Buckeye’s Second Quarter FY 2013 Results

2Q-FY13 shipment volume up 6% vs. 2Q-FY12; up 22% vs. 1Q-FY13

Foley production rate fully recovered from June steam drum failure outage

Strong cash flow from operations reinvested in Foley specialty expansion project

MEMPHIS, Tenn.--()--Buckeye Technologies Inc. (NYSE:BKI) today announced second quarter net sales of $204.3 million and adjusted net income* of $23.6 million. Adjusted EPS* of $0.60 compared to $0.69 in 2Q-FY12 and $0.62 in 1Q-FY13. Net insurance recovery in 2Q-FY13 was $0.04 per share less than expected.

“continue (or the negative or other derivatives of each of these terms or similar terminology). The “forward-looking statements”

Net sales for the quarter were down $17.1 million or 8% compared to the year ago quarter. While shipment volume was up 6% year over year, product mix was unfavorable as we shipped about 12,000 tons into the viscose staple fiber market during the quarter as a result of weak demand in some of our high-end markets, particularly from the European tire cord market. The sale of the Merfin Systems converting business in the third quarter of fiscal 2012 accounted for $4.3 million of this reduction in net sales.

Adjusted operating income* of $36.4 million was down $6.7 million compared to the year ago quarter, largely due to unfavorable product mix, in spite of a $6.8 million net insurance benefit related to the June steam drum failure outage at Foley.

Adjusted net income* of $23.6 million, or $0.60 per share, excludes after-tax restructuring and asset impairment charges of $10.7 million or $0.27 per share relating to the closure of our Delta airlaid nonwovens plant, which ceased production in November. Adjusted net income* was down $4.3 million or $0.09 per share compared to the prior year period’s $27.9 million or $0.69 per share, which excluded after-tax costs of $3.6 million or $0.09 per share relating to the cellulosic biofuel credit, and after-tax impairment costs of $29.7 million or $0.74 per share relating to the sale of Merfin Systems and the closure of our cotton specialty fibers plant in Americana, Brazil.

Comparison with 1Q 2013

Comparing 2Q 2013 to 1Q 2013, sales were up $7.4 million or 4%. This was driven by a 31% increase in shipment volume from the Foley specialty wood fibers facility compared to a first quarter heavily impacted by the June steam drum failure outage. Shipment volume from our Memphis specialty cotton fibers plant was down 16% in spite of a small pick-up in demand for acetate pulp from the LCD market, and Nonwovens shipment volume was off 8% due to the end of production at our Delta plant and normal seasonal weakness. Adjusted operating income* was down $2.6 million as the favorable impact from the final insurance settlement related to the June outage and increased shipment volume was not enough to offset the unfavorable product mix impact and lower fluff pulp prices. Adjusted EPS* of $0.60 was only down $0.02 versus the first quarter.

Cash Flow and Capital Allocation

Cash flow provided by operating activities was $25.0 million for the quarter. Capital expenditures, at $23.8 million, remained at a high level as Buckeye continues work on the specialty conversion and oxygen delignification projects at its Foley Mill. We also continued to return cash to shareholders during the quarter, with $9.2 million in share repurchases and $3.4 million in dividends paid out during the quarter. Long-term debt increased by $17.4 million but cash also increased by $10.1 million since September 30. Our free cash flow is forecasted to improve considerably during the next six months as black liquor tax credit paybacks, funding of our employee 401K plans, bonus payouts, and Foley property tax payments are all behind us for the fiscal year, and we expect to realize a little over $20 million in proceeds from the sale of the Delta property in February.

Business Conditions and Outlook

Chairman and Chief Executive Officer John B. Crowe said, “Our second quarter fiscal 2013 earnings came in a bit weaker than expected, with adjusted EPS* below the low end of our earnings call guidance by $0.05. The net positive impact of the final insurance settlement related to the June steam drum failure at our Foley mill, which was received in December, was $0.11, or $0.04 lower than we had anticipated. Otherwise, compared to the high end of our earnings expectations going into this quarter, the main difference was that selling prices on shipments of specialty wood pulp into the viscose staple fiber market were lower than expected, and fluff pulp prices were lower than predicted due to an increase in spot business. We continued to experience weaker market conditions during the quarter in a few specialty fibers markets such as European high performance tire cord, acetate filament, and LCD screens. In order to offset weaker sales into these markets and bring our inventory levels back down, we chose to sell into the viscose staple fiber market for the first time in over two years. We are now experiencing some improvement in the tire cord market with orders up compared to the second quarter. We had good production and shipment volumes in our second quarter. Total shipment volume was up 6% compared to the year ago quarter, driven by increased shipments of specialty wood fibers, fluff pulp, and nonwovens.”

