Orchids Paper Products (TIS) Misses Q1 EPS by 11c; Plans New South Carolina Facility

Orchids Paper Products (NYSE: TIS) reported Q1 EPS of $0.16, $0.11 worse than the analyst estimate of $0.27. Revenue for the quarter came in at $37.4 million versus the consensus estimate of $40 million.

The Company today announced that its Board of Directors has approved plans to build an integrated manufacturing site in Barnwell, South Carolina. The project will include a tissue paper machine with paper making capacity between 35,000 and 40,000 tons per year and two converting lines with converting capacity between 30,000 and 32,000 tons per year, which are capable of producing value through ultra-premium grades of tissue products.

"This project furthers our vision to become a national supplier of high quality consumer tissue products. Our June 2014 partnership with Fabrica provided the first step towards that goal by expanding our reach to the West Coast, beyond our original Oklahoma manufacturing site. The next step is our planned Barnwell facility, which is being built specifically to expand our geographic reach to best serve existing and new customers on the East Coast and to be world class in our capabilities to design and manufacture high quality products with a competitive cost advantage," stated Jeff Schoen, President and Chief Executive Officer.

We expect that the total cost of the facility will be approximately $110 million to $127 million, which will be deployed over the next two years, with approximately 40% occurring in 2015 and the remainder in 2016 and early 2017. The Barnwell facility will include a paper machine, a recycling facility, two converting lines, buildings to house the paper machine and converting lines and land. The Company expects to fund this project using the proceeds from a potential follow-on common stock offering, additional bank borrowings and cash flow from operations. The Company intends to break ground during the second quarter of this year. Build-out and start-up of the converting lines will come in phases, with the first line expected to become operational at the end of 2015 and the second line to become operational in the second quarter of 2016. Engineering and construction of the paper machine are expected to begin in the second quarter of 2015 and it is expected to become operational in early 2017.

Mr. Schoen further stated, "We anticipate that the Barnwell facility, in conjunction with our access to structured tissue paper on the West Coast, will increase our ultra-premium tissue offerings across the U.S., as well as provide high quality products across our value and premium offerings. Local and state governmental entities in South Carolina provided strong economic incentives for the Barnwell project. We anticipate the facility will employ approximately 130 full time employees."

"As discussed in previous earnings calls, we expected to face strong cost headwinds in the first quarter of 2015 due to the effects of our new paper machine project in Pryor. The headwinds of the cost of purchased parent rolls, lower fixed cost absorption and lost parent roll sales were put behind us by the successful start-up of a new paper machine in March. We are pleased that the machine has now reached full operating rates and will begin to realize the effects of approximately $6 million in annual increased EBITDA from the machine beginning in the second quarter of 2015. We are also pleased that net sales of converted products increased over last year, providing a solid base from which to grow for the future."

Mr. Schoen concluded, "We also began installation of a new converting line at our Pryor location during the first quarter. We believe this line, along with continued optimization of our existing assets, will further improve our manufacturing flexibility, capacity and cost structure, providing Orchids with the opportunity to continue to competitively grow its sales in the center of the country. We expect to incur some initial startup costs during the second and third quarters of 2015 as we bring the new capacity to full operation."

For earnings history and earnings-related data on Orchids Paper Products (TIS) click here.

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