Fourth Quarter 2017 Earnings Conference Call

Transcription

1 Fourth Quarter 2017 Earnings Conference Call February 22, Schweitzer-Mauduit International, Inc.

2 Safe Harbor Statement This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws that are subject to the safe harbor created by such laws and other legal protections. Caution should be taken not to place undue reliance on any such forward-looking statements because actual results may differ materially from the results suggested by these statements. These forward-looking statements are made only as of the date of this presentation. We undertake no obligation, except as may be required by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part I, Item 1A. Risk Factors and elsewhere in our Annual Report on Form 10-K for the period ended December 31, 2016 and those described from time to time in our periodic and other reports filed with the Securities and Exchange Commission Schweitzer-Mauduit International, Inc. 2

3 FOURTH QUARTER & FULL YEAR 2017 RESULTS OVERVIEW AND BUSINESS HIGHLIGHTS DR. JEFF KRAMER CHIEF EXECUTIVE OFFICER 2018 Schweitzer-Mauduit International, Inc. 3

4 4Q & Full Year 2017 Financial Highlights ($ in Millions, Except Per Share Amounts) 4Q:16 4Q:17 FY 2016 FY 2017 Sales $198.7 $235.7 $839.9 $982.1 GAAP EPS (1) $0.55 ($0.89) $2.70 $1.12 Adjusted EPS (1) $0.80 $0.64 $3.26 $3.18 Free Cash Flow (2) $99.1 $ Adjusted EPS of $3.18 exceeded guidance of $3.15 Organic growth in AMS and Conwed acquisition offset anticipated headwinds in traditional RTL 4Q:17 Adjusted EPS of $0.64 versus $0.80 in 4Q:16 Difficult comparison to strong 4Q:16 for EP AMS organic sales down 2% following several quarters of stronger growth 4Q and FY 2017 GAAP EPS include $1.29 of net one-time expenses as result of new U.S. tax laws 2017 Free Cash Flow of $90 million (1) Throughout this presentation, the term GAAP EPS will be used to represent GAAP Diluted EPS, and Adjusted EPS will be used to represent Adjusted Diluted EPS. Adjusted Diluted EPS is a non-gaap financial measure. See non-gaap reconciliations and supplemental data in appendix. All financial measures presented relate to continuing operations. (2) Free cash flow is defined as operating cash flow less capital spending and capitalized software. See non-gaap reconciliations and supplemental data in appendix 2018 Schweitzer-Mauduit International, Inc. 4

5 Advanced Materials & Structures (AMS) Business Highlights Sales increased 52% in 4Q and 54% for full year Ex-acquisitions ( organic ) sales declined 2% in 4Q, but increased 4% for full year Surface protection film customers adjusted year-end inventories after a strong mid-year order season Filtration pickup in 4Q, but full year still soft; medical finished 2017 with good momentum, up year over year Conwed delivered solid 2017 results, synergy realization expected to continue 4Q and full year led by growth in erosion and sediment control products as well as construction products Good margin performance, in line with expectations Full year margin expansion from organic growth, positive mix, and Conwed synergies 2017 Priorities / Updates Integrate Conwed, achieve expected accretion, synergies Optimize across acquired businesses scale and higher margins 2018 Schweitzer-Mauduit International, Inc. 5

6 Engineered Papers (EP) Business Highlights 4Q sales up 2%, favorable currency offset 1% volume decline HnB ramp helped offset lower traditional RTL volume Full year 2017 sales down 2%, volume declined 3% Favorable currency Overall recon volume down consistent with expectations, higher HnB ramp and wrapper and binder growth helped offset lower traditional RTL volume Favorable ruling in LIP patent infringement litigation 2017 Priorities / Updates Maintain/gain share in LIP using selective price concessions if necessary Manage capacity and costs Develop and monetize new paper and recon products (Heat-not-Burn) 2018 Schweitzer-Mauduit International, Inc. 6

