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KapStone Reports Second Quarter Results

NORTHBROOK, Ill., July 26, 2017 /PRNewswire/ -- KapStone Paper and Packaging Corporation (NYSE:KS) today reported results for the second quarter ended June 30, 2017. As compared to 2016's second quarter, results for 2017's second quarter are below:

  • Net sales of $823 million up $38 million, or 5 percent
  • Net income of $20 million down $1 million, or 5 percent
  • Diluted EPS of $0.20 down $0.01 per share, or 5 percent  

Non U.S. GAAP financial measures for the 2017 second quarter compared to 2016 are as follows:

  • Adjusted EBITDA of $100 million up $3 million, or 3 percent   
  • Adjusted net income of $27 million up $1 million, or 3 percent 
  • Adjusted diluted EPS of $0.27, flat to 2016

Matt Kaplan, President and Chief Executive Officer, stated, "KapStone's operations performed better in the second quarter with our mills producing 688,000 tons of paper, or nearly three percent more than 2016, despite the loss from an unplanned mill outage.  Demand for our products is strong, and we have been able to successfully implement price increases in the majority of our product lines.  Product mix continues to improve as we rely less on exports with our growing domestic demand."

Second Quarter Operating Highlights

Consolidated net sales of $823 million in the second quarter of 2017 increased by $38 million, or 5 percent, compared to $785 million for the 2016 second quarter. Revenue growth in the paper and packaging segment resulted from higher prices and volume. The Company's average mill selling price of $661 per ton in the second quarter of 2017 increased by $37 per ton, or about 6 percent, compared to the second quarter of 2016 due to higher domestic and export containerboard prices, higher specialty paper prices and a more favorable product mix. Revenues in the distribution segment increased $8 million, mainly due to higher prices.

Operating income of $41 million for the 2017 second quarter decreased by $2 million, or 5 percent, compared to the 2016 second quarter. The lower operating earnings primarily reflect higher fiber costs due to significantly higher OCC costs, the reinstatement of certain employee benefits, higher stock compensation costs, higher manufacturing costs, higher freight costs due to lower export shipments, and higher management incentives; partially offset by higher prices for domestic and export containerboard and kraft paper and lower severance charges.

Interest expense, net, was $12 million for the second quarter of 2017, up $2 million from a year ago, as a result of higher interest rates and debt levels. Our weighted average interest rate as of June 30, 2017 is 2.8 percent compared to 2.1 percent as of June 30, 2016. 

The effective income tax rate for the 2017 second quarter was 33.9 percent compared to 36.5 percent for the 2016 second quarter. Results in the 2016 second quarter included an unfavorable adjustment for a state tax examination.  

Cash Flow and Working Capital

Cash and cash equivalents of $7 million as of June 30, 2017 remained consistent with balances at March 31, 2017.  Operating activities provided $17 million during the second quarter, while investing activities used $35 million and financing activities provided $18 million. Capital expenditures in the second quarter were $35 million.  Financing activities included $28 million of net proceeds from borrowings offset by $10 million of cash dividends.

On May 16, 2017, our Board of Directors approved a regular $0.10 per share cash dividend which was paid on July 12, 2017.

At June 30, 2017, the Company had approximately $456 million of working capital and $463 million of revolver borrowing capacity. 

Conclusion

In summary, Kaplan commented, "We are focusing on internal opportunities to increase productivity, integration, and growth.  Therefore, I expect to see additional improvement in the third quarter and beyond by lowering operating costs and increasing productivity.  Furthermore, we expect to benefit from the full realization of the price increases implemented in the first half of this year across most of our product lines."

Conference Call

KapStone will host a conference call at 10:00 a.m. CDT, Thursday, July 27, 2017, to discuss the Company's financial results for the 2017 second quarter. All interested parties are invited to listen and may do so by either accessing a simultaneous broadcast webcast on KapStone's website, http://www.kapstonepaper.com, or for those unable to access the webcast, the following dial-in numbers are available:

Domestic:   888-608-7946
International:  484-747-6633
Participant Passcode:  53832308

A presentation to be viewed in conjunction with the call will also be available on our website, http://www.kapstonepaper.com, in the "Investors" section.

Replay of the webcast will be available for 30 days on the Company's website following the call.

