Tredegar (TG)

Management Discussion

• Sales in the second quarter of 2022 increased by $63.2 million compared with the second quarter of 2021. Net sales (sales less freight) in Aluminum Extrusions increased $51.0 million, primarily due to an increase in average selling prices to cover significantly higher aluminum raw material costs and higher operating costs. Net sales were flat in PE Films. Net sales in Flexible Packaging Films increased $8.2 million, primarily due to higher sales volume and higher selling prices from the pass-through of higher resin costs. For more information on net sales and volume, see the Segment Operations Review below.
• Other income decreased $6.9 million in the second quarter of 2022 compared to the second quarter of 2021, primarily due to a 2021 gain of $8.5 million associated with a one-time tax credit in Brazil for unemployment/social security insurance non-income taxes resulting from a favorable decision by Brazil's Supreme Court regarding the calculation of such tax, partially offset by a gain realized during the three months ended June 30, 2022 related to additional cash consideration of $1.4 million received in connection with the Company's sale of its investment interests in kaleo, Inc. ("kaléo") due to customary post-closing adjustments. See Note 5 for additional information.
• Consolidated gross profit (sales minus cost of goods sold and freight) as a percentage of sales (gross profit margin) was 16.5% in the second quarter of 2022 compared to 21.5% in the second quarter of 2021. The gross profit margin in Aluminum Extrusions decreased primarily due to higher labor and employee-related costs, lower labor productivity, higher supply expense, higher utility costs, and higher freight rates. Additionally, 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 higher prices in a quickly changing commodity pricing environment, resulted in a charge in the second quarter of 2022 versus a benefit in the second quarter of 2021. The gross profit margin in PE Films decreased primarily due to lower Surface Protection contribution margin related to previously disclosed customer product transitions and pricing pressures for products unrelated to the customer product transitions, partially offset by higher contribution margin related to non-transitioning products. The gross profit margin in Flexible Packaging Films decreased primarily due to higher raw material costs, higher fixed and variable costs, partially offset by higher selling prices from the pass-through of higher resin costs, higher sales volume, and favorable product mix.