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KapStone’s net income increases in 2017 fourth quarter

Published 08 February 2018

KapStone Paper and Packaging has reported preliminary results for the fourth quarter and year ended 31 December 2017.

As compared to 2016's fourth quarter, results for 2017's fourth quarter:

Net sales of $859 million, up $81 million, or 10 percent

Net income of $188 million, up $169 million, or 924 percent

Diluted EPS of $1.90, up $1.71 per share, or 900 percent

Non U.S. GAAP financial measures for 2017's fourth quarter as compared to 2016's fourth quarter:

Adjusted EBITDA of $136 million, up $44 million, or 48 percent

Adjusted net income of $50 million, up $27 million, or 115 percent 

Adjusted diluted EPS of $0.51, up $0.27 per share, or 113 percent

As compared to the year ended December 31, 2016, results for the year ended December 31, 2017:

Net sales of $3,316 million, up $239 million, or 8 percent

Net income of $244 million, up $158 million, or 182 percent

Diluted EPS of $2.47 up $1.59 per share, or 181 percent

Non U.S. GAAP financial measures for the year ended December 31, 2017 as compared to 2016's year: 

Adjusted EBITDA of $437 million, up $53 million, or 14 percent

Adjusted net income of $130 million, up $23 million, or 21 percent

Adjusted diluted EPS of $1.32, up $0.22 per share, or 20 percent

KapStone president and chief executive officer Matthew Kaplan said:  "Eleven years ago, we began a journey to build a world-class paper and packaging company with the resources and skills of our largest competitors— that focused on maximization of stockholder value and that treated our customers and employees like a small, family-oriented company.

“On January 29, 2018, we announced signing a definitive agreement to be acquired by WestRock for $35.00 per share, subject to customary closing conditions, including KapStone stockholder approval. We believe this acquisition is a compelling transaction for our stockholders and an exciting development for both KapStone and WestRock."

Fourth Quarter Operating Highlights

Consolidated net sales of $859 million in the fourth quarter of 2017 were $81 million higher than 2016, reflecting higher prices for containerboard and corrugated products. Tons of paper sold in the paper and packaging segment increased to 731,000 tons during the fourth quarter of 2017 compared to 724,000 tons a year earlier.

 The Company's average mill selling price of $698 per ton in the fourth quarter of 2017 was higher by $81 per ton compared to the fourth quarter of 2016 due to the combined impact of higher export and domestic containerboard selling prices and kraft paper prices.  Average mill selling prices were flat compared to the third quarter of 2017. Distribution segment sales increased by $14 million compared to the prior year quarter due to higher prices, partially offset by lower volume.

Net income of $188 million for the 2017 fourth quarter increased by $169 million compared to the 2016 fourth quarter. The current quarter includes a provisional tax benefit of $144 million associated with the passage of the Tax Cuts and Jobs Act on December 22, 2017. The tax benefit consists of a non-cash adjustment to re-measure deferred income tax liabilities at the new 21 percent federal statutory income tax rate compared to the prior 35 percent income tax rate.

Adjusted EBITDA for the fourth quarter of 2017 of $136 million increased by $44 million compared to the fourth quarter of 2016 as follows:

$57 million due to higher selling prices,

Higher sales volume of $3 million,

Productivity improvements and cost savings of $10 million, and

$6 million due to the impact of Hurricane Matthew in 2016, which did not recur.

These items were partially offset by:

Higher compensation and benefit costs of $16 million,

$7 million of higher planned maintenance outages, and

Inflation of $8 million driven by higher OCC costs.

The effective income tax rate for the fourth quarter of 2017, when excluding the impact of the new tax law, was 31.4 percent compared to 32.6 percent for the fourth quarter of 2016.

Full Year Operating Highlights

Consolidated net sales for the year ended December 31, 2017, were $3,316 million, an increase of 8 percent, compared to 2016 sales of $3,077 million.  The increase was due to higher prices, a better product mix and higher volumes in the paper and packaging segment. The Company's average mill selling price of $677 per ton in 2017 was higher by $54 per ton compared to 2016 due to the combined impact of higher export and domestic containerboard selling prices and kraft paper prices. Distribution segment sales increased by $31 million compared to 2016 due to higher prices, partially offset by lower volume.

Net income of $244 million for the year ended December 31, 2017 was higher than 2016's $86 million by $158 million.  The increase was mainly due to a provisional tax benefit of $144 million based on the new tax law enacted on December 22, 2017.

Adjusted EBITDA for 2017 of $437 million increased by $53 million compared to 2016 as follows:

$155 million due to higher selling prices,

Higher sales volume and improved operating performance of $10 million, and

$6 million due to the impact of Hurricane Matthew in 2016, which did not recur.

These items were partially offset by:

$35 million of higher compensation and benefit costs,

Inflation of $43 million driven by higher OCC costs, and

Higher planned maintenance outage costs of $14 million.

The effective income tax rate for the year ended December 31, 2017, when excluding the impact of the new tax law, was 33.2 percent compared to 32.7 percent for 2016.    

Cash Flow and Working Capital

Cash and cash equivalents increased by $17 million during the current quarter to $28 million at December 31, 2017. The Company generated $150 million of net cash from operating activities during the fourth quarter of 2017. Capital expenditures in the fourth quarter of 2017 were $30 million. The Company paid $10 million of dividends and made a voluntary debt repayment to reduce term loan borrowings by $80 million in the fourth quarter of 2017. 

Cash and cash equivalents decreased by $1 million during 2017 compared to December 31, 2016, reflecting cash provided by operating activities of $325 million, $138 million for capital expenditures, and $34 million for a strategic investment to increase mill integration. Cash used by financing activities totaled $155 million reflecting $155 million of voluntary debt prepayments and $39 million of cash dividends paid to stockholders, partially offset by $39 million of net proceeds from the receivables credit facility.   

At December 31, 2017, the Company had approximately $405 million of working capital and $486 million of revolver borrowing capacity. 



Source: Company Press Release