Tredegar Corporation (NYSE:TG, also the "Company" or "Tredegar")
today reported first quarter financial results for the period ended
March 31, 2023.
First quarter 2023 net income (loss) was $(1.0) million ($(0.03)
per diluted share) compared to net income (loss) of $16.4 million
($0.49 per diluted share) in the first quarter of 2022. Net income
(loss) from ongoing operations, which excludes special items, was
$2.5 million ($0.07 per diluted share) in the first quarter of 2023
compared with $16.8 million ($0.50 per diluted share) in the first
quarter of 2022. A reconciliation of net income (loss), a financial
measure calculated in accordance with U.S. generally accepted
accounting principles (“GAAP”), to net income from ongoing
operations, a non-GAAP financial measure, for the three months
ended March 31, 2023 and 2022, is provided in Note (a) to the
Financial Tables in this press release.
First Quarter Financial Results Highlights
- Earnings before interest, taxes, depreciation and amortization
("EBITDA") from ongoing operations for Aluminum Extrusions of $14.6
million declined $9.3 million primarily due to an abnormally strong
first quarter of 2022. Sales volume of 37.6 million pounds was
consistent with the weak fourth quarter of 2022.
- EBITDA from ongoing operations for PE Films of $1.8 million was
$5.2 million lower than the strong first quarter of 2022. Sales
volume of 7.4 million pounds improved by 1.0 million pounds
compared with the weak average third and fourth quarter volume
levels in 2022.
- EBITDA from ongoing operations for Flexible Packaging Films of
$1.4 million was $3.7 million lower than the first quarter of 2022
mainly due to soft market demand during the first quarter of
2023.
John Steitz, Tredegar’s president and chief executive officer,
said, “Our businesses and markets continue to suffer from a
significant slowdown that has been exacerbated by customer
inventory corrections, which has resulted in excessive inventory
levels for us, too. The timing of a recovery is uncertain,
especially for Bonnell Aluminum and the Surface Protection
component of PE Films.”
Mr. Steitz continued, “The combination of excessive inventories
and decline in sales and EBITDA from ongoing operations resulted in
negative cash flow from operations after capital expenditures and
dividends in each of the last three quarters, driving up our debt
net of cash and net leverage ratio. In addition, we expect to make
a final payment of approximately $28 million to settle the pension
plan in the fourth quarter of this year. We are very focused on
reducing our inventories and working capital to normal operating
levels and managing costs and capital spending during this
downturn. However, if a recovery in our businesses and markets
doesn’t occur early in the third quarter and we are unable to get
our working capital to normal operating levels, we may also need to
take action to reduce or suspend our current quarterly dividend of
13 cents per share as an additional measure to help control our
financial leverage.”
OPERATIONS REVIEW
Aluminum Extrusions
Aluminum Extrusions produces high-quality, soft-alloy and
medium-strength custom fabricated and finished aluminum extrusions
primarily for the following markets: building and construction
(B&C), automotive, and specialty (which consists of consumer
durables, machinery and equipment, electrical and renewable energy,
and distribution end-use products). A summary of results for
Aluminum Extrusions is provided below:
Three Months Ended
Favorable/ (Unfavorable) %
Change
(In thousands, except percentages)
March 31,
2023
2022
Sales volume (lbs)
37,562
43,010
(12.7
)%
Net sales
$
133,370
$
158,110
(15.6
)%
Ongoing operations:
EBITDA
$
14,638
$
23,919
(38.8
)%
Depreciation & amortization
(4,411
)
(4,261
)
(3.5
)%
EBIT*
$
10,227
$
19,658
(48.0
)%
Capital expenditures
$
7,742
$
2,881
* For a reconciliation of this non-GAAP
measure to the most directly comparable measure calculated in
accordance with GAAP, see the EBITDA from ongoing operations by
segment statements in the Financial Tables in this press
release.
First Quarter 2023 Results vs. First
Quarter 2022 Results
Net sales (sales less freight) in the first quarter of 2023
decreased 15.6% versus the first quarter of 2022 primarily due to
lower sales volume and the pass-through of lower metal costs,
partially offset by an increase in prices to cover higher operating
costs. Sales volume in the first quarter of 2023 declined 12.7%
versus the first quarter of 2022. Nonresidential B&C sales
volume, which represented 53% of 2022 volume, was relatively flat
in the first quarter of 2023 versus the first quarter of 2022.
Sales volume in the specialty market, which represented 29% of
total volume in 2022, decreased 30.5% in the first quarter of 2023
versus the first quarter of 2022. Sales volume in the automotive
market, which represented 8% of total volume in 2022, decreased
8.2% in the first quarter of 2023 versus the first quarter of 2022.
The Company has observed slowing order input and order
cancellations as customers continue to report high inventory
levels. With a reduced level of incoming orders, overall open
orders at the end of the first quarter of 2023 were 27 million
pounds, which is at the high end of the pre-pandemic range of 21 to
27 million pounds quarterly in 2019, versus 41 million pounds at
the end of the fourth quarter of 2022.
