10:02:08 EDT Thu 28 Mar 2024
Enter Symbol
or Name
USA
CA



Winpak Ltd
Symbol WPK
Shares Issued 65,000,000
Close 2019-04-23 C$ 42.17
Market Cap C$ 2,741,050,000
Recent Sedar Documents

Winpak earns $29.18-million (U.S.) in Q1

2019-04-23 17:40 ET - News Release

Mr. L.A. Warelis reports

WINPAK REPORTS 2019 FIRST QUARTER RESULTS

Winpak Ltd. has released consolidated results in U.S. dollars for the first quarter of 2019, which ended on March 31, 2019.

                            FINANCIAL HIGHLIGHTS
            (thousands of U.S. dollars, except per-share amounts)           
                                                                    Quarter ended  
                                                                March 31,       April 1,
                                                                    2019           2018*

Revenue                                                         $224,035       $221,665
                                                              ==========     ==========
Net income                                                        29,188         26,867
                                                              ==========     ==========
Income tax expense                                                10,535          9,135
Net finance (income) expense                                      (1,137)            51
Depreciation and amortization                                     10,158          9,879
                                                              ----------     ----------
EBITDA (1)                                                        48,744         45,932
                                                              ==========     ==========
Net income attributable to equity holders of the company          28,429         26,361
Net income attributable to non-controlling interests                 759            506
                                                              ----------     ----------
Net income                                                        29,188         26,867
                                                              ==========     ==========
Basic and diluted earnings per share (cents)                          44             41
                                                              ==========     ==========

Winpak manufactures and distributes high-quality packaging materials and related packaging machines. The company's products are used primarily for the packaging of perishable foods and beverages and in health care applications.

(1) EBITDA (earnings before interest, taxes, depreciation and amortization) 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.

* The company initially applied international financial reporting standard 16 (Leases) at Dec. 31, 2018. Under the transition method chosen by the company, comparative information has not been restated.

Financial performance (presented in U.S. dollars)

Net income attributable to equity holders of the company for the first quarter of 2019 of $28.4-million or 44 cents in earnings per share (EPS) advanced by 7.8 per cent from the $26.4-million or 41 cents per share recorded in the corresponding quarter of 2018. Gross profit margins were the catalyst, raising EPS by 3.5 cents while net finance income and foreign exchange contributed a further 1.5 cents and 0.5 cent, respectively. Conversely, increased operating expenses lowered EPS by 1.5 cents, and a larger proportion of net income attributable to non-controlling interests and higher income taxes both reduced EPS by 0.5 cent.

Operating segments and product groups

The company provides three distinct types of packaging technologies: (a) rigid packaging and flexible lidding, (b) flexible packaging, and (c) packaging machinery. Each of the three is deemed to be a separate operating segment.

The rigid packaging and flexible lidding segment includes the rigid containers and lidding product groups. Rigid containers include portion control and single-serve containers, as well as plastic sheet, and custom and retort trays, which are used for applications, such as food, pet food, beverage, dairy, industrial and health care. Lidding products are available in die-cut, daisy chain and rollstock formats, and are used for applications, such as food, dairy, beverage, industrial and health care.

The flexible packaging segment includes the modified atmosphere packaging, specialty films and biaxially oriented nylon product groups. Modified atmosphere packaging extends the shelf life of perishable foods while, at the same time, maintains or improves the quality of the product. The packaging is used for a wide range of markets and applications, including fresh and processed meats, poultry, cheese, medical device packaging, high performance pouch applications, and high-barrier films for converting applications. Specialty films includes a full line of barrier and non-barrier films, which are ideal for converting applications, such as printing, laminating and bag making, including shrink bags. Biaxially oriented nylon film is stretched by length and width to add stability for further conversion using printing, metallizing or laminating processes, and is ideal for food packaging applications, such as cheese, fluid and viscous liquids, and industrial applications, such as book covers and balloons.

Packaging machinery includes a full line of horizontal fill/seal machines for preformed containers and vertical form/fill/seal pouch machines for pumpable liquid and semi-liquid products and certain dry products.

Revenue

Revenue in the first quarter of 2019 was $224.0-million, $2.4-million or 1.1 per cent greater than the first quarter of 2018. Volumes increased by 0.2 per cent. The rigid container and flexible lidding operating segment recorded a 6-per-cent reduction in volumes. Volumes for the rigid container product group were restrained, influenced by the timing of specialty beverage order fulfilment. Within the lidding product group, the expansion in condiment lidding and rollstock volumes was largely offset by lower specialty beverage lidding. For the flexible packaging operating segment, volumes were strong, progressing by 7 per cent. In particular, biaxially oriented nylon volumes accelerated by more than 30 per cent due, in part, to weak volumes in the first quarter of 2018. Furthermore, the modified atmosphere packaging product group benefited from the inroads made at major North American protein processors. The packaging machinery segment also had a solid quarter, exceeding first quarter 2018 by 6 per cent. Selling price and mix changes had a favourable effect on revenues for the quarter of 1.6 per cent, while foreign exchange, due to a weaker Canadian dollar, decreased revenues by 0.7 per cent in comparison with the first quarter of 2018.

Gross profit margins

Gross profit margins in the first quarter of 2019 rose to 30.9 per cent of revenue compared with the 29.6 per cent of revenue in the first quarter of 2018, an improvement of 1.3 percentage points. The fall in raw material costs in relation to those incurred a year prior was the main factor contributing to the margin improvement. Although 72 per cent of the company's revenues are indexed, there is a lag of approximately 90 to 120 days before the effect of raw material cost changes is realized within selling prices. In addition, positive strides were made with respect to production waste and labour utilization rates. The recent capital expansion program that has been undertaken has resulted in an elevated cost structure. In tandem with sales volumes remaining relatively the same in the first quarter of the current year in relation to the prior year's first quarter, gross profit margins were compressed.

