KP Tissue releases Q2 2017 results

The manufacturer sees continued improvement despite pulp price headwinds
KP Tissue
August 22, 2017
By KP Tissue
Aug. 22, 2017 - KP Tissue Inc. (KPT) is reporting the Q2 2017 financial and operational results of KPT and Kruger Products L.P. (KPLP).

Kruger Products describes itself as Canada’s top manufacturer of tissue products for the consumer and the away-from-home markets. KPT currently holds a 16.0 per cent interest in KPLP.

KPLP Q2 2017 highlights
• Revenue increased by 6.3 per cent to $314.4 million in Q2 2017 compared to Q2 2016.
• Adjusted EBITDA was $37.3 million in Q2 2017 compared to $35.9 million in Q2 2016, up 3.9 per cent.
• TAD Products sales and profits continue to be strong, in line with previously set targets.
• AFH business segment improved profitability.
• Declared a quarterly dividend of $0.18 per share to be paid on October 16, 2017.

“We are pleased with our second quarter Adjusted EBITDA performance of $37.3 million, despite the continued upward trend of pulp market prices to near peak levels in Canadian dollars. Supported by new customers and higher manufacturing efficiency, TAD products sales and profits continue to meet our targets in the U.S., while the away-from-home business started to get the benefits from new production lines,” said Mario Gosselin, KP Tissue and KPLP CEO.

He noted that the company is pleased by the progress achieved in Crabtree, Que., with its new paper machine project, representing a total investment of $55 million. According to Gosselin, the project is on time and on budget, and in the third quarter, it will start the commissioning process and will incur some start-up costs. “Considering the commercial ramp-up phase in 2017, we expect to achieve a positive contribution from the project in the first quarter of 2018,” he said.

“A selling price increase to our Canadian retail customers was announced in late July 2017 and will take effect in the fourth quarter. This price increase will partially offset a double digit increase in pulp market prices over the past year as well as increases in other commodity costs in Canadian dollars,” he continued. “Adjusted EBITDA for Q3 2017 is expected to decrease over Q3 2016 due to higher input costs but increase sequentially over Q2 2017 due to higher promotional activities in Q3.”

Revenue in Q2 2017 was $314.4 million, compared to $295.8 million in Q2 2016, an increase of $18.6 million or 6.3 per cent. The increase in revenue was primarily due to higher sales volume and the favourable impact of foreign exchange on U.S. dollar sales.

Cost of sales in Q2 2017 increased to $267.1 million, compared to $249.9 million in Q2 2016, primarily due to higher sales volumes, an increase in fibre and natural gas prices and the unfavourable impact of foreign exchange on U.S. dollar denominated costs, as well as higher freight and warehousing costs, partially offset by cost reduction initiatives and the impact of capital projects. As a percentage of revenue, cost of sales were 85.0 per cent in Q2 2017 compared to 84.5 per cent in Q2 2016.

Selling, general and administrative (SG&A) expenses in Q2 2017 were $22.5 million, compared to $22.0 million in Q2 2016. The increase was primarily due to higher selling expenses related to higher sales volume and the unfavourable impact of foreign exchange. As a percentage of revenue, SG&A expenses were 7.2 per cent in Q2 2017, compared to 7.4 per cent in Q2 2016.

Adjusted EBITDA in Q2 2017 was $37.3 million, compared to $35.9 million in Q2 2016, primarily due to increased sales volume and the benefit of cost reduction initiatives and capital projects, partially offset by higher commodity, logistics and SG&A costs and the unfavourable impact of foreign exchange.

Net income in Q2 2017 was $9.9 million, compared to $12.0 million in Q2 2016, primarily due to an increase in the change in amortized cost of Partnership units liability of $2.5 million and an increase in tax expense of $1.3 million. These increases were partially offset by higher Adjusted EBITDA of $1.4 million.

Total liquidity, representing cash and cash equivalents and availability under the credit line within covenant limitations, was $80.3 million as of June 25, 2017, compared to $88.6 million as of March 26, 2017.

KPT Q2 2017 results
KPT incurred a net loss of $0.6 million in Q2 2017. Included in the net loss was $1.6 million representing KPT’s share of KPLP’s income. The income was reduced by depreciation expense of $1.5 million related to adjustments to carrying amounts on acquisition and income tax expense of $0.8 million.

The Board of Directors of KPT declared a quarterly dividend of $0.18 per share to be paid on October 16, 2017, to shareholders of record at the close of business on September 29, 2017.

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