Financial Reports & Markets
KP Tissue reports revenue up 7.3% for Kruger Products in Q3 results
By P&PC Staff/KP Tissue
By P&PC Staff/KP Tissue
KP Tissue Inc. (KPT) has reported the Q3 2020 financial results of KPT and Kruger Products L.P. (KPLP), citing a $25 million increase in revenue for KPLP over the same quarter in 2019.
KPT currently holds a 14.7 per cent interest in KPLP.
KPLP Q3 2020 financial results
Revenue was $369.1 million in Q3 2020 compared to $369.4 million in Q3 2019, a decrease of $0.3 million or 0.1 per cent. Excluding revenue of $25.4 million from the divested Mexico business revenue from Q3 2019, revenue increased by $25.1 million or 7.3 per cent.
Revenue was favourably impacted primarily by COVID-19 buying activity, with volume increasing in the consumer segment in Canada and the U.S. and decreasing in the AFH segment.
Cost of sales was $307.7 million in Q3 2020 compared to $317.0 million in Q3 2019, a decrease of $9.3 million or 2.9 per cent. Excluding the divested Mexico business, Q3 2020 cost of sales increased by $15.2 million or 5.2 per cent.
On a volume adjusted basis, manufacturing costs decreased slightly compared to Q3 2019, primarily due to lower pulp costs, operational transformation initiatives (OpEx) that increased production efficiency, and the COVID-19 transition to a reduced SKU production environment.
These cost decreases were partially offset by inflation, increased outsourcing costs compared to Q3 2019 required to meet continuing demand and additional manufacturing overhead costs, in part due to precautions taken in the company’s manufacturing facilities as a result of COVID-19. As a percentage of revenue, cost of sales was 83.4 per cent in Q3 2020 compared to 85.8 per cent in Q3 2019.
Selling, general and administrative (SG&A) expenses were $31.2 million in Q3 2020 compared to $25.8 million in Q3 2019, an increase of $5.4 million or 21.4 per cent.
The increase compared to Q3 2019 was primarily due to increased investment in marketing to support the brands, higher compensation and personnel related costs, and increased spending on information technology. As a percentage of revenue, SG&A expenses were 8.5 per cent in Q3 2020 compared to 7.0 per cent in Q3 2019.
Adjusted EBITDA was $46.2 million in Q3 2020 compared to $44.0 million in Q3 2019, an increase of $2.2 million or 5.1 per cent. The increase was primarily due to the favourable sales impact and product mix, and slightly lower cost of sales as described above. The increases were partially offset by higher SG&A costs.
Net income was $18.5 million in Q3 2020 compared to $10.5 million in Q3 2019, an increase of $8.0 million. The increase was primarily due to higher adjusted EBITDA as discussed above and lower consulting costs related to operational transformation initiatives, interest expense, restructuring costs and income taxes, partially offset by higher depreciation expense.
The company declared a quarterly dividend of $0.18 per share to be paid on January 15, 2021.
“We are pleased with our third quarter results, which reflects strong North American sales momentum in our consumer business while reinvesting in key areas for future growth,” says Dino Bianco, chief executive officer of KP Tissue.
“The away-from-home segment continued to face challenging end-market conditions. As we enter the ninth month of COVID-19, our focus has been and continues to be on the safety of our people while ensuring we maintain business continuity during this unprecedented tissue demand. I am pleased with the work we have done in both areas.
“Two years ago, we launched our OpEx Program with the objective to drive more capacity, asset reliability and cost savings. The level of engagement has been exceptional, leading to a shift to a culture of excellence. Clearly, this has allowed us to navigate through the pandemic in a much stronger position. By the end of 2020, we anticipate reaching the top-end of our goal of $15-20 million in cost savings on a run rate basis.
“The new TAD Sherbrooke facility is near completion and remains on time and on budget. As we finalize our commercial plans, we anticipate strong demand for this output across North American customers. This new production facility will alleviate some of the capacity constraints of recent quarters and will enhance our competitive position in the paper towel category, supported by positive consumer trends for the foreseeable future.
I would like to thank the entire Kruger Products team for their continued dedication during these uncertain times as well as managing through the unpredictable and volatile market conditions. We look forward to 2021 as we continue to grow and invest in our business while welcoming our new TAD facility.”
Demand for the company’s products is expected to remain healthy in the consumer segment, with a slow recovery in the away-from-home segment. For the fourth quarter, KPLP expects Q4 2020 adjusted EBITDA to be below both Q3 2020 and Q4 2019, as we intend to reinvest in our brands and our business, while incurring extra costs to meet the high demand.
KPT Q3 2020 financial results
KPT had net income of $0.8 million in Q3 2020. Included in net income was $2.7 million representing KPT’s share of KPLP’s net income, depreciation expense of $1.3 million related to adjustments to carrying amounts on acquisition and income tax expense of $0.6 million.
Read the full KP Tissue Q3 financial report.