EBITDA from ongoing operations in the first quarter of 2023
decreased $9.3 million versus the first quarter of 2022 primarily
due to:
- Lower volume ($4.2 million), higher labor and employee-related
costs ($1.7 million) and lower labor productivity ($0.5 million);
higher supply expense, including higher paint expense associated
with a shift to more painted product and inflationary costs for
other supplies ($2.1 million); higher utility costs ($0.5 million);
higher freight rates ($0.7 million); and increased selling, general
and administrative ("SG&A") expenses ($0.8 million), partially
offset by higher pricing ($6.6 million); and
- The timing of the flow-through under the first-in first-out
method of aluminum raw material costs passed through to customers,
previously acquired at lower prices in a quickly changing commodity
pricing environment, resulted in a benefit of $1.7 million in the
first quarter of 2023 versus a benefit of $7.1 million in the first
quarter of 2022.
Aluminum Extrusions has secured supply sources to meet expected
needs for aluminum raw materials in 2023. Refer to Item 3.
Quantitative and Qualitative Disclosures About Market Risk in the
Company's Quarterly Report on Form 10-Q for the period ended March
31, 2023 ("First Quarter Form 10-Q") for additional information on
aluminum price trends.
Projected Capital Expenditures and
Depreciation & Amortization
Capital expenditures for Bonnell Aluminum are projected to be
$26 million in 2023. Projected amounts including $11 million for
the multi-year implementation of a new enterprise resource planning
and manufacturing execution systems ("ERP/MES"), $6 million for
infrastructure upgrades at the facilities located in Niles,
Michigan, Carthage, Tennessee and Newnan, Georgia and $2 million
for other strategic projects. The ERP/MES project commenced in 2022
and is expected to cost approximately $30 million. In addition to
strategic projects, approximately $7 million will be required to
support continuity of current operations. Depreciation expense is
projected to be $15 million in 2023. Amortization expense is
projected to be $2 million in 2023.
PE Films
PE Films produces surface protection films for high-technology
applications in the global electronics industry and polyethylene
overwrap and polypropylene films for other markets. A summary of
results for PE Films is provided below:
Three Months Ended
Favorable/ (Unfavorable) %
Change
(In thousands, except percentages)
March 31,
2023
2022
Sales volume (lbs)
7,368
10,553
(30.2
)%
Net sales
$
20,182
$
31,131
(35.2
)%
Ongoing operations:
EBITDA
$
1,849
$
7,047
(73.8
)%
Depreciation & amortization
(1,643
)
(1,595
)
(3.0
)%
EBIT*
$
206
$
5,452
(96.2
)%
Capital expenditures
$
716
$
581
* For a reconciliation of this non-GAAP
measure to the most directly comparable measure calculated in
accordance with GAAP, see the EBITDA from ongoing operations by
segment statements in the Financial Tables in this press
release.
First Quarter 2023 Results vs. First
Quarter 2022 Results
Net sales in the first quarter of 2023 decreased 35.2% compared
to the first quarter of 2022. Sales volume decreased in both
Surface Protection and overwrap films versus the first quarter of
2022. Surface Protection sales volume in the first quarter of 2023
declined 36% versus the first quarter of 2022 but was in the range
of the volume levels for the third and fourth quarters of 2022.
Surface Protection sales continue to be adversely impacted by weak
market demand which began in the third quarter of last year.
Consumer demand for electronics has significantly softened, causing
manufacturers in the supply chain to experience reduced capacity
utilization and inventory corrections. In addition, these market
conditions are adversely impacting mix through reduced sales to our
highest value-added customers.
EBITDA from ongoing operations in the first quarter of 2023
decreased $5.2 million versus the first quarter of 2022, primarily
due to:
- A $4.9 million decrease from Surface Protection:
- Lower contribution margin for non-transitioning products
associated with a market slowdown and customer inventory
corrections ($4.1 million) and for previously disclosed customer
product transitions ($0.7 million), partially offset by lower
SG&A and other employee-related expenses ($0.6 million);
and
- The pass-through lag associated with resin costs ($0.1 million
charge in the first quarter of 2023 versus a benefit of $0.5
million in the first quarter of 2022).
- A $0.3 million decrease from overwrap films primarily due to
the pass-through lag associated with resin costs (a charge of $0.1
million in the first quarter of 2023 versus a benefit of $0.3
million in the first quarter of 2022) and lower volume ($0.1
million), partially offset by lower fixed costs ($0.2
million).
Refer to Item 3. Quantitative and Qualitative Disclosures About
Market Risk in the First Quarter Form 10-Q for additional
information on resin price trends.
Customer Product Transitions in Surface Protection
The Surface Protection component of PE Films supports
manufacturers of optical and other specialty substrates used in
flat panel display products. These films are primarily used by
customers to protect components of displays in the manufacturing
and transportation processes and then discarded.
