Polymer Group gross profit up 8.5% for Q3

06 Nov '08

6 min read

For the nine months ended September 27, 2008, sales were $865.7 million, up $71.4 million, or 9.0%, from the same period in 2007. Net sales improved in the Nonwovens segment over comparable 2007 results by 9.8%, and net sales in fiscal 2008 in the Oriented Polymers segment increased 4.7% from 2007 results. The primary driver of increased sales was price increases resulting from the pass-through of higher raw material costs.

Net volume in the Nonwovens segment declined $7.1 million compared to the prior year period due primarily to declines in the U.S. and Europe from underperforming business lines that were exited. These volume declines were partially offset by volume growth in Asia and Latin America.

The increases in the developing regions consisted of hygiene sales in Latin America, including sales generated by the company's new facility in Argentina, and growth in Asia that was predominantly driven by year-over-year growth in medical sales. The Oriented Polymers segment increased sales by $6.0 million from the nine-month period of fiscal 2007 primarily as a result of higher selling prices, partially offset by lower sales volumes.

Gross profit was $131.8 million compared to $130.0 million the prior year, primarily reflecting the impact of raw material costs that have increased significantly in recent periods and manufacturing inefficiencies associated with new line and new product start-ups during the year, and offset by lower depreciation charges resulting from impairments recognized in 2007 and other manufacturing gains.

SG&A costs for the first nine months were up 10.3% compared to the same period in the prior year. $4.2 million of the $8.5 million increase was due to translation of costs incurred outside of the U.S. in strengthening foreign currencies. Additionally, freight and distribution costs, primarily incurred in Latin America, were up $2.2 million and management separation costs of $1.6 million also contributed to higher year-over-year expenses. Special charges were $4.8 million for the first nine months of 2008, compared to $30.2 million the prior year.

Net income for the first nine months of 2008 amounted to $7.2 million, or $0.37 per share, compared to a loss of $19.4 million, or $1.00 per share, for the first nine months of 2007.

PGI's chief executive officer, Veronica (Ronee) M. Hagen, stated, "Our performance in the third quarter was overshadowed by the extreme fluctuations in the raw material market. However, underlying volume demand was stable during the quarter in the disposable nonwovens applications, reflecting PGI's more defensive model in a turbulent economic environment."

"We continued to achieve growth in our developing regions of Latin American and Asia, despite a challenging market environment in South America. Our proprietary Spinlace line was running at full capacity during the quarter and we began rolling the product out in our converted wipesbusiness both in the U.S. and Europe. While we began to experience some softening in the durable goods applications in the industrial markets, certain product applications contributed offsetting volume gains during the quarter."

"Beginning in September, we have experienced a dramatic drop in raw material costs that we expect to continue through the remainder of the year. As such, we expect to end the year with a very strong fourth quarter with higher margins and bottom line profitability, producing an improved second half of 2008 compared to the first half," Hagen said.

The company continued to manage the balance sheet and investments relative to cash flows during the quarter. For the first nine months, cash flows from operations increased 33.4% to $34.4 million compared to $25.8 million for the first nine months of 2007. Capital expenditures for the quarter were $7.5 million compared to $26.1 million in the third quarter of 2007 and were $28.4 million for the first nine months of 2008 compared to $46.4 million for the same period the prior year.

Operating working capital, defined as accounts receivable plus inventories less trade accounts payable and accrued liabilities, decreased to $135.8 million and represented 11.2% of annualized sales compared to 12.8% of annualized sales for the third quarter of 2007 and 12.2% of annualized sales at the end of the second quarter. The company reduced debt during the quarter to $416.5 million compared to $427.0 million at the end of the 2007 fiscal year.

Polymer Group Inc

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