-- Schweitzer-Mauduit International, Inc. ("SWM" or the "Company")
(NYSE: SWM) reported earnings results for the three month and six
month periods ended June 30, 2020.
Adjusted measures are reconciled to GAAP at the
end of this release. Financial and operating comparisons are
versus the prior year period and are from continuing
operations. Figures may not sum to total due to
rounding. Definitions: Advanced Materials & Structures
(AMS), Engineered Papers (EP), "organic" - excluding acquisition
benefit, "Tekra" - the Tekra and Trient businesses acquired in
March 2020
Second Quarter 2020 Financial Results
Summary
- Second quarter results reflected EP segment profit stability
and AMS portfolio resilience in the face of COVID-19
- Total sales were $254.2 million, down 6%
- GAAP operating profit was $34.4 million, or 13.5% of sales,
down 22%
- Adjusted operating profit was $43.2 million, or 17.0% of sales,
down 15%
- GAAP EPS was $0.68, up 3%; Adjusted EPS was $0.90, down
15%
- Operating cash flow was $44.2 million and free cash flow was
$35.7 million
Management Commentary
Dr. Jeff Kramer, Chief Executive Officer,
commented, "We are pleased to report that SWM is successfully
navigating the global economic challenges and health concerns
related to COVID-19. Our employee base performed exceptionally
well, protecting the health of their colleagues while continuing to
provide quality products and services to our customers. While a few
locations closed temporarily, as we adapted safety protocols in
response to the fast-changing circumstances with minimal impact to
our customers, all of our sites are now open and we are fully
operational. Our global teams have clearly demonstrated why
customers around the world count on SWM to supply essential
components for their products."
“Following a first quarter that exceeded our expectations,
second quarter 2020 Adjusted EPS of $0.90 reflected solid execution
and overall resilience of the portfolio. Furthermore, year-to-date
2020 Adjusted EPS was essentially unchanged versus 2019, which we
consider a positive result in the face of COVID-19 headwinds.
Consistent with the expectations we communicated in our last
earnings release, stable demand in the tobacco industry supported
our EP segment. We saw only a modest profit contraction, which was
entirely attributable to some temporary site closures related to
government orders or implementation of stepped up hygiene
requirements early in the pandemic. Lower segment sales were offset
by excellent manufacturing execution and lower costs, which drove
outstanding margin performance."
"AMS performed well given the circumstances, with several
end-markets delivering solid growth while a few others felt a more
pronounced impact from COVID-19, particularly transportation.
Organic sales declined 15%, but were down only 4% excluding
transportation sales, demonstrating the overall resilience of the
AMS portfolio to the economic pressures faced in the quarter. We
are cautiously optimistic that the worst is over for our high-value
transportation business and see initial indications for an uptick
in order activity later this year. Medical increased significantly
across the portfolio, with rapid growth in facemask materials, as
well as specialty hospital and woundcare products. Industrial sales
posted solid gains, infrastructure and construction was below
expectations, and filtration held up relatively well with only a
modest decline. Incremental operating profits from the newly
acquired Tekra business, cost controls, and lower input costs were
all positive bottom-line offsets."
Dr. Kramer concluded, "During these unprecedented times, SWM
remains quite profitable, generating high free cash flow and
maintaining a strong balance sheet. We paid down nearly $90
million of debt with excess cash during the quarter while
maintaining our dividend. In addition, we are still pushing forward
on long-term strategic initiatives across the business, ranging
from commercial synergy projects related to Tekra, new product
development in both AMS and EP, and company-wide cost improvement
efforts. We are encouraged by our results despite a difficult
economic scenario, and believe our people, operations, and
financial performance will continue to reflect the strong resolve
of the SWM organization."
Second Quarter 2020 Financial Results
Advanced Materials & Structures
segment sales were $132.8 million, up 5%, including the acquisition
benefit from the Tekra acquisition, while organic sales decreased
15% due to COVID-19 related demand impacts. Sales into
medical end-markets increased high double-digits, accelerating from
strong first quarter growth, driven by significant demand for
facemask materials and specialty hospital products.
Industrial products also increased largely due to higher sales of
packaging films, while filtration sales declined moderately with
growth in air filtration products partially offsetting declines in
other areas. The Company's automotive aftermarket paint protection
film sales were significantly impacted by shelter-in-place orders
which contributed to the global disruption of the auto industry;
excluding transportation sales, AMS organic sales declined
4%. Infrastructure and construction sales were also impacted
by COVID-19 related pressures. GAAP operating profit was $13.1
million, or 9.9% of sales, down 36%, and reflected higher purchase
accounting expenses related to the Tekra acquisition.
Adjusted operating profit was $20.8 million, down 18%, with margin
down 440 basis points to 15.7%. Discretionary expense
reductions and lower raw material costs were offset by the organic
sales decline and the negative mix effect of the lower margin
acquired Tekra business.
Engineered Papers segment sales were
$121.4 million, down 15%, or 13% absent Euro-driven negative
currency impacts. Negative price/mix performance of 2% added
to a 12% volume decline. Lower volumes were largely a
function of industry attrition, an expected inventory reduction
from one customer, declines in certain low-margin products such as
foodservice packaging, and the impacts of temporary site shutdowns
related to COVID-19. Price/mix was impacted by temporary site
closures, particularly the Company's Ancram, NY facility which
produces high-value wrapper and binder products for small
cigars. GAAP operating profit was $31.7 million, or 26.1% of
sales, down 2%. Adjusted operating profit was $32.8 million,
down 3%, though adjusted operating margin expanding 340 basis
points to 27.0%. Margins increased primarily due to ongoing
cost reduction activities, good performance in LIP papers, lower
wood pulp input costs, and currency, which combined to offset
inefficiencies from lower volumes and the temporary plant shutdowns
related to COVID-19 safety measures. Currency movements
resulted in a $2.6 million benefit to operating profit due mainly
to lower local currency operating costs in Brazil.
