Neenah Reports Record Second Quarter 2016 Results

• Revenues of $246.0 million increased 16 percent with organic and acquisition-driven growth.
• Operating income grew 22 percent to $33.9 million ($35.3 million after excluding $1.4 million of integration and restructuring costs).   
• Earnings per diluted share from continuing operations of $1.21 compared with $0.96 per share in 2015. Excluding 2016 integration and restructuring costs of $0.05 per share, adjusted E.P.S. of $1.26 increased 31 percent.
• Cash generated from operations of $40.3 million was used for filtration capacity expansion, debt reduction and direct returns to shareholders.    

"Adjusted earnings" is a non-GAAP measure used to improve understanding and comparability of year-on-year results. Adjusted figures are reconciled to GAAP later in this release.

"Quarterly comparisons accelerated in both segments in the second quarter with improved organic volume growth, continued positive impacts from the August 2015 FiberMark acquisition and lower input costs," said John O'Donnell, Chief Executive Officer. "Key strategic initiatives remain on track, with a project to add filtration capacity in the U.S., growth in our premium packaging business, and the synergies anticipated as we execute the integration plans with FiberMark. Our substantial operational cash flow provides us the flexibility to execute these initiatives while maintaining a strong balance sheet and a meaningful return of cash to shareholders."  

Quarterly Consolidated Results

Income Statement

Consolidated net sales increased 16 percent to $246.0 million compared with $211.3 million in the second quarter of 2015. Revenues increased as a result of acquired sales in all segments and organic volume growth in Technical Products, partly offset by lower average prices in both segments primarily due to a product mix which lowered revenue but had minimal bottom line impact.         

Selling, general and administrative (SG&A) expense of $24.4 million in the second quarter of 2016 increased from $19.6 million in the prior year. The increase in 2016 included SG&A from acquired operations, as well as timing of other spending. 

Operating income of $33.9 million in 2016 increased 22 percent compared with $27.7 million in 2015. Higher income in 2016 resulted primarily from revenue growth, lower input costs, synergies and other cost efficiencies that more than offset increased SG&A and lower selling prices. Excluding $1.4 million of costs in 2016 for integration and restructuring, adjusted operating income of $35.3 million increased 27 percent compared with the prior year.

Net interest expense of $2.7 million in the second quarter of 2016 decreased slightly from $2.9 million in the second quarter of 2015 as a result of lower average interest rates which more than offset higher average debt levels. The effective income tax rate of 34 percent in the second quarter of 2016 was equivalent to the rate in the second quarter of 2015.    

Income from continuing operations of $20.7 million increased 26 percent compared with $16.4 million in the second quarter of 2015 primarily as a result of higher operating income.

During the second quarter of 2016, a net loss of $0.4 million was recognized in Discontinued Operations for settlement of final closing items following the sale of the Lahnstein mill on October 31, 2015. 

Cash Flow and Balance Sheet Items

Cash provided from operations in the second quarter of 2016 was $40.3 million compared with $39.4 million in the second quarter of 2015. Increased cash generation in the current year resulted from higher earnings and a lower investment in working capital.

Capital spending was $17.3 million in the second quarter of 2016 compared with $6.9 million in the prior year. Increased spending in 2016 is due to an investment to increase transportation filtration capacity in the U.S. that is expected to be largely complete by year end.  

Debt as of June 30, 2016 was $219.2 million compared to $238.8 million at March 31, 2016 and $229.4 million on December 31, 2015. Cash and equivalents as of June 30, 2016 were $4.5 million compared with $5.1 million as of March 31, 2016 and $4.2 million as of December 31, 2015.

Quarterly Segment Results

Technical Products net sales of $126.5 million increased 19 percent compared with $106.2 million in the prior year. The increase in revenues resulted from acquired sales and from organic volume growth led by transportation filtration and tape. These higher volumes and a small currency translation benefit were only partly offset by mix and modest reductions in prices for grades with contractual adjusters.  

Operating income of $20.1 million in the second quarter of 2016 increased 32 percent compared with prior year income of $15.2 million. Higher operating income resulted from increased sales and lower input costs that more than offset additional SG&A from acquired operations, lower prices and $0.2 million of integration costs.  Excluding integration costs, adjusted operating income of $20.3 million increased 34 percent versus the prior year.  

Fine Paper & Packaging net sales were $113.7 million in the second quarter of 2016, up 8 percent compared with $105.1 million in the prior year. The increase in revenues was due to acquired sales, partly offset by lower average pricing for non-branded products.    

Operating income of $18.4 million in the second quarter of 2016 increased 6 percent from $17.4 million in the prior year. Higher adjusted income in 2016 resulted from lower input costs and manufacturing efficiencies that were partly offset by increased SG&A (both acquired and due to timing of other items), lower prices and integration costs of $0.5 million. Excluding integration costs, adjusted operating income of $18.9 million increased 9 percent versus the prior year. 

