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SWM Schweitzer-Mauduit International

Participants
Mark Chekanow IR
Jeff Kramer CEO
Andrew Wamser CFO
Steve Chercover D.A. Davidson
Chris McGinnis Sidoti & Company
Call transcript
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Operator

Good morning, everyone. Thank you for standing by, and welcome to the SWM Second Quarter 2020 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. recorded be being later for is afternoon. this call and available will replay Today's it my is the And Instructions] [Operator now to speaker floor pleasure your today, Mr. over turn to Chekanow. Mark

Mark Chekanow

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

Form these Before included evolving the results duration extent call of response is by conference statements. Commission difficult Actual for in our may on results annual In business I'd materially actions comments including include quarterly in the to the factors in our XX-Q. to our and in you predict, remind to of are Form like begin, Securities particular, to number today's on we depends that and pandemic comments which impact from report uncertain differ the reasons, the and Exchange taken are it. the numerous a discussed including reports COVID-XX XX-K, and on detail which pandemic forward-looking filings, suggested which of scope more to continues

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

Jeff Kramer

everyone. Good Mark. morning, Thanks,

to products results. inspiring this our our are of to directly to the challenged essential health ability and manufacture a call is delivering They team for quarter's to their customers' the positive an environment, earnings exemplary. commitment now new employees today's to to hearty are and is dedication normal coworker's responsible thank it is Their global COVID important open As you SWM. all with in

As first EP this well quarter challenging from epidemic. portfolio margin impacts was an was economic with given the to and a demonstrated performed quarter resilience experience said, that across global circumstances, its we from markets. many the the global good it very SWM that the performance expected, AMS fully With perspective as of

highlight New We that protocols made people's during New economic our it impacted entirely But to to results good state and teams strict the customers' These I safety products agile how has all we supply and short-term and requirements trust our show portfolio our our across have the the nearly remains to up from we why the by by tested shared all their thus effective production shifted distancing and previously SWM global support positive organic meet collaborated delivered. keep the difference, both dedication XXXX. The our robust. our were strong their and us our running feedback, line, COVID is flexibility. ability during began, and see to needs demonstrated with customers keep across service actions safe. far to our times. we our stay-at-home demonstrated reliability in theme been and implement service chain our cycle. social Returning made while logistics certainly us teams that global enabled closures global the our delivering believe cash judging all providers have in X-week of as have SWM's We result France challenging our such teams facilities able our chain place in customers' sites. a facility of rerouted while our reported to and over minimize Since manufacturing York people early across to disruptions efforts and Though did And we quarter while this about flow plant the these, restrictions, our epidemic capable levels growth not impact circumstances footprint and global as high. unaffected supply view. sites at inventories, And we longer am York hygiene were an shutdown to in are bottom increased pleased adjustments well. for a

positive a XXXX half first is with essentially last EPS adjusted of flat Our outcome. $X.XX year,

business. to the films Although site was $X.XX, second pressure on confined generally our near-term XX% closures pressure temporary the year-over-year the segment and quarter earnings to in transportation declined EP

Our COVID-related cost offsets focus input controls and on offered to partial favorable expense pressures.

in Importantly, $XX maintaining nearly headwinds while down us cash while flow pay free our the some our enabling million P&L debt quarter, dividend. to attractive strong, of the reflected was

focus growth So long-term a my remain we introductory performance balance finally close exit just positive We strong remarks. footing environment. with healthy this a SWM's on to to initiatives good financial strategic after to world. in was drive on cash flow and challenging continue we generation, sheet,

Moving to AMS.

declined basis, sales benefit performance an increased mainly good other markets. end in the including demand AMS, organic On For which driven by the sales masked XX%, acquisition. Tekra weak X%, from in transportation