7 FOURTH QUARTER & FULL YEAR 2017 FINANCIAL RESULTS REVIEW ALLISON ADEN CO-CHIEF FINANCIAL OFFICER 2018 Schweitzer-Mauduit International, Inc. 7

8 Sales & Operating Profits AMS Segment - 4Q Sales: up 52%, organic down 2% - 4Q GAAP OP margin: 7.7% - 4Q Adjusted OP margin (1) down 200 bps to 13.4% 4Q & Full Year Q Sales: up 2% EP Segment - GAAP OP margin 19.1% - Adjusted OP margin (1) down 480 bps to 21.8% Unallocated Expenses - 4Q GAAP Unallocated : 5.8% of total sales - 4Q Adjusted Unallocated: 5.8%, down 160 bps Sales up 54%, organic up 4% GAAP OP margin: 11.2% Adjusted OP margin (1) up 230 bps to 17.5% Sales down 2% GAAP OP margin: 21.2% Adjusted OP margin (1) down 330 bps to 22.1% GAAP Unallocated: 4.1% of total sales Adjusted Unallocated: 4.1% of total sales, down 70 bps 4Q Sales up 19%, organic up 1%, Consolidated 4Q GAAP OP margin 8.5%; Adjusted OP margin (1) down 310 bps to 12.5% 2017 Sales up 17%, organic flat 2017 GAAP OP margin 12.7%; Adjusted OP margin (1) down 110 bps to 16.0% (1) Adjusted Operating Profit is a non-gaap measure. See non-gaap reconciliations and supplemental data in appendix Schweitzer-Mauduit International, Inc. 8

9 GAAP & Adjusted EPS (1) 4Q:17 GAAP Loss per share of $0.89, versus GAAP EPS $0.55 in 4Q:16 Loss driven by $1.29 per share of net one-time tax expenses Transition tax expense payable over 8 years; 2018 payment $3 million 4Q:17 Adjusted EPS of $0.64, versus $0.80 in 4Q:16 Full Year 2017 GAAP EPS of $1.12; Adjusted EPS of $3.18 Full year tax rate would have been nearly 30% excluding one-time items Full Year 2017 Puts and Takes Adjusted EPS exceeded $3.15 guidance AMS: surface protection films for transportation was strong, offsetting softness in filtration EP: segment generally on-plan as RTL decline was expected; Chinese Recon JV shortfall Resumed consolidated seasonal earnings pattern of strong 2Q and 3Q relative to 1Q and 4Q, expected to continue Raw materials moved higher across segments, pulp and resin (1) Adjusted EPS is a non-gaap financial measure. See non-gaap reconciliations and supplemental data in appendix Schweitzer-Mauduit International, Inc. 9

10 Cash Flow & Debt 2017 Operating Cash Flow of $131 million, Free Cash Flow (1) of $90 million Capital spending/software: $41 million Dividends: $52 million Without M&A, expect deleveraging $ millions 4Q:17 4Q:16 Balance Sheet Total Debt Less: Cash Net Debt Leverage per Credit Agreement (2) Net Debt / Adjusted EBITDA 3.0x 2.0x (1) See non-gaap reconciliations and supplemental data in appendix. (2) Credit agreement makes certain adjustments to EBITDA and net debt, including an adjustment to overseas cash balances Schweitzer-Mauduit International, Inc. 10

11 2018 Outlook & Priorities Guidance & Factors 2018 Adjusted EPS guidance range of $3.30 to $3.45 GAAP equivalent of $2.73 to $2.88, non-cash purchase accounting expenses are primary adjustments Balanced organic growth in AMS and further Conwed synergy realization projected to more than offset expected normal tobacco-related headwinds in EP Anticipated growth in consolidated sales, operating profits, EPS, and free cash flow Benefit from lower U.S. tax rate Strategic Priorities/Projects Advanced Materials & Structures Drive accelerated organic sales growth Deliver footprint rationalization synergies Growth investments: expanded Chinese facility, new international film line Engineered Papers Continued focus on efficiency gains Maintain/gain share in LIP Develop and monetize new products (Heat-not-Burn) 2018 Schweitzer-Mauduit International, Inc. 11