Unallocated GAAP and adjusted expenses
were each $10.4 million, up $1.7 million, and were 4.1% of total
sales. The increase related to timing of certain
administrative expenses as well as expected higher IT costs.
Consolidated sales were $254.2 million,
down 6%, or 5% absent negative Euro-driven currency impacts.
Excluding the Tekra acquisition benefit, organic sales declined
15%. GAAP operating profit was $34.4 million, down 22%, and
GAAP operating profit margin was 13.5%. Adjusted operating
profit was $43.2 million, down 15%, and adjusted operating profit
margin was 17.0%, down 170 basis points. Adjusted EBITDA was
$52.8 million, down 12%, and adjusted EBITDA margin was 20.8%, down
150 basis points.
GAAP income was $21.5 million, up 5%; GAAP EPS
was $0.68. Adjusted income was $28.0 million, down 15%;
Adjusted EPS was $0.90.
Interest expense was $8.1 million, down from
$15.1 million, with the decrease due to $7.8 million of
non-recurring interest expense in the second quarter of 2019
related to Brazil tax assessments. Interest expense on debt
was $8.1 million, up $0.8 million due to higher average debt
balances as a result of the Tekra acquisition. Other expense was
$0.3 million, versus of $2.7 million in the prior year quarter,
which also reflected non-recurring other expenses related to Brazil
tax assessments.
The Company reported a tax rate of 20.8%, versus
19.7% in the prior year period. Excluding the impact of non-GAAP
adjustments, the second quarter 2020 tax rate was 21.8% (the
implied rate reflected in the Company's Adjusted EPS), versus 21.2%
in the prior year quarter.
The Company's Chinese JVs contributed $0.03 to
both GAAP and Adjusted EPS, versus a $0.02 per share loss in the
prior year quarter due to higher volumes.
Net currency movements were a $2.6 million
benefit to operating profits and the translation impact of net
currency movements was positive $0.09 to both GAAP EPS and Adjusted
EPS.
Non-GAAP Adjustments reflect items
included in GAAP operating profit, income, and EPS, but excluded
from adjusted operating profit, income, and EPS (see non-GAAP
reconciliation tables). The most significant adjustments to second
quarter 2020 results were preliminary purchase accounting expenses
of $0.18 per share (purchase accounting expenses reflect the
ongoing non-cash intangible asset amortization, as well as any
non-cash one-time inventory step-up charges, associated with AMS
acquisitions). In addition to purchase accounting expenses of
$0.14 per share, the prior year quarter non-GAAP adjustments also
included $0.24 per share of expenses related to the Brazil tax
assessments.
2020 Year-to-Date Financial Results
Advanced Materials & Structures
segment sales were $255.7 million, up 3%, including the acquisition
benefit from the Tekra acquisition, while organic sales decreased
9%, as COVID-19 related pressures that began late in the first
quarter persisted throughout the second quarter. Medical sales
exhibited strong growth, driven by significant demand for facemask
materials and specialty hospital products. Industrial
products also increased largely due to higher demand for packaging
films and materials for wind turbine manufacturing. Filtration and
infrastructure and construction sales declined, reflecting
increased economic pressure during the second quarter related to
COVID-19. Transportation experienced the most significant decline
in the portfolio, as discussed above. Excluding transportation
sales, AMS organic sales were flat versus the prior year
period. GAAP operating profit was $26.8 million, down
24%, which reflected higher purchase accounting expenses related to
the Tekra acquisition. Adjusted operating profit was $40.1
million, down 12%, with margin contracting 270 basis points to
15.7%. The organic sales decline and the addition of the
lower margin Tekra business contributed to the margin contraction,
offsetting strong expense controls and lower raw material
costs.
Engineered Papers segment sales were
$260.0 million down 7%, and down 5% versus the prior year period
absent negative currency impacts due mostly to a lower Euro.
Positive price/mix performance of 3% offset a volume decline of
8%. Price/mix benefited from a higher mix of LIP volumes
compared to the prior year period. The year-to-date volume
decline was driven primarily by the larger volume decrease during
the second quarter, as discussed above, relative to the first
quarter 2020 volume decline of 4% (consistent with industry
attrition). GAAP operating profit was $65.1 million, up
6%. Adjusted operating profit was $66.3 million, also up 6%,
with adjusted operating margin increasing 320 basis point to
25.5%. Year-to-date profits and margins increased mainly due
to positive price/mix impacts, efficiency improvements, lower raw
material costs, and currency, which offset lower volumes and the
impacts of temporary site closures related to COVID-19.
Currency movements resulted in a positive $3.5 million impact to
operating profit, due to lower local currency operating costs in
Brazil.
Unallocated GAAP and adjusted expenses
were each $23.4 million, up $1.5 million, and were 4.5% of total
sales, up 40 basis points. The primary drivers of the
increase were Tekra acquisition transaction costs and higher IT
expenses.
Consolidated sales were $515.7 million,
down 2%, or 1% absent negative Euro-driven currency impacts.
Excluding the Tekra acquisition benefit, organic sales declined
8%. GAAP operating profit was $68.5 million, down 8%, and
GAAP operating profit margin was 13.3%. Adjusted operating
profit was $83.0 million, down 4%, and adjusted operating profit
margin was 16.1% down 20 basis points. Adjusted EBITDA was $101.8
million, down 3%, and adjusted EBITDA margin was 19.7%, down 20
basis points.
GAAP income was $44.0 million, up 16%; GAAP EPS
was $1.40. Adjusted income was $54.5 million, up 1%; this
equated to Adjusted EPS of $1.75.
Interest expense was $15.0 million, down from
$22.9 million, with the decrease due to $7.8 million of
non-recurring interest expense in the second quarter of 2019
related to Brazil tax assessments. Interest expense on debt
was $15.0 million, down $0.1 million. Other income was $0.3
million, versus other expense of $3.3 million in the prior year
quarter, which also reflected non-recurring costs related to the
Brazil tax assessments.