Excluding transportation, only organic AMS segment X%. sales declined

across or to portfolio, the of coronavirus our which against are directly was used hospitals, protect are seeing in increased [Technical and during indirectly efforts the people multiple the in Difficulty] quarter, product again. occupancy. lines. Within with market traffic materials gains medical solid Many

for while make et products cetera, Our traditional strong growth, meltblown seeing bedding, are high other all packaging, instrument gowns, are very used NXX materials seeing to demand. masks specialty masks, medical face

offset business' Air of prevalent quarter the saw with due filtration products well, some growth but softness high demand manufacturing sales films also blades continued in both order experienced protect products more strong this gas with energy for and Our prices, by expected, were as to declined due in air during goods has and materials in increased, industrial used become used after well construction quality. the finger in water a was expect the frequent as overall to is turbine of as rig perform customers. air are weaker our the Industrial and unrelated filters low year, have reduced with wrestled months. equipment. consumer heavy share online applications limiting netting primarily the particularly delivery Water stronger also traditional more Recent for due Also second the filtration wind COVID-XX, in commercial start of in sales than packaging finally and in well filtration. environment. bandage product and continue. demand sales to our the XXXX. subsegment, green where to in performing contracted digits, excellent solutions medical residential investment to strong one to momentum counts to capabilities for gains of this slightly in as timing customers Filtration mid-single line process air changing indications protrusion category year. and we And larger slowed filtration slower construction to energy from half a of Infrastructure constrained very recent producers activity, oil

car be erosion funding hearing paint the improvements beneficiary. COVID-XX. shops stimulus infrastructure around still stay-at-home other Transportation the are limited would position well films dealerships. prime fallout in and We to Increasing place allocated leadership put If impacted orders to protection discussions us our blankets market of globe drive projects, and around nettings from remained was and control in to consumers' a end economic highway to body the help purchase the recovery. by most ability

While uptick of remains orders we this an expectation later indications our are cautious. hearing in near-term year,

to term opportunities remain within expand We market this bullish category. on have our longer not lost and our enthusiasm for the

transportation position such remains areas, windows in lamination in applications and as offsetting in positive softness. economic also innovations aerospace, general rail high-speed Our glass new product switchable are glass partially materials as

Though commercial medical offset to remain to Engineered paper contraction. strength closure a strong normal confident business by margin challenges that We in performance years. we excellent and were can another Tekra performance volumes the from acquisition destocking XX%, saw X% from inventory cost Switching limited and opportunities combination in execute and in temporary strong the our Ancram. the Apart case of by most by were are Papers. lower proceed profitability. some for Our sales in impact products, profit the to impacted We from in had LIP sales attrition, Tekra continues quarter site many against integration seeing coming this initial continued well. transportation. complementary

most full were after for has our While to ship able some and wrapper we capacity since sales been and inventories The for inventories to our third associated delayed in were contributing lost should mid-May segment Ancram profitability at nicely products, running in resume and reopening certain quarter. products service the system were and from runs and across hand on full or business our our production binder up depleted. site

state production York been results Our would binder are EP as more not materials these halt been business us did and positive have high New segment to force overall operations, in used have restrictions financial small cigar demand. wrapper that if in and

We the of also impacts inventory some destocking. saw

we half and up and quarter being year, in year volume Heat-not-burn to the of to customers react sales As the more for more some products of second with performance last anticipate in the this our an in choppiness second more again inventories quarter, levels. to we doubled as are see XXXX quarter, than well differing performed pandemic. outlier period. mentioned the ways We be normalized expect

industry to support its this from the flows customers growing small Andy. new and stable around component turn and highly provides We large with Overall, products high over the that, the profits time. by steadiness I'll cash partner but call in remains generally COVID-XX unaffected during perspective, continue this to our our application. to on developing overall With their world launches a of uncertain

