Glatfelter Announces Merger with Berry Global's HHNF Business
2024-02-23
Glatfelter, a global supplier of specialty papers and engineered materials, recently conducted its Q4 2023 earnings release conference call. The call was attended by key speakers, including Ramesh Shettigar, Senior Vice President, Chief Financial Officer, and Corporate Treasurer, and Thomas Fahnemann, President and Chief Executive Officer of Glatfelter.
During the conference call, various financial measures were deliberated upon, such as adjusted earnings and other non-GAAP financial metrics. Investors were directed to the earnings release and investor slides for additional information on these measures, which included a reconciliation to GAAP-based results.
A significant announcement during the call was the unveiling of a strategic milestone for Glatfelter. On February 7, 2023, the company disclosed plans for a merger with Berry Global's HHNF business. This merger aims to enhance Glatfelter's balance sheet capacity for future strategic acquisitions and improve its leverage profile. The combined entity is poised to leverage talent, technologies, scale, and footprint to offer a wider array of complementary products and solutions to customers.
The conference call also shed light on the performance of Glatfelter's various segments. The spunlace segment witnessed enhanced volume and profitability in the fourth quarter of 2023, leading to a $9 million improvement in adjusted EBITDA over a 12-month period. Conversely, the airlaid materials segment encountered challenges like an adverse price-cost gap, reduced shipments, and planned maintenance downtime, resulting in lower earnings in the fourth quarter.
To tackle these challenges, Glatfelter undertook initiatives to diversify its customer base and product portfolio, intensify efforts in innovation and sustainability, and implement cost pass-throughs and selective price concessions. The impact of the Gatineau facility shutdown on the segment's performance was also highlighted.
In terms of cash flow, Glatfelter reported key financial highlights for the full year of 2023. Adjusted free cash flow saw an increase of approximately $30 million compared to the same period in 2022, while working capital cash usage decreased by around $32 million.
The proposed merger with Berry Global is anticipated to bring benefits to Glatfelter in terms of market presence and product offerings. The combined company is set to have increased leverage and a broader product portfolio, with Glatfelter leveraging Berry's strengths in the Asia Pacific and Latin American markets.
The conference call also touched upon the capex spending of Glatfelter's HH&S business. Historically, HH&S has allocated between 3% and 6% of sales to capex. The projected capex for HH&S in the next two to three years is estimated to be approximately 2% to 3% of sales, with the expected normalized capex in the longer term around 4% to 5% of sales.
Glatfelter bonds are expected to benefit from guarantees of the mature entities through the NewCo credit facilities. A transfer of about $1.5 billion of debt from HHNF to NewCo is planned, with a portion earmarked for dividend payments to Berry, retiring existing Glatfelter debt, and covering transaction costs.
The conference call also provided insights into the enhancements made in the hygiene wipe segment at the Asheville and Salts sites, the focus on the critical cleaning area within the Sontara business for growth opportunities, the current EBITDA margin for the Sontara business (approximately 7%), and the challenges faced by the airlaid business in 2023.
In conclusion, the conference call offered valuable insights into Glatfelter's financial performance, strategic milestones, segment performance, and future expectations. Investors and stakeholders are encouraged to refer to the earnings release and investor slides for a more comprehensive understanding of the company's financial measures and outlook.