EBITDA of $7 million. We are aggressively working on realizing the benefits of increased integration that Victory provides."

Second Quarter Operating Highlights

Consolidated net sales of $671 million in the second quarter of 2015 increased by $81 million, or 14 percent compared to $590 million for the 2014 second quarter. The increase is primarily due to $93 million from the Victory acquisition partially offset by $4 million, reflecting a stronger U.S. dollar compared to the Euro which impacted sales in Europe and some exports, and slightly lower sales volume. The Company sold 710,000 tons of paper during the second quarter of 2015 compared to 720,000 tons a year earlier. The Company's average mill selling price of $667 per ton in the second quarter of 2015 decreased by $18 per ton compared to the second quarter of 2014, due to the stronger U.S. dollar and lower domestic and export containerboard prices, partially offset by higher kraft paper prices.

Operating income of $61 million for the 2015 second quarter decreased by $24 million, or 28 percent, compared to the 2014 second quarter. The lower operating earnings primarily reflects higher planned maintenance outage costs as we moved our Roanoke Rapids mill outage from October in 2014 to April of this year, in addition to lower average mill selling prices, 10,000 tons of lower sales volume, higher fiber costs, inflation on compensation and benefit costs, and the stronger U.S. dollar which impacted prices in Europe and for some exports partially offset by lower severance expenses. In addition, over $6 million of Victory Packaging acquisition-related expenses were incurred in the 2015 second quarter, including $4 million for a non-cash inventory step-up charge as well as $2 million for amortization expense of identified intangible assets.     

Interest expense, net, was $9 million for the second quarter of 2015, slightly higher than a year ago, reflecting lower interest rates and voluntary debt repayments in late 2014, partially offset by the additional borrowings in June 2015 to finance the Victory Packaging acquisition and higher debt fees amortization. Our weighted average interest rate as of June 30, 2015 is 1.8 percent compared to 2.0 percent a year ago. 

The effective income tax rate for the 2015 second quarter was 35.2 percent compared to 33.6 percent for the 2014 second quarter.  The increase reflects a deferred tax adjustment and higher state taxes resulting from the Victory acquisition.

Cash Flow and Working Capital

Cash and cash equivalents increased by $18 million to $29 million in the quarter ended June 30, 2015, from March 31, 2015.    Operating activities generated $76 million during the second quarter while financing activities generated $593 million, reflecting borrowings to support the acquisition. The Victory Packaging acquisition totaled $617 million and capital expenditures in the second quarter were $35 million.   

At June 30, 2015, the Company had approximately $410 million of working capital and $466 million of revolver borrowing capacity. 

Conclusion

In summary, Stone commented, "Having now worked together with the team from Victory, I am even more optimistic regarding the opportunities available to KapStone.  These insights coupled with the strength of our industry, provide strong assurance that KapStone is well positioned for the future."

Conference Call

KapStone will host a conference call at 10:00 a.m. CDT, Thursday, July 30, 2015, to discuss the Company's financial results for the 2015 second quarter. All interested parties are invited to listen and may do so by either accessing a simultaneous broadcast webcast on KapStone's website, http://www.kapstonepaper.com, or for those unable to access the webcast, the following dial-in numbers are available:

Domestic: 866-318-8617
International:  617-399-5136
Participant Passcode:  56808150

A presentation to be viewed in conjunction with the call will also be available on our website, http://www.kapstonepaper.com, in the "Investors" section.

Replay of the webcast will be available for 30 days on the Company's website following the call.

About the Company

Headquartered in Northbrook, IL, KapStone Paper and Packaging Corporation is the fifth largest producer of containerboard and corrugated packaging products and is the largest kraft paper producer in the United States. The Company has four paper mills, 21 converting plants and 65 distribution centers. The business has approximately 6,200 employees.

Non-GAAP Financial Measures

This press release includes certain non-GAAP financial measures, including "EBITDA", "Adjusted EBITDA", "Adjusted Net Income", and "Adjusted Diluted EPS" to measure our operating performance. Management uses these measures to focus on the on-going operations, and believes it is useful to investors because they enable them to perform meaningful comparisons of past and present operating results. The Company believes that EBITDA and Adjusted EBITDA provide useful information to investors because they improve the comparability of the financial results between periods and provide for greater transparency to key measures used to evaluate the performance and liquidity of the Company. Management uses EBITDA and Adjusted EBITDA for evaluating the Company's performance against competitors and as a primary measure for employees' incentive programs. Reconciliations of Net Income to EBITDA, EBITDA to Adjusted EBITDA, Net Income to Adjusted Net Income, Basic EPS to Adjusted Basic EPS, and Diluted EPS to Adjusted Diluted EPS are included in the financial schedules contained in this press release. However, these measures should not be construed as an alternative to any other measure of performance determined in accordance with GAAP.

