PGI first quarter net sales increase to $295.2 million

Polymer Group, Inc. (PGI) (the "Company") reported results of operations for the first quarter ended March 31, 2012.

As previously announced, Polymer Group, Inc. finalized the merger with the Blackstone Group, along with co-investors, and certain members of the Company's management (the "Merger") on January 28, 2011 and became a privately held company.

In this press release, the January 2 to January 28, 2011, and January 29 to April 2, 2011, periods have been combined. The combined presentation does not comply with United States generally accepted accounting principles, or GAAP, but is presented because we believe it provides the most meaningful comparison of our financial results. Included in the release is a reconciliation of the GAAP presentation to the combined presentation.

First Quarter 2012 Highlights:

• Top Line Results Up on Volume Growth in the Americas and Asia
  • Net sales for the first quarter of 2012 were $295.2 million compared with $291.9 million in the fourth quarter of 2011 and $283.6 million for the first quarter of 2011. The increase reflected higher volumes in the U.S. principally due to higher demand in the hygiene market, higher volumes in Latin America due to the company's Colombia facility returning to full operations, and higher volumes in Asia due to higher demand in both the healthcare and hygiene markets, offset by the negative effect of foreign currency translation and lower selling prices from the pass-through of lower raw material costs.

• Profitability Improves on Solid Volumes,  Manufacturing Efficiencies and Cost Controls
  • Gross profit, including the impact of purchase accounting in the first quarter of 2011, was $53.2 million for the first quarter of 2012 compared with $48.1 million in the fourth quarter of 2011 and $40.8 million in the first quarter of 2011.
  • The company achieved solid volumes during the quarter supported by increased sales of consumer disposable applications in the Americas and wipes and industrial volumes in Europe.  The company's carded operations in both the U.S. and Europe yielded improved operational efficiencies, offset somewhat by the additional lease expense associated with the new spunmelt line in the U.S.  SG&A costs improved as a result of cost control efforts and certain period expenses, offset somewhat by competitive pricing pressures and increases in raw material costs later in the quarter.
  • Adjusted EBITDA for the first quarter of 2012 was $36.8 million compared with $33.7 million in the fourth quarter of 2011 and $37.3 million in the first quarter of 2011. 
• Growth Investments and New Global Operating Structure to Improve Positioning in Highly Competitive Environment
  • New investments in Suzhou, China and Waynesboro, Virginia contributed to year-over-year and sequential growth in sales and profitability.
  • New organizational structure is expected to leverage the benefits of PGI's global footprint, align resources and capabilities with future growth opportunities, and provide for a more efficient structure to serve existing markets.

• Strong Cash Generation and Disciplined Working Capital Management Continues
  • Cash balances grew by $6.9 million during the quarter to $79.6 million as of quarter end.
  • Operating working capital remains under 5% of net sales.

PGI's chief executive officer, Veronica (Ronee) M. Hagen, stated, "While the underlying fundamentals of our business remain strong throughout the world, we face an increasingly competitive environment due to excess industry capacity and continued volatility in raw material costs. The growth investments we ramped up in the past year and the manufacturing efficiencies we have implemented are yielding sequential improvement in sales and profitability. To carry this momentum even further and realize the full potential of our unique, diverse business model and global scale we possess, we are boldly moving the company to new levels of competency, readiness and capabilities with a new internal operating framework."

FIRST QUARTER 2012 RESULTS

Net sales for the first quarter of 2012 were $295.2 million compared with $283.6 million for the first quarter ended April 2, 2011 and $291.9 million in the fourth quarter of 2011.  The year-over-year increase was due primarily to additional volume in the company's Nonwovens segments, with increases in Latin America, the U.S. and Asia offset somewhat from lower volumes in Europe, and lower volumes in the Oriented Polymers segment. A higher price/mix in the Oriented Polymers segment was more than offset by a lower price/mix in all Nonwovens segments, with the exception of Asia, primarily due to the pass-through of lower raw material costs. Foreign currency translation rates negatively impacted sales by approximately $4.8 million compared with the first quarter of 2011.