The Company previously reported the risk that a portion of its
film products used in surface protection applications would be made
obsolete by customer product transitions, which principally relate
to one customer, to less costly alternative processes or materials.
The Company estimates that these transitions, which were complete
as of the second quarter of 2022, resulted in a total decline of $7
million in pre-tax income as reported under GAAP and EBITDA from
ongoing operations during 2022 versus 2021.
Projected Capital Expenditures and
Depreciation & Amortization
Capital expenditures for PE Films are projected to be $3 million
in 2022, including $1 million for productivity projects and $2
million for capital expenditures required to support continuity of
current operations. Depreciation expense is projected to be $7
million in 2023. There is no amortization expense for PE Films.
Flexible Packaging Films
Flexible Packaging Films produces polyester-based films for use
in packaging applications that have specialized properties, such as
heat resistance, strength, barrier protection and the ability to
accept high-quality print graphics. A summary of results for
Flexible Packaging Films is provided below:
Three Months Ended
Favorable/ (Unfavorable) %
Change
(In thousands, except percentages)
March 31,
2023
2022
Sales volume (lbs)
19,845
26,005
(23.7
)%
Net sales
$
31,527
$
39,244
(19.7
)%
Ongoing operations:
EBITDA
$
1,350
$
5,035
(73.2
)%
Depreciation & amortization
(700
)
(550
)
(27.3
)%
EBIT*
$
650
$
4,485
(85.5
)%
Capital expenditures
$
605
$
1,545
* For a reconciliation of this non-GAAP
measure to the most directly comparable measure calculated in
accordance with GAAP, see the EBITDA from ongoing operations by
segment statements in the Financial Tables in this press
release.
First Quarter 2023 Results vs. First
Quarter 2022 Results
Net sales in the first quarter of 2023 decreased 19.7% compared
to the first quarter of 2022, primarily due to lower sales volume,
partially offset by favorable product mix and higher selling prices
from the pass-through of higher resin costs. The Company believes
that lower sales volume was primarily due to soft market demand,
which is projected to improve from existing levels for the
remainder of the year.
EBITDA from ongoing operations in the first quarter of 2023
decreased by $3.7 million versus the first quarter of 2022,
primarily due to:
- Lower sales volume ($3.1 million) and higher fixed ($0.9
million) and variable ($0.6 million) costs, partially offset by
favorable product mix ($0.4 million), lower raw material costs
($0.2 million), and lower SG&A expenses ($0.1 million);
and
- Net unfavorable foreign currency translation of
Real-denominated operating costs ($0.5 million);
- Partially offset by lower foreign currency transaction losses
($0.1 million) in the first quarter of 2023 compared to foreign
currency transaction losses ($0.9 million) in the first quarter of
2022.
Refer to Item 3. Quantitative and Qualitative Disclosures About
Market Risk in the First Quarter Form 10-Q for additional
information on polyester fiber and component price trends.
Projected Capital Expenditures and
Depreciation & Amortization
Capital expenditures for Flexible Packaging Films are projected
to be $7 million in 2023, including $2 million for new capacity for
value-added products and productivity projects and $5 million for
capital expenditures required to support continuity of current
operations. Depreciation expense is projected to be $3 million in
2023. Amortization expense is projected to be $0.1 million in
2023.
Corporate Expenses, Interest, Taxes & Other
Corporate expenses, net in the first three months of 2023
decreased $1.8 million compared to the first three months of 2022
primarily due to lower accruals for employee-related compensation
($0.8 million), lower professional fees associated with business
development activities ($0.8 million) and lower stock-based
compensation ($0.4 million).
Interest expense of $2.3 million in the first three months of
2023 increased $1.5 million compared to the first three months of
2022 due to higher average debt levels and interest rates.
The effective tax rate used to compute income tax expense
(benefit) in the first three months of 2023 was (48.8)%, compared
to 4.5% in the first three months of 2022. The change in the
effective tax rate is primarily due to a pre-tax loss in first
three months of 2023 versus pre-tax income in first three months of
2022, lower Brazil tax incentives, and a large discrete benefit
recorded in the first quarter of 2022, resulting from the
implementation of new U.S. tax regulations associated with foreign
tax credits published by the U.S. Treasury and Internal Revenue
Service on January 4, 2022. The effective tax rate from ongoing
operations comparable to the earnings reconciliation table provided
in Note (a) to the Financial Tables in this press release was 34.2%
for the first three months of 2023 versus 25.5% for the first three
months of 2022 (see also Note (e) to the Financial Tables). Refer
to Note 9 to the Company's Condensed Consolidated Financial
Statements in the First Quarter Form 10-Q for an explanation of
differences between the effective tax rate for income (loss) and
the U.S. federal statutory rate for 2023 and 2022.
Pension expense under GAAP of $3.4 million in the first three
months of 2023 remained consistent with the first three months of
2022. In February 2022, Tredegar announced the initiation of a
process to terminate and settle its frozen defined benefit pension
plan. In connection therewith, the Company borrowed funds under its
revolving credit agreement ("Credit Agreement") and made a $50
million contribution to the pension plan (the “Special
Contribution”) to reduce its underfunding and as part of a program
within the pension plan to hedge or fix the expected future
contributions that will be needed by the Company through the
settlement process. The settlement process has been delayed because
of a longer-than-expected review time with the IRS. The Company
does not expect issues with receiving approval from the IRS and is
hopeful that the entire process will be completed by the end of
2023. The Company realized income tax cash benefits on the Special
Contribution of $11 million in the fourth quarter of 2022.
Administrative costs for the pension plan through the entire
settlement process are estimated at $4 to $5 million.
The estimated underfunding of Tredegar’s frozen defined benefit
pension plan was approximately $28 million as of both March 31,
2023 and December 31, 2022. As of December 31, 2022, the
underfunding was comprised of investments at fair value of $218
million and a projected benefit obligation (“PBO”) of $246 million.
GAAP accounting requires adjustment for changes in values of assets
and the PBO only at the end of each year, even though these values
change daily. The ultimate underfunded amount at settlement may
differ from the current amounts, depending on changes in market
factors, including with respect to buyers of pension obligations at
the time of settlement.
Prior to the Special Contribution, GAAP pension expense was a
reasonable proxy for the Company’s required minimum cash
contribution to the pension plan. The Company expects there will be
no required minimum cash contributions until final settlement.
Pension expense under GAAP is projected to be approximately $14
million in 2023, which is mainly comprised of non-cash amortization
of deferred net actuarial losses reflected in the Company’s
shareholders’ equity as accumulated other comprehensive losses.
Beginning in 2022, and consistent with no expected required minimum
cash contributions, no pension expense is included in calculating
earnings before interest, taxes, depreciation and amortization as
defined in the Company’s revolving credit agreement (“Credit
EBITDA”), which is used to compute certain borrowing ratios and to
compute non-GAAP net income (loss) from ongoing operations.
The impact on earnings from pension expense is reflected in
“Corporate expenses, net” in the accompanying net sales and EBITDA
from ongoing operations by segment tables. However, beginning in
2022 and consistent with excluding GAAP pension expense from Credit
EBITDA as described above, GAAP pension expense has been presented
separately and removed from net income (loss) and diluted earnings
(loss) per share as reported under GAAP for purposes of determining
Tredegar’s non-GAAP presentation of net income (loss) and diluted
earnings (loss) per share from ongoing operations (see related
reconciliation in Note (a) to the Financial Tables in this press
release for more information).
Total debt was $155.0 million at March 31, 2023 compared to
total debt of $137.0 million at December 31, 2022. Net debt (debt
in excess of cash and cash equivalents), a non-GAAP financial
measure but a key measure used to compute the net leverage ratio
under the Credit Agreement, was $140.0 million at March 31, 2023
compared to $117.8 million at December 31, 2022. The increase in
net debt during 2023 of $22.2 million was primarily due to an
increase in working capital as well as negative cash flow from
operations after capital expenditures and dividends. The Company is
very focused on reducing net working capital to normal operating
levels and managing its costs during the current slowdown in
business that the Company believes is driven by a cyclical downturn
in its markets.
Tredegar has five-year, revolving, secured credit facility that
permits aggregate borrowings of $375 million and matures on June
29, 2027. The Company believes that its most restrictive covenant
under the Credit Agreement (computed quarterly) is the Total Net
Leverage Ratio, which permits maximum borrowings of up to 4x Credit
EBITDA for the trailing four quarters. The Company had Credit
EBITDA and a leverage ratio (calculated in the "Liquidity and
Capital Resources" section of the First Quarter Form 10-Q) of $67.1
million and 2.09x, respectively, at March 31, 2023. The Credit
EBITDA and leverage ratio at December 31, 2022 was $84.4 million
and 1.39x respectively. See Note (f) to the Financial Tables in
this press release for a reconciliation of net debt to the most
directly comparable GAAP financial measure.
FORWARD-LOOKING AND CAUTIONARY
STATEMENTS
Some of the information contained in this press release may
constitute “forward-looking statements” within the meaning of the
“safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995. When the Company uses the words “believe,”
“estimate,” “anticipate,” “appear to,” “expect,” “project,” “plan,”
“likely,” “may” and similar expressions, it does so to identify
forward-looking statements. Such statements are based on the
Company's then current expectations and are subject to a number of
risks and uncertainties that could cause actual results to differ
materially from those addressed in the forward-looking statements.
It is possible that the Company's actual results and financial
condition may differ, possibly materially, from the anticipated
results and financial condition indicated in or implied by these
forward-looking statements. Accordingly, you should not place undue
reliance on these forward-looking statements. Factors that could
cause actual results to differ materially from expectations
include, without limitation, the following:
- loss or gain of sales to significant customers on which the
Company’s business is highly dependent;
- inability to achieve sales to new customers to replace lost
business;
- inability to develop, efficiently manufacture and deliver new
products at competitive prices;
- failure of the Company’s customers to achieve success or
maintain market share;
- failure to protect our intellectual property rights;
- risks of doing business in countries outside the U.S. that
affect our international operations;
- political, economic, and regulatory factors concerning the
Company’s products;
- uncertain economic conditions in countries in which the Company
does business, including continued high inflation and the effects
of the Russian invasion of Ukraine;
- competition from other manufacturers, including manufacturers
in lower-cost countries and manufacturers benefiting from
government subsidies;
- impact of fluctuations in foreign exchange rates;
- movement of pension plan assets and liabilities relating to
differences between the ultimate settlement benefit obligation and
the projected benefit obligation, census data, administrative
costs, and the effectiveness of hedging activities;
- an increase in the operating costs incurred by the Company’s
business units, including, for example, the cost of raw materials
and energy;
- unanticipated problems or delays with the implementation of an
enterprise resource planning and manufacturing executions systems,
or security breaches and other disruptions to the Company's
information technology infrastructure;
- inability to successfully identify, complete or integrate
strategic acquisitions; failure to realize the expected benefits of
such acquisitions and assumption of unanticipated risks in such
acquisitions;
- disruptions to the Company’s manufacturing facilities,
including those resulting from labor shortages;
- failure to continue to attract, develop and retain certain key
officers or employees;
- the impact of public health epidemics on employees, production
and the global economy, such as the COVID-19 pandemic;
- an information technology system failure or breach;
- the impact of the imposition of tariffs and sanctions on
imported aluminum ingot used by Bonnell Aluminum;
- the impact of new tariffs, duties or other trade restrictions
imposed as a result of trade tensions between the U.S. and other
countries;
- the termination of anti-dumping duties on products imported to
Brazil that compete with products produced by Flexible
Packaging;
- impairment of the Surface Protection reporting unit's
goodwill;
- failure to establish and maintain effective internal control
over financial reporting;
and the other factors discussed in the reports Tredegar files
with or furnishes to the Securities and Exchange Commission (the
“SEC”) from time to time, including the risks and important factors
set forth in additional detail in “Risk Factors” Part I, Item 1A of
the Company's Form 10-K for the year ended December 31, 2022.
Readers are urged to review and consider carefully the disclosures
Tredegar makes in its filings with the SEC.
Tredegar does not undertake, and expressly disclaims any duty,
to update any forward-looking statement made in this press release
to reflect any change in management’s expectations or any change in
conditions, assumptions or circumstances on which such statements
are based, except as required by applicable law.
To the extent that the financial information portion of this
press release contains non-GAAP financial measures, it also
presents both the most directly comparable financial measures
calculated and presented in accordance with GAAP and a quantitative
reconciliation of the difference between any such non-GAAP measures
and such comparable GAAP financial measures. Reconciliations of
non-GAAP financial measures are provided in the Notes to the
Financial Tables included with this press release and can also be
found within “Presentations” in the “Investors” section of our
website, www.tredegar.com.
Tredegar uses its website as a channel of distribution of
material Company information. Financial information and other
material information regarding Tredegar is posted on and assembled
in the “Investors” section of its website.
Tredegar Corporation is an industrial manufacturer with three
primary businesses: custom aluminum extrusions for the North
American building & construction, automotive and specialty
end-use markets; surface protection films for high-technology
applications in the global electronics industry; and specialized
polyester films primarily for the Latin American flexible packaging
market. Tredegar had 2022 sales of $939 million. With approximately
2,200 employees, the Company operates manufacturing facilities in
North America, South America, and Asia.
