Neenah Paper reports 2010 second quarter results

Net sales of $168.6 million in the second quarter of 2010 increased 25 percent compared to the second quarter of 2009, with double-digit growth in both the Technical Products and Fine Paper segments. Consolidated operating income of $13.7 million in the second quarter of 2010 compared to an operating loss of $10.5 million in the prior year. Excluding charges of $18.0 million in 2009 for the Ripon mill closure, operating income in the second quarter of 2010 increased more than 80 percent from the prior year.

Commenting on results, Sean Erwin, Chairman and Chief Executive Officer, said “We were very pleased with results again this quarter. Our operating performance continues to reflect the success of our teams in executing strategies to grow our top and bottom line, as well as improved business conditions. Increased sales, along with actions we’ve taken to implement a leaner cost structure, have resulted in a significant improvement in income despite higher prices for pulp and other input costs. These higher profits, coupled with working capital efficiencies and modest capital spending, allowed us to further reduce debt and raised our year-to-date return on capital more than 10 percent.”

Technical Products net sales of $99.7 million in the second quarter of 2010 increased 35 percent compared to $73.9 million in the second quarter of 2009. Sales increased across all products groups, with filtration achieving a quarterly sales record. Sales were also up significantly for tape and abrasives, as demand from key global customers increased as a result of improved economic conditions in 2010. Average net prices in 2010 were higher, reflecting an improved mix of more advanced higher value products and increased selling prices. The increase in sales from higher volumes and price/mix was only partly offset by a weaker Euro, which reduced sales in 2010 by approximately $4 million, or four percent.

Operating income was $8.5 million in the second quarter of 2010 and compared to $3.3 million in the prior year period. The improvement in operating income and margins resulted from increased volumes and operating efficiencies and higher average selling prices. These items offset approximately $6 million of higher manufacturing input costs, primarily for pulp and latex.

Fine Paper second quarter 2010 net sales of $68.9 million grew 12 percent compared to $61.3 million in 2009. The increased sales resulted from a nine percent growth in shipments and higher net selling prices. Volume growth reflected improved economic conditions, as well as good performance in premium branded products and increased sales to international customers and in targeted new markets.

Operating income was $9.2 million in the second quarter of 2010 and increased $19.2 million from a $10.0 million operating loss in the second quarter of 2009. Excluding charges of $18.0 million related to the 2009 closing of the Ripon mill, operating income increased $1.2 million, or 15 percent, from the prior year. The higher profits were achieved despite a $4 million increase in pulp costs and additional expense to increase reserves for bad debts as a result of a customer bankruptcy. Benefits from increased volume, higher selling prices and a more efficient cost structure combined to offset these cost increases. Consolidated selling, general and administrative (SG&A) expense was $18.7 million in the second quarter of 2010 and increased $2.1 million compared to the prior year period as a result of the increase in bad debt reserves and higher spending associated with sales growth. Unallocated corporate expense of $4.0 million for the three months ended June 30, 2010 was $0.2 million higher than the prior year.

Net interest expense of $5.0 million in the second quarter of 2010 was $0.3 million less than the prior year, due to lower average debt levels in 2010. Interest expense was $0.7 million less than the first quarter of 2010 due to reduced debt of approximately $80 million following the March 2010 sale of the Company’s remaining timberlands.