KapStone Reports Second Quarter Results

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July 27, 2016 4:17 PM EDT

NORTHBROOK, Ill., July 27, 2016 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE: KS) today reported results for the second quarter ended June 30, 2016. As compared to 2015's second quarter, results for 2016's second quarter are below:

  • Net sales of $785 million up $114 million, or 17 percent
  • Net income of $21 million down $13 million, or 40 percent
  • Adjusted net income of $26 million down $16 million, or 39 percent 
  • Adjusted EBITDA of $97 million down $14 million, or 13 percent    
  • Diluted EPS of $0.21 down $0.14 per share, or 40 percent  
  • Adjusted diluted EPS of $0.27 down $0.17 per share, or 39 percent

Roger W. Stone, Chairman and Chief Executive Officer, stated, "KapStone's operations performed well in the second quarter with our mills producing over 668,000 tons of paper. The benefits from the Victory acquisition were offset by lower prices and a less favorable product mix.  Our operating cash flow year-to-date was up $17 million.  We achieved our goal of integrating an annual run rate of 115,000 tons of Victory's packaging needs into our mill and plant system. Also, with our recent strategic investments we expect additional mill integration within the next twelve months."

Second Quarter Operating Highlights

Consolidated net sales of $785 million in the second quarter of 2016 increased by $114 million, or 17 percent compared to $671 million for the 2015 second quarter. Victory Packaging's net sales increased by $159 million due to including three months of revenues in the 2016 second quarter compared to only one month in the 2015 second quarter as the acquisition closed on June 1, 2015. All other revenues are down $45 million reflecting lower sales volume as we faced increased competition in select containerboard and corrugated product markets. The Company's average mill selling price of $624 per ton in the second quarter of 2016 decreased by $43 per ton, or about 6 percent compared to the second quarter of 2015 due to index-driven lower domestic containerboard prices, lower export containerboard and kraft paper prices and a less favorable product mix.

Operating income of $44 million for the 2016 second quarter decreased by $18 million, or 29 percent, compared to the 2015 second quarter. The lower operating earnings primarily reflect lower prices for domestic and export containerboard and export kraft paper prices, the timing of planned maintenance outages, inflation on salary and certain benefit costs, an increase of the fair value of the Victory contingent consideration liability and higher depreciation and severance charges. These factors were partially offset by three months of earnings from Victory Packaging compared to one month in 2015 and related synergies, lower Victory acquisition related expenses, lower fiber and fuel costs and lower management incentives.

Interest expense, net, was $10 million for the second quarter of 2016, up $1.5 million from a year ago as a result of borrowings associated with the Victory Packaging acquisition and higher interest rates. Our weighted average interest rate as of June 30, 2016 is 2.1 percent compared to 1.8 percent as of June 30, 2015. 

The effective income tax rate for the 2016 second quarter was 36.5 percent compared to 35.2 percent for the 2015 second quarter. Results in the 2016 second quarter include an unfavorable adjustment from a state tax examination.  

Cash Flow and Working Capital

Cash and cash equivalents of $8 million as of June 30, 2016, remained consistent with balances at March 31, 2016.  Operating activities provided $31 million during the second quarter while investing activities used $38 million and financing activities provided $8 million. Capital expenditures in the second quarter were $36 million.  Financing activities included $18 million of net borrowings offset by $10 million of cash dividends.

On May 11, 2016, our Board of Directors approved a regular $0.10 per share cash dividend which was paid on July 13, 2016.

At June 30, 2016, the Company had approximately $456 million of working capital and $467 million of revolver borrowing capacity. 

Conclusion

In summary, Stone commented, "I expect to see our operations continue to perform better." 

Conference Call

KapStone will host a conference call at 10:00 a.m. CDT, Thursday, July 28, 2016, to discuss the Company's financial results for the 2016 second quarter. All interested parties are invited to listen and may do so by either accessing a simultaneous broadcast webcast on KapStone's website, http://www.kapstonepaper.com, or for those unable to access the webcast, the following dial-in numbers are available:

Domestic:  888-608-7946International:  484-747-6633Participant Passcode:  47375590

A presentation to be viewed in conjunction with the call will also be available on our website, http://www.kapstonepaper.com, in the "Investors" section.

Replay of the webcast will be available for 30 days on the Company's website following the call.