Forward-Looking Statements

Statements in this news release that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can often be identified by words such as "may," "will," "should," "would,' "expect," "project," "anticipate," "intend," "plan," "believe," "estimate," "potential," "outlook," or "continue," the negative of these terms or other similar expressions. These statements reflect management's current views and are subject to risks, uncertainties and assumptions, many of which are beyond the Company's control that could cause actual results to differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ materially include, but are not limited to: (1) industry conditions, including changes in cost, competition, changes in the Company's product mix and demand and pricing for the Company's products; (2) market and economic factors, including changes in raw material and healthcare costs, exchange rates and interest rates; (3) results of legal proceedings and compliance costs, including unanticipated expenditures related to the cost of compliance with environmental and other governmental regulations; (4) the ability to achieve and effectively manage growth; (5) the ability to pay the Company's debt obligations; (6) the ability to carry out the Company's strategic initiatives and manage associated costs and (7) realizing the synergies and benefits of the Victory Packaging acquisition. Further information on these and other risks and uncertainties is provided under Part I, Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2014, under Part II, Item 1.A. "Risk Factors" in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, and elsewhere in reports that the Company files with the SEC. These filings can be found on KapStone's Web site at http://www.kapstonepaper.com and the SEC's Web site at www.sec.gov. Forward-looking statements included herein speak only as of the date hereof and the Company disclaims any obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances.

KapStone Paper and Packaging Corporation



Consolidated Statements of Income



(In thousands, except share and per share amounts)



(unaudited)






















Fav / (Unfav)






Fav / (Unfav)




Quarter Ended June 30,


Variance


Six Months Ended June 30,


Variance




2015


2014


%


2015


2014


%

















Net sales 

$  671,255


$  590,449


13.7%


$1,217,544


$1,139,401


6.9%

















Cost and expenses:














 Cost of sales, excluding depreciation and amortization

470,478


392,245


-19.9%


852,676


775,493


-10.0%



 Depreciation and amortization

36,996


33,874


-9.2%


72,117


66,583


-8.3%



 Freight and distribution expenses

53,891


44,924


-20.0%


97,318


85,656


-13.6%



 Selling, general and administrative expenses

48,481


34,093


-42.2%


86,675


68,238


-27.0%



Operating income 

61,409


85,313


-28.0%


108,758


143,431


-24.2%

















Foreign exchange gain / (loss)

(53)


125


-142.4%


(938)


101


-1028.7%



Interest expense, net

8,515


7,971


-6.8%


14,928


17,200


13.2%



Income before provision for income taxes

52,841


77,467


-31.8%


92,892


126,332


-26.5%



Provision for income taxes

18,585


26,008


28.5%


32,536


42,774


23.9%



Net income 

$    34,256


$    51,459


-33.4%


$     60,356


$     83,558


-27.8%

















Net income per share:














Basic

$        0.36


$        0.54




$         0.63


$         0.87





Diluted

$        0.35


$        0.53




$         0.62


$         0.86

































Weighted-average number of shares outstanding:        














Basic

96,269,619


95,892,033




96,196,889


95,806,181





Diluted

97,664,781


97,418,941




97,647,666


97,367,354

































Effective income tax rate

35.2%


33.6%




35.0%


33.9%

























































































Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA (Non-GAAP):





















Net income (GAAP)

$    34,256


$    51,459


-33.4%


$     60,356


$     83,558


-27.8%



   Interest expense, net

8,515


7,971


-6.8%


14,928


17,200


13.2%



   Provision for income taxes

18,585


26,008


28.5%


32,536


42,774


23.9%



   Depreciation and amortization

36,996


33,874


-9.2%


72,117


66,583


-8.3%



EBITDA (Non-GAAP)

$    98,352


$  119,312


-17.6%


$   179,937


$   210,115


-14.4%

















Stock-based compensation expense

2,757


1,311


-110.3%


6,537


4,229


-54.6%



Longview integration expenses

724


933


22.4%


1,209


2,747


56.0%



Victory Packaging acquisition expenses

6,472



N/A


6,555



N/A



Voluntary separation plan and severance

2,025


4,818


58.0%


2,664


4,818


44.7%



Adjusted EBITDA (Non-GAAP)