12 CLOSING REMARKS & QUESTIONS 2018 Schweitzer-Mauduit International, Inc. 12

13 Non-GAAP Reconciliations & Supplemental Data 2018 Schweitzer-Mauduit International, Inc. 13

14 Non-GAAP Reconciliations & Supplemental Data Certain financial measures and comments contained in this presentation are non-gaap financial measures, specifically measures which exclude one or more of the following: restructuring and impairment expenses, depreciation and amortization, interest expense, tax provision (benefit), capital spending, capitalized software expenditures, purchase accounting adjustments, and tax valuation and transition tax adjustments. We believe that investors understanding is enhanced by disclosing these non-gaap financial measures as a reasonable basis for comparison of our ongoing results of operations. Adjusted Operating Profit from Continuing Operations: FY 2015 Q Q Q Q FY 2016 Q Q Q Q FY 2017 Operating Profit from Continuing Operations $ $ 31.6 $ 37.5 $ 30.8 $ 6.2 $ $ 26.6 $ 39.5 $ 38.5 $ 20.1 $ Plus: Restructuring and Impairment Expense Plus: Purchase accounting adjustments Adjusted Operating Profit from Continuing Operations $ $ 36.5 $ 41.5 $ 35.1 $ 30.9 $ $ 35.6 $ 47.0 $ 45.4 $ 29.4 $ Adjusted Operating Margin from Continuing Operations 16.4% 17.0% 19.1% 16.8% 15.6% 17.1% 15.3% 18.4% 17.6% 12.5% 16.0% Adjusted Net Income (Loss) from Continuing Operations: FY 2015 Q Q Q Q FY 2016 Q Q Q Q FY 2017 Net income from continuing operations $ 90.5 $ 21.1 $ 26.0 $ 18.7 $ 17.0 $ 82.8 $ 13.7 $ 22.3 $ 25.7 $ (27.3) $ 34.4 Plus: Restructuring and impairment expense Less: Tax impact of restructuring and impairment expense (2.7) (0.4) (0.3) (0.5) (9.0) (10.2) (0.4) (0.4) (0.4) (0.2) (1.4) Plus: Purchase accounting adjustments Less: Tax impact of purchase accounting adjustments (2.8) (1.2) (1.2) (1.0) (1.1) (4.5) (2.5) (1.9) (1.5) (1.9) (7.8) Plus: Transitional tax adjustment Less: Net deferred tax movements, one-time tax expense & income tax valuation allow ance - - (0.4) 1.3 (7.4) (6.5) (9.1) (9.1) Adjusted Net Income from Continuing Operations $ $ 24.4 $ 28.1 $ 22.8 $ 24.2 $ 99.5 $ 19.8 $ 27.5 $ 30.7 $ 19.5 $ 97.5 EBIT, Adjusted EBIT and Adjusted EBITDA from Continuing Operations: FY 2015 Q Q Q Q FY 2016 Q Q Q Q FY 2017 Net income from Continuing Operations $ 90.5 $ 21.1 $ 26.0 $ 18.7 $ 17.0 $ 82.8 $ 13.7 $ 22.3 $ 25.7 $ (27.3) $ 34.4 Plus: Interest expense Plus: Tax provision (benefit) (12.5) EBIT from Continuing Operations Plus: Restructuring and impairment expense Adjusted EBIT from Continuing Operations Plus: Depreciation & amortization Adjusted EBITDA from Continuing Operations $ $ 46.4 $ 51.4 $ 45.8 $ 39.6 $ $ 43.9 $ 55.4 $ 59.1 $ 42.1 $ Schweitzer-Mauduit International, Inc. 14

