Tredegar Corporation (TREDEGAR CORP) - 10-Q Summary
Business Context and Reporting Period
This Quarterly Report on Form 10-Q covers the period ended September 30, 2010. Tredegar Corporation operates primarily through two segments: Film Products (specialty films for packaging, personal care, and surface protection) and Aluminum Extrusions. In February 2010, the company added an "Other" segment comprising Bright View Technologies (optical films) and Falling Springs (mitigation banking). The company is an accelerated filer incorporated in Virginia.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2009 |
|---|---|---|---|
| Sales | $197,518 | $557,530 | $486,843 |
| Net Income (Loss) | $8,968 | $19,710 | $(11,334) |
| Diluted EPS | $0.28 | $0.60 | $(0.33) |
| Operating Cash Flow (9mo) | $29,618 (2010) vs $85,507 (2009) | ||
| Cash and Equivalents | $61,630 (Sep 30, 2010) | ||
| Total Debt | $799 (Sep 30, 2010) | ||
| Shareholders' Equity | $412,837 (Sep 30, 2010) |
Margins (Nine Months 2010): Consolidated gross profit margin was 16.8% (down from 18.2% in 2009). The effective tax rate was 35.0% (compared to 371.8% in 2009, which included a significant goodwill impairment charge).
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 14.5% year-over-year for the nine months ended September 30, 2010. Film Products sales rose 16.0% driven by volume and resin price pass-throughs. Aluminum Extrusions sales rose 9.4% due to higher aluminum prices.
- Profitability Turnaround: The company returned to profitability ($19.7M net income) compared to a net loss of $11.3M in the prior year. The 2009 loss was heavily impacted by a $30.6 million non-cash goodwill impairment charge in the Aluminum Extrusions segment.
- Segment Performance:
- Film Products: Operating profit from ongoing operations increased 3.6% to $50.7M for the nine months, despite unfavorable sales mix and currency impacts.
- Aluminum Extrusions: Operating losses from ongoing operations narrowed slightly to $2.6M (from $2.1M loss in 2009) due to lower margins and unfavorable sales mix, despite volume stability.
- Working Capital: Accounts receivable increased $24.1M and inventories increased $3.5M, primarily in Film Products due to higher demand and raw material costs.
Guidance, Outlook, and Risks
- Capital Expenditures: Projected to be approximately $16 million for Film Products and $4 million for Aluminum Extrusions in 2010.
- Liquidity: In June 2010, the company entered a new $300 million four-year revolving credit facility. As of September 30, 2010, approximately $246 million was available. The company maintains a strong leverage ratio of 0.11x (well below the 3.0x covenant limit).
- Share Repurchases: The company repurchased 2.1 million shares for $35.1 million during the first nine months of 2010. Approximately 1.73 million shares remain available under the current program.
- Risks and Contingencies:
- Customer Concentration: Film Products is highly dependent on sales to The Procter & Gamble Company.
- Commodity Volatility: Margins are sensitive to resin prices (Film Products) and aluminum/natural gas prices (Aluminum Extrusions). While pass-through mechanisms exist, there is a lag (approx. 90 days) that impacts margins.
- Foreign Currency: Unfavorable currency fluctuations impacted operating profit by approximately $828,000 for the nine months ended September 30, 2010.
Investor Verification Checklist
- Customer Concentration: Verify the extent of reliance on Procter & Gamble for Film Products revenue and any recent contract changes.
- Resin Pass-Through Lag: Assess the impact of the 90-day lag in passing resin costs to customers on future margins if raw material prices continue to rise.
- Aluminum Extrusions Recovery: Monitor the cyclical recovery of the construction and transportation markets, which drive demand for this segment.
- Goodwill Impairment History: Note the $30.6M impairment in 2009; verify if current valuations of the Aluminum Extrusions reporting unit remain stable.
- Share Repurchase Program: Confirm the remaining authorization ($1.73M shares) and the company's commitment to returning capital to shareholders via dividends and buybacks.