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KapStone Paper and Packaging: Wednesday October 28, 2015

The following excerpt is from the company's SEC filing.

Vice President and Chief Financial Officer

847.239.8812

KAPSTONE REPORTS THIRD QUARTER RESULTS

OPERATING CASH FLOWS EXCEED $100 MILLION

NORTHBROOK

, IL October 28, 2015

KapStone Paper and Packaging Corporation (NYSE:KS) (KapStone, or the Company)

today reported results for the third quarter ended September 30, 2015. As compared to 2014s third quarter, results for 2015s third quarter are below:

Net sales of $808 million up $209 million, or 35 percent

Net income of $34 million down $20 million, or 37 percent

Adjusted net income of $4 9 million down $9 million, or 15 percent

Adjusted EBITDA of $126 million down $6 million, or 4 percent

Diluted EPS of $0.35 down $0.21 per share, or 38 percent

Adjusted diluted EPS of $0.51 down $0.09 per share, or 15 percent

Roger W. Stone, Chairman and Chief Executive Officer, stated, The strength of our operations generated third quarter free cash flow of $73 million, up 24 percent over the prior year. The increase in cash flow includes $17 million generated by Victory, while our legacy operations also performed very well despite a 12 day work stoppage by our union at the Longview mill. No one wins in a strike, and this strike was no exception. The strike cost KapStone approximately $14 million, and our Longview union employees lost approximately $2 million of wages and benefits.

Our Charleston and Roanoke Rapids mills set all-time production records for the third quarter, and our corrugated products shipments year-to-date were up 4 percent on an average weekly basis over 2014. The stronger dollar, however, continues to negatively impact our export sales, resulting in lower sales prices for saturating kraft, export containerboard, and extensible grade kraft paper and a less favorable product mix.

We are making strong progress at integrating Victory Packaging and we are on target to realize the $30 million run rate of synergies by mid-2016. We are aggressively working on realizing the benefits of increased integration that Victory provides.

Third Quarter

Operating Highlights

Consolidated net sales of $808 million in the third quarter of 2015 increased by $209 million, or 35 percent compared to $598 million for the 2014 third quarter. The increase is primarily due to $248 million from the Victory Packaging acquisition, partially offset by $24 million of lower shipments due to the Longview work stoppage, $3 million due to a stronger U.S. dollar compared to the Euro which impacted sales in Europe and some exports, and lower selling prices. The Company sold 678,000 tons of paper during the third quarter of 2015 compared to 715,000 tons a year earlier. The Companys average mill selling price of $671 per ton in the third quarter of 2015 decreased by $18 per ton compared to the third quarter of 2014, due to the stronger U.S. dollar and lower domestic and export containerboard prices.

Operating income of $62 million for the 2015 third quarter decreased by $33 million, or 35 percent, compared to the 2014 third quarter. The lower operating earnings primarily reflects lower sales volume and higher costs due to the work stoppage at Longview, lower average mill selling prices, higher fiber costs, inflation on compensation and benefit costs, and the stronger U.S. dollar which impacted prices in Europe and for some exports. On the positive side, Victory Packaging generated $18 million of earnings in the third quarter of 2015 prior to acquisition-related expenses of $2 million for a non-cash inventory step-up charge and $5 million of amortization expense of identified intangible assets.

Interest expense, net, of $10 million for the third quarter of 2015, was about $2 million higher than a year ago, reflecting the additional borrowings in June 2015 to finance the Victory Packaging acquisition. Our weighted average interest rate as of September 30, 2015 is 1.8 percent which is about the same as last year. Loss on debt extinguishment was about $2 million lower in 2015 compared to 2014 based on a lower amount of debt prepayments. In the quarter ended September 30, 2015, the Company made a $52 million debt prepayment compared to a $175 million prepayment in the period a year earlier.

The effective income tax rate for the 2015 third quarter was 32.5 percent compared to 33.9 percent for the 2014 third quarter. The decrease reflects a discrete benefit from a state tax law change enacted in the third quarter of 2015.

Cash Flow and Working Capital

Cash and cash equivalents decreased by $21 million to $8 million in the quarter ended September 30, 2015, from June 30, 2015. Operating activities generated $104 million during the...


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