Business News

Orchids Paper Products Company Reports Increased Sales and Earnings in Second Quarter Results

Thursday 30. July 2009 - Orchids Paper Products Company (NYSE Amex: TIS) today reported net income for the three months ended June 30, 2009 of $3.8 million, or $0.55 per diluted share, a fourth consecutive quarterly record, compared with $887,000, or $0.14 per diluted share, in the same period in 2008. Net income was $6.6 million, or $0.97 per diluted share, for the first six months of 2009, an increase of $5.1 million compared to net income of $1.5 million, or $0.23 per diluted share, reported for the first half of 2008.

Three-month period ended June 30, 2009

Net sales increased 8%, to $24.1 million in the quarter ended June 30, 2009, compared to $22.3 million in the same period of 2008. Net sales of converted product increased in the quarter ended June 30, 2009 by $5.1 million, or 29% to $22.5 million compared to $17.4 million in the same period last year. Net sales of parent rolls decreased $3.3 million or 68% to $1.6 million in the quarter ended June 30, 2009 compared to $4.9 million in the same period last year. The increase in net sales of converted product is primarily the result of a 19% increase in the net selling price per ton of converted product shipments and a 9% increase in converted tons sold. Net sales of parent rolls were negatively affected by a 58% decrease in parent roll tonnage shipped and a 22% decrease in the net selling price.

Earnings before interest, taxes, depreciation and amortization (EBITDA) increased $4.2 million to $6.6 million in the quarter ended June 30, 2009, a fourth consecutive quarterly record, compared to $2.4 million in the prior year quarter. As a percent of net sales, EBITDA was 27.3% in the 2009 quarter compared with 10.8% in the 2008 quarter.

Gross profit for the second quarter of 2009 was $7.8 million, an increase of $4.7 million or 151% when compared with a gross profit of $3.1 million in the comparable prior year quarter. Gross profit as a percent of net sales increased to 32% in the second quarter of 2009 compared to 14% for the same period in 2008. As a percent of net sales, gross profit increased primarily due to lower paper and energy costs, higher converted product selling prices, increased converted product shipment volumes and lower converting direct labor costs. These factors were partially offset by higher converting overhead costs. The increased converted product shipment volume contribute to the improved gross profit percentage by reducing the amount parent roll sales we have available to sell in the open market, which generally carry a lower gross profit margin than those realized on converted product sales.

Selling, general and administrative expenses in the second quarter of 2009 totaled $2.1 million, an increase of $600,000, or 40%, when compared with selling, general and administrative expenses of $1.5 million in the second quarter of 2008. Higher costs associated with stock option expense primarily due to a higher market price of the Company’s stock, accruals under the incentive bonus plan, increased commissions on converted product and costs associated with additions to our senior management team were the primary reasons for the increase. As a percent of net sales, selling, general and administrative expenses increased to 8.6% for the quarter ended June 30, 2009, compared to 6.7% in the prior year quarter.

Interest expense for the second quarter of 2009 totaled $135,000 compared to interest expense of $320,000 in the same period in 2008. This decrease is mainly driven by lower LIBOR interest rates and lower margins over LIBOR, and to a lesser extent a lower average borrowing balance.

As of June 30, 2009, the full year effective tax rate is estimated to be 34.6%. As a result, the effective rate for the second quarter of 2009 was 32.7%.

Six-month period ended June 30, 2009

Net sales increased 12%, to $47.8 million in the six months ended June 30, 2009, compared to $42.6 million in the same period of 2008. Net sales of converted product increased for the six months ended June 30, 2009, by $9.1 million, or 26% to $43.6 million compared to $34.5 million in the same period last year. Net sales of parent rolls decreased $3.9 million or 48% to $4.2 million in the quarter ended June 30, 2009 compared to $8.1 million in the same period last year.

EBITDA increased $7.5 million to $12.0 million in the six months ended June 30, 2009, compared to $4.5 million in the first six months of 2008. As a percent of net sales, EBITDA was 25.1% in the 2009 year-to-date period compared with 10.5% in the 2008 period.

Gross profit for the six months ended June 30, 2009 was $14.3 million, an increase of $8.5 million, or 145%, when compared with a gross profit of $5.8 million in the comparable prior year period. Gross profit as a percent of net sales increased to 29.9% in the 2009 period compared to 13.6% for the same period in 2008. As a percent of net sales, gross profit increased primarily due to the lower paper costs, higher selling prices, higher converted product shipment volumes and lower converting direct labor costs being partially offset by higher converting overhead costs. The increased converting shipment volume contributes to the improved gross profit percentage as discussed above.

Selling, general and administrative expenses in the six months ended June 30, 2009 totaled $3.9 million, an increase of $1.0 million, or 36%, when compared with selling, general and administrative expenses of $2.9 million in the same period of 2008. Increased accruals under the Company’s incentive bonus plan, costs associated with additions to our senior management team, an increase in stock option expense primarily due to a higher market price of the Company’s stock, and increased commission expenses related to higher converted product sales accounted for most of the variance. As a percent of net sales, selling, general and administrative expenses increased to 8.2% for the six-month period ended June 30, 2009 compared to 6.8% in the prior year period.

Interest expense for the six-month period ended June 30, 2009 totaled $294,000 compared to interest expense of $731,000 in the same period in 2008. Lower LIBOR rates, lower margins over LIBOR, and to a lesser extent, lower average bank borrowings drove the decreased expense.

Commenting on the results, Mr. Robert Snyder, President and Chief Executive Officer, stated, “I am very pleased with the record earnings and sales this quarter. Our financial performance continues to strengthen our balance sheet. We are excited about the future here at Orchids as we continue to grow our business. To that end, we have several projects underway, including the construction of a new warehousing complex that will be located adjacent to the converting plant. We are also evaluating the addition of another converting line.”