Alpharetta, May 06, 2020 (GLOBE NEWSWIRE) -- Schweitzer-Mauduit International, Inc. ("SWM" or the "Company") (NYSE: SWM) reported earnings results for the three month period ended March 31, 2020.
Adjusted measures are reconciled to GAAP at the end of this release. Financial and operating comparisons are versus the prior year period and are from continuing operations. Figures may not sum to total due to rounding. Definitions: Advanced Materials & Structures (AMS), Engineered Papers (EP), "organic" - excluding acquisition benefit, "Tekra" - the Tekra and Trient businesses acquired in March 2020
First Quarter 2020 Financial Results Summary
Dr. Jeff Kramer, Chief Executive Officer, commented, "Given the impact of the COVID-19 pandemic on the global economic environment, I want to begin my comments by thanking all of the SWM community for their incredible dedication to the safety of our employees and their commitment to servicing our customers worldwide. Their responsive actions have resulted in all but one of our sites being currently operational. All of our company-wide facilities are currently deploying increased safety measures with essential production and shipping personnel on site, and we are strengthening our leadership communications and processes as we work hard to minimize any service disruptions to our customers."
“First quarter 2020 Adjusted EPS of $0.85 increased 25% and was above our expectations despite challenging conditions. We saw positive fundamentals in several areas of the business and successfully closed the Tekra acquisition. Within EP, sales growth was accompanied by strong margin performance. In AMS, solid growth across much of the portfolio was offset by a decline in transportation films, which was impacted early in the quarter by the Coronavirus outbreak in China."
"Our performance under these circumstances highlights the success we have achieved in diversifying our business and creating a resilient portfolio, with many of our end-markets relatively insulated from Coronavirus-related economic challenges. We expect demand for our tobacco-related products to reflect typical industry attrition, while much of our filtration business and suite of medical products are expected to exhibit good demand despite economic turbulence. While we typically do not view our transportation films business as cyclical given its rapid expansion and growing consumer penetration in recent years, the current global auto market is experiencing significant disruption. Demand in our infrastructure and construction business could be mixed, impacted by the expected economic slowdown but with potential government stimulus providing an offset later this year.”
Dr. Kramer concluded, "SWM is on solid financial footing regarding liquidity and cash flow. Although we are seeing pressures across the system, the cost control actions we are taking and our current sensitivity testing and scenario analyses give us confidence that projected cash flows and liquidity are sufficient to support our operating and investment needs as well as our dividend. While we believe we are well positioned to weather the expected short-term Coronavirus impacts and expect to achieve solid profitability and free cash flow this year, prudence under such unprecedented conditions requires us to withdraw our previously issued 2020 guidance. I want to close by expressing my personal appreciation for our entire organization's decisive safety, operational, and financial actions, and that I am confident we can successfully navigate these unprecedented times."
First Quarter 2020 Financial Results
Advanced Materials & Structures segment sales were $122.9 million, up 2%, including the acquisition benefit from the Tekra acquisition (closed March 13, 2020), while organic sales decreased 3%. Sales into medical end-markets grew double-digits, while filtration, infrastructure and construction, and industrial end-markets each increased. These gains were offset by a decline in transportation sales. The Company's automotive aftermarket paint protection film sales were significantly impacted by the global disruption of the auto industry, particularly in China, caused by the COVID-19 pandemic. GAAP operating profit was $13.7 million, or 11.1% of sales, down 8%. Adjusted operating profit was $19.3 million, down 4%, with margin down 90 basis points to 15.7%. Lower raw material costs were more than offset by the decline in high-margin transportation film sales.
Engineered Papers segment sales were $138.6 million, up 1%, or 3% absent Euro-driven negative currency impacts. Positive price/mix performance of 7% more than offset a volume decline of 4%. Price/mix benefited from a higher proportion of specialty reconstituted tobacco products. The volume decrease reflected anticipated typical attrition rates of the tobacco industry. GAAP operating profit was $33.4 million, or 24.1% of sales, up 16%. Adjusted operating profit was $33.5 million, up 17%, with adjusted operating margin expanding 330 basis points to 24.2%. Margins increased primarily due to positive price/mix movements within the portfolio, ongoing cost reduction activities, and lower wood pulp input costs, which combined to more than offset certain inefficiencies from temporary plant shutdowns related to COVID-19 safety measures. Currency movements resulted in a $0.9 million benefit to operating profit due to lower local currency operating costs in Brazil.
Unallocated GAAP and adjusted expenses were each $13.0 million, down $0.2 million, and were 5.0% of total sales. First quarter 2020 expenses reflected transaction expenses related to the Tekra acquisition, which were offset by lower deferred compensation expenses related to stock market volatility.
