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Text: This is Ramesh Shettigar, Vice President of Investor Relations and Corporate Treasurer.
On the call today to present our second quarter results are Dante Parrini, Glatfelter's Chairman and Chief Executive Officer; and Sam Hillard, Senior Vice President and Chief Financial Officer.
These statements speak only as of today, and we undertake no obligation to update them.
Glatfelter delivered positive overall results versus expectations despite entering the quarter anticipating softer demand and market-related downtime associated with customer destocking for the Airlaid segment.
These outcomes were driven by a recovery in demand for tabletop products and strong performance from Mount Holly.
Also, consistent with the execution of our ongoing transformation and growth strategy, we announced the pending acquisition of Jacob Holm, a leader in the nonwoven sector.
I'll provide more details about this important acquisition throughout the call.
As for second quarter results, we reported adjusted earnings per share of $0.18 and adjusted EBITDA of $28 million.
slide three of the investor deck provides the highlights for the quarter.
Airlaid Materials performed above expectations driven by a rebound in the tabletop category as in-person dining began to recover globally.
Mount Holly contributed favorably to the quarterly results following the team's excellent execution in closing the transaction, standing up a new integrated system and restarting production and shipping, all within 48 hours after closing.
We're excited for the ongoing opportunities we see with the addition of Mount Holly to the Glatfelter portfolio.
While overall volume growth was healthy, we did experience lower-than-anticipated demand in hygiene products as customers continued to destock from elevated inventory levels maintained during the pandemic.
We expect the buying patterns in this category to return to more normalized levels during the third quarter and positively impact segment profitability in the second half of the year.
Composite Fibers results were below expectations as unfavorable mix and higher-than-anticipated energy prices negatively impacted profitability.
And while shipping volume was up meaningfully, inflationary headwinds proved to be challenging for this segment.
The pricing actions announced in the first quarter helped to address some of the raw material input cost pressures, but not enough to offset the higher-than-anticipated energy prices and logistics costs during the second quarter.
We expect a more meaningful benefit from the price increases to take effect in the third quarter.
At an enterprise level, our focus remains on the health and safety of Glatfelter people.
Our efforts continue to keep all facilities operational as they did in the quarter, while ensuring uninterrupted supply of essential products to our customers despite the current evolving nature of the pandemic.
It goes without saying that 2021 has been a momentous year thus far in executing Glatfelter's ongoing transformation and growth strategy.
In May, we closed on the acquisition of Mount Holly, which has strategically positioned us to more fully benefit from the long-term growth in the health and hygiene category, while also being immediately accretive to earnings.
I'll provide additional commentary on the Jacob Holm acquisition after Sam completes his review of our second quarter results.
Second quarter adjusted earnings from continuing operations was $8 million or $0.18 per share, a decrease of $0.04 versus the same period last year driven by pandemic-related softness in our Airlaid Materials segment reflected in our guidance last quarter.
Also noteworthy is that Q2 results include the acquisition of Mount Holly, reflecting six weeks of ownership during the quarter.
slide four shows a bridge of adjusted earnings per share of $0.22 from the second quarter of last year to this year's second quarter of $0.18.
Composite Fibers results lowered earnings by $0.01 driven by higher inflation in raw materials and energy.
Airlaid Materials results lowered earnings by $0.06 primarily due to softness in the hygiene category and lower production as customers continued to destock from pandemic-driven elevated inventory levels.
Corporate costs were $0.03 favorable from ongoing cost control initiatives.
And interest, taxes and other items were in line with the second quarter of last year.
slide five shows a summary of second quarter results for the Composite Fibers segment.
Total revenues for the quarter were 7.1% higher on a constant currency basis driven by higher selling prices of $2 million and the near doubling of our wallcover volume from the trough of the pandemic in 2020.
Excluding metallized, shipments in the quarter were approximately 26% higher driven by strong growth in wallcover, technical specialties and composite laminates.
The food and beverage category, however, was impacted by shipping container shortages, thereby resulting in lower volumes during the quarter.
The strong demand overall required increased levels of production, driving a $3 million benefit to earnings.
Higher wood pulp and energy prices negatively impacted results by $6 million, creating a significant headwind for this segment.
We continue to implement announced pricing actions, but during the quarter, selling price realization only partially offset the higher input costs.
And currency and related hedging activity unfavorably impacted results by $600,000.
Looking ahead to the third quarter of 2021, we expect shipments in Composite Fibers to be 2% to 3% higher sequentially, favorably impacting results by approximately $400,000.
We expect higher selling prices to fully offset raw material, energy and logistics inflation when compared to the second quarter.
And operations are expected to be in line with the second quarter.
Slide six shows a summary of second quarter results for Airlaid Materials.
Revenues were up 5% versus the prior year quarter on a constant currency basis, supported by the addition of Mount Holly and a strong rebound in tabletop demand as in-person dining began to recover globally.
Demand for hygiene products, however, was lower for the quarter as customers continued to destock from high inventory levels maintained during the pandemic.
As previously stated, we believe this decline is transitory.
And as a result, we are projecting meaningful growth in Q3 in all product categories.
As evidence, demand for wipes has picked up materially in July, and hygiene has started to improve.
We expect more normalized buying patterns in all of our categories to return in the second half of the year.
Selling prices increased from contractual cost pass-through arrangements with customers, but were more than offset by higher raw material and energy prices, reducing earnings by a net $800,000.
Operations lowered results by $1.9 million mainly due to lower production in the quarter to manage inventory levels and better align with customer demand.
And foreign exchange was unfavorable by $300,000 versus the second quarter of last year.
