Third Quarter Highlights:
*Record net sales of $267.9 million were up 40 percent from prior year, with strong performance in each segment. Excluding the effects of the Itasa acquisition, net sales were 22 percent higher than prior year.
*Record net sales in Technical Products were led by organic growth in all product categories. Net sales were up 46 percent from prior year, including sales from the Itasa acquisition. Excluding the acquisition, quarterly sales were up 15 percent from prior year.
*Net sales in Fine Paper and Packaging were up 32 percent from prior year, driven by record sales in premium packaging and growth in consumer products.
*As expected, operating margin was pressured by unprecedented increases in input costs and supply chain disruptions, as well as the effects of flooding from Hurricane Ida at our Pennsylvania facility.
*Liquidity remained strong at $190 million as of September 30, 2021.
*Itasa was awarded the EcoVadis 2021 Gold Medal for Sustainability, a key designation demonstrating our commitment to sustainable manufacturing practices.
“Neenah continues to deliver strong top-line performance, with growing demand for our products in both business segments. As expected, margins were impacted by rapidly escalating raw material and energy costs this quarter, as well as supply chain disruptions,” said Julie Schertell, Chief Executive Officer. “Neenah has historically demonstrated the ability to overcome input cost inflation with pricing actions, and we are executing on our plans to continue to recover our margins. At the same time, we are driving our long-term strategy to expand Neenah’s capabilities into larger, growing markets that value our unique technical capabilities.”
Quarterly Consolidated Results
Income Statement
Consolidated net sales of $267.9 million in the third quarter of 2021 increased 40 percent compared with $190.7 million in the third quarter of 2020. The increase includes strong organic volume growth, pricing actions, and net sales from the Itasa acquisition of $36.0 million. The increase was slightly offset by lower value sales mix in Technical Products.
Selling, general and administrative (SG&A) expense of $26.1 million in the third quarter of 2021 increased $7.0 million compared with $19.1 million in the prior year. The majority of the increase was due to additional SG&A from the Itasa acquisition. Costs in 2020 were lower due to the significant actions taken to manage spending and temporarily reduce costs in areas such as marketing, travel and payroll.
Operating income of $11.4 million in the third quarter of 2021 decreased $2.5 million compared to operating income of $13.9 million in 2020. Higher input costs in both segments, lower value sales mix in Technical Products, and higher distribution costs, which were all impacted by supply chain constraints, as well as operational challenges including costs related to flood damage at our facility in Pennsylvania more than offset the strong sales volume growth. Excluding adjusting items in both years, adjusted operating income of $12.7 million decreased $3.2 million from $15.9 million in the prior year. Refer to the GAAP reconciliation table later in this release for details of adjusting items.
Net interest expense of $5.1 million in the third quarter of 2021 was higher than the $3.6 million in the third quarter of 2020, due to the higher borrowing under the upsized Term Loan B and amortization of the associated deferred financing costs.
The effective income tax rate provision applied to the pre-tax income was 48 percent and 23 percent in the third quarter of 2021 and 2020, respectively. The tax provision was impacted in 2021 by a $1.7 million increase in valuation allowance on certain state tax credits and net operating losses as a result of the closure of the Appleton Mill and the impacts of COVID-19.
The GAAP earnings per diluted common share of $0.19 in 2021 compared to $0.46 in 2020. On an adjusted basis, earnings per share of $0.38 in the 2021 quarter decreased from $0.55 in the prior year period, due to lower operating income resulting primarily from input cost pressures and supply chain constraints that more than offset our sales recovery and the accretive benefits of the Itasa acquisition.
further detail at: https://ir.neenah.com/investors/press-releases/press-release-details/2021/Neenah-Reports-Record-Sales-for-the-Third-Quarter-2021/default.aspx