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SWM Schweitzer-Mauduit International

Participants
Mark Chekanow Director of Investor Relations
Jeff Kramer Chief Executive Officer
Andy Wamser Chief Financial Officer
Dan Jacome Sidoti & Company
Kurt Yinger D.A. Davidson
Call transcript
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Operator

Welcome to SWM's First Quarter 2018 Earnings Conference Call. Hosting the call today from SWM is Dr. Jeff Kramer, Chief Executive Officer. He is joined by Andrew Wamser, Chief Financial Officer and Mark Chekanow, Director of Investor Relations. Today's call is being recorded and will be available for replay later this afternoon. participants will placed questions be presentation. all mode a following time floor and open this have in been listen-only the At for your Instructions] turn pleasure Mr. [Operator now over floor to to is It the my Chekanow. you Sir, begin. may

Mark Chekanow

Thank results. of Relations Director for us at Mark first SWM's you Investor to thank you, discuss Good And quarter Vitra. I'm joining Chekanow, morning, SWM. XXXX earnings

our materially today's Actual to which Report begin, Form you detail that number differ in I'd results quarterly Exchange included Annual and statements. forward-looking like a remind our filings the in by conference we are on suggested include reports including Before comments call for and more results these our XX-K. from may Form the on Commission Securities discussed comments in reasons of XX-Q

comparisons during stated financial Some measures closest the call this presentation the earnings over operations. financial the available measures financial turn and the of I call This now are relate earnings are metric Jeff. of GAAP these of release to presentation on to measures continuing appendix otherwise, discussed the will period prior this Relations Web and site and section Unless measures the our www.swmintl.com. operational reconciliations to are in included the to Investor non-cash and release. year

Jeff Kramer

versus a EBITDA, to up EPS $X.XX and sales, operating than to $XXX consolidated everyone. you, flow quarter adjusted free last to It Yesterday, XX% up year. the morning cash and sales good good start XX% up more with Thank results million Mark, we was profit, reported all with year first EPS a and share.

AMS on growth XXXX in operating stability and paper we fronts. on As we've both in delivered improved our relative organic our was business plan based sales and discussed

and and For throughout in to pressures, last short- organic Cash the the strong AMS EP flow growth was bottom-line project our free takeaways cash indicated lowest we of delivered our strong growth increases I'll lagged. organic across in gains the versus and XXXX. medical most expect performance Transportation, seasonally $XXX industrial improve we up sales solid which currency AMS by last filtration, bet term quarter X% on infrastructure and manufacturing with margin accelerated key top our significantly favorable portfolio. as driving sales in flow exceed while and in are and growth all million quarter, to offset showed call, we construction year. year,

high a our issue Transportation on start short-term customers inventories paired fourth Going our We strong business to trend expected growth in and indicated of QX heels their impacting quarter. resumed year. the the detail, back into after back significantly that fact these a more soft growth sales bounced this results be mid-XXXX, a to delivered in Recall was that and results.

these comparisons consistently our the business, quarterly pleased may Filtration While had XX months past a for the XX as backlog market the healthy sales to films be we are supports order to AMS outlook. specialty rebound a positive water lumpy, hindered over filtration our growth. in role general see In

and beginning the XXXX the coming see returns the for upturn we in plan As of capacity East. as replenishment online anticipated, Middle cycle customers filter new

by liquid Construction the business, by in winter northern of across saw and semiconductor conditions were Infrastructure extended the during in most first mainly where growth quarter. country We severe our filtration solvents In gains products our driven and of production. in continued the manufacturing also chip filtered we process affected parts used

the end blankets put socks many excuse, erosion of throughout is the an projects. to the use weather control of like these of market and as complete their unable so ability of bottom-line. believe sensitive our to installations be poor don't through sales perform experience this delay organic to flow users been sites. We portion recovered we a did year. highly impacts higher of to sales control remainder entire construction we conditions the the it Unfortunately, not at as have will While crews sediment Simply

our elevated P&L segment flush to endured anticipated, we incurred site Austin costs as several accounted this year. majority assets depreciation with cost higher exit a final later high the margin closer The cost get decline. plant closing through side for of related this inefficiencies As the on adjusted accelerated resulting incurred We typical the associated inventory, and a in to impacts.