Tredegar Corporation
Condensed Consolidated
Statements of Income (Loss)
(In Thousands, Except
Per-Share Data)
(Unaudited)
Three Months Ended
March 31,
2023
2022
Sales
$
191,122
$
236,566
Other income (expense), net (c)(d)
280
(302
)
191,402
236,264
Cost of goods sold (c)
159,525
183,260
Freight
6,043
8,081
Selling, R&D and general expenses
(c)
20,211
22,807
Amortization of intangibles
503
663
Pension and postretirement benefits
3,418
3,476
Interest expense
2,311
786
Asset impairments and costs associated
with exit and disposal activities, net of adjustments (c)
69
(9
)
Total
192,080
219,064
Income (loss) before income taxes
(678
)
17,200
Income tax expense (benefit) (c)
331
778
Net income (loss)
$
(1,009
)
$
16,422
Earnings (loss) per share:
Basic
$
(0.03
)
$
0.49
Diluted
$
(0.03
)
$
0.49
Shares used to compute earnings (loss) per
share:
Basic
33,895
33,654
Diluted
33,895
33,696
Tredegar Corporation
Net Sales and EBITDA from
Ongoing Operations by Segment
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
2023
2022
Net Sales
Aluminum Extrusions
$
133,370
$
158,110
PE Films
20,182
31,131
Flexible Packaging Films
31,527
39,244
Total net sales
185,079
228,485
Add back freight
6,043
8,081
Sales as shown in the condensed
consolidated statements of income
$
191,122
$
236,566
EBITDA from Ongoing Operations
Aluminum Extrusions:
Ongoing operations:
EBITDA (b)
$
14,638
$
23,919
Depreciation & amortization
(4,411
)
(4,261
)
EBIT (b)
10,227
19,658
Plant shutdowns, asset impairments,
restructurings and other (c)
(493
)
(105
)
PE Films:
Ongoing operations:
EBITDA (b)
1,849
7,047
Depreciation & amortization
(1,643
)
(1,595
)
EBIT (b)
206
5,452
Plant shutdowns, asset impairments,
restructurings and other (c)
2
(102
)
Flexible Packaging Films:
Ongoing operations:
EBITDA (b)
1,350
5,035
Depreciation & amortization
(700
)
(550
)
EBIT (b)
650
4,485
Plant shutdowns, asset impairments,
restructurings and other (c)
(78
)
(43
)
Total
10,514
29,345
Interest income
44
29
Interest expense
2,311
786
Gain on investment in kaleo, Inc. (d)
262
—
Stock option-based compensation costs
231
631
Corporate expenses, net (c)
8,956
10,757
Income (loss) before income taxes
(678
)
17,200
Income tax expense (benefit)
331
778
Net income (loss)
$
(1,009
)
$
16,422
Tredegar Corporation
Condensed Consolidated Balance
Sheets
(In Thousands)
(Unaudited)
March 31, 2023
December 31, 2022
Assets
Cash & cash equivalents
$
15,025
$
19,232
Accounts & other receivables, net
89,104
84,544
Income taxes recoverable
967
733
Inventories
113,633
127,771
Prepaid expenses & other
10,011
10,304
Total current assets
228,740
242,584
Net property, plant and equipment
186,966
186,411
Right-of-use leased assets
13,854
14,021
Identifiable intangible assets, net
11,207
11,690
Goodwill
70,608
70,608
Deferred income taxes
11,662
13,900
Other assets
3,137
2,879
Total assets
$
526,174
$
542,093
Liabilities and Shareholders’
Equity
Accounts payable
$
92,275
$
114,938
Accrued expenses
21,904
31,603
Lease liability, short-term
2,186
2,035
Income taxes payable
226
1,137
Total current liabilities
116,591
149,713
Lease liability, long-term
12,458
12,738
Long-term debt
155,000
137,000
Pension and other postretirement benefit
obligations, net
35,377
35,046
Other non-current liabilities
5,139
5,834
Shareholders’ equity
201,609
201,762
Total liabilities and shareholders’
equity
$
526,174
$
542,093
Tredegar Corporation
Condensed Consolidated
Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended March 31,
2023
2022
Cash flows from operating activities:
Net income (loss)
$
(1,009
)
$
16,422
Adjustments for noncash items:
Depreciation
6,340
5,829
Amortization of intangibles
503
663
Reduction of right-of-use lease asset
551
500
Deferred income taxes
411
552
Accrued pension income and post-retirement
benefits
3,418
3,506
Stock-based compensation expense
186
1,295
Gain on investment in kaléo
(262
)
—
Changes in assets and liabilities:
Accounts and other receivables
(4,320
)
(24,351
)
Inventories
14,840
(12,622
)
Income taxes recoverable/payable
(1,156
)
(8,791
)
Prepaid expenses and other
1,816
3,323
Accounts payable and accrued expenses
(28,977
)
10,384
Lease liability
(558
)
(547
)
Pension and postretirement benefit plan
contributions
(154
)
(50,158
)
Other, net
(737
)
(742
)
Net cash (used in) provided by operating
activities
(9,108
)
(54,737
)
Cash flows from investing activities:
Capital expenditures
(9,025
)
(5,086
)
Proceeds on sale of investment in
kaléo
262
—
Net cash (used in) provided by investing
activities
(8,763
)
(5,086
)
Cash flows from financing activities:
Borrowings
37,250
109,500
Debt principal payments
(19,250
)
(51,250
)
Dividends paid
(4,419
)
(4,059
)
Other
—
(396
)
Net cash provided by (used in) financing
activities
13,581
53,795
Effect of exchange rate changes on
cash
83
1,155
Increase (decrease) in cash and cash
equivalents
(4,207
)
(4,873
)
Cash and cash equivalents at beginning of
period
19,232
30,521
Cash and cash equivalents at end of
period
$
15,025
$
25,648
Notes to the Financial Tables
(Unaudited)
(a)
Tredegar’s presentation of net income
(loss) and diluted earnings (loss) per share from ongoing
operations are non-GAAP financial measures that exclude the effects
of gains or losses associated with plant shutdowns, asset
impairments and restructurings, gains or losses from the sale of
assets, goodwill impairment charges, net periodic benefit cost for