Gross profit was $53.2 million for the first quarter of 2012 compared with $40.8 million for the first quarter of 2011 and $48.1 million for the fourth quarter of 2011. The year-over-year increase was predominately due to the absence of $10.5 million of purchase accounting adjustments in 2011 primarily associated with the stepped up inventory values, higher volume related to the disruption in operations during 2011 at our Cali Colombia facility, partially offset by an increase in lease expense associated with the new line installed in the U.S.  Raw material costs were $4.7 million lower in the first quarter of 2012 compared with the prior-year period, offset by unfavorable sales price/mix of $4.1 million related to the pass-through of lower raw material costs. Raw material prices began to increase during the first quarter and into the second quarter of 2012.  In the Americas, the company has experienced a moderation in polypropylene prices that has not been experienced to the same degree in other regions.  The combination of the above is expected to result in profit headwinds for the second quarter of 2012.  Manufacturing costs were higher by $2.2 million in the first quarter of 2012 compared to the first quarter of 2011, primarily due to the impact of the additional lease expense for the new line in the U.S. region.

Operating income for the first quarter of 2012 was $17.0 million compared with an operating loss of $42.7 million in the first quarter of 2011 and an operating income of $0.3 million in the fourth quarter of 2011.  Of the $59.7 million improvement in the year-over-year operating income, $53.9 million was due to lower special charges of $43.4 million, primarily associated with costs resulting from the Merger, and $10.5 million of purchase accounting adjustments primarily associated with stepped-up inventory values. The remaining $5.8 million year-over-year improvement in operating income was due to favorable volumes of $5.6 million, principally associated with increases in volumes due to the disruption in operations in 2011 at our Cali, Colombia facility. Selling, general and administrative (SG&A) expenses for the first quarter of 2012 were lower than the prior-year period by $3.9 million and lower than the fourth quarter of 2011 by $2.0 million. The $3.9 million year-over-year decrease in SG&A was due primarily to $2.1 million of lower volume-related expenses; $1.1 million of lower stock compensation expense; $1.0 million of lower incentive compensation expenses; $0.4 million higher amortization expense; and $0.1 million of lower spending in other categories.

Special charges for the first quarter of 2012 consisted primarily of $0.7 million of professional fees associated with our recently announced internal redesign and restructuring of global operations; $1.0 of employee termination and severance expenses; $0.4 million of professional fees associated with the Blackstone Acquisition; and $0.3 million of restructuring and other restructuring costs.

After recognizing $4.5 million of income tax expense, the company reported a net loss attributable to PGI for the first quarter of 2012 of $0.3 million, compared with a net loss attributable to PGI of $54.4 million in the first quarter of 2011 and a net loss attributable to PGI of $21.4 million in the fourth quarter of 2011.

FINANCIAL METRICS

Net debt (defined as total debt less cash balances) as of March 31, 2012 was $519.3 million compared with $527.7 million as of December 31, 2011.  Capital expenditures for the first quarter were $13.3 million.  Operating working capital, defined as accounts receivable plus inventories less trade accounts payable and accrued liabilities, was $56.9 million and represented 4.8% of annual sales compared with $59.9 million and 5.3% of annual sales for the first quarter of 2011.

ADJUSTED EBITDA

Adjusted EBITDA for the first quarter of 2012 was $36.8 million compared with $37.3 million in the first quarter of 2011 and $33.7 million in the fourth quarter of 2011 due primarily to higher volumes in the U.S. and Latin America, offset by lower volumes in Europe; and offset by the absence of a proforma addback in the prior year period reflecting the annualized incremental contribution from the company's Colombia operations prior to the flood, and the impact from the higher lease expense associated with the company's new line in Waynesboro, Virginia.

SOURCE Polymer Group, Inc.