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Tredegar Reports Second Quarter 2021 Results

RICHMOND, Va.–(BUSINESS WIRE)–Tredegar Corporation (NYSE:TG, also the “Company” or “Tredegar”) today reported second quarter financial results for the period ended June 30, 2021.

Second quarter 2021 net income from continuing operations was $20.7 million ($0.61 per diluted share) compared to net income from continuing operations of $14.3 million ($0.43 per diluted share) in the second quarter of 2020. Net income from ongoing operations, which excludes special items and discontinued operations, was $16.1 million ($0.48 per diluted share) in the second quarter of 2021 compared with $16.0 million ($0.48 per diluted share) in the second quarter of 2020. A reconciliation of net income (loss) from continuing operations, a financial measure calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), to net income from ongoing operations, a non-GAAP financial measure, for the three and six months ended June 30, 2021 and 2020, is provided in Note (a) of the Notes to the Financial Tables in this press release.

Second Quarter Financial Results Highlight

  • Earnings before interest, taxes, depreciation and amortization ("EBITDA") from ongoing operations for Aluminum Extrusions of $19.7 million was $6.4 million higher than the second quarter of 2020
  • EBITDA from ongoing operations for PE Films of $9.0 million was $6.5 million lower than the second quarter of 2020
  • EBITDA from ongoing operations for Flexible Packaging Films of $8.3 million was $1.8 million higher than the second quarter of 2020

John Steitz, Tredegar’s president and chief executive officer, said, “Bonnell’s performance in the second quarter improved considerably over last year with current bookings and backlog at record levels. Labor shortages at manufacturing facilities continue to be an issue. As anticipated and previously disclosed, operating results in PE Films suffered from a significant customer product transition. Terphane’s profitability increased due to improvement in costs and product mix despite volume declines from temporary resin supply issues and customer inventory corrections.”

Mr. Steitz further stated, “Debt net of cash, which fell below $100 million as of June 30, declined by $22 million during the second quarter as a result of strong cash generation.”

THE IMPACT OF COVID-19 AND RELATED FINANCIAL CONSIDERATIONS

Essential Business and Employee Considerations

The Company’s priorities during the coronavirus ("COVID-19") pandemic continue to be to protect the health and safety of employees while keeping its manufacturing sites open due to the essential nature of many of its products. The Company has continued to manufacture the full range of products at its facilities.

The Company’s protocols to protect the health and well-being of its employees from COVID-19 continue to evolve with COVID-19 informed work practices and as the Company responds to recommended and mandated actions of government and health authorities. In addition, to facilitate a return to fully functional operations, the Company has undertaken an education campaign to provide employees with the most accurate and up-to-date information available, particularly from the Centers for Disease Control (“CDC”), the Office of the Surgeon General and state and local health departments, relating to the benefits of the COVID-19 vaccines and other safeguards that may be taken to try to prevent a COVID-19 outbreak in the workplace. The Company believes that these efforts are encouraging some employees to get vaccinated. In the meantime, the Company continues to take other precautions, such as providing hand sanitizer throughout facilities, extra cleaning for high touch areas, mandating that employees experiencing symptoms (including fully vaccinated employees) remain at home and coordinate their return with Human Resources, and ensuring ventilation systems are properly working.

Bonnell Aluminum continues to experience higher than normal absenteeism and hiring difficulties, which it attributes to COVID-19-related factors. Bonnell Aluminum attempts to match its direct labor with demand and is facing difficulty maintaining sufficient labor to meet desired shipment levels.

All three of the Company's business units are managing through supply chain disruptions, including raw material cost increases, shortages in aluminum and plastic resin and transportation delays. To offset growing cost pressures, Bonnell Aluminum implemented its second selling price increase in 2021, which became effective on April 26, 2021. In response to unprecedented cost increases and supply issues for polyethylene and polypropylene resin, Tredegar Surface Protection implemented a quarterly resin cost pass-through mechanism, effective July 1, 2021, for all products and customers not previously covered by such arrangements.

Financial Considerations

Approximately 62% of Bonnell Aluminum’s sales volume in 2020 was related to building and construction (“B&C”) markets (non-residential B&C of 55% and residential B&C of 7%). Non-residential B&C volume started to decline in the fourth quarter of 2020 after the fulfillment of contracts that existed at the start of the COVID-19 pandemic. Bonnell Aluminum continued to experience weakness in non-residential B&C during the second quarter of 2021 with related volume declining 10.2% versus the second quarter of last year. In addition, a portion of the non-residential B&C volume decline was due to pandemic-related production inefficiencies and labor constraints. However, B&C-related sales volume declines were more than offset by increases in other markets, resulting in an overall increase in volume for the second quarter and first six months of 2021 of 11.9% and 2.5%, respectively. Moreover, Bonnell Aluminum's performance to date during the COVID-19 environment has exceeded the Company's expectations, with current bookings and backlog at record high levels.

Demand has been strong during the COVID-19 pandemic for the Company’s flexible food packaging films produced by Terphane; however, temporary resin supply issues and customer inventory corrections adversely impacted second quarter sales volume versus the same period in the prior year. The Surface Protection component of PE Films had record EBITDA from ongoing operations in 2020, but is experiencing a decline in volume in 2021 related to a previously disclosed customer product transition and the timing of customer orders. In addition, significant resin cost increases since the second quarter of 2020 have adversely impacted PE Films' results, due to margin compression for products with customers that were not covered by resin pass-through arrangements. The quarterly lag between the timing of changes in resin costs and selling prices on existing pass-through arrangements also affected PE Films' results. See the PE Films section below for further discussion.

OPERATIONS REVIEW

Aluminum Extrusions

Aluminum Extrusions, which is also referred to as Bonnell Aluminum, produces high-quality, soft-alloy and medium-strength custom fabricated and finished aluminum extrusions primarily for the following markets: B&C, automotive, and specialty (which consists of consumer durables, machinery and equipment, electrical and renewable energy, and distribution end-use products). A summary of results for Aluminum Extrusions is provided below:

Three Months Ended

Favorable/

(Unfavorable)

% Change

Six Months Ended

Favorable/

(Unfavorable)

% Change

(In thousands, except percentages)

June 30,

June 30,

2021

2020

2021

2020

Sales volume (lbs)

49,021

43,807

11.9

%

93,387

91,124

2.5

%

Net sales

$

139,281

$

106,058

31.3

%

$

257,405

$

223,945

14.9

%

Ongoing operations:

EBITDA

$

19,723

$

13,279

48.5

%

$

33,024

$

24,956

32.3

%

Depreciation & amortization

$

(4,032

)

$

(4,267

)

5.5

%

$

(8,162

)

$

(8,380

)

2.6

%

EBIT*

$

15,691

$

9,012

74.1

%

$

24,862

$

16,576

50.0

%

Capital expenditures

$

4,326

$

1,355

$

6,773

$

2,929

* See the net sales and EBITDA from ongoing operations by segment statements in the Financial Statements of this press release for a reconciliation of this non-GAAP measure to the most directly comparable measure calculated in accordance with GAAP.

Second Quarter 2021 Results vs. Second Quarter 2020 Results

Net sales (sales less freight) in the second quarter of 2021 increased versus the second quarter of 2020, primarily due to higher volume, the pass-through of higher metal costs and an increase in average selling prices to cover higher operating costs. Sales volume in the second quarter of 2021 increased by 11.9% versus the second quarter of 2020. Sales volume associated with the non-residential B&C market, which represented 55% of volume in 2020, declined 10.2% in the second quarter of 2021 versus the second quarter of 2020. Sales volume associated with specialty markets, which represented 31% of total volume in 2020, increased 44.2% in the second quarter of 2021 versus the second quarter of 2020, and sales volume associated with the automotive market, which represented 9% of total volume in 2020, increased 65.3% in the second quarter of 2021 versus the second quarter of 2020. See “The Impact of COVID-19 and Related Financial Considerations” section for more information on business conditions.

