Glatfelter Q1 2023 Earnings Call Transcript

There are 6 speakers on the call.

Operator

Good day, and welcome to the Glatfelter's Q1 2023 Earnings Release Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Ramesh Shatagar. Please go ahead.

Speaker 1

Thank you, Jennifer. Good morning, and welcome to Glatfelter's 2023 First Quarter Earnings Conference Call. This is Ramesh Shethigarh, Senior Vice President, Chief Financial Officer and Treasurer. On the call to present our Q1 results is Thomas Fahneman, President and Chief Executive Officer of Glatfelter and myself. Before we begin our presentation, I have a few standard reminders.

Speaker 1

During our call this morning, we will use the term adjusted earnings as well as other non GAAP financial measures. A reconciliation of these financial measures to our GAAP based results is included in today's earnings release and in the investor slides. We will also make forward looking statements today that are subject to risks and uncertainties. Our 2022 Form 10 ks filed with the SEC And today's release are available on our website, disclose factors that could cause our actual results to differ materially from these forward looking statements. These statements speak only as of today, and we undertake no obligation to update them.

Speaker 1

I will now turn the call over to Thomas.

Speaker 2

Thank you, Ramesh. Hello, everyone, and welcome to Club Fabulous First Quarter Conference Call for 2023. It's a real pleasure to be with you today. I begin today's call by highlighting that we have completed several meaningful actions throughout the quarter to progress our turnaround strategy with a sole focus of improving the long term financial performance of the company. In the Q1, we achieved operating income of $6,100,000 and improved our adjusted EBITDA by $2,500,000 compared to the Q4 of 2022, largely driven by the strong performance of our Airlaid and Composite Fibers segments.

Speaker 2

While we are encouraged by our Q4 results, We continue to operate in a very challenging macroeconomic environment and inflationary conditions that we anticipate will create volatility In our markets for the remainder of the year. Despite these continued headwinds, we remain confident in our ability to deliver on our annual guidance of $110,000,000 to $120,000,000 in adjusted EBITDA for 2023. Before Ramesh addresses financial highlights, I want to cover a few of the quarter's key accomplishments That contributed to progressing our turnaround strategy. First, we successfully completed the necessary steps For securing the needed refinancing that strongly positions the company to be very well capitalized while providing the financial flexibility to execute our short and long term strategy. As a result, no material debt will come due prior to the maturity of the company's revolving credit facility in September of 2026.

Speaker 2

The completion of this refinancing was quite timely, Given the reasons liquidity pressures in the global banking system and was viewed favorably by Moody's resulting in an upgrade of our credit rating. 2nd, the performance of the Composite Fibers and Allied Materials segments remained strong as demonstrated by the quarter over quarter growth And profitability despite a continued difficult economic environment. In the spundles segment, volumes increased, But we did not see a sequential increase in profitability compared to the Q4 due to a less favorable product mix. As a result, We are carefully evaluating ways to address the ongoing demand and profitability dynamic within this segment. The last action I highlight is one that is a direct result of me having evaluated the needs of the business Since leading the company now for nearly 8 months.

Speaker 2

As communicated in early April, I took several key actions to reorganize These functions will report into Boris Yolechko, who will be joining Glatfelder around early October as Senior Vice President, Chief Operating Officer. As part of this change, we are also forming a product management function reporting into borrowers, which will be responsible for product profitability and pricing, Along with the fulsome and integrated marketing, distribution and portfolio strategy for each of our product categories, I'm confident this new structure under Boris' leadership will strengthen the integration across the core functions of the business And accelerate effective decision making as we continue to address the company's near and long term financial performance. Ramesh will now provide additional details on our Q1 financial performance. Ramesh?

Speaker 1

Thank you, Thomas. Slide 3 of the investor presentation provides a summary of our Q1 results. Adjusted EBITDA was $24,800,000 or 1 point $8,000,000 higher compared to Q1 of 2022, mainly driven by improved profitability in our Airlaid Materials and Composite Fibers segments. On a year over year basis, Composite Fibers and Airlaid Materials EBITDA was higher by $3,900,000 $1,800,000 respectively. This was mainly due to higher selling prices resulting from multiple pricing actions taken last year along with raw material pass through provisions and energy surcharges helping to offset inflationary pressures.