About the Company

Headquartered in Northbrook, IL, KapStone Paper and Packaging Corporation is the fifth largest producer of containerboard and corrugated packaging products and is the largest kraft paper producer in the United States. The Company has four paper mills, 20 converting plants and 60 distribution centers. The business has approximately 6,300 employees.

Non-GAAP Financial Measures

This press release includes certain non-GAAP financial measures, including "EBITDA", "Adjusted EBITDA", "Adjusted Net Income", and "Adjusted Diluted EPS" to measure our operating performance. Management uses these measures to focus on the on-going operations, and believes it is useful to investors because they enable them to perform meaningful comparisons of past and present operating results. The Company believes that EBITDA and Adjusted EBITDA provide useful information to investors because they improve the comparability of the financial results between periods and provide for greater transparency to key measures used to evaluate the performance of the Company. Management uses EBITDA and Adjusted EBITDA for evaluating the Company's performance against competitors and as a primary measure for employees' incentive programs. Reconciliations of Net Income to EBITDA, EBITDA to Adjusted EBITDA, Net Income to Adjusted Net Income, and Diluted EPS to Adjusted Diluted EPS are included in the financial schedules contained in this press release. However, these measures should not be construed as an alternative to any other measure of performance determined in accordance with GAAP.

Forward-Looking Statements

Statements in this news release that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can often be identified by words such as "may," "will," "should," "would,' "expect," "project," "anticipate," "intend," "plan," "believe," "estimate," "potential," "outlook," or "continue," the negative of these terms or other similar expressions. These statements reflect management's current views and are subject to risks, uncertainties and assumptions, many of which are beyond the Company's control that could cause actual results to differ materially from those expressed or implied in these statements.  Factors that could cause actual results to differ materially include, but are not limited to: (1) industry conditions; (2) market and economic factors; (3) results of legal proceedings and compliance costs; (4) the ability to achieve and effectively manage growth; (5) the ability to pay the Company's debt obligations; (6) the ability to carry out the Company's strategic initiatives and manage associated costs; (7) managing labor relations and (8) realizing the synergies and benefits of the Victory Packaging acquisition. Further information on these and other risks and uncertainties is provided under Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 and elsewhere in reports that the Company files with the SEC. These filings can be found on KapStone's Web site at http://www.kapstonepaper.com and the SEC's Web site at www.sec.gov. Forward-looking statements included herein speak only as of the date hereof and the Company disclaims any obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances.

 

KapStone Paper and Packaging Corporation

Consolidated Statements of Income

(In thousands, except share and per share amounts)

(Unaudited)

Quarter Ended June 30,

Six Months Ended June 30,

2016

2015

2016

2015

Net sales 

$  784,911

$  671,255

$1,523,126

$1,217,544

Cost and expenses:

 Cost of sales, excluding depreciation and amortization

568,831

470,478

1,102,108

852,676

 Depreciation and amortization

46,035

36,996

90,574

72,117

 Freight and distribution expenses

70,978

53,891

136,037

97,318

 Selling, general and administrative expenses

55,554

48,481

116,294

86,675

Operating income 

43,513

61,409

78,113

108,758

Foreign exchange (loss)

(872)

(53)

(975)

(938)

Interest expense, net

10,006

8,515

19,817

14,928

Income before provision for income taxes

32,635

52,841

57,321

92,892

Provision for income taxes

11,913

18,585

20,425

32,536

Net income 

$    20,722

$    34,256

$     36,896

$     60,356

Net income per share:

Basic

$        0.21

$        0.36

$         0.38

$         0.63

Diluted

$        0.21

$        0.35

$         0.38

$         0.62

Weighted-average number of shares outstanding:        

Basic

96,517,357

96,269,619

96,458,354

96,196,889

Diluted

97,629,786

97,664,781

97,561,774

97,647,666

Effective income tax rate

36.5%

35.2%

35.6%

35.0%

Supplemental Information

GAAP to Non-GAAP Reconciliations

($ in thousands, except share and per share amounts)

(unaudited)

Quarter Ended June 30,

Six Months Ended June 30,

2016

2015

2016

2015

Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA (Non-GAAP):

Net income (GAAP)

$    20,722

$    34,256

$     36,896

$     60,356

   Interest expense, net

10,006

8,515

19,817

14,928

   Provision for income taxes

11,913

18,585

20,425

32,536

   Depreciation and amortization

46,035

36,996

90,574

72,117

EBITDA (Non-GAAP)