Other and Unallocated Corporate costs.  Sales of acquired Other products were $5.8 million, with minimal operating income after including costs of $0.4 million for integration. Unallocated corporate costs in the second quarter of 2016 were $4.6 million compared with $4.9 million in prior year period. After excluding $0.3 million for integration and restructuring, adjusted unallocated corporate costs in 2016 were $4.3 million.

Year to Date

Year-to-date net sales of $488.1 million in 2016 increased 15 percent compared with $425.7 million in 2015. Higher revenues in 2016 resulted from acquired sales and organic volume gains in Technical Products that were partly offset by lower average selling prices in both segments.   

Operating income of $65.3 million in 2016 increased 16 percent compared with $56.1 million in 2015 as a result of higher sales, lower input costs and improved manufacturing efficiencies that were partly offset by higher SG&A expense and integration and restructuring costs of $2.5 million. Excluding integration and restructuring costs, operating income increased $11.7 million, or 21 percent.

Net income from continuing operations of $39.7 million in 2016 increased 22 percent compared with $32.5 million in 2015 as a result of higher operating income and lower interest and tax expense. Lower tax rates in 2016 result from timing of R&D credits which are being recognized throughout 2016, but all in the fourth quarter of 2015. The difference in timing resulted from the U.S. Congress permanently extending these credits in December 2015. 

Year to date earnings per diluted common share of $2.32 increased 23 percent from $1.89 in 2015. After excluding costs of $0.09 per share for integration and restructuring in 2016, adjusted earnings per share of $2.41 in 2016 increased 28 percent compared with the prior year. 

Cash provided by operating activities of $56.3 million for the first six months of 2016 was $11.8 million higher than the prior year period primarily due to higher operating earnings and a reduced investment in working capital. Cash generation in 2016 has been used for capital spending, debt reduction and returns to shareholders.

Year-to-date capital spending of $28.6 million increased from $12.6 million in the prior year as a result of spending for the U.S. filtration capacity project. Debt as of June 30, 2016 was reduced $11.7 million compared with December 31, 2015 and direct returns to shareholders, which include dividends and share repurchases, totaled $16.5 million in 2016 and $13.9 million in 2015.

Reconciliation to GAAP Measures

The Company will report adjustments to GAAP figures when they are believed to improve the comparability and understanding of results. In these instances, a reconciliation of adjusted income measures to comparable GAAP measures will be provided, as shown below and in the financial attachments:

Conference Call

A conference call and webcast to discuss second quarter earnings and other matters of interest will be held as noted below.

Date: Thursday, August 4, 2016
Time: 10:00 a.m. Eastern Time
Dial-In #:  (888) 893-0989 US/Canada or (706) 758-4223 International
Confirmation ID Code: 53685518
Live Webcast Link: www.neenah.com

Interested parties are invited to listen to the call live via webcast using the link above and by clicking on the Investors tab and going to the Events/Presentations page. To participate actively in the call, parties should use the telephone dial-in numbers.  Supplemental data can be found in the Investor Relations – Events/Presentations section of the company's web site, www.neenah.com.

A replay of the call will be available through the company's web site until September 8, 2016 and may also be accessed by dialing (855) 859-2056 in the US or (404) 537-3406 internationally, using conference ID 85798908.

About Neenah Paper, Inc.

Neenah is a leading global specialty materials company, focused on premium niche markets that value performance and image. Key products and markets include advanced filtration media, specialized performance substrates used for tapes, labels and other products, and premium printing and packaging papers. The company is headquartered in Alpharetta, Georgia and its products are sold in over 80 countries worldwide from manufacturing operations in the United States, Germany and the United Kingdom. Additional information can be found at the company's web site, www.neenah.com.

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this press release may constitute "forward-looking" statements as defined in Section 27A of the Securities Act of 1933 (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), the Private Securities Litigation Reform Act of 1995 (the "PSLRA"), or in releases made by the U.S. Securities and Exchange Commission ("SEC"), all as may be amended from time to time. Statements contained in this press release that are not historical facts may be forward-looking statements within the meaning of the PSLRA and we caution investors that any forward-looking statements we make are not guarantees or indicative of future performance. These forward-looking statements rely on a number of assumptions concerning future events and are subject to risks, uncertainties and other factors, many of which are outside of our control and could cause actual results to materially differ from such statements. Such risks, uncertainties and other factors include, but are not necessarily limited to, those set forth under the captions "Cautionary Note Regarding Forward-Looking Statements" and/or "Risk Factors" of our latest Form 10-K filed with the SEC as periodically updated by subsequently filed Form 10-Qs (these securities filings can be located on our website at www.neenah.com). Unless specifically required by law, we assume no obligation to update or revise these forward-looking statements to reflect new events or circumstances.  These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the "safe harbor" provisions of such laws.

Contact:  Neenah Paper, Inc. 
Bill McCarthy   
Vice President – Financial Analysis and Investor Relations
678-518-3278    

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SOURCE Neenah Paper, Inc.

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