Libbey Inc. has reported its financial results for the second quarter ended June 30, 2016.
“Our global foodservice business continued to demonstrate strength with our 13th consecutive quarter of volume growth during the second quarter,” said William A. Foley, chairman and chief executive officer of Libbey Inc. “Sales were down in our retail and business-to-business channels, consistent with trends we’ve been witnessing in recent quarters. We believe the strategies we are implementing will drive performance improvements in both of these channels. Additionally, we are taking decisive actions to accelerate business improvements including the portfolio optimization project we executed in the quarter which will reduce the complexity in our product offering.”
Foley continued, “In the near-term, we remain focused on our goals of strengthening relationships with customers, improving capabilities in product innovation and simplifying our business to operate more efficiently. Strong performance in these areas is critical to the long-term success of our Company, and we expect to be able to provide more specific details surrounding our progress on these important initiatives as the year continues. We reconfirm our expected Adjusted EBITDA margin of approximately 14 percent on lower expected net sales. Due to the challenging competitive and macroeconomic environment, we now expect net sales to be down 1 to 2 percent year over year on a reported basis.”
Second Quarter Segment Sales and Operational Review
Net sales in the U.S. and Canada segment were $126.2 million, compared to $127.4 million in second quarter 2015, a decrease of 1.0 percent. Foodservice sales remained strong during the quarter, growing 3.9 percent versus last year, but were offset by a reduction in net sales in the retail channel. Business-to-business sales were up slightly, compared to the prior-year quarter.
Net sales in the Latin America segment were $40.6 million, compared to $44.6 million in second quarter 2015 , a decrease of 9.0 percent (or an increase of 1.4 percent excluding currency impact). Continued net sales growth in the retail channel at 3.6 percent, or 16.9 percent when adjusted for currency, was primarily offset by weakness in business-to-business net sales.
Net sales in the EMEA segment were $31.3 million, compared to $32.1 million in second quarter 2015, a decrease of 2.7 percent (or a decrease of 4.4 percent excluding currency impact), primarily due to softness in the foodservice and business-to-business channels.
Net sales in Other were $9.8 million in second quarter 2016, compared to $9.9 million in the comparable prior-year quarter, reflecting a decrease of 0.3 percent (or an increase of 5.7 percent excluding currency impact).
The Company’s effective tax rate was 43.5 percent for the quarter ended June 30, 2016, compared to 14.4 percent for the quarter ended June 30, 2015 . The change in the effective tax rate was primarily driven by a smaller proportion of pre-tax income in lower tax rate jurisdictions for 2016, a valuation allowance in the United States in 2015, which resulted in pre-tax income that generated very little tax expense, and an unbenefited 2016 pre-tax loss in the Netherlands due to a valuation allowance.
Six-Month Financial Highlights
Net sales for the first six months of 2016 were $390.7 million, compared to $401.4 million for the first half of 2015, a decrease of 2.7 percent (or a decrease of 0.1 percent when adjusted for currency).
Net income for the first six months of 2016 was $9.4 million, compared to $17.5 million during the first half of 2015.
Adjusted EBITDA was $62.3 million for the first six months of 2016, compared to $54.2 million for the first half of 2015.
Six-Month Segment Sales and Operational Review
Net sales in the U.S. and Canada segment were $239.3 million for the first six months of 2016, compared to $237.4 million in the first six months of 2015, an increase of 0.8 percent. Foodservice sales remained strong during the period, growing 6.1 percent versus last year, partially offset by a reduction in net sales in the retail and business-to-business channels.
Net sales in the Latin America segment were $74.8 million, compared to $84.5 million in the first half of 2015, a decrease of 11.4 percent (or a decrease of 0.6 percent in constant currency), due to weakness in the foodservice and business-to-business channels. Retail sales in the first six months of 2016 decreased 3.9 percent versus the prior-year period (or increased 9.4 percent when adjusted for currency).
Net sales in the EMEA segment decreased 4.5 percent (or decreased 4.6 percent excluding currency impact) to $57.9 million , compared to $60.6 million in the first half of 2015. The decrease was primarily the result of weakness in the business-to-business channel.
Net sales in Other were $18.7 million in the first half of 2016, compared to $19.0 million in the comparable prior-year period, reflecting a decrease of 1.3 percent (or an increase of 4.6 percent in constant currency).
Our effective tax rate was 41.0 percent for the six months ended June 30, 2016, compared to 17.5 percent for the six months ended June 30, 2015. The change in the effective tax rate was primarily driven by a smaller proportion of pre-tax income in lower tax rate jurisdictions for 2016, a valuation allowance in the United States in 2015, which resulted in pre-tax income that generated very little tax expense, and an unbenefited 2016 pre-tax loss in the Netherlands due to a valuation allowance.
Balance Sheet and Liquidity
The Company had available capacity of $92.6 million under its ABL credit facility at June 30, 2016, with no loans outstanding. The Company also had cash on hand of $46.4 million at June 30, 2016.
At June 30, 2016, Trade Working Capital, defined as inventories and accounts receivable less accounts payable, was $219.4 million, a decrease of $2.2 million, compared to $221.6 million at June 30, 2015. The decrease was a result of lower inventories and accounts receivable, partially offset by lower accounts payable.
Sherry Buck, chief financial officer, said “While our portfolio optimization initiative led to a non-cash net income reduction of $6.8 million pre-tax for the second quarter, we’re pleased to have delivered a 15.4 percent year-over-year increase in Adjusted EBITDA, driven by higher gross profit margins excluding the product portfolio optimization charge and lower SG&A.”
Buck concluded, “We continue to take a balanced approach to capital allocation and remain committed to our plan to return fifty percent of free cash flow to shareholders during the period 2015 to 2017. While we were active in the market repurchasing shares during the second quarter, we chose to prioritize debt reduction during the period in support of our target leverage ratio of 2.5x to 3.0x Debt Net of Cash to Adjusted EBITDA. As a result, we made an optional, early repayment on our term loan of $5 million during the quarter.”
More information is available at www.libbey.com.