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KP Tissue sees strong Q3 2019 for Kruger Products, with revenue up 6%


November 7, 2019
By KP Tissue, Inc.

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KP Tissue Inc. (KPT) has reported strong growth in its Q3 2019 financial and operational results for Kruger Products L.P. (KPLP).

KPT currently holds a 15.2 per cent interest in KPLP.

For KPLP, revenue increased by six per cent to $369.4 million in Q3 2019 compared to Q3 2018. Adjusted EBITDA increased sequentially by 39.8 per cent to $44 million from $31.5 million in Q2 2019, and increased by 35.3 per cent from $32.5 million in Q3 2018.

The company also reports that its TAD Sherbrooke, Quebec facility, currently under construction, is progressing on time and on budget.

KPLP declared a quarterly dividend of $0.18 per share to be paid on January 15, 2020.

“We are very pleased by our adjusted EBITDA of $44 million for the third quarter, representing an increase of over 35 per cent compared to the prior year,” says Dino Bianco, KP Tissue CEO. “This solid performance reflects pricing across all business segments, higher sales volumes, and the benefits from our Operational Excellence (OpEx) program, all within a more favourable cost environment.”

“While we did benefit from favourable input costs in the third quarter and we anticipate a similar dynamic for the fourth quarter, the trend in input costs could reverse itself in upcoming quarters,” Bianco says. “As we complete fiscal 2019 and think about 2020, we remain focused on building our brands, executing the OpEx program and AFH turnaround and completing the TAD Sherbrooke facility.”

KPLP expects adjusted EBITDA for Q4 2019 to be in the range of Q3 2019, and significantly higher than Q4 2018.

KPLP Q3 2019 financial results

Revenue was $369.4 million in Q3 2019 compared to $348.6 million in Q3 2018, an increase of $20.8 million or six per cent. The increase in revenue was primarily due to the benefit of pricing across all business segments in 2019 and higher sales volumes.

Cost of sales was $317 million in Q3 2019 compared to $311.4 million in Q3 2018, an increase of $5.6 million or 1.9 per cent. Manufacturing costs increased primarily due to higher sales volume, the cost of outsourced manufacturing and higher maintenance spending, while lower pulp costs and the operational transformation initiatives had a favourable impact in the quarter. Freight costs decreased primarily due to lower carrier rates, particularly in the U.S. while warehousing costs increased compared to Q3 2018. As a percentage of revenue, cost of sales were 85.8 per cent in Q3 2019 compared to 89.3 per cent in Q3 2018.

Selling, general and administrative (SG&A) expenses were $25.8 million in Q3 2019 compared to $20.6 million in Q3 2018, an increase of $5.2 million or 25.3 per cent. The increase was primarily due to increased compensation related costs compared to Q3 2018, and higher advertising and promotion expenses. As a percentage of revenue, SG&A expenses were 7.0 per cent in Q3 2019 compared to 5.9 per cnt in Q3 2018.

Adjusted EBITDA was $44 million in Q3 2019 compared to $32.5 million in Q3 2018, an increase of $11.5 million. The higher adjusted EBITDA resulted from the positive impact of pricing across all business segments, lower pulp costs and higher sales volumes along with the benefit from operational transformation initiatives, partially offset by unfavourable sales mix, the cost of outsourced manufacturing and maintenance costs, and higher SG&A costs.

Net income was $10.5 million in Q3 2019 compared to $4.2 million in Q3 2018, an increase of $6.3 million. The increase was primarily due to higher adjusted EBITDA of $11.5 million as discussed above and a decrease in interest expense of $2.1 million, partially offset by restructuring costs of $1.6 million, an unfavourable change in amortized cost of partnership units liability of $1.5 million, higher income tax expense of $1.2 million, and an unfavourable foreign exchange difference of $1.0 million.

KPLP Q3 2019 financing activity

On September 19, 2019, KPLP entered into a second supplemental credit agreement to the sixth amended and restated credit agreement related to its revolving credit facility (the senior credit facility). The maturity date of the senior credit facility was amended to September 19, 2023. The senior credit facility was increased to $250 million from $200 million and the covenants were amended to allow more flexibility. In connection with these amendments, Kruger Inc. has agreed to increase its participation in the dividend reinvestment plan (DRIP) from 75 per cent to 100 per cent until December 31, 2020.

Total liquidity, representing cash and cash equivalents and availability under the credit line, was $186.4 million as of September 30, 2019, compared to $115.5 million as of June 30, 2019. The September 30, 2019 balance includes $32.2 million of cash and cash equivalents committed to the TAD Sherbrooke Project.

KPLP has concluded a new land lease for its Gatineau tissue plant that commences in March 2028 and permits KPLP to secure the site until March 2053.

KPT Q3 2019 financial results

KPT had a net loss of $0.4 million in Q3 2019. Included in the net loss was $1.6 million representing KPT’s share of KPLP’s net income, depreciation expense of $1.4 million related to adjustments to carrying amounts on acquisition and an income tax expense of $0.7 million.

Read the KP Tissue Q3 2019 financial report.