The Company reported a tax rate of 19.9%, versus
19.8% in the prior year period. Excluding the impact of
non-GAAP adjustments, the year-to-date tax rate was 21.5% (the
implied rate reflected in the Company's Adjusted EPS), versus 21.4%
in the prior year period.
The Company's Chinese JVs contributed $0.03 to
both GAAP and Adjusted EPS, versus a $0.03 per share loss in the
prior year period, due to higher volumes.
Net currency movements were a $3.3 million
benefit to operating profits and the translation impact of net
currency movements was positive $0.06 to both GAAP EPS and Adjusted
EPS.
Non-GAAP Adjustments reflect items
included in GAAP operating profit, income, and EPS, but excluded
from adjusted operating profit, income, and EPS (see non-GAAP
reconciliation tables). The most significant adjustments to
year-to-date 2020 results were preliminary purchase accounting
expenses of $0.32 per share (purchase accounting expenses reflect
the ongoing non-cash intangible asset amortization, as well as any
non-cash one-time inventory step-up charges, associated with AMS
acquisitions). In addition to purchase accounting expenses of
$0.28 per share, the prior year period non-GAAP adjustments also
included $0.24 per share of expenses related to the Brazil tax
assessments.
Cash Flow, Debt, & Dividend
Year-to-date 2020 cash provided by operating
activities was $49.3 million, down from $55.0 million, due
primarily to timing of working capital changes. The Company's
working capital-related cash outflows were $30.2 million, compared
to $27.6 million in the prior year period.
Capital spending and capitalized software
totaled $16.6 million, down $1.4 million, which annualizes below
the $40 million to $45 million capital expenditure guidance the
Company provided in February 2020. In response to COVID-19
and potential financial impacts to the Company, management plans to
evaluate cash flow trends in the context of preserving liquidity
and may elect to defer some discretionary capital projects
originally planned for 2020. Year-to-date free cash outflow
was $32.7 million compared to $37.0 million in the prior year
period.
On March 13, 2020, the Company closed on the
Tekra acquisition. The total net cash consideration of $169.3
million was comprised of the originally announced $155.0 million
purchase price as well as customary post-closing adjustments, which
relate primarily to tax benefits expected to be realized by the
Company. The Company funded the transaction on its previously
undrawn credit revolver.
Total debt was $669.0 million as of
June 30, 2020, up $126.3 million from year end 2019,
reflecting the Tekra acquisition financing, and total cash was
$63.9 million; net debt was $605.1 million on June 30, 2020,
up $165.4 million. The Company paid down $86.7 million of
debt during the second quarter. The Company's total debt is
comprised primarily of $127 million of borrowings under the
revolving credit facility, which is due in 2023 and represents the
Company's nearest material debt maturity, $197 million of an
outstanding term loan due in 2025, and $350 million of senior notes
due in 2026 (these amounts do not sum to total debt due mainly to
unamortized discount and issuance costs). The Company's
liquidity position is $433 million, consisting of $64 million of
cash and $369 million of revolver availability, which includes $5
million of letters of credit. Management believes current
cash balances, anticipated cash generation, and borrowing capacity
will be sufficient to fund the Company's operating needs and
financial obligations, including dividend payments.
Pursuant to the debt covenants, the Company's
net debt to adjusted EBITDA was approximately 2.8x as of
June 30, 2020, up from 2.1x from year end 2019, due primarily
to financing the Tekra acquisition. Per the terms of the
Company's credit agreement, the Company's maximum leverage covenant
is 5.0x through the duration of 2020 and is required to be below
4.5x by the end of the second quarter of 2021. Based on
multiple scenario and sensitivity analyses conducted by the
Company, management expects to maintain covenant compliance despite
anticipated macro-economic weakness caused by the COVID-19
pandemic.
The Company announced a quarterly cash dividend
of $0.44 per share. The dividend will be payable on
September 18, 2020 to stockholders of record as of
August 21, 2020. Through the second quarter of 2020, the
Company has paid dividends to stockholders totaling $27.4
million.
Conference Call
SWM will hold a conference call to review second
quarter 2020 results with investors and analysts at 9:30 a.m.
Eastern time on Thursday, August 6, 2020. The earnings conference
call will be simultaneously broadcast over the Internet at
www.swmintl.com. To listen to the call, please go to the
Company’s website at least 15 minutes prior to the call to register
and to download and install any necessary audio software. For those
unable to listen to the live broadcast, a replay will be available
on the Company’s website shortly after the call.
SWM will use a presentation in conjunction with
its conference call. The presentation can be found on the
Company's website under the Investor Relations section in advance
of the earnings conference call. The presentation can also be
accessed via the earnings conference call webcast.
About SWM
SWM is a leading global performance materials company. Our
highly engineered papers, films, nets and nonwovens are designed
and manufactured using natural fibers and polymers for a variety of
industries and applications. We provide our customers with critical
components that enhance the performance of their products. End
markets served include filtration, transportation, infrastructure
and construction, medical, industrial, tobacco, energy, food
services and home décor. SWM and its subsidiaries manufacture on
four continents, conduct business in over 90 countries and employ
approximately 3,400 people worldwide. For further information,
please visit SWM’s website at www.swmintl.com.
