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GC

Glatfelter Corp (GLT)·Q1 2024 Earnings Summary

Executive Summary

  • Mixed quarter: net sales of $327.3M and GAAP EPS of $(0.58) amid strong Spunlace and Composite Fibers offset by pronounced weakness in Airlaid Europe; Adjusted EBITDA was $23.8M with a 7.3% margin .
  • Segment divergence: Spunlace EBITDA rose to $6.1M (+$5.1M YoY) on price‑cost gap and operational efficiencies; Composite Fibers EBITDA improved to $12.0M (+$1.9M YoY); Airlaid EBITDA fell to $12.6M (−$9.0M YoY) as European demand softened and pricing actions weighed on volume and mix .
  • Balance sheet: leverage reached 3.7x at March 31, with net debt of $845.5M; liquidity was ~$85M, and capex was $7.5M for the quarter .
  • Strategic catalyst: HSR waiting period for the proposed merger with Berry Global’s HHNF business expired in April; integration planning is underway with anticipated closing in 2H 2024 .
  • Estimates context: S&P Global consensus for Q1 2024 EPS/revenue was unavailable via our feed; no beat/miss assessment to provide. Note: Wall Street consensus unavailable via S&P Global due to mapping issue.

What Went Well and What Went Wrong

What Went Well

  • Spunlace momentum: “delivered $6.1 million in EBITDA, recording gains in margin and volume” driven by price‑cost gap improvements and $2.4M operational efficiencies; Sontara critical cleaning volumes up ~10% from new and existing customers .
  • Composite Fibers resilience: EBITDA up $1.9M YoY to $12.0M; price‑cost gap favorable (+$2.5M) despite lower prices, with positive shipment mix in composite laminates and metallized .
  • Tennessee recovery: Spunlace Tennessee facility fully operational following December tornado; customer commitments met during recovery efforts .

What Went Wrong

  • Airlaid Europe weakness: EBITDA down $9.0M YoY; lower shipments in Hygiene, Home Care, Tabletop and adverse pricing/mix; lower production (~2,800 tonnes) to manage inventory pressured absorption and operations (−$3.8M) .
  • Corporate costs tied to merger: higher strategic initiatives expenses in Q1 related to HHNF transaction, elevating unallocated operating expense versus last year .
  • Free cash flow and interest: adjusted free cash flow was a use of $36.9M; cash interest elevated by ~$5M YoY due to 2023 refinancing and higher rates; working capital and taxes also used more cash .

Financial Results

Company-level performance

MetricQ3 2023Q4 2023Q1 2024
Net Sales ($USD Millions)$329.9 $320.4 $327.3
GAAP EPS (Continuing Ops) ($)$(0.43) $(0.19) $(0.58)
Adjusted EPS ($)$(0.23) $(0.04) $(0.33)
Adjusted EBITDA ($USD Millions)$25.5 $25.1 $23.8
Adjusted EBITDA Margin (%)7.7 (Adj EBITDA/Net Sales; cites: )~8.0 7.3

Versus prior year and prior quarter

MetricYoY Change (Q1 2024 vs Q1 2023)QoQ Change (Q1 2024 vs Q4 2023)
Net Sales ($USD Millions)−$51.0 (from $378.2 to $327.3) +$6.9 (from $320.4 to $327.3)
GAAP EPS ($)−$0.29 (from $(0.29) to $(0.58)) −$0.39 (from $(0.19) to $(0.58))
Adjusted EPS ($)−$0.20 (from $(0.13) to $(0.33)) −$0.29 (from $(0.04) to $(0.33))
Adjusted EBITDA ($USD Millions)−$1.0 (from $24.8 to $23.8) −$1.3 (from $25.1 to $23.8)

Consensus vs Actual – Q1 2024

MetricConsensusActualSurprise
Revenue ($USD Millions)N/A (S&P Global unavailable)$327.3 N/A
GAAP EPS ($)N/A (S&P Global unavailable)$(0.58) N/A
Adjusted EPS ($)N/A (S&P Global unavailable)$(0.33) N/A

Note: Wall Street consensus via S&P Global was unavailable due to a data mapping issue; therefore no beat/miss analysis can be provided.

Segment performance

SegmentMetricQ3 2023Q4 2023Q1 2024
AirlaidNet Sales ($USD Millions)$147.0 $127.5 $131.5
AirlaidEBITDA ($USD Millions)$18.7 $16.0 $12.6
AirlaidEBITDA Margin (%)12.8% 12.5% 9.6%
Composite FibersNet Sales ($USD Millions)$109.7 $115.5 $116.2
Composite FibersEBITDA ($USD Millions)$11.2 $11.0 $12.0
Composite FibersEBITDA Margin (%)10.2% 9.5% 10.4%
SpunlaceNet Sales ($USD Millions)$73.8 $78.0 $80.1
SpunlaceEBITDA ($USD Millions)$2.2 $5.7 $6.1
SpunlaceEBITDA Margin (%)3.0% 7.3% 7.7%