EBITDA from ongoing operations in the second quarter of 2021 increased by $6.4 million in comparison to the second quarter of 2020, including a $5.2 million favorable variance from the timing of the flow through of aluminum raw materials costs under the first-in first-out (“FIFO”) inventory method. This favorable FIFO variance was due to aluminum raw materials previously acquired at lower costs in a quickly rising pricing environment driving a benefit of $3.1 million in the second quarter of 2021 versus a charge of $2.1 million in the second quarter of 2020. In addition, higher volume ($3.9 million) and higher pricing ($3.3 million) were partially offset by higher labor and other operating costs ($3.3 million), higher general, selling and administrative expenses ($1.8 million) and higher freight costs ($0.8 million). Refer to Item 3. Quantitative and Qualitative Disclosures About Market Risk of the Company's Form 10-Q for the period ended June 30, 2021 for additional information on aluminum prices.

First Six Months of 2021 Results vs. First Six Months 2020 Results

Net sales in the first six months of 2021 increased versus the first six months of 2020, primarily due to higher sales volume in the specialty and automotive markets, the pass-through of higher metal costs and an increase in average selling prices to cover higher operating costs. Sales volume in the first six months of 2021 increased by 2.5% versus the first six months of 2020.

EBITDA from ongoing operations in the first six months of 2021 increased by $8.1 million in comparison to the first six months of 2020 due to higher volumes ($2.5 million) and higher pricing ($4.7 million), partially offset by higher labor and employee-related costs ($1.8 million) and other operational costs ($3.0 million), higher general, administrative and selling expenses ($1.0 million) and higher freight costs ($1.0 million). In addition, and consistent with second quarter results, inventories accounted for under the FIFO method resulted in a benefit of $4.1 million in the first six months of 2021 versus a charge of $3.5 million in the first six months of 2020.

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures for Bonnell Aluminum are projected to be $21 million in 2021, including $3 million for infrastructure upgrades at the Carthage, Tennessee and Newnan, Georgia facilities, $1 million for a roof replacement at the Elkhart, Indiana site and $4 million for strategic projects. In addition, approximately $13 million will be required to support continuity of current operations. Depreciation expense is projected to be $14 million in 2021. Amortization expense is projected to be $3 million in 2021.

PE Films

PE Films is composed of surface protection films, polyethylene overwrap and packaging films and polypropylene films for other markets. All historical results for the Personal Care component, which was sold in the fourth quarter of 2020, have been presented as discontinued operations. The Surface Protection component of the PE Films segment now includes the packaging lines and operations located at the Pottsville, Pennsylvania manufacturing site ("Pottsville Packaging"), which was previously reported within the Personal Care component of PE Films. A summary of results for PE Films is provided below:

Three Months Ended

Favorable/

(Unfavorable)

% Change

Six Months Ended

Favorable/

(Unfavorable)

% Change

(In thousands, except percentages)

June 30,

June 30,

2021

2020

2021

2020

Sales volume (lbs)

10,538

11,613

(9.3

)%

20,782

23,792

(12.7

)%

Net sales

$

31,430

$

40,203

(21.8

)%

$

59,384

$

77,004

(22.9

)%

Ongoing operations:

EBITDA

$

9,001

$

15,471

(41.8

)%

$

16,213

$

27,884

(41.9

)%

Depreciation & amortization

$

(1,671

)

$

(1,589

)

(5.2

)%

$

(3,090

)

$

(3,083

)

(0.2

)%

EBIT*

$

7,330

$

13,882

(47.2

)%

$

13,123

$

24,801

(47.1

)%

Capital expenditures

$

500

$

1,423

$

1,733

$

3,044

* See the net sales and EBITDA from ongoing operations by segment statements in the Financial Statements of this press release for a reconciliation of this non-GAAP measure to the most directly comparable measure calculated in accordance with GAAP.

Second Quarter 2021 Results vs. Second Quarter 2020 Results

Net sales declined by $8.8 million in the second quarter of 2021 versus the second quarter of 2020, primarily due to lower volume and unfavorable mix associated with the previously disclosed customer product transitions in Surface Protection.