About the Company

Headquartered in Northbrook, IL, KapStone Paper and Packaging Corporation is the fifth largest producer of containerboard and corrugated packaging products and is the largest kraft paper producer in the United States. The Company has four paper mills, 24 converting plants and 60 distribution centers. The business has approximately 6,400 employees.

Non-GAAP Financial Measures

This press release includes certain non-GAAP financial measures, including "EBITDA", "Adjusted EBITDA", "Adjusted Net Income", and "Adjusted Diluted EPS" to measure our operating performance. Management uses these measures to focus on the on-going operations, and believes it is useful to investors because they enable them to perform meaningful comparisons of past and present operating results. The Company believes that EBITDA and Adjusted EBITDA provide useful information to investors because they improve the comparability of the financial results between periods and provide for greater transparency to key measures used to evaluate the performance of the Company. Management uses EBITDA and Adjusted EBITDA for evaluating the Company's performance against competitors and as a primary measure for employees' incentive programs. Reconciliations of Net Income to EBITDA, EBITDA to Adjusted EBITDA, Net Income to Adjusted Net Income, and Diluted EPS to Adjusted Diluted EPS are included in the financial schedules contained in this press release. However, these measures should not be construed as an alternative to any other measure of performance determined in accordance with GAAP.

Forward-Looking Statements

Statements in this news release that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can often be identified by words such as "may," "will," "should," "would,' "expect," "project," "anticipate," "intend," "plan," "believe," "estimate," "potential," "outlook," or "continue," the negative of these terms or other similar expressions. These statements reflect management's current views and are subject to risks, uncertainties and assumptions, many of which are beyond the Company's control that could cause actual results to differ materially from those expressed or implied in these statements.  Factors that could cause actual results to differ materially include, but are not limited to: (1) industry conditions; (2) market and economic factors; (3) results of legal proceedings and compliance costs; (4) the ability to achieve and effectively manage growth; (5) the ability to pay the Company's debt obligations; (6) the ability to carry out the Company's strategic initiatives and manage associated costs; (7) managing labor relations; and (8) realizing the synergies and benefits of strategic investments. Further information on these and other risks and uncertainties is provided under Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 and elsewhere in reports that the Company files with the SEC. These filings can be found on KapStone's Web site at http://www.kapstonepaper.com and the SEC's Web site at www.sec.gov. Forward-looking statements included herein speak only as of the date hereof and the Company disclaims any obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances.

KapStone Paper and Packaging Corporation

Consolidated Statements of Income

(In thousands, except share and per share amounts)

(Unaudited)


















Quarter Ended June 30,


Six Months Ended June 30,


2017


2016


2017


2016









Net sales 

$    822,717


$      784,911


$      1,588,560


$    1,523,126









Cost and expenses:








 Cost of sales, excluding depreciation and amortization

592,515


568,831


1,153,413


1,102,108

 Depreciation and amortization

46,054


46,035


91,402


90,574

 Freight and distribution expenses

75,640


70,978


148,628


136,037

 Selling, general and administrative expenses

67,313


55,554


133,798


116,294

Operating income 

41,195


43,513


61,319


78,113









Foreign exchange (gain) / loss

(1,004)


872


(1,086)


975

Equity method investments income

(29)


-


(706)


-

Interest expense, net

12,311


10,006


23,041


19,817

Income before provision for income taxes

29,917


32,635


40,070


57,321

Provision for income taxes

10,141


11,913


14,302


20,425

Net income 

$      19,776


$        20,722


$           25,768


$         36,896









Net income per share:








Basic

$          0.20


$            0.21


$               0.27


$             0.38

Diluted

$          0.20


$            0.21


$               0.26


$             0.38

















Weighted-average number of shares outstanding:        








Basic

96,801,906


96,517,357


96,750,272


96,458,354

Diluted

98,520,218


97,629,786


98,457,450


97,561,774

















Effective income tax rate

33.9%


36.5%


35.7%


35.6%

 

Supplemental Information

GAAP to Non-GAAP Reconciliations

($ in thousands, except share and per share amounts)

(unaudited)










Quarter Ended June 30,


Six Months Ended June 30,


2017


2016


2017


2016

Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA (Non-GAAP):








Net income (GAAP)