expect from of rate these majority our the run costs we synergy offset target. later realize to million this year $XX which this we to However, closing annualize when facility,

resin The price and is and implemented increases response, is The elevated customers. mitigate is forecasted in our we higher intended remain prices to year polypropylene many up similar In which particularly we are recently to costs, higher resin announce issue second the increases increase seen will pressure. versus resin to cost the users price sales in last and the have and actions profitability by for are benefit large issues The result the our impact confidence a will offset margin anticipate momentum year. we actions. the Also of coming short-term it quarters better we despite our of these encouraged portion XXXX. will

internal key up our growth European solid, film up volume the progressing sales drove milestones start China segment later XX% Switching for due to well as largely in are the strategic non-tobacco year. of majority the facility is and Papers, running projects were we Currency in are line our Engineered quarter. the volume total stable. was was and Finally, new this first hitting to euro in increase up the as X% papers particularly results new tobacco quarter

versus growth healthy reported we margins, last year. segment Regarding

results XXXX have continue we quarter offsetting from monitor also with gains aside, the in inflationary well first a will pulp manufacturing perspective to costs. further comparisons pulp pressure, this response that prices productivity performed Favorable actions. related In and restarts. the selectively we were several issues line to quarter production and higher market to to suppressed raised due However, evaluate

last as initial commercial customer major At over up production sales up inventories. Regarding ramped that significantly time, and begun generate just were had year. our our strategic sales built we priorities, to heat-not-burn

expect preparing there product. and players. to is have earnings reflected begun major We has growth acknowledge in industry their on been reports customer that in growth continued who volatility the some quantities initial key of commercial launch to category second XXXX shifting regarding street a We

legal that innovative an an LIP a business been as see the remain changer consistent for I'd experience on a our will near-term. play rollout one-time attractive starts competitor. this is We stating of in secular $X.X more in resulting for phases and have a our to million heat-not-burn game rather but line in fits acceptance. long-term also the result is demand settlement and than We outlook our as and optimistic in in tobacco still the to this product highlight long-term of offset early positive it gains products declines related other from like some

where know While portfolio. our case, relatively signals and small, favorable XXXX. primary is received it ruling the We infringement this of late in our not a strength patent we defensibility

As update stated previously provide with turn positive are will to now. regard potential but to to now is we that no assessing the I outcomes there Andy. over case, call

Andy Wamser

growth XXXX. will sales acquired In quarter, million segment quarter pro Thank now $XXX performance. had XX% XXXX first our net increased with three was results organic of financial our mid-January starting review year. additional with primarily of was to the sales AMS forma first you, Jeff. The earlier operating of Conwed scheduled later X%. is market XXX as weeks closure Adjusted XX.X% driven contribution. plant of contraction the for sales Jeff million down this which points. profit inefficiencies Austin basis Conwed by with $XX.X detailed or I

anticipated the and are this process, the basis accelerated we part flown realizing account expenses than are that XXX product expenses P&L. more decline. incurring As These X/Xrds lower point the depreciation margin for beneficially manufactured of margins of through

impacted primary costs second XXX higher The more than points. by basis driver with which resin margins

recent Chinese resulted our XX depreciation acquired Conwed facility points. in equating addition to investments new In the basis in higher another and operations

customers XX% price beginning second were offset however, provide of X% annualized forward, these quarter costs the the synergies year Austin a higher in in in the will volume. short-term engineered we segment to up site the believe will an The closure paper Looking the sales on half net second exceed the and increase to pressures. resin from increases

movement the offset X% points $X.XX depreciation XX EPS currency XXXX had up and more card a from expenses accelerated On be adjusted was percent pro profit quarter X%, the points up favorable quarter, growth. to GAAP the currency. that XX% soft Conwed sales earnings, forma Adjusted up Conwed would but The which XX.X% declined operating new expansion. EPS to profit and X.X%. year. Foreign the a pro an contributed up and for prior up excluding provide The $X.XX note, a year net % EBITDA pulp were on exchange no impact consolidated rates approximately XX% performance costs. in to stronger X% the growth and million exceeding Adjusted representing consolidated provided first profits for up in $XX.X of EBITDA was due assets by year. was in assuming to higher primarily corporate depreciation basis basis, while Adjusted growth. forma XXX Shifting did but million XX basis as $XX.X ago benefit up half top-line margin the comparison increase X% SWM $X.XX unallocated was %. currency XX increased was operating to sales total and increased from operating second adjusted in of $X.XX to operating muted the operating hold Off margin on boost manufacturing

in was lower supported tax operating profits, from rate. EPS benefited also growth growth a by While we

our pension a of on The or previously measures. below net reflects release operations income those paper relating not related reflect vast expenses other line a our The portion the change change prior does down and from is segment. could as changes current impact translation first $X.XX take compared We primary accounting The discrete discuss impact change quarter its items. tax the U.S. we tax Our to positive to code. our higher rate rate a on and the about very I'd reclass with moved affect per rate last quarterly updated to moment and to tax investor quarterly results Web million We Due rate XXXX tax interpret we share in assess current as was the tax was and into the income this we the operating our and an continue first XXXX earnings guideline, this year and driver total in while laws. to for favorable had new be accounting like to when to estimate XXXX that to changes quarter have our for financials. to a EPS. period for now cautioned the on majority the recognized site XX.X% of XXXX. be there XX.X% variability basis was lower Currency new $X expenses. presentation

addition investors modified below income In and methodology, adjusted our plus other to D&A. essentially result JVs to profit calculation to and of typically we've the exclude we The which believe our expenses, EBITDA Conforming operating our equates assessing business. income. when calculate fall operating

million. liquidity, $XX will anticipate the million up EBITDA at pick down terms the a prior to from to the improvement substantial the were Moving but the debt guidance, From slightly from range of we with and which spending XXXX toward flow as CapEx year driven lower credit leverage $X income flow quarter first XXXX. quarter, adjusted end of free annualizes This our and cash the X.Xx well for year million CapEx. net was a anticipated at cash year-end about first higher in we facility, perspective progresses. our was quarter $XX by below

noted expected As deliver will generate expect previously move leverage EBITDA growth we our that ratio and absent as we in cash free we XXXX. acquisitions flow lower

Jeff. Now to back

Jeff Kramer

year. like taken quarters but Sales litigation price we've and delivery Margins see currency more the in quarter on closure. from the Clearly overall. AMS to up positive in in wrap tax both last coming particular AMS LIP actions site with success synergy growth strength versus were given of we improvement first projected good the and sales paper, we'd the bottom-line, To the to expect both small key we favorable drop the were profitability significant Andy. grew markets. Thanks in was segments in some claimed and

cost As growth our XXXX we've are on and consistently synergy supporting said, several plan we growth across the focusing businesses. executing initiatives

and our active is milestone. support. additional also M&A actions assessing strategic while long-term We will interest important growth. to not open pursuing our non-tobacco we Please support in appreciate your and XX% We an the concludes at opportunities, additional remarks. remain of questions. that It continue was destination line sales And continued

Operator

Sidoti Instructions] of Thank And comes you. our [Operator the question first from Dan line & Company. Jacome,

open. is line Your

Dan Jacome

me? hear you Good Can morning.

Jeff Kramer

Oh, yes.

Dan Jacome

Great. morning. Good

So of a questions. couple

that point see this how to to how the call I a water I'm First, segment if cycle, you bore AMS on curious expect up. the just filtration that you encouraged industry last Is to on we're long last. years. at do could business want or history picked now long so quarters this be this a this could forth something foresee inflection that based several an few and

Jeff Kramer

Yes.

water you osmosis as the need of freshwater. recall reverse business is the our So, for following increased megatrends

So reverse generally of by on bullish osmosis primary that and and typically growth year equipment and replenishment overall two is development we're positive is is segment new of One driven plants. the the typically cycle. And then, and large scale installation methods. a five installed

longer the been years and hoping so encouraged is it a we've any What and but had was discussing early the like starting with recent and know cycle. to think a it by things the announcement We of also the in delay replenishment a that well. deals can we're be last their of but cycle by osmosis to over We're really and cycle. little, than the been over can't replenishment to energy installed last be. tradeoff of able efficiency couple the see build that signing, cost as been plants. have longer the over from a it replenishment to that. to lot in seems encouraged And those East that. you cycle quarters been the between last for quarters picking probably have and in extend expanded people industrial reverse starting costs takes that plants see, are That's had we're replenishment I and of that plants Asia we It's several maintenance starting delay years cycle we're signs up. suppressed see signing It the I Middle energy there of to couple thought new to would forever, happening you are see we're these

this think that. the think of is just be long-term cycle So replenishment trend. to seems we the quarter It's We a picking up. positive first

want to little team I seeing. but is what a So, by they're encouraged be our bit cautious,

Dan Jacome

That right. helps. All Good.

what buckets On think further there. are that a you you little the noted sort strength detail the maybe upside? products medical Can I you medical, in of most some seeing and

Jeff Kramer

is materials the smaller general encouraged as was just a introduced the that The well. leader some to Yes. new see of strength for Bandit's rest saw market along in as division us of of products A of we them lot one by we in There category. came the marketplace up and growth we're that. we're well. that were and category our Finger what -- were It's supplying but couple some that profitable there a

Dan Jacome

mentioned crystal about know you I there 'XX back Last of in still is your look -- sight get queue. But line chatter I there any continues. in on a resin the 'XX? Okay. then Is may The inflationary. I'll costs commentary have next any industry in your year? you don't headwind like you what ball, mentioned one, they commentary but know

Jeff Kramer

Yes.

but in marketplace. be a try greatly. some 'XX to towards but in can to forecast bit lot trend. has some we're balance, to expecting first as spending might little to the of not So fall you seeing and still forecast future of quarter are downward two. believe on the changed the demand prices -- impact times start over had a the couple things there for we're expected of trying time are what trying that to happening I supply last end their understand will a imagine, We're we quarter or cautious be this the it beat we polypropylene We originally polypropylene that coming because expecting capacity

account really 'XX And also but pricing concentrating which think so elevated, for we prices we're means on to that. taken -- polypropylene we've remain will actions

Dan Jacome

Oh, capacity interesting. the -- America to resin else? be that expected that going Is market somewhere is in or North to

Jeff Kramer

you the closer to wrong the rather to person the I on speaking and probably experts. go polypropylene you to are give You would detail

Dan Jacome

Okay. Got you.

in I'll thanks. back the Great queue. Okay. get

Jeff Kramer

Thanks.

Operator

comes Thank from of you. Yinger next And D.A. our from question Kurt Davidson. line the

open. is Your line

Kurt Yinger

and Mark. morning, Andrew Good Jeff, Yes.

Jeff Kramer

Good morning.

Andy Wamser

morning. Good

Kurt Yinger

to and years. benefiting me benefits installations it bit off, it? starting seeing that Just the filtration, you're of more like replacement to return cycle then confident also you're about of the wanting I'm Is so to now a sort the maybe sounds way of water the about sort correct new think the out to

Jeff Kramer

Yes.

thought I I think cautious, be the characterize would earlier. we that's pick to we'd want up how you Again, my comments. just see

a see an time or But for our more they new replenishment to lot a see giving very quarters we again, go segment they us the imagine orders with us it the spending is picking through to increase team are as to the cycle or like up. sure we'd our plants is of important be in new tick. so So replenishment information you couple customers cycle orders seeing potential up really and desalinization and can that that encouraging. they're And says and find make

Kurt Yinger

can are then, with the the Okay, inflation which side increases seen? of products pulp price about the talk great. we've to you paper And on subject sort

Jeff Kramer

pricing expected Yes. what non-cigarette had had and It forecasted for it's pretty during board. any papers is would higher we our those originally even elevated products year cigarette we originally paper we're our across the that We even the seeing be of going pulp or expected. related paper prices up is materials pulp then

might not in that to occurred the only we're actions across China. related it's that experiencing think be ones I and it the industry some

look to we're So at continuing that.

performance we also were manufacturing of we're some We good excellence is, cost monitor situation. had -- and that us have pressures it continuing good seeing. operational the extensive selectively news we very that offset program, a have The to raised and helped we prices was

Kurt Yinger

ones. the mean you guys Yes. Okay. definitely I only aren't

Jeff Kramer

see I that. No.

Kurt Yinger

initial about you think with some prices certain price operate protect you small of on a some talk troll How the margins? feedback that and the markets sort increases bit understand, And do then, it really about you as significant shares. I where balancing that can raise AMS of ability to in can

Jeff Kramer

I is something to helps polypropylene pricing doesn't one elevated we're untoward. we Yes. in recognized think Two things, look I it's is, that the do that globally like trying It and discussions. think that's know

our price one And have the lot so value-added customers. our very play, commodity customers. Well, relationships player, a thing no we're a are of so a also in long We acceptance of and cost relationships for impact increases most with things good price seen we the increase. on importance so general not material likes stand. a same the the to understanding we've and It them where isn't based again of

Kurt Yinger

should pick that sort quarters on fees back we'd margin really And to several the the second in the immediate or quarter? next see of more in side it things to is where over Okay. start up

Jeff Kramer

first should to quarter. seeing We the in quarter increase whole the Yes. it it results. through second We flow but we're thing, you usually And start announced quarter. should our the in the it in that seeing see through second price delays get and

Kurt Yinger

then, sort time? can growth the at And you relative the the sort guidance of perhaps quarter to some there puts same strong your of and and year. sales own results but and expectations pressures margin takes talk Okay. with the Are about for the

Jeff Kramer

fairly closely caveat with we Actually quarter about Yes. I the of unfolded costs the both to sides expected house. the on resin think what

develop. the we're there taking and those I put know us. and we're we start when the through and taken flows our we operating actions actions the seeing And way together, synergies that that closure margin AMS didn't so, compression mean that the surprise to plan on were the we knew

pulp rise first the a to side, expect performance where really quarter where the costs, the them continued to expected was surprise. we the volumes It be. in were we On were which about paper the about be operating

the quarter So we're it. as plan pretty for on much we see first

Kurt Yinger

And two the facility ones. quick the some that Okay. maybe quarter quantify with then, associated transition? more hit cost Can you of the Texas

Andy Wamser

Sure.

XXX down new. AMS XXX when points about Austin margin we basis So to of compression, the points, basis about think went that you related is the

P&L. through that of statement, cost higher as going and in Jeff had his some So inventory then about running running the talked we through system the was through

So about this that we year. to as XXX then, it. talked of And expect basis that's we do points close later facility about,

And synergies our through so we're looking forward system. going to those

Kurt Yinger

lastly how from times a about can pipeline? M&A talk helpful. sheet you're Okay balance then, about levered sort the bit you Xx update and here And under any feeling

Andy Wamser

with leverage, from quarter. on Sure. net down adjusted first, basis, debt X.Xx did secure us a tick regard you tick to Balance down this sheet say I would Xx to to see

of Conwed getting a making sure value. a I business forecast integration our dividends, on but would -- has about to then that think it's of year. levered right With absent flow we're opportunities, any regard for for priority are we end free see continuing technology activity, at be we to our the that right right always year looking we'd and throughout the continue and the integrated and evaluate and M&A M&A activity market always this. the efficiencies that in balance in this part can always between our expect year, year the expectation things key the really but that cash say obviously sure and to the making obviously been is we it's particular Austin and think I all the the But, to is we as last new

would I are say So, active. we

Kurt Yinger

back I helpful. the in jump That's will Great. queue.

Operator

Thank this the to call back any now you. I over at for questions time. remarks. any not And Speakers, management like would I'm turn to showing

Jeff Kramer

support quarter. answer just we're so feel I happy and the getting again, questions want free solid summarize community to we additional from Thank have to out to So you. us you the any or appreciate investor had We all the first the contact comments report. in if a we're questions

Andy Wamser

Thank you.

Operator

does conference. today's disconnect. nice gentlemen, day. and Everyone for program conclude and you This you all in a Ladies have may the thank participating