$    88,676

$    98,352

$   167,712

$   179,937

Victory Packaging acquisition expenses

262

5,919

525

6,002

Integration, casualty and other expenses

1,050

724

2,016

1,209

Change in fair value of contingent consideration liability

1,526

553

3,052

553

Severance expenses

3,116

2,025

6,164

2,664

Stock-based compensation expense

1,941

2,757

5,362

6,537

Adjusted EBITDA (Non-GAAP)

$    96,571

$  110,330

$   184,831

$   196,902

Net Income (GAAP) to Adjusted Net Income (Non-GAAP):

Net income (GAAP)

$    20,722

$    34,256

$     36,896

$     60,356

Victory Packaging acquisition expenses

262

5,919

525

6,002

Integration, casualty and other expenses

1,050

724

2,016

1,209

Change in fair value of contingent consideration liability

1,526

553

3,052

553

Severance expenses

3,116

2,025

6,164

2,664

Stock-based compensation expense

1,941

2,757

5,362

6,537

Accumulated tax adjustments*

(2,597)

(3,747)

(5,760)

(5,472)

Adjusted Net Income (Non-GAAP)

$    26,020

$    42,487

$     48,255

$     71,849

Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP): 

Diluted earnings per share (GAAP)

$        0.21

$        0.35

$         0.38

$         0.62

Victory Packaging acquisition expenses

–

0.06

0.01

0.06

Integration, casualty and other expenses

0.01

0.01

0.02

0.01

Change in fair value of contingent consideration liability

0.02

0.01

0.03

0.01

Severance expenses

0.03

0.02

0.06

0.03

Stock-based compensation expense

0.02

0.03

0.05

0.07

Accumulated tax adjustments

( 0.02)

( 0.04)

( 0.06)

( 0.06)

Adjusted Diluted EPS (Non-GAAP) 

$        0.27

$        0.44

$         0.49

$         0.74

Accumulated tax adjustments in 2016 reflect EBITDA adjustments tax affected at 37.5 percent, the Company's marginal income tax rate offset by an unfavorable state tax examination adjustment

KapStone Paper and Packaging Corporation

Consolidated Balance Sheets

(In thousands)

June 30,

December 31,

2016

2015

(Unaudited)

Assets

Current assets:

   Cash and cash equivalents

$       7,890

$         6,821

   Trade accounts receivable, net of allowances

415,131

363,869

   Other receivables

12,682

18,732

   Inventories

331,642

335,903

   Prepaid expenses and other current assets

15,124

28,932

Total current assets

782,469

754,257

Plant, property and equipment, net

1,411,362

1,406,146

Other assets

10,792

12,532

Intangible assets, net

327,235

344,583

Goodwill

704,592

704,592

Total assets

$3,236,450

$  3,222,110

Liabilities and Stockholders' Equity

Current liabilities:

Short-term borrowings 

$     16,000

$         6,400

Dividend payable

9,907

9,862

Accounts payable

182,376

196,491

Accrued expenses

63,864

73,138

Accrued compensation costs

52,215

64,149

Accrued income taxes

2,288

15

Total current liabilities

326,650

350,055

Long-term debt, net of current portion

1,537,028

1,543,748

Pension and post-retirement benefits

37,830

40,510

Deferred income taxes

420,843

418,479

Other liabilities

44,993

24,038

Total other liabilities

2,040,694

2,026,775

Stockholders' equity:

Common stock $0.0001 par value

10

10

Additional paid-in capital

271,530

266,220

Retained earnings

659,789

642,306

Accumulated other comprehensive (loss) income 

(62,223)

(63,256)

Total stockholders' equity

869,106

845,280

Total liabilities and stockholders' equity

$3,236,450

$  3,222,110

KapStone Paper and Packaging Corporation

Consolidated Statement of Cash Flows 

(In thousands)

(Unaudited)

Quarter Ended June 30,

Six Months Ended June 30,

2016

2015

2016

2015

Operating activities:

   Net income

$ 20,722

$   34,256

$  36,896

$   60,356

   Adjustments to reconcile net income to net cash provided by

   operating activities:

   Depreciation of plant and equipment

37,098

31,954

72,701

63,659

   Amortization of intangible assets

8,937

5,042

17,873

8,458

   Stock-based compensation expense

1,941

2,757

5,362

6,537

   Pension and postretirement

(579)

(2,524)

