MISSISSAUGA, Ontario – KP Tissue Inc. (KPT) (TSX: KPT) reports the Q2 2023 financial and operational results of KPT and Kruger Products Inc. (Kruger Products). Kruger Products is Canada’s leading manufacturer of quality tissue products for the Consumer market (Cashmere®, Purex®, SpongeTowels®, Scotties®, White Swan® and BonterraTM) 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 13.3% interest in Kruger Products.
Kruger Products Q2 2023 Business and Financial Highlights
- Revenue was $466.3 million in Q2 2023 compared to $397.5 million in Q2 2022, an increase of $68.8 million or 17.3%.
- Adjusted EBITDA1 was $55.0 million in Q2 2023, compared to $11.8 million in Q2 2022, an increase of 365.8%.
- Net income was $14.5 million in Q2 2023 compared to a net loss of $35.5 million in Q2 2022, an increase of $50.0 million.
- Declared a quarterly dividend of $0.18 per share to be paid on October 16, 2023.
“We are pleased that margin recovery, along with improved sales volume and a better mix in our Consumer business, generated strong Adjusted EBITDA of $55.0 million in the second quarter of 2023,” stated KP Tissue’s Chief Executive Officer, Dino Bianco. “Ongoing cost management initiatives, including productivity gains and cost controls, also contributed to increasing profitability. In addition, our Away-From-Home segment delivered a fourth consecutive quarter of positive Adjusted EBITDA to maintain its growth momentum. As a result, our financial performance in the second quarter normalized versus a more challenging market and operating environment in the same period last year. On a sequential basis, revenue and Adjusted EBITDA continued to improve, rising 3.4% and 10.2% in the quarter, respectively.”
“Looking ahead to the second half of 2023, we anticipate a more favourable landscape as input costs trend downwards, TAD Sherbrooke and the Sherbrooke Expansion Project continue to ramp up production capacity to meet customer demand, and margins are restored to their pre-pandemic levels,” Mr. Bianco added.
Outlook for Q3 2023
For the third quarter of 2023, as commodity and other input costs begin to decline, we will focus on maintaining our margins while also continuing to reinvest in the business to drive long-term value. Accordingly, Adjusted EBITDA1 in Q3 2023 is expected to be in the range of Q2 2023.
Kruger Products Q2 2023 Financial Results
Revenue was $466.3 million in Q2 2023 compared to $397.5 million in Q2 2022, an increase of $68.8 million or 17.3%. The increase in revenue was primarily due to the favourable impact of selling price increases implemented across all segments and regions during 2022, along with favourable sales mix and higher sales volume in the Consumer business. Revenue was also favourably impacted by foreign exchange fluctuations on U.S. dollar sales.
Cost of sales was $395.8 million in Q2 2023 compared to $372.5 million in Q2 2022, an increase of $23.3 million or 6.2%. Higher sales volumes increased cost of sales, along with the unfavourable impact of foreign exchange fluctuations on U.S. dollar costs, partially offset by improvements in Memphis operations. While the significant inflation experienced during 2022 has moderated in the second quarter of 2023, manufacturing input costs remain higher than the year ago quarter. Freight rates were lower compared to Q2 2022 as supply constraints and inflation moderated, while warehousing costs increased as a result of additional logistics network costs. As a percentage of revenue, cost of sales was 84.9% in Q2 2023 compared to 93.7% in Q2 2022.
Selling, general and administrative (SG&A) expenses were $40.6 million in Q2 2023 compared to $35.1 million in Q2 2022, an increase of $5.5 million or 15.7%. The increase was primarily due to higher personnel costs, foreign exchange losses related to foreign denominated working capital and a loss on disposal of fixed assets, partially offset by lower advertising spend in the quarter. As a percentage of revenue, SG&A expenses were 8.7% in Q2 2023 compared to 8.8% in Q2 2022.
Adjusted EBITDA1 was $55.0 million in Q2 2023 compared to $11.8 million in Q2 2022, an increase of $43.2 million or 365.8%. The significant increase was primarily due to a combination of factors: selling price increases in 2022, favourable sales mix along with higher sales volumes, improvements in Memphis operations and lower freight rates. These factors were partially offset by inflation on input costs compared to Q2 2022, higher warehousing and SG&A expenses and the unfavourable impact of foreign exchange fluctuations.
Net income was $14.5 million in Q2 2023 compared to a loss of $35.5 million in Q2 2022, an increase of $50.0 million. The increase was primarily due to higher Adjusted EBITDA1 and higher foreign exchange gains, partially offset by higher income tax and depreciation expenses, higher interest expense and other finance costs and a loss on sale of fixed assets.
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
Kruger Products Q2 2023 Liquidity
Total liquidity, representing cash and availability under the revolving credit agreements, was $181.5 million as of June 30, 2023. In addition, $13.8 million of cash was held by Kruger Products for the Sherbrooke Expansion Project.
KPT Q2 2023 Financial Results
KPT had net income of $2.0 million in Q2 2023. Included in net income was $2.1 million representing KPT’s share of Kruger Products’ net income, a dilution gain of $0.2 million and depreciation expense of $0.3 million related to adjustments to carrying amounts on acquisition.
Dividends on Common Shares
The Board of Directors of KPT declared a quarterly dividend of $0.18 per share to be paid on October 16, 2023 to shareholders of record at the close of business on October 2, 2023.
Additional Information
For additional information please refer to Management’s Discussion and Analysis (MD&A) of KPT and Kruger Products for the second quarter ended June 30, 2023 available on SEDAR at www.sedar.com or our website at www.kptissueinc.com.
Second Quarter Results Conference Call Information
KPT will hold its second quarter conference call on Thursday, August 10, 2023 at 8:30 a.m. Eastern Time.
Via telephone: 1-800-319-4610 or 604-638-5340
Via the internet at: www.kptissueinc.com
Presentation material referenced during the conference call will be available at www.kptissueinc.com.
A rebroadcast of the conference call will be available until midnight, August 17, 2023 by dialing 1-855-669-9658 or 604-674-8052 and entering passcode 0272.
The replay of the webcast will remain available on the website until midnight, August 17, 2023.
About KP Tissue Inc. (KPT)
KPT was created to acquire, and its business is limited to holding, a limited equity interest in Kruger Products, which is accounted for as an investment on the equity basis. KPT currently holds a 13.3% interest in Kruger Products. For more information visit www.kptissueinc.com.
About Kruger Products
Kruger Products is Canada’s leading manufacturer of quality tissue products for household, industrial and commercial use. Kruger Products serves the Canadian consumer market with such well-known brands as Cashmere®, Purex®, SpongeTowels®, Scotties®, White Swan® and BonterraTM. In the U.S., Kruger Products manufactures the White Cloud® brand, as well as many private label products. The Away-From-Home division manufactures and distributes high-quality, cost-effective product solutions to a wide range of commercial and public entities. Kruger Products has approximately 2,700 employees and operates nine FSC® COC-certified (FSC® C-104904) production facilities in North America. For more information visit www.krugerproducts.ca.