For the third quarter of 2021, we expect shipments in Airlaid Materials to be approximately 15% to 20% higher.
Selling prices and input prices are both anticipated to be higher, but fully offsetting each other.
Additionally, we expect higher production levels to meet the strong customer demand and also to prepare for a Q4 machine upgrade.
The increased production is expected to favorably impact operating profit by approximately $1 million to $2 million sequentially in addition to the increased volume.
slide seven shows corporate costs and other financial items.
For the second quarter, corporate costs were favorable by $1.9 million when compared to the same period last year driven by continued spend control.
We expect corporate costs for full year 2021 to be approximately $23 million, which is an improvement from our previous guidance of $25 million to $26 million.
Interest and other income and expense are now projected to be approximately $11 million for the full year, lower than our previous guidance of $12 million.
Our tax rate for the quarter was 33%.
And full year 2021 is estimated to be between 38% and 40%, lower than our previous guidance of 42% to 44%.
The lower overall tax rate is driven by changes in the jurisdictional mix of pre-tax earnings, slightly offset by an increase in the U.K. rate.
slide eight shows our cash flow summary.
Second quarter year-to-date adjusted free cash flow was lower by approximately $6 million mainly driven by higher working capital usage after adjusting for special items.
We expect capital expenditures for the year to be between $30 million and $35 million, with the reduction being driven largely by our better-than-anticipated execution on Mount Holly integration costs.
Depreciation and amortization expense is projected to be approximately $60 million.
slide nine shows some balance sheet and liquidity metrics.
Our leverage ratio increased to three times at June 30, 2021, mainly driven by the Mount Holly acquisition we completed in May 2021, which increased our net debt by approximately $175 million.
Even after this acquisition, we continue to maintain liquidity of approximately $200 million.
These figures do not include the recently announced pending acquisition of Jacob Holm, which Dante will cover more shortly.
We also have additional financing details located in the appendix of our investor deck.
Looking ahead, we remain very optimistic about the prospects for the second half of the year and beyond as we continue building momentum for the company.
Demand for Composite Fibers products is robust, and we expect that to continue for the foreseeable future.
Our pricing actions are taking hold and will be a meaningful contributor to earnings in this segment as we offset inflationary pressures.
We will continue to work to mitigate the effects of input cost inflation and global supply chain constraints in order to optimize operations and deliver on strong customer demand.
Airlaid Materials demand is strengthening across all categories.
Tabletop is benefiting from improved demand conditions as consumers resume leisure travel and in-person dining.
July was very strong for wipes, and we believe we are exiting the period of demand weakness associated with destocking that took place during the first half of the year.
Additionally, demand in the hygiene category is beginning to recover with the second half of the year expected to return to more normalized levels.
Our continued aggressive stance on cost control is contributing to maintaining an efficient cost structure, thereby improving EBITDA and free cash flow.
And Glatfelter people are performing exceptionally well, responding to challenges, seeking new opportunities for growth and delivering on the Mount Holly integration and synergy realization.
From a strategic perspective, I'm pleased with the accelerating pace of execution of our business transformation and growth initiatives.
As noted, we signed a definitive agreement to purchase Jacob Holm for $308 million.
We're very excited about this new addition to the portfolio, which will add meaningful scale, new technologies and product diversification and will expand Glatfelter's growth platforms and global footprint.
Jacob Holm is a leading producer of spunlace materials and sustainable nonwoven fabrics, providing access to new customers in the personal care, hygiene, industrial and medical categories.
Headquartered in Basel, Switzerland, the company has four manufacturing facilities, two in the United States and one each in France and Spain.
The company is organized in three operating units: Sontara Professional, a former DuPont business; Health & Skin Care and Personal Care.
As you can see from slide 12, their operating units offer an expansive product portfolio, covering diverse applications with a prominent customer base.
In the 12 months ending June 30, the Jacob Holm business generated revenue of approximately $400 million and EBITDA of approximately $45 million.
Of these earnings, we believe $10 million to $15 million could be attributed to COVID-driven demand that is expected to normalize.
We project this transaction to be highly synergistic with significant value creation opportunities that will benefit all Glatfelter stakeholders.
Through product line optimization, operational improvements, strategic sourcing savings and cost reductions, we anticipate annual synergies of approximately $20 million within 24 months after closing.
The estimated cost to achieve these synergies is $20 million.
The acquisition is subject to customary antitrust regulatory review and is expected to close later this year.
While we have obtained 100% committed financing for this transaction, we intend to finance the purchase with the issuance of a new $550 million senior unsecured bond.
With the Jacob Holm transaction, Glatfelter's net leverage is expected to increase from approximately three times to four times pro forma at closing when reflecting the COVID-adjusted EBITDA and synergies.
This acquisition will create an exceptional portfolio of premium quality, sustainable engineered materials with opportunities for the long-term growth that aligns well with post-COVID lifestyle changes.
It will also increase Glatfelter's global scale with pro forma annual sales of approximately $1.5 billion.
As you can see, these are exciting times at Glatfelter.
slide 13 provides a brief snapshot of the breadth and depth of the company's evolution and recent transformation actions and outcomes.
Our near-term priorities and value creation focus will be on integrating our new acquisitions with an emphasis on capturing synergies and deleveraging; accelerating innovation by fully utilizing our growing portfolio of technologies, assets and intellectual property; and exploring the next wave of growth investments, both organic and inorganic with continued balance sheet discipline.
We are truly generating momentum and accelerating the pace of execution as we build a new Glatfelter.
This concludes my closing remarks.

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compname posts q2 earnings per share $0.03.
q2 earnings per share $0.03.

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