Pregis Announces First Quarter 2011 Financial Results

DEERFIELD, Ill., May 10, 2011 /PRNewswire/ -- Pregis Corporation, a leading international manufacturer, marketer, and supplier of protective packaging products and specialty packaging solutions, today announced its 2011 first quarter financial results.  

For the first quarter of 2011, the Company generated net sales of $227.0 million, an increase of 8.1% versus net sales of $210.0 million in the first quarter of 2010. The increase was driven primarily by the impact of selling price increases, increased volumes from the Company's growth initiatives, and incremental sales associated with the acquisition of IntelliPack, partially offset by unfavorable foreign currency translation.  Excluding the impact of unfavorable foreign currency translation and the net sales of the partial quarter for IntelliPack (acquired in February of 2010), net sales for the three months ended March 31, 2011 increased 7.4% compared to the same period in 2010.  

Gross margin as a percent of net sales decreased to 21.4% for the first quarter of 2011, compared to 22.6% for the same period of 2010.  The year-over-year decline in gross margin as a percentage of net sales was driven primarily by increased key raw material costs partially offset by the impact of selling price increases.  The majority of the products we sell are plastic-resin based, and therefore our operations are highly sensitive to fluctuations in the costs of plastic resins.  In the first quarter of 2011 as compared to the same period of 2010, average resin costs increased approximately 12% in North America and 30% in Europe, as measured by the Chemical Market Associates, Inc. ("CMAI") index and ICIS index, their respective market indices.  

Adjusted EBITDA, or "Consolidated Cash Flow" as defined by our indentures, is a significant operating measure used by the Company to measure its operating performance and liquidity.  Adjusted EBITDA was $18.1 million in the first quarter of 2011 compared to $18.2 million for the same period in 2010.

Commenting on the Company's first quarter results, Glenn Fischer, President and Chief Executive Officer, stated, "In the first quarter, we continued to drive our growth initiatives, particularly in inflatable and foam-in-place systems.  The positive impact of this growth, however, was more than offset by significant year-over-year increases in our key raw material costs, which negatively impacted us in the first quarter 2011 by almost $13 million compared to the prior year."

Mr. Fischer continued, "With resin costs continuing to increase in the second quarter, we have seen improved market conditions for increasing selling prices, particularly in North America.  We will continue to aggressively increase selling prices, coincident with increases in key raw material costs. We are determined to avoid the gaps we have experienced in the past fifteen months, as a result of delays in implementing price increases, despite dramatically higher raw material costs."

Segment Performance

Comments on segment net sales and EBITDA performance for the first quarter of 2011 is as follows:

• Net sales of the protective packaging segment increased by $11.2 million, or 8.3%. This increase was driven primarily by the impact from selling price increases, incremental sales from the 2010 IntelliPack acquisition, and higher sale volumes resulting from the Company's growth initiatives, partially offset by unfavorable foreign currency translation.  Excluding the unfavorable foreign currency translation and the IntelliPack acquisition, net sales for the first quarter 2011 increased 7.3%.
• EBITDA of the protective packaging segment increased $1.4 million, or 12.9%, compared to the same quarter of 2010.  This increase was primarily due to selling price increases, higher sales volumes, and the IntelliPack acquisition, partially offset by significantly higher key raw material costs.
• Net sales of the specialty packaging segment increased $5.8 million, or 7.7% compared to the same quarter 2010.  This increase was primarily driven by the impact of selling price increases and higher sales volumes.
• EBITDA of the specialty packaging segment decreased $0.5 million or 4.7% primarily due to increased key raw material costs.          

A summary of Adjusted EBITDA, a significant measure required by the Company's indentures and used by the Company to measure its operating performance and liquidity, is presented in the supplemental information at the end of this release.

New Credit Facility:

On March 23, 2011, Pregis and its subsidiaries entered into a $75 million ABL credit facility with Wells Fargo Capital Finance as Agent. The facility is subject to a borrowing base (including eligible accounts receivable and inventory) and includes a $30 million UK facility.  The facility also provides for future uncommitted increases of its maximum amount, not to exceed $40 million.  The facility matures on the earlier of March 22, 2016 and the date that is 90 days prior to the maturity of the existing high yield notes of Pregis Corporation (as such notes may be refinanced prior to such maturity date).  The advances under the ABL credit facilities bear interest, at our option, equal to adjusted LIBOR, plus an applicable margin, or a base rate, plus an applicable margin.  The applicable margin for LIBOR loans ranges from 2.5% to 3%, depending on our average quarterly excess availability.  The applicable margin for the base rate loans is 100 basis points lower than the applicable margin for the LIBOR loans.  

Obligations under the US facility are guaranteed by Pregis and substantially all of its US subsidiaries and are secured by a first priority security interest in substantially all of the assets (other than certain excluded property) of Pregis and its US subsidiaries and by capital stock of substantially all of Pregis' US subsidiaries and 65% of voting stock (and 100% of the nonvoting stock) of its first-tier foreign subsidiaries.  Obligations under the UK facility are guaranteed by Pregis and substantially all of its foreign and domestic subsidiaries and are secured by substantially all of the assets (other than certain excluded property) of Pregis and its foreign and domestic subsidiaries and by capital stock of substantially all of Pregis' foreign and domestic subsidiaries.  The facility contains customary representations, warranties, covenants and events of default, including monthly compliance with a "springing" fixed charge coverage ratio of 1.1 to 1.0 if the excess availability of Pregis and its subsidiaries falls below a certain level.  The ABL credit facility is also subject to mandatory prepayments out of certain asset sales, insurance, and condemnation proceeds if the excess availability of Pregis and its subsidiaries falls below a certain level.

Conference Call:

The Company will conduct an investor conference call to review its 2011 first quarter results on Wednesday, May 11, 2011 at 10:00 a.m. ET (9:00 a.m. CT).  The call can be accessed through the following dial-in numbers: Domestic: 866-713-8565; International: 617-597-5324; Participant Passcode: 83288671. A replay of the conference call will be available through May 25, 2011.  The replay may be accessed using the following dial-in information: Domestic: 888-286-8010; International: 617-801-6888; Passcode: 87085216.

About Pregis:

Pregis Corporation is a leading global provider of innovative protective, flexible, and foodservice packaging and hospital supply products. The specialty-packaging leader currently operates 46 facilities in 18 countries around the world.  Pregis Corporation is a wholly owned subsidiary of Pregis Holding II Corporation. For more information about Pregis, visit the Company's web site at www.pregis.com.

Safe Harbor Statement:

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. You can generally identify forward-looking statements by the Company's use of forward-looking terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "seek," "should," or "will," or the negative thereof or other variations thereon or comparable terminology. These forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the Company's control. For a discussion of key risk factors, please see the risk factors disclosed in the Company's annual report, which is available on its website, www.pregis.com. These risks may cause actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Given these risk and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this press release are made only as of the date hereof. The Company undertakes no duty to update its forward-looking statements.

SOURCE Pregis Corporation