Glatfelter (US:GLT)2022-05-03 19:23Financial Data and Key Metrics Changes - The company reported a first-quarter adjusted earnings loss of $6.2 million or $0.14 per share, a decrease of $0.33 compared to the same period last year [14][15] - Adjusted free cash flow was lower by approximately $66 million versus the same quarter last year, primarily due to working capital usage of $42 million and lower cash earnings of about $9 million [37] - The bank covenant leverage ratio increased to 4.8x as of March 31, compared to 3.8x at the end of 2021, driven by lower earnings and higher working capital usage [39] Business Line Data and Key Metrics Changes - Composite Fibers segment revenues were nominally up on a constant currency basis, driven by higher selling prices of $17.6 million, but shipments were down 19% or nearly 5,900 tons, significantly impacted by the Russia/Ukraine crisis [18][19] - Airlaid Materials revenues increased by 83% on a constant currency basis, supported by the addition of Mount Holly, with legacy volume up 22% driven by strong demand in tabletop, hygiene, and home care products [27] - Spunlace segment revenue was approximately $96 million, with shipments 10% higher than expectations, driven by stronger demand in the consumer wipes category [30][31] Market Data and Key Metrics Changes - The escalation of energy prices in Europe negatively impacted results by $29 million compared to the prior year period, with North Atlantic freight rates more than doubling since Q4 [21][22] - The company expects selling prices to fully offset raw material and energy cost inflation in the second quarter, with volumes expected to be between 5% to 10% lower sequentially, primarily in wallcover [26] Company Strategy and Development Direction - The company is focused on mitigating inflation through aggressive cost control, strategic sourcing, and moving more customers to a cost pass-through model, especially for Composite Fibers [41] - The company aims to return the Spunlace segment to profitability in Q2 and is progressing with the integration of this new segment [41] - The company is committed to building a leading sustainable engineered materials company, with 90% of products being essential consumer staples [42] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging start to the year due to the Russia/Ukraine conflict and its impact on energy prices and logistics [6][7] - The company plans for macroeconomic and geopolitical challenges to persist in the near to midterm, focusing on critical business imperatives [41] - Management expressed confidence in achieving or exceeding the 50% target for converting customers to a cost pass-through model [75] Other Important Information - The company recorded non-cash asset goodwill impairment and working capital charges of $121 million in the first quarter, including $61 million of Dresden asset impairment [25] - Corporate costs were $1 million favorable compared to the same period last year, mainly due to lower incentive accruals and cost control initiatives [35] Q&A Session Summary Question: Efforts to mitigate the drop-off in Russian and Ukrainian business - Management discussed the challenges related to sanctions and military conflict, noting that capacity utilization at Dresden was just below 50% and plans to recalibrate staffing levels and cost structures [50][52] Question: Cumulative Russian-Ukrainian exposure over Gernsbach - Management indicated that the first quarter impact from Russia-Ukraine translated to around $3 million of cost penalties, with similar expectations for Q2 [54][55] Question: Update on bank covenant comments - Management confirmed full compliance with bank covenants in Q1 and ongoing discussions with banks to amend the debt covenant framework [62][63] Question: Demand trends in Spunlace - Management highlighted a 10% higher volume in Q1 than guided, with significant improvements expected in Q2 driven by pricing actions and operational efficiencies [68][70]