Forward-Looking Statements
This press release contains forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995 and other federal securities laws that are
subject to the safe harbor created by such laws and other legal
protections. Forward-looking statements include, without
limitation, those regarding future performance, capital
expenditures, future market and EPS trends, sales and volume
trends, growth prospects, currency rates and trends and impact on
EPS, future cash flows, effective tax rates, planned
investments, impacts of the COVID-19 pandemic on our operations,
profitability, and cash flow, and other statements generally
identified by words such as "believe," "expect," "intend,"
"guidance," "plan," "forecast," "potential," "anticipate,"
"confident," "project," "appear," "future," "should," "likely,"
"could," "may," "typically," "will," and similar words. These
statements are not guarantees of future performance and certain
risks, uncertainties (some of which are beyond the Company’s
control) and assumptions that may cause actual results to differ
materially from our expectations as of the date of this
release. These risks include, among other things, the
following factors:
- Risks associated with pandemics and other public health
emergencies, including the continued spread and impact of, and the
governmental and third party response to, the COVID-19
pandemic;
- The impact of mandatory business closures, limits on
non-essential travel, “social or physical distancing” guidelines,
“shelter-in-place” mandates and similar governmental and private
measures taken to combat the spread of COVID-19;
- Changes in sales or production volumes, pricing and/or
manufacturing costs of Recon products, cigarette paper (including
for LIP cigarettes), including any change by our customers in their
tobacco and tobacco-related blends for their cigarettes, their
target inventory levels and/or the overall demand for their
products, new technologies such as e-cigarettes, inventory
adjustments and rebalancings in our EP segment. Additionally,
competition and changes in AMS end-market products due to changing
customer demands;
- Changes in the Chinese economy, including relating to the
demand for reconstituted tobacco, premium cigarettes and netting
and due to impact of tariffs;
- Risks associated with the implementation of our strategic
growth initiatives, including diversification, and the Company's
understanding of, and entry into, new industries and
technologies;
- Changes in the source and intensity of competition in our
commercial segments. We operate in highly competitive markets
in which alternative supplies and technologies may attract our
customers away from our products. In addition, our customers
may, in some cases, produce for themselves the components that the
Company sells to them for incorporation into their products, thus
reducing or eliminating their purchases from us;
- Our ability to attract and retain key personnel, due to our
prior restructuring actions, the tobacco industry in which we
operate or otherwise;
- Weather conditions, including potential impacts, if any, from
climate change, known and unknown, seasonality factors that affect
the demand for virgin tobacco leaf and natural disasters or unusual
weather events;
- Seasonal or cyclical market and industry fluctuations which may
result in reduced net sales and operating profits during certain
periods;
- Increases in commodity prices and lack of availability of such
commodities, including energy, wood pulp and resins, which could
impact the sales and profitability of our products;
- Adverse changes in the oil, gas, automotive, construction and
infrastructure, and mining sectors impacting key AMS segment
customers;
- Increases in operating costs due to inflation or otherwise,
such as labor expense, compensation and benefits costs;
- Employee retention and labor shortages;
- Changes in employment, wage and hour laws and regulations in
the U.S., France and elsewhere, including the loi de Securisation
de l'emploi in France, unionization rule and regulations by the
National Labor Relations Board in the U.S., equal pay initiatives,
additional anti-discrimination rules or tests and different
interpretations of exemptions from overtime laws;
- Labor strikes, stoppages, disruptions or other disruptions at
our facilities;
- The impact of tariffs, and the imposition of any future
additional tariffs and other trade barriers, and the effects of
retaliatory trade measures;
- Existing and future governmental regulation and the enforcement
thereof, for example relating to the tobacco industry, taxation and
the environment (including the impact thereof on our Chinese joint
ventures);
- New reports as to the effect of smoking on human health or the
environment;
- Changes in general economic, financial and credit conditions in
the U.S., Europe, China and elsewhere, including the impact thereof
on currency exchange rates (including any weakening of the Euro and
Real) and on interest rates and the effects of the ongoing
discussions between the U.K. and European Union to determine the
terms of the U.K.'s withdrawal from the European Union;
- Changes in the method pursuant to which LIBOR rates are
determined and the potential phasing out of LIBOR after 2021;
- Changes in the manner in which we finance our debt and future
capital needs, including potential acquisitions;
- The success of, and costs associated with, our current or
future restructuring initiatives, including the granting of any
needed governmental approvals and the occurrence of work stoppages
or other labor disruptions;
- Changes in the discount rates, revenue growth, cash flow growth
rates or other assumptions used by the Company in its assessment
for impairment of assets and adverse economic conditions or other
factors that would result in significant impairment charges;
- The failure of one or more material suppliers, including
energy, resin and pulp suppliers, to supply materials as needed to
maintain our product plans and cost structure;
- International conflicts and disputes, which restrict our
ability to supply products into affected regions, due to the
corresponding effects on demand, the application of international
sanctions, or practical consequences on transportation, banking
transactions, and other commercial activities in troubled
regions;
- Compliance with the FCPA and other anti-corruption laws or
trade control laws, as well as other laws governing our
operations;
- The pace and extent of further international adoption of LIP
cigarette standards and the nature of standards so adopted;
- Risks associated with our 50%-owned, non-U.S. joint ventures
relating to control and decision-making, compliance, accounting
standards, transparency and customer relations, among others;
- A failure in our risk management and/or currency or interest
rate swaps and hedging programs, including the failures of any
insurance company or counterparty;
- The number, type, outcomes (by judgment or settlement) and
costs of legal, tax, regulatory or administrative proceedings,
litigation and/or amnesty programs, including those in Brazil,
France and Germany;
- The outcome and cost of LIP-related intellectual property
infringement and validity litigation in Europe and the Glatz's
German Patent Court invalidation proceedings;
- Risks associated with our technological advantages in our
intellectual property and the likelihood that our current
technological advantages are unable to continue indefinitely;
- Risks associated with acquisitions or other strategic
transactions, including acquired liabilities and restrictions,
retaining customers from businesses acquired, achieving any
expected results or synergies from acquired businesses, complying
with new regulatory frameworks, difficulties in integrating
acquired businesses or implementing strategic transactions
generally and risks associated with international acquisition
transactions, including in countries where we do not currently have
a material presence;
- Risks associated with dispositions, including post-closing
claims being made against us, disruption to our other businesses
during a sale process or thereafter, credit risks associated with
any buyer of such disposed assets and our ability to collect funds
due from any such buyer;
- Risks associated with our global asset realignment initiatives,
including: changes in tax law, treaties, interpretations, or
regulatory determinations; audits made by applicable regulatory
authorities and/or our auditor; and our ability to operate our
business in a manner consistent with the regulatory requirements
for such realignment;
- Increased taxation on tobacco-related products;
- Costs and timing of implementation of any upgrades or changes
to our information technology systems;
- Failure by us to comply with any privacy or data security laws
or to protect against theft of customer, employee and corporate
sensitive information;
- Changes in tax rates, the adoption of new U.S. or international
tax legislation or exposure to additional tax liabilities;
- Changes in construction and infrastructure spending and its
impact on demand for certain products;
- Potential loss of consumer awareness and demand for acquired
companies’ products if it is decided to rebrand those products
under the Company’s legacy brand names; and
- Other factors described elsewhere in this document and from
time to time in documents that we file with the SEC.