Mr. Crowe went on to say, “During the quarter, we continued to make good progress on our Specialty Expansion and Oxygen Delignification Projects at our Foley facility. Both are important projects which will be key contributors for revenue growth and cost reduction, and are expected to come on-line in April and July 2013 respectively. We currently expect the demand weakness we have been experiencing in several of our markets to continue into the third quarter before starting to improve. As a result, we expect our third quarter adjusted EPS will be about the same as second quarter earnings excluding the insurance benefit, before improving in the fourth quarter. Our long-term prospects remain positive and we are well-positioned to meet the challenges of a sluggish economy and take advantage of opportunities that present themselves.”

Conference Call Details

Buckeye has scheduled a conference call for Wednesday morning, January 30, at 9:00 a.m. ET to discuss second quarter performance. Persons interested in listening by telephone may dial in at (888) 427-9376 within the United States. International callers should dial (719) 325-2215. Supplemental material for the call will be available on the Company’s website at www.bkitech.com or at www.streetevents.com.

Buckeye, a leading manufacturer and marketer of specialty fibers and nonwoven materials, is headquartered in Memphis, Tennessee, USA. The Company currently operates facilities in the United States, Germany, and Canada. Its products are sold worldwide to makers of consumer and industrial goods.

Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws and is intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. “Forward-looking statements” generally can be identified by the use of forward-looking terminology such as “assumptions,” “target,” “guidance,” “outlook,” “plans,” “projection,” “may,” “will,” “would,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” or “continue (or the negative or other derivatives of each of these terms or similar terminology). The “forward-looking statements” include, without limitation, statements regarding the economic outlook for Buckeye and the demand for its products, the results and timing of Buckeye’s strategic investments and growth opportunities and expected levels of cash flow and debt reduction. These statements are based on management’s estimates and assumptions with respect to future events and financial performance and are believed to be reasonable, though are inherently uncertain and difficult to predict. Actual results could differ materially from those projected as a result of certain factors. A discussion of factors that could cause results to vary is included in Buckeye’s Annual Report on Form 10-K and other periodic filings with the Securities and Exchange Commission.

Note Regarding Non-GAAP Financial Measures

*This release includes certain financial information not derived in accordance with generally accepted accounting principles (“GAAP”). The non-GAAP measures presented are “adjusted operating income”, “adjusted net income”, “and adjusted earnings per share”, “free cash flow”. The first three measures are equal to net income, pre-tax income, operating income and earnings per share excluding the after-tax effects of alternative fuel mixture credits (AFMC) and cellulosic biofuel credits (CBC), goodwill and long-term asset impairment cost, and restructuring cost. “Free cash flow” is equal to net cash provided by operating activities less net cash used in investing activities (excluding purchase of short term investments.

         
($ in Millions)

Q2-2013

Q2-2012

Q1-2013

YTD-2013

YTD-2012

Operating income

Operating income in accordance with GAAP 25.7 39.0 38.0 63.7 82.5
Special items:
Restructuring costs 7.8 --- 1.0 8.7 ---
Asset and Goodwill impairment

2.9

4.1

---

2.9

4.1

Adjusted operating income (Excludes Americana)

36.4 43.1 39.0 75.3 86.6

 

Net income

Q2-2013

Q2-2012

Q1-2013

YTD-2013

YTD-2012

Net income in accordance with GAAP 12.9 (5.4) 29.5 42.4 35.7
Special items, after-tax:
Restructuring costs 7.8 --- 0.6 8.4 ---
AFMC / CBC --- 3.6 (5.5) (5.5) (7.6)
Asset and Goodwill impairment

2.9

29.7

---

2.9

29.7

Adjusted net income 23.6 27.9 24.6 48.2 57.8
 

Earnings per share (EPS) - Diluted

EPS in accordance with GAAP $0.33 ($0.14) $0.74 $1.07 $0.88
Special items, after-tax, per share:
Restructuring costs 0.20 --- 0.02 0.22 ---
AFMC / CBC --- 0.09 (0.14) (0.14) (0.19)
Asset and Goodwill Impairment

0.07

0.74

---

0.07

0.74

Adjusted EPS $0.60 $0.69 $0.62 1.22 1.43

 

