Strong revenue with profitability recovering
MISSISSAUGA, Ontario, Nov. 09, 2022 -- KP Tissue Inc. (KPT) (TSX: KPT) reports the Q3 2022 financial and operational results of KPT and Kruger Products L.P. (KPLP). Kruger Products is Canada's leading manufacturer of quality tissue products for the Consumer market (Cashmere®, Purex®, SpongeTowels®, Scotties®, White Swan® and Bonterra™) and the Away-From-Home (AFH) market and continues to grow in the U.S. Consumer tissue business with the White Cloud® brand and premium private label products. KPT currently holds a 13.9% interest in KPLP.
KPLP Q3 2022 Business and Financial Highlights
- Revenue was $427.0 million in Q3 2022 compared to $391.4 million in Q3 2021, an increase of $35.6 million or 9.1%.
- Adjusted EBITDA1 was $30.7 million in Q3 2022, compared to $40.3 million in Q3 2021, a decrease of $9.6 million.
- Net loss was $38.8 million in Q3 2022 compared to $9.3 million in Q3 2021, a decrease of $29.5 million.
- Declared a quarterly dividend of $0.18 per share to be paid on January 16, 2023.
“We continued to deliver solid top-line growth in the third quarter of 2022 with revenue increasing 9.1% year-over-year, while profitability significantly improved from the previous quarter based on the disciplined execution of a multi-faceted strategy. This included price increases across all segments as well as productivity gains, along with prudent cash management through reductions in working capital and discretionary spending,” stated KP Tissue’s Chief Executive Officer, Dino Bianco.
“I’m very pleased with the strong performance of our AFH segment in the third quarter with sales growth of 37.3% year-over-year and Adjusted EBITDA1 of $5.4 million, signaling a market recovery in Canada and the U.S. post-COVID. For the Consumer segment, revenue growth was 4.1%, as we are seeing slower consumer purchases as they adjust to higher price points. We plan to maintain targeted investments in our consumer brands, including recently launched Bonterra™, SpongeTowels UltraPRO®, UltraLuxe® and White Cloud®, while watching post-pricing price gaps.”
“Although inflationary upward pressure appears to be easing, higher price points for products have created sales volatility with some consumers trading down during these uncertain times. The recovery of our Memphis operations is also taking a little longer than anticipated, but we believe this situation will be largely resolved by early 2023. Despite the volatile business environment, we are moving in the right direction and fully expect to generate profitable growth in the fourth quarter and beyond,” Mr. Bianco concluded.
Outlook for Q4 2022
Looking ahead to the fourth quarter of 2022, we believe that inflationary pressure has stabilized, price increases are in place, cost-cutting programs have been implemented, discretionary spending has been restricted and operating efficiency is gaining traction. As a result, Adjusted EBITDA1 in Q4 2022 is expected to exceed last year’s fourth quarter level.
KPLP Q3 2022 Financial Results
Revenue was $427.0 million in Q3 2022 compared to $391.4 million in Q3 2021, an increase of $35.6 million or 9.1%. The increase in revenue was due to selling price increases in all segments and regions along with higher sales volume in the AFH segment as the business continues to recover from the impact of COVID-19, partially offset by lower sales volume in the Consumer segment and unfavourable mix. Revenue was also favourably impacted by foreign exchange fluctuations on U.S. dollar sales.
Cost of sales was $394.6 million in Q3 2022 compared to $345.6 million in Q3 2021, an increase of $49.0 million or 14.2%. Manufacturing costs increased primarily due to significantly increased pulp costs and high inflation on other input costs, along with the impact of labour shortages and productivity in Memphis manufacturing, plant overhead increases primarily in maintenance and the unfavourable impact of foreign exchange fluctuations on U.S. dollar costs, partially offset by lower sales volumes. Freight costs increased significantly compared to Q3 2021 primarily due to increased freight rates resulting from cost inflation. As a percentage of revenue, cost of sales was 92.4% in Q3 2022 compared to 88.3% in Q3 2021.
Selling, general and administrative (SG&A) expenses were $30.1 million in Q3 2022 compared to $29.0 million in Q3 2021, an increase of $1.1 million or 3.5%. The increase was primarily due to higher advertising and promotion expenses, the release of a COVID-19 related AFH accounts receivable provision in the comparative period and a return to more normal travel levels, partially offset by lower personnel costs and management fees. As a percentage of revenue, SG&A expenses were 7.0% in Q3 2022 compared to 7.4% in Q3 2021.
Adjusted EBITDA1 was $30.7 million in Q3 2022 compared to $40.3 million in Q3 2021, a decrease of $9.6 million or 23.8%. The decrease was primarily due to significant inflation on pulp, manufacturing costs and freight as described above, and also lower sales volume, which were only partially offset by higher selling prices.
Net loss was $38.8 million in Q3 2022 compared to $9.3 million in Q3 2021, a decrease of $29.5 million. The decrease was primarily due to lower Adjusted EBITDA1 of $9.6 million as discussed above, higher other expense related to unrealized foreign exchange losses on U.S. denominated debt and consulting costs related to operational transformation initiatives, partially offset by a lower change in the amortized costs of the Partnership units liability.
1 Adjusted EBITDA is a non-GAAP financial measure. Refer to the Non-GAAP Financial Measures section of this news release for more information on these measures.
Source: KP Tissue
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