SWM Schweitzer-Mauduit International

Mark Chekanow Director of IR
Jeff Kramer CEO
Andy Wamser CFO
Steve Chercover D.A. Davidson
Chris McGinnis Sidoti and Company
Call transcript
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Welcome to SWM's Third Quarter 2019 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. now to is over the It Mr. to instructions] my turn pleasure floor [Operator Chekanow. begin. may you Sir,

Mark Chekanow

Thank morning. joining Josh. at SWM's you, Good XXXX SWM. investor director third-quarter Thank relations of you results. for earnings us discuss I'm to Mark Chekanow,

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

call presentation financial and Some release. operations. included measures the measures. non-GAAP otherwise, are financial these and Unless period the stated comparisons closest continuing metric financial prior this relate Reconciliations of appendix the year GAAP measures and in discussed earnings this are to are measures during operational of to the to

earnings on and I'll call Jeff. to presentation our the over now turn are of section the website, This relations the investor release available

Jeff Kramer

morning, several Good another of nearly year. everyone. our of XX% solid was growth last we quarter quarter adjusted reported Mark. by EPS increase of versus you, Thank It strong in both a of fronts, third highlighted $X.XX, on an Yesterday, profit quarter operating units.

growth the EP profit reductions than raw material operations more of lower posted and costs impact strong lower well, of combination cost price/mix input segment sales healthy costs, lower AMS's margin significant fixed The volumes. and with offsetting performance, expansion. growth, organic drove positive as

to of review more business $XXX us cash quarter, free million. I'll our XXXX in strong goal the delivered exceeding putting also below at segments year $XX million just for date detail. now our We flow

our where excluding key up results. led in to to continue filtration, X by transportation X%, XX% For drive in and profits Sales quarter the in of up XX% date. or steady impacts, year quarter was currency growth were and market the demand applications AMS, segment again

consumer portfolio finger with throughout some as for We another the of quarter some submarkets. saw Consistent specialty also XXXX, in and good construction results bandages growth demand both infrastructure lagged our and we've seen hospital in in softness products. medical, with our

fastest-growing was sales with our of this industries, core films digits. strong paint particularly protection double Within transportation growing quarter, aftermarket our

continue to We innovate high-value leverage momentum. this invest and category product in current to

in we've calls, highly strategic as our recent quarter the well line expansion demand. manufacturing fourth during advantage capabilities and facility giving discussed should Europe, ability global this on new of our In to installed capitalize investments increasing as in us in our capacity that area. the is competitive international this a Asian being year, increase product These

our like glass for markets and resistant lamination products applications continue to as add high-growth which products reinforced military also Relatedly, such glass areas rail, high-speed ballistic delivered in transportation growing other require value as windows.

space last efforts our business films The again the these our and filtration over positive. this adding internationalize outlook has has In water business by believe with and two to We led in dividends anchored remains consistent growth commercial gains capacity presence submarkets. our RO our years, sales our gains. paid double-digit in the filtration, production increasing

the innovation through commercial our our paper commercial to now paper we three quarter, AMS on RO and and manufactured addition AMS filtration customers an last our our is recently EP product for synergy allows excellent launched in devices, both This the our disclosed further industry, capability that own RO components segments. between assets Recall sold of of us this level. deepening relationships The offer the team. key filtration and

base. wallet by exceeds an the increase opportunity existing unmatched share offerings, our in and bundling quality levels coupled matches, customer material and and creates with capability our We competitors, cases, achieved across to believe our many other

suffice the believe We quarter. coming to during margin our say, margin expansion years. shortly, servicing have will Andy with sales in realized but the are product have to cover opportunity the performance customers we of begun and it this increase we ample pleased

is combination and expansion efficiencies, due of growth, costs. resin reductions cost to The a favorable

host In by to continue execute IT we enhance will which we many investments the systems addition, to making. business, on of be of a initiatives of supported performance the are

opportunities to organic tools. on a with XX% Even growth remain rollout segment focused These and sales business for intelligence the drive and margins initiatives several improvements, of ability Lean years. aggressive we are these next enhanced leverage efficiency additional our through Sigma Six key to operating over an our