Andrew Wamser

were generate while to decline X%. you, transportation million The to quarter, declined AMS million able the the films, the but of and products. year-over-year Jeff. $XX sales in skewed a remainder in by $X.X the operating sales segments, million Tekra was decline with of the attributed quarter. transportation in sales excluding in decline Beginning was AMS the $XX.X X% Tekra XX% contributed Thank profit the decrease of portfolio was organic aftermarket acquisition. increased our higher-margin only down in adjusted

to XXX margin XX% points As a sales XX% Jeff or was result, basis detailed. for operating segment ex-currency adjusted decreased reasons EP XX.X%. the down

sizable a EP extended shutdown the price/mix at and Ancram, metric. the York a impact in years, impact had facility on been has for this consistently While to positive recent segment margins theme New negative our sales

we us, quarter, positive All is basis declined more quarters. to profit XXX to operating reduction million EP This movements. points the closure actually currency volume continue increasing favorable to and XX%. trends With impressive this or an combination disruption performance papers, stable, see in running behind factors, forward was up for adjusted positive that input cost adjusted told, good margins now price/mix coming activities, of despite costs we solid only LIP all in lower of of sites EP. and going with $X However, expect margin pulp a the operating cost including X%, expansion from and expect wood margin generally the our

Tekra trend full transaction any to sales year. comparison expenses However, $XX.X with fourth mid-$XX fees, current profit impact. disruptions key result including XX%, the cost likely or EBITDA million. XX% sites the year, quarter basis, unallocated adjusted in environment, The we $X.X million due the million. for Unallocated transaction the caveat fees with a On up favorable acquisition. and This timing the the higher coming year-to-date costs incurred Tekra million that unallocated $X.X last that up prolonged We of at toward respectively. timing in note But expect attributable associated were additional to increase. our IT a were increase X%, operating the given a still consolidated level on and the administrative of expenses a costs material decreased decreased more to could and production higher to costs drove basis, and entirely is

prior we GAAP I decline acquisition. operating for interest the higher from in Brazilian a lower months as economic impressive reflecting despite in share adjusted was Tekra EPS performance flat to Adjusted to of was of and given expenses an $X.XX. EPS, onetime first of the our to both year increase prior by $X.XX. on noncash that segments Second which again with The essentially our result a highlight increased was associated would quarter with $X.XX X EPS challenging the XXXX environment, year driven results, The debt backdrop. per operations. consider EPS adjusted expense due assessments the $X.XX profits tax XX% year decreased

XX up adjusted Our rate was versus year. in tax prior embedded EPS XX.X%, calculation basis points

increasing uncertainty financial COVID adjusted Regarding guidance, U.S., given to not guidance. the we've cases, in particularly around reinstate elected the EPS XXXX

cash in for flow our all Details financial to stakeholders $XXX our approaching accompanying that debt-to-adjusted our liquidity capital credit reduced $XXX increase we to of To expect million cash the business, no between at the to liquidity the release cash press of we the But parameters, slides. We have allocation assure million million demonstrate from with and remain EBITDA, which are nearly excess summarize, We on and first revolver. changes planned year. $XX in during and well position. We earnings strategy regarding during we the the strong, over XXXX to to want our the release solid with confidence available potentially have net our and X.Xx covenant due hand quarter the our debt further in are our again currently our Tekra stand year-end acquisition closed cash. by quarter. within flow

to our guided million million $XX annualizes $XX Our of range CapEx million. of nearly spend $XX below year-to-date initial

COVID-XX spend to markets, been delayed. projects end impacted certain and continue has where cases our We in have prudently,

assess with provide We balancing actively strategic are along in diligently invest continuing conservatism, and growth. our continue long-term opportunities projects to investment near-term to that

back Now Jeff. to

Jeff Kramer

In Andy. few I Thanks, our so far. a sum to closing, key highlights just up want year that reiterate

