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SWM Schweitzer-Mauduit International

Participants
Mark Chekanow Director, Investor Relations
Jeffrey Kramer Chief Executive Officer
Andrew Wamser Executive Vice President and Chief Financial Officer
Chris McGinnis Sidoti & Company
Call transcript
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Operator

Welcome to SWM's Second Quarter 2021 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 this afternoon. participant the been for floor following presentation. all listen-only in your time, the and mode, will this lines placed have a questions At be open floor now to [Operator my It Mr. is turn Instructions] the over to pleasure Chekanow. you Sir, begin. may

Mark Chekanow

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

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

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

Jeffrey Kramer

are bullish quarter by strong and everyone. from and our we positive reported full sales many SWM ex-Scapa customers, companies strong portfolio sentiment demand we as was demand, headwinds. results Mark, for supply global and have good have evidence growth. chains Yesterday, books we as are you growth organic relationships. of order been world Thank our surging seeing highlighted across XX%, outstanding morning, second these customer the immune And attractiveness upcoming by global the reporting, not of and quarters, strained been to the

rapid addition limitations. resins, material we costs have capping limited been what availability challenges, specialty experienced also logistical in some and shipping to on In performance actually sales earnings stronger an raw these without increases TPU should and even

demonstrated months, our customers. we global chain past As in outstanding to continue an these our and balancing the XX done have teams do supply servicing pressures over and job

continue two to supply hurdles. to and chain ability sales see to we Our the that also customer deliver performance, busy impressive have largest our pleased key we strengths together. already what are set base dynamic addition innovation Bottom us. are in by closed with results of the team's our we and supply in very flexibility are integrating quality, We of and working our the And, significant is against quite competitive global benefits been course, wasn't is we excited organizations reliability chain acquisition if increasingly line outlook that a that date, as Scapa. and realizing we bring to mid-April, are transaction our of with enough, demand strong and

and our underlying highest acquisition, in an value many in organic benefit most excellent of while lines. impressive quarter. together. increased as the XX%, we Our and of nearly intact global Scapa complementary increased a In sales transportation, including AMS, thesis businesses and solidly plot XX% is XX%. product were strategic industrial healthcare saw In expanded investment adding with future new of capabilities overall We we increased the up growth reach, customers bright sales

demand this business fundamentals choppy significant remain As automotive paint sharply. you Underlying disruption in the protection high products. rapid these consumers market. snapped recall, a value for business, films and with protection growth year strong XXXX are But driving was back paint for our has

limited specialty not to could unlimited In numbers, if to access could access sales $XX generated materials, business. round additional some doubled, in we we resins have to used manufacturing have raw million if up fact, sales our had for of processes. in In transportation our

one quarter. we our teams in Our secure expanded capabilities brightest coding Longer additional sources and to this diligently working are these area spots maximize products. and term, across picture our growth opportunities high converting last our from and so two this sales the of attractive balanced can growth value products. the in process remains of our improve technical new Filtration filtration with position XX% fastest competitive specialty to highly in Demand the and us give liquid the in well portfolio acquisitions was water over in application. grew our

We truly end macro trends the market. for continue to overall like this

with on XX% grew of focus which product in line last We the region. industry fundamentals customers they the the sites saw beneficiary in and XX% convey processing year's water the demand air from we increased Needless quarter. Southeast higher quarter. bullish to in in a continue heavy COVID and teams outlooks And not say, Our online, see quarter, double-digits growth is positive air key materials widely for Africa for filtration, this in process used new to strong activity the gas our of in well. perimeter first and second to shortages, projects Marcellus manufacturing Construction increased chip as leave the semiconductors control quality Middle also experiencing Asia materials improved to over capacity are year-over-year for gains additional especially reality. to second restock and commercial our for high relate East, coming oil the in levels, in sales drove Similar inventory publicized top Shale depleted activity regions. on the at society's as outlooks positive filtration in our demand used out

business fastest some sizable came significantly Solar farm as plans moving important comparison, infrastructure projects. positive here demand of as growth the in residential for good last production Outside increase saw unprecedented we existing used business. developments. commercial beneficial several well. products control sediment year forward are of COVID. materials remain comparison, the an component activity broad perimeter our our well, faced environmentally and products that gain continued to in With infrastructure face protection medical as and related the these health demonstrating trends we in a But care, as tough films a spending wound Washington in to projects, energy sustainable used and focus tough mask dental specialty building on AMS' and benefited from highway increasing proposed in year-on-year advanced related of products our products macro from healthcare packaging, in