up than offset were controls Segment the performance, quarter profits solid good manufacturing as somewhat quarter Moving costs. and soft engineered pulp sales to lower by X% in the more papers. was cost

themes for fundamental strategy price/mix the volumes consistent on profitability quarter providing as anticipated to positive our generally by XXXX offset an with during continue results of products. for focusing The the lower remain managing high-value we

exit planned volumes With low-margin volumes, heat-not-burn volume to nontobacco key regards recon continue lower overall of to sales. factors the and be including some the decline,

it's new which, rebound customers sometime lumpy this sales result launches, during fair with in could introductions, in I that sales. if that would fill have given expectations are these new an product on product are our say are -- While successful, heat-not-burn sales working pipeline with a initial XXXX. be these we new to emphasize, lagged to though, year, expected

factor this smoking and throughout trial on products line unchanged. innovative of adoption our affecting up to to was perking remains customers attrition other increasing XXXX. One our vaping results commitment third-quarter due Our U.S. product

these that ease products, Given the somewhat. to surrounding news pressure we recent expect

year-to-date however, slightly as share gains. inventories. customers In slightly attrition, are addition as and relationships, impact to higher We attrition, quality. market this rebalanced only a down testament outperformance believe our we to LIP strong service a result drawdown relative some their this saw our volumes also and of some inventory to customer We is know, that despite volumes LIP

cigar products. price/mix the small the for a momentum quarter, in continued in driver binder our positive and Regarding wrapper of business positive our X% was

the our following discussion performance, a conclude our To segment papers to line engineered important retirement. EP to recently think product key is announced moment to his it to Fievez, thank of continues a EP with Michel leader contributor high-value and I This profitability. bright take the spot be business

his tenure Michel He segment the multiple various SWM, instrumental overseen rollout and led over operations. the excellence has LIP initiatives profitability of in geographies, During the has operational been XX-year have in strong restructuring has paper our of at supported that years. success

forward to for thank market his initiatives has He business customers our sustained large the with that around numerous charted partnered in growth have strategy contributions. our SWM's set that have and relationships Michel success. long-term resulted foster a We leadership has up continued for collaborative

industry will global who from January same Ahlstrom, SWM join At Hoek the diversified veteran, a a time, we in papers proven leader. specialty Omar welcome

to full date a confidence have going the already provide We will of in component to our in leadership which with EP strong that particularly forward, continue Omar, the upon leadership innovation, of be valuable strategy. build and areas commercial fundamental EP and working place, development success

Andy I'll financial the over call results our now turn detail. to to discuss in more

Andy Wamser

Thank quarter third our impact were to our strong adjusted $XX.X you, operating and foreign XX% Jeff. increased million, AMS, basis third XXX operating currency. compares negative margin favorably when margins by XX.X%, have and to expansion X% pressured to costs. last adjusted of year increased put sales with Starting performance higher without Margin quarter very million. a of profit results $XXX been from very points would the X% up Sales at

with the coupled of gains. structure growth, sales organic costs drove polypropylene softening benefit improved resin an fixed and cost the Strong

however, levels million, Regarding and net favorable were to expected prior-year $XXX near X% impact sales engineered down have remain were prices polypropylene, The market excluding down stabilized negative to term. are the X%, the currency. to foreign in segment from papers

up was profit to operating adjusted X% million. however, importantly, More $XX.X

X% the of Positive a volume of price/mix the offset partial provided to quarter. XX% decline in

And shed We U.S. referenced, smoking weathered of and attrition in to inventory by customers. nontobacco as we impact higher paper the continue lower some drawdowns Jeff margin certain volumes. the

impacts our Strong with and all margin plants, lower the mix performance manufacturing and costs points movements positive within wood basis cost pulp to of price expansion manufacturing to XX.X%. of contributed along XXX controls the

when is our last wood costs noted we year-over-year declines in a quarter, lag in from pulp P&L. are the realized As there

and we pricing, seeing pressures labor seeing expect of current Outside given that in pulp, term. are the and are near inflationary we year-over-year cost some We the with of wood to costs. benefit energy however, now favorability, continue pockets of