the frozen defined benefit pension plan and other items (which
includes gains and losses for an investment accounted for under the
fair value method), which have been presented separately and
removed from net income (loss) and diluted earnings (loss) per
share as reported under GAAP. Net income (loss) and diluted
earnings (loss) per share from ongoing operations are key financial
and analytical measures used by management to gauge the operating
performance of Tredegar’s ongoing operations. They are not intended
to represent the stand-alone results for Tredegar’s ongoing
operations under GAAP and should not be considered as an
alternative to net income (loss) or earnings (loss) per share as
defined by GAAP. They exclude items that management believes do not
relate to Tredegar’s ongoing operations. A reconciliation to net
income (loss) and diluted earnings (loss) per share from ongoing
operations for the three months ended March 31, 2023 and 2022 is
shown below:
Three Months Ended March 31,
($ in millions, except per share data)
2023
2022
Net income (loss) as reported under
GAAP1
$
(1.0
)
$
16.4
After-tax effects of:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
0.1
—
(Gains) losses from sale of assets and
other:
Gain associated with the investment in
kaléo
(0.2
)
—
Tax benefit from adjustments to deferred
income tax liabilities under new U.S. tax regulations related to
foreign tax credits
—
(3.8
)
Other
1.0
1.5
Net periodic benefit cost for the frozen
defined benefit pension plan in process of termination2
2.6
2.7
Net income (loss) from ongoing
operations1
$
2.5
$
16.8
Earnings (loss) per share as reported
under GAAP (diluted)
$
(0.03
)
$
0.49
After-tax effects per diluted share
of:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
—
—
(Gains) losses from sale of assets and
other:
Gain associated with the investment in
kaléo
(0.01
)
—
Tax benefit from adjustments to deferred
income tax liabilities under new U.S. tax regulations related to
foreign tax credits
—
(0.11
)
Other
0.03
0.04
Net periodic benefit cost for the frozen
defined benefit pension plan in process of termination2
0.08
0.08
Earnings (loss) per share from ongoing
operations (diluted)
$
0.07
$
0.50
1. Reconciliations of the pre-tax and
post-tax balances attributed to net income (loss) are shown in Note
(e). 2. For more information, see "Corporate Expenses, Interest,
Taxes & Other" section of this press release.
(b)
EBITDA (earnings before interest, taxes,
depreciation and amortization) from ongoing operations is the key
segment profitability metric used by the Company’s chief operating
decision maker to assess segment financial performance. The Company
uses sales less freight ("net sales") as its measure of revenues
from external customers. For more business segment information, see
Note 10 to the Company's Condensed Consolidated Financial
Statements in the First Quarter Form 10-Q.
EBIT (earnings before interest and taxes)
from ongoing operations is a non-GAAP financial measure included in
the accompanying tables and the reconciliation of segment financial
information to consolidated results for the Company in the net
sales and EBITDA from ongoing operations by segment statements. It
is not intended to represent the stand-alone results for Tredegar’s
ongoing operations under GAAP and should not be considered as an
alternative to net income (loss) as defined by GAAP. The Company
believes that EBIT is a widely understood and utilized metric that
is meaningful to certain investors and that including this
financial metric in the reconciliation of management’s performance
metric, EBITDA from ongoing operations, provides useful information
to those investors that primarily utilize EBIT to analyze the
Company’s core operations.
(c)
Gains and losses associated with plant
shutdowns, asset impairments, restructurings and other items for
the three months ended March 31, 2023 and 2022 detailed below are
shown in the statements of net sales and EBITDA from ongoing
operations by segment and are included in “Asset impairments and
costs associated with exit and disposal activities, net of
adjustments” in the condensed consolidated statements of income,
unless otherwise noted.
Three Months Ended March 31,
2023
($ in millions)
Pre-Tax
Net of Tax
Aluminum Extrusions:
(Gains) losses from sale of assets,
investment writedowns and other items:
Storm damage to the Newnan, Georgia
plant1
$
0.6
$
0.4
Total for Aluminum Extrusions
$
0.6
$
0.4
Flexible Packaging Films:
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings:
Other restructuring costs - severance
$
0.1
$
0.1
Total for Flexible Packaging Films
$
0.1
$
0.1
Corporate:
(Gain) losses from sale of assets,
investment writedowns and other items:
Professional fees associated with business
development activities1
$
0.3
$
0.3
Professional fees associated with
remediation activities related to internal control over financial
reporting1
0.5
0.4
Stock-based compensation expense
associated with the fair value remeasurement of awards granted at
the time of the 2020 Special Dividend1
(0.1
)
(0.1
)
Net periodic benefit cost for the frozen
defined benefit pension plan in process of termination2
3.4
2.6
Total for Corporate
$
4.1
$
3.2
1. Included in “Selling, R&D and
general expenses” in the condensed consolidated statements of
income. 2. For more information, see "Corporate Expenses, Interest,
Taxes & Other" section of this press release.
Three Months Ended March 31,
2022
($ in millions)
Pre-Tax
Net of Tax
Aluminum Extrusions:
(Gains) losses from sale of assets,
investment writedowns and other items:
COVID-19-related expenses, net of
relief1
$
0.1
$
0.1
Total for Aluminum Extrusions
$
0.1
$
0.1
PE Films:
(Gains) losses from sale of assets,
investment writedowns and other items:
COVID-19-related expenses1
$
0.1
$
0.1
Total for PE Films
$
0.1
$
0.1
Corporate:
(Gain) losses from sale of assets,
investment writedowns and other items:
Professional fees associated with business
development activities2
$
1.5
$
1.0
Professional fees associated with
remediation activities related to internal control over financial
reporting2
0.4
0.3
Tax benefit from adjustments to deferred
income tax liabilities under new U.S. tax regulations related to
foreign tax credits4
—
(3.8
)
Net periodic benefit cost for the frozen
defined benefit pension plan in process of termination3
3.4
2.7
Total for Corporate
$
5.3
$
0.2
1. Included in "Other income (expense),
net" in the condensed consolidated statements of income. 2.
Included in "Selling, R&D and general expenses" in the
condensed consolidated statements of income. 3. For more
information, see "Corporate Expenses, Interest, Taxes & Other"
section of this press release. 4. Included in "Income tax expense
(benefit)" in the condensed consolidated statements of income.
(d)
On December 27, 2021, the Company
completed the sale of its investment interests in kaléo and
received closing cash proceeds of $47.1 million. Subsequently, in
May 2022 and January 2023, additional cash consideration of $1.4
million and $0.3 million, respectively, was received related to
customary post-closing adjustments, which is reported in “Other
income (expense), net” in the condensed consolidated statements of
income.
(e)
Tredegar’s presentation of net income
(loss) from ongoing operations is a non-GAAP financial measure that
excludes the effects of gains or losses associated with plant
shutdowns, asset impairments and restructurings, gains or losses
from the sale of assets, goodwill impairment charges, net periodic
benefit cost for the frozen defined benefit pension plan and other
items (which includes unrealized gains and losses for an investment
accounted for under the fair value method), which has been
presented separately and removed from net income (loss) as reported
under GAAP. Net income (loss) from ongoing operations is a key
financial and analytical measure used by management to gauge the
operating performance of Tredegar’s ongoing operations. It is not
intended to represent the stand-alone results for Tredegar’s
ongoing operations under GAAP and should not be considered as an
alternative to net income (loss) as defined by GAAP. It excludes
items that we believe do not relate to Tredegar’s ongoing
operations.
Reconciliations of the pre-tax and
post-tax balances attributed to net income (loss) from ongoing
operations for the three months ended March 31, 2023 and 2022 are
presented below in order to show the impact on the effective tax
rate:
($ in millions)
Pre-tax
Tax Expense (Benefit)
After-Tax
Effective Tax Rate
Three Months Ended March 31,
2023
Net income (loss) reported under GAAP
$
(0.7
)
$
0.3
$
(1.0
)
(48.8
)%
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
0.1
—
0.1
(Gains) losses from sale of assets and
other
1.0
0.2
0.8
Net periodic benefit cost for the frozen
defined benefit pension plan in process of termination
3.4
0.8
2.6
Net income (loss) from ongoing
operations
$
3.8
$
1.3
$
2.5
34.2
%
Three Months Ended March 31,
2022
Net income (loss) reported under GAAP
$
17.2
$
0.8
$
16.4
4.5
%
(Gains) losses associated with plant
shutdowns, asset impairments and restructurings
—
—
—
(Gains) losses from sale of assets and
other
2.1
4.4
(2.3
)
Net periodic benefit cost for the frozen
defined benefit pension plan in process of termination
3.4
0.7
2.7
Net income (loss) from ongoing
operations
$
22.7
$
5.9
$
16.8
25.5
%
(f)
Net debt is calculated as follows:
March 31,
December 31,
(in millions)
2023
2022
Debt
$
155.0
$
137.0
Less: Cash and cash equivalents
15.0
19.2
Net debt
$
140.0
$
117.8
Net debt is not intended to represent total debt as defined by
GAAP. Net debt is utilized by management in evaluating the
Company’s financial leverage and equity valuation, and management
believes that investors also may find net debt to be helpful for
the same purposes.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230508005117/en/
Tredegar Corporation Neill Bellamy, 804-330-1211
neill.bellamy@tredegar.com
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