$      19,776


$        20,722


$          25,768


$         36,896

   Interest expense, net

12,311


10,006


23,041


19,817

   Provision for income taxes

10,141


11,913


14,302


20,425

   Depreciation and amortization

46,054


46,035


91,402


90,574

EBITDA (Non-GAAP)

$      88,282


$        88,676


$        154,513


$      167,712









Acquisition, integration, start-up and other expenses

3,577


1,312


5,382


2,541

Longview piping inspection settlement

2,034



2,034


Union contract ratification cost



4,979


Change in fair value of contingent consideration liability

1,054


1,526


3,570


3,052

Severance expenses


3,116



6,164

Stock-based compensation expense

4,761


1,941


10,026


5,362

Accumulated EBITDA adjustments

11,426


7,895


25,991


17,119

Adjusted EBITDA (Non-GAAP)

$      99,708


$        96,571


$        180,504


$      184,831









Net Income (GAAP) to Adjusted Net Income (Non-GAAP):








Net income (GAAP)

$      19,776


$        20,722


$          25,768


$         36,896

Accumulated EBITDA adjustments

11,426


7,895


25,991


17,119

Accumulated tax adjustments

(4,285)


(2,597)


(9,747)


(5,760)

Adjusted Net Income (Non-GAAP)

$      26,917


$        26,020


$          42,012


$        48,255









Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP): 








Diluted earnings per share (GAAP)

$          0.20


$            0.21


$              0.26


$             0.38

Accumulated EBITDA adjustments

0.11


0.08


0.27


0.17

Accumulated tax adjustments

( 0.04)


( 0.02)


( 0.10)


( 0.06)

Adjusted Diluted EPS (Non-GAAP) 

$          0.27


$            0.27


$              0.43


$             0.49

 

KapStone Paper and Packaging Corporation

Consolidated Balance Sheets

(In thousands)







June 30,


December 31,



2017


2016



(Unaudited)




Assets





Current assets:





   Cash and cash equivalents

$        7,456


$        29,385


   Trade accounts receivable, net of allowances

453,320


392,962


   Other receivables

14,565


13,562


   Inventories

348,784


322,664


   Prepaid expenses and other current assets

15,871


10,247


Total current assets

839,996


768,820







Plant, property and equipment, net

1,473,343


1,441,557


Other assets

25,660


25,468


Intangible assets, net

312,962


314,413


Goodwill

720,611


705,617


Total assets

$ 3,372,572


$   3,255,875












Liabilities and Stockholders' Equity





Current liabilities:





Short-term borrowings 

$      22,000


$                 –


 Other current borrowings

4,117



 Capital lease obligation

28



Dividend payable

10,126


10,052


Accounts payable

204,545


189,350


Accrued expenses

92,824


76,480


Accrued compensation costs

50,299


48,840


Accrued income taxes

327


15,971


Total current liabilities

384,266


340,693







Long-term debt, net of current portion

1,516,266


1,485,323


Long-term financing obligation

43,633



Capital lease obligation

4,611



Pension and post-retirement benefits

31,321


34,207


Deferred income taxes

407,711


405,561


Other liabilities

61,776


85,761


Total other liabilities

2,065,318


2,010,852







Stockholders' equity:





Common stock $0.0001 par value

10


10


Additional paid-in capital

286,461


275,970


Retained earnings

695,893


689,668


Accumulated other comprehensive loss

(59,376)


(61,318)


Total stockholders' equity

922,988


904,330


Total liabilities and stockholders' equity

$ 3,372,572


$   3,255,875


 

KapStone Paper and Packaging Corporation

Consolidated Statement of Cash Flows 

(In thousands)

(Unaudited)










Quarter Ended June 30,


Six Months Ended June 30,


2017


2016


2017


2016

Operating activities:








   Net income

$          19,776


$       20,722


$         25,768


$              36,896

   Adjustments to reconcile net income to net cash provided by








   operating activities:








   Depreciation of plant and equipment

38,234


37,098


75,992


72,701

   Amortization of intangible assets

7,820


8,937


15,410


17,873

   Stock-based compensation expense

4,761


1,941


10,026


5,362

   Pension and postretirement

(654)


(579)


(1,226)


(1,027)