($ in Millions)

Q2-2013

Q2-2012

Q1-2013

YTD-2013

YTD-2012

Free Cash Flow

Net cash provided by operating activities 25.0 24.9 3.7 28.8 53.4
Purchases of property, plant & equipment / Other (23.9) (13.7) (28.1) (52.1) (24.4)
Proceeds from insurance settlement related to capital investments

1.2

---

3.1

4.3

---

Free Cash Flow 2.3 11.2 (21.3) (19.0) 29.0
 

Loss from Discontinued Operations

* As a result of the disposition of our Americana operations in Q4 2012 and resulting end to our continuing involvement with the inclusion of the waste water treatment facilities in the assets that were sold, we believe the results of the operations for this business, including the loss recognized from the sale and less applicable income taxes (benefit), should be reported in discontinued operations in our consolidated income statement. The table below shows the detail behind the loss from discontinued operations for each period reported in the press release financial statements.

   

($ in Millions)

Q2-2012

YTD2012

Net Sales 5.7 14.3
COGS

6.3

14.3

Gross Margin (0.6) 0.0
Asset Impairment Cost 49.0 49.0
Restructuring Costs

0.0

0.0

Operating Income (49.6) (49.0)
Net Interest Expense (Income) (0.1) (0.2)
Foreign Exchange & Other

(0.3)

(0.2)

Earnings before Tax (49.2) (48.6)
Income tax expense (Benefit)

(22.8)

(22.8)

Income (Loss) from Discontinued Operations (26.4) (25.8)
 

   
BUCKEYE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
     
 
Three Months Ended Six Months Ended
December 31, 2012 September 30, 2012 December 31, 2011 December 31, 2012 December 31, 2011
 
Net sales $ 204,333 $ 196,958 $ 221,414 $ 401,291 $ 452,876
Cost of goods sold   157,014     146,838     166,420     303,852     341,616  
Gross margin 47,319 50,120 54,994 97,439 111,260
Gross margin as a percentage of sales 23.2 % 25.4 % 24.8 % 24.3 % 24.6 %
 
Selling, research and administrative expenses 12,196 13,188 11,348 25,384 23,687
Amortization of intangibles and other 514 508 500 1,022 996
Asset impairment loss 2,890 - 1,673 2,890 1,673
Goodwill impairment loss - - 2,425 - 2,425
Restructuring costs 7,796 963 - 8,759 -
Other operating income   (1,752 )   (2,528 )   -     (4,280 )   -  
 
Operating income 25,675 37,989 39,048 63,664 82,479
 
Net interest expense and amortization of debt costs (562 ) (641 ) (1,021 ) (1,203 ) (4,470 )
Foreign exchange and other   (58 )   (363 )   (277 )   (421 )   365  
Income from continuing operations before income taxes 25,055 36,985 37,750 62,040 78,374
Income tax expense   12,146     7,494     16,783     19,640     16,884  
Income from continuing operations 12,909 29,491 20,967 42,400 61,490
Loss from discontinued operations, net of tax   -     -     (26,406 )   -     (25,822 )
Net Income (loss) $ 12,909   $ 29,491   $ (5,439 ) $ 42,400   $ 35,668  
 
 
Computation of diluted earnings per share under the two-class method:
 
Net income (loss) attributable to shareholders $ 12,909 $ 29,491 $ (5,439 ) $ 42,400 $ 35,668

Less: Distributed and undistributed income allocated to participating securities (nonvested stock)

  (134 )   (337 )   -     (454 )   (520 )

Distributed and undistributed income (loss) available to shareholders

$ 12,775   $ 29,154   $ (5,439 ) $ 41,946   $ 35,148  
 
Diluted weighted average shares outstanding 39,158 39,255 39,260 39,246 39,779
 
Income per share from continuing operations $ 0.33 $ 0.74 $ 0.52 $ 1.07 $ 1.53
Loss per share from discontinued operations   -     -     (0.66 )   -     (0.65 )
Diluted earnings (loss) per share $ 0.33   $ 0.74   $ (0.14 ) $ 1.07   $ 0.88  
 

       
BUCKEYE TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
December 31 September 30 June 30 December 31
2012 2012 2012 2011
Current assets:
Cash and cash equivalents $ 49,310 $ 39,196 $ 38,284 $ 35,998
Short term investments 9,236 9,051 8,813 -
Accounts receivable, net 137,927 131,212 126,705 136,571
Inventories 105,789 114,948 90,183 106,756
Deferred income taxes and other   23,872   27,893   25,697   14,328
Total current assets 326,134 322,300 289,682 293,653
 