(1,027)

(5,416)

Excess tax (deficiency) / benefit from stock-based compensation

10

(120)

150

(1,511)

   Amortization of debt issuance costs

1,251

2,040

2,375

3,047

   (Gain) / Loss on disposal of fixed assets

715

32

653

210

   Deferred income taxes

(360)

587

704

2,451

   Change in fair value of contingent consideration liability

1,526

553

3,052

553

   Changes in operating assets and liabilities

(40,241)

1,922

(49,114)

(65,757)

Net cash provided by operating activities

$ 31,020

$   76,499

$  89,625

$   72,587

Investing activities:

    Purchase of intangible assets

(1,025)

–

(1,525)

–

    Victory Packaging acquisition

–

(616,564)

–

(616,564)

    Capital expenditures

(36,210)

(34,949)

(72,373)

(63,711)

    Proceeds from sales of assets

–

–

4,856

–

    Other

(1,250)

–

(1,250)

–

Net cash used in investing activities

$(38,485)

$(651,513)

$ (70,292)

$(680,275)

Financing activities:

Proceeds from revolving credit facility

129,100

$ 179,800

$263,700

$ 266,200

Repayments on revolving credit facility

(123,100)

(174,800)

(254,100)

(251,200)

Proceeds from receivables credit facility

14,424

90,773

21,094

103,735

Repayments on receivables credit facility

(2,470)

-

(27,170)

(4,962)

Proceeds from long-term debt 

–

519,763

-

519,763

Payment of loan amendment costs and debt issuance fees

(138)

(10,790)

(2,388)

(10,790)

Proceeds from other current borrowings

–

–

–

6,615

Payment from other current borrowings

–

(2,195)

–

(2,195)

Cash dividend paid

(9,652)

(9,626)

(19,348)

(19,464)

Payment of withholding taxes on vested stock awards

(94)

(126)

(786)

(2,448)

Proceeds from exercises of stock options

211

287

420

778

Proceeds from issuance of shares to ESPP

–

-

464

415

Excess tax (deficiency) / benefit from stock-based compensation

(10)

120

(150)

1,511

Net cash provided by / (used in) financing activities

$   8,271

$ 593,206

$ (18,264)

$ 607,958

Net increase in cash and cash equivalents 

806

18,192

1,069

270

Cash and cash equivalents-beginning of period

7,084

10,545

6,821

28,467

Cash and cash equivalents-end of period

$   7,890

$   28,737

$    7,890

$   28,737

KapStone Paper and Packaging Corporation

Operating Segment Information

(In thousands)

(Unaudited)

Net Sales

Three Months Ended June 30, 2016

Trade

Inter-segment

Total

Operating Income (Loss)

Depreciation and Amortization

Capital Expenditures

Total Assets at June 30, 2016

Paper and Packaging

$    532,571

$ 20,524

$    553,095

$   41,082

$        38,163

$        34,265

$ 2,507,161

Distribution (a)

252,340

-

252,340

12,336

5,702

932

686,997

Corporate 

-

-

-

(9,905)

2,170

1,013

42,292

Intersegment eliminations

-

(20,524)

(20,524)

-

-

-

-

$    784,911

$          -

$    784,911

$   43,513

$        46,035

$        36,210

$ 3,236,450

Net Sales

Three Months Ended June 30, 2015

Trade

Inter-segment

Total

Operating Income (Loss)

Depreciation and Amortization

Capital Expenditures

Total Assets at June 30, 2015

Paper and Packaging

$    577,857

$       788

$    578,645

$   71,844

$        34,187

$        30,256

$ 2,553,708

Distribution (a)

93,398

-

93,398

1,720

1,945

243

527,704

Corporate (b)

-

-

-

(12,155)

864

4,450

223,792

Intersegment eliminations

-

(788)

(788)

-

-

-

-

$    671,255

$          -

$    671,255

$   61,409

$        36,996

$        34,949

$ 3,305,204

Net Sales

Six Months Ended June 30, 2016

Trade

Inter-segment

Total

Operating Income (Loss)

Depreciation and Amortization

Capital Expenditures

Paper and Packaging

$ 1,052,611

$ 36,993

$ 1,089,604

$   87,323

$        75,299

$        66,620

Distribution (a)

470,515

-

470,515

13,717

11,363

2,998

Corporate 

-

-

-

(22,927)