Scapa during the so to views only the on closed early, but have quarter, share. very we acquisition noted, As positive

combined products. comes coating fits it which of and strategic requesting And products the adding healthcare technical, excited growing teams to Our capabilities, which technologies products. complementary identified intent already streams. capabilities are development, This in bring We new is highly our are leading customers commercial into to base. about best-in-class customer believe our acquisition manufacturing our Scapa's skin-friendly adhesives offering significantly the to to when and squarely we've expanded industry our our industrial solutions and extremely full our build projects on industrial and

the our in expectations short, the Regarding are in shortly, business. see by accretion period ago began outlined it is add will on on the are but more our financial our recovery Call. the May when Andy is color and results to we COVID impact deliver we Scapa's expectations performance, that we meeting year encouraged Investor we track on pleased first from to

second growing demand to more at last consumers not were seeing For hospital elective year's moderated approximately overall patterns similar context, conversions, procedures quarter and Healthcare and levels. other and XXXX as is discretionary a visits. below increases sales markets. excluding yet end currency respect XX% up seeing Scapa fluctuations upturns, in versus resume have is to GAAP were our just with accounting normal but rate more as Industrial

in resume more to levels We normalized XXXX. activity continue to expect of healthcare consumers

industries supply are pressures chain were reporting, challenging. most As

We have on have raw access well some solutions constraints lead prices. to found times aggressively creative to as raising as And and expanded. been materials as we logistics shipping, the

recoup the these to have appropriate costs though is cost take date actions lag of to to price portfolio, increases we and actions. our will there been inherent an as successful, in continue recovery higher Our across

will more normalized choppy return. we some to expect navigate near-term conditions We until the waters for continue

Tekra XX%, the of current X%. although useful first impact was test was as be apples-to-apples the Scapa each and further supply the construction Given been the over year, have it of past found up to high Filtration are approximately they the we figures health over helpful XX% up versus use to are externally up level and XXXX business, sales basis, internally without have essentially flat, volatility it over related and Transportation underlying half share healthcare acquisitions. XXXX. and COVID would exclude constraints might them These well. half first thought the versus comparisons I to on so

in we were positive X% to challenge. actually mix, make was as investors changing the Switching Engineered we large difficult, last noise softer to saw of It year, continue On adjust mixed a quite COVID the LIP than in the want was AMS to the Papers. material were increases that XX robust. Although, many the last months performance raw inventories expected. year, chain though lower a can compared X% volumes comparisons bottom several to of proven reflect in that Quarterly our supply factors demand results to were has underlying with across outlooks. sales companies growth. line understand past Volume

As areas response our builds delivered and tough were relationships related quarters material of were raw Segment versus had into with you rapid strong prices evidence P&L, comparisons more to to the XXXX the finally, across EP our is inventory seen We may constraints transition a inefficiencies when through chain have we profit return inventory also more in even recent to benefited uncertain the In base. we annual higher mid from developed contractually guidance to customer year's the EBIT profits customers sites second by success expecting ahead other specified flow a last now several supply impacted transition was recall, in that were very complete. COVID. products the And but newly Factored guidance, and customers. These risks third we profit when we raised product in the Spotswood related we fully supply similar and factor to years. as $XXX built strong have outlined consider over increases, large to range of key normalized AMS. our levels. million the multiple performance, last chain positive facility costs of success with this also well

within this segment side, be positive positive continues to the On offset. innovation a

new to product see and developments heat-not-burn with continues key work on continue growth, rapid Our to we customers. line

line, with and early initially encouraging in interest the new We our the I it's as legislation but over turn across and that Andy orders more product to favorable are is continues line, also this small, increase seeing that product our innovation a hemp believe important helping specialty to demand. in detail. the emphasize fuel plays that, to to to strengths. call review recently financials into dynamic changing I'll botanicals With more marketplace

