KapStone Reports Second Quarter Results

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July 26, 2017 4:15 PM EDT

NORTHBROOK, Ill., July 26, 2017 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE: KS) today reported results for the second quarter ended June 30, 2017. As compared to 2016's second quarter, results for 2017's second quarter are below:

  • Net sales of $823 million up $38 million, or 5 percent
  • Net income of $20 million down $1 million, or 5 percent
  • Diluted EPS of $0.20 down $0.01 per share, or 5 percent  

Non U.S. GAAP financial measures for the 2017 second quarter compared to 2016 are as follows:

  • Adjusted EBITDA of $100 million up $3 million, or 3 percent   
  • Adjusted net income of $27 million up $1 million, or 3 percent 
  • Adjusted diluted EPS of $0.27, flat to 2016

Matt Kaplan, President and Chief Executive Officer, stated, "KapStone's operations performed better in the second quarter with our mills producing 688,000 tons of paper, or nearly three percent more than 2016, despite the loss from an unplanned mill outage.  Demand for our products is strong, and we have been able to successfully implement price increases in the majority of our product lines.  Product mix continues to improve as we rely less on exports with our growing domestic demand."

Second Quarter Operating Highlights

Consolidated net sales of $823 million in the second quarter of 2017 increased by $38 million, or 5 percent, compared to $785 million for the 2016 second quarter. Revenue growth in the paper and packaging segment resulted from higher prices and volume. The Company's average mill selling price of $661 per ton in the second quarter of 2017 increased by $37 per ton, or about 6 percent, compared to the second quarter of 2016 due to higher domestic and export containerboard prices, higher specialty paper prices and a more favorable product mix. Revenues in the distribution segment increased $8 million, mainly due to higher prices.

Operating income of $41 million for the 2017 second quarter decreased by $2 million, or 5 percent, compared to the 2016 second quarter. The lower operating earnings primarily reflect higher fiber costs due to significantly higher OCC costs, the reinstatement of certain employee benefits, higher stock compensation costs, higher manufacturing costs, higher freight costs due to lower export shipments, and higher management incentives; partially offset by higher prices for domestic and export containerboard and kraft paper and lower severance charges.

Interest expense, net, was $12 million for the second quarter of 2017, up $2 million from a year ago, as a result of higher interest rates and debt levels. Our weighted average interest rate as of June 30, 2017 is 2.8 percent compared to 2.1 percent as of June 30, 2016. 

The effective income tax rate for the 2017 second quarter was 33.9 percent compared to 36.5 percent for the 2016 second quarter. Results in the 2016 second quarter included an unfavorable adjustment for a state tax examination.  

Cash Flow and Working Capital

Cash and cash equivalents of $7 million as of June 30, 2017 remained consistent with balances at March 31, 2017.  Operating activities provided $17 million during the second quarter, while investing activities used $35 million and financing activities provided $18 million. Capital expenditures in the second quarter were $35 million.  Financing activities included $28 million of net proceeds from borrowings offset by $10 million of cash dividends.

On May 16, 2017, our Board of Directors approved a regular $0.10 per share cash dividend which was paid on July 12, 2017.

At June 30, 2017, the Company had approximately $456 million of working capital and $463 million of revolver borrowing capacity. 

Conclusion

In summary, Kaplan commented, "We are focusing on internal opportunities to increase productivity, integration, and growth.  Therefore, I expect to see additional improvement in the third quarter and beyond by lowering operating costs and increasing productivity.  Furthermore, we expect to benefit from the full realization of the price increases implemented in the first half of this year across most of our product lines."

Conference Call

KapStone will host a conference call at 10:00 a.m. CDT, Thursday, July 27, 2017, to discuss the Company's financial results for the 2017 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:  53832308

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, 24 converting plants and 60 distribution centers. The business has approximately 6,400 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 strategic investments. 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, 2016 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,

2017

2016

2017

2016

Net sales 

$    822,717

$      784,911

$      1,588,560

$    1,523,126

Cost and expenses:

 Cost of sales, excluding depreciation and amortization

592,515

568,831

1,153,413

1,102,108

 Depreciation and amortization

46,054

46,035

91,402

90,574

 Freight and distribution expenses

75,640

70,978

148,628

136,037

 Selling, general and administrative expenses

67,313

55,554

133,798

116,294

Operating income 

41,195

43,513

61,319

78,113

Foreign exchange (gain) / loss

(1,004)

872

(1,086)

975

Equity method investments income

(29)

-

(706)

-

Interest expense, net

12,311

10,006

23,041

19,817

Income before provision for income taxes

29,917

32,635

40,070

57,321

Provision for income taxes

10,141

11,913

14,302

20,425

Net income 

$      19,776

$        20,722

$           25,768

$         36,896

Net income per share:

Basic

$          0.20

$            0.21

$               0.27

$             0.38

Diluted

$          0.20

$            0.21

$               0.26

$             0.38

Weighted-average number of shares outstanding:        

Basic

96,801,906

96,517,357

96,750,272

96,458,354

Diluted

98,520,218

97,629,786

98,457,450

97,561,774

Effective income tax rate

33.9%

36.5%

35.7%

35.6%

 

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,

2017

2016

2017

2016

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

Net income (GAAP)

$      19,776

$        20,722

$          25,768

$         36,896

   Interest expense, net

12,311

10,006

23,041

19,817

   Provision for income taxes

10,141

11,913

14,302

20,425

   Depreciation and amortization

46,054

46,035

91,402

90,574

EBITDA (Non-GAAP)

$      88,282

$        88,676

$        154,513

$      167,712

Acquisition, integration, start-up and other expenses

3,577

1,312

5,382

2,541

Longview piping inspection settlement

2,034

–

2,034

–

Union contract ratification cost

–

–

4,979

–

Change in fair value of contingent consideration liability

1,054

1,526

3,570

3,052

Severance expenses

–

3,116

–

6,164

Stock-based compensation expense

4,761

1,941

10,026

5,362

Accumulated EBITDA adjustments

11,426

7,895

25,991

17,119

Adjusted EBITDA (Non-GAAP)

$      99,708

$        96,571

$        180,504

$      184,831

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

Net income (GAAP)

$      19,776

$        20,722

$          25,768

$         36,896

Accumulated EBITDA adjustments

11,426

7,895

25,991

17,119

Accumulated tax adjustments

(4,285)

(2,597)

(9,747)

(5,760)

Adjusted Net Income (Non-GAAP)

$      26,917

$        26,020

$          42,012

$        48,255

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

Diluted earnings per share (GAAP)

$          0.20

$            0.21

$              0.26

$             0.38

Accumulated EBITDA adjustments

0.11

0.08

0.27

0.17

Accumulated tax adjustments

( 0.04)

( 0.02)

( 0.10)

( 0.06)

Adjusted Diluted EPS (Non-GAAP) 

$          0.27

$            0.27

$              0.43

$             0.49

 

KapStone Paper and Packaging Corporation

Consolidated Balance Sheets

(In thousands)

June 30,

December 31,

2017

2016

(Unaudited)

Assets

Current assets:

   Cash and cash equivalents

$        7,456

$        29,385

   Trade accounts receivable, net of allowances

453,320

392,962

   Other receivables

14,565

13,562

   Inventories

348,784

322,664

   Prepaid expenses and other current assets

15,871

10,247

Total current assets

839,996

768,820

Plant, property and equipment, net

1,473,343

1,441,557

Other assets

25,660

25,468

Intangible assets, net

312,962

314,413

Goodwill

720,611

705,617

Total assets

$ 3,372,572

$   3,255,875

Liabilities and Stockholders' Equity

Current liabilities:

Short-term borrowings 

$      22,000

$                 –

 Other current borrowings

4,117

–

 Capital lease obligation

28

–

Dividend payable

10,126

10,052

Accounts payable

204,545

189,350

Accrued expenses

92,824

76,480

Accrued compensation costs

50,299

48,840

Accrued income taxes

327

15,971

Total current liabilities

384,266

340,693

Long-term debt, net of current portion

1,516,266

1,485,323

Long-term financing obligation

43,633

–

Capital lease obligation

4,611

–

Pension and post-retirement benefits

31,321

34,207

Deferred income taxes

407,711

405,561

Other liabilities

61,776

85,761

Total other liabilities

2,065,318

2,010,852

Stockholders' equity:

Common stock $0.0001 par value

10

10

Additional paid-in capital

286,461

275,970

Retained earnings

695,893

689,668

Accumulated other comprehensive loss

(59,376)

(61,318)

Total stockholders' equity

922,988

904,330

Total liabilities and stockholders' equity

$ 3,372,572

$   3,255,875

 

KapStone Paper and Packaging Corporation

Consolidated Statement of Cash Flows 

(In thousands)

(Unaudited)

Quarter Ended June 30,

Six Months Ended June 30,

2017

2016

2017

2016

Operating activities:

   Net income

$          19,776

$       20,722

$         25,768

$              36,896

   Adjustments to reconcile net income to net cash provided by

   operating activities:

   Depreciation of plant and equipment

38,234

37,098

75,992

72,701

   Amortization of intangible assets

7,820

8,937

15,410

17,873

   Stock-based compensation expense

4,761

1,941

10,026

5,362

   Pension and postretirement

(654)

(579)

(1,226)

(1,027)

   Excess tax benefit from stock-based compensation

–

10

–

150

   Amortization of debt issuance costs

1,179

1,251

2,358

2,375

   Loss on disposal of fixed assets

460

715

986

653

   Deferred income taxes

7

(360)

1,528

704

   Change in fair value of contingent consideration liability

1,054

1,526

3,570

3,052

   Equity method investments income

275

–

108

–

   Changes in operating assets and liabilities

(56,084)

(40,241)

(85,023)

(49,114)

Net cash provided by operating activities

$          16,828

$       31,020

$         49,497

$              89,625

Investing activities:

    Capital expenditures

(35,109)

(36,210)

(73,778)

(72,373)

    Purchase of intangible assets

–

(1,025)

–

(1,525)

    API acquisition

–

–

(33,500)

–

    Equity method investments

–

(1,250)

–

(1,250)

    Proceeds from the sales of assets

–

–

–

4,856

Net cash used in investing activities

$        (35,109)

$     (38,485)

$     (107,278)

$            (70,292)

Financing activities:

Proceeds from revolving credit facility

$         145,512

$      129,100

$        268,500

$             263,700

Repayments on revolving credit facility

(149,500)

(123,100)

(246,500)

(254,100)

Proceeds from receivables credit facility

33,363

14,424

50,394

21,094

Repayments on receivables credit facility

–

(2,470)

(21,621)

(27,170)

Proceeds from long-term debt 

–

–

–

–

Repayments on long-term debt

–

–

–

–

Payment of loan amendment costs and debt issuance fees

(187)

(138)

(187)

(2,388)

Proceeds from other current borrowings

–

–

6,214

-

Payment on other current borrowings

(2,059)

–

(2,059)

–

Payment on capital lease obligation

(11)

–

(11)

–

Cash dividends paid

(9,679)

(9,652)

(19,343)

(19,348)

Payment of withholding taxes on vested stock awards

(19)

(94)

(875)

(786)

Proceeds from exercises of stock options

402

211

853

420

Proceeds from issuance of shares to ESPP

–

–

487

464

Excess tax benefit from stock-based compensation

–

(10)

–

(150)

Net cash provided (used in) / provided by financing activities

$           17,822

$          8,271

$          35,852

$             (18,264)

Net increase in cash and cash equivalents 

(459)

806

(21,929)

1,069

Cash and cash equivalents-beginning of period

7,915

7,084

29,385

6,821

Cash and cash equivalents-end of period

$             7,456

$          7,890

$            7,456

$                 7,890

 

KapStone Paper and Packaging Corporation

Operating Segment Information

(In thousands)

(Unaudited)

Net Sales

Three Months Ended June 30, 2017

Trade

Inter-segment

Total

Segment Operating Income (Loss)

Depreciation and Amortization

Capital Expenditures

Total Assets at June 30, 2017

Paper and Packaging

$       561,917

$        25,681

$      587,598

$          44,260

$             38,192

$            33,703

$       2,642,143

Distribution 

260,800

-

260,800

10,785

5,972

1,064

694,099

Corporate 

-

-

-

(13,850)

1,890

342

36,330

Intersegment eliminations

-

(25,681)