3,912

2,755

Intersegment eliminations

-

(36,993)

(36,993)

-

-

-

$ 1,523,126

$          -

$ 1,523,126

$   78,113

$        90,574

$        72,373

Net Sales

Six Months Ended June 30, 2015

Trade

Inter-segment

Total

Operating Income (Loss)

Depreciation and Amortization

Capital Expenditures

Paper and Packaging

$ 1,124,146

$       788

$ 1,124,934

$ 130,136

$        68,664

$        56,506

Distribution (a)

93,398

-

93,398

1,720

1,945

243

Corporate 

-

-

-

(23,098)

1,508

6,962

Intersegment eliminations

-

(788)

(788)

-

-

-

$ 1,217,544

$          -

$ 1,217,544

$ 108,758

$        72,117

$        63,711

(a)

Reflects results of Victory Packaging which KapStone acquired on June 1, 2015

(b)

Goodwill related to the Victory Packaging acquisition was included in Corporate as of June 30, 2015 and was subsequently allocated to the Distribution segment in the quarter ended September 30, 2015

 

KapStone Paper and Packaging Corporation

Operating Segment EBITDA and Adjusted EBITDA

(In thousands)

(Unaudited)

Quarter Ended June 30,

Six Months Ended June 30,

Paper and Packaging

2016

2015

2016

2015

Segment income

$ 41,082

$   71,844

$   87,323

$ 130,136

Foreign exchange (loss) / gain

(288)

146

-

(739)

Depreciation and amortization

38,163

34,187

75,299

68,664

EBITDA

78,957

106,177

162,622

198,061

Victory Packaging acquisition expenses

-

-

-

-

Integration, casualty and other expenses

935

724

1,819

1,209

Severance expenses

3,035

2,025

5,297

2,664

Adjusted EBITDA

$ 82,927

$ 108,926

$ 169,738

$ 201,934

Adjusted EBITDA margin

15.6%

18.8%

16.1%

18.0%

Quarter Ended June 30,

Six Months Ended June 30,

Distribution

2016

2015

2016

2015

Segment income

$ 12,336

$      1,720

$   13,717

$      1,720

Foreign exchange (loss) / gain

(584)

(199)

(975)

(199)

Depreciation and amortization

5,702

1,945

11,363

1,945

EBITDA

17,454

3,466

24,105

3,466

Victory Packaging acquisition expenses

262

3,870

525

3,870

Integration, casualty and other expenses

-

-

-

-

Severance expenses

89

-

480

-

Adjusted EBITDA

$ 17,805

$      7,336

$   25,110

$      7,336

Adjusted EBITDA margin

7.1%

7.9%

5.3%

7.9%

Quarter Ended June 30,

Six Months Ended June 30,

Corporate

2016

2015

2016

2015

Segment (loss)

$ (9,905)

$ (12,155)

$ (22,927)

$ (23,098)

Foreign exchange loss / (gain)

-

-

-

-

Depreciation and amortization

2,170

864

3,912

1,508

EBITDA

(7,735)

(11,291)

(19,015)

(21,590)

Victory Packaging acquisition expenses

-

2,049

-

2,132

Integration, casualty and other expenses

115

-

197

-

Change in fair value of contingent consideration liability

1,526

553

3,052

553

Severance expenses

(8)

-

387

-

Stock-based compensation

1,941

2,757

5,362

6,537

Adjusted EBITDA

$ (4,161)

$    (5,932)

$ (10,017)

$ (12,368)

Quarter Ended June 30,

Six Months Ended June 30,

Consolidated

2016

2015

2016

2015

Segment income

$ 43,513

$   61,409

$   78,113

$ 108,758

Foreign exchange (loss) / gain

(872)

(53)

(975)

(938)

Depreciation and amortization

46,035

36,996

90,574

72,117

EBITDA

88,676

98,352

167,712

179,937

Victory Packaging acquisition expenses

262

5,919

525

6,002

Integration, casualty and other expenses

1,050

724

2,016

1,209

Severance expenses

3,116

2,025

6,164

2,664

Change in fair value of contingent consideration liability

1,526

553

3,052

553

Stock-based compensation

1,941

2,757

5,362

6,537

Adjusted EBITDA

$ 96,571

$ 110,330

$ 184,831

$ 196,902

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/kapstone-reports-second-quarter-results-300305056.html

SOURCE KapStone Paper and Packaging Corporation


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