First, proud we to we did. the results are deliver

to test supply most impacts environment In told, passed ever met personal and our implementing from obstacles All our colors. end disruptions health believe experienced. have the to customers. quite procedures and demand the volatility, chain focus where I all business flying and company-wide communities, of well-being ranging many us measures pressing performed the safety well. SWM we rose with organization market while is minimizing an of primary the challenges We Our business and everyone's to

technologies Second, products, SWM's end markets and broad us well. and portfolio has of diversified served

many business insulated resilient. we is continue results, There of story profit generate and several totally not sales metrics, year's and half bottom at respect with line lines While our the EPS from last with stable takes COVID-XX-related free first adjusted pressures, and and cash is our to play XXXX and $X.XX are but robust even puts to flow. is

Third, when tremendous was in there the just impacts we the May, last were global coronavirus the reported and impact of beginning to earnings economy, uncertainty.

That remains. bullish please on seeing confident disruptions for abilities the our this books our of are order positive resolved our of We and corner the your remarks. concludes in line business, mitigate we appreciate several uncertainty While to team's That our and short-term term markets normalization, signs chain and turning said, longer Kirby, disruptions. in global support open interest. questions. areas remain supply being continued indications of we

Operator

Thank Steve Steve, you. line Your comes Instructions] first question is [Operator the line open. from your of Davidson. Chercover of now D.A.

Steven Chercover

please, facility? the but COVID, in Thanks. of special anything the like if a just or quantify, Ancram, France you to New to the it's I quarter, Can else Ancram, bigger didn't call know breadbox. model. as it out you a Maybe mean, impact I help York that item with associated us than appreciate

Jeffrey Kramer

Yes.

Okay.

several about Ancram. in than dollar look the million Ancram, when little at bit rather it probably the a France So impact just talking and talk both the overall I'll total. the we on in It's closing of about range

Steven Chercover

you it is beginning over. looks at pulp but rolling suspended the consistent guidance, expectations that Is with Okay. And your the of like then year?

Andrew Wamser

pulp I in reforecast balance mean, say with we little the year. stability, probably line that see I of first maybe generally what half. lower Yes. thought. the always But we It's a we the now would for in bit is

you if will. call So forecast, it's it, internal, our I'd in

Steven Chercover

had of negative? have closing surprises, so a you, think probably is any assess Thank any with whether challenge. cultural or to Okay. like other But the Tekra the enough face-to-face good pandemic don't you synergies, Andrew. unusual material you transaction positive Tekra don't or they I in a fit And then an change. identified middle gauge is

Jeffrey Kramer

yes. Well, Yes.

of couple a things. So

planned So we quicker on activities all we going target are had the and are in some actually cases that than integration thought.

have testing In interesting. smoothly. is some of growth And some really actually it's is I high to adjusting as pressure we've and right now terms that I that business been move cooperation cultural on a and this the that forward and the very between identify around some we very, cultural work things, planned. went fit, around things think synergies we the it's good. of costs, way very units fit, of mean, done

Steven Chercover

mean, business within was, and coronavirus, weak. on called it's we'll I then are it of any And was it's out and film, seeing you FIFO, it, Since China out Okay. shoots transportation, being most first the AMS, lucrative for automotive first business? your the core call mean, I in, in green

Jeff Kramer

and green some shoots, are cautious. We seeing we're so

the one by we're fastest-growing trends we actually during we've actually all But quarter regions new you us, gone actually surface we've If have hit. now quarter, can and brought imagine, global the that remain very is the is on that seeing market. last we in that through was, for transportation So I'd are are some fourth as orders our recall, China our installed third that cautious transportation starting was be, hitting around And line see positives a for of hit same quarter. first protection the come line, segment. to which, a qualifications to But the for are perhaps we positioning. positive and still

Steve Chercover

Okay. line China? Is Cool. that new in

Jeff Kramer

Yes. location. our It's in Suzhou

have we manufacturing world. around sites now the So

main in have in Massachusetts site and Greenfield in or the we now So UK Suzhou. Gilberdyke in it our

this very long are excited term. marketplace We about

Steve Chercover

your Okay. core filtration My question elements, where do have reprocess on is water, and think, last but industrial I are air. you

the all there? filters so we our I the opportunity And systems? can you HVAC mean, be upgrading in quantify should own