$  110,330


$  126,374


-12.7%


$   196,902


$   221,909


-11.3%































Net Income (GAAP) to Adjusted Net Income (Non-GAAP):









Net income (GAAP)

$    34,256


$    51,459




$     60,356


$     83,558





Stock-based compensation expense

1,803


859




4,275


2,770





Longview integration and other expenses

473


611




791


1,799





Victory Packaging acquisition expenses

4,233


-




4,287


-





Voluntary separation plan and severance

1,324


3,156




1,742


3,156





Victory Packaging tax adjustments

398





398






Adjusted Net Income (Non-GAAP)

$    42,487


$    56,085




$     71,849


$     91,283



















Basic EPS (GAAP) to Adjusted Basic EPS (Non-GAAP): 









Basic EPS (GAAP)

$        0.36


$        0.54




$         0.63


$         0.87





Stock-based compensation expense

0.02


0.01




0.04


0.03





Longview integration and other expenses

-





0.01


0.02





Victory Packaging acquisition expenses

0.04





0.04






Voluntary separation plan and severance

0.01


0.03




0.02


0.03





Victory Packaging tax adjustments

0.01





0.01






Adjusted Basic EPS (Non-GAAP)

$        0.44


$        0.58




$         0.75


$         0.95



















Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP):










Diluted earnings per share (GAAP)

$        0.35


$        0.53




$         0.62


$         0.86





Stock-based compensation expense

0.02


0.01




0.04


0.03





Longview integration and other expenses

0.01


0.01




0.01


0.02





Victory Packaging acquisition expenses

0.04





0.04






Voluntary separation plan and severance

0.01


0.03




0.02


0.03





Victory Packaging tax adjustments

0.01





0.01






Adjusted Diluted EPS (Non-GAAP) 

$        0.44


$        0.58




$         0.74


$         0.94





 

KapStone Paper and Packaging Corporation

Consolidated Balance Sheets

(In thousands)







June 30,


December 31,



2015


2014



(unaudited)




Assets





Current assets:





   Cash and cash equivalents

$      28,737


$         28,467


   Trade accounts receivable, net of allowances

427,942


228,740


   Other receivables

13,951


12,833


   Inventories

339,065


238,329


   Prepaid expenses and other current assets

14,455


7,172


Total current assets

824,150


515,541







Plant, property and equipment, net

1,407,829


1,386,670


Other assets

12,353


10,135


Intangible assets, net

359,318


110,077


Goodwill

701,554


533,851


Total assets

$ 3,305,204


$   2,556,274












Liabilities and Stockholders' Equity





Current liabilities:





Short-term borrowings 

$      15,000


$                   –


Current portion of long-term debt

51,750




  Other current borrowings

4,420



Dividend payable

9,776


9,911


Accounts payable

208,611


149,600


Accrued expenses

59,228


48,340


Accrued compensation costs

63,217


62,491


Accrued income taxes

573


6,477


Deferred income taxes

1,836


1,990


Total current liabilities

414,411


278,809







Long-term debt, net of current portion

1,604,967


1,046,063


Pension and post-retirement benefits

27,058


32,800


Deferred income taxes

415,562


412,293


Other liabilities

16,854


8,182


Total other liabilities

2,064,441


1,499,338







Stockholders' equity:





Common stock $0.0001 par value

10


10


Additional paid-in capital

262,298


255,505


Retained earnings

615,627


574,601


Accumulated other comprehensive (loss) income 

(51,583)


(51,989)


Total stockholders' equity

826,352


778,127


Total liabilities and stockholders' equity

$ 3,305,204


$   2,556,274


 

KapStone Paper and Packaging Corporation

Consolidated Statements of Cash Flows 

(In thousands)

(unaudited)










Quarter Ended June 30,


Six Months Ended June 30,


2015


2014


2015


2014

Operating activities:








   Net income

$    34,256


$  51,459


$    60,356


$  83,558

   Adjustments to reconcile net income to net cash provided by








   operating activities:








   Depreciation and amortization

36,996


33,874


72,117


66,583

   Stock-based compensation expense

2,757


1,311


6,537


4,229

   Pension and postretirement

(2,524)


(2,754)


(5,416)


(6,834)

 Excess tax benefits from stock-based compensation

(120)


(391)


(1,511)


(2,612)

   Amortization of debt issuance costs

2,040


1,483


3,047


2,933

   Loss on disposal of fixed assets

32


37


210


1,016

   Deferred income taxes

587


(1,144)


2,451


2,179

   Changes in operating assets and liabilities

2,475


(14,172)


(65,204)


(42,398)

