Tredegar Corporation

Tredegar reported fourth-quarter diluted EPS from continuing operations of $0.40 and full-year diluted EPS from continuing operations of $1.11. Excluding special items, EPS from ongoing operations was $0.23 in the fourth quarter and $1.13 for the full year, versus $1.15 in 2013. Film Products full-year net sales were $579 million, down 7%, and operating profit was $58 million, down 18%; Bonnell full-year net sales were $344 million, up $35 million, and operating profit was $26 million, up 40%. On the full year, noncash pension expense was $6.7 million, effective tax rate was 35% versus 31% in 2013, cash flow from operations was just above $50 million, capital spending was nearly $45 million, net debt was $87 million, and debt to adjusted EBITDA was 1.42x. For 2015, management expects noncash pension expense of approximately $12.3 million, an effective tax rate around 35%, capital spending of just over $40 million, Film Products adjusted EBITDA margin to move toward 17% to 18% by 2016, Bonnell EBITDA margin to be 10% to 11%, and return on invested capital to reach 11% to 12% in 2016.

Nancy Taylor framed 2014 as a “mixed” year and emphasized that Tredegar has been making deliberate investments to support long-term growth. She said the company is now positioned to benefit as those investments wind down, with 2015 becoming a year of execution and 2016 the point when returns should become more visible. Her tone was constructive but measured: she acknowledged the setbacks in Brazil and the difficult PET film market, while highlighting customer response to new products like ForceField PEARL and growth opportunities in automotive and non-residential construction.

Kevin O’Leary focused on the earnings bridge and balance-sheet/return metrics. He said ongoing EPS was $1.13 for 2014 versus $1.15 in 2013, with combined segment operating profit $5.5 million below 2013, noncash pension expense of $6.7 million (down $7 million), and a 35% tax rate versus 31% last year; he also flagged a 2015 pension expense step-up to about $12.3 million due mainly to a lower discount rate of 4.17%. On cash and capital allocation, he noted operating cash flow just above $50 million, capex nearly $45 million in 2014, planned 2015 capex just over $40 million, and net debt of $87 million with debt/adjusted EBITDA of 1.42x. He said 2014 ROIC was 8.5% and reiterated the 11% to 12% ROIC target for 2016.

In Q&A, Drake Johnstone asked whether a $4.4 million fourth-quarter hit in Film Products was one-time and whether that implied a Q1 rebound; Kevin O’Leary clarified that the $4.4 million was an operational impact, not simply a one-off, though roughly $2 million of inventory adjustments and about $2 million of