Neenah Reports First Quarter 2020 Results

First Quarter Highlights/Events
Net sales of $233.6 million decreased 3 percent compared with $239.7 million in the prior year. Technical Products segment sales increased 2 percent while Fine Paper and Packaging revenues declined 8 percent.
Operating income of $23.6 million ($27.1 million adjusted) increased $6.2 million ($9.7 million adjusted) compared to the prior year. Adjusting items in 2020 consisted of COVID-19 costs, restructuring and other non-routine costs and acquisition-related expenses. There were no adjusting items in 2019.
GAAP earnings per diluted common share (E.P.S.) of $0.97 compared with earnings of $0.69 per share in 2019. On an adjusted basis, 2020 quarterly E.P.S. of $1.12 increased from $0.69 in the prior year period.
Cash generated from operations of $14.2 million increased from $3.0 million in the first quarter of 2019 due to lower working capital requirements and increased earnings.
Global liquidity as of March 31, 2020 was $195 million, comprised of $78 million of cash on hand and available borrowing capacity of $117 million 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.
John O’Donnell announced his retirement as CEO effective May 21, Julie Schertell, COO, named as successor.
Multiple actions were initiated in response to the COVID-19 pandemic to keep employees safe and maintain financial strength.
Began commercial production of face mask media from filtration operations in Germany.
Adjusted earnings is a non-GAAP measure used to enhance understanding and comparability of year-on-year results. Details on adjusting items and a reconciliation to comparable GAAP measures are included later in this release.

“Our first quarter results were strong, with volume-driven growth in Technical Products and continued improvements in margins and profits across both segments. As the COVID-19 pandemic accelerated, our focus quickly turned to ensuring the health and safety of our employees and taking actions to mitigate the financial impact from the coronavirus and maintain our strong liquidity position”, said Julie Schertell, Chief Operating Officer. “Our crisis management team developed and executed rapid response plans that included multiple new operating protocols to safeguard employees, such as enhanced sanitation, increased personal protective equipment and remote working arrangements. In addition, we implemented financial measures such as strict spending controls, reduced capital expenditures, footprint optimization, enhanced working capital efficiencies, and suspended share buyback and acquisition activities. Our market reputation and competitive standing coupled with our strong financial position should serve us well, and I’m confident we’ll emerge from this crisis well-positioned to accelerate our strategies to increase our profitable growth rate in a capital efficient manner, and provide our shareholders an attractive return, including a meaningful dividend.”

Quarterly Consolidated Results
Consolidated net sales of $233.6 million in the first quarter of 2020 decreased 3 percent compared with $239.7 million in the first quarter of 2019. The decline in revenues resulted from lower volumes in the Fine Paper and Packaging segment, including impacts from the change from a major distributor, lower net selling prices in both segments and unfavorable currency translation effects. These items were only partly offset by increased volumes in Technical Products. On a constant currency basis, net sales declined 2 percent compared with the prior year.

Selling, general and administrative (SG&A) expense of $26.6 million in the first quarter of 2020 increased from $25.3 million in the prior year. Costs in 2020 included a higher provision for uncollectible accounts receivable and incremental legal expenses.

Operating income of $23.6 million in the first quarter of 2020 increased $6.2 million compared to $17.4 million in 2019. The increase was primarily due to lower input costs in both segments, and higher sales volumes and improved manufacturing cost efficiencies in Technical Products. These items were only partly offset by lower net selling prices, higher SG&A expense and lower volume in Fine Paper and Packaging. Excluding $3.5 million of adjustments for 2020, adjusted operating income in 2020 of $27.1 million increased $9.7 million from the prior year. Adjusting items included costs for a special payment to our mill operators due to COVID-19 conditions, costs for a terminated acquisition, and other restructuring and non-routine costs.

Net interest expense of $2.9 million in the first quarter of 2020 declined compared with $3.2 million in the first quarter of 2019 as a result of lower average debt levels in 2020.

The effective income tax rate was 21 percent in the first quarter of 2020 and 17 percent in the first quarter of 2019. The rate for the three months ended March 31, 2019 was favorably impacted by a reduction to the reserve for uncertain tax positions following completion of a German tax audit.
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