All forward-looking statements made in this
document are qualified by these cautionary statements.
Forward-looking statements herein are made only as of the date of
this document, and we do not undertake any obligation, other than
as may be required by law, to update or revise any forward-looking
or cautionary statements to reflect changes in assumptions, the
occurrence of events, unanticipated or otherwise, or changes in
future operating results over time or otherwise.
Comparisons of results for current and any prior
periods are not intended to express any future trends or
indications of future performance unless expressed as such and
should only be viewed as historical data. The financial
results reported in this release are unaudited.
For additional factors and further discussion of
these factors, please see SWM's Annual Report on Form 10-K for the
year ended December 31, 2019, Quarterly Report on Form 10-Q
for the quarter ended June 30, 2020, and other reports we file from
time to time, which can be found at the SEC’s website www.sec.gov.
The discussion of these risks is specifically incorporated by
reference into this release. The financial results reported in this
release are unaudited.
Non-GAAP Financial Measures
Certain financial measures and comments
contained in this press release exclude restructuring and
impairment expenses, certain purchase accounting adjustments
related to AMS segment acquisitions, interest expense, the effect
of income tax provisions and other tax impacts, capital spending,
capitalized software costs, loss from discontinued operations, and
depreciation and amortization. This press release also
provides certain information regarding the Company's financial
results excluding currency impacts. This information
estimates the impact of changes in foreign currency rates on the
translation of the Company's current financial results as compared
to the applicable comparable period and is derived by translating
the current local currency results into U.S. Dollars based upon the
foreign currency exchange rates for the applicable comparable
period. Financial measures which exclude or include these
items have not been determined in accordance with accounting
principles generally accepted in the United States (GAAP) and are
therefore "non-GAAP" financial measures. Reconciliations of these
non-GAAP financial measures to the most closely analogous measure
determined in accordance with GAAP are included in the financial
schedules attached to this release.
The Company believes that the presentation of
non-GAAP financial measures in addition to the related GAAP
measures provides investors with greater transparency on the
information used by the Company’s management in its financial and
operational decision-making. Management also believes that
the non-GAAP financial measures provide additional insight for
analysts and investors in evaluating the Company’s financial and
operational performance in the same way that management evaluates
the Company's financial performance. Management believes that
providing this information enables investors to better understand
the Company’s operating performance and financial condition.
These non-GAAP financial measures are not calculated or presented
in accordance with, and are not intended to be considered in
isolation or as alternatives or substitutes for, or superior to,
financial measures prepared and presented in accordance with GAAP,
and should be read only in conjunction with the Company's financial
measures prepared and presented in accordance with GAAP. The
non-GAAP financial measures used in this release may be different
from the measures used by other companies.
SOURCE SWM:
CONTACT
Andrew WamserChief Financial
Officer+1-770-569-4271
Or
Mark ChekanowDirector of Investor
Relations+1-770-569-4229
Website: http://www.swmintl.com
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF
INCOME(Dollars in millions, except per share
amounts)(Unaudited)
|
Three Months Ended June 30, |
|
|
|
2020 |
|
2019 |
|
% Change |
Net sales |
$ |
254.2 |
|
|
$ |
269.9 |
|
|
(5.8) |
% |
Cost of products sold |
179.9 |
|
|
190.9 |
|
|
(5.8) |
|
Gross profit |
74.3 |
|
|
79.0 |
|
|
(5.9) |
|
|
|
|
|
|
|
Selling expense |