15 Non-GAAP Reconciliations & Supplemental Data Certain financial measures and comments contained in this presentation are non-gaap financial measures, specifically measures which exclude one or more of the following: restructuring and impairment expenses, depreciation and amortization, interest expense, tax provision (benefit), capital spending, capitalized software expenditures, purchase accounting adjustments, and tax valuation and transition tax adjustments. We believe that investors understanding is enhanced by disclosing these non-gaap financial measures as a reasonable basis for comparison of our ongoing results of operations. Adjusted Earnings Per Share from Continuing Operations - Diluted FY 2015 Q Q Q Q FY 2016 Q Q Q Q FY 2017 Diluted net income per share from continuing operations $ 2.96 $ 0.69 $ 0.85 $ 0.61 $ 0.55 $ 2.70 $ 0.45 $ 0.72 $ 0.84 $ (0.89) $ 1.12 Plus: Purchase accounting adjustments, per share Less: Tax impact of purchase accounting adjustments, per share (0.09) (0.04) (0.03) (0.04) (0.04) (0.15) (0.08) (0.07) (0.04) (0.06) (0.25) Plus: Restructuring and impairment expense, per share Less: Tax impact of restructuring and impairment expense, per share (0.09) (0.01) (0.02) (0.01) (0.29) (0.33) (0.01) (0.01) (0.02) (0.01) (0.05) Plus: Transitional tax adjustment Less: Net deferred tax movements, one-time tax expense & income tax valuation allow ance - - (0.01) 0.04 (0.23) (0.20) (0.30) (0.30) Adjusted Earnings Per Share from Continuing Operations - Diluted $ 3.51 $ 0.80 $ 0.92 $ 0.74 $ 0.80 $ 3.26 $ 0.66 $ 0.88 $ 1.00 $ 0.64 $ 3.18 Adjusted Diluted Earnings Per Share: FY 2015 Q Q Q Q FY 2016 Q Q Q Q FY 2017 Diluted net income, per share $ 2.94 $ 0.69 $ 0.85 $ 0.61 $ 0.55 $ 2.70 $ 0.45 $ 0.72 $ 0.84 $ (0.89) $ 1.12 Plus: Purchase accounting adjustments, per share Less: Tax impact of purchase accounting adjustments, per share (0.09) (0.04) (0.03) (0.04) (0.04) (0.15) (0.08) (0.07) (0.04) (0.06) (0.25) Plus: Restructuring and impairment expense, per share - Continuing Operations Less: Tax impact of restructuring and impairment expense, per share - Continuing Operations (0.09) (0.01) (0.02) (0.01) (0.29) (0.33) (0.01) (0.01) (0.02) (0.01) (0.05) Plus: Transitional tax adjustment Less: Net deferred tax movements, one-time tax expense & income tax valuation allow ance - - (0.01) 0.04 (0.23) (0.20) (0.30) (0.30) Adjusted Earnings Per Share - Diluted $ 3.49 $ 0.80 $ 0.92 $ 0.74 $ 0.80 $ 3.26 $ 0.66 $ 0.88 $ 1.00 $ 0.64 $ 3.18 Free Cash Flow FY 2015 Q Q Q Q FY 2016 Q Q Q Q FY 2017 Cash provided by Operating Activities by Continuing Operations $ $ 17.7 $ 34.6 $ 30.8 $ 46.6 $ $ 12.9 $ 31.9 $ 48.4 $ 37.7 $ Less: Capital spending (24.2) (4.5) (5.2) (7.8) (10.3) (27.8) (11.1) (8.2) (8.2) (9.7) (37.2) Less: Capitalized softw are expenditure (0.9) (0.2) (0.7) (0.8) (1.1) (2.8) (0.8) (0.8) (1.0) (0.9) (3.5) Free Cash Flow $ $ 13.0 $ 28.7 $ 22.2 $ 35.2 $ 99.1 $ 1.0 $ 22.9 $ 39.2 $ 27.1 $ Schweitzer-Mauduit International, Inc. 15