(25,681)

-

-

-

-

$      822,717

$                  -

$      822,717

$          41,195

$             46,054

$            35,109

$       3,372,572

Net Sales

Three Months Ended June 30, 2016

Trade

Inter-segment

Total

Segment 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 

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

Six Months Ended June 30, 2017

Trade

Inter-segment

Total

Segment Operating Income (Loss)

Depreciation and Amortization

Capital Expenditures

Paper and Packaging

$    1,109,561

$         46,878

$    1,156,439

$          78,575

$             75,598

$            71,408

Distribution 

478,999

-

478,999

13,382

11,950

1,743

Corporate 

-

-

-

(30,638)

3,854

627

Intersegment eliminations

-

(46,878)

(46,878)

-

-

-

$    1,588,560

$                  -

$    1,588,560

$          61,319

$             91,402

$            73,778

Net Sales

Six Months Ended June 30, 2016

Trade

Inter-segment

Total

Segment 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 

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

 

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

2017

2016

2017

2016

Segment operating income

$         44,260

$             41,082

$        78,575

$       87,323

Equity method investments income

(29)

-

(706)

-

Foreign exchange (gain) / loss

(591)

288

(636)

-

Depreciation and amortization

38,192

38,163

75,598

75,299

EBITDA

83,072

78,957

155,515

162,622

Severance expenses

-

3,035

-

5,297

Acquisition, integration, start-up and other expenses

952

935

2,318

1,819

Longview piping inspection settlement

2,034

-

2,034

-

Union contract ratification costs

-

-

4,979

-

Adjusted EBITDA

$          86,058

$              82,927

$      164,846

$      169,738

Adjusted EBITDA margin

14.6%

15.0%

14.3%

15.6%

Quarter Ended June 30,

Six Months Ended June 30,

Distribution

2017

2016

2017

2016

Segment operating income

$          10,785

$              12,336

$        13,382

$        13,717

Foreign exchange (gain) / loss

(413)

584

(450)

975

Depreciation and amortization

5,972

5,702

11,950

11,363

EBITDA

17,170

17,454

25,782

24,105

Acquisition, integration, start-up and other expenses

1,500

262

1,663

525

Severance expenses

-

89

-

480

Adjusted EBITDA

$          18,670

$              17,805

$        27,445

$        25,110

Adjusted EBITDA margin

7.2%

7.1%

5.7%

5.3%

Quarter Ended June 30,

Six Months Ended June 30,

Corporate

2017

2016

2017

2016

Segment operating (loss)

$        (13,850)

$              (9,905)

$      (30,638)

$      (22,927)

Depreciation and amortization

1,890

2,170

3,854

3,912

EBITDA

(11,960)

(7,735)

(26,784)

(19,015)

Stock-based compensation expense

4,761

1,941

10,026

5,362

Acquisition, integration, start-up and other expenses

1,125

115

1,401

197

Change in fair value of contingent consideration liability

1,054

1,526

3,570

3,052

Severance expenses

-

(8)

-

387

Adjusted EBITDA

$          (5,020)

$              (4,161)

$      (11,787)

$      (10,017)

Quarter Ended June 30,

Six Months Ended June 30,

Consolidated

2017

2016

2017

2016

Segment operating income

$          41,195

$              43,513

$        61,319

$        78,113

Equity method investments income

(29)

-

(706)

-

Foreign exchange (gain) / loss

(1,004)

872

(1,086)

975

Depreciation and amortization

46,054

46,035

91,402

90,574

EBITDA

88,282

88,676

154,513

167,712

Stock-based compensation expense

4,761

1,941

10,026

5,362

Acquisition, integration, start-up and other expenses

3,577

1,312

5,382

2,541

Longview piping inspection settlement

2,034

-

2,034

-

Union contract ratification costs

-

-

4,979

-

Change in fair value of contingent consideration liability

1,054

1,526

3,570

3,052

Severance expenses

-

3,116

-

6,164

Adjusted EBITDA

$          99,708

$              96,571

$      180,504

$      184,831

 

View original content:http://www.prnewswire.com/news-releases/kapstone-reports-second-quarter-results-300494670.html

SOURCE KapStone Paper and Packaging Corporation


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