EBITDA from ongoing operations in the second quarter of 2021 decreased by $6.5 million versus the second quarter of 2020, primarily due to:

  • A $5.7 million decrease from Surface Protection related to lower sales associated with the customer product transitions ($7.2 million) and higher resin costs, net of existing index based pricing ($1.0 million), partially offset by higher sales of products unrelated to the customer product transitions ($0.9 million), higher productivity ($0.7 million), lower research and development expenses ($0.4 million) and lower other operating costs ($0.5 million); and
  • A $0.6 million decrease from Pottsville Packaging primarily related to higher resin costs.

Refer to Item 3. Quantitative and Qualitative Disclosures About Market Risk of the Company's Form 10-Q for the period ended June 30, 2021 for additional information on resin prices.

Customer Product Transitions in Surface Protection

The Surface Protection component of PE Films supports manufacturers of optical and other specialty substrates used in flat panel display products. These films are primarily used by customers to protect components of displays in the manufacturing and transportation processes and then discarded.

The Company previously reported the risk that a portion of its film products used in surface protection applications will be made obsolete by possible future customer product transitions to less costly alternative processes or materials. These transitions principally relate to one customer. The Company believes that previously reported delays in this customer's transitions have been resolved by the customer and much of the remaining transitions are expected to occur by the end of 2021. Under this scenario, the Company estimates that the contribution to EBITDA from ongoing operations for PE Films could decline due to the remaining customer product transitions by $18 million in 2021 versus 2020 (of which approximately $13 million occurred during the first six months of 2021) and $4 million in 2022 versus 2021. To offset the expected adverse impact, the Company is aggressively pursuing and making progress in generating contribution from sales from new surface protection products, applications and customers and implementing cost savings measures. Annual contribution to EBITDA from ongoing operations for PE Films on surface protection products unrelated to the customer product transitions have increased by approximately $12 million during the past two years.

First Six Months of 2021 Results vs. First Six Months 2020 Results

Net sales in the first six months of 2021 decreased versus the first six months 2020, primarily due to lower volume and unfavorable mix associated with the previously disclosed customer product transitions in Surface Protection.

EBITDA from ongoing operation in the first six months of 2021 decreased by $11.7 million versus the first six months of 2020 primarily due to:

  • A $11.1 million decrease from Surface Protection primarily related to lower sales and unfavorable mix associated with the customer product transitions ($13.0 million) and higher resin costs, net of existing index based pricing ($1.7 million), partially offset by higher sales of products unrelated to the customer product transitions ($1.8 million) and higher productivity ($2.0 million); and
  • A $1.0 million decrease from Pottsville Packaging primarily related to higher resin costs.

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures for PE Films are projected to be $4 million in 2021, including $2 million for productivity projects and $2 million for capital expenditures required to support continuity of current operations. Depreciation expense is projected to be $6 million in 2021. There is no amortization expense for PE Films.

Flexible Packaging Films

Flexible Packaging Films, which is also referred to as Terphane, produces polyester-based films for use in packaging applications that have specialized properties, such as heat resistance, strength, barrier protection and the ability to accept high-quality print graphics. A summary of results for Flexible Packaging Films is provided below:

Three Months Ended

Favorable/

(Unfavorable)

% Change

Six Months Ended

Favorable/

(Unfavorable)

% Change

(In thousands, except percentages)

June 30,

June 30,

2021

2020

2021

2020

Sales volume (lbs)

24,230

29,195

(17.0

)%

51,638

54,974

(6.1

)%

Net sales

$

33,374

$

34,104

(2.1

)%

$

65,895

$

64,678

1.9

%

Ongoing operations:

EBITDA

$

8,277

$

6,495

27.4

%

$

17,901

$

13,048

37.2

%

Depreciation & amortization

$

(506

)

$

(436

)

(16.1

)%

$

(972

)

$

(864

)

(12.5

)%

EBIT*

$

7,771

$

6,059

28.3

%

$

16,929

$

12,184

38.9

%

Capital expenditures

$

1,117

$

417

$

2,388

$

1,265

* See the net sales and EBITDA from ongoing operations by segment statements in the Financial Statements of this press release for a reconciliation of this non-GAAP measure to the most directly comparable measure calculated in accordance with GAAP.