Property, plant and equipment, net 518,166 508,683 492,109 476,020
Deferred income taxes 40,300 50,144 42,427 48,670
Intellectual property and other, net   12,055   12,572   13,193   14,138
Total assets $ 896,655 $ 893,699 $ 837,411 $ 832,481
 
 
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 23,335 $ 30,775 $ 40,600 $ 32,846
Accrued expenses 38,948 38,632 43,135 40,323
Other current liabilities   -   -   -   863
Total current liabilities 62,283 69,407 83,735 74,032
 
Long-term debt 99,279 81,842 58,578 86,840
Deferred income taxes 4,842 16,385 4,930 5,531
Other liabilities 89,454 90,497 87,132 85,486
Stockholders' equity   640,797   635,568   603,036   580,592
Total liabilities and stockholders' equity $ 896,655 $ 893,699 $ 837,411 $ 832,481
 

 
BUCKEYE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)
       
Three Months Ended Six Months Ended
December 31, 2012 September 30, 2012 December 31, 2011 December 31, 2012 December 31, 2011
OPERATING ACTIVITIES
Net income (loss) $ 12,909 $ 29,491 $ (5,439 ) $ 42,400 $ 35,668

Adjustments to reconcile net income to net cash provided by operating activities:

Asset impairment loss 2,890 - 50,711 2,890 50,711
Depreciation 11,643 12,242 12,791 23,885 25,817
Amortization 670 663 655 1,333 1,306
Loss on goodwill impairment - - 2,425 - 2,425
Deferred income taxes 2,266 1,608 (2,509 ) 3,874 (16,141 )
Noncurrent AFMC refund payable - 3,288 (1,567 ) 3,288 13,895
Loss on disposal of equipment 552 529 483 1,081 766
Insurance settlement (1,749 ) (2,528 ) - (4,277 ) -
Provision for bad debts (144 ) 104 49 (40 ) 604
Excess tax benefit from stock based compensation (1,162 ) (1,048 ) (788 ) (2,210 ) (1,553 )
Stock-based compensation expense 1,330 1,340 1,245 2,670 2,211
Other (17 ) 20 (244 ) 3 (356 )
Change in operating assets and liabilities
Accounts receivable (9,498 ) 16,121 1,999 6,623 537
Income tax receivable 3,672 (20,525 ) - (16,853 ) -
Inventories 9,194 (24,043 ) (6,346 ) (14,849 ) (18,793 )
Other assets 744 (131 ) (3,247 ) 613 (2,888 )
Accounts payable and other liabilities   (8,281 )   (13,395 )   (25,288 )   (21,676 )   (40,815 )
Net cash provided by operating activities 25,019 3,736 24,930 28,755 53,394
 
INVESTING ACTIVITIES
Purchases of property, plant & equipment (23,848 ) (28,103 ) (13,586 ) (51,951 ) (24,299 )

Proceeds from insurance settlement related to capital investments

1,206 3,071 - 4,277 -
Other   (110 )   (17 )   (75 )   (127 )   (126 )
Net cash used in investing activities (22,752 ) (25,049 ) (13,661 ) (47,801 ) (24,425 )
 
FINANCING ACTIVITIES
Net borrowings (payments) under line of credit 17,437 23,264 (3,511 ) 40,701 (10,081 )
Excess tax benefit from stock based compensation 1,162 1,048 788 2,210 1,553
Purchase of treasury shares (9,175 ) (28 ) (1,941 ) (9,203 ) (10,589 )
Net proceeds from sale of equity interests 1,210 874 1,002 2,084 1,640
Payment of dividend (3,445 ) (3,148 ) (2,374 ) (6,593 ) (4,784 )
Other   (74 )   (864 )   -     (938 )   (469 )
Net cash provided by (used in) financing activities 7,115 21,146 (6,036 ) 28,261 (22,730 )
 
Effect of foreign currency rate fluctuations on cash 732 1,079 (2,029 ) 1,811 (735 )
 
Increase in cash and cash equivalents   10,114     912     3,204     11,026     5,504  
Cash and cash equivalents at beginning of period   39,196     38,284     32,794     38,284     30,494  
Cash and cash equivalents at end of period $ 49,310   $ 39,196   $ 35,998   $ 49,310   $ 35,998  
 

