Business News

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

Thursday 29. October 2009 - Orchids Paper Products Company (NYSE Amex: TIS) today reported net income for the three months ended September 30, 2009 of $3.8 million, or $0.52 per diluted share, compared with $1.4 million or $0.22 per diluted share, in the same period in 2008. Net income was $10.4 million, or $1.49 per diluted share, for the first nine months of 2009, an increase of $7.5 million compared to net income of $2.9 million, or $0.45 per diluted share, reported for the first nine months of 2008.

Three-month period ended September 30, 2009

Net sales increased 5% to $24.6 million in the quarter ended September 30, 2009, a Company record, compared to $23.3 million in the same period of 2008. Net sales of converted product increased in the quarter ended September 30, 2009 by $2.9 million, or 15%, to $22.2 million compared to $19.3 million in the same period last year. Net sales of parent rolls decreased $1.6 million, or 40%, to $2.4 million in the quarter ended September 30, 2009 compared to $4.0 million in the same period last year. The increase in net sales of converted product is primarily the result of a 9% increase in the net selling price per ton of converted product shipments and a 6% increase in converted tons sold. Net sales of parent rolls were negatively affected by a 17% decrease in parent roll tonnage shipped and a 40% decrease in the net selling price.

Earnings before interest, taxes, depreciation and amortization (EBITDA) increased $3.7 million to $6.7 million, another Company record, in the quarter ended September 30, 2009, compared to $3.0 million in the prior year quarter. Compared to the second quarter of 2009, EBITDA for the third quarter of 2009 increased $88,000. As a percent of net sales, EBITDA was 27.1% in the 2009 quarter compared with 13.0% in the 2008 quarter.

Gross profit for the third quarter of 2009 was $7.4 million, an increase of $3.6 million, or 96%, when compared with a gross profit of $3.8 million in the comparable prior year quarter. Gross profit as a percent of net sales increased to 30.2% in the third quarter of 2009 compared to 16.3% for the same period in 2008. As a percent of net sales, gross profit increased primarily due to lower waste paper prices, increased converted product selling prices, increased shipment volumes of converted products, lower converting direct labor costs and reduced packaging costs. The increased converted product shipment volume contributed to the improved gross profit percentage by reducing the amount of parent rolls available to sell in the open market, which generally carry a lower gross profit margin than those realized on converted products. Compared to the second quarter of 2009, our cost of waste paper increased in the third quarter of 2009 by approximately $600,000 or 21%. Prior to the third quarter, waste paper prices decreased significantly from December 2008 through the beginning of the second quarter of 2009, following a rapid increase from late 2007 through the end of the third quarter of 2008

Selling, general and administrative expenses in the third quarter of 2009 totaled $1.8 million, an increase of $221,000, or 14.2%, when compared with selling, general and administrative expenses of $1.6 million in the third quarter of 2008. Higher costs associated with accruals under the incentive bonus plan, higher professional fees as well as increased commissions due to increased sales of converted product were the primary reasons for the increase. As a percent of net sales, selling, general and administrative expenses increased to 7.2% for the quarter ended September 30, 2009, compared to 6.7% in the prior year quarter.

Interest expense for the third quarter of 2009 totaled $174,000 compared to interest expense of $310,000 in the same period in 2008. This decrease was mainly driven by lower LIBOR interest rates and lower margins over LIBOR.

As of September 30, 2009, the full year effective tax rate is estimated to be 33.2%. As a result, the effective rate for the third quarter of 2009 was 30.5%.

Nine-month period ended September 30, 2009

Net sales increased 10% to $72.3 million in the nine months ended September 30, 2009, compared to $65.9 million in the same period of 2008. Net sales of converted product increased for the nine months ended September 30, 2009, by $12.0 million, or 22%, to $65.8 million compared to $53.8 million in the same period last year. Net sales of parent rolls decreased $5.5 million, or 46%, to $6.6 million in the nine months ended September 30, 2009 compared to $12.1 million in the same period last year.

EBITDA increased $11.2 million to $18.7 million in the nine months ended September 30, 2009, compared to $7.5 million in the first nine months of 2008. As a percent of net sales, EBITDA was 25.8% in the 2009 nine month period compared with 11.4% in the 2008 period.

Gross profit for the nine months ended September 30, 2009, was $21.7 million, an increase of $12.1 million, or 126%, when compared with a gross profit of $9.6 million in the comparable prior year period. Gross profit as a percent of net sales increased to 30.0% in the 2009 period compared to 14.6% for the same period in 2008. As a percent of net sales, gross profit increased primarily due to lower waste 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 nine months ended September 30, 2009, totaled $5.7 million, an increase of $1.3 million, or 29%, when compared with selling, general and administrative expenses of $4.4 million in the same period of 2008. Increased accruals under the Company’s incentive bonus plan, increased converted product sales commissions, an increase in stock option expense primarily due to a higher market price of the Company’s stock, and increased professional and legal expenses accounted for most of the variance. As a percent of net sales, selling, general and administrative expenses increased to 7.9% for the nine-month period ended September 30, 2009 compared to 6.7% in the prior year period.

Interest expense for the nine months ended September 30, 2009, totaled $468,000 compared to interest expense of $1.0 million in the same period in 2008. Lower LIBOR rates and lower margins over LIBOR drove the favorable variance.

Commenting on the results, Mr. Robert Snyder, President and Chief Executive Officer, stated, “I am pleased with the progress of our company during the quarter, from the strong support our equity offering received, which has further strengthened our balance sheet, to the continued strength of our converted product production and shipments. In addition, we began construction on a new warehouse facility at the beginning of October in connection with the start-up of a new converting line expected by the end of the second quarter of 2010. The new converting line, which has a design capacity of up to 4 million cases per year, will be a state-of-the art line, capable of producing both bathroom tissue and towel products. It will also provide improved product configuration offerings and enhanced graphics and embossing.”