Jeff Kramer

yes. Well,

And going seeing filters you're replacing the they're quicker. through, the across board. they're replacing higher-grade they're from putting hearing people them you're air that filters So and or noticing, think side, I you're in

business. our that So for is filtration growth air the most of driving

Operator

of Company. comes Chris the question & line Sidoti McGinnis from Next Instructions] [Operator of

Chris McGinnis

coming an maybe maybe that and terms feel the that that's kind there strengths maybe you're out bit it, landscape, period? changed a in you you opportunity in wondering growth. of just to I and/or you're little go any was had how you this of the position when maybe better if, about and out And to grow competitive now execute like think of surprised the experience was pandemic on markets in in

Jeff Kramer

Yes.

a So things. couple of

in positive. expected across the strength I is in of on there. pleased, categories our was, of Our be though, within this. a medical, very imagine, think, was strength the big the like medical subsegments can breadth many in I something our to that And you

probably little where markets, The other initially you a our hear much than use is in hindsight, shopping surprised. shop-at-home applications industrial would little bit in the we as the about more be was would a marketplace types have the all stronger thought. probably of In strength that we films everybody's obvious, about staying but that our got home, was place where the one place surprised we and bit those were it of

Chris McGinnis

But half And a is guess I I strength the I on in guess kind of Ancram trends I and fell so come back just the just, year, the more off maybe benefited would do asked, for that to apologize. just, But business, of strong the you keep bit, just of I the the and have number, it if and on. again, guess EP. year? the in if for I to remainder a expect obviously, and France in back call apologize, is just margin that better inventory that destock this already very

Andrew Wamser

quarter, with may we comparable the that's it to as would margin a shutdowns, generally et third profile And what In in the quarter, that be early spread then fourth that we expect bit to be have just slightly with have little business lower. the seasonal I just we line Yes. roughly cetera. saw. Yes. the

Chris McGinnis

you back referenced? stronger just half the with was QX, I destock itself what I or guess the the anomaly that in an order the And or saw the that from business you of of kind year, inventory Okay. for think

Andrew Wamser

customers some it's interesting. we're demand what mean, lot I Well, is. of that, out with our figure talking a the to

those pull fourth world, inventory people destock or not We our see of forward is that you may customers And inventories some see for what year, but just-in-time quarter a in you'd the in did normal actually this sales stick year-end some as are lower do so I see to think a their adjusting having of balances. situation.

to EP as line I kind would fourth not did you So traditional chains for this relatively just quarter what for we in which look then all third be crystal with clear if have in adjusting have everyone the would that to expect quarter, we historically, supply is, operate. and But be the pattern we a frank, [indiscernible] new is world. way just the where we we generally of the the say, their because as, would is there's in of would second drop-off quarter, it's

Jeff Kramer

Yes.

a add, just though. as high have demand. think, one I whole continues The Chris, to industry

the seeing impacts of demand not we're of So fall because in off any COVID.

contraction less the little there's U.S. been fact, In have probably markets previously. been a in than

steady So marketplace a it's been overall.

you as the and is. see back they it hand on to what inventories their might some forth still very normally bouncing with overall not. and what marketplace people are and quarters remains So have wrestling on to But want similar

Operator

further questions Presenters, there [Operator And no are may you continue. at this Instructions] time.

Jeff Kramer

All right.

guess just the close again on to want This I everyone I is community. to call. I'll Jeff. to joining I want for team. So Tremendous thank this job, actually SWM again us close.

accomplish, Thank things you terrific were and able proud we're a did have that I'm you. to you. to of very You lucky job. the

Operator

Thank This call. everyone today's participated. you so concludes and much to to conference our presenters

disconnect. day. Have You may great now a