8.8 |
|
|
8.6 |
|
|
2.3 |
|
Research expense |
3.6 |
|
|
3.7 |
|
|
(2.7) |
|
General expense |
25.9 |
|
|
22.1 |
|
|
17.2 |
|
Total nonmanufacturing expenses |
38.3 |
|
|
34.4 |
|
|
11.3 |
|
|
|
|
|
|
|
Restructuring and
impairment expense |
1.6 |
|
|
0.4 |
|
|
N.M. |
Operating
profit |
34.4 |
|
|
44.2 |
|
|
(22.2) |
|
Interest expense |
8.1 |
|
|
15.1 |
|
|
(46.4) |
|
Other expense, net |
(0.3) |
|
|
(2.7) |
|
|
(88.9) |
|
Income from
continuing operations before income taxes and income from equity
affiliates |
26.0 |
|
|
26.4 |
|
|
(1.5) |
|
|
|
|
|
|
|
Provision for income taxes |
5.4 |
|
|
5.2 |
|
|
3.8 |
|
Income (loss) from equity affiliates, net of income taxes |
0.9 |
|
|
(0.7) |
|
|
N.M. |
Income from
continuing operations |
21.5 |
|
|
20.5 |
|
|
4.9 |
|
Net income |
$ |
21.5 |
|
|
$ |
20.5 |
|
|
4.9 |
% |
|
|
|
|
|
|
Net income per
share - basic: |
|
|
|
|
|
Income per share from continuing operations |
$ |
0.69 |
|
|
$ |
0.66 |
|
|
4.5 |
% |
Net income per share – basic |
$ |
0.69 |
|
|
$ |
0.66 |
|
|
4.5 |
% |
|
|
|
|
|
|
Net income per
share – diluted: |
|
|
|
|
|
Income per share from continuing operations |
$ |
0.68 |
|
|
$ |
0.66 |
|
|
3.0 |
% |
Net income per share – diluted |
$ |
0.68 |
|
|
$ |
0.66 |
|
|
3.0 |
% |
|
|
|
|
|
|
Cash dividends
declared per share |
$ |
0.44 |
|
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
30,792,600 |
|
|
30,661,400 |
|
|
|
|
|
|
|
|
|
Diluted |
31,006,700 |
|
|
30,809,300 |
|
|
|
N.M. - Not Meaningful
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
INCOME(Dollars in millions, except per share
amounts)(Unaudited)
|
Six Months Ended June 30, |
|
|
|
2020 |
|
2019 |
|
% Change |
Net sales |
$ |
515.7 |
|
|
$ |
527.9 |
|
|
(2.3) |
% |
Cost of products sold |
367.1 |
|
|
381.0 |
|
|
(3.6) |
|
Gross profit |
148.6 |
|
|
146.9 |
|
|
1.2 |
|
|
|
|
|
|
|
Selling expense |
18.3 |
|
|
17.2 |
|
|
6.4 |
|
Research expense |
6.8 |
|
|
7.0 |
|
|
(2.9) |
|
General expense |
53.3 |
|
|
47.7 |
|
|
11.7 |
|
Total nonmanufacturing expenses |
78.4 |
|
|
71.9 |
|
|
9.0 |
|
|
|
|
|
|
|
Restructuring and
impairment expense |
1.7 |
|
|
0.4 |
|
|
N.M. |
Operating
profit |
68.5 |
|
|
74.6 |
|
|
(8.2) |
|
Interest expense |
15.0 |
|
|
22.9 |
|
|
(34.5) |
|
Other income (expense), net |
0.3 |
|
|
(3.3) |
|
|
N.M. |
Income from
continuing operations before income taxes and income from equity
affiliates |
53.8 |
|
|
48.4 |
|
|
11.2 |
|
|
|
|
|
|
|
Provision for income taxes |
10.7 |
|
|
9.6 |
|
|
11.5 |
|
Income (loss) from equity affiliates, net of income taxes |
0.9 |
|
|
(0.9) |
|
|
N.M. |
Income from
continuing operations |
44.0 |
|
|
37.9 |
|
|
16.1 |
|
Net income |
$ |
44.0 |
|
|
$ |
37.9 |
|
|
16.1 |
% |
|
|
|
|
|
|
Net income per
share - basic: |
|
|
|
|
|
Income per share from continuing operations |
$ |
1.41 |
|
|
$ |
1.23 |
|
|
14.6 |
% |
Net income per share – basic |
$ |
1.41 |
|
|
$ |
1.23 |
|
|
14.6 |
% |
|
|
|
|
|
|
Net income per
share – diluted: |
|
|
|
|
|
Income per share from continuing operations |
$ |
1.40 |
|
|
$ |
1.22 |
|
|
14.8 |
% |
Net income per share – diluted |
$ |
1.40 |
|
|
$ |
1.22 |
|
|
14.8 |
% |
|
|
|
|
|
|
Cash dividends
declared per share |
$ |
0.88 |
|
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
30,752,500 |
|
|
30,641,100 |
|
|
|
|
|
|
|
|
|
Diluted |
30,958,400 |
|
|
30,791,000 |
|
|
|
N.M. - Not Meaningful
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE
SHEETS(Dollars in
millions)(Unaudited)
|
June 30, 2020 |
|
December 31, 2019 |
ASSETS |
|
|
|
Cash and cash
equivalents |
$ |
63.9 |
|
|
$ |
103.0 |
|
Accounts
receivable, net |
151.3 |
|
|
143.2 |
|
Inventories |
172.1 |
|
|
161.4 |
|
Other current
assets |
17.1 |
|
|
19.9 |
|
Property, plant
and equipment, net |
325.5 |
|
|
330.3 |
|
Goodwill |
397.9 |
|
|
337.4 |
|
Other noncurrent
assets |
450.3 |
|
|
376.5 |
|
Total Assets |
$ |
1,578.1 |
|
|
$ |
1,471.7 |
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
Current debt |
$ |
2.6 |
|
|
$ |
1.9 |
|
Other current
liabilities |
134.1 |
|
|
155.7 |
|
Long-term
debt |
666.4 |
|
|
540.8 |
|
Pension and other
postretirement benefits |
32.2 |
|
|
31.6 |
|
Deferred income
tax liabilities |
46.4 |
|
|
48.2 |
|
Long-term income
tax payable |
17.6 |
|
|