increased quarter. various Other third expenses quarter. rising from The year, component XX for stem to last in expenses to the projects versus increase last the of million last investments unallocated to year's increase fees expenses corporate contributed biggest and for versus higher year. consulting Corporate the IT compared deferred compensation some also

driven their year-over-year quarter and ago expenses they our are the of compensation comparisons, the current deferred stock relative with quarter. between year and movement by the reminder, a As

at up million. the the without annualizes On And the expense, excluding unallocated but net our IT up cost were investments was and For of Adjusted we system mentioned profit down sales when $XX.X about some $XX.X X%, year. flat impact currency. perspective, to million, the compensation of includes this a XX bucket in beginning million, XXXX adjusted XX%, operating EBITDA XX%. basis, consolidated essentially was deferred

consolidated to Shifting earnings.

$X.XX writedown quarter benefits versus prior and year. year reform of The contingent $X.XX the last of $X.XX comparison EPS liability. in driven U.S. a share largely to Third GAAP tax per XXXX was that was the by one-time related

XX% for remainder from costs are Adjusted our versus $X.XX to benefits restructuring accounting ago. quarter modest purchase $X.XX mainly and year noncash reduce in was tax of in our EP third some excluded the typical EPS. The up expenses adjustments to non-GAAP AMS, EPS to activities a relate that adjusted

well This a our debt was expenses, from strong by as tax operating was growth both increasing higher higher financing. rate, segments XXXX in mainly slightly and partially offset of favorable result interest profit which unallocated third-quarter expense a as

prior our year-to-date EPS in of Excluding year. down the our bringing impact the from our XX.X%, rate slightly the both quarter XX.X%, third to embedded adjusted was non-GAAP tax rate adjustments,

consistent puts guidance, and range expenses. -- deferred our of the takes. higher higher year, a we've euro, share. of our $X with guided to weaker-than-expected costs With respect Throughout to on seen from per favorability earnings raw U.S. areas compensation attrition in $X.XX material remain fairly offsets $X.XX and we With the smoking and comfortable

to flow Moving $XX and XXXX date leverage. very to free cash flow was at strong cash Year million.

some million cash the the pulled quarter, fourth guidance in strong approximately carry to have little CapEx over we of year. our forward, XX have full quarter typically XX to XXXX. than we range, million more million expect goal we'll free those but flow Given to may some our million believe the during been $XX cash exceed which and for annualizes of of comfortably XXX investments date, planned which flows we a into year of below X was

the X.X as down steadily to expected From times end quarter. down leverage from debt is credit This third cash. generate of tick we adjusted for EBITDA the perspective, a terms net times were is from to and facility, at X.X our at midyear of the we

Jeff. to back Now

Jeff Kramer

highlighted quarter, solid So operating in it another EP. by putting together, to we were pleased and AMS profit all growth deliver both

vision supporting a which flow We combination high profit executing and and bottom and on we are for strong in steady powerful our capable line of consider stability top cash AMS, in growth. enterprise growth EP

Our new capacity expansions improve our the leverage continue from M&A strategic across themselves. balance cost the quarter tracking as and efforts right sheet, we to liquidity pressing planned, and we year-to-date lower present commercialization IT performance our growth upgrades. forward initiatives our continue and comfortable when several ranging to position on business, ensure reduction are and opportunities product to Financially, pushing

line Josh, In commitments to And the and please appreciate that We positioning remarks. on questions. profit on the and financial concludes our for the company focused interest meantime, shareholders sustainable open support. are our continued we your growth. for delivering our


[Operator Steve first D.A. from comes instructions] Our Chercover with Davidson. question

You with your question. proceed may

Steve Chercover

everyone. morning good Thanks,

to now So couple first help I of are you is all, the with of acquisitions things? shopping, in the down there presumably, valuations? and just position a to go can mean, a you're pipeline times, potential of a X.X leverage with us how

Jeff Kramer

-- Steve, clear. been So we're mean, always pretty we've I

always We to that technologies looking we're process, markets disciplined or approach that M&A potential add-ons have putting our in. complement the we're a and very for

certainly So our Valuations pipeline cheap around not robust continues fairly in be that. to respect. are that

the the opportunities like dry markets powder future, have for we see right and that in we opportunity to for the that available matches But us. that

Steve Chercover

on us for remind to might you don't $XX you have dislocations. And month memory, can of then repo sorry sure ago act your have that was only if a that And I to would because what aggressively kind I'm sense make much. it -- as figured reason. no I authorized it such stock Okay. photographic went

Andy Wamser

now of saying, don't Yes, for good successfully think been sure consistent labor delevered make share conwed of growth we the which some capital done this how sheet, that seeing of repurchase. conwed now where this that have time, But now and year. you're the at pretty after transaction, anything AMS have terms business, terms it's balance the of we think about which a some We've wanted authorized in with of we to integrated fruits question. the in I we the we the

talk it's leave about. -- it right So priority it's just at certainly I'll and highest now, But capital that. something we not of the

Steve Chercover

And pretty But I housekeeping. to point, a you of capital. good opportunity, would I own delevering? didn't have for I in wasn't I astonished be I'd mean, pretty a I your and it good your good job you that that reason guess, value use have mean, intrinsic a call good it, fall assume as a compelling idea $XX of done if no

Jeff Kramer

And right go about basis, -- where, terms No, would it's the I a we've always and how of focused the an deprioritized. million. return. to -- -- we heavily But potential the dividend at is good look balance on back $XX But to delever. just using just capital repurchase. right now, the over cash It's just been annualized but be point it's the will share think we of -- now, flow it's free in of certain on would

Steve Chercover

just wee And then changing gears bit. Okay. a

to the but on anything call, Forgive get forward into took QX. sales to got long pulled heard that a haven't suggest me, I time I

fairly So of at guidance that be you that year? fair say pulp high willing that's to you should the all? and accurate at end And the remains if if tighten wood at your is the benign, it you of beginning are issued to that

Andy Wamser

of in terms of have -- we we very the it's of I just a we lot terms in the fourth lot December. higher with comfortable still and volatility into gave of the Yes. look chance at feel in we a could markets. the quarter, think or be We but with of -- November, I end uncertainty mean, $X.XX. to that midpoint, a the there's the fair $X.XX the do guidance Sure, as for there's the

going And and filling you some know don't to inventory how be customers of are pipeline. their your their

say, So month, us. volatile big is in for pretty December I general, can the that have a would and swing

Steve Chercover

to kind or better want model, whether looking worse? you is Because any be been and of? do we aware at of of remind And XX-XX, your should us QX seasonality that I've it's

Andy Wamser

expect keep a was Yes. benefit the that somewhat would would above this fourth What I say which mind or last of to this is an year. I think we other year, for quarter impact where be thing but is least at we were last to in be comp year there will year, deferred

So expense keep that mind. unallocated in

Jeff Kramer

seasonality going comment your fourth think, Steve, question the quarter. I of about, do that, to Andy's we around. understand back the And

us Sometimes the hard fourth quarter is for to predict.

So some inventory might fourth move they quarter. big have company and the very sometimes customers, we into

just is a bit an you bit uncertain. that's think to is December next pretty on hear strong XX% it quarters will seems I much. January predictions they can I the of And fourth the little seasonality And until what why And it Sometimes year. delay uncertainty and can illustration swing a be said you've that's of think bad, about XX% making be it. that little good, sometimes of

Steve Chercover

if I to that pretty similar QX Andy's 'XX, But then feel good. heard I it's Okay. of comment

Andy Wamser

Yes, that's fair.