Consolidated sales were $261.5 million, up 1%, or 3% absent negative Euro-driven currency impacts. Excluding the Tekra acquisition benefit, organic sales declined 1%. GAAP operating profit was $34.1 million, up 12%, and GAAP operating profit margin was 13.0%. Adjusted operating profit was $39.8 million, also up 12%, and adjusted operating profit margin was 15.2%, up 140 basis points. Adjusted EBITDA was $49.0 million, up 10%, and adjusted EBITDA margin was 18.7%, up 140 basis points. GAAP income was $22.5 million, up 29%; GAAP EPS was $0.72. Adjusted income was $26.5 million, up 26%; Adjusted EPS was $0.85.
Interest expense was $6.9 million, down from $7.8 million, as the Company benefited from lower average interest rates and lower debt balances (prior to the closing of the Tekra acquisition) versus the prior year quarter. Other income was $0.6 million, versus other expense of $0.6 million in the prior year quarter.
The Company reported a tax rate of 19.1%, versus 20.0% in the prior year period. Excluding the impact of non-GAAP adjustments, the first quarter 2020 tax rate was 21.3% (the implied rate reflected in the Company's Adjusted EPS), versus 21.7% in the prior year quarter.
The Company's Chinese JVs were breakeven to both GAAP and Adjusted EPS, versus a $0.01 per share loss in the prior year quarter.
Net currency movements were a $0.8 million benefit to operating profits and the translation impact of net currency movements was negative $0.01 to both GAAP EPS and Adjusted EPS.
Non-GAAP Adjustments reflect items included in GAAP operating profit, income, and EPS, but excluded from adjusted operating profit, income, and EPS (see non-GAAP reconciliation tables). The most significant adjustments to first quarter 2020 results were preliminary purchase accounting expenses of $0.14 per share (purchase accounting expenses reflect the ongoing non-cash intangible asset amortization, as well as any non-cash one-time inventory step-up charges, associated with AMS acquisitions).
Cash Flow, Debt, & Dividend
First quarter 2020 cash provided by operating activities was $5.1 million, down from $13.0 million, due primarily to working capital changes. The Company's working capital-related cash outflows were $33.7 million, compared to $22.0 million in 2019 due primarily to increased accounts receivable balances from a larger sequential sales increase from the fourth quarter of 2019 to the first quarter of 2020 than in the prior year's corresponding quarters. The Company is actively assessing the credit worthiness of its customers in the context of the potential business disruptions caused by COVID-19 impacts but has not yet seen evidence of a material change to its ability to collect accounts receivable balances.
Capital spending and capitalized software totaled $8.1 million, down $0.6 million, which annualizes below the $40 million to $45 million capital expenditure guidance the Company provided in February 2020. In response to COVID-19 and potential financial impacts to the Company, management plans to evaluate cash flow trends in the context of preserving liquidity and may elect to defer some discretionary capital projects originally planned for 2020. Free cash outflow was $3.0 million compared to free cash inflow of $4.3 million in 2019 primarily as a result of working capital changes.
On March 13, 2020, the Company closed on the Tekra acquisition. The total net cash consideration of $170.6 million was comprised of the originally announced $155.0 million purchase price and $15.6 million of customary post-closing adjustments, which relate primarily to tax benefits expected to be realized by the Company. The Company funded the transaction on its previously undrawn credit revolver. In the first quarter of 2020, the Company paid dividends to stockholders totaling $13.7 million.
Total debt was $754.7 million as of March 31, 2020, up $212.0 million from year end 2019, reflecting the Tekra acquisition financing, and total cash was $126.7 million, up $23.7 million from year end 2019; net debt was $628.0 million on March 31, 2020, up $188.3 million. The Company's total debt is comprised primarily of $212 million of borrowings and letters of credit under the revolving credit facility, which is due in 2023 and represents the Company's nearest material debt maturity, $197 million of an outstanding term loan due in 2025, and $350 million of senior notes due in 2026 (these amounts do not sum to total debt due mainly to unamortized discount and issuance costs). The Company's liquidity position is $411 million, consisting of $127 million of cash and $284 million of revolver availability. Management believes current cash balances, anticipated cash generation, and borrowing capacity will be sufficient to fund the Company's operating needs and financial obligations, including dividend payments.
Pursuant to the debt covenants, the Company's net debt to adjusted EBITDA was approximately 2.7x as of March 31, 2020, up from 2.1x from year end 2019, due primarily to financing the Tekra acquisition. Per the terms of the Company's credit agreement, the Company's maximum leverage covenant is 5.0x through the duration of 2020 and is required to be below 4.5x by the end of the first quarter of 2021. Based on multiple scenario and sensitivity analyses conducted by the Company, management expects to maintain covenant compliance despite anticipated macro-economic weakness caused by the COVID-19 pandemic.