21.4 |
|
Other noncurrent
liabilities |
71.4 |
|
|
74.4 |
|
Stockholders’
equity |
607.4 |
|
|
597.7 |
|
Total Liabilities and Stockholders’ Equity |
$ |
1,578.1 |
|
|
$ |
1,471.7 |
|
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOW(Dollars in
millions)(Unaudited)
|
Six Months Ended June 30, |
|
2020 |
|
2019 |
Operating |
|
|
|
Net income |
$ |
44.0 |
|
|
$ |
37.9 |
|
Non-cash items included in net income: |
|
|
|
Depreciation and amortization |
32.5 |
|
|
28.9 |
|
Deferred income tax |
1.6 |
|
|
(0.7) |
|
Pension and other postretirement benefits |
1.8 |
|
|
1.3 |
|
Stock-based compensation |
4.2 |
|
|
2.5 |
|
Loss from equity affiliates |
(0.9) |
|
|
0.9 |
|
Other items |
(3.7) |
|
|
0.9 |
|
Changes in operating working capital |
(30.2) |
|
|
(27.6) |
|
Cash provided by operations |
49.3 |
|
|
55.0 |
|
|
|
|
|
Investing |
|
|
|
Capital spending |
(14.9) |
|
|
(15.2) |
|
Capitalized software costs |
(1.7) |
|
|
(2.8) |
|
Acquisitions, net of cash acquired |
(169.3) |
|
|
— |
|
Other investing |
2.1 |
|
|
0.8 |
|
Cash used in investing |
(183.8) |
|
|
(17.2) |
|
|
|
|
|
Financing |
|
|
|
Cash dividends paid to SWM stockholders |
(27.4) |
|
|
(27.2) |
|
Changes in short-term debt |
— |
|
|
(0.1) |
|
Proceeds from issuances of long-term debt |
212.0 |
|
|
0.1 |
|
Payments on long-term debt |
(87.1) |
|
|
(15.3) |
|
Purchases of common stock |
(0.9) |
|
|
(1.0) |
|
Cash provided by (used in) financing |
96.6 |
|
|
(43.5) |
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
(1.2) |
|
|
(0.3) |
|
|
|
|
|
Decrease in cash
and cash equivalents |
$ |
(39.1) |
|
|
$ |
(6.0) |
|
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND
SUBSIDIARIESBUSINESS SEGMENT
REPORTING(Dollars in
millions)(Unaudited)
Net
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2020 |
|
2019 |
|
% Change |
|
2020 |
|
2019 |
|
% Change |
AMS |
$ |
132.8 |
|
|
$ |
126.7 |
|
|
4.8 |
% |
|
$ |
255.7 |
|
|
$ |
247.2 |
|
|
3.4 |
% |
EP |
121.4 |
|
|
143.2 |
|
|
(15.2) |
% |
|
260.0 |
|
|
280.7 |
|
|
(7.4) |
% |
Total Consolidated |
$ |
254.2 |
|
|
$ |
269.9 |
|
|
(5.8) |
% |
|
$ |
515.7 |
|
|
$ |
527.9 |
|
|
(2.3) |
% |
Operating Profit |
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
|
|
|
Return on Net Sales |
|
|
|
|
|
Return on Net Sales |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
AMS |
$ |
13.1 |
|
|
$ |
20.4 |
|
|
9.9 |
% |
|
16.1 |
% |
|
$ |
26.8 |
|
|
$ |
35.3 |
|
|
10.5 |
% |
|
14.3 |
% |
EP |
31.7 |
|
|
32.5 |
|
|
26.1 |
% |
|
22.7 |
% |
|
65.1 |
|
|
61.2 |
|
|
25.0 |
% |
|
21.8 |
% |
Unallocated |
(10.4) |
|
|
(8.7) |
|
|
|
|
|
|
(23.4) |
|
|
(21.9) |
|
|
|
|
|
Total Consolidated |
$ |
34.4 |
|
|
$ |
44.2 |
|
|
13.5 |
% |
|
16.4 |
% |
|
$ |
68.5 |
|
|
$ |
74.6 |
|
|
13.3 |
% |
|
14.1 |
% |
Non-GAAP Adjustments to Operating Profit |
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
AMS -
Restructuring & Impairment Expenses |
$ |
0.5 |
|
|
$ |
— |
|
|
$ |
0.5 |
|
|
$ |
— |
|
AMS - Purchase
Accounting Adjustments |
7.2 |
|
|
5.1 |
|
|
12.8 |
|
|
10.2 |
|
EP -
Restructuring & Impairment Expenses and Tax Assessment |
1.1 |
|
|
1.3 |
|
|
1.2 |
|
|
1.3 |
|
Unallocated |
— |
|
|
— |
|
|
— |
|
|
— |
|
Total Consolidated |
$ |
8.8 |
|
|
$ |
6.4 |
|
|
$ |
14.5 |
|
|
$ |
11.5 |
|
Adjusted Operating Profit * |
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
|
|
|
Return on Net Sales |
|
|
|
|
|
Return on Net Sales |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
AMS |
$ |
20.8 |
|
|
$ |
25.5 |
|
|
15.7 |
% |
|
20.1 |
% |
|
$ |
40.1 |
|
|
$ |
45.5 |
|
|
15.7 |
% |
|
18.4 |
% |
EP |
32.8 |
|
|
33.8 |
|
|
27.0 |
% |
|
23.6 |
% |
|
66.3 |
|
|
62.5 |
|
|
25.5 |
% |
|
22.3 |
% |
Unallocated |
(10.4) |
|
|
(8.7) |
|
|
|
|
|
|
(23.4) |
|
|
(21.9) |
|
|
|
|
|
Total Consolidated |
$ |
43.2 |
|
|
$ |
50.6 |
|
|
17.0 |
% |
|
18.7 |
% |
|
$ |
83.0 |
|
|
$ |
86.1 |
|
|
16.1 |
% |
|
16.3 |
% |
* Adjusted Operating Profit, a non-GAAP
financial measure, is calculated by adding Restructuring &
Impairment Expenses and Purchase Accounting Adjustments to
Operating Profit.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND
SUBSIDIARIESRECONCILIATION OF NON-GAAP FINANCIAL
MEASURES AND SUPPLEMENTAL DATA(Dollars in
millions, except per share amounts)
