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SchweitzerMauduit International Inc. Reports Operating Results (10-Q)

November 03, 2009 | About:
10qk

10qk

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SchweitzerMauduit International Inc. (SWM) filed Quarterly Report for the period ended 2009-09-30.

Schweitzer-Mauduit International Inc. is a diversified producer of premium specialty papers and the world's largest supplier of fine papers to the tobacco industry. Schweitzermauduit International Inc. has a market cap of $780.6 million; its shares were traded at around $50.95 with a P/E ratio of 20.6 and P/S ratio of 1. The dividend yield of Schweitzermauduit International Inc. stocks is 1.2%.

Highlight of Business Operations:

Net sales were $184.5 million in the three month period ended September 30, 2009, a 7.4% decrease versus the prior-year quarter. Net sales decreased by $14.7 million as a result of $11.7 million from a 4% decrease in unit sales volumes, $9.1 million in unfavorable foreign currency exchange rate impacts from a stronger U.S. dollar compared to the euro and $8.8 million due to lower sales following announcement of the closure of our finished tipping facility in Malaucène, France. These declines were partially offset by $14.9 million in higher average selling prices, primarily due to an improved mix of products sold.

Gross profit was $51.7 million in the three month period ended September 30, 2009, an increase of $19.2 million from the prior-year quarter. The gross profit margin was 28.0%, increasing from 16.3% in the prior-year quarter. Restructuring and impairment expenses were $26.9 million and $2.6 million for the three months ended September 30, 2009 and 2008, respectively. The higher restructuring and impairment charges were due to the announced reduction of PDM employment levels, primarily among general staff, made possible by the installation of an enterprise resource planning computer system as well as the now nearly concluded closure of the Malaucène finished tipping facility, both of which reduced administrative requirements. During the third quarter evaluation of alternative courses of action related to recovering the carrying amount of our long-lived assets, management decided the most likely course of action was for our Spotswood operations to concentrate on the online LIP technology we operate for Philip Morris USA. We plan to transfer the remaining production of other cigarette papers from the affected Spotswood machine to our facilities in France and Brazil. As a result of this decision, we determined the machines carrying value was not recoverable and the net book value exceeded its fair value by $9.2 million. We also recorded a $2.7 million impairment charge for an idled small paper machine in France.

Net sales were $551.9 million during the nine months ended September 30, 2009, a 6.6% decrease versus the prior-year period. Net sales decreased by $39.1 million as a result of $42.5 million in unfavorable foreign currency exchange rate impacts, $41.1 million from a 10% decrease in sales volumes and $10.9 million in lower French tipping paper sales following announcement of the closure of our finished tipping facility in Malaucène, France. These declines were partially offset by $55.4 million in higher average selling prices, primarily due to an improved mix of products sold.

Gross profit was $137.9 million in the nine month period ended September 30, 2009, an increase of $61.2 million from the prior-year period. The gross profit margin was 25.0%, increasing from 13.0% in the prior-year period. Restructuring and impairment expenses were $40.5 million and $8.3 million for the nine months ended September 30, 2009 and 2008, respectively. Operating profit was $41.3 million in the nine months ended September 30, 2009 versus $19.4 million in the prior-year period. The higher gross profit and operating profit were both primarily due to $53.2 million in higher average selling prices and a favorable mix of products sold, $14.6 million in cost savings and mill operating efficiencies including the absence in 2009 of $11.7 million in machine start-up costs incurred in 2008 in connection with a paper machine rebuild in France, and $5.5 million lower inflationary costs due to lower wood pulp costs. These benefits were partially offset by $7.1 million in higher non-manufacturing expenses, primarily due to higher incentive compensation accruals, consulting expenses associated with strategic planning activities and severance expenses, and $4.1 million from decreased sales volumes.

In April 2009, we announced a decision to close our finished tipping paper facility, Papeteries de Malaucène, located in France. Due to ongoing losses at the facility, the Company previously recorded a $13.5 million fixed asset impairment charge in the fourth quarter of 2008, which included the majority of the related fixed asset values. This mill closure is expected to result in severance of all of the approximately 210 employees. In the three and nine months ended September 30, 2009, we recorded $8.5 million and $19.9 million, respectively of estimated restructuring severance expense reduced by an estimate of employee-related benefit liabilities which are expected to be eliminated upon final termination of the employees. Additionally, $0.8 million of non-cash charges was also included in the nine month period. We expect additional expenses, net of reversals of employee-related accruals, related to this action of approximately $4 million through its planned completion in the first quarter of 2010. Payment of the cash severances is expected to be completed by the end of 2010, with approximately $6 million expected to be paid during 2009.

Gross profit was $51.7 million in the three months ended September 30, 2009, an increase of $19.2 million from $32.5 million in the prior-year quarter. The gross profit margin was 28.0% of net sales in the three months ended September 30, 2009, increasing from 16.3% in the prior-year quarter. Gross profit was favorably impacted by higher average selling prices, including a favorable mix of products sold, and lower inflationary costs. Inflationary cost decreases related to lower per ton wood pulp prices and energy were partially offset by higher materials prices and labor for a net favorable impact to operating results of $4.2 million during the three months ended September 30, 2009. Changes in per ton wood pulp prices increased operating profit by $3.9 million compared with the prior-year quarter. The average per ton list price of northern bleached softwood kraft pulp in the United States was $730 per metric ton during the three month period ended September 30, 2009 compared with $880 per metric ton during the prior-year quarter.

Read the The complete ReportSWM is in the portfolios of Richard Pzena of Pzena Investment Management LLC.

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