   Excess tax benefit from stock-based compensation


10



150

   Amortization of debt issuance costs

1,179


1,251


2,358


2,375

   Loss on disposal of fixed assets

460


715


986


653

   Deferred income taxes

7


(360)


1,528


704

   Change in fair value of contingent consideration liability

1,054


1,526


3,570


3,052

   Equity method investments income

275



108


   Changes in operating assets and liabilities

(56,084)


(40,241)


(85,023)


(49,114)

Net cash provided by operating activities

$          16,828


$       31,020


$         49,497


$              89,625









Investing activities:








    Capital expenditures

(35,109)


(36,210)


(73,778)


(72,373)

    Purchase of intangible assets


(1,025)



(1,525)

    API acquisition



(33,500)


    Equity method investments


(1,250)



(1,250)

    Proceeds from the sales of assets




4,856

Net cash used in investing activities

$        (35,109)


$     (38,485)


$     (107,278)


$            (70,292)

















Financing activities:








Proceeds from revolving credit facility

$         145,512


$      129,100


$        268,500


$             263,700

Repayments on revolving credit facility

(149,500)


(123,100)


(246,500)


(254,100)

Proceeds from receivables credit facility

33,363


14,424


50,394


21,094

Repayments on receivables credit facility


(2,470)


(21,621)


(27,170)

Proceeds from long-term debt 




Repayments on long-term debt




Payment of loan amendment costs and debt issuance fees

(187)


(138)


(187)


(2,388)

Proceeds from other current borrowings



6,214


-

Payment on other current borrowings

(2,059)



(2,059)


Payment on capital lease obligation

(11)



(11)


Cash dividends paid

(9,679)


(9,652)


(19,343)


(19,348)

Payment of withholding taxes on vested stock awards

(19)


(94)


(875)


(786)

Proceeds from exercises of stock options

402


211


853


420

Proceeds from issuance of shares to ESPP



487


464

Excess tax benefit from stock-based compensation


(10)



(150)

Net cash provided (used in) / provided by financing activities

$           17,822


$          8,271


$          35,852


$             (18,264)









Net increase in cash and cash equivalents 

(459)


806


(21,929)


1,069

Cash and cash equivalents-beginning of period

7,915


7,084


29,385


6,821

Cash and cash equivalents-end of period

$             7,456


$          7,890


$            7,456


$                 7,890

 

KapStone Paper and Packaging Corporation

Operating Segment Information

(In thousands)

(Unaudited)
















Net Sales









Three Months Ended June 30, 2017

Trade


Inter-segment


Total


Segment Operating Income (Loss)


Depreciation and Amortization


Capital Expenditures


Total Assets at June 30, 2017

Paper and Packaging

$       561,917


$        25,681


$      587,598


$          44,260


$             38,192


$            33,703


$       2,642,143

Distribution 

260,800


-


260,800


10,785


5,972


1,064


694,099

Corporate 

-


-


-


(13,850)


1,890


342


36,330

Intersegment eliminations

-


(25,681)


(25,681)


-


-


-


-


$      822,717


$                  -


$      822,717


$          41,195


$             46,054


$            35,109


$       3,372,572






























Net Sales









Three Months Ended June 30, 2016

Trade


Inter-segment


Total


Segment Operating Income (Loss)


Depreciation and Amortization


Capital Expenditures


Total Assets at June 30, 2016

Paper and Packaging

$       532,571


$         20,524


$      553,095


$          41,082


$             38,163


$            34,265


$       2,507,161

Distribution 

252,340


-


252,340


12,336


5,702


932


686,997

Corporate 

-


-


-


(9,905)


2,170


1,013


42,292

Intersegment eliminations

-


(20,524)


(20,524)


-


-


-


-


$       784,911


$                  -


$      784,911


$          43,513


$             46,035


$            36,210


$       3,236,450






























Net Sales









Six Months Ended June 30, 2017

Trade


Inter-segment


Total


Segment Operating Income (Loss)


Depreciation and Amortization


Capital Expenditures



Paper and Packaging

$    1,109,561


$         46,878


$    1,156,439


$          78,575


$             75,598


$            71,408



Distribution 

478,999


-


478,999


13,382


11,950


1,743



Corporate 

-


-


-


(30,638)


3,854


627



Intersegment eliminations

-


(46,878)


(46,878)


