SWM - Earnings call transcript Q3 2017

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Operator

Welcome to the SWM’s Third Quarter 2017 Earnings Conference Call. Hosting the call today from SWM is Dr. Jeff Kramer, Chief Executive Officer. He is joined by Allison Aden, 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. participants floor placed your will the all mode a questions time, presentation. the and be this have in been listen-only following At opened or over pleasure It turn now Instructions] my [Operator the is floor to Mr. to Chekanow. you begin. Sir, may

Mark Chekanow

for comments call our you results that Thank these number joining by Commission discuss in the suggested Annual earnings Before comments results us XXXX the Form may like I’d in conference on in for we you, from which included quarter Report morning. begin, third include to to Actual reasons, detail Good filings, results.] Reports XX-K. discussed our Securities a are XX-Q Katherine. differ Quarterly materially of forward-looking Exchange Thank and Form on including statements. SWM’s more our remind today’s you and

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

Jeffrey Kramer

margins had of key AMS earnings we out Mark, a impact with AMS and The was helping not Thank note per that segments. sale the specialty gain with adjusted share EP EP momentum and morning, drivers anticipated. share $X.XX LIP expected did RTL. $X in of an delivered of strong offset as non-operating the In in It our solid sales leading our for playing with the to everyone. generally films two and results per both good sales third fairly of with of you, portfolio segments. Yesterday, quarter the that third an important sales we the short, in businesses decline organic included as from quarter reported growth is again, continuation expected and to growth performed asset growth stable

to more of million year-to-date the to relatively our that This Recall cash have XXXX. close the free that returning flow of We grow were as also $XXX to start balanced cash growth a essentially strategy $XX been the to had the pleased quarter we dividend third we continuing we free flat period. to our steady increase, to and cash building track with annual ago cash our We XXXX, nearly finish announce substantial pattern. million transform light and second-half generated dividend generated of investments the flow still anticipated business. make year had consistent up capital ramp free allocation we expect the for but materialized another in year shareholders, flow in historical with and in than record

AMS. to now Turning

in Excluding the year-to-date. organic X% was for quarter and AMS growth Conwed the X% sales third acquisition,

acceleration LIP rapid Across auto of a metric that one a part large the the filtration and growth to related to channels. customer filtration reported in in the glass to solid due gains transitioned we Asian pace, distribution a not technology surface paint products the in provide. security both we portfolio, [ph] in slowed reduced we As with sales soft anticipated, lamination. sales at when this albeit our second from those quarter has protection XXXX, in expanding remained continued protection rest from XX% in had AMS volumes do of Double-digit reduction

dampen segment filtration water sales growth. replenishment addition, extended the business In cycles to our in continued

end teams quarter customer for respective provided benefited pickup the was New market. the Conwed. commercial offset into Year. with Filtration in Collaborative wins water indications noted, the medical efforts to customers have in our partially category to in As the bandage and softness finger growth Shifting heading third a we solid results. our previously point filtration our in by quarter

lot benefited as as targets the strong year. paver and required, from well Margins believe key sales for remain sediment and the On tackling sales, achieving the business goal remains time performance $XX outlook support synergy also such site products, and million while well our the run applications, there’s as achieve of construction-related control track erosion AMS in Bottom as and top organized and and The are are Conwed infrastructure netting. next healthy, such highway for we control late the legacy rate we a closure of line, overall blankets line, quarter lines. on for sod positive. to planned blocking

had Regarding the driving positive segment certain within profits, impact sales some organic higher growth costs operating despite higher business, inefficiencies base resin a plants. margins and at

minimize margin results fairly demonstrates stable. although there performance, are solid Engineered have to nearly hurricane-related flooding with remained prices, and disruptions some our still a they opportunities higher than of there Switching to to Engineering due as were hand – conditions purchases. will the In in generally this view Papers, Texas. impacted productivity meantime, temporary the third Regarding quarter All that and time. further XX% on the told, resin We resin industry-wide over supply resuming has XXXX issue we to third normal use quarter year-to-date levels, improve been adjusted near-term.

segment sales the stable returned quarterly far have volume down LIP While X%, thus XXXX traditional X%. expected largely pattern. volumes decline were RTL, up to in segment was total to in due

quarter, third regulation change. reverse expect also last Recall – third benefited a from related However, LIP easy mainly building up to the year’s year’s inventory, This the some due customer that volumes somewhat double excess U.S. digits, during working packaging fourth we quarter during inventory were comparison. down third customers third quarter which European an quarter. to to

and Consistent wrapper Heat-not-Burn to and offset excess sales portion recent total projected, the and operating binder year RTL. XX% XX%. decline with sales ramp total as in provided growth still the recon of profits. down of of we in was a in Third quarter for the the also volume range, the expect traditional trends, decline in Currency and benefits

the recent Lastly, these calls, was continued impact a The as result quarter sales little year this of noted negatively and we’ve net lower LIP lower margins. as to royalties a than XX% contractually margin factors. on last

execution of our attract EP products Regarding that positive segment tobacco an area priorities, of investors. Heat-not-Burn attention potential from remain significant

believe sustain early still unfold. by discussions. of If will it global offset new prudent turn some for paper. terms encouraged very collaborative and the over be an cigarette engage cannibalization otherwise gains are adoption the our RTL to it to visibility, an and meaningful market of of and than we SWM. would and customers more expect to would are in our game to now many Allison. declining our anticipate changer but traditional exciting in gain there We to marketplace being provide that to Heat-not-Burn evolving we we the as likely continued developments products, opportunity With remains call industry a attractive until is rather and this said, commercial that more Thus, could customers characterize momentum, recon I is also we aspects for successful

Allison Aden

Engineered reduced The volume segment and or to neutralizing LIP of volumes royalties. for to margin headwind. the increase. of Papers up resin sales. of the up Conwed acquisition points. down the basis associated X%, basis due net In while resulted favorable operating a $XX.X also increased movements or the operating pricing were benefits, now Adjusted grew I’ll XX.X% sales and and XX.X% mix, to $XX million, decreases sales profit operating sales was sales, was contributed drove mix from specialty lower X% despite XXX growth expansion RTL XXX both decline. sales products. margin a driven profit organic by The margin and and million, synergies expansion, The film leaving was significant volume Conwed segment GAAP financial costs royalties, favorable remained $XXX XX% the currency X%, largely volumes to Thank points, results decline, quarter, growth. million. primarily a performance. review remainder you, the third The XX.X%, net adjusted AMS Organic LIP our acquisition with overall account starting Strong Jeff. sales drove

compared to year. primarily tax Additionally, our as fees, X%, legal. certain consultant third-party to by unallocated such decreased and unfavorable costs of expenses were pulp timing due slightly corporate the last Adjusted

unallocated As profit from XX XXX points. of declined but sales, increased sales was excluding net ago. up basis basis, total year million, operating the margin consolidated and $XX.X a basis a operating up Conwed, million Conwed SWM up approximately XX%, excluding X%, expenses The benefits. On both points percentage was $XX.X Adjusted XX.X%, flat to were adjusted X.X%. and currency

restructuring expenses asset a Regarding expenses and to increased $X.X adjusted operating to related the million the accounting the acquisition closure. segment AMS non-cash items excluded $X.X planned due million, to Conwed facility intangible profit, amortization related from added to of purchase

$X, nearly XX% on to a Shifting small is restructuring segment, discussed, year sale unfavorable benefited of related was a gain consolidated line XXXX. nature third a earnings, the each reflected million, gain an in per the the also asset to year. the the impairment that $X.XX comparison business up from thus and largely of is statement down from were last in prior Outside year. of vary the tax from quarter For of versus prior far $X.XX, up XXXX. quarter QX quarter expenses items an incurred $X.X Adjusted below on EPS $X.XX of income last year. function lower share the $X.X expenses in XX% reduction already to operating EP was I discrete XXXX EPS in offsets to recorded quarter. within the rate We’ve recognized in the This from and non-operating GAAP $X.XX factors from EPS third site. million quarter the during relocation This

Our have expectations. year-to-date impact relatively last $X.XX with in EPS. positive Currency XXXX line our year-to-date remained small In third line quarter tax guidance, our with been XX%, in about year. generally translation relation in to to with results a rate the was

Our EPS of relatively fourth adjusted low $X.XX imply guidance a quarter. does

our customers’ thumb, seasonality year. be As due to the second overweighted we normal patterns our ordering the quarters expect rule of a throughout third to and typically of

we LIP addition, to expect U.S. the build In fourth inventory reverse customer in quarter. the

sales Regarding some it’s surface protection of weakness puts year-to-date our offsetting results filtration. relative plans, takes and in for financial expectation, exceeded the some have to fair other film to say

the business. elevated upside In in seen addition, curbing of we’ve elsewhere some near-term, the material current conditions to point market prices raw

Lastly, our areas our our guidance, China other headwind remains underperform of JV achieving relative recon expectations. the continued most It to isolated offsetting in to outperformance. to

last with it’s challenging to demand $XX ahead we work but planned the contributions. higher sales, moves free navigate higher million appropriate to flow tax continue think We China, Year-to-date JV XXXX a temper backdrop partner JV’s in our to supply for expectations and by mainly payments. driven Working year’s was and inventory increased, similar to plant outflows results. cash builds capital of cash

We one as Conwed, expect our at quarter. $XX terms growth to net to Absent from the end EBITDA quarter. X continue strong at CapEx was debt a acquisition about by year-to-date, free debt expect for stood to the times second at filtration into as the continue closing flow the $XX the facility, of the the of perspective, about up specialty adjusted to at debt. times investment well million quarter, in million ratio pay the third the due leverage the From fourth to X.X of down we circumstances, cash paper of would in January. manufacture at driven the of times X.X to credit products. our Conwed end acquisition production we This lines up increase were XXXX, of unusual in at year-end the

Now Jeff. back to

Jeffrey Kramer

To operating to are the continuing according segments. that, the Thank is to execute across up, the quarter from takeaway Allison. wrap you, we main plan

the focused towards out remain and growth. But year moving diligently working in that EP obviously markets, While We there Conwed for groundwork lay in many the our themes attractive on investing remain guidance. and critical also most our areas. plan, pieces we growth synergy strategic and diversified efficiently are on the are executing still products underlying the projects working increasingly on managing long-term closing sustainable

for We an to and high-profile film that initiatives appreciate Europe, our our our paper materialize. for the forward filtration open the more interest they line growth on continued these and look Our specialty to progress modified system new and enterprise-wide Katherine, and of support, please line other AMS sharing many software enhanced our improve are your prospects. some remarks. We concludes questions. line in projects as for

Operator

Jacome Dan Instructions] Thank Company. comes Our & you. [Operator first from question with Sidoti

Your line open. is

Dan Jacome

morning. Good How are you?

Jeffrey Kramer

doing? are How Dan. you Good,

Dan Jacome

when talked saw security about there? Pretty good. know, guys hear can market into I first call. guys end talk you here. really if conference the you you that couple time. recall it of on I you this correctly, first you Thank made I for A about questions a glass the a digging the But The strength lamination, the little acquisition. time you is bit

what’s on question about hear to That there? want going Just first was my overall.

Jeffrey Kramer

Yes.

I that we continued show just the solid of think when had it’s started initially. we to growth expectations

we’re We’re really it the continuing The expand. around to that we’re talking whole into key category protection think, our And here. investors plays capabilities I see product polyurethane about the around and thermoplastic is, reason just important I really not that systems. we think can market bring surface because with one for that, marketplace to to it’s pony understand we’re a talking the

Dan Jacome

it of into find much will nature? definitely Right. by. that more the goes And where than, lamination? conference and that getting guess, things look Is product, I more other diversified for pretty I you’re time I would glass as that that but rooms

Jeffrey Kramer

The security glass?

Dan Jacome

Yes.

Jeffrey Kramer

a range end from name a wide across of applications There’s and goes to bulletproof It markets for you military variety of no. wide facilities, glasses it. Oh, that. safety use

Dan Jacome

specialty longer-term, pretty great. what’s of – a kind The But on X% last rate to telegraphed X%, growth I’m still Okay, very that normalized And a you call. imagining? the think of pullback, – then that a for the I kind sequential films just strong. weakness

Jeffrey Kramer

as Yes, we a of plus seeing it are still business. type GDP

is come cycle early think, on I of to penetration in marketplace, I think, this it’s in there life of the it. a lot

more internationalization, the had We’re from getting we a which of about time. kick bit little a last talked the

future growth now segments high of So overall. I in think, rate one our higher near be – right growth the this would

Dan Jacome

Okay, then period know. far XXXX never acquisitions, probably digestion lastly, be – much And going for a you as you is guys great. how as to but really

pipeline, for maybe at are you the very check or criteria important some acquisitions? M&A maybe us three Just remind high-level internally or again most kind guys on two your thoughts boxes maybe future of looking

Jeffrey Kramer

are on what need One, acquisition. absolutely of the mean, we couple I sure promised I with A right. things. you Dan, make Yes. think to we we’re executing that Conwed

have we need that so activities XXXX. a we number complete of And in to

growth said, with we long-term for opportunities. that Now looking are always

either whatever We the that on And to base along. portfolio. are growth to can we’re matter focus look though, disciplined pretty we’re criteria. come for going some continue then in demonstrating to have But in of bolt-on going or we else our organic our on acquisitions,

markets that then, line should deliver end some to with around help financial prices the extensions. And critical And out either attractive that. match mass blue offset of the that’s that have something strategically, that of of it’s some So be of cases. expecting One, it’s we criteria our that things a got already got of looking higher now that strict to course, to at. a growth capabilities, we on not has the geographic expansion, it’s match that able have. we to synergies going number product match so be a to for themes we’re expect the to doesn’t really technical will some around be would something there It tie we’re into of

But single it’s you no we balanced do before there’s can pretty portfolio acquisitions. see, one a around look criteria. anything So

Operator

D.A. Thank from question next you. And Kurt our with comes Davidson. Yinger

open. is line Your

Kurt Yinger

Yes. Good morning, everyone.

beyond, there sit here anything mean, I hone we and should As like sort LIP it on and we have about some look erosion? I XXXX, areas and fairly momentum with is some easy if maybe some there. above of attrition specifically, looks comps think in in at and there mean, price some then RTL to smoking

Jeffrey Kramer

anything seeing depend the price volumes, continuing impact the or always typical area hit. But No. things what and that which from that continuing rates marketplace, which again, I that change that see. pressure. There’s of mean, be haven’t will material attrition quarters we seen seen would several to we’re it in the you attrition fairly There’s we’ve what the last we over world of on so. will

Kurt Yinger

on that running, Okay. or up specialty & how and facility of And that the is a the event? film the transition then going? XXXX-type is is of Smith And Nephew more production,

Jeffrey Kramer

Yes. XXXX. That’s of a more

is we’re the that bought taking fine. project the capabilities and and sales that Nephew is workforce of & that in a is advantage past, we Smith planning. That Remember, running so facility medical is put protection-focused surface in well. Smith phases. Nephew We’ve the early the trained and Gilberdyke to running What there all had & had the line has So from the location. in

We’re doing be the activity. installation engineering will and a the a XXXX mostly

Kurt Yinger

Okay.

advantage So that and sort of extra adding facility taking guess? running a space, of is I then as normal and you’re line just some

Jeffrey Kramer

one really we the synergies when mean, you critical that’s start mean, I I what now. Yes. talking of about like that’s mass.

perhaps bit look of do we consolidation. leveraging This product now able these that the single had is think, on line I are have at, we Austin more a little of been to the others. to opportunities reasons focused sites actually a and more As one

we sites Now to we’re move synergies. start how materials different locations enough delivering can that have we to and that’s some really operational going

Kurt Yinger

seems like then I’m to Okay, is XXXX? replacement-type expected. some you gives the from get market into touched your customers you sort talk of longer opportunities you of confidence sort push out maybe indications Could improve? that It you what that, filtration great. those what as And the than has about going of type in of been wondering weakness. on just go you

Jeffrey Kramer

Yes.

about sub-segments. a got talk category large it’s and as filtration we So, several

filtration and we reverse segments. air So filtration, different have osmosis, are filtration, all process auto they

referencing I a improvement our see slower. still a think, the it. for is is important very It’s to reverse Yes, starting us. sequential osmosis, bit segment one little which you’re we’re on

increased the are telling are see starting us. units. what indications world just time customers these and They build So It and our starting are hit interest who and talk are to life cycles have these the to Every replacement They stride. we’re starting to see full major indicated. we the players some around still our hasn’t hit. of customers come of to

So that a and we returns over traditional of the has hoping want to But are rate, out there cards don’t which that showing been to more over period again, positives skis. a history. get X%-plus our we’re very growth

Kurt Yinger

banner, mean, of seeing, of as in the And sort at could about you under exciting this you’re rebranding SWM of I bring revenue anything or that’s along maybe opportunities Okay. point? the sort everything then synergy-type initial AMS AMS you talk any

Jeffrey Kramer

filtration are I and little seeing talk our I we about bit of units mean, AMS. mean, filtration our our synergy paper a Yes. between we unit synergies.

particularly synergy, now sales commercial seeing starting on. are have customers. staff market team you see our that where global or We would regions in We’ve our focused. come force it advantages reorganized The and are sales to completely critical say, we mass five Asia, have in I like probably now the around four different to key activities has, and of

those down we’ve so sales on had those now SWM. we legacy some combined broken single that Conwed staff of focused filtration units. We’ve instance, had, in other And into for roles. activities and was We

So us. this transition, are we’re indications for early the in positive but initial

Kurt Yinger

helpful. Okay, AMS inflation a we talk of the there at or for your time? of that’s used is then about up And cost mechanisms you look one, pass-through, been sort have in as maybe final contracts? And sort pricing maybe in the as mean, whole, over can pretty a resin significantly that of expectation offsetting prices recently. I you guys lot

Jeffrey Kramer

Yes.

couple you things a of different can at. look there’s So

are So time sell. our most a some of certainly value some contracts we applications, have the of but pass-through

in the movements like like But of are we mean, price it of did goes of exposed never the our as So when I because value-based. the we’re up flooding. short-term to activities most price. not it

increase, and think is the scramble If going for doing a I it raise us this in It long try at, long-term some to caused the this we’re We more back as a and norm, take the a short-term. trend? really is we a of think really and but cause any and to it because the little a of a prices appropriate go temporary shorter-term of prices didn’t to long-term disruption we is is bit happened So it’s it’s that lot flooding has that shortages, raised of pricing the that or in Houston. locations. a this look trend,

Kurt Yinger

All right. Jeff. a Thanks lot,

Jeffrey Kramer

Sure.

Operator

Instructions] & with now from we Thank a have you. Jacome Dan And [Operator follow-up Company. Sidoti

Your line is open.

Dan Jacome

Thanks, again. right. All

I Heat-not-Burn? X% if your of what Did business Sorry last think was missed said I it. EP percent quarter. you you discuss

thoughts Just looking that. for incremental some on

wouldn’t to is decline not Heat-not-Burn weakness, need your it seems assuming into step RTL you a Given RTL future? capacity, of X% in offset forward major a going the up that like some the

Jeffrey Kramer

Yes.

are think overall, indication I you tried is EP give you a And around our as it X% to an last referencing we not whole. of size the little RTL currently. said of a we about when was of it where business quarter bit

Dan Jacome

Okay.

Jeffrey Kramer

increasing. is It

again, that RTL. is offset we’ve would that So keep still that would or this we traditionally could typical but seen early at attrition it, it If on, again, increase in offset. the that

had a we working a course, headwinds the into Of that’s to what bit And confidence EP last pronounced. us year we’re using we’re some more little more overall. some for were give that business environment that stable

Dan Jacome

Jeff. Great, Okay.

like quarter? higher X%. was it sounds this specific, than it was getting too X% It – So above was it without

Jeffrey Kramer

Yes. a I that’s good would say, characterization. probably

Dan Jacome

you What do for that of SWM kind Is or that maybe already using companies everything back are were themselves, technology? learning on push the doing something? the are just of because it and curve in-sourcing Okay. they sort first they not get

Jeffrey Kramer

kind Japan. of interesting starting right real that’s But there They and get others movers. It’s I world. it dynamic are now. first look to interesting. an an a moving. seen it’s first-mover their was the mean, think advantage, company too see are some you’ve starting at a seen now it’s big – what in success around presentations, I so good Yes. rate some introducing is, they’ve And you And to

is marketplace on it’s fast so number we But think to hard say moving and so sure. And early it’s that for are so a that conversations I underway. just the have of

Dan Jacome

you mentioned ago, forgot. a they on those are it year comments need or last And so Okay, long I replaced? replacement just – I to may on but appreciate be How what cycles for following-up filtration. one, Kurt’s have then often look How do think, the products that. like?

Jeffrey Kramer

Yes.

are three they years. think, two typically, I to

Dan Jacome

Okay.

Jeffrey Kramer

off forced But prices, can five it you into to to get When getting we to they starting five to. that’s think now on again, depending and years, trade you where are feel do where balance we’re you’re get energy past I years. a

Dan Jacome

out Okay, great. go again. And you

Jeffrey Kramer

Sure.

Operator

Instructions] Dr. for no call back showing closing the the Kramer you. to like And in Jeff Thank I’m [Operator any I turn queue. remarks. questions would to

Jeffrey Kramer

that’s about to for you very look No, in with forward it. meeting next the Thank participating, everybody much and call or the we future. you

Operator

and participating today’s today’s gentlemen, for Ladies thank conference. This concludes in program. you

Everyone a You great may all disconnect. have day.

Mativ (MATV) 3 Nov 172017 Q3 Earnings call transcript