Orchids Paper Products Company (NYSE American: TIS), a national supplier of high-quality consumer tissue products, today reported results for the quarter ended June 30, 2018. The following table provides selected financial results for second quarter 2018 compared to second quarter 2017 and first quarter 2018.
Jeff Schoen, President and Chief Executive Officer, stated, “Orchids’ total revenues in the second quarter were up 19% over the year-ago period driven by the ramp at the Barnwell facility. Total revenues were down 5% relative to the first quarter driven by lower converted product sales, somewhat offset by strong parent roll sales. Converted products revenues declined 7% sequentially as a result of competitive bids and a shortage in freight supply that pushed shipments into the second quarter. Parent rolls sales in the second quarter were strong with growth of 13% over the first quarter as we ramped parent roll production at the Barnwell facility.”
“We are beginning to see positive signs that the tissue industry is starting to improve. Just recently, one of the industry leaders in the branded segment of the market indicated that they would be raising prices by approximately 5% for their tissue products. Consistent with these actions, Orchids has also implemented price increases in its branded and away-from-home segments, which take effect in the third quarter with further increases expected to be fully implemented in the fourth quarter.”
“Earlier this month, we implemented modifications to our credit agreement, which provided us additional liquidity through the ability to borrow the full commitment under the revolving line of credit and deferred future principal and interest payments until October 31, 2018. In addition, the modifications extend the milestone dates for the Company to execute a transaction.”
“On July 30, we received notice from one of our major customers that they will transition a major piece of business to another supplier, effective February 1, 2019. These actions were a result of this customer’s broad initiative to reduce its number of suppliers and were not related to any other issues such as service, quality, or cost. We appreciate the fact that this customer has given us the time to pursue other business. We believe that we will be able to replace a significant portion of this business over the next several quarters.”
Second Quarter Results
The company reported net sales of $45.9 million in the second quarter of 2018, up 19.3% compared to the year-ago period. Converted product sales were $40.7 million, a year over year increase of 17.3%, and parent roll sales were $5.2 million, up 38.0% over the second quarter of 2017. The increase in converted product sales was a result of the company ramping new customer volume at the Barnwell facility. Parent roll growth was driven by an increase in the volume of excess parent rolls sold from Barnwell.
Gross profit in the second quarter of 2018 was $0.6 million, a decrease from $1.5 million in the second quarter of 2017. Gross profit margins decreased from 3.9% in the second quarter of 2017 to 1.3% in the second quarter of 2018. The compression in gross profit margin was due to the unfavorable impact of a higher cost structure, which includes increased overhead costs of the Barnwell, South Carolina facility that are not fully absorbed by production and sales. Additionally, costs associated with Barnwell’s start-up activities increased compared to the same period last year. Gross profit margins remain under pressure from challenging, industry-wide conditions, as input costs, including fiber and freight costs, continue to rise. These negative impacts were partially offset by increased sales volume combined with higher average selling prices, which reflected a change in the mix of products sold due to the ramp of the ultra-premium retail business.
Orchids had a second quarter operating loss of $5.3 million in 2018 compared to an operating loss of $2.0 million in the second quarter of 2017. The increase in the operating loss was driven primarily by SG&A increasing to $5.7 million in the second quarter of 2018, up $2.4 million from $3.3 million in the year-ago period. SG&A increased due to professional and consulting fees associated with our previously announced initiatives to review strategic alternatives and our debt refinancing efforts.
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