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SWM Schweitzer-Mauduit International

Participants
Mark Chekanow Director, IR
Jeff Kramer CEO
Andrew Wamser CFO
Kurt Yinger D.A. Davidson
Chris McGinnis Sidoti & Company
Call transcript
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Operator

Welcome to SWM's Third 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. 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 Sheryl. at SWM's you, Good quarter SWM. Investor Director third Thank Relations of you earnings for XXXX us discuss I'm to results. Mark Chekanow,

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

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

Jeff Kramer

morning you, Thank good Mark, and everyone.

financial Board our teams responsible we forth. are reported the appreciation express again the continue to and to the incredible SWM yesterday. performance ones efforts like heartfelt global I'd results, our for discuss the delivering executives operating the and Directors we strong of put for They of Before the

other, a we all the other's excellence how the at to levels of adaptability are our and we any we our people. all year to with at of quarter. In our each new and overstate the during normal, safety cannot service operate all culture have to impressed to enterprise commitment I uninterrupted the to enabling of outstanding unlike adjust sites our As an incredible are resilience, customers, fortunate

quarter saw increased impacted fundamentals both improvements. AMS in-market quarter our XX% expansion, second while expectations the COVID-XX quarter profits operations, we key improving which both results the and in gains third Following markets. in trend and sales margin meaningfully as EPS Adjusted demand with segments. sequential saw in EP both higher saw exceeded

performance to diversified bring demonstrating results unusual growth adjusted environments. the positioned most economic even SWM's quarter year-to-date portfolio that strategically X%, to EPS strong. is growth of flow Third of materials deliver Cash is in

while improve. positioning remain we Our for growth. And on are the tackling further balance sheet focused we continues of also pandemic, challenges everyday the to SWM

increased a single of if X% XX% global previous from X% the a have achievement AMS, demonstrated given acquisition. organic AMS while benefit as performance the basis, with would For including from the Further, a sales segment film only declined the year-on-year, exclude sequential improvement sales in Tekra meaningful transportation improving. whole remarkable organic On impact shown our quarter the we a an this decline sales, the economy. end-market, overall

with most Our to films portfolio greatly effective but to paint due the continued COVID-XX trends. protection improving line the be product in

channel cause optimistic solid the pandemic end a on quarter of We will does and put are third fourth encouraged exiting XXXX, by the further that are the results sales not quarter assuming performance disruption. towards trajectory the us

end-market quarter. again the fastest first-half, medical to our in We the Consistent growing be the during in positive our continue longer term this marketplace. trends position very and leadership was with

due packaging, high due again market. turbine to face well for primarily bedding, many packaging COVID-XX we've to prevention, media blades disposable N-XX as wind in face indirect such driving products traffics of as and masks for as energy beneficiaries increased As expanding direct higher of meltblown demand demand green hospitals, noted, are sales either materials or of usage Industrial that our seeing masks. traditional support the

of virus sales trend was sequential upgrades declined the materials seeing the as to essentially had quality filtration was year, limit versus which in last units air quarter area filter the flat category Another improvement improve quality again higher to spread. filtration HVAC in quarter. and Air third corona but are led second products

leverage products the services. by offset been farm release. this another showed also energy to increasing segment. and while and press this energy in for to last We output here areas several and are wholly growth could construction turf performance where projects opportunity This And prices sector, year, low modest have our child to filtration new which water sub-unit on materials September demand cycle, of exposure solar was versus gas increase per energy upgrade Weaker solutions. from demand construction improvement. infrastructure The and higher supporting trends are to but filtration HVAC and impacted lower finish business showed stronger year. green attributable growing construction remained executing an construction. and remainder filtration for a indications for are to decline business continue our Process XXth a has benefiting represent of unit's a is focused such a was our as to little the the end oil choppy, Infrastructure customer

nearing integration acquisition, Regarding the final Tekra stages. its is

challenges strides new in-person on-boarding the with made of pleased we have activities, travel We the teams reduced progress. are quite limited and despite and great our

we synergy HR, market IT in more groundwork products. As are we conclude the and finance, sales, integration to advancing operations,

in long-term converting progress our with indoor other Papers, Recent more about in we places historical several versus very time opportunities excited increased months, X% people have given in home And favorable over segment during next access offices the our Engineered commercial or strong. Switching was XX these to and outside. part new rates technologies. gains due with Volumes to performance time quarter and trends LIP the Tekra more and areas advanced aim papers. share are to key decline initiatives. the at including spending coding less to We industry on been

our In portion levels. growth their thus small building products supply a customers our of plans portfolio, ongoing to XX-Q, well Heat-not-burn release have part re-assess world. on chain nearly we as this relatively partner contingency future quarter, continue New facility from far, attributable addition, chain volume related disruptions. Jersey part Also, in again with support a new as is supply inventories for our growing COVID-XX of of year, of announced the launches developing perform but to around they earnings our as XXXX their we have potential customers to the products and remains tripled our disclosed in and to optimization. the Spotswood, This closing our

the want that to different this professionals transition. With a As to site course comparable which on of key run a able customer we can customer very call plant. the cost innovative collaborate that decision. to appreciation assets, continued were SWM agreement on turn in true the continue a newly-signed over I we effort by paper Andy. that, to with high in express reducing meet a who've joint another This Spotswood I'll focus operating we from volumes provide that supported optimally technology is with more those needs to an industry, This the of the site but our to culminated facility. of service not been multi-year during ensuring under was will difficult supply customer strategic

Andrew Wamser

decline acquisition. but Tekra in down Tekra generated improvement contributed Thank increased of you, the profit X% $XX largely the remainder excluding trends million was in million after-market quarter. the transportation sales Jeff. the organic the by XX%, AMS quarter, X%. the films, Beginning sales with X%. portfolio decrease sales were declined in our sales driven in adjusted while segments, The a The mark the AMS second $XX quarter. up of sequential from only operating

the Tekra, that sequential In control profitability basis down XXX and in reported operating segment from note in margin quarter. the points from also to from initiatives was improvement raw we margin costs. only this XX.X% benefited expense we contribution significant was a favorable addition Adjusted the second XX% material the that and to

we've for these as particular positive mix the close the sales trends back reasons segment in we did Jeff trends with detailed. X% Last hold was quarter, we that our we sales seen optimistic running, We said that once business, business price adding that the to are to in in some increased rebound and continue had EP Ancram will XXXX. they transportation cautiously sales growth. of mix resume, out in seen the recent X% favorable would

During sales. to impact currency the had immaterial quarter, an

basis On up performance points the margin margins strong operating was XX.X%. versus with adjusted also XXX last year to side,

some see have we and the cost. continued In fixed successfully benefits input to and managed addition effects, discretionary our from to costs positive favorable mix

down inventory As expenses. are a our of to positive million million, near-term nature. and impacts the costs largely year-to-date corporate various from building likely and the increased down be are due timing basis, year to the Jeff unallocated mid level trending of were million basis, administrative the to adjusted $X.X XX% profit respectively. consolidated On are in X% in $X.X costs to XX% the million, sales some referenced, operating customer's full On previously and $XX have and we EBITDA toward million, approximately quarter we $X for $XX as stated. and increased a Unallocated

shutdown $X.XX. expenses due The of related GAAP XXXX largely $X.XX the quarter plant site. Third $X.XX one-time of the Spotswood to from to EPS decreased decrease to was

We financials. decline the expense third excluded will was in in to unallocated increased expect adjusted incur fourth segments The in and quarter to costs profits also a increase well Adjusted which be for EPS both the from higher to $X.XX. quarter. some as XX%, due

EPS XX.X% We EPS portfolio a quarter embedded adjusted even are diversified brings tax the rate demonstrating economic strong of calculation year-to-date. The environment. that was of the in X%, pleased middle year-to-date the to our also XX.X% the and and quarter, challenged adjusted during strength a the growth

$XXX pleased for EPS strong. to is the year, adjusted expect not are exceed million with and And again. could We results it continue results. that been last year-to-date year's possible we our flow While to-date we free results to reinstate exceed acknowledge have very balance cash guidance we our of that of

and as the calls, it's recent investor reviewing our spent comments, only our However, to cases On light our remain to not COVID-XX impact pandemic of the respect U.S. cautious we debt liquidity rippled in the more especially position of pandemic. in caveat the with given economy. vigilant structure general in around the have believe globe. prudent through interest but We the time rising we

over have cash sheet. facility However, We continued EBITDA. back our million of to currently position credit revolving and have between debt sheet we the the pare to to healthy net going we times forward. intend and stand of $XXX balance healthy X.X cash-on-hand and at the given detail balance summarize, To flow, liquidity de-lever available this a adjusted

$XX approximately totaled as year the we of to months million nine through capital. deploy continued CapEx Our conservatively

Now Jeff. back to

Jeff Kramer

Thanks, Andy.

comments, performance are portfolio. the wrap with back numerous year like to and step bit little up Obviously So, I'd talk about of pleased our the the more recent we to a from the quarter's business despite our throughout the challenges. broadly results

strategically More to result to portfolio importantly economic though, of a throughout is build resilience strong effort our a multi-year results an diversified believe cycle. the we deliver positioned

others non-cyclicality, paper the are a growth, stable of drive products recently, million each Our we we such years robust across has profits served into strong adjusted unit plus diversified broad growth offering offer business built on long-term in diverse positioned is a $X positioned operating highly some a to company array for stronger exceeding from integrated To scaled AMS portfolio emerge COVID-XX mature providing has and company. flow. XXXX, are a we for while accelerated and transportation. filtration while past fourth continued and believe of also with in while Such and three presence track and have $XXX as long-term cash the to well medical, in like us end-markets, million

well ingenuity strategic great necessary, not deal and to the pivot initiative pandemic. as lost Our performance footprint and developing people. and product sight development from overcome year and activities both we our the EP, to the required programs realizations a though, innovative longer challenges has commercial investment as and support collaboration synergy training in of as Tekra, Throughout These cost growth. term have AMS the of optimization include reduction in future of

an company. standalone as highlight mark Now, SWM. before November Xth to public of XXth anniversary will milestone I like SWM for wrap up, I'd a also the important

initiatives Over long-term organization transformational optimize, and executing has grow, to the diversify, the innovate. strategic years, undergone numerous change,

for have success. who to are achieved, look what remarks. progress have contributed XX of the those questions. We our years proud And our and line next to we That continued please concludes the of thankful Sheryl, growth to open forward and

Operator

Kurt of [Operator first from the Instructions] line is with Yinger question D.A. Your Davidson.

Kurt Yinger

Yes, thanks, everyone. and good morning

Jeff Kramer

morning, Kurt. Good

Kurt Yinger

seem little some to second this in year, came papers. had quarter, Hey, mean inventory in I QX. off at that or you you as engineered see looking expect and visibility you about from could start it far some Maybe order just wanted the whether as volatility. destocking hearing normalize bit in continue here the I talk back like to to customers guess patterns a just what your or you're I

Jeff Kramer

Yes.

direct major the appropriate basis, been it their they of keeping -- around inventory imagine, this, you plants of So, customers that conversations global as working realization sites they but to most for have the business. on I've can and for I of have with is a too had one supply SWM we're to able their our with advantages how an and critical levels continuous to inventory might think they've come them maintain is skinny at

have of have reduce the near for go inventory uncertainty to close there, expect expect pretty supply to and with around what's those and it carrying increased seeing coming I world there's months, our of levels a in we though have our I and most directly order still epidemic of well to, future but normalized and the to we're the patterns customers, spoken happening. levels the integrated. again, but their caution this We do still very level so back So are again, chains to have don't COVID because customers increase deep more relationships with that

Kurt Yinger

to tracking Jeff, opportunities synergy to on update And that the think you existing about the just the when AMS, you with kind and Okay. and relative just portfolio? us sales is That's market how helpful. deal and Tekra margins turning where discussed of us overlap EBITDA was Thanks, then, the announced? could the you big remind

Andrew Wamser

we're on in level so, there is little top mix is Yes. terms from getting Probably the Tekra we a line expected. how bit -- different you I'll give perspective, a high what a track. of than

those underperformed. medical exposure of on margin on seen all Tekra some it we that I good in transportation portfolio. recall, has really a side, -- our have you some you of also growth highest turning is it kind margin When generally does transportation a then would together, but it As there, but have which blend products highlight one products which we've would on they have I track, say that our related is element are

pleased terrific optimistic the months pleased business done we're a integrating in job with closed the really future. we I with what So, add We've in it we're think and general, the probably on as results. it's going really now about to we're eight ago, results the and

Jeff Kramer

Yes.

to that you so in the most but us commercial a time both how in medical trying see so lie converting, leverage upside forward applications the and direct to have. capabilities synergies other of immediate achieved that to group, are an we're those additional we in codings groups spending the two in that's Kurt, we about and add quite both can and that asked where segments those does like easily looking the ones, market synergy we're lot a bit So, it and transportation growing, we

