Neenah Paper, Inc. (NYSE:NP) Q3 2018 Earnings Conference Call Transcript

Nov 07, 2018 • 11:00 am ET

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Neenah Paper, Inc. (NYSE:NP) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning and welcome to the Neenah Third Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Bill McCarthy, Vice President, Investor Relations. Please go ahead.

Executive
William McCarthy

Thank you. On the call with me this morning are John O'Donnell, Chief Executive Officer; and Bonnie Lind, Chief Financial Officer. After our prepared remarks covering quarterly financial results and progress against key initiatives, we'll open up the call for questions. We released earnings yesterday afternoon reporting quarterly revenue of $256 million, up 5%. This reflected 10% growth in Technical Products including acquired sales and Fine Paper and Packaging revenues that were in line with last year. Both segments benefited from increased selling prices and Technical Products also reflected volume growth and a higher value mix.

Earnings were down significantly in the quarter primarily due to higher manufacturing costs including costs related to additional downtime. GAAP earnings per share of $0.75 compared to $1.10 in the prior year. These figures included net added costs of $0.01 per share in 2018 for additional impairment and restructuring charges that were mostly offset by a favorable adjustment related to the Coldenhove acquisition. In 2017, there was a net benefit of $0.08 per share largely for an insurance settlement. Excluding these items, adjusted earnings per share were $0.76 in 2018 and $1.02 in 2017. Further detail on adjusting items along with a reconciliation to comparable GAAP figures can be found in our press release.

Finally, I'll note that our comments today include forward-looking statements. Actual results could differ from these statements due to uncertainties and risks outlined on our website and SEC filings. With that, I'll turn things over to John O'Donnell.

Executive
John P. O'Donnell

Good morning, everyone. While I typically start my comments with sales and work my way down the P&L, costs clearly were the challenge this quarter, so I thought I'd start here. As most of you know, the third quarter for Neenah includes a predominance of our planned maintenance downs and also marks the start of a seasonally slower second half of the year. Results were further impacted by $6 million of unusually high manufacturing costs in the quarter resulting from additional downtime and related operational inefficiencies and incremental spend. Of this $6 million, $4 million was due to one-time events. This included $2 million for environmental maintenance work required every 3 to 4 years at one of our German facilities, another $2 million to manage global inventories primarily in filtration, we overbuilt (ph) our safety stock of Germany to ensure a smooth transition of grades to our US facility, and the remaining $2 million of higher cost resulted from operational inefficiencies in the quarter.

At the same time, we continue to experience a challenging inflationary cost environment for commodity raw materials compounded by large increases in freight rates. Our teams have taken action to address these higher costs through selling price initiatives intended to offset