Net cash provided by operating activities

$    76,499


$  69,703


$    72,587


$108,654









Investing activities:








   Victory Packaging acquisition

(616,564)



(616,564)


   Capital expenditures

(34,949)


(41,256)


(63,711)


(73,676)

Net cash used in investing activities

$(651,513)


$(41,256)


$(680,275)


$ (73,676)

















Financing activities:








Proceeds from revolving credit facility

$  179,800


$  41,400


$  266,200


$  97,900

Repayments on revolving credit facility

(174,800)


(41,400)


(251,200)


(97,900)

Proceeds from receivables credit facility

90,773



103,735


Repayments on receivables credit facility



(4,962)


Repayments of long-term debt 


(1,175)



(2,350)

Proceeds from long-term debt

519,763



519,763


Payment of debt issuance and loan amendment costs

(10,790)


(706)


(10,790)


(706)

Proceeds from other current borrowings



6,615


6,300

Repayments of other current borrowings

(2,195)


(1,729)


(2,195)


(3,402)

Cash dividend paid

(9,626)



(19,464)


Payment of withholding taxes on vested stock awards

(126)



(2,448)


(1,641)

Proceeds from exercises of stock options

287


175


778


389

Proceeds from issuance of shares to ESPP



415


205

Excess tax benefits from stock-based compensation

120


391


1,511


2,612

Net cash provided by (used in) financing activities

$  593,206


$  (3,044)


$  607,958


$    1,407









Net increase / (decrease) in cash and cash equivalents 

18,192


25,403


270


36,385

Cash and cash equivalents-beginning of period

10,545


23,949


28,467


12,967

Cash and cash equivalents-end of period

$    28,737


$  49,352


$    28,737


$  49,352

 

KapStone Paper and Packaging Corporation


Operating Segment Information


(In thousands)


(unaudited)


















Net Sales










Three Months Ended June 30, 2015

Trade


Inter-segment


Total


Operating Income (Loss)


Depreciation and Amortization


Capital Expenditures


Total Assets at June 30, 2015


Paper and Packaging

$   577,857


$     788


$   578,645


$  71,844


$       34,187


$       30,256


$ 2,553,708


Distribution (a)

93,398


-


93,398


1,720


1,945


243


527,704


Corporate (b)

-


-


-


(12,155)


864


4,450


223,792


Intersegment eliminations

-


(788)


(788)


-


-


-


-



$   671,255


$       -


$   671,255


$  61,409


$       36,996


$       34,949


$ 3,305,204

































Net Sales










Three Months Ended June 30, 2014 

Trade


Inter-segment


Total


Operating Income (Loss)


Depreciation and Amortization


Capital Expenditures


Total Assets at June 30, 2014


Paper and Packaging

$   590,449


$       -


$   590,449


$  94,392


$       32,937


$       37,540


$ 2,664,290


Distribution (a)

-


-


-


-


-


-


-


Corporate 

-


-


-


(9,079)


937


3,716


71,208


Intersegment eliminations

-


-


-


-


-


-


-



$   590,449


$       -


$   590,449


$  85,313


$       33,874


$       41,256


$ 2,735,498

































Net Sales










Six Months Ended June 30, 2015

Trade


Inter-segment


Total


Operating Income (Loss)


Depreciation and Amortization


Capital Expenditures




Paper and Packaging

$1,124,395


$     788


$1,125,183


$ 130,136


$       68,664


$       56,506




Distribution (a)

93,398


-


93,398


1,720


1,945


243




Corporate 

-


-


-


(23,098)


1,508


6,962




Intersegment eliminations

-


(788)


(788)


-


-


-





$1,217,793


$       -


$1,217,793


$ 108,758


$       72,117


$       63,711



































Net Sales










Six Months Ended June 30, 2014

Trade


Inter-segment


Total


Operating Income (Loss)


Depreciation and Amortization


Capital Expenditures




Paper and Packaging

$1,139,401


$       -


$1,139,401


$ 161,842


$       64,859


$       68,880




Distribution (a)

-


-


-


-


-


-




Corporate

-


-


-


(18,411)


1,724


4,796




Intersegment eliminations

-


-


-


-


-


-





$1,139,401


$       -


$1,139,401


$ 143,431


$       66,583


$       73,676


































(a) Reflects Victory Packaging acquisition as of June 1, 2015



(b) Total assets at June 30, 2015 includes $167.7 million of goodwill associated with the Victory acquisition which will be allocated to the operating segments




 

SOURCE KapStone Paper and Packaging Corporation



RELATED LINKS

http://www.kapstonepaper.com