SWM - Earnings call transcript Q4 2017

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Operator

Welcome to the SWM’s Fourth Quarter and Full-Year 2017 Earnings Conference Call. Hosting the call today from SWM is Dr. Jeff Kramer, Chief Executive Officer. He is joined by Allison Aden, Co-Chief Financial Officer; Andy Wamser, Co-Chief Financial Officer; and Mark Chekanow, Director of Investors 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 for over pleasure It turn now Instructions] my [Operator the is floor to Mr. to Chekanow. you begin. Sir, may

Mark Chekanow

Mark XXXX Thank Director Relations earnings for us results. of you fourth SWM’s Chekanow, to you, Thank morning. discuss SWM. quarter Investor Good joining Kim. I'm at and full-year

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

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

Dr. Jeff Kramer

$X.XX. with Mark, Thank results of morning adjusted full-year our guidance full-year everyone. and and EPS of good exceeding fourth you, Yesterday, we quarter reported $X.XX our

per impact detail per to taxes financials about the U.S. will more share. tax fourth of one-time the note legislation. quarter on expense into substantial on share full-year quarter our non-cash further GAAP to loss enacted net $X.XX including in that it color million the we Allison, provide Before a important call. GAAP later or related This $XX.X had recently the have go the and year, we is tax a

following recon business comparison EP EPS quarter, during the the issued to projects. of growth. prior from million, Specific Concurrently, year-end benefits acquisition close we year's when the to XXX from we the our per strong our originally results as inventories expectation consistent $XX XXXX from the due $X.XX year, share sales had organic AMS chose reduction additional difficult our part overall of adjusted sales lower in offset flow fourth our free facility inventory challenges was the Conwed to to finished down a for fourth expansion assumed faced organic quarters in Regarding to build customers in several AMS guidance. service quarter. the adjusted growth and million, a and $X.XX levels as we earlier at ensure consolidation cash to

XXXX. free expect to We to flow AMS million results. XXX Shifting rebound more than cash to in segment

up quarter were X% agent Conwed channels the declined the acquisition, increased transportation X% We as for in sales the fourth films. but protection call Excluding for expanded sales distribution our surface midyear year. rapidly organic we

While more these we have in during fourth customers a we reduce pattern seen since XXXX. the resumed year-end inventories normal the quarter, order saw

XX%. than product decline. transportation sales the the across saw finished for Although, full-year, more filtration, still grew good In modest most the growth quarter fourth full-year quarter with decline while we they a lines

our specifically products. across the quarter sales In a per best were the which but see the in grew by of customers' products for on in products. and were performing Conwed, benefitted kept the products the X% during filtration quarter X% XXXX. year chain. core Commenting unit at growing finished up growth and basis. related the sales to gains Industrial were medical, particular with line in areas the X% also our up of in up expect one and small momentum continue the graphics from to continued in medical We control X% year slightly erosion we sales fourth construction top but constrained year strength plans, Sales to sediment for supply the controlled These range. fire

these infrastructure later our and next robust million AMS achievement channel demand. should remain to development to on synergy plan as goal Execution rate in pent remains in for The meet phase investments solidify expect this this back course site the and XXXX up highly run sales We XX up XXXX. debottlenecks pick closure completion action year. the legacy of of

due the down for and basis segment Regarding XXX full-year, profits, growth, the Conwed. however saw favorable organic of margin fourth sales sales points quarter adjusted over addition operating we to expansion of organic from mix were lower margin

These contracted we by decline, smoking and driven offset in mid-XX% segments recon cigarette expected AMS results ramp paper as driven is though challenging. basis down in increased than attributable more Segment XXX up which wrapper Engineered the and and was we volume XXth XXXX of XXXX. about by particularly year with context, were level a high to margins movements, expected Papers, For last the volume a during offset to products on to lower sales traditional combination binder volume resulting currency were the comparison volume quarter by were generally throughout XXXX. margins. the have elevated in quarter XXXX Full points volume year X% volumes XXXX, fourth from gain said, Recall the as with have which sales favorable lower offset by RTL trends growth. consistently declines non-tobacco positive though Heat-not-Burn delivered volume profitability was attrition. That line recon X% due seen growth, were a of partially decline. a up X% we quarter factors decline was fourth X% fourth partially total

and fourth calls, lower favorable impacted throughout have note, in LIP contractually LIP royalties infringement negatively litigation in during Lastly, as margins on Europe. On ruling we've separate sales quarter, XXXX. the a received noticed recent we patent our the

as we reasons, point and detail provide provide continue we appropriate. legal cannot to For further this at will updates

market positive movement. Heat-not-Burn EP continued the quarter priorities, segment our continues of as during show tobacco increase to execution to sales Regarding the fourth

SWM As the it with We'll however, call, we've dedicated call the of continue earnings devices, leveraging story product remains technical supplier I unique our expertise, ongoing early global the some strong opportunity available reconstituted significant out. in this to the to will in teams these products much choice industry; offset across of Allison. represents industry, a in tobacco tobacco for capacity. now the help our stages as used headwinds yet adoption with of turn positioning and over the noted play to relationships of the

Allison Aden

Conwed our declined lower X% sales quarterly the XX% organic to was from increased contraction soft of sales. XX.X% transportation Jeff. review Adjusted Organic due you, In financial Thank operating results The margin quarter, I'll to acquisition. AMS film sales with XXX to sales. basis fourth points. sales million segment due resulted the performance. now AMS down starting margin XX

margin Conwed the addition sales operating For year, full sales increased sales X% basis Conwed growth. and of XX.X% related by the driven organic up sales Adjusted synergies. and addition of growth and to by points XXX the organic of XX% XXX was million driven

LIP margin royalties mix Paper the more the were fourth despite For sales net points compared Adjusted the sales Also volume, down product overhead XXX Favorable operating price a year and pricing movements year royalties but were lower segment, primarily basis offsetting unfavorable decline. Engineered lower quarter increase year. to traditional absorption. was X% due reduced quarter, LIP while with currency prior were in to than costs X% volume neutral. line the versus lower last margin, drove in and full XX.X% up RTL

margin XXXX comparison. years. Jeff adjusted fourth disciplined a margin nearly XX% favorite decline quarterly recent highest year-over-year was mentioned, quarter The margin As the of managed was the by in

X% respectively, decreased sales margin X% decrease points. follow-up net consolidated cost X% down consulting Conwed and control. continued quarter quarter were a benefits. for This royalties. offset percentage decline. total sales, currency and and both XXX and expenses in to sales. XXX basis XX.X% and profit Adjusted was X% but full-year, XX.X% adjusted X% and to due for XX%, decreased fourth quarter quarter fourth our year currency more Conwed sales favorable points. focus fees excluding X% a operating volume results, On operating neutral fourth margin is the Consistent basis, unallocated corporate basis the down down as with the For excluding on Adjusted decrease mix Fourth lower the up declining due price than were was increased the by and of

was points. GAAP the fourth Conwed down For excluding prior year. and the EPS and of $X.XX operating but XX% adjusted per consolidated tax by Fourth flat The we quarter loss per $X a margin excluding implementation due from share resulting both XXX earnings, Conwed increased was towards currency the of dollar down a to was from XX% act. XXXX the profit adjusted sales recorded Shifting loss to the tax quarter one-time full-year, X% benefits. in was $X.XX Full-year $X.XX down net U.S. basis expense the share.

one-time with For the a of of our full-year, the guidance significant impact. $X.XX. tax exceeded EPS $X.XX The full-year GAAP $X.XX adjusted expense EPS was a driving

to like provide tax for impact recently passed the and SWM. some context on legislation I'd U.S. its Now

of XX.X per in was The mentioned, the tax was of repatriation the earnings implementation rate. driven act act. one-time partially million expense $X.XX the incurred from eight XXXX. offset years permissible subsidiaries. elect imposed is fourth we and utilization The As the portion transition will on and payment a a tax new non-U.S. tax the tax of offset to a over as this I net undistributed share, $X.XX million to initial of The share per $X will by or quarter about total lower cash benefit non-cash annual net Company by the be tax under U.S. XXXX to in expected pay by credits the of incremental

result X.XX tax benefit. tax our X.X share We liability in differed predicted also net rates. million of lower This a or resulted a as per revalued

JV, with In interest the RTL. floating The outlined Excluding a on year. one-time which hedge proportion to accretion the taxes an debt. fourth forcing headwind higher the XXXX. anticipated XX% results as European for Currency the the in as factors rate declines XX% recon to shortfall We certain line was from rate expense a anticipated. played achieving Chinese EPS. and deliver the tax significant most relation in to positive EPS were our had These in positive our quarter our been was royalties tax the expected impact effective LIP and the rate the have guidance by growth. these also anticipated a $X.XX from quarter Conwed items, essentially XXXX generally Low fourth beginning net we faced in of in we full-year jurisdictions. acquisition expectations significant of offset in our expected traditional was of additional interest which out was fix translation element approximately most would our full-year of impact at impact The had and impact our guidance, the

As calls, previous we've expectations performance we JV partners challenging with demand supply, work forward tempering our drive we as our a discussed to environment. are better going in

Now cash XX% shifting about million, to XXXX. $XX free flow cash liquidity. flow and below was XXXX

of While film XX $XXX increase to line related operating filtration of Total million the make was related stemmed the this cash specialty million across to projects About to the and of and versus up by was flow the million. to remainder XX addition paper growth increased Conwed business of including prior slightly new increase half line CapEx products. modifications from year. the

made in operations. investments We our manufacturing also AMS

China approach free both we required million equipment. that an XXXX. was expanded to in U.S. into some the preparing Moving in site and closure, communicated cash and expected generated relocating a XXXX flow for previously facility XX We've which offset upgraded

balances consistent flow. in $XXX our than the year in quarter. perspective drove higher XXXX the to planned Thus inventory than From to inventories for expect balance to three facility, a XXXX, at we XXXX. two the end our a to we higher more we continue customer at by we fourth circumstances debt growth during Absent planned. of cash of year terms build January. Consistent flow EPS down times EBITDA impacting the ended we were to levels anticipate credit times ensure move, originally closing capital increase in increase with of This potential expected pay acquisitions, driven acquisition higher facility free the free end XXXX, debt Conwed cash or working XXXX, in unusual at at the debt million. However the at adjusted from net to leverage up service

Jeff. Now back to

Dr. Jeff Kramer

growth a we is look to for that our offset Engineered and The range projected further XXXX, to is As sales EPS in X.XX. theme Paper. more the organic X.XX from to than tobacco realization are overarching adjusted driven AMS guidance headwinds expected in synergy

Heat-not-Burn outlook growth This exciting primary the in EP our is point will SWM, while as results, be reflects for We projected years offset free an declines. expect is our traditional offers smoking key attrition growth RTL influence with markets the growth. inflection us trends cash an AMS rebalancing sustainable for anticipated earnings the of on and strategic necessary in This reaching operating profits, flow. position consolidated to portfolio organic increases several outlook of sales, culmination to scale

XXXX, normalized XX% yield anticipate year the earnings We that and legislation U.S. hence our point For and in from financial application interpretation the our a the portion effective rate in this basis we will on of may the reduction impacting certain the new caution effective net impact potentially the cash rate of results XXXX. rate however reduced flows. evolve tax deductions throughout of previously XXX tax available to few our

The are areas the platform. site priorities to operations to accelerated improvements Our AMS, pursue piece with sales the of actions benefits essentially improve primary and continue development our of is including realized drive plan organic productivity focus product we In to scale optimization strategic unchanged remain and but center this R&D our growth XXXX. legacy grow collaboration. manufacturing and and segment-wide closure, our other and AMS

offset benefits make internationalize grow capital protection costs able investments the to we and surface where market as facility Engineered in our business. capacity focused our are film AMS line to to investments come located others first growth share they to we strategy scale These of continue in represents pressures. assets existing as China. will and continue overseas international In noted, facility AMS such to to As advance UK expanded look increasing manage our we Papers and strategically our and leverage our help to

a build innovation remains lines. we growth Heat-not-Burn and mentioned plan upon and capabilities support the As product this focus relationships development innovative to potential strong our to in customer product

role hard I'd past thank team the our Conwed XXXX closing Argotec Before wrapping process. work in for few Allison our to over tax years, integrations up and toward the like demanding and here with of and remarks, particularly year-end leadership

Wamser. contributions. several announced our point which background following down will space take Co-CFOs to at Andy March Andy? in will weeks Andy transition stepping are over and investment currently Xst sole ago, both look banking has finance They As his responsibility. Andy forward mostly carefully CFO, be Allison the planned and as industrials an a we serving through new leadership corporate to

Andy Wamser

with investors the Company for period a excited story I've and with relationships tell time, the analysts and looking be I'm drive of business the Jeff to the this business most the our to the SWM and with of at transformation be been horizon, and demonstrates on the help Company's particular the exceptionally months developing been team short forward today to Thank and while ahead. the I'm I've you, excited create Jeff. very team about joining to rest to at plan. transformation point execute sustainable in commitment prospects of for partnering Mark to and growth, value impressed partnering only and the to the the The with Company's SWMs

Dr. Jeff Kramer

closing, of a our developments opportunities significant and AMS synergies addition to platform, year footprint, also our Thanks, respect to not across created The of scale for with XXXX increased was SWM. only growth Conwed organizations. manufacturing our drive commercial to realigned Andy. from but In optimization

the Another total our reach the is Company's milestone more non-tobacco than for history. that in time XX% first important sales

the expansion direction commitment strategy. and I've margins our diversified continue delivering operations, cash the AMS our to joining we markets, to right Phase growing We've operational recent component assessing underscored fostering the we've critical with broaden flows, markets Our on and questions. materials look highly generate a collaborative ongoing attributive platform, specialty accomplishment complete. we'll and our with Since tobacco Kim, of specialty as longer been strategic intended We term our the global company. I remarks. partnerships customers, base and believe scale are products AMS, portfolio through please a to transformation is operations transformation in continued concludes combination growth appreciate of our materials which our focusing your progress acquisitions continued and is now strategic our support. SWM, and a into We I lines potential organizational but and that end the excellence. investments, of consider franchise overall expand with to growth to them, years the That for global customer view significant continue interest organic the by and rebalanced engineered strong end of open long-term our strong and technologies. is transformation

Operator

Your Instructions] from first Company. comes of Dan [Operator Sidoti the question from line & Jacome

is line Your open.

Dan Jacome

give on strong think is AMS. products, here, couple technologies? you you it? you us medical are very said in is What driving color I a questions A seeing? Can trends exactly of What little that? What doing

Dr. Jeff Kramer

of with There's etc., to products lot we big large customers. close a the have [Sport of our finger product our called Stripe] component and new gains grow. bandages, They are use a in that a of making formation in and line wound we very care continue coming to continue marketplace. Yes, we're is out relationships that collaborative end major

sum of a little of a not it's it's lot trend. one pieces, single total So, overarching

I that positioned marketplace. think just we're well in

Dan Jacome

I couple last lot a surface What quarters movement. about of protection? nice know of a

was it most to on Asia. you've anything comment think in there? seen recently What I

Dr. Jeff Kramer

product our of division. We've underlying indicated continued as division the be continued successful the one to AMS same, the think internationalize very there. I the opened market to that Asia trend in Yes, supply chains is we is goals expanded of up our and

weakness many continue. -- we've of inventory had rapidly And a industry lot the rebalancing, then quarter. second those at saw a channel very then trends and did the and typical of which for that's end fourth seen they that the bit companies little of in is third and little because of quarters was really growing in a we bit quarter You the fourth

I So, can double-digit but are know line remain positive we we we the very performance see we overall. on this that had the due this growth very same to year, that. if product about year-on-year don't strong optimistic

Dan Jacome

I projection? X% that think protection grow in the Is said to past X%. that can reasonable area surface still a you

Dr. Jeff Kramer

about that's a we're that. reasonable an projection adoption seeing. in might think I a of early there we're Yes upside be Again, excited it's so stage and bit little what

Dan Jacome

there on given wanted in then does, about was then constructions And the I some I an you changes arena, plastics and ask accident not think side just Conwed but highway to what the spending politics president. of Have next up of do picking kind line -- that? any you infrastructure have that couple years of I on over about to am overacting under this sight the think I you any or

Dr. Jeff Kramer

you of sight systems. Well, political our line into have much we as a do

not to clear that what long-term but country that that need on in of to I'm comment trend It's infrastructure. optimistic So is highways we nature. are on reinvest are the things to saying, going try people we the and in

the think more is I'm need that to I So country that. to do going they optimistic to realize continue

Dan Jacome

small two And then last questions.

I mentioned some royalty think there, level Any high here? much. say LIT views was supply too but you you you Q&A the on change litigation, could can't there

Dr. Jeff Kramer

just licensing had agreements appearance a customer, about and reflects so customer, a another large cost we is It's us that we have really comment our that just our got litigation, With it's been technology technology royalty that's that a favorable something depending one reasonable. are have think of court in our been this is technology very No, on another on we competitor innovative. cautious. we depending actually LIP or have we and

Dan Jacome

last questions, bit to going think manufacturing improvements, What exactly then more I a do? are us give you there? details that. you little bit little Can you've talked And a about

Dr. Jeff Kramer

area our a in we're one focus side. even that that's AMS have and greater on we our that other EP thing into now side embedding excellence Yes, strong operational something of

a formed operations we fully integrated then division. So, into

key our that combining to We our to to by were moving activities are able best and that's coming efficiencies other some with some of Sigma optimizing of focuses the we going drive think and actually. and continue practices, Lean one around be sights and years will Six for operations closing I be the that doing our

Operator

Davidson. of Your line Chercover from next question Steven comes from the

Steven Chercover

in the current double-digit XXXX, and fourth the start indicated expect quarter situation, in but AMS that specifically tailed to redemption of films inventory wanted was in but the in performed with low which year? growth the and destocking off films quite I an do well you you

Dr. Jeff Kramer

our rebound orders are Yes, business still optimistic expected we've film we in we are to seen in more and considering already level. very January what

the that's what is slowdown than feel fourth inventory really why we quarter we've in adjustments seen. So,

Steven Chercover

well, And then so sticking pick the of should expect you be going happened? fairly to is might up filtration with easy AMS, when as or cost that cycle replacement the this year do

Dr. Jeff Kramer

Yes, in RO cycles tell side, years the little some two our been desalinization Middle-East scale back the customers has weaker in particularly and seen the some new is a large in that there bit starting so Asia. and to which that to replacement we've continue on the last us large approvals maybe our but plans capital come and over are

that been business up. that is about hoping customer primarily and to actually filtration we're air but filtration different a one it's a through So, takes showed non-water which Actually, we moving it, think you have due technology. was weakness small our a if little then that pretty liquids, process strong,

to we're that expecting XXXX. So, grow in business

Steven Chercover

of levels, you a and can sounds help? maybe are It Africa at couple metropolises crisis so in both hopefully South major Brazil like

Dr. Jeff Kramer

had they problem think to the long term that's these I problem positive them in probably but the continue plants, at coming of is we're are facing the way to they last why need think building online trends you types fill the second time, by can't that face they're this, is favor and is, yes, technology. The Well, desalinization Africa but I going on what actually is that's more. South they basically not and

suppliers use they'll seeing books so. we're those see that'll flow the backward their start us. positioned we'll increase and Hopefully, with order with end and hopefully, So, or trends well key

Steven Chercover

that's that's Yes, opportunity. I big obviously mean

shouldn’t tell see I QX? to gears growth guys in much did XXXX? if reason tobacco, it revenue how HnB you in could. Okay, continued us you Can And is switching any there

Dr. Jeff Kramer

but faster is operating to than that overall share RTL, of continue had range it's so said in been we we still for our think so terms has what caution, technology I I hard in with our going grow. for think the still plan, to enough we think it's process forecast just is planned anybody the growth on part X% right a well, business, to it's say it small Heat-not-Burn early XX% to remains I I of Yes, can the us really to The that are innovation RTL. partner development thing based is in for building that now, it's this how key choice RTL who

So, cautious we still the remain offset help I positive but others business that's again just again in but some of how I don't pressures come. our But going I growing little more to for we be I that. us something fast years to forecast in -- am see to it's attractive it's going a bit and be traditional small for then and think

Steven Chercover

of is kind my commercial? qualification are was still next or where of question you we becoming Yes, anticipated it lifecycle which are in we testing the Heat-not-Burn,

Dr. Jeff Kramer

BAPs the you sales if there're world so it applying they think on from a this of I world, they're approvals world. very then would of their parts different cities, think tastes PMIs the marketing to I is but test they're for the of we're various to formularies and in early around their mean process, commercial, the about is in world, around tweak in the the it number trying Well, still say

seen I've very with the about. lifecycle So, I early our think what and continues I've but spoken from what in positive to customers it's everything be

Steven Chercover

three in I'll queue, just back mistaken picture so that the one sheet and the am then And target. is is leveraged more and question times big get X.X then not balance I know I now if finally

close. or if Just find perhaps shaking getting target, now bushes right of equivalence pull to the are you teams acquisition you you're wondering, right that next if midyear by trigger? that achieve have you was Do the the acquisition could the

Dr. Jeff Kramer

this just investment emphasize right the and so, things, demonstrating promised the have -- to want those just one is of organic are growth couple our now things, year. our main getting a -- that two so we community synergies is I Yes, focus

our that's focus. primary So

Now around with that grow out we lines at our can it's looking strategy. product always and marketplace are what's the that all there said, looking ways grow but in at and we positions, our our

that. that dry get down and rates it's and comes in opportunity so powder leverage take at to going it. at if X.X% and the will looks necessarily down X% will We've shown the keeping along our paying but can right were to goal X% look So to not hard debt to hard we back handle our keep

I think that's going a going be of component to forward. our strategy

Operator

[Operator Instructions] Jacome the from of Company. Your comes next line question from Dan Sidoti &

Dan Jacome

so impressive still or of and an your done the on changed? been a an was the saw M&A follow-up anything revenue just the the because rate you've couple nice hired years then far Steve's pretty margin. profile. Just that rates at you just on in willing margin consistent of kind within high-teens EBITDA was to asking landscape, opportunity terms I'm in to and good there question look EBITDA there then growth for slightly has last Will wondering you what acquired the past? I cookbook you've and what on revenue, And M&A attractive versus the if quick of that has on even that following Is acquisition a that if growth be was lower say

Dr. Jeff Kramer

pretty Yes, I mean M&A of we have big at look cookbook a in how things. terms we

today So us. does it we clean-up we fit does do in and to always it do it value add the what first strategically to

with get so in where margin to we we've be with the these be points want about as margin to we're higher XX.X% stream businesses. is we but first come expectation don’t to XX% do model, gone are see returns have we applications you that or that It's so for thing synergies. really tend level things. up So, the have able right on them those R&D specifically that's now for the typical might been to get favor. we would we I think we screen. XXX I to that things a not though target could be into always to AMS, the going buy from specific to off going around be margins plays be our we will do And now a them. not that cut specialty done that the tend always our so things, mean other the move niche margin those target once and That's and are what today commodity across XXX or product, up efficiencies to since what I variety them with moving and we

Operator

over I are at time. back to Instructions] no presenters. [Operator this turn the call There further questions the

Dr. Jeff Kramer

we're to we Okay, well, thank us listening are you to and you the and I SWMs story going excited you appreciate appreciate the time join about everybody, today. I taken where

Operator

gentlemen, this call. concludes conference Ladies today’s and

You may now disconnect.

Mativ (MATV) 22 Feb 182017 Q4 Earnings call transcript