Kurt Yinger

it. Got

And talked positive sense. makes as surface about expect the in channel we quarter. the well? release, take returning the resume transportation that fourth to in kind you your growth growth of as Should business protection the also trajectory you Okay,

Jeff Kramer

business, the basis. for the a could protection, product ended quarter, a that on to a quarter and our good outlook third is of returning really back rebound to that and that sort in we mean I normal have year-over-year pretty our is surface expectation fourth Yes. growth -- we good expectation returning saw in

Kurt Yinger

quarters? but couple either, be will pulp, expenses of flow as the to tail-end about be any it be pressures start a next the and look to inflationary going potential over look doesn't business expect we we a ahead, it's should would type okay. to Right, of much And how like headwind back you that less of maybe other discretionary thinking into

Andrew Wamser

you're we a we in that X% see look did over pulp have volatility year-over-year. little Kurt, two stabled the -- just two a it’s raw which benefit the Yes, materials about million-and-a-half we kind modest on front. right one third a If quarter, be and about of the would that the most at that with, index,

look year-over-year. we it where from you up were If today, modestly is

be So, a it could modest headwind.

headwind maybe numbers you give I half-a-million sit a or we the those So, in context of it's so -- as today.

year-over-year. similar On out the a look was If X% we to favorable, in about resin the side, that to polypropylene, that and was benefit -- flat us five million, year-over-year. today, a polypropylene is quarter pulp

two quarter, would the prices. that Anything the to benefit really I is volatility. can you thermoplastic -- in in raw say those material So, there are most TPU, effect, really those else and the with volatility little that the anything that the fourth inputs have two same see polyurethane,

Kurt Yinger

just I portfolio platform continue right, do you Andy. I that's a and well use a really in type the this be you despite you does flow capital the this all Okay, around guys leverage has of of thinking what and volatility basis? performed M&A guess potential -- your impact thinking performance on all of support? year And full And the year de-lever, off, about cash cash can lastly on helpful, allocation, then, the the capital expect secondly, to guess how environment, to are business first working

Andrew Wamser

it's great a Yes, question.

cash we are we So, cash our flow continue pleased to with really year-to-date, good generate flow. and

we're -- basis. I times debt we look a if X.X you net So where at at last quarter, would were on

some to de-levering this close year. also we to it at us X.X quarter, out as the We delevered I'd modest expect have

that sure stock our and at look safety are we to have also it customers for capital, back make our kind to customers. want of working we goes we As - supplying

this at our to traditionally assurances make are any sure expectation -- a continue spring, that, see levels the as prepared $XX inventory down shutdown, or be million it higher that deliver we're sort give think to year-end our out of - you're we'll it's year Tekra resilience the can I expect economy. or to the may any like it's if bit we've year, the paid So in close pleased debt portfolio -- customers and, than of of in about so up the is sort close of point could how terms in to little -- and with some so anything to up XX that for continue seen to in we we we into saw acquisition there possible we've I'll portfolio up is but we one we as really held

for really us been So the M&A to question. answer this able of de-lever be encouraging. this Jeff course to throughout I'll let has year backdrop the

Jeff Kramer

Yes.

So current, business. about I how think pretty to we've approach our consistent been we do

So continued talking hear our about the on of thing day-to-day focus is you our continue we demonstrate, sure organic results making first and sure and us make business and the able the to growth we're business to everything healthy, at always and us at believe and example be looking was to that. same flows opportunities remain to cash Trient the Tekra to we of its company. the grow for important but an continue improving time,

we things. but we for so how we're And approach out those attractive, pretty that's disciplined have again, our eyes always something on

capabilities plan over years. it is to our to that So the And last that believe fit record hopefully we has add creator demonstrated really but us. and us, for strategic we value something track several it a into is some really

Kurt Yinger

the right. the quarter. and fourth good all here details, in Appreciate Great, luck all guys,

Jeff Kramer

you. Thank

Andrew Wamser

Kurt. Thanks,

Operator

from of Company. comes Chris question line next McGinnis Sidoti with the Your &

Chris McGinnis

morning. my a questions Thanks in Good taking nice quarter. for

Andrew Wamser

Chris. Thanks,

Chris McGinnis

of sequential may business, on guess little don't around just thinking you you don't a into and plays demand provided just obviously you into I know XXXX color maybe I may an and can maybe impact XXXX for about missed improvement? give -- that. you change maybe know the XXXX seasonality trends color XQ, is of going Would expect this. typically, that QX. – I year kind trends QX, abnormal Thanks. and if but us given if the COVID I just have any you've

Jeff Kramer

Sure.

of history, year-over-year. would you if in product we the own and to the and always you most never can our frank, we volatility chain year when the have orders people of AMS we're around most with to constantly at you look until business they're volatility, at December, their customers end handle to expect So, where where November, supply right but the the films of or manage the And recovery to their Thanksgiving product, how business some have frankly, year optimistic, be the look know pushing I capital. transportation have in following the sort trying we working AMS will up be November, our

but we last good to you a So volatility year, give say did Last non-answer, expect you have is, cautiously I a optimistic, customers of some but I'd we hate would growth, fourth AMS our some in know, there are year. quarter with have do EP, We really

have seen our additional of how build, safety some this customers We so terms in be remains stock year, seen to feeling. they're

We as AMS active I will we having our are particularly bit challenging here safety terms a it's a with comp more with of they designed we of stock of EP, discussions do where probably need? in year-to-date, little has out would customers close frankly, probably what growth. but have started say sort with

Chris McGinnis

portfolio I made through lines this about in and innovation? maybe talk No, well going the where Can the pandemic XX or thinking performed for it's way maybe guess new outlook Has you that. the I that's certain Okay. your how you you're the about over and just the year. that's, that's And next about investing portfolio to think about helpful. how appreciate maybe just product invest? product changed of you think months

Jeff Kramer

it Well, you our directly, saw announcement. from mean I

medical, deep and know, trying those So we're are filtration areas two to really bottleneck. that you

actually more filtration, be surface we anything We portfolio. there, liked our so but liked it's changed our we you than like materially the I if around we doing strategic I think bottle-necking, might focus want cetera, our investments think to don't medical, et else. things transportation, So about it's think long-term confirmed

We'll portfolio look we them. invest all have. I to of and think comfortable we're the in the horses that with So

Andrew Wamser

mean, areas heat-not-burn terms to too, add, had that some well. and are in in we've the of EP growth are I maybe as in some areas. And promising that of there just other

we're So to looking that help provide within stability for that another know, that is fuel, of sort segment. area you also

Jeff Kramer

Chris, And do perspective, do think think from it's well. it Andy's correct, I is but have a in we I answered Yes. to the things EP I opportunities we business think COVID build important. because as

I think important So that add. was an

Chris McGinnis

I ask EP. about wanted to the

talk did some or more product is with You guess about just is that color provide bit on heat-not-burn, you out any? dig a into a new Can coming little what just bit introductions. of that maybe if it geographically based, I little

Jeff Kramer

right? number we of perspectives, lot as growth Yes, we're longer is hope that they products materially moved think a interesting of talking the there about of big a in initiatives, future. haven't term needle but have we So the will things and that the as still new are

pouches. we've also most to done And of them. heat-not-burn, the customers our some sell with delivery customers. innovations increase a cross those another working ethylene So, successful example We're of on new of products. marketplace based on pouches the here's introduce seeing in continue a in And Nickel many of are being the from opportunity. bigger

materials on think materials papers So, about AMS, based also business and focus that. EP materials market and on on we we The some that pouch of those on hemp-based we're and a botanicals have applications. has interesting excited make materials based are

not give have of significant are that of that those numbers as start continue that going opportunities there it, that So we are effort us in think through opportunities, business. have again delivered to significant are amounts some into but yet, on you I will growth the interest, portfolio the putting to future opportunities show but there teams a starting some

Chris McGinnis

luck questions for my QX. and good Thanks taking in Great.

Andrew Wamser

Thanks, Chris.

Jeff Kramer

closing no Thanks, Instructions] there further any remarks? Chris. are There questions. Are [Operator

Jeff Kramer

No. Jeff tremendous job. global team, is just again. I want to my thank This

again. You the guys quarter and the are activity we'll doing proud of you we're of community safe, investment with and end talk a the at stay terrific really fourth

everyone. So, thank you

Operator

thank Ladies for participation concludes and this teleconference. gentlemen, today's you your

may now disconnect. You