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For the third quarter of 2009, the Company generated net sales of $207.0 million, a decrease of 21.9% versus net sales of $265.2 million in the third quarter of 2008. Excluding the impact of unfavorable foreign currency translation, resulting from the U.S. dollar strengthening against the euro and pound sterling on a year-over-year basis, the quarter's net sales were down 17.2% compared to the prior year quarter due to continued global weak economic conditions.
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Gross profit margin, as a percent of net sales, was 24.6% in the third quarter of 2009, compared to 22.4% in the third quarter of 2008. The 220 basis point increase in margin percentage was driven by the impact of the Company's aggressive cost reduction initiatives and the impact from lower raw material costs.
The Company generated operating income of $7.4 million in the third quarter of 2009, which included pre-tax restructuring charges of $2.1 million relating to the Company's cost reduction initiatives. This compared to operating income of $10.1 million for the third quarter of 2008 and pre-tax restructuring charges of $5.2 million. Adjusted for the restructuring charges and unfavorable foreign currency translation, operating income for the third quarter of 2009 was $9.5 million compared to $15.3 million in the third quarter of 2008. This decrease was primarily a result of lower volumes, partially offset by the impact of Company's aggressive cost reduction initiatives.
Adjusted EBITDA, or "Consolidated Cash Flow" as defined by our indentures, is a significant operating measure used by the Company to measure its operating performance and liquidity. Adjusted EBITDA was $25.2 million in the third quarter of 2009 compared to $30.2 million for the same period in 2008. The lower year-over-year Adjusted EBITDA was a result of the same drivers impacting operating income as described above.
Commenting on the Company's results, Mike McDonnell, President and Chief Executive Officer, stated, "Our third quarter Adjusted EBITDA performance remained relatively strong, despite continued weakness in demand as well as increased resin costs. Our third quarter Adjusted EBITDA of $25.2 million increased sequentially from the second quarter 2009 amount of $24.2 million, and was at the upper end of the range of $22-$26 million which we communicated during our recent offering of euro-based floating rate notes. While our third quarter Adjusted EBITDA was lower year-over-year, the prior year quarter was one of the strongest quarters from an Adjusted EBITDA standpoint in company history."
Mr. McDonnell continued, "Our sales rates improved sequentially from the second quarter, primarily driven by seasonality along with some modest economic improvement. Regarding raw material costs, we did see further sequential increases in the third quarter for resin. According to their respective indices, resin costs increased during the third quarter by 11% in North America and 17% in Europe sequentially from the second quarter 2009. Our margin improvement initiatives enabled us to partially offset this quarter's increase in resin costs. However, if resin costs continue to increase, which is our current expectation, we will need to respond aggressively with selling price increases."
Segment Performance
Comments on segment net sales and EBITDA performance for the third quarter of 2009 is as follows:
A summary of Adjusted EBITDA, a significant measure required by the Company's indentures and used by the Company to measure its operating performance and liquidity, is presented in the supplemental information at the end of this release.
Conference Call:
The Company will conduct an investor conference call to review its 2009 third quarter results on Friday, November 13, 2009 at 10:00 a.m. ET (9:00 a.m. CT). The call can be accessed through the following dial-in numbers: Domestic: 866-783-2141; International: 857-350-1600; Participant Passcode: 32563971. A replay of the conference call will be available through November 27, 2009. The replay may be accessed using the following dial-in information: Domestic: 888-286-8010; International: 617-801-6888; Passcode: 10764014.
About Pregis:
Pregis Corporation is a leading global provider of innovative protective, flexible, and foodservice packaging and hospital supply products. The specialty-packaging leader currently operates 46 facilities in 18 countries around the world. Pregis Corporation is a wholly owned subsidiary of Pregis Holding II Corporation. For more information about Pregis, visit the Company's web site at www.pregis.com.
Safe Harbor Statement:
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. You can generally identify forward-looking statements by the Company's use of forward-looking terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "seek," "should," or "will," or the negative thereof or other variations thereon or comparable terminology. These forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the Company's control. For a discussion of key risk factors, please see the risk factors disclosed in the Company's annual report, which is available on its website, www.pregis.com. These risks may cause actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Given these risk and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this press release are made only as of the date hereof. The Company undertakes no duty to update its forward-looking statements.
-- Net sales of the protective packaging segment decreased by $43.2 million, or 25.1%. The 2009 third quarter sales decline was driven by significant decreases in volume in both the U.S. and European businesses resulting from continued economic weakness in both markets, as well as unfavorable foreign currency translation. Excluding the impact of unfavorable foreign currency, net sales for the segment decreased 21.3%. -- EBITDA of the protective packaging segment decreased $4.8 million, or 23.7%. This decrease was due to lower volumes driven by the ongoing recession in North America and Europe as well as unfavorable foreign currency translation. This impact was partially offset by the significant cost savings realized from cost reduction programs as well as year-over-year reductions in the cost of resin and other materials. -- Net sales of the specialty packaging segment decreased $15.0 million, or 16.1%. This sales decline was driven by unfavorable foreign currency translation, as well as decreased volumes related to the termination of a contract with a significant medical products customer. Excluding the impact of unfavorable foreign currency and sales related to the contract termination, net sales for the segment decreased 3.1%. -- EBITDA of the specialty packaging segment increased $0.2 million, or 1.9%. This increase was due to savings resulting from our cost reduction program partially offset by decreased volumes and unfavorable foreign currency translation. Excluding the volume impact associated with the contract termination, as described above, EBITDA for this segment would have increased by $2.1 million, or 18.9%, for the three months ended September 30, 2009 compared to the same period 2008.
SOURCE Pregis Corporation