Speaker 1

Spun Lace EBITDA was slightly lower versus Q1 of 2022 by $300,000 As reduced shipments and lower production to match customer demand were not fully offset by pricing and cost reduction actions. Adjusted free cash flow, although negative and typical for the Q1, improved significantly year over year, driven primarily by lower working capital. Our leverage as calculated in accordance with the covenants of our new bank agreement was 3 times at the end of the Q1 versus a maximum threshold of 4.2 Slide 5 shows a summary of Q1 results for the Air Liquide Materials segment. Revenues were up 9% on a constant currency basis versus the same period last year, mainly driven by higher selling prices of approximately $21,000,000 Stemming from contractual cost pass throughs as well as price increases and energy surcharges initiated for customers without such arrangements. Volume was lower by 7% year over year, primarily due to weaker shipments in hygiene and tabletop categories, but the earnings impact was mostly offset by favorable mix.

Speaker 1

The hygiene category decline was primarily due to certain customers slowing Order patterns to manage inventory levels built up at year end as a precaution for potential energy and supply chain disruptions in the beginning of 2023. Tabletop decline was primarily in North America, where our assets were constrained in 2022 and unable to serve some of our larger customers. However, we expect to regain some of this tabletop volume in 2023. Our price cost gap was favorable as our pricing actions allowed us to offset input related currency hedging positively impacted earnings by $800,000 primarily from weakening of the Canadian dollar. Slide 6 shows a summary of 1st quarter results for the Composite Fiber segment.

Speaker 1

Total revenues We're up 2% on a constant currency basis, despite volume being lower by 12% versus the same quarter last year. The revenue increase was mainly due to higher selling prices of $12,000,000 as we have successfully converted more than half of the segment's Revenue base to a dynamic pricing model, coupled with multiple pricing actions and energy surcharges taken in 2022 to combat inflation. Volumes in all product categories were lower compared to the same period last year due to softening demand resulting from higher prices and challenging market conditions. Wallcover shipments were additionally impacted by the Russia Ukraine conflict. Overall, lower volumes unfavorably impacted results by $1,600,000 It is worth noting that the net impact of volume loss and pricing actions taken in 2022 were favorable and helped to improve the segment's overall profitability.

Speaker 1

Higher price of energy, key raw materials and freight lowered earnings by $8,500,000 versus the same quarter last year. On a sequential basis, overall inflation was lower by $3,900,000 and we expect this trend to continue in 2023, helping us regain some of the lost volume due to pricing pressures. Operations and other were favorable by 1 point Foreign exchange was favorable $600,000 from the weaker British pound creating a benefit in our U. K. Manufacturing cost footprint.

Speaker 1

Slide 7 shows a summary of Q1 results for the Sun Lay segment. Revenues were down 9% on a constant currency basis, Driven by lower shipments of 21%, but partially offset by higher selling prices of approximately $12,000,000 coming from pricing actions taken to address inflation. Approximately 65% of the volume decline was from lower margin hygiene and wipes. Within this product category, most of the decline was in the European market where our customers have access to lower cost alternatives as well as cheaper imports from Turkey and China. We are exploring all options to improve our cost competitiveness and asset utilization as these are critical to this segment's profitability.

Speaker 1

On the branded Sontara side, the decline was mainly in the healthcare end market, where we continue to see demand erosion in drapes and gowns. We do not expect this category to return to levels seen during the peak of the pandemic and our goal is to offset it by volume from the growing critical cleaning category. Raw material, energy and other inflation was unfavorable $8,800,000 due to continued significant inflationary pressures in pulp, Base Paper and Synthetic Fibers. Operations, FX and other items were a net $1,300,000 unfavorable, mainly driven by lower production to manage inventory levels. However, spending on personnel was lower reflecting the headcount actions taken since acquiring this business to manage its cost structure.

Speaker 1

Slide 8 shows corporate costs and other financial items. For the Q1, Corporate costs were higher by $2,300,000 versus the same period last year, driven by higher incentive accruals and spending for professional services, but mostly in line with our historical levels. Slide 9 shows our cash flow summary. In the 1st 3 months of 2023, our adjusted free cash flow was higher by approximately $47,000,000 versus the same period in 2022. This was primarily driven by higher working capital usage last year from elevated accounts receivables as selling prices increased.

Speaker 1

Slightly higher earnings and lower capital expenditures positively impacted cash flow by a net $5,000,000 Cash taxes were lower by $6,500,000 mainly on account of higher Canadian income and withholding tax in Q1 2022 And a U. K. Tax refund received in Q1 2023. Cash interest was higher by about $3,000,000 reflecting elevated interest rates. This will further increase next quarter as our new term loan was initiated at the end of Q1.

Speaker 1

Slide 10 shows some balance sheet and liquidity metrics. We recently completed a series of transactions to address our upcoming debt maturity. As part of this refinancing, we executed a 6 year €250,000,000 senior secured term loan that was largely used to repay our existing €220,000,000 term loan maturing in February In addition, we also amended our existing revolver to meet the ongoing needs of the company. This This was achieved through a combination of downsizing the revolver total capacity, which was largely unused, but gaining more flexible covenants and thereby creating additional liquidity. Our bank covenant leverage ratio as calculated under the new credit agreement was 3 times as of March 31, And we had available liquidity of approximately $230,000,000 at quarterend.

Speaker 1

Slide 11 is a summary of our EBITDA And cash flow guidance for 2023. Overall, Q1 was in line with our expectations and therefore we are reaffirming our full year EBITDA guidance of Cash interest of approximately $60,000,000 which includes the latest projection of interest expense from the refinancing completed in the Q1 Capital expenditures to be between $35,000,000 $40,000,000 We expect $20,000,000 to $30,000,000 of cash usage from working capital and costs to achieve our turnaround And finally, cash taxes are expected to be between $20,000,000 $25,000,000 This concludes my prepared remarks. I will now turn the call back to Thomas.

Speaker 2

Thank you, Ramesh. Throughout the last two quarters, I've spoken about the turnaround strategy I commissioned Shortly after arriving as Klapfelter and its importance in improving our financial performance. As Ramesh noted, we began seeing the early progress of our efforts during the Q4 of 2022, And I'm quite pleased that the team has carried this momentum into 2023. As is typical with any turnaround, The work that remains will become exponentially harder to achieve given the significance of its impacts to our bottom line results. That said, I'm very pleased to report that each of the 6 components to our strategy remain on track With a clearly defined plan for generating the results that are fundamental to restoring investor confidence.

Speaker 2

Also, As the turnaround continues to make progress, we are actively assessing Klubsella's core products to further strengthen their unique attributes And overall value proposition as we continue to innovate sustainable product solutions. I recently had the opportunity to meet with a number of our key and suppliers, along with a cross functional team of Glatfelter leaders at one of the industry's leading trade shows. This year's event was particularly meaningful to me as it provided the opportunity to share my vision for the company and hear firsthand I'll end with 4 significant takeaways. First, our customers continue to value the way in which our products differentiate themselves from our competition given the unique high quality product attributes, long standing customer service And security of supply that comes with the Glatfelter brand. 2nd, our customers' expectations of us remain very high for managing The ongoing price cost gap as the challenging economic headwinds prevail.

Speaker 2

This is particularly important We face growing competition from regions in the world that may not value the same level of commitment that ClubSealder is making to achieve truly sustainable products, While improving our overall operations through targeted capital investments and operational efficiencies. 3rd, My discussions with key stakeholders further reinforce the recent organizational changes we made in April. Integrating our commercial and supply chain leadership into a single point of accountability will provide the next natural step in the evolution of our organization and overall financial performance. And last, the formation of a product management function for the first time in Klasselva's history will further expand our capabilities In the areas of product pricing, market insights and rigorous financial analytics. Also, As part of the reorganization, we took the opportunity to expense the senior executive team to include a broader base of existing cross functional leaders We'll bring valuable diverse perspectives that are essential to our long term growth.

Speaker 2

I'm confident that through these actions, Along with ongoing discussions with our various stakeholders, we will continue to further strengthen Klapfelter's brand And build on our quarter over quarter financial performance as demonstrated by our Q4 results. My team and I remain steadfast in delivering the key priorities included in our turnaround strategy, leveraging The perspectives of our newly expanded senior leadership and gaining various insights from our key stakeholders as the year continues. I will now open the call for questions.

Operator

Thank We'll go first to Josh Woll with Carlson Capital.

Speaker 3

Thomas, Ramesh, good morning. Thanks for taking my questions.

Speaker 1

Good morning, Josh. Good morning, Josh.