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Operating profit |
$ |
34.4 |
|
|
$ |
44.2 |
|
|
$ |
68.5 |
|
|
$ |
74.6 |
|
Plus: Restructuring and impairment expense |
1.6 |
|
|
0.4 |
|
|
1.7 |
|
|
0.4 |
|
Plus: Purchase accounting adjustments |
7.2 |
|
|
5.1 |
|
|
12.8 |
|
|
10.2 |
|
Adjusted Operating Profit |
$ |
43.2 |
|
|
$ |
50.6 |
|
|
$ |
83.0 |
|
|
$ |
86.1 |
|
|
|
|
|
|
|
|
|
Income |
$ |
21.5 |
|
|
$ |
20.5 |
|
|
$ |
44.0 |
|
|
$ |
37.9 |
|
Plus: Restructuring and impairment expense |
1.6 |
|
|
0.4 |
|
|
1.7 |
|
|
0.4 |
|
Less: Tax impact of restructuring and impairment expense |
(0.5) |
|
|
(0.1) |
|
|
(0.5) |
|
|
(0.1) |
|
Plus: Purchase accounting adjustments |
7.2 |
|
|
5.1 |
|
|
12.8 |
|
|
10.2 |
|
Less: Tax impact of purchase accounting adjustments |
(1.7) |
|
|
(1.0) |
|
|
(3.1) |
|
|
(1.9) |
|
Plus: Brazil tax assessments |
— |
|
|
10.8 |
|
|
— |
|
|
10.8 |
|
Less: Tax impact of Brazil tax assessments |
— |
|
|
(3.1) |
|
|
— |
|
|
(3.1) |
|
Less: Tax legislative changes, net of other discrete items |
(0.1) |
|
|
0.3 |
|
|
(0.4) |
|
|
(0.3) |
|
Adjusted Income |
$ |
28.0 |
|
|
$ |
32.9 |
|
|
$ |
54.5 |
|
|
$ |
53.9 |
|
|
|
|
|
|
|
|
|
Earnings per share - diluted |
$ |
0.68 |
|
|
$ |
0.66 |
|
|
$ |
1.40 |
|
|
$ |
1.22 |
|
Earnings per share from continuing operations |
0.68 |
|
|
0.66 |
|
|
1.40 |
|
|
1.22 |
|
Plus: Restructuring and impairment expense |
0.06 |
|
|
0.01 |
|
|
0.06 |
|
|
0.01 |
|
Less: Tax impact of restructuring and impairment expense |
(0.02) |
|
|
— |
|
|
(0.02) |
|
|
— |
|
Plus: Purchase accounting adjustments |
0.24 |
|
|
0.17 |
|
|
0.42 |
|
|
0.34 |
|
Less: Tax impact of purchase accounting adjustment |
(0.06) |
|
|
(0.03) |
|
|
(0.10) |
|
|
(0.06) |
|
Plus: Brazil tax assessments |
— |
|
|
0.35 |
|
|
— |
|
|
0.35 |
|
Less: Tax impact of Brazil tax assessments |
— |
|
|
(0.11) |
|
|
— |
|
|
(0.11) |
|
Less: Tax legislative changes, net of other discrete items |
— |
|
|
0.01 |
|
|
(0.01) |
|
|
(0.01) |
|
Adjusted Earnings Per Share - Diluted |
$ |
0.90 |
|
|
$ |
1.06 |
|
|
$ |
1.75 |
|
|
$ |
1.74 |
|
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND
SUBSIDIARIESRECONCILIATION OF NON-GAAP FINANCIAL
MEASURES AND SUPPLEMENTAL DATA(Dollars in
millions, except per share amounts)
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net income |
$ |
21.5 |
|
|
$ |
20.5 |
|
|
$ |
44.0 |
|
|
$ |
37.9 |
|
Plus: Loss from discontinued operations |
— |
|
|
— |
|
|
— |
|
|
— |
|
Income from continuing operations |
21.5 |
|
|
20.5 |
|
|
44.0 |
|
|
37.9 |
|
Plus: Interest expense on debt |
8.1 |
|
|
7.3 |
|
|
15.0 |
|
|
15.1 |
|
Plus: Interest expense on Brazil tax assessments |
— |
|
|
7.8 |
|
|
— |
|
|
7.8 |
|
Plus: Provision for income taxes |
5.4 |
|
|
5.2 |
|
|
10.7 |
|
|
9.6 |
|
Plus: Depreciation & amortization |
16.8 |
|
|
14.7 |
|
|
31.6 |
|
|
29.0 |
|
Plus: Restructuring and impairment expense |
1.6 |
|
|
0.4 |
|
|
1.7 |
|
|
0.4 |
|
Plus: (Income) loss from equity affiliates |
(0.9) |
|
|
0.7 |
|
|
(0.9) |
|
|
0.9 |
|
Plus: Other (income) expense, net |
0.3 |
|
|
2.7 |
|
|
(0.3) |
|
|
3.3 |
|
Plus: Brazil tax assessments |
— |
|
|
0.9 |
|
|
— |
|
|
0.9 |
|
Adjusted EBITDA from continuing operations |
$ |
52.8 |
|
|
$ |
60.2 |
|
|
$ |
101.8 |
|
|
$ |
104.9 |
|
|
|
|
|
|
|
|
|
AMS adjusted EBITDA |
$ |
24.8 |
|
|
$ |
28.8 |
|
|
$ |
47.5 |
|
|
$ |
52.1 |
|
EP adjusted EBITDA |
38.3 |
|
|
39.7 |
|
|
77.3 |
|
|
74.2 |
|
Unallocated adjusted EBITDA |
(10.3) |
|
|
(8.3) |
|
|
(23.0) |
|
|
(21.4) |
|
Adjusted EBITDA from continuing operations |
$ |
52.8 |
|
|
$ |
60.2 |
|
|
$ |
101.8 |
|
|
$ |
104.9 |
|
|
|
|
|
|
|
|
|
Cash provided by operating activities |
$ |
44.2 |
|
|
$ |
42.0 |
|
|
$ |
49.3 |
|
|
$ |
55.0 |
|
Less: Capital spending |
(7.5) |
|
|
(7.9) |
|
|
(14.9) |
|
|
(15.2) |
|
Less: Capitalized software costs |
(1.0) |
|
|
(1.4) |
|
|
(1.7) |
|
|
(2.8) |
|
Free Cash Flow |
$ |
35.7 |
|
|
$ |
32.7 |
|
|
$ |
32.7 |
|
|
$ |
37.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020 |
|
December 31, 2019 |
|
|
|
|
|
|
|
|
Total Debt |
|
|
|
|
$ |
669.0 |
|
|
$ |
542.7 |
|
Less: Cash |
|
|
|
|
63.9 |
|
|
103.0 |
|
Net Debt |
|
|
|
|
$ |
605.1 |
|
|
$ |
439.7 |
|
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