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KP Tissue’s second quarter results for 2022 show effects of high inflation

KP Tissue (KPT) shared the financial and operational results of KPT and Kruger Products L.P. (KPLP) for the second quarter of 2022. Kruger Products manufactures tissue products for the consumer market and the Away-From-Home (AFH) market and continues to expand in the U.S. Consumer market. KPT currently holds a 14.1 percent interest in KPLP.

Highlights from quarter two of the year for KPLP include the following:

• Revenue at $397.5 million in Q2 2022 compared to $339.3 million in Q2 2021, an increase of $58.2 million or 17.1 percent.
• Adjusted EBITDA at $11.8 million in Q2 2022, compared to $37.3 million in Q2 2021, a decrease of 68.3 percent.
• Net loss at $35.5 million in Q2 2022 compared to net income of $2.2 million in Q2 2021, a decrease of $37.7 million.
• The company declared a quarterly dividend of $0.18 per share to be paid on October 17, 2022.

“We delivered another strong quarter of double-digit revenue growth in Q2 2022, but the depth, breadth and speed of inflation severely impacted our operating results and lowered profitability,” said KP Tissue’s CEO Dino Bianco. “We expect a partial recovery in the third quarter as successive pricing increases begin catching up with the inflationary curve, productivity gains are felt at our Memphis operations, and extensive cost management initiatives take effect. By the end of the fourth quarter, we anticipate a full recovery based on peaked pulp prices and reduced freight rates along with additional pricing adjustments. Consequently, we are highly confident about returning to a normalized margin in the near term.”

“While addressing temporary disruptions head-on, we continued investments in our Sherbrooke Expansion project and AI network implementations, supported our Bonterra, UltraLuxe and White Cloud launches with targeted marketing campaigns, as well as maintained our focus on our sustainable development program. We take particular pride in being ranked fifth overall among the Best 50 Corporate Citizens for 2022 in Canada and first among tissue paper companies, according to the latest research from Corporate Knights,” Bianco added.

KPLP Q2 2022 financial results

Revenue was $397.5 million in Q2 2022 compared to $339.3 million in Q2 2021, an increase of $58.2 million or 17.1 percent. The increase in revenue was due to selling price increases in all segments and regions implemented in the last 12 months, slightly higher sales volume in the consumer segment and significantly higher sales volume in the AFH segment as the business continues to recover from the impact of COVID-19. Revenue was also favourably impacted by foreign exchange fluctuations in U.S. dollar sales.

The cost of sales was $372.5 million in Q2 2022 compared to $295.0 million in Q2 2021, an increase of $77.5 million or 26.3 percent. Manufacturing costs increased primarily due to higher sales volumes, significantly increased pulp costs and high inflation on other input costs, along with the impact of labour shortages and productivity in Memphis manufacturing and the unfavourable impact of foreign exchange fluctuations on U.S. dollar costs. Freight costs increased significantly compared to Q2 2021 primarily due to increased freight rates resulting from cost inflation and also higher sales volumes. Warehousing costs also increased compared to the year-ago quarter, primarily due to the ramp-up of TAD Sherbrooke. As a percentage of revenue, the cost of sales was 93.7 percent in Q2 2022 compared to 86.9 percent in Q2 2021.

Selling, general and administrative (SG&A) expenses were $35.1 million in Q2 2022 compared to $29.6 million in Q2 2021, an increase of $5.5 million or 18.7 percent. The increase was primarily due to higher advertising and promotion expenses, an increase in personnel costs and higher selling expenses related to increased sales volume. As a percentage of revenue, SG&A expenses were 8.8 percent in Q2 2022 compared to 8.7 percent in Q2 2021.

Adjusted EBITDA1 was $11.8 million in Q2 2022 compared to $37.3 million in Q2 2021, a decrease of $25.5 million or 68.3 percent. The decrease was primarily due to significant inflation on pulp, manufacturing costs and freight as described above and higher SG&A expenses, which were only partially offset by higher sales volume and selling prices.

Net loss was $35.5 million in Q2 2022 compared to net income of $2.2 million in Q2 2021, a decrease of $37.7 million. The decrease was primarily due to a lower Adjusted EBITDA of $25.5 million, and higher other expenses and interest expenses, partially offset by a higher income tax recovery.

KPT Q2 2022 financial results

KPT had a net loss of $3.9 million in Q2 2022. Included in the net loss was $5.1 million representing KPT’s share of KPLP’s net loss, a dilution gain of $0.1 million, depreciation expense of $1.3 million related to adjustments to carrying amounts on the acquisition and an income tax recovery of $2.4 million.