Buckeye Technologies Inc. Reports Operating Results (10-Q)
Buckeye Technologies Inc. has a market cap of $588 million; its shares were traded at around $15.17 with a P/E ratio of 24.1 and P/S ratio of 0.9. Buckeye Technologies Inc. had an annual average earning growth of 0.4% over the past 10 years.BKI is in the portfolios of NWQ Managers of NWQ Investment Management Co, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors.
Highlight of Business Operations:Net earnings for the three months ended March 31, 2010 of $19.3 million or $0.49 per diluted share, were up $15.1 million or $0.38 per diluted share compared to the same period a year ago. The $10.9 million increase in operating income described above accounted for $0.23 of this year over year improvement in earnings per share, including $0.11 from the alternative fuel mixture credits. Also contributing $0.06 to this improvement in earnings was a 46% reduction in interest expense versus the same quarter a year ago. Finally, income tax expense for the quarter was reduced by $7.4 million or $0.19 per share for energy investment tax credits earned to date on progress expenditures for our Foley energy independence project, of which $6.6 million or $0.17 per share was related to prior period expenditures.
Net earnings for the nine months ended March 31, 2010 of $104.9 million or $2.66 per diluted share, were up $216.7 million or $5.55 per diluted share compared to the same period in 2009. The alternative fuel mixtures credits accounted for $76.8 million or $1.95 per diluted share of this improvement. After accounting for the goodwill impairment loss of $127.6 million or $3.30 per diluted share, the remaining year over year improvement was $12.3 million or $0.30 per diluted share. Net interest expense for the year was down $8.3 million, accounting for an additional earnings improvement of $5.2 million or $0.13 per diluted share. The impact of the higher gross margin mentioned above added $3.9 million or another $0.10 to earnings and the lower tax rate resulting from the energy investment tax credit explains the rest of the change.
Net cash provided by operating activities for the nine months ended March 31, 2010 of $74.4 million was up $24.6 million compared to the same period a year ago. This was largely due to cash refunds and tax credits received for the alternative fuel mixtures credits, which accounted for $21.4 million of the improvement. Net cash used in investing activities of $22.7 million was $11.5 million lower than in the same period a year ago partly due to a $7.4 million grant payment received from the State of Florida as an incentive to complete our $45.0 million Foley Energy Independence Project. Capital expenditures were also $4.2 million lower than during the same nine month period of the prior fiscal year.
Strong cash flow during the quarter enabled us to reduce debt by $16.5 million during the third quarter to $273.5 million, which is below the debt target we had established previously for the end of 2010. We have set a new target to reduce our debt below $250 million by the end of 2010. Another item of note on our balance sheet is the income tax and alternative fuel mixture credits receivable of $73.8 million, which increased by $9.0 million during the quarter and $64.4 million since the beginning of 2010. We expect to receive an income tax refund for 2009 in the near future for $11 million. We will use about $7 million toward our estimated income tax liability in the fourth quarter. The remaining balance of about $56 million will be received as an income tax refund on our 2010 income tax return sometime in the latter half of this calendar year.
We recorded $4.8 million and $77.7 million, respectively, in alternative fuel mixture credits, which were net of expenses, in our consolidated statements of operations for the three and nine months ended March 31, 2010. During the three months ended March 31, 2010, reserves taken relating to ambiguities in the rules for calculating qualifying black liquor volumes were reversed. During the nine months ended March 31, 2010, we received $2.9 million in cash related to these credits and $5.6 million related to prior period credits. Of the $75.2 million in income tax credits accumulated in 2010, approximately $20.0 million will be realized in the current fiscal year as an offset to taxes due on income earned in the U.S., eliminating the need for quarterly estimated federal tax payments this fiscal year. The remainder will be realized when we apply for our tax refund in 2011. We have treated the credits received in cash as taxable income and the income tax credits as non-taxable income. The alternative fuel mixture credits are subject to audit by the Internal Revenue Service (“IRS”). The credit expired on December 31, 2009.
For the nine months ended March 31, 2010 versus the prior year comparable period, lower costs more than offset the lower sales. The lower costs were comprised mainly of the following: raw material costs ($16.3 million), chemical costs ($13.6 million), energy costs ($7.9 million), transportation costs ($3.6 million), and direct cost spending ($2.7 million). The specialty cotton fibers plants improved their operating income by $9 million even after passing through reductions in raw material costs to our customers through lower selling prices, due to lower chemicals and energy costs, and headcount and other cost reductions at the Memphis plant. Operating income at our Foley specialty wood fibers mill was down $7 million year over year for this period, largely due to unfavorable product mix. Due to demand weakness in some of the markets we traditionally supply, we took advantage of the flexible capabilities of this mill to shift volume into the viscose staple fiber market at prices which were at the time significantly lower than prices in our traditional markets. However, during our third fiscal quarter, prices for dissolving wood pulp sold into the viscose staple fiber market increased to the point that they are now comparable to price levels in our traditional markets. In addition, demand in our traditional markets has strengthened to the point we are minimizing our participation in the viscose staple fiber market.
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