KP Tissue Inc. (KPT) reports the Q1 2022 financial and operational results of KPT and Kruger Products L.P. (KPLP). KPT currently holds a 14.3% interest in KPLP.
KPLP Q1 2022 Business and Financial Highlights
• Revenue was $398.7 million in Q1 2022 compared to $310.4 million in Q1 2021, an increase of $88.3 million or 28.5%.
• Adjusted EBITDA1 was $29.1 million in Q1 2022, compared to $37.5 million in Q1 2021, a decrease of 22.4%.
• Net income was $1.4 million in Q1 2022 compared to $6.8 million in Q1 2021, a decrease of $5.4 million.
• Declared a quarterly dividend of $0.18 per share to be paid on July 15, 2022.
"We delivered strong sales growth of 28.5% year-over-year in the first quarter of 2022, driven by an ongoing market recovery, increased capacity driven by Sherbrooke and a pricing increase mainly impacting our Canadian operations. Robust top-line growth was tempered by escalating inflation across many essential cost items such as pulp, freight, natural gas, packaging and labour," stated KP Tissue's Chief Executive Officer, Dino Bianco.
"To counter inflationary pressure, we have adopted a multi-faceted strategy based on further price increases across all segments, cash management through reductions in working capital and discretionary capital spending, as well as incremental productivity programs. We believe price increases, combined with the aforementioned cost-saving initiatives, should begin catching up with inflation in the second half of the year."
"In light of price increases in the marketplace, we believe it's vital to continue supporting our brands through targeted innovation and marketing. Accordingly, we are seeing strong distribution for our new sustainably focused brand, Bonterra. Recently upgraded Purex® and Cashmere UltraLuxe® TAD products are also tracking well against expectations, while SpongeTowels UltraPro® continues to drive share with consumers since its introduction last year. More recently, we expanded the distribution of re-launched White Cloud in the United States as we continue to build that brand," Mr. Bianco concluded.
Outlook for Q2 2022
We anticipate continued momentum in Q2 sales in both Consumer and AFH. However, cost inflation and supply chain issues are expected to continue to impact the business and as a result Q2 2022 Adjusted EBITDA is expected to be well below Q1 2022 until selling price increases can restore margins in the second half of the year.
KPLP Q1 2022 Financial Results
Revenue was $398.7 million in Q1 2022 compared to $310.4 million in Q1 2021, an increase of $88.3 million or 28.5%. The increase in revenue was due to selling price increases in all segments and regions and higher sales volume in the Consumer segment compared to the year ago quarter that saw lower sales as a result of the de-stocking of tissue inventories by both retailers and consumers. The AFH segment also had significantly higher sales volume compared to Q1 2021 as the business continues to recover from the impact of COVID-19.
Cost of sales was $363.8 million in Q1 2022 compared to $263.3 million in Q1 2021, an increase of $100.5 million or 38.2%. Manufacturing costs increased primarily due to higher sales volumes, increased pulp costs, the impact of labour shortages in Memphis manufacturing, the unfavourable impact of overhead absorption as inventory levels were lower than the year ago quarter, along with higher depreciation expense and inflation.
These increases were partially offset by more in-house production in AFH. Freight costs increased significantly compared to Q1 2021 primarily due to increased freight rates resulting from cost inflation and supply issues across North America and also higher sales volumes. As a percentage of revenue, cost of sales was 91.3% in Q1 2022 compared to 84.8% in Q1 2021.
Selling, general and administrative (SG&A) expenses were $28.9 million in Q1 2022 compared to $27.8 million in Q1 2021, an increase of $1.1 million or 3.9%. The increase was primarily due to higher advertising and promotion expenses. As a percentage of revenue, SG&A expenses were 7.2% in Q1 2022 compared to 8.9% in Q1 2021.
Adjusted EBITDA1 was $29.1 million in Q1 2022 compared to $37.5 million in Q1 2021, a decrease of $8.4 million or 22.4%. The decrease was primarily due to higher pulp prices and other inflation, overhead absorption, labour shortages in Memphis manufacturing and higher freight rates, partially offset by higher sales volume and selling price increases.
Net income was $1.4 million in Q1 2022 compared to $6.8 million in Q1 2021, a decrease of $5.4 million. The decrease was primarily due to lower Adjusted EBITDA1 of $8.4 million as discussed above, higher interest expense and other finance costs and higher depreciation and amortization, partially offset by higher income tax recovery and higher other income.
KPLP Q1 2022 Liquidity
Total liquidity, representing cash and availability under the revolving credit agreements, was $206.9 million as of March 31, 2022. In addition, $76.4 million of cash was held by KPLP for the TAD Sherbrooke and Sherbrooke Expansion Projects.
KPT Q1 2022 Financial Results
KPT had a net income of $1.0 million in Q1 2022. Included in the net income was $0.2 million representing KPT’s share of KPLP’s net income, and a dilution gain of $0.1 million, depreciation expense of $1.3 million related to adjustments to carrying amounts on acquisition and an income tax recovery of $2.0 million.
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