Neenah Paper (NP) Misses Q4 EPS by 9c, Revenues Miss; Provides 2019 Outlook

Neenah Paper (NYSE: NP) reported Q4 EPS of $0.53, $0.09 worse than the analyst estimate of $0.62. Revenue for the quarter came in at $240.9 million versus the consensus estimate of $255.63 million.

• Revenues of $240.9 million decreased 1 percent versus the fourth quarter of 2017.
• Earnings per diluted share of $0.76 decreased from $1.10 in the fourth quarter of 2017, while adjusted earnings per share of $0.53 compared with $1.06 in the prior year.
• Cash generated from operations of $29.0 million increased from $18.4 million in the prior year.
• The Company's manufacturing facility in Brattleboro, Vermont was sold on December 31, 2018 for a cash price of $5 million.
• The Company's U.S. revolving credit facility was amended and extended, providing additional capacity, lower rates and added flexibility.
• Quarterly cash dividends paid of $0.41 per share were 11 percent higher than the prior year period. A ninth consecutive double-digit dividend increase was announced for payments beginning in March 2019.

"Fourth quarter results were challenged by the largest quarterly input cost increase of the year and lower seasonal demand that was compounded by growing global economic uncertainty. As a result, our teams continue to combine significant pricing initiatives and aggressive cost management to restore margins," said John O'Donnell, Chief Executive Officer. "In 2019, we will benefit from these actions, as well as from our recent footprint rationalization in Fine Paper, continued filtration expansion in the U.S. and planned growth in targeted niche markets. Our commitment towards executing on proven capital deployment priorities in ways that add value for our shareholders remains unwavering, and we'll do this while maintaining our strong balance sheet."

2019 Outlook

As a result of the following, year on year earnings growth is expected to be skewed to the second half of 2019:

• Continued ramp up of U.S. transportation filtration capacity through the year will contribute to both top and bottom line growth.
• While declining from recent peaks, input costs are still expected to be $10 - $15 million higher in 2019 and the first half of the year will see the largest year on year comparative impact. Pricing initiatives are expected to offset these incremental increases as well as a majority of unrecovered input cost increases from 2018.
• The euro on average is expected to be slightly weaker than the US dollar in 2019 compared with 2018, however comparisons in the first half of the year will be more unfavorable when the euro could be 5 to 10 cents weaker. A weaker euro unfavorably impacts results, with each five cent change reducing quarterly sales by approximately $2.5 million, pre-tax income by approximately $0.5 million, and earnings per share by approximately $0.025.

Expectations for other selected items are as follows:

• Following the divestiture of Brattleboro, consolidated net sales in 2019 will decrease by approximately $30 million and the Other segment will no longer be reported. Consequently, approximately $24 million of FPP sales and $6 million of Other sales will decline, with the remaining $16 million of Other segment sales reclassified into Technical Products.
• Without Brattleboro, consolidated operating income will improve by approximately $5 million annually, mostly in Fine Paper & Packaging. Over $1 million of savings related to lower depreciation was realized in the second half of 2018.
• The 2019 effective book tax rate is expected to average approximately 22 percent, in line with 2018 guidance.
• Capital spending is anticipated to remain in the middle of the targeted range of 3 to 5 percent of net sales.
• Quarterly dividends will increase 10 percent to $0.45 per share effective with the March 2019 payment. In addition, the Company may continue to opportunistically repurchase shares under an approved $25 million 2019 repurchase plan.

For earnings history and earnings-related data on Neenah Paper (NP) click here.

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