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KP Tissue’s strong performance in Q1 of 2023 drives revenue growth

KP Tissue reported the financial and operational results of KPT and Kruger Products for the first of quarter 2023. KPT currently holds a 13.5 percent interest in Kruger Products.

Kruger Products Q1 2023 business and financial highlights are as follows:

• Revenue was $451.0 million in Q1 2023 compared to $398.7 million in Q1 2022, an increase of $52.3 million or 13.1 percent.
• Adjusted EBITDA was $50 million in Q1 2023, compared to $29.1 million in Q1 2022, an increase of 71.9 percent.
• Net loss was $49.3 million in Q1 2023 compared to net income of $1.4 million in Q1 2022, a decrease of $50.7 million.
• Declared a quarterly dividend of $0.18 per share to be paid on July 17, 2023.

“We are pleased that our multi-faceted strategy to counter inflation is gaining traction as reflected by our strong first-quarter performance in 2023,” stated KP Tissue’s chief executive officer, Dino Bianco. “Adjusted EBITDA increased nearly 72 percent year-over-year to $50 million on improved revenue of $451 million in the first quarter. These results were achieved mainly due to higher selling prices across all segments and regions, favourable sales mix, cost management initiatives implemented companywide, as well as ongoing productivity gains and our Memphis plant cost recovery.”

“Although we are still coping with volatile pulp prices and a weakened Canadian dollar, profitable growth remains our goal for 2023 and beyond. As the business strengthens, we intend to reinvest in our brands to drive share gains and take advantage of incremental manufacturing capacity from our Sherbrooke Expansion Project. The ramp-up of our bathroom tissue line exceeded expectations in the first quarter, while the start-up of our facial tissue and paper machine lines are scheduled for the fourth quarter of 2023 and end of 2024, respectively. As a result, we are steadily progressing along the road to recovery, while investing for the long-term,” added Bianco.

Outlook for Q2 2023

Looking ahead to the second quarter of 2023, while the company believes inflationary pressure has stabilized and its operating efficiency continues to improve, it will be reinvesting in the business to drive long-term value. Accordingly, Adjusted EBITDA in Q2 2023 is expected to be in the range of Q1 2023.

Kruger Products Q1 2023 financial results

Revenue was $451 million in Q1 2023 compared to $398.7 million in Q1 2022, an increase of $52.3 million or 13.1 percent. The increase in revenue was primarily due to the favourable impact of selling price increases implemented across all segments and regions during 2022, along with a favourable sales mix and higher sales volume in the AFH business, partially offset by lower sales volume in the consumer segment. Revenue was also favourably impacted by foreign exchange fluctuations on U.S. dollar sales.

The cost of sales was $389.0 million in Q1 2023 compared to $363.8 million in Q1 2022, an increase of $25.2 million or 6.9 percent. While the significant inflation experienced during 2022 appears to be moderating on a sequential basis, manufacturing costs increased year-over-year, despite the favourable impact of lower sales volumes and reductions in Memphis plant costs, primarily due to significantly higher pulp and other input costs compared to Q1 2022 along with the unfavourable impact of foreign exchange fluctuations on U.S. dollar costs. Warehousing costs increased as a result of additional logistics network costs while freight rates declined compared to historically high rates in Q1 2022. As a percentage of revenue, the cost of sales was 86.3 percent in Q1 2023 compared to 91.3 percent in Q1 2022.

Selling, general and administrative (SG&A) expenses were $36.3 million in Q1 2023 compared to $28.9 million in Q1 2022, an increase of $7.4 million or 25.7 percent. The increase was primarily due to higher personnel costs. As a percentage of revenue, SG&A expenses were eight percent in Q1 2023 compared to 7.2 percent in Q1 2022.

Adjusted EBITDA1 was $50 million in Q1 2023 compared to $29.1 million in Q1 2022, an increase of $20.9 million or 71.9 percent. The increase was primarily due to a combination of factors: selling price increases in 2022, favourable sales mix, Memphis plant manufacturing cost recovery and lower freight rates, which were partially offset by higher pulp prices and other input cost inflation compared to Q1 2022, lower sales volume and higher warehousing and SG&A expenses, along with the unfavourable impact of foreign exchange fluctuations.

Net loss was $49.3 million in Q1 2023 compared to net income of $1.4 million in Q1 2022, a decrease of $50.7 million. The decrease was primarily due to higher income tax expense resulting from the recording of a significant deferred tax liability related to the Reorganization, lower foreign exchange gains and higher depreciation expense, partially offset by higher Adjusted EBITDA and lower interest expense and other finance costs.