The Company announced a quarterly cash dividend of $0.44 per share. The dividend will be payable on June 19, 2020 to stockholders of record as of May 22, 2020.
2020 Financial Outlook
Although the Company still expects to generate solid profitability and cash flow in 2020, as a result of the uncertainty caused by the COVID-19 pandemic and lack of visibility on the expected results for the remainder of 2020, the Company has elected to withdraw its previously issued annual guidance.
SWM will hold a conference call to review first quarter 2020 results with investors and analysts at 8:30 a.m. Eastern time on Thursday, May 7, 2020. The earnings conference call will be simultaneously broadcast over the Internet at www.swmintl.com. To listen to the call, please go to the Company’s website at least 15 minutes prior to the call to register and to download and install any necessary audio software. For those unable to listen to the live broadcast, a replay will be available on the Company’s website shortly after the call.
SWM will use a presentation in conjunction with its conference call. The presentation can be found on the Company's website under the Investor Relations section in advance of the earnings conference call. The presentation can also be accessed via the earnings conference call webcast.
SWM is a leading global performance materials company. Our highly engineered papers, films, nets and nonwovens are designed and manufactured using natural fibers and polymers for a variety of industries and applications. We provide our customers with critical components that enhance the performance of their products. End markets served include filtration, transportation, infrastructure and construction, medical, industrial, tobacco, energy, food services and home décor. SWM and its subsidiaries manufacture on four continents, conduct business in over 90 countries and employ approximately 3,400 people worldwide. For further information, please visit SWM’s website at www.swmintl.com.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws that are subject to the safe harbor created by such laws and other legal protections. Forward-looking statements include, without limitation, those regarding future performance, capital expenditures, future market and EPS trends, sales and volume trends, growth prospects, currency rates and trends and impact on EPS, future cash flows, effective tax rates, planned investments, impacts of the COVID-19 pandemic on our operations, profitability, and cash flow, and other statements generally identified by words such as "believe," "expect," "intend," "guidance," "plan," "forecast," "potential," "anticipate," "confident," "project," "appear," "future," "should," "likely," "could," "may," "typically," "will," and similar words. These statements are not guarantees of future performance and certain risks, uncertainties (some of which are beyond the Company’s control) and assumptions that may cause actual results to differ materially from our expectations as of the date of this release. These risks include, among other things, those set forth in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2019, which can be found at the SEC’s website www.sec.gov, as well as the following factors:
All forward-looking statements made in this document are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this document, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.
Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance unless expressed as such, and should only be viewed as historical data.
For additional factors and further discussion of these factors, please see SWM's Annual Report on Form 10-K for the year ended December 31, 2019, and other reports we file from time to time, which can be found at the SEC’s website www.sec.gov. The discussion of these risks is specifically incorporated by reference into this release. The financial results reported in this release are unaudited.
Non-GAAP Financial Measures
Certain financial measures and comments contained in this press release exclude restructuring and impairment expenses, certain purchase accounting adjustments related to AMS segment acquisitions, interest expense, the effect of income tax provisions and other tax impacts, capital spending, capitalized software costs, loss from discontinued operations, and depreciation and amortization. This press release also provides certain information regarding the Company's financial results excluding currency impacts. This information estimates the impact of changes in foreign currency rates on the translation of the Company's current financial results as compared to the applicable comparable period and is derived by translating the current local currency results into U.S. Dollars based upon the foreign currency exchange rates for the applicable comparable period. Financial measures which exclude or include these items have not been determined in accordance with accounting principles generally accepted in the United States (GAAP) and are therefore "non-GAAP" financial measures. Reconciliations of these non-GAAP financial measures to the most closely analogous measure determined in accordance with GAAP are included in the financial schedules attached to this release.
The Company believes that the presentation of non-GAAP financial measures in addition to the related GAAP measures provides investors with greater transparency on the information used by the Company’s management in its financial and operational decision-making. Management also believes that the non-GAAP financial measures provide additional insight for analysts and investors in evaluating the Company’s financial and operational performance in the same way that management evaluates the Company's financial performance. Management believes that providing this information enables investors to better understand the Company’s operating performance and financial condition. These non-GAAP financial measures are not calculated or presented in accordance with, and are not intended to be considered in isolation or as alternatives or substitutes for, or superior to, financial measures prepared and presented in accordance with GAAP, and should be read only in conjunction with the Company's financial measures prepared and presented in accordance with GAAP. The non-GAAP financial measures used in this release may be different from the measures used by other companies.
Chief Financial Officer
Director of Investor Relations
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