KPIs and Balance Sheet

KPIQ3 2023Q4 2023Q1 2024
Tons Shipped – Airlaid (metric)40,076 37,293 38,341
Tons Shipped – Composite Fibers (metric)22,188 22,770 25,002
Tons Shipped – Spunlace (metric)14,436 15,571 16,091
Cash & Equivalents ($USD Millions)$52.7 $50.3 $30.2
Total Debt ($USD Millions)$855.3 $860.3 $875.7
Net Debt ($USD Millions)$802.6 $810.1 $845.5
Leverage (Bank Covenant, x)3.1x 3.4x 3.7x
Capital Expenditure ($USD Millions)$7.8 $8.5 $7.5
Adjusted Free Cash Flow ($USD Millions)N/AN/A$(36.9)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA ($USD Millions)FY 2024$110–$120 (provided in Q4 2023 release) No numerical update provided in Q1 materials Maintained (no change disclosed)

Earnings Call Themes & Trends

TopicQ3 2023 (Previous Mentions)Q4 2023 (Previous Mentions)Q1 2024 (Current Period)Trend
Europe macro softnessAirlaid/tabletop weakness; destocking; alternate substrates pressure Airlaid impacted by European tabletop and competitive pressures; extended maintenance downtime Europe “most difficult market”; Airlaid EBITDA −$9M YoY; shipments and pricing under pressure Deteriorating in Q1
Price‑cost gapTurned positive in Composite Fibers and Spunlace (lower input costs vs prices) Sustained improvements; enterprise margin ~8% Spunlace +$7.4M favorable; Composite Fibers +$13.6M favorable Improving
Spunlace executionStable sequentially; operational improvements Strong quarter: $5.7M adj EBITDA Further gains: $6.1M EBITDA; site restructuring benefits; Tennessee recovery Strengthening
Airlaid innovation/customer mixFocus to broaden portfolio and mix Counteract volume softness via innovation and cost actions New qualified customer/application in Europe; plant-based caps shipment; reduce concentration Building pipeline
Pulp cost pass-throughsN/AN/ARising pulp prices seen in Q2; floating contracts pass through with ~3‑month lag; North America +2–3% price increases Input costs rising; mitigated
Merger (Berry HHNF)N/AAnnounced definitive agreements HSR waiting period expiration; integration planning underway; expected close 2H 2024 Advancing

Management Commentary

  • “Our progress was most evident in Spunlace which delivered $6.1 million in EBITDA, recording gains in margin and volume following a strong fourth quarter.” – Thomas Fahnemann, President & CEO .
  • “Composite Fibers… reaching the highest level… since Q3 2021… EBITDA margins averaging 10% in the last 3 quarters.” – Thomas Fahnemann .
  • “Airlaid… European markets remain quite tenuous… generated $9 million lower EBITDA… prolonged European market weakness… lower shipments and production along with adverse pricing dynamics.” – Management prepared remarks .
  • “Leverage ratio… 3.7x as of March 31, and… available liquidity of approximately $85 million at the end of Q1.” – CFO Ramesh Shettigar .
  • “HSR waiting period [expired]… anticipated to close in the second half of 2024… multiple teams are focused on key areas such as organizational structure… and operational excellence.” – Management .

Q&A Highlights

  • Airlaid downtime and absorption: Capacity utilization fell from mid/high‑80s to mid/high‑70s; deliberate volume decisions to improve profitability with broader B/C customer base, leading to near‑term absorption impact .
  • Recovery timing: New Airlaid applications begin shipments in Q2; more volume in 2H24 with fuller impact in 2025–2026, aiming to replace lower‑profit book and offset competition from Asia/Turkey .
  • Pulp prices and pricing mechanics: Rising pulp prices to hit in Q2; floating contracts pass through with ~3‑month lag; non‑floating North America prices already increased ~2–3%; Europe more competitive .
  • Cash flow seasonality and merger costs: Q1 typically heavy cash outflow; if inflation moderated, working capital breakeven to slightly positive; pre‑merger integration and restructuring spend spread through 2024 .
  • Merger financing and regulatory path: Financing timing TBD; awaiting approvals beyond U.S.; target close 2H24 .

Estimates Context

  • S&P Global consensus estimates for Q1 2024 EPS and revenue were unavailable due to a data mapping issue in our feed; as a result, we cannot assess beats/misses relative to Wall Street consensus for this quarter. We will update the comparison once S&P Global mapping for GLT is restored.

Key Takeaways for Investors

  • Segment divergence is acute: Spunlace and Composite Fibers are offsetting Airlaid Europe headwinds, but Airlaid’s absorption and pricing dynamics will likely weigh on near‑term consolidated margins .
  • Near‑term volume path: Expect incremental Airlaid recovery starting 2H24, with full impact in 2025–2026 as new applications ramp; monitor European hygiene and tabletop mix and competitive pressure from alternate substrates .
  • Cost pass‑through mechanics: Rising pulp costs should be mitigated by floating contracts with ~3‑month lag; non‑floating pricing progress seen in North America, but Europe remains challenging .
  • Balance sheet watch: Leverage increased to 3.7x, net debt rose to $845.5M; cash interest elevated; watch liquidity (~$85M) and working capital trends amid input cost moves .
  • Strategic catalyst: The Berry HHNF merger is moving forward with HSR expiration; integration planning underway – potential for scale, portfolio expansion, and deleveraging post‑close (expected 2H24) .
  • Operational execution: Ongoing price‑cost gap improvements and manufacturing efficiencies (notably in Spunlace) are supportive of margin stabilization even without top‑line growth .
  • Modeling implications: Without updated quantitative guidance in Q1 materials, use FY24 Adj. EBITDA $110–$120M from Q4 as baseline; factor in Airlaid Europe pressure in H1 and incremental recovery actions in H2 .