Winpak has reported the consolidated results for the first quarter of 2017, which ended on 2 April 2017.
Winpak Ltd. manufactures and distributes high-quality packaging materials and related packaging machines.The Company's products are used primarily for the packaging of perishable foods, beverages and in healthcare applications.
The 2017 fiscal year comprises 53 weeks and the 2016 fiscal year comprised 52 weeks.Each quarter of 2017 and 2016 comprises 13 weeks with the exception of the first quarter of 2017, which comprised 14 weeks.
EBITDA is not a recognized measure under International Financial Reporting Standards (IFRS).Management believes that in addition to net income, this measure provides useful supplemental information to investors including an indication of cash available for distribution prior to debt service, capital expenditures and income taxes. Investors should be cautioned, however, that this measure should not be construed as an alternative to net income, determined in accordance with IFRS, as an indicator of the Company's performance.The Company's method of calculating this measure may differ from other companies and, accordingly, the results may not be comparable.
Financial Performance
Net income attributable to equity holders of the Company for the first quarter of 2017 of $28.6 million or 44 cents in earnings per share (EPS) exceeded the $26.6 million or 41 cents per share recorded in the corresponding quarter of 2016, an increase of 7.5 percent.This represented the highest first quarter earnings achievement for the Company.Strong organic volume growth elevated EPS by 6.5 cents but the effects were dampened by a contraction in gross profit margins which lowered EPS by 5.5 cents.Reduced operating expenses and favorable foreign exchange supplemented EPS by 1.5 cents and 1.0 centrespectively. Higher income taxes had the opposite effect, decreasing EPS by 0.5 cents.
The fiscal year of the Company ends on the last Sunday of the calendar year and is usually 52 weeks in duration.However, the 2017 fiscal year consists of 53 weeks, with the first quarter comprising 14 weeks, one more week than the prior year. The additional week included in the 2017 first quarter was essentially the last week of the 2016 calendar year which contained several statutory holidays.Consequently, it is estimated that this additional week contributed 6 percent to first quarter 2017 volumes and net income results.
Revenue
Revenue in the first quarter of 2017 was $228.4 million, $30.2 million or 15.2 percent greater than the first quarter of 2016.Even normalizing for the additional week of revenues in the first quarter of 2017, the revenue level represents the highest quarterly result ever recorded by the Company.Volume growth was substantial at 16.1 percent compared to the initial quarter of 2016.After taking into account the additional week in the current quarter, volume growth was approximately 10 percent. All product group volumes advanced except for specialty films.
The leading contributor to the Company's growth in volume came from rigid containers, which advanced by nearly 20 percent in the quarter relative to the first quarter of 2016 as specialty beverage, condiment and tray packaging sales were robust.Modified atmosphere packaging volumes were strong, progressing in the high-single-digit percentage range.Gains at major US protein processors drove success for this product group.
Biaxially oriented nylon followed up a successful 2016 with further advancement of 8 percent.Lidding volumes exhibited mid-single-digit percentage growth due to progress at select yogurt accounts.Packaging machinery and parts continued the strength exhibited in the final quarter of 2016, advancing more than 30 percent.Lighter demand for specialty films resulted in volumes receding in the mid-single-digit percentage range.
Selling price/mix changes had an unfavorable effect on revenues for the quarter of 1.4 percent, while foreign exchange, due to a stronger Canadian dollar, increased revenues by 0.5 percent in comparison to the first quarter of 2016.
Gross profit margins
Gross profit margins fell to 32.1 percent of revenue in the first quarter of 2017, down from the 34.2 percent of revenue recorded in the same quarter of 2016. The rise in raw material costs in relation to those incurred a year earlier was the main factor leading to the margin erosion, resulting in a decrease in earnings per share of 5.5 cents.
Selling price adjustments with respect to indexed accounts typically lag the change in raw material costs by three months.Manufacturing variances, in terms of material usage and labor costs, also lowered margins in the quarter.However, improvement is expected in the upcoming quarters as more experience is gained with new products and processes and operational efficiencies are increased.
