Business context and reporting period
This is Glatfelter Corporation’s unaudited Form 10-Q for the quarter ended September 30, 2021; the filing does not identify Magnera Corp as the registrant. Glatfelter supplies engineered materials through its Composite Fibers and Airlaid Materials segments. The former Specialty Papers business is reported as discontinued operations.
On May 13, 2021, Glatfelter acquired Georgia-Pacific’s U.S. nonwovens business, Mount Holly, for approximately $170.9 million. Its results are included in Airlaid Materials from the acquisition date.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $279.7 million | $233.5 million | $750.2 million | $681.2 million |
| Gross profit | $38.4 million | $38.3 million | $113.2 million | $107.1 million |
| Gross margin | 13.7% | 16.4% | 15.1% | 15.7% |
| Operating income | $14.5 million | $14.0 million | $40.0 million | $35.4 million |
| Continuing-operations income | $8.1 million | $6.5 million | $17.9 million | $11.7 million |
| Diluted EPS, continuing operations | $0.18 | $0.15 | $0.40 | $0.26 |
Q3 net income was $7.5 million, including a $0.5 million discontinued-operations loss. Nine-month net income was $17.3 million, including a $0.6 million discontinued-operations loss. Management’s non-GAAP adjusted earnings were $9.5 million, or $0.21 per share, in Q3 versus $7.0 million, or $0.16, in Q3 2020; for the nine months, $26.0 million, or $0.58 per share, versus $27.7 million, or $0.62. These adjusted measures exclude specified items and are not GAAP measures.
For the nine months, operating cash flow was $38.5 million, versus $24.5 million a year earlier. Investing used $186.0 million, principally reflecting the Mount Holly acquisition; capital expenditures were $18.5 million. Financing provided $151.3 million, including acquisition-related borrowings. Cash and cash equivalents were $100.0 million at September 30; restricted cash was additional. The company reported $180.4 million available under its revolving facility.
Long-term debt totaled $456.2 million, including $200.5 million drawn on the revolver; short-term debt was $11.6 million. The credit-agreement leverage ratio was 2.6x. Shareholders’ equity was $563.3 million. Nine-month dividends paid were $18.2 million.
Material changes and management commentary
- Sales rose 19.8% in Q3 and 10.1% for the nine months, with acquisition contribution, currency translation, and higher selling prices among the drivers. Mount Holly contributed $34.2 million of sales and $4.0 million of operating income from acquisition through September 30.
- Despite higher revenue, Q3 gross margin fell 2.7 percentage points. Management attributed pressure primarily to raw-material and energy inflation, which outpaced price increases. In Q3, Composite Fibers operating income declined to $5.8 million from $10.5 million; Airlaid Materials increased to $14.7 million from $12.9 million.
- For the nine months, Composite Fibers operating income decreased $4.1 million and Airlaid Materials decreased $6.9 million year over year. Higher pulp and energy costs, pandemic-related demand and production effects, and customer inventory patterns weighed on results. The company had announced price increases in response to input-cost inflation.
- The nine-month income-tax provision was $14.8 million. Management cited U.S. pretax losses that generated no tax benefit and tax-rate increases in Germany and the U.K. as unfavorable factors.
- Timberland sales generated a $4.6 million gain in the first nine months. The company reported no material off-balance-sheet arrangements.
Outlook, risks and contingencies
The filing provides no specific earnings or revenue guidance. Management expected full-year 2021 capital expenditures of $30–$35 million and said expected operating cash flow, cash, the credit facility, and other debt would meet near- and long-term cash needs. It described liquidity as ample and did not expect debt covenants to constrain operations or necessary financing.
Management identified COVID-19-related demand volatility, supply-chain and transportation disruptions, higher raw-material and energy costs, production interruptions, foreign exchange exposure, tax matters, and acquisition financing and integration as risks. It noted that tabletop demand was recovering as restaurants reopened, while pandemic effects and customer inventory adjustments continued to affect some products.
The Fox River environmental reserve was $16.8 million at September 30, 2021, with $2.5 million classified as current and $14.3 million as long-term. The company said it did not believe its costs would materially exceed the reserve. Tax audits and uncertain tax positions remain contingencies; gross unrecognized tax benefits were $43.0 million.
Subsequent events: On October 25, 2021, Glatfelter issued $500 million of 4.750% senior notes due 2029. On October 29, it completed the approximately $302 million acquisition of Jacob Holm, funded with note proceeds and cash, among other uses. The filing said Jacob Holm had approximately $400 million of 2020 revenue and would be reported as a separate segment. The transaction occurred after the reporting date.
Important facts for investors to verify
- Confirm the registrant and period: this source is Glatfelter Corporation’s Q3 2021 filing, not a filing under the name Magnera Corp.
- Assess whether selling-price increases can catch up with pulp, energy, and other input-cost inflation, and whether margins recover.
- Separate organic performance from Mount Holly’s contribution and currency effects when evaluating sales and segment trends.
- Review the financing and integration effects of the October 2021 Jacob Holm acquisition, including the $500 million notes and post-acquisition leverage.
- Monitor working-capital needs, revolving-facility availability, covenant compliance, environmental obligations, and unresolved tax exposures.