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Kruger Products sees 7.9% revenue increase in Q2 2019


August 8, 2019
By KP Tissue

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August 8, 2019 – KP Tissue Inc. (KPT) has reported the Q2 2019 financial results of KPT and of Kruger Products L.P. (KPLP), citing a 7.9 per cent revenue increase for KPLP in Q2 2019 over Q2 2018.

KPT currently holds a 15.4 per cent interest in KPLP, a manufacturer of tissue products for household, industrial and commercial use.

KPLP Q2 2019 financial results
Revenue was $365.7 million in Q2 2019 compared to $338.8 million in Q2 2018, an increase of $26.9 million or 7.9 per cent. The increase in revenue was primarily due to the Consumer Canada price increase implemented in Q4 2018, price increases in the AFH segment and the benefit of foreign exchange fluctuations on US sales.

“We had a solid second quarter with significant progress over the first quarter in both the consumer and away-from-home segments,” says Dino Bianco, KP Tissue CEO, in a release. “The benefits of our Operational Excellence program started to take effect and there was a year-over-year benefit from our pricing actions. We are encouraged by the sequential improvement in the performance of our away-from-home business as the initiatives we have put in place are starting to create a positive impact.”

Cost of sales was $325.8 million in Q2 2019 compared to $303.6 million in Q2 2018, an increase of $22.2 million or 7.3 per cent. Manufacturing costs increased primarily due to the unfavourable impact of foreign exchange fluctuations, increased costs resulting from capacity-related challenges and maintenance, while pulp costs were relatively neutral and the operational transformation initiatives had a favourable impact in the quarter. Freight costs increased primarily due to the geographic mix of sales, partially offset by lower carrier rates. Warehousing costs increased related primarily to additional warehousing space. As a percentage of revenue, cost of sales were 89.1 per cent in Q2 2019 compared to 89.6 per cent in Q2 2018.

Selling, general and administrative (SG&A) expenses were $25.4 million in Q2 2019 compared to $20.1 million in Q2 2018, an increase of $5.3 million or 26.3 per cent. The increase was primarily due to increased costs in selling and administration including compensation, higher advertising and promotion expenses, and the unfavourable impact of foreign exchange fluctuations. As a percentage of revenue, SG&A expenses were 6.9 per cent in Q2 2019 compared to 5.9 per cent in Q2 2018.

Adjusted EBITDA was $31.5 million in Q2 2019 compared to $30.6 million in Q2 2018, an increase of $0.9 million. The higher adjusted EBITDA resulted primarily from the Consumer Canada and AFH price increases, partially offset by unfavourable sales mix, higher cost of sales as discussed above and higher SG&A costs.

Net income was $0.9 million in Q2 2019 compared to $1.6 million in Q2 2018, a decrease of $0.7 million. The decrease was primarily due to an unfavourable change in amortized cost of partnership units liability of $3.5 million, lower operating income of $0.8 million, and higher income tax expense of $0.6 million partially offset by a decrease in interest expense of $2.4 million, and a positive foreign exchange difference of $1.9 million.

Total liquidity, representing cash and cash equivalents and availability under the credit line within covenant limitations, was $115.5 million as of June 30, 2019, compared to $167.5 million as of March 31, 2019. The June 30, 2019 balance includes $86.1 million of cash and cash equivalents held by KPSI and committed to the TAD Sherbrooke project.

“The TAD Sherbrooke project is progressing according to plan, on-time and on-budget. With our Operational Excellence program, we are improving operating efficiencies and creating a common culture for developing standard approaches across the supply chain,” Bianco says. “Looking ahead, we anticipate a stabilization of input costs and incremental benefits from the Operational Excellence initiatives as we continue to invest in the business to reinforce our long-term position.”

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

Outlook
KPLP will continue to benefit from the Consumer Canada price increase implemented in Q4 2018, along with the consumer US and away-from-home price increases announced in 2019. These price increases combined with cost reduction initiatives and more moderate input costs are expected to more than offset the unfavourable impacts of foreign exchange fluctuations and capacity related challenges. For Q3 2019, adjusted EBITDA is forecast to show improvement compared to both Q2 2019 and Q3 2018.

KPT Q2 2019 financial results
KPT had a net loss of $2.6 million in Q2 2019. Included in the net loss was $0.1 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 $1.4 million.

Read the full Q2 2019 KP Tissue financial report.