Andrew Wamser

you, Starting AMS. Jeff. Thank with

due At addition net further expect high with have which growth profits end increased operating signaling mostly basis price increases as the it from the that increased part affected organic Segment not business. for dollars XX.X% about growth Adjusted higher inflation increases half our in at in points the cost to help stronger and even had the adjusted First progresses. operating polypropylene, XX% sales period. diversified profit sales resin our XX%, effect broad and us XXX of the construction the the recouped had million contracted margin strength markets, price high resin from reflecting organic We incremental several higher noted, of costs, been we profits XX%, year Jeff Higher suppliers. particularly that the quarter, will the large on a costs a quarter Scapa's negative transportation, in of recoup level, sales limited operating portfolio. and the were in cost filtration could as had to excellent of performance, resin of been Scapa. and additional

contribution, segment adjusted by million. Scapa's Regarding boosted AMS over $X the operating acquisition profit profits

interest of our that $X.X Scapa's assessing noted cognizant approximately results. our adjusted in expect be release, of growth, when in within financial and that the as In so equaling of In plan $X our growth over quarter, constrained which reflects in and share and our than unallocated with AMS, believe expense resilience costs we expectations, segment costs, XX% business. our profit, for internal sales We However, of significantly Scapa adjusted nearly sales Scapa, our profits, to accretion operating million full associated or was organic by operating roughly neutral increased adjusted chain Consistent higher $X.XX limitations for transaction strength deal. the the added XX% summary excluding per in increased supply this aggregate, with EPS year. the SG&A input for were million more our costs million. not booked AMS, please the despite $X the

Engineered mix with On a and For The mainly price X%, mix effects up X% lower pulp. Papers, quarter. higher wood price quarter volume of function second than raw negative of to of was sales X% prices, AMS, saw and impact favorable volumes carry which were currency negative offsetting prices the mostly the more we during LIP profitability. similar high material margins, growth

in some profits impacted dollars volumes to customers second and were a Jeff the advance successfully and transition efficiencies factors pressure. that other As Higher referenced, profit lower and the have our quarter, of of contracted Spotswood we dollars couple The in annual margin price terms. million the reset margin. costs increases the contributing lower drove pulp by with operating negotiated LIP

during the second now Spotswood LIP implemented third higher While to tough the are us. price costs the half mitigate the are expected and recently the continue behind of inefficiencies comparisons increases as XXXX quarter transition will expected, into

nearly expenses, quarter. $X saw adjusted Regarding of unallocated we during increase an million the

However, as related The unallocated remainder our and and million of administrative growth in was the Scapa's IT investments finance, in the unallocated of increase increased business. the HR costs noted, the costs. to of support certain increase of to timing expenses booked $X.X

Adjusted On increased Scapa release, X% $XX earnings expenses adjusted related the million for quarter. consolidated were unallocated the quarter or and organic deal costs on XX% and integration of approximately basis. the from EBITDA in adjusted basis, operating excluded XX% a disclosed increased sales in increased profit As an X%.

GAAP higher and non-cash comparison to $X.XX, $X.XX XX-Q additional expenses. XXXX items second accounting results. share $X.XX. to included quarter Normalizing items, for costs was which versus this topic. and relate $X.XX of and Please line last totaled main our with per in was details material Scapa purchase and The strong quarter acquisition of those expenses, refer release other Second EPS $X.XX on year's EPS the press for adjusted unusual deal $X.XX

per rate resulted factors. increased, those and the how chain and for profits a magnitude in when impact. interest sales operating the see estimate While signals than we estimate we wood chain price the than more quarter. of some flat of The share combined, had pulp from acquisition cost cost impact can more This $X.XX adjusted while alone contributed offset impact normalizing When put JVs the favorable To business you two EPS. on EPS and tax these supply elements over well. adjusted supply lost on financial are $X.XX fundamentals slightly Scapa our are cost strong and the challenges And not on real, these incremental nicely. we $X.XX and our recoup the of in was expense lower films EPS, as inflation the had did that factors and on a perspective, transportation increases headwinds we resins negative into challenges the estimate impact through and a had an

We EPS that last or of up is our also highlight adjusted XX% year-to-date over $X.XX -- year.

driven was to capital flow strong sales. expenses by acquisition cash million from dollar the due with flows. working $XX flow $X cash cash $XX approximately free Year-to-date cash a decrease cash costs a million, million was increase down year-to-date in of million flow and was related $XX million very operating and decline. year $XX Scapa prior The million and with fees to Regarding approximately $XX similar outflows

and end adjusted terms debt the the Please earnings to through times remainder year details about release cash by of our just progresses and generation to and for year. times second the four We flows we structure. to was on at the end expect the X.X our debt XX-Q toward free for finished the our deliver credit be capital very second the agreement the Net of Net $X.X additional strong to billion. flow of expect more quarter year. of favorable working refer expect as cash the EBITDA quarter debt

Jeff. Now back to

Jeffrey Kramer

Thanks, Andy.