Speaker 3

I want to start with a few questions around the volume trends you experienced in Q1. Specific to the quarter, can you help us tease out at least directionally the impact of destocking from underlying demand? And maybe also describe how shipment trends progressed month over the quarter into April.

Speaker 2

Okay. Yes. Again, Josh, I think you have to look at our volume trends threefold. I mean, one phenomena we are seeing right now is that a lot of customers were really very concerned about The supply chain interruptions, energy situation in Europe and therefore actually put on more inventory in 2022. Now that we are seeing that the energy situation in Europe has actually eased up and we don't see any Also from a pricing standpoint, I think we are seeing more normal levels now.

Speaker 2

They are destocking from that. That's number 1. Number 2, what we're also seeing is if you look at the overall expectation as far as raw material And we have really we are seeing an overall softening market. So there's also a certain expectation that prices are coming down. So they're not going up anymore.

Speaker 2

They're coming down. So compared to 2022, when at the end of the quarter, people were concerned about price hikes, So they kind of ordered more. Now they are very hesitant and said, let's just wait until the new quarter comes and see what's happening in expectation of lower prices. And 3rd, overall markets are very weak. We have to see I mean and this has really now materialized.

Speaker 2

In the beginning, to be quite honest, George, it was a little bit difficult for us to see what is coming from what. But what we are seeing right now and also if you look at Now customers, if you see suppliers or competitors coming out with their numbers, you see this across the board That the market is extremely challenging right now. So these are, I would say, kind of the 3 main Issues which are impacting our volume development.

Speaker 3

That's helpful. Yes, I know. And I think Some of the customers and your peers have reflected that. Maybe take a moment to tell us what you're hearing from your largest customers, in particular, In Fem Care and Wipes within Airaids and Spunlates and then the Food plus Bev brand owners, Composite Fibers, how much longer Can their growth be tilted to taking price at the expense of volume? And just kind of what are they telling you about their expectations for 2023?

Speaker 2

Okay. I mean, like I mentioned in my remarks, I had the opportunity to spend a lot of time with our customers at Index last couple of weeks. And I think where we are Right now, where we are and where I'm pretty confident in areas like alate and in certain areas in composite fibers, I think we should be able even to extend our volume as the year progresses. So we are working on a lot of projects with our big, big Blue Chip customers. Again, right now, the big issue is managing also the pricing.

Speaker 2

I mean, there's a lot of pressure right now that Because after the price actions we took in September, October, which were significant but absolutely necessary, Now there's an expectation that we're releasing. So our strategy is more or less holding on as long as we can. And we talked about this, I think, 3 months ago. But we're also already having to do some surgical pricing adjustments in order to preserve volumes. I would say, overall, the market is it's a difficult market environment.

Speaker 2

And if you look at Fem hygiene, if you look at the wipes area, I mean, we are seeing right now compared Q1, compared to Q4, A minus of 1% to 1.5% lower demand. But again, it's very difficult still to determine What is triggering this? Because the 3 issues I mentioned before. But overall, we are still relatively confident that we are maintaining the volumes, But this actually is just we are just able to do this with, I would call it right now, surgical price adjustments, which we have to make. But at the same time, raw material prices are coming down.

Speaker 2

Unfortunately, in certain areas, the raw materials are not coming down as fast as we wish. In other areas, they're coming down. And one big trigger also here is that there was a high that after Chinese New Year, the Chinese demand would pick up. And this hasn't happened yet. I mean, it picked up, but not to the extent which everybody was expecting.

Speaker 2

So if I look at the pulp market, relatively weak. On the other hand, plus Pulp, which is an extremely strategic raw material for us, the gap between, I would call it, the regular pulp and fluff pulp is widening, But we are putting pressure on our fluff pulp suppliers because this also has to be reflected in the fluff pulp price, which we have not seen yet.

Speaker 3

Okay. That's helpful. Maybe one more for me and then I'll get back into the new. Can you provide any update on your work To monetize non core assets or just if that analysis or framework has changed or progressed at all?

Speaker 2

Nothing has changed there, Josh. We are diligently working on going through there. As you know, these things are sometimes a little bit more complicated. But no, we are progressing. We are I would say, We're making good progress, and you should expect some announcements in the near future.

Speaker 1

Josh, are you still there?

Speaker 3

I was going to go back in the queue. I don't want to dominate the Q and A.

Speaker 4

Okay. Thanks, Josh. Thank you, Josh.

Operator

We'll go next to Roger Spitz with Bank of America.

Speaker 5

Thank you and good morning.

Speaker 1

Good morning, Roger. How are you?

Speaker 5

Himesh, yes, I'm great. Thank you. Starting with the cash flow that you laid out, Are there any other cash flow items we should think about? Just simply taking what you've Laid out, you're looking at 2023 free cash flow of 20 20 at the midpoint of the various ranges. But are there any other cash flow items we should think about besides the ones you laid out?

Speaker 1

No, Roger. I would Say really the turnaround strategy implementation costs, whether that's severance, restructuring, we also had I have payments this year for our CEO transition, which we called out last year as well. So those Some of that is going out here in 2023, but between the turnaround strategy cash costs, the working capital, the CapEx, taxes, interest, nothing else to report on that would meaningfully affect the free cash flow position this year.

Speaker 5

Got it. Okay. And just to correct myself then, I spoke incorrectly, that was a working capital outflow, so that would be Negative 30

Speaker 1

percent of free cash flow is based on that.

Speaker 4

Correct. Yes. That's right.

Speaker 5

Sorry about

Speaker 1

that. That's right. Yes. You got it right. You got it right.

Speaker 1

Yes.

Speaker 5

And I know you don't no longer give quarterly EBITDA guidance, but perhaps you can comment Qualitatively on the cadence of the improvement of EBITDA to get to your full year guidance And the main drivers, what are the pieces you see to get there?

Speaker 1

Yes, absolutely. So Roger, one of the things Thomas instituted after coming here and assessing our business, the forecasting volatility, The external communication to investors, this is for the first time we went out with annual guidance for 2023 as a change in approach So that we can provide investors with a little bit more visibility around how the business is shaping out. What I would say, we intentionally have not broken that number out It's sufficient to demonstrate that with the turnaround strategy being put in place when Thomas arrived And seeing some of the early improvements in the 4th quarter, seeing that we continue to build on that and had improvement here in the Q1, We would expect that this gradual momentum and quarter over quarter increase will easily allow us to get To the full year number of 110 to 120. So we feel very confident about that. And as you think about the pieces that will help us get there, this is it's The improvement in the price cost gap, whether it is price reductions in raw materials, energy, we're starting to see freight come down.

Speaker 1

It's The improvement in SG and A cost reductions and operations that are part of the turnaround strategy and so on, those are the Kind of building blocks, if you will, that gets us from the 2022 EBITDA to the guidance for 2023.

Speaker 5

Got it. Also, if we want to for 2024 CapEx, you may probably don't want to give guidance, but if If we want to put something in our model, what kind of marker will we look at? Should we just think about 2023 CapEx and saying that's the same? Or is there something We should think about putting a take versus that.

Speaker 1

Yes. I would say, Roger, the 2023 Guidance is a very good proxy for what we anticipate in 2024. I think we've Articulated previously that our number one capital allocation priority is going to be paying down debt, and we are being very disciplined and diligent about Our capital spending, we believe that the guidance range we provided for this year, 35% to 40% is a very, very Manageable level for the next couple of years as we think about continuing to maintain our assets, continuing to grow And continuing to leave enough free cash flow to be able to pay down debt. Now, there could be an opportunity down the road that allows us to grow, And EBITDA, look at portfolio decisions and so on, that may change that view. But for the time being, the CapEx picture of 35 to 44 even next

Operator

We'll go next to Peter Gallegu with AmTel Capital.

Speaker 4

Hi, Ramesh, Thomas, good morning. Can you hear me?

Speaker 1

Good morning. Hi, Peter. Yes, Peter. Good evening to you.

Speaker 4

Excellent. Yes. Burning the midnight oil. Yes. One question and then a few others.

Speaker 4

Slide 8, You mentioned your corporate expenses were higher by $2,300,000 Do you envision that being the case Going forward the rest of the year, where corporate expenses will continue to be higher year on year?

Speaker 1

What I would say for corporate Spencers, we still expect to be around that, call it, dollars 27 ish million for the full year, Peter. We had provided that guidance at the beginning of the year. It's all part of our EBITDA guidance of $110,000,000 to $120,000,000 But as you think about the corporate costs on a full year basis, we expect to be around 27,000,000 So it could be a run rate that slightly comes down relative to where we are in Q1, but I would use that as a full year number.

