Artificial Intelligence driven Marketing Communications
ALPHARETTA, Ga.,- Neenah, Inc. (NYSE: NP) today reported 2019 fourth quarter and full-year results.
Fourth Quarter Highlights
Full Year Highlights
“Adjusted earnings” is a non-GAAP measure and is used to improve comparability of year-on-year results. Adjusted figures are reconciled to GAAP later in this release.
“I’m pleased with what our teams accomplished in 2019, as they pursued the most important, long-term, strategic decisions that were within our control – redoubling safety efforts, rationalizing an under-performing distributor and shuttering higher cost manufacturing assets, all while continually paying close attention to cost and price management. While many global markets remain challenged for growth, the success of our focused efforts was evidenced by our record cash flows and improved margins, allowing Neenah to exit the year in a significantly better position than we began”, said John O’Donnell, Chief Executive Officer. “Our strong financial condition and investments in product innovation, coupled with existing organic growth catalysts already in place, position us well to recommence our strong track record of capital-efficient growth by investing in strategies that will increase our portfolio of growing, profitable businesses.”
Fourth Quarter Consolidated Results
Consolidated net sales of $213.6 million in the fourth quarter of 2019 decreased 11 percent compared with $240.9 million in the prior year. Revenues declined 5 percent in Technical Products and 15 percent in Fine Paper & Packaging. The decrease resulted from lower volumes, including the divestiture of the Brattleboro mill, and unfavorable currency effects. These were partially offset by increased selling prices and a higher-value Technical Products sales mix.
Selling, general and administrative (SG&A) expense of $23.3 million in the fourth quarter of 2019 increased $3.0 million compared with 2018 primarily as a result of timing of certain items.
Operating income of $22.1 million in 2019 increased 24 percent compared with $17.8 million in the fourth quarter of 2018. In 2019, operating income included net favorable adjusting items totaling $1.2 million and in 2018 operating income included favorable items totaling $4.1 million. Excluding these items, adjusted operating income of $20.9 million in 2019 increased 53 percent compared with $13.7 million in 2018. The increase in operating income in 2019 resulted primarily from lower manufacturing and input costs and higher net pricing, which were only partly offset by lower volumes and higher SG&A expense.
Net interest expense of $2.8 million in the fourth quarter of 2019 decreased from $3.2 million in the prior period due to lower debt and interest rates. In 2019, the Company made net debt repayments of $35.8 million under its Global Revolving Credit Facilities and increased its mix of lower rate Euro-denominated borrowings.
The effective tax rate in the fourth quarter of 2019 was 19 percent compared to a rate of 12 percent in the fourth quarter of 2018. In 2018, the rate included a reduction in tax expense due to remeasurement of deferred tax liabilities following a reduction in tax rates for the Netherlands.
Cash Flow and Balance Sheet
Cash provided from operations in the fourth quarter of 2019 was $23.2 million compared with $29.0 million in the fourth quarter of 2018. The decreased cash generation in 2019 resulted from an increased investment in working capital partly offset by higher cash earnings. Capital spending of $7.5 million in the fourth quarter of 2019 declined from $10.0 million in the prior year. Net cash generated was used to reduce debt and return cash to shareholders through dividend payments.
Debt as of December 31, 2019 was $200.8 million and decreased from $204.6 million at September 30, 2019 and $239.1 million on December 31, 2018. Cash and cash equivalents as of December 31, 2019 were $9.0 million, up from $7.4 million at September 30, 2019 and compared to $9.9 million as of December 31, 2018.
Fourth Quarter Segment Results
Technical Products net sales of $123.5 million in the fourth quarter of 2019 decreased 7 percent compared with prior year sales of $133.5 million. Revenues decreased due to volume declines, primarily due to lower backings sales in Asia, and negative foreign currency impacts. These items were partially offset by increased selling prices and a higher value mix.
Operating income of $11.3 million in the fourth quarter of 2019 increased from prior year income of $6.7 million. Operating income in 2019 included a net benefit of $1.6 million related primarily to the curtailment gain for a Dutch pension plan, and a net benefit of $0.6 million in 2018, mostly for acquisition-related adjustments. Excluding these items, adjusted operating income of $9.7 million in 2019 increased $3.6 million from prior year income of $6.1 million as a result of lower input and manufacturing costs and a more profitable mix that more than offset lower sales volumes.
Fine Paper & Packaging net sales of $90.1 million in the fourth quarter of 2019 was 15 percent lower compared with prior year sales of $105.9 million. Approximately one-third of the decline was due to the divestiture of Brattleboro. The remainder of the decrease was due to lower commercial print volume, including impacts from a change in relationship with a major distributor. These items were partly offset by higher selling prices and growth in premium packaging.
Operating income of $15.2 million in the fourth quarter of 2019 increased from $14.1 million in 2018. Income in 2019 included adjusting items of $0.4 million for idled paper machine costs, and compared to a $3.1 million benefit from adjusting items in 2018 primarily related to the Brattleboro impairment loss. Excluding these items, adjusted operating income of $15.6 million in the fourth quarter of 2019 increased $4.6 million from $11.0 million in 2018 due to lower input costs and higher selling prices that more than offset lower sales volumes.
Unallocated corporate costs in the fourth quarter of 2019 were $4.4 million compared with $3.4 million in 2018. Unallocated corporate costs included an unfavorable adjustment of $0.3 million in 2018. There were no adjustments in 2019. Excluding this 2018 item, unallocated corporate costs increased by $1.3 million, primarily due to timing of certain expenses.
Following the sale of the Brattleboro mill in December 2018, the Other segment was discontinued. In 2018, operating results in this segment reflected income of $0.4 million, and included a favorable adjustment of $0.7 million related to the Brattleboro impairment loss.
Full Year 2019 Consolidated Results
Consolidated net sales of $938.5 million in 2019 were 9 percent lower than the prior year. The decrease resulted from lower volumes, including the divestiture of the Brattleboro mill, and unfavorable currency effects. These were partially offset by increased selling prices and a higher-value Technical Products sales mix. Technical Products revenues declined 7 percent while Fine Paper & Packaging revenues fell 11 percent, approximately half of which was due to the sale of the Brattleboro mill.
Consolidated operating income of $78.3 million in 2019 increased from $54.1 million in the prior year. The increase was mainly due to the absence of a $31.1 million impairment loss in 2018 related to the divestiture of the Brattleboro mill. Excluding $4.8 million of net unfavorable adjustments in 2019 primarily due to idling of a fine paper machine, and $30.7 million of net unfavorable adjustments in 2018, adjusted operating income decreased $1.7 million (2%), primarily due to lower sales and production volumes, and associated manufacturing fixed cost inefficiencies, that were only partially offset by higher net selling prices and slightly lower input costs.
Income from continuing operations of $55.4 million in 2019 increased $18.2 million compared with $37.2 million in 2018. After excluding items noted on the non-GAAP reconciliation table, adjusted income from continuing operations decreased $0.9 million in 2019 due to lower adjusted operating income and a higher effective tax rate. The effective income tax rate in 2019 was 17 percent and 9 percent in 2018. Income tax expense in 2018 was significantly reduced by the effects of the $31.1 million impairment loss of the Brattleboro mill and associated research and office facilities.
Earnings per diluted share of $3.26 in 2019 compared with $2.17 in 2018. After excluding items noted in the GAAP reconciliation table, 2019 adjusted earnings per share of $3.47 decreased 1 percent compared to $3.50 in 2018.
Cash provided by operating activities of $97.6 million for 2019 was $4.9 million higher than $92.7 million in the prior year. The increase in cash flows resulted primarily from lower pension plan contributions, partly offset by lower cash earnings.
Capital spending of $21.4 million in 2019 compared with $38.1 million in 2018. Spending was lower in 2019 as a result of a large environmental project completed in 2018 at the Company’s filtration plant in Germany, and lower required spending in 2019 for most businesses.
The following items are expected to impact 2020 results:
Reconciliation to GAAP Measures
The Company will report adjustments to GAAP figures when they are believed to improve the comparability and understanding of results. In these instances, a reconciliation of adjusted income measures to comparable GAAP measures will be provided, as shown below and in the financial attachments: