Graphic Packaging Holding Company, a provider of packaging solutions to food, beverage and consumer product companies, reported Net Income for fourth quarter 2016 of $34.9m , or $0.11 per share, based upon 317.9 million weighted average diluted shares.
This compares to fourth quarter 2015 Net Income of $57.2 million, or $0.17 per share, based on 329.6 million weighted average diluted shares.
Fourth quarter 2016 Net Income was negatively impacted by $9.8 million (net of a$4.1 million tax benefit) of business combinations and other special charges. When adjusting for these charges, Adjusted Net Income for the fourth quarter of 2016 was $44.7 million, or $0.14 per diluted share. This compares to fourth quarter 2015 Adjusted Net Income of $63.0 million or $0.19 per diluted share.
For the full year 2016, Net Income was $228.0 million, or $0.71 per share, based upon 321.5 million weighted average diluted shares. This compares to 2015 Net Income of $230.1 million, or $0.70 per share, based on 330.7 million weighted average diluted shares.
Full year 2016 Net Income was negatively impacted by $27.8 million (net of a $12.6 million tax benefit) of business combinations and other special charges, and positively impacted by a $22.4 million discrete tax benefit recorded in the second quarter 2016. When adjusting for these charges, Adjusted Net Income for the full year 2016 was $233.4 million, or $0.73 per diluted share. This compares to full year 2015 Adjusted Net Income of $247.0 million or $0.75 per diluted share.
"While our fourth quarter Adjusted EBITDA was down modestly versus the prior year period due to accelerating commodity input costs and foreign exchange headwinds, we were encouraged by a return of core volume during the quarter and strong operating performance. Volume in our core business improved in the fourth quarter compared to the third quarter, and our mill and converting facilities operated well," said President and CEO Michael Doss. "Net sales were up 3.2% largely driven by acquisitions. Volume in our core business was flat in the fourth quarter versus the prior year period, compared to a 1.4% decline in the third quarter. Adjusted EBITDA was $175.1 million, down 3.1% compared to the prior year period of $180.7 million. For the full year 2016, Adjusted EBITDA was $763.8 million, up 1.7% compared to the prior year period of $751.2 million reflecting the benefits of acquisitions and strong productivity, partly offset by lower pricing, accelerating commodity input costs in the fourth quarter, and foreign exchange headwinds."
"Cash flow generation in the business remains strong as we generated $358 million in 2016. Our focus on growing cash flow and returning more of it to shareholders over time has not changed. We returned $229 million to shareholders in 2016 through dividends and share repurchases, including $59 million in share repurchases during the fourth quarter. Our Board of Directors declared a 50% increase in the quarterly dividend paid in January 2017 to $0.075per share on October 24, 2016 and approved a new $250 million share repurchase authorization on January, 10, 2017.
The material increase in the quarterly dividend and new share repurchase authorization demonstrates the confidence we have in our cash flow profile. We remain committed to a balanced capital allocation strategy, which includes reinvesting in our business to drive strong cash returns on cash invested, strategic acquisitions at compelling post-synergy multiples, and returning cash to shareholders through dividends and share repurchases."
Operating Results
Net Sales
Net Sales increased 3.2% to $1,057.2 million in the fourth quarter of 2016, compared to $1,024.9 million in the prior year period. The $32.3 million increase was driven by $64.5 million of improved volume/mix related to acquisitions. The net sales increase was partially offset by $19.1 million of unfavorable foreign exchange rates and $13.1 million of lower pricing.
Net Sales increased 3.3% to $4,298.1 million in 2016, compared to $4,160.2 millionin the prior year. The $137.9 million increase was driven by $219.2 million of improved volume/mix related to acquisitions. The net sales increase was partially offset by $47.5 million of unfavorable foreign exchange rates and $33.8 million of lower pricing.
Attached is supplemental data showing Net Tons Sold for each quarter of 2016 and 2015.
EBITDA
EBITDA for fourth quarter of 2016 was $161.2 million, or $11.5 million lower than the fourth quarter of 2015. After adjusting both periods for business combinations and other special charges, Adjusted EBITDA decreased 3.1% to $175.1 million in the fourth quarter of 2016 from $180.7 million in the fourth quarter of 2015. When comparing against the prior year quarter, Adjusted EBITDA in the fourth quarter of 2016 was positively impacted by $20.8 million of improved net operating performance and $4.6 million of favorable volume/mix. These benefits were more than offset by $13.1 million of lower pricing, $7.0 million of commodity input cost inflation, $5.7 million of other inflation (primarily labor and benefits), and $5.2 million of unfavorable foreign exchange rates.
EBITDA for the full year 2016 was $723.4 million, or $4.6 million lower than the full year 2015. After adjusting both periods for business combinations and other special charges, Adjusted EBITDA increased 1.7% to $763.8 million in the full year 2016 from $751.2 million in the full year 2015. When comparing against the prior year, Adjusted EBITDA in 2016 was positively impacted by $72.7 million of improved net operating performance and $15.4 million of favorable volume/mix. These benefits were partially offset by $33.8 million of lower pricing, $24.0 millionof other inflation (primarily labor and benefits), $16.7 million of unfavorable foreign exchange rates, and $1.0 million of commodity input cost inflation.
Other Results
Total Debt (Long-Term, Short-Term and Current Portion) decreased $104.0 millionduring the fourth quarter of 2016 to $2,167.8 million compared to the third quarter 2016. Total Net Debt (Total Debt, net of Cash and Cash Equivalents) decreased$117.4 million during the fourth quarter of 2016 to $2,108.7 million compared to the third quarter 2016. The Company's year-end 2016 Net Leverage Ratio was 2.76 times Adjusted EBITDA compared to 2.44 times at the end of 2015.
At December 31, 2016, the Company had available global liquidity of $1,269.0 million, including the undrawn availability under its global revolving credit facilities.
Net Interest Expense was $21.5 million in the fourth quarter of 2016, up compared to the $16.6 million reported in the fourth quarter of 2015, largely reflecting higher debt balances and slightly higher average borrowing rates. Full year 2016, Net Interest Expense was $76.6 million compared to the $67.8 million reported in 2015, largely reflecting higher debt balances and slightly higher average borrowing rates.
Capital expenditures for the fourth quarter of 2016 were $36.2 million compared to$62.4 million in the fourth quarter of 2015. For full year 2016, Capital expenditures were $294.6 million compared to $244.1 million in 2015. The increase is primarily the result of investments made in the Company's paperboard mills and converting facilities, including the successful installation of a new press section and headbox on a paperboard machine at West Monroe, LA and installation of a new curtain coater on a paperboard machine in Macon, GA, as well as to add capacity to low cost converting facilities in order to transfer volume from the now closed Menasha, WI and Piscataway, NJ plants, which were legacy higher cost facilities.
Fourth quarter 2016 Income Tax Expense was $21.9 million compared to $28.1 million in the fourth quarter of 2015. Full year 2016, Income Tax Expense was$93.2 million compared to $130.4 million in 2015.