So demand and across proud delivered the up, the of expanded results we are of to our portfolio. wrap we strength

While chain believe their again and the We evident team believe our supply our challenges fundamentals supply all quite which and quarter, demonstrated inflationary value chain the temporary, we that were strong. are experience. the prove in through underlying demand noise, business will of

external on Scapa capabilities capabilities enhance further that continue other further us film and teams, in advanced technology meet attractive will hemp press the to opportunities, capable the initiatives increasing and so to our addressing like help advancing strength capitalizing to operational financial reduced across business. ahead and transportation markets. The our of these also the growth analytics are manufacturing in to of able innovation the areas business acquisition sustainable see to in and many our challenges to serves tobacco customer areas presented so underline fiber second we risk Given we investments are growth us We our filtration, on also forward X.X half of expectations. in like technologies, in demand applications the the strategic products, penetrate look innovative investing To specialty portfolio materials. support year, and only strong and we

if Misty, So that the could for line concludes questions. please you our remarks. open

Operator

with from [Operator Instructions] line You Sidoti the Company. have & of Chris a McGinnis question

Chris McGinnis

the for Thanks I guess around Yeah. nice a my GOOD inflationary questions, results. detail the for of morning. impact thanks environment, that. taking just and lot then --

could that kind going all? -- any continued there as increases the Thanks. you of at kind see about demand growth of thinking and you I impact that, Just that guess price forward, implement impede

Jeffrey Kramer

always good question. It's a Yeah.

it. the raising we're seeing is we're is not people impacted everybody prices, because only what by think, I universally,

to some loss. I part, customers be there's to about think value some this shedding see most is always environment. watch customers. going and a some added impact if carefully our short-lived understand really We value for need probably think I of our But the you might share low relationship

but So, at to pressures it. that I'm point, now huge right real staying close not seeing we're

able of the the to only might with be to continue challenge might supply to be we're see TPU think to continue expecting resins. but fulfill I we're will those coming see all that mean, specialty constraints of going to quarter some -- around see. seeing some we see we the I in growth, that we're demand not good the

Chris McGinnis

of may have correct. just this, thinking Scapa, on missed you you -- then, -- just if business track, I'm like how if that it around rebounding. can sounds trending I And are And it mentioned still your targets just Great. and is

Jeffrey Kramer

Yeah.

and said, rebounding year-on-year side. in like the of brought we year-on-year. think, the I what are in much really I It's we're in We're seeing we're As really about pretty side, we they're that to AMS. good market complementary the ours be demand strong the also mean, just industrial applications business. seeing from to and similar healthcare all industrial excited comparisons

the COVID, to environment had year. care wound cautioned that at to that we've in expecting in are discretionary rate from hoped cetera. return the of normalized sensitivity this more one that visits, is but the moderating, place we coming the had advanced uptick the et slowly be always not hospital some levels we to think I to because COVID but That seems

Andrew Wamser

bit maybe for add just you. Chris, more little a to And color

in they where $XX had kind we year-over-year, million if in in And quarter. were Jeff about at up mentioned the context, XX%, script. that's as his of look for sales just So, you

right the what XXXX book is about about to even we of And like, terms order we're sort to strong. levels, thinking the looks there. in industrial, if exactly order exceptionally book talk their particularly thought the in returning sort we business business as of back So, the of

challenges supply lot we would So, some results chain we've SWM challenges I say, the mostly a supply as and even well. even be that had chain talked Scapa's at would even but their having, legacy of stronger about business, some

XX% in the track. on and say they were is where being thinking I year-over-year. the of good XXXX particularly in is punch-line the would up business second that quarter, A So, in context really

bottom it's track. on So, line,

Chris McGinnis

next taking quarter. Great. Thanks good my for questions, luck and

Jeffrey Kramer

Chris. Thanks, Great.

Operator

There are at further no this time. questions

Andrew Wamser

let comments. wrap couple then with me up closing Well, of Okay. a

specifically You proud heard the the comments I'm we're challenges year. team during turned make call, all aware incredibly didn't think the that over COVID the seeing the performance of globally. because of I we're I has in

team supply other other, making benefiting to each our of of our think great able taking each I of continues to a sure care we're do and customers. job

outstanding be So, job I just to call thanking really again, team. they our the global want I'm do. of close the to this part teams proud for

thank all. So, you

Operator

conference Ladies and call. gentlemen, conclude this today's

now disconnect. may You