-


-


-




$    1,588,560


$                  -


$    1,588,560


$          61,319


$             91,402


$            73,778
































Net Sales









Six Months Ended June 30, 2016

Trade


Inter-segment


Total


Segment Operating Income (Loss)


Depreciation and Amortization


Capital Expenditures



Paper and Packaging

$    1,052,611


$         36,993


$    1,089,604


$          87,323


$             75,299


$            66,620



Distribution 

470,515


-


470,515


13,717


11,363


2,998



Corporate 

-


-


-


(22,927)


3,912


2,755



Intersegment eliminations

-


(36,993)


(36,993)


-


-


-




$    1,523,126


$                  -


$    1,523,126


$          78,113


$             90,574


$            72,373



 

KapStone Paper and Packaging Corporation

Operating Segment EBITDA and Adjusted EBITDA

(In thousands)

(Unaudited)












Quarter Ended June 30,


Six Months Ended June 30,

Paper and Packaging


2017


2016


2017


2016

Segment operating income


$         44,260


$             41,082


$        78,575


$       87,323

Equity method investments income


(29)


-


(706)


-

Foreign exchange (gain) / loss


(591)


288


(636)


-

Depreciation and amortization


38,192


38,163


75,598


75,299

EBITDA


83,072


78,957


155,515


162,622

Severance expenses


-


3,035


-


5,297

Acquisition, integration, start-up and other expenses


952


935


2,318


1,819

Longview piping inspection settlement


2,034


-


2,034


-

Union contract ratification costs


-


-


4,979


-

Adjusted EBITDA


$          86,058


$              82,927


$      164,846


$      169,738

Adjusted EBITDA margin


14.6%


15.0%


14.3%


15.6%












Quarter Ended June 30,


Six Months Ended June 30,

Distribution


2017


2016


2017


2016

Segment operating income


$          10,785


$              12,336


$        13,382


$        13,717

Foreign exchange (gain) / loss


(413)


584


(450)


975

Depreciation and amortization


5,972


5,702


11,950


11,363

EBITDA


17,170


17,454


25,782


24,105

Acquisition, integration, start-up and other expenses


1,500


262


1,663


525

Severance expenses


-


89


-


480

Adjusted EBITDA


$          18,670


$              17,805


$        27,445


$        25,110

Adjusted EBITDA margin


7.2%


7.1%


5.7%


5.3%












Quarter Ended June 30,


Six Months Ended June 30,

Corporate


2017


2016


2017


2016

Segment operating (loss)


$        (13,850)


$              (9,905)


$      (30,638)


$      (22,927)

Depreciation and amortization


1,890


2,170


3,854


3,912

EBITDA


(11,960)


(7,735)


(26,784)


(19,015)

Stock-based compensation expense


4,761


1,941


10,026


5,362

Acquisition, integration, start-up and other expenses


1,125


115


1,401


197

Change in fair value of contingent consideration liability


1,054


1,526


3,570


3,052

Severance expenses


-


(8)


-


387

Adjusted EBITDA


$          (5,020)


$              (4,161)


$      (11,787)


$      (10,017)












Quarter Ended June 30,


Six Months Ended June 30,

Consolidated


2017


2016


2017


2016

Segment operating income


$          41,195


$              43,513


$        61,319


$        78,113

Equity method investments income


(29)


-


(706)


-

Foreign exchange (gain) / loss


(1,004)


872


(1,086)


975

Depreciation and amortization


46,054


46,035


91,402


90,574

EBITDA


88,282


88,676


154,513


167,712

Stock-based compensation expense


4,761


1,941


10,026


5,362

Acquisition, integration, start-up and other expenses


3,577


1,312


5,382


2,541

Longview piping inspection settlement


2,034


-


2,034


-

Union contract ratification costs


-


-


4,979


-

Change in fair value of contingent consideration liability


1,054


1,526


3,570


3,052

Severance expenses


-


3,116


-


6,164

Adjusted EBITDA


$          99,708


$              96,571


$      180,504


$      184,831

 

View original content:http://www.prnewswire.com/news-releases/kapstone-reports-second-quarter-results-300494670.html

SOURCE KapStone Paper and Packaging Corporation

Andrea K. Tarbox, Executive Vice President and Chief Financial Officer, 847.239.8812