Steve Chercover

Okay. Thank you.


with question Chris [Operator from instructions] next Our & Sidoti comes Company. McGinnis

may your You proceed question. with

Chris McGinnis

thanks Good my questions. taking morning, for

that. Just to bit should kind on be guess, reiteration the just I tougher a around guidance up, this comp. little deferred keep QX morning. The of and the

point this of just about maybe to modeling thinking talk keep what at guidance Can out the there? continue you you're to

Andy Wamser


that the talking and set the line. OP go we and level puts about for talk this terms of So the of can in some below then fourth an basis, on maybe quarter takes

the would in an the the slightly OP quarters. the we at some lower on quarter last be of we that rate trued an So What three were had expect had where above quarter keep benefits year. from for would as mind we I fourth fourth is basis, or we to tax artificially first up

We $X.XX JVs. also our had benefit of from about the

So we that quarter. third got of some the in

there be a from of pats up basis OP So more because slightly of on the then line in EPS I'd when headwind. last bit bit year. the an a it with could say of aggregate, JVs, you the below will think of a and But little items, be some little

of the EPS because of to So probably in -- just be terms line just clear, slightly could below items. OP be down

Chris McGinnis

Okay. stock negative be comp, just that deferred I the And into with versus decline price should last given it a just, where QX, just guess, in going the year now? is

Andy Wamser

million Yes. comp I mean, -- for quarter. year, of year yes, last benefit under about fourth the X last deferred just was the the

bucket. -- If out rate about would you million. our unallocated deferred would be for it strip the think run comp year, about impact this we our If XX of

year, a that's and characterize unallocated the gives in because the I'd price. was is low had terms artificially And back kind to volatility go year. closer just way the Last the you -- few in quarter bit particularly the it little maybe downside, impact The in of kind to to of modeling XX of of that it million. a share sense future. fourth this the was So like of for million 'XX, then we've the

level So implementation, XX was through the this to a it's we're IT forward, because see that going it, probably 'XX when certain of set million. about about, going net-net, increase and largely talked the ERP some we've reason the upgrading investments And of why year in of kind you systems. you

biggest the So -- why impact in of deferred unallocated your up. is but the bucket, terms driver that's been of comp, excluding

Chris McGinnis

a of maybe I see trend you that. press back Or take Are QX? benefits in just to would cigarettes. volumes just the to helpful. there impact starting from some negative better Maybe you? how that e-cigarettes. appreciate on, the was moving long the kind Very If with around to positive any

Andy Wamser


flow completely that. quickly together other. or hard very make around to a It's the about tied it's one things way think that how assessment like I not

say that too system. -- would say I through to it's make if the But hard me dramatic run a ask hard recent It's to news So soon the quickly if you right to increase could is how say. now.

Chris McGinnis

on missed Can Fair did came from? some the leverage it cost enough. may have you just as just margin you I also, where about I go you the know sounds well. AMS improvement talk touched buckets savings, in through but you. I but you some segment. -- in the if improvement know like it, can just Thank the this, there's

Andy Wamser


of it's A from improvement coming of improved be So third buckets. to really if say, terms margin, the I'd growth, of few third benefits it of we which think A operating the improvement was just AMS really of SG&A of a had cost it excluding And then say, with, impact in gone would the the was consolidation efforts input a -- the I'd controls about third about a the sales and do plant cost really about the costs. through. – we've think X%, foreign about that better third currency. in

Chris McGinnis

Okay. the performing question, maybe you're market Can And just from these then the year, end any end AMS. just demand of markets around you of end versus the changes we thinking maybe the out the markets within last weaker any about finish remainder year? kind stronger when of -- as

Andy Wamser

was a for thing basis, for the add, would On The mind I mean, revenue fourth the year X%. materially. up quarter I in quarter, would up Sure. AMS keep that were I just they last only fourth

with of some it, some a products. comps will to transportation call there degree I'll So our, tough be

said think year same this last But in the what to and really categories year. true are I we aggregate, holding

products So and pretty where of portfolio. the filtration leading been, a that it's with consistent way the it's lot sort been of really transportation

Chris McGinnis

luck good QX. and Thanks in

Andy Wamser

Great. Thanks.


for turn at Kramer over call like questions further any to time. I now showing would this further not I'm back any remarks. the Dr. to And

Jeff Kramer

call had your to is that thank quarter. thank to talked the support We're I third and through we've these and I again, themes on continue Well, going consistent for all the We solid in that focus QX. on year. throughout forward look delivering in about, a you to coming calls. the And you, hopefully,


today's and concludes gentlemen. call. participating. This for conference Thank Thank you, ladies you

You may now disconnect.