Orchids Paper 1Q 2017 Results: Net Sales Down 26% from Year ago to $35 Million

Orchids Paper Products Company reported results for the quarter ended March 31, 2017. Jeff Schoen, president and CEO, stated, "As we expected, the first half of 2017 was going to be a challenging period until the new business awarded started to be produced and shipped. Sales were negatively impacted in January and February by one-time inventory reductions in preparation for a restage of private label programs that started to ship in March. Costs were negatively impacted by the continued effect of start-up costs for our Barnwell, South Carolina plant. Looking to the second quarter, production of the new volume that we announced in January, representing 3 million cases or more of new business, has begun, which we expect to be fully implemented by the beginning of third quarter. As previously stated, we expect the new volume to generate in the area of $15 million to $20 million of EBITDA and to attain a run rate of $50 million to $60 million of EBITDA when our new capacity is sold out.

"Operating cash flow less changes in working capital provided $7.4 million in the first quarter of 2017, relative to $6.8 million the fourth quarter of 2016. We avoided stock-piling inventory and were able to exit some rented warehouse space. Despite spending $18 million on capital projects, we only increased financings by $11.5 million.

"Regarding the Barnwell, South Carolina, project, the two converting lines are ramping-up to meet the new demand, and the paper mill is scheduled to be in production in June and to be immediately capable of making and selling parent roll capacity in excess of that required for converted product sales. The ramp-up of the paper mill is expected to continue throughout the third quarter."

Net sales decreased $12.4 million, or 26%, primarily due to heavy promotional activity by brand-competitors and other competitive pressures. Parent roll sales were $2.5 million in both quarters, and converted product sales decreased $12.4 million to $32.9 million. $10.2 million of the decrease in revenue was attributable to the decreased number of tons sold, and $2.2 million was attributable to a decline in the average price per ton that reflects a changing mix of customers buying a changing mix of products.

Orchids Paper Products Company is a customer-focused, national supplier of high quality consumer tissue products primarily serving the at home private label consumer market. The Company produces a full line of tissue products, including paper towels, bathroom tissue and paper napkins, to serve the value through ultra-premium quality market segments from its operations in northeast Oklahoma, Barnwell, and Mexicali, Mexico. The company provides these products primarily to retail chains throughout the United States.