Consumables

Orchids Paper Products Company Reports 2010 Full Year Results and Announces Initiation of Quarterly Cash Dividend

Thursday 24. February 2011 - Orchids Paper Products Company (NYSE Amex: TIS) today reported year-end 2010 financial results, the initiation of a quarterly cash dividend and new converted product business.

Executive Summary:
— Fourth quarter 2010 net income of $940,000 decreased $2.2 million or 70%
compared with $3.2 million of net income in the same period of 2009.
— Diluted net income per share for the fourth quarter 2010 was $0.12 per
diluted share, compared with $0.40 per diluted share in the same period
in 2009.
— For the full year of 2010, net income was $5.9 million, or $0.76 per
diluted share, a decrease of $7.6 million compared to net income of
$13.5 million, or $1.89 per diluted share for the full year of 2009.
— On February 21, 2011, the Board of Directors approved a quarterly cash
dividend on its common stock of $0.10 per share for shareholders of
record on March 7, 2011. The Company expects to pay this first
quarterly dividend on March 28, 2011.
— The Company has new understandings with several retailers for the supply
of converted products and expects to begin receiving additional orders
in the second quarter of 2011. The Company expects sales from this new
business to be approximately 700,000 cases on an annualized basis,
representing approximately 12% of the run rate for cases sold in the
third and fourth quarters of 2010.
Mr. Robert Snyder, President and Chief Executive Officer, stated, “The fourth quarter of 2010 was reflective of the tough economic conditions and competitive market place in which we operate. Our operating team continues to focus on and improve the efficiencies and cost effectiveness of our operations. We are pleased to announce the initiation of a quarterly cash dividend of $0.10 per share. This new dividend policy is reflective of the Company’s strong balance sheet and the Board’s confidence in our future cash flows.”
Mr. Snyder added, “We are pleased to announce that we have recently been granted new converted product business, which we expect to begin shipping during the second quarter of 2011. This represents an important step toward fully selling our expanded converting capacity.”
Three-month period ended December 31, 2010
Net sales in the quarter ended December 31, 2010 were $22.3 million, a decrease of $1.3 million, or 6%, compared to $23.6 million in the same period of 2009. Net sales of converted product were $16.6 million in the 2010 quarter, unfavorable by $4.3 million, or 21%, compared to the $20.9 million of net sales in the same quarter last year. Net sales of parent rolls were $5.7 million in the fourth quarter of 2010, an increase of $3.0 million, or 107%, compared to $2.7 million of parent roll sales in the same quarter last year. The 21% decrease in converted product sales resulted from a decrease of approximately 23% in converted tonnage shipped which was slightly offset by a 3% increase in net selling prices. Net sales of parent rolls were positively affected by a 76% increase in tonnage shipped and a 17% increase in net selling prices. The increase in parent roll tonnage shipments was primarily due to excess paper making capacity resulting from lower requirements from our converting operation.
Earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter ended December 31, 2010 was $3.1 million, a decrease of $2.6 million, or 46%, compared to $5.7 million in the same period in the prior year. As a percent of net sales, EBITDA was 14.1% in the 2010 quarter compared with 24.3% in the 2009 quarter.
Gross profit for the fourth quarter of 2010 was $2.8 million, a decrease of $3.5 million, or 56%, when compared with a gross profit of $6.3 million in the comparable prior year quarter. Gross profit as a percent of net sales was 12.5% in the fourth quarter of 2010 compared to 26.8% for the same period in 2009. As a percent of net sales, gross profit decreased primarily due to higher waste paper prices, lower shipment volumes of converted products which also caused an increase in per case converting product costs, a higher percentage of parent roll sales and higher depreciation expense. Cost per ton of waste paper in the fourth quarter of 2010 was 22% higher than the costs incurred in the same quarter of 2009, resulting in an increased cost of sales of $1.0 million. Unit production costs in the converting facility in the fourth quarter of 2010 were unfavorable to those experienced in the prior year quarter primarily due to lower period-over-period production. Parent roll tonnage shipments increased in the quarter due to increased availability of parent rolls caused by the lower requirements in converting operations and a stronger parent roll market that allowed profitable shipments to outside customers. As a result, parent roll sales increased as a percent of overall sales, which had a negative effect on overall gross profit because parent roll sales generally provide a lower gross profit margin than converted product sales.
Selling, general and administrative expenses in the fourth quarter of 2010 totaled $1.4 million, favorable by $261,000, or 16%, compared to the $1.7 million of selling, general and administrative expenses incurred in the fourth quarter of 2009. Lower accruals under our incentive bonus program and lower sales commission costs due to the lower sales volumes were the main reasons for the reduced selling, general and administrative expenses. As a percent of net sales, selling, general and administrative expenses decreased to 6.3% for the quarter ended December 31, 2010, compared to 7.0% in the prior year quarter.
Interest expense for the fourth quarter of 2010 totaled $259,000 compared to interest expense of $224,000 in the same period in 2009. This increase was due to increased borrowing levels due to borrowings under construction loans for a waste water treatment plant expansion and a new warehouse project.
As of December 31, 2010, the full year effective tax rate is estimated to be 28.4%. As a result, the effective tax rate for the fourth quarter of 2010 was 18.2%.
Twelve-month period ended December 31, 2010
Net sales decreased 4% to $92.5 million in the twelve months ended December 31, 2010, compared to $96.0 million in the same period of 2009. Net sales of converted product decreased for the twelve months ended December 31, 2010, by $12.5 million, or 15%, to $74.1 million compared to $86.6 million in the same period last year. Net sales of converted product decreased in the 2010 period due to a 12% decrease in tonnage shipped and a 3% decrease in net selling prices. Net sales of parent rolls increased $9.1 million, or 98%, to $18.4 million in the twelve months ended December 31, 2010 compared to $9.3 million in the same period last year. The increase in net sales of parent rolls in the 2010 was due to an 81% increase in tonnage and a 9% increase in net selling prices.
EBITDA decreased $9.5 million to $14.9 million in the twelve months ended December 31, 2010, compared to $24.4 million in 2009 period. As a percent of net sales, EBITDA was 16.1% in the 2010 full-year period compared with 25.4% in the 2009 period.
Gross profit for the twelve months ended December 31, 2010, was $15.8 million, a decrease of $12.2 million, or 44%, when compared with a gross profit of $28.0 million in the comparable prior year period. Gross profit as a percent of net sales decreased to 17.0% in the 2010 period compared to 29.2% for the same period in 2009. As a percent of net sales, gross profit decreased primarily due to higher waste paper costs, lower converted product shipment volumes which also caused an increase in converted product production costs, a higher percentage of parent roll sales and higher depreciation. The per ton cost of waste paper for the 2010 period was 40% higher than the cost in the same period of 2009, resulting in increased cost of sales of approximately $5.9 million.
Selling, general and administrative expenses in the twelve months ended December 31, 2010, totaled $6.6 million, a decrease of $725,000, or 10%, when compared with selling, general and administrative expenses of $7.3 million in the same period of 2009. Reduced accruals under the Company’s incentive bonus plan due to lower earnings and lower converted product sales commissions accounted for most of the variance. As a percent of net sales, selling, general and administrative expenses decreased to 7.2% for the twelve-month period ended December 31, 2010 compared to 7.7% in the prior year period.
Interest expense for the twelve months ended December 31, 2010, totaled $934,000 compared to interest expense of $692,000 in the same period in 2009. Increased borrowings primarily due to borrowings to finance the previously discussed capital expenditures and higher interest rates were the reason for the increase.