   
BUCKEYE TECHNOLOGIES INC.
SUPPLEMENTAL FINANCIAL DATA

(unaudited)

(In thousands)
     
Three Months Ended Six Months Ended
SEGMENT RESULTS December 31, 2012 September 30, 2012 December 31, 2011 December 31, 2012 December 31, 2011
Specialty Fibers
Net sales $ 153,399 $ 143,311 $ 170,977 $ 296,710 $ 345,794
Operating income (a) 35,072 37,072 42,506 72,144 85,751
Depreciation and amortization (b) 7,651 7,709 7,815 15,360 15,509
Total assets 533,016 505,281 482,236 533,016 482,236
Capital expenditures 21,608 25,264 11,510 46,872 20,495
 
Nonwoven Materials
Net sales $ 54,190 $ 58,374 $ 58,307 $ 112,564 $ 122,992
Operating income (a) 3,719 5,522 2,765 9,241 5,093
Depreciation and amortization (b) 3,563 4,087 4,009 7,650 8,226
Total assets 173,260 188,297 193,950 173,260 193,950
Capital expenditures 1,665 1,885 1,674 3,550 3,363
 
Corporate
Net sales $ (3,256 ) $ (4,727 ) $ (7,870 ) $ (7,983 ) $ (15,910 )
Operating loss (a) (13,116 ) (4,605 ) (6,223 ) (17,721 ) (8,365 )
Depreciation and amortization (b) 943 954 957 1,897 1,903
Total assets 190,379 200,121 156,295 190,379 156,295
Capital expenditures 575 954 402 1,529 441
 
Total
Net sales $ 204,333 $ 196,958 $ 221,414 $ 401,291 $ 452,876
Operating income (a) 25,675 37,989 39,048 63,664 82,479
Depreciation and amortization (b) 12,157 12,750 12,781 24,907 25,638
Total assets 896,655 893,699 832,481 896,655 832,481
Capital expenditures 23,848 28,103 13,586 51,951 24,299
 
(a) The corporate segment includes operating elements such as segment eliminations, amortization of intangibles, impairment of long-lived assets, goodwill impairment, alternative fuel mixture credits, charges related to restructuring, unallocated at-risk compensation and unallocated stock-based compensation for executive officers and certain other employees. Corporate net sales represents the elimination of intersegment sales included in the specialty fibers reporting segment.
 
(b) Depreciation and amortization includes depreciation, depletion and amortization of intangibles.
 
Three Months Ended Six Months Ended
ADJUSTED EBITDA December 31, 2012 September 30, 2012 December 31, 2011 December 31, 2012 December 31, 2011
 
Net income (loss) $ 12,909 $ 29,491 $ (5,439 ) $ 42,400 $ 35,668
Elimination of discontinued operations - - 26,406 - 25,822
Income tax expense 12,146 7,494 16,783 19,640 16,884
Interest expense 450 535 868 985 4,216
Amortization of debt costs 156 155 155 311 310
Depreciation, depletion and amortization   12,157     12,750     12,781     24,907     25,638  
EBITDA 37,818 50,425 51,554 88,243 108,538
Asset impairments 2,890 - 4,098 2,890 4,098
Restructuring 7,796 963 - 8,759 -
Non cash charges   566     531     481     1,097     781  
Adjusted EBITDA $ 49,070   $ 51,919   $ 56,133   $ 100,989   $ 113,417  
 
 
We calculate EBITDA as earnings before cumulative effect of change in accounting plus interest expense, income taxes and depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by adding back the following items: asset impairment charges, goodwill impairment, restructuring charges incurred since the inception of the current credit facility, non-cash charges and other (gains) losses and deducting any non-cash expense associated with alternative fuel mixture credits. You should not consider adjusted EBITDA to be an alternative measure of our net income, as an indicator of operating performance; or our cash flow, as an indicator of liquidity. Adjusted EBITDA corresponds with the definition contained in our US revolving credit facility, established on October 22, 2010, and it provides useful information concerning our ability to comply with debt covenants. Although we believe adjusted EBITDA enhances your understanding of our financial condition, this measure, when viewed individually, is not a better indicator of any trend as compared to other measures (e.g., net sales, net earnings, net cash flows, etc.). Prior period amounts have been adjusted to conform to the definition contained in our new credit facility.
 

Contacts

Buckeye Technologies Inc.
Steve Dean, 901-320-8352
Executive Vice President and Chief Financial Officer
or
Eric Whaley, 901-320-8509
Director Investor Relations
www.bkitech.com

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