KP Tissue Inc. reports the Q3 2021 financial and operational results of KPT and Kruger Products L.P. (KPLP). Kruger Products is Canada’s leading manufacturer of quality tissue products for the Consumer market (Cashmere, Purex, SpongeTowels, Scotties, and White Swan) and the Away-From-Home (AFH) market and continues to grow in the U.S. Consumer tissue business with the White Cloud® brand and premium private label products. KPT currently holds a 14.5% interest in KPLP.
KPLP Q3 2021 BUSINESS AND FINANCIAL HIGHLIGHTS
- Revenue increased by $22.3 million or 6.0% to $391.4 million in Q3 2021 compared to $369.1 million in Q3 2020.
- Adjusted EBITDA was $40.3 million in Q3 2021 compared to $46.2 million in Q3 2020, a decrease of 12.8%, and improved sequentially from $37.3 million in Q2 2021.
- TAD Sherbrooke continues to run above the expected start-up curve.
- Declared a quarterly dividend of $0.18 per share to be paid on January 17, 2022
“Our solid revenue growth of 6% for the third quarter reflects pricing actions in our Canadian Consumer segment, combined with slightly higher volume and gradually improving commercial end-markets, along with the execution of our recovery plan in the Away-From-Home business. High inflationary costs and near-record pulp prices negatively impacted our Adjusted EBITDA compared to the same quarter last year, but the benefits of recent price increases resulted in a sequential improvement to $40.3 million for the quarter,” stated KP Tissue’s Chief Executive Officer, Dino Bianco.
“Market share data in Canada for the most recent 52-week period further highlights the significant progress we have made since the beginning of 2020. In our market-leading categories we have grown bathroom tissue by 2.4 share points to 35.6% and facial tissue increased by 4.0 share points to 35.5%. In the paper towel category, we consolidated our strong second place through innovations and the introduction of new products, translating into gains of 2.6 share points to 23.2% with continued strong investments ahead.
“The Away-From-Home segment, which was hardest hit by the COVID-19 pandemic, showed further signs of recovery in the quarter with 20% year-over-year revenue growth supported in part by the faster re-opening of the U.S. economy. On the strength of higher sales volumes, more in-house paper production and cost-reduction initiatives, Adjusted EBITDA for this business turned positive in Q3 2021.
“Inflationary pressure and labor shortages are among the key challenges we will be facing in upcoming quarters. We are executing pricing actions across the business along with a more focused labor approach to manage our margins, while continuing to invest to grow the top-line in both Consumer and AFH. TAD Sherbrooke performance continues to be well ahead of our growth curve and a key enabler for future growth,” concluded Mr. Bianco.
We are seeing activities and behavior start to return to more pre-COVID levels in both the Consumer and Away-From-Home segments. However, cost inflation and lagged pricing in the fourth quarter are expected to impact results. Q4 2021 Adjusted EBITDA is therefore expected to be lower than Q3 2021 and higher than Q4 2020.
KRUGER PRODUCTS L.P. (KPLP) Q3 2021 FINANCIAL RESULTS
Revenue was $391.4 million in Q3 2021 compared to $369.1 million in Q3 2020, an increase of $22.3 million or 6.0%. The increase in revenue was due to a selling price increase in Consumer Canada, slightly higher sales volume in the Consumer segment compared to the year ago quarter, and an increase in sales volume in the AFH segment resulting from the beginning of COVID-19 related demand recovery. Revenue was unfavorably impacted by foreign exchange fluctuations on U.S. dollar sales.
Cost of sales was $345.6 million in Q3 2021 compared to $307.7 million in Q3 2020, an increase of $37.9 million or 12.3%. Manufacturing costs increased primarily due to higher sales volumes net of overhead absorption, increased pulp costs, labor shortages in Memphis manufacturing, higher depreciation expense and inflation. These increases were partially offset by the favorable impact of more in-house paper production in AFH and favorable foreign exchange fluctuations on U.S. dollar costs. Freight costs and warehousing expenses also increased compared to Q3 2020. As a percentage of revenue, cost of sales was 88.3% in Q3 2021 compared to 83.4% in Q3 2020.
Selling, general and administrative (SG&A) expenses were $29.0 million in Q3 2021 compared to $31.2 million in Q3 2020, a decrease of $2.2 million or 7.1%. The decrease was primarily due to a reduction in compensation related costs, the release of a COVID-19 related AFH accounts receivable provision recorded during 2020 and foreign exchange gains, partially offset by higher marketing expenses. As a percentage of revenue, SG&A expenses were 7.4% in Q3 2021 compared to 8.5% in Q3 2020.
Adjusted EBITDA was $40.3 million in Q3 2021 compared to $46.2 million in Q3 2020, a decrease of $5.9 million or 12.8%. The decrease was primarily due to the unfavorable impact of sales mix, higher pulp prices, inflation and higher freight rates and warehousing costs, partially offset by the net favorable impact of foreign exchange fluctuations and lower SG&A expenses.
Net loss was $9.3 million in Q3 2021 compared to net income of $18.5 million in Q3 2020, a decrease of $27.8 million. The decrease was primarily due to lower Adjusted EBITDA of $5.9 million, and higher other, interest and depreciation expenses, partially offset by a higher income tax recovery.
KP Tissue Inc. (KPT) was created to acquire, and its business is limited to holding, a limited partnership interest in Kruger Products L.P. (KPLP). It currently holds a 14.5% interest in KPLP. KPLP is Canada’s leading tissue products supplier by overall dollar and volume market share.
Kruger Inc. is a private company founded in 1904 with operations in newsprint, forest/wood products, paperboard, energy and others. Kruger indirectly owns the remaining 85.5% limited partnership interest in KPLP.