Second Quarter 2021 Results vs. Second Quarter 2020 Results

Sales volume declined by 17.0% during the second quarter of 2021 versus the second quarter of 2020, primarily due to temporary resin supply issues impacting production and lower demand, which the Company believes was related to customer inventory corrections in Brazil. Net sales in the second quarter of 2021 decreased 2.1% compared to the second quarter of 2020, primarily due to lower sales volume, partially offset by favorable product mix and higher selling prices from the pass-through of higher resin costs.

EBITDA from ongoing operations in the second quarter of 2021 increased by $1.8 million versus the second quarter of 2020 primarily due to:

  • Lower sales volume ($2.8 million), partially offset by favorable product mix ($0.7 million), lower fixed ($0.5 million) and variable ($0.2 million) costs, higher selling prices from the pass-through of higher resin costs ($0.5 million) and lower selling and general administration expenses ($0.6 million);
  • Net favorable foreign currency translation of Real-denominated operating costs ($2.2 million); and
  • Higher foreign currency transaction losses of $0.1 million in the second quarter of 2021 versus the second quarter of 2020.

First Six Months of 2021 Results vs. First Six Months 2020 Results

Sales volume declined by 6.1% during the first six months of 2021 versus the first six months of 2020, primarily due to the factors adversely impacting the second quarter of 2021 mentioned above. Net sales in the first six months of 2021 increased 1.9% compared to the first six months of 2020, primarily due to favorable product mix and higher selling prices from the pass-through of higher resin costs, partially offset by lower sales volume.

EBITDA from ongoing operations in the first six months of 2021 increased by $4.8 million versus the first six months of 2020 primarily due to:

  • Higher selling prices from the pass-through of higher resin costs ($1.6 million), favorable product mix ($1.4 million), lower variable costs ($0.4 million) and lower selling and general administration expenses ($0.5 million), partially offset by lower sales volume ($1.7 million) and higher fixed costs ($0.6 million);
  • Net favorable currency translation of Real-denominated operating costs ($3.5 million);
  • Foreign currency transaction loss of $0.1 million in the first six months of 2021 versus losses of $0.2 million in the first six months of 2020; and
  • Lower value-added tax credits received in the first six months of 2021 ($0.5 million) compared with the first six months of 2020 ($1.2 million).

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures for Flexible Packaging Films are projected to be $8 million in 2021, including $5 million for new capacity for value-added products and productivity projects and $3 million for capital expenditures required to support continuity of current operations. Depreciation expense is projected to be $2 million in 2021. Amortization expense is projected to be $0.4 million in 2021.

Corporate Expenses, Interest, Taxes & Other

Corporate expenses, net, increased in the first six months of 2021 versus the first six months of 2020, primarily due to higher employee-related compensation ($1.8 million), stock-based compensation ($1.3 million), costs associated with held for sale assets ($0.4 million) and write-downs related to the investment held in Harbinger Capital Partners Special Situations Fund ($0.3 million), partially offset by lower professional fees related to remediation activities of previously disclosed material weaknesses in the Company’s internal control over financial reporting and business development activities ($1.0 million) and favorable transition service fees, net of corporate costs associated with the divested Personal Care Films business ($0.6 million).

Interest expense was $1.7 million in the first six months of 2021 in comparison to $1.1 million in the first six months of 2020, primarily due to higher average debt levels.

The effective tax rate used to compute income tax expense (benefit) for continuing operations in the first six months of 2021 was 22.5%, compared to 27.1% in the first six months of 2020. The effective tax rate from ongoing operations comparable to the earnings reconciliation table provided in Note (a) of the Notes to Financial Tables in this press release was 22.3% for the first six months of 2021 versus 21.4% for the first six months of 2020 (see also Note (f) of the Notes to Financial Tables). Refer to Note 12 of the Company's Form 10-Q for the period ended June 30, 2021 for an explanation of differences between the effective tax rate for income (loss) from continuing operations and the U.

Contacts

Tredegar Corporation

Neill Bellamy, 804-330-1211

[email protected]

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