Second Quarter Highlights / Events
*Net sales of $161.4 million decreased 36 percent compared with $253.4 million in the prior year. Technical Products segment sales decreased 28 percent and Fine Paper and Packaging revenues declined 48 percent. The decline in revenues in both segments resulted primarily from lower volumes caused by impacts of the COVID-19 pandemic.
*An operating loss of $(58.5) million compared with operating income of $19.8 million in the prior year period. Excluding adjusting items of $59.0 million in 2020 and $3.5 million in 2019, adjusted operating income declined from $23.3 million in 2019 to $0.5 million in 2020 as a result of lower sales and production volumes and related manufacturing fixed cost inefficiencies, partly offset by reductions in manufacturing and selling, general and administrative (“SG&A”) costs, and benefits of lower input prices net of selling price changes.
*Pre-tax adjusting items of $59.0 million in 2020 consisted of charges for asset impairment and write-offs, loss on debt extinguishment, incremental COVID-19 costs, and other restructuring and non-routine costs. In 2019, adjusting items of $3.5 million included accelerated depreciation due to idling a fine paper machine and other restructuring and non-routine costs. In 2020, a $4.0 million ($0.24 per share) adjustment to increase the valuation allowance against state deferred tax assets was also excluded. Additional detail on these items can be found in the GAAP reconciliation table later in this release.
*GAAP earnings per diluted common share (E.P.S.) of $(2.98) compared with earnings of $0.80 per share in 2019. On an adjusted basis, E.P.S. of $(0.08) in the quarter decreased from $0.95 in the prior year period.
*Cash generated from operations was $29.4 million and compared to $38.0 million in the prior year. Actions to increase working capital efficiencies and reduce discretionary spending were able to partly offset the impact of lower earnings.
*Liquidity as of June 30, 2020 was $159 million, comprised of $26 million of cash on hand and $133 million of available borrowing capacity on existing credit facilities.
*Quarterly cash dividends paid of $0.47 per share increased 4 percent from $0.45 per share in the prior year.
*On May 13, Paul DeSantis assumed the role of Chief Financial Officer, replacing Bonnie Lind, who will remain with Neenah through her retirement date of October 1 to ensure a smooth transition.
*On June 30, the Company entered into a new $200 million Term Loan B Facility with an initial variable interest rate of approximately 5%. Subsequent to quarter-end, proceeds under the Facility were used to redeem in full the $175 million of 2021 Senior Notes and repay borrowings under the Company’s senior secured revolving credit facility.
“I was pleased with the strong execution and aggressive cost reductions our teams delivered in response to the COVID-19 slowdown in our markets. Demand in each of our business segments sequentially improved throughout the quarter, and the actions we’ve taken will make us more efficient going forward. While these actions along with impacts on demand from the pandemic resulted in a large non-cash charge in the quarter, our financial position and liquidity remain sound, as evidenced by our strong cash flow and successful debt refinancing”, said Julie Schertell, Chief Executive Officer. “This financial strength gives us flexibility to continue to execute our growth strategies, while maintaining a prudent balance sheet and providing returns to shareholders, including a meaningful dividend.”
Consolidated net sales of $161.4 million in the second quarter of 2020 decreased 36 percent compared with $253.4 million in the second quarter of 2019. The decline in revenues resulted primarily from lower volumes caused by major adverse impacts of COVID-19. Net sales declined 28% in Technical Products and 48% in Fine Paper and Packaging, with a more pronounced decline in the Fine Paper and Packaging segment due to its shorter supply chain and reductions in end use demand for commercial print papers used primarily in advertising and marketing campaigns. Impacts from lower net selling prices and unfavorable currency translation effects were minimal in the quarter.
Selling, general and administrative (SG&A) expense of $20.8 million in the second quarter of 2020 decreased $6.1 million compared with $26.9 million in the prior year. Costs in 2020 were lower due to actions taken to reduce advertising, travel, and payroll costs, including impacts of furloughs, salary and headcount reductions, and wage and hiring freezes.
An operating loss of $(58.5) million in the second quarter of 2020 compared to operating income of $19.8 million in 2019. The primary reason for the decline was $59.0 million of mostly non-cash costs for impairments and write-offs as noted earlier and presented in the GAAP reconciliation table. Excluding adjusting items in both years, operating income of $0.5 million decreased $22.8 million from $23.3 million in the prior year. The decline in operating income was due to lower sales volumes and related fixed manufacturing cost inefficiencies in both segments that were partly offset by spending reductions in manufacturing and SG&A, as well as benefits from lower input prices net of selling price changes.
Net interest expense of $3.0 million in the second quarter of 2020 was equal to the second quarter of 2019.
In the second quarter of each year, the effective income tax rate applied to the pre-tax loss in 2020 and pre-tax income in 2019 was 19 percent. The tax rate in 2020 reflected a $4.0 million charge to increase the valuation allowance against the deferred tax asset for state tax credits and net operating losses. The tax rate in 2019 included the benefit of research and development tax credits.
details at: https://ir.neenah.com/investors/press-releases/press-release-details/2020/Neenah-Reports-Second-Quarter-2020-Results/default.aspx