The purchase price index declined by 7.7 per cent compared with the fourth quarter of 2018. In the last 12 months, the change in the index was even more significant at 9.8 per cent. During the first quarter, polypropylene resin had the most substantial decrease of more than 20 per cent while polyethylene and polystyrene resins both experienced decreases of approximately 10 per cent.

Expenses and other

Operating expenses in the current quarter, adjusted for foreign exchange, increased by 4.4 per cent, exceeding the growth rate in sales volumes from the first quarter of 2018. Non-recurring personnel costs with respect to the relocation of a select group of employees were the main contributing factor. Foreign exchange augmented EPS by 0.5 cent and was attributed to converting the company's net Canadian-dollar expenses into U.S. dollars at a lower average exchange rate. Additionally, higher interest rates were applied to cash and cash equivalents, raising net finance income and elevating EPS by 1.5 cents. A modest increase in the average income tax rate and a greater proportion of net income attributable to non-controlling interests each lowered EPS by 0.5 cent.

Summary of quarterly results

The company has initially applied IFRS 16 (Leases) at Dec. 31, 2018, and IFRS 15 (Revenue From Contracts With Customers) and IFRS 9 (Financial Instruments) at Jan. 1, 2018. Under the transition methods chosen by the company, comparative information has not been restated.

Capital resources, cash flow and liquidity

The company's cash and cash equivalents balance ended the first quarter of 2019 at $362.6-million, an increase of $18.3-million from the end of the prior year. Winpak continued to generate solid cash flow from operating activities before changes in working capital of $48.9-million. Cash was consumed by net working capital additions of $2.7-million. In addition, cash was utilized for plant and equipment additions of $17.3-million, income tax payments of $8.3-million, employee-defined benefit plan contributions of $2.0-million, dividend payments of $1.4-million, and other items totalling $100,000 while net finance income provided cash of $1.2-million.

Looking forward

Business outlook

The first quarter provided strong earnings performance, which should enable Winpak to build on this positive momentum. The year started with sales volumes remaining relatively unchanged with varying results within the company's product groups. The rigid packaging and flexible lidding segment experienced soft customer demand, which is expected to rebound over the course of the year. The flexible packaging segment achieved strong volume gains with a solid customer order pipeline in place. As the Canadian dollar is at a lower level versus its U.S. counterpart from a year ago, this will have a negative effect on revenues, but have a positive effect on current-year earnings as Canadian-dollar costs exceed revenues in that currency. The company continues to reduce production waste and hence lower manufacturing costs, and will strive for achieving productivity gains within the manufacturing operations. Raw material costs for three of the company's main resins experienced significant declines during the quarter, which provided an uplift to gross profit margins. The increase in supplier resin inventory levels and new capacity coming on stream for polyethylene has reduced the cost for these resins. Since 72 per cent of Winpak's revenues are currently indexed to the price of raw materials, albeit with a 90- to 120-day time lag, selling prices will be trending downward in the coming quarters. Looking ahead, current expectations are for resin prices to remain relatively flat for the rest of 2019. Oil prices are rising; however, the impact should be tempered by new refinery capacity coming on line.

Capital expenditures of approximately $70-million to $80-million are expected for 2019. During the second quarter, new extrusion capacity will be on stream at the rigid container facility in Sauk Village, Ill., and the new Mexican facility will be fully operational, providing new capabilities in printing technology for flexible packaging products. The building expansion and new biaxially oriented polyamide (BOPA) line in Winnipeg, Man., are progressing with an expected commercial start-up in the second half of 2020. The company will continue to invest in organic growth opportunities, including new technologies and broadening its product portfolio, including recycle-ready offerings, while remaining diligent and evaluating acquisition candidates that align strategically with the company's core competencies in sophisticated packaging for food, beverage and health care applications, all being focused on providing long-term shareholder value.

Interim condensed consolidated financial statements

First quarter ended March 31, 2019

These interim condensed consolidated financial statements have not been audited or reviewed by the company's independent external auditor KPMG LLP. For a complete set of notes to the condensed consolidated financial statements, refer to SEDAR or the company's website.

                                                                                      
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
             (thousands of U.S. dollars, except per-share amounts)

                                                                Quarter ended     
                                                          March 31,         April 1,
                                                              2019             2018*

Revenue                                                   $224,035         $221,665
Cost of sales                                             (154,905)        (156,023)
                                                       -----------      -----------
Gross profit                                                69,130           65,642
Sales, marketing and distribution expenses                 (17,689)         (17,645)
General and administrative expenses                         (8,634)          (7,973)
Research and technical expenses                             (4,077)          (4,072)
Preproduction expenses                                           -             (115)
Other (expenses) income                                       (144)             216
                                                       -----------      -----------
Income from operations                                      38,586           36,053
Finance income                                               2,106              829
Finance expense                                               (969)            (880)
                                                       -----------      -----------
Income before income taxes                                  39,723           36,002
Income tax expense                                         (10,535)          (9,135)
                                                       -----------      -----------
Net income for the period                                   29,188           26,867
                                                       -----------      -----------
Attributable to
Equity holders of the company                               28,429           26,361
Non-controlling interests                                      759              506
                                                       -----------      -----------
                                                            29,188           26,867
                                                       -----------      -----------
Basic and diluted earnings per share -- cents                   44               41
                                                       ===========      ===========

* The company has initially applied IFRS 16 (Leases) at Dec. 31, 2018. Under 
the transition method chosen by the company, comparative information has not 
been restated.                                                    

We seek Safe Harbor.

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