Speaker 4

Okay. That's super simple and helpful. Thank you. Shifting gears, Centara, to what degree can you guys just Share with us more about what Syntara is in terms of profitability, margins, how much of The Spam Life business, entire represents?

Speaker 1

Sure.

Speaker 2

See that, I mean, if you look at our spunlace segment, you can and this is where we are right now. Roundabout 50% of our sunless business is Sontara, and roundabout 50% is hygiene and wipes. Now talking about the SANTARA business, we are really changing our approach. This is a branded product, Mainly used right now in critical cleaning, and we are expanding our volumes If you look at the margin, the Sontara products, without mentioning now the specific margin, but you can assume that Due to the fact it's a branded product, price sensitivity at the customer level is not as high as in other areas We are participating in. So Sontara margins are the highest in our overall product portfolio.

Speaker 2

We have still capacity available in the U. S. As well as in Europe. We With our reorganization, we are forming a group which is solely focused on Santara because marketing and selling a brand is different Then selling a commodity or dealing with the products other products we have in our portfolio. And so we have a clear plan in place right now how we are Accelerating the growth of our Sontara business.

Speaker 2

So I hope that by the end of this year, the split between Hygiene Wipes So, on the front, it's not fifty-fifty anymore, but it's somewhere more leaning towards the front, our side of the business. One of the issues and challenges which we have is if you look at the medical gowns business, we have a superior product, Which in certain areas, to be honest, is too good. And of being too good is also too expensive. This was not a problem during the pandemic because there was Just you just had to have material and price did not matter. But now it's very difficult for us to be competitive Compared to mainly China, Turkey and other countries, which are importing material, but they're also looking here at Finding a solution which is really fitting the customer needs.

Speaker 2

And in this area, we have to take attributes out of the product and make it cheaper, I mean, to simply say that, so we're working on that as well, but our main focus is really the critical cleaning area. We have a pretty, I would say, good market position in the U. S. We are totally underrepresented in Europe and the rest of the world, and this is where our focus is.

Speaker 4

That's very helpful. And just to be clear, When you say roughly fifty-fifty, that's based on revenue or volume? Revenue. Revenue, okay. And roughly how much of your Syntara revenue Is derived from the U.

Speaker 4

S. Versus the rest of the world?

Speaker 2

If you look at our business right now, I would say the majority of our Sontara revenue is generated in the U. S, and we are totally underrepresented in the rest of the world. We have a very good asset in Europe. I was just there last week, so I can I mean, it's a modern asset? It's a line which is really great, And this is where our focus is.

Speaker 2

So we need to improve our European market position.

Speaker 1

And that's our Asturias location.

Speaker 2

In Spain, yes. Yes. And again, I mean, this is nothing where we start from scratch, but we know that we can do it in the U. S. And now we have to kind of Adjust this and do it in Europe and the rest of the world.

Speaker 4

And doing it in the rest of the world, is that Is the challenge more on the manufacturing side or hiring salespeople

Speaker 2

to So the product? No, good question, Peter. No, it's not on the operations side. It's really on the marketing sales side And a part of our reorganization, which we announced in April, like I said, we have a special group Just focusing on Santara. As far as product management is concerned, we will have a special sales group.

Speaker 2

And these are the actions we are taking right now. And it's mainly market. It's sales, marketing. That's what we got to do. One of the things, and I would like to manage expectations a little bit, The success here will not come overnight, but because certain products need qualification at our suppliers.

Speaker 2

I give you one example. We are supplying Boeing It was critical cleaning for the U. S. We are not in Airbus yet, but normally qualification Airbus, it takes around about 6 months We are already doing all that. But it takes some time, but I'm very, very confident that we can increase our market share because our product is superior.

Speaker 2

Customers really like it and the price sensitivity in these areas is not as high, as I mentioned before, than in some of the other areas we are that we are working in.

Speaker 4

Excellent. And I guess the longer and more difficult it is to get in and win these customers and Probably the longer you have once you're in there.

Speaker 2

Exactly, exactly. And the good thing is that we are very, very optimistic

Speaker 4

Okay. Kind of confirm One thing you said, you said the margins are the highest across the entire portfolio and that's including Airlaid and Composite Fibers? Yes.

Speaker 2

Peter, there's always as you know, there's always exceptions here and there. But in general, if you look at this and I think this is I mean, this is a branded product. And yes, in general, this statement is right.

Speaker 4

Okay. This is helpful. Thank you, guys. I mean, because just going through like I'm still relatively new learning your business, Going through your materials, it gets kind of swallowed up within Sun Life, which is this Right. Yes, on the surface, struggling business.

Speaker 4

So it's good to kind of flush out there's a very viable business there.

Speaker 2

Again, that's why I think it's extremely important, Peter, if you look at Spanx Lace, but you really have to look at Sontara, Very healthy business with a lot of potential. And then we have our hygiene wipe business in Span Lace, which is challenged. No question about this, and we are working on this. And these are operational issues, which we are addressing. And the span lease issue is a market issue.

Speaker 2

We just got to go Yes, we need more volume.

Speaker 4

Got you. Okay. Thank you, gentlemen.

Speaker 1

Thank you. Thank you. Thank you, Peter.

Operator

We'll go next to Roger Spitz with Bank of America.

Speaker 5

Thank you very much for the follow-up. I just wanted to ask and perhaps I didn't even hear it correctly during the prepared remarks, Thomas, I think I heard you saying not just with non core assets, but that you are actively assessing some of your key products for value creation. And I guess I'm paraphrasing there if I heard it correctly. If that was right, can you expand on that? I mean are you suggesting that You'll measure some products or markets, if that's what you're saying?

Speaker 2

No, maybe sorry, maybe that was it didn't communicate well. What we are doing is that nothing has changed to when we Communicated our turnaround plan. We are looking at our product portfolio. We are looking at certain assets, and we have identified certain assets which are not Strategic to us or are not performing the way we would like them to perform. And we also don't see With our capabilities right now to get them to the level where we need to be.

Speaker 2

And these Assets and these businesses are under review. But overall, what I can tell you is this is really Relatively small. I mean these are not we're not talking about a total transformation of the company. These are on the periphery here and there, and it's not Changing the changing class holder, okay. It's not.

Speaker 5

Got it. Okay. Thanks very much for that. Appreciate it.

Operator

Sure. We'll go next to Josh Woll with Carlson Capital.

Speaker 3

Hey, guys. I just had one follow-up on the discussion of Sunrise profitability. I know it's been impacted by Many crosscurrents, including energy raw material challenges and then some of the demand issues. But maybe you could provide just an update on The synergy capture and I know this, you're probably not thinking as much about what that synergy number is relative to just Addressing some of the operational challenges and so but you originally I think had $20,000,000 of synergies expected over 24 months. What is the number today and kind of what's left to come?

Speaker 1

Yes. Thanks, Josh. You're right about that. When we announced the acquisition, we also announced The synergy number of $20,000,000 and if you recall, it was expected to come a third, a third, a third from SG and A, from operations And from procurement, right? And then obviously, the whole macroeconomic situation Turned upside down on us with inflation and energy and so on.

Speaker 1

What I will say is that out of that $20,000,000 we've at least gotten half and All of that has come from the SG and A, where even though we were expecting to deliver $6,000,000 $7,000,000 call it from SG and A, we got a little over $10,000,000 From all of the cost reduction, people take out and so on. Where we have been a big challenge and we're continuing to work on it is what Thomas was alluding to in terms of the operational inefficiencies that we are seeing within the spundles Business, if you will, specifically on the hygiene and wipe side, whether it's waste, uptime efficiency, Throughput and so on, those are the areas that our operations team is laser focused on trying to get Some of that cost and waste are the system to help it drop to the bottom line. So the ops piece is still a work in process. The procurement piece is also still a work in process and that really has to do with having walked into a Highly inflationary environment with energy being a double whammy for us. It's just been a challenge working with Suppliers to get better payment terms, get better pricing and so on.

Speaker 1

But that is also something that our strategic sourcing organization is focused I'm trying to deliver. So are we fully there on the $20,000,000 No, but I think we're more than halfway there and continue to work on that. Jennifer, any other questions at this point?

Operator

Not at this time. I'll turn the call back the speakers.

Speaker 2

Okay. Thank you very much. So thank you for joining us today. And Ramesh and I, we're really looking forward to updating you on

Operator

This does conclude today's conference. We thank you for your participation.

Earnings Conference Call
Glatfelter Q1 2023
00:00 / 00:00