Schweitzer-Mauduit International, Inc. (SWM)

SWM 
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Schweitzer-Mauduit International (SWM)

Q1 2013 Earnings Call

May 09, 2013 8:30 am ET

Executives

Mark A. Spears - Principal Accounting Officer and Corporate Controller

Frédéric P. Villoutreix - Executive Chairman and Chief Executive Officer

Jeffrey A. Cook - Chief Financial Officer, Executive Vice President and Treasurer

Analysts

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Ann H. Gurkin - Davenport & Company, LLC, Research Division

Presentation

Operator

Welcome to SWM's First Quarter 2013 Earnings Conference Call. Hosting the call today from SWM is Frédéric Villoutreix, Chief Executive Officer. He is joined by Jeff Cook, Executive Vice President, Chief Financial Officer and Treasurer; and Mark Spears, Corporate Controller. Today's call is being recorded and will be available for replay beginning at noon, Eastern Standard Time. The dial in for the replay is 1 (800) 585-8367, and enter pin number 37230552. [Operator Instructions]

It is now my pleasure to turn the floor over to Mr. Spears. Sir, you may begin.

Mark A. Spears

Thank you, Lori. Good morning. I'm Mark Spears, Corporate Controller at SWM. Thank you for joining us today to discuss SWM's First Quarter 2013 Earnings Results. On today's call, Frédéric will share some high-level comments about our first quarter performance and priorities. Jeff will then take you through a more detailed review of our financial results and guidance. We will then take your questions.

Before we begin, I would like to remind you that the comments included in today's conference call constitute forward-looking statements. Actual results may differ materially from the results suggested by these comments for a number of reasons, which are discussed in more detail in the company's Securities and Exchange Commission filings, including our annual report on Form 10-K.

Certain financial measures discussed during this call exclude restructuring and impairment expenses and are, therefore, non-GAAP financial measures.

I will now turn the call over to Frédéric.

Frédéric P. Villoutreix

Thank you, Mark, and good morning, everyone. Late yesterday, we released our first quarter earnings and we'll discuss results in the next several slides.

As shown on Slide 4, we have solid first quarter earnings. As expected, our top line was level with the prior year, as a 10% increase in LIP volumes offset a decline in reconstituted tobacco sales. As you may remember, the first quarter of 2012 was an exceptionally strong quarter for RTL and the first quarter 2013 was also impacted by the timing of certain shipments.

Adjusted earnings per share from continuing operations of $1.01 came in slightly above our expectations, driven by the favorable impact of foreign currency exchange rates and lower nonmanufacturing expenses. Although foreign currency exchange rates remain a key variable, we may slightly exceed our total year 2013 earnings guidance of $3.70 if we can retain the benefits included in our first quarter results.

Cash generation also remained strong in the first quarter and we are now in a net cash position of $19.2 million dollars as opposed to a net-debt position of $62.2 million 1 year ago. This strong performance includes the impact of a fourfold increase in our quarterly dividend rates beginning with the third quarter of 2012 dividend.

Looking ahead, we are confident of our overall 2013 business plan. We are realizing solid earnings improvements from our operational excellence program and the restructuring actions taken in the past year. And we continue to expect this would be an important element of our 2013 adjusted earnings per share growth over 2012.

Foreign currency exchange rates remain a key valuable for us and we are seeing some headwinds on rising pulp prices. In addition, first quarter sales weakness, noted by some of our customers, is a concern for future quarters, especially in Western Europe. It did not appear to affect us in this first quarter, however, we are watching incoming order levels very closely.

Moving to operational trends on Slide 5. LIP volumes increased by 10% over the prior year, as we were in a buildup mode during the first quarter of 2012. Nonetheless, first quarter volumes are very solid and our market position remains strong. As I indicated previously, RTL volumes decreased by 9% from an unusually strong first quarter 2012. In addition, order timing was a factor, especially in our wrapper and binder mill in Ancram, New York. Construction activities of our plant in China are moving along very well, with the expectation to reignite our share volume growth beginning in 2014.

With respect to cost optimization, we have continually improved our track record of eliminating cost from the business, and the first quarter was no exception. Year-over-year, cost benefits from our values Lean Six Sigma efforts and restructuring actions provided approximately $5 million of cost improvements, especially in the paper segment.

Our success in these efforts are to offset the negative impact on higher pulp prices, as well as some mix issues in our base paper business. We have worked hard to generate strong cost savings to offset inflationary and pricing pressures, and this remains our focus on the long run.

Lastly, currency volatility favorably impacted our results, especially the weaker real in Brazil. Jeff will talk more about this later in the call.

As I discussed in our last earning call during February, SWM is focused on a very clear growth strategy. We have continued to develop our plans and actions around the strategy and will provide updates from time to time on key initiatives and events. Although our growth plans anticipate expansion into nontobacco areas, it is important to note that SWM remains committed to serving our tobacco customers with the same high level of quality and innovative products as we always have.

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