Business News

Wausau Paper Announces First-Quarter Results

Friday 29. April 2011 - Wausau Paper (NYSE:WPP) today reported that: First-quarter net losses were $0.03 per share compared to net earnings of $0.06 per share a year ago. Excluding special items, first-quarter adjusted net earnings were $0.03 per share compared to $0.08 per share last year, reflecting higher fiber costs and weather-related order weakness. The Paper segment completed a $27 million paper machine rebuild, solidifying its leadership position in the growing global tape market.

Earlier this month the company announced a $220 million expansion of its Tissue business, positioning the segment to increase annual operating profits by $40 – $50 million within five years of project completion.
The company reported a first-quarter net loss of $1.4 million, or $0.03 per share, compared with net earnings of $2.9 million, or $0.06 per share, in the prior year. Net sales declined 3 percent to $249 million, as shipments decreased 10 percent to 152,000 tons, due primarily to anticipated volume reductions associated with a paper machine rebuild and reduced operating schedule at one of Paper segment’s mills.
First-quarter results include after-tax capital-related expenses of $2.3 million, or $0.05 per share, associated with a paper machine rebuild at the Paper segment’s Brainerd, Minnesota, mill and the announced Tissue segment expansion at the Harrodsburg, Kentucky, converting facility; and after-tax expenses of $0.4 million, or $0.01 per share, related to the transition to a reduced operating schedule at the Paper segment’s paper mill in Brokaw, Wisconsin. Prior-year results include tax charges of $1.2 million, or $0.02 per share, related to the passage of the “Patient Protection and Affordable Care” and “Health Care and Education Reconciliation” Acts of March 2010. Excluding these items, first-quarter adjusted net earnings were $1.3 million, or $0.03 per share, compared with earnings of $4.1 million, or $0.08 per share, last year. Adjusted net earnings per share is a non-GAAP measure and three-month results are reconciled to GAAP earnings per share below:

Three Months
Ended March 31
2011

2010
GAAP Net (Loss) Earnings Per Share ($0.03)
$0.06
Capital-Related Expense (1) $0.05 –
Brokaw Operating Schedule Adjustment (2) $0.01 –
Income Tax Law Change (3) – $0.02
Adjusted Net Earnings Per Share $0.03 $0.08

Note: Totals may not foot due to rounding differences.
(1) Expenses associated with the rebuild of a paper machine at Brainerd, Minnesota, and the Tissue expansion project at Harrodsburg, Kentucky.
(2) Charges related to the transition of Brokaw mill operations from a 7 to a 5 day-per-week schedule.
(3) Charges related to the “Patient Protection and Affordable Care” and “Health Care and Education Reconciliation” Acts of March 2010.
Commenting on first-quarter results and the company’s growth initiatives, Thomas J. Howatt, president and CEO said, “First-quarter earnings reflect the impact of early-quarter winter storms on away-from-home demand in particular, and by rising input costs which have accelerated more rapidly than anticipated. A strong late-quarter rebound in Tissue segment order activity provided an encouraging conclusion to the quarter while the on-time and within budget rebuild of our Brainerd machine positions our Paper segment as a low-cost producer in the growing global tape market.”
Looking to the second quarter, Mr. Howatt said, “We are focused on commercializing tape products on our rebuilt Brainerd machine in an expedited manner and look to accelerate growth in our Tissue segment as we begin our capacity expansion at Harrodsburg, Kentucky. We believe both of these investments represent a strong commitment to growth in strategic markets and increased long-term returns for our shareholders.”
The company is pursuing pricing actions in select product categories to offset rising input costs. As a result, second-quarter adjusted earnings are expected to improve from first-quarter levels and approximate prior-year earnings of $0.07 per share.
TISSUE SEGMENT
The Tissue segment’s first-quarter operating profit of $6.3 million included pre-tax expense of $0.2 million related to the recently-announced capacity expansion and compared with prior-year record first-quarter operating profit of $11.1 million. Net sales and shipments declined 4 percent as weather-related weakness adversely affected volume in our larger end-use market categories early in the quarter. Order patterns returned to historical trend late in the quarter with March shipments reaching near-record levels. Second-quarter operating profits are expected to improve from first-quarter levels as seasonal demand strengthens. Although announced pricing actions will have a minimal impact on the second-quarter, implementation is expected to improve profitability through the balance of the year.
On April 13, the company announced a $220 million Tissue expansion in response to growing demand for its “green” products. The expansion includes a new paper machine capable of producing 75,000 tons per year of premium towel and tissue products from 100 percent recycled fiber. Construction is scheduled to begin this summer with start-up expected in the first quarter of 2013. The project is expected to increase annual operating profits by $40 – $50 million within five years of start-up, delivering an after-tax internal rate of return of 12 – 14 percent.
PAPER SEGMENT
The Paper segment reported a first-quarter operating loss of $1.4 million compared with a prior-year operating profit of $2.0 million. Current-year results include pre-tax expenses of $3.3 million associated with the Brainerd paper machine rebuild and $0.6 million related to the transition to a reduced operating schedule at the Brokaw mill from seven days to five days per week. Excluding these items, first-quarter operating profit increased to $2.6 million from $2.0 million last year despite absorbing $5 million of year-over-year fiber cost increases. Shipments declined 12 percent due largely to the machine rebuild and schedule adjustment while net sales declined just 2 percent, reflecting the benefit of increased selling prices and product mix improvement.
The $27 million Brainerd paper machine rebuild was successfully completed in March, adding the capability to produce a range of masking tape base, food, and industrial papers. Product trials are underway with commercialization of new grades expected over the second half of the year.
FINANCING ACTIVITIES
The company plans to fund its $220 million Tissue expansion primarily from future cash flow from operations and incremental borrowings, with debt expected to peak in early 2013 at levels below its existing $300 million borrowing base.
On April 4, 2011, the company issued $50 million of seven-year Senior Notes with an interest rate of 4.68 percent per annum. Proceeds will be used, in part, to repay $35 million of Senior Notes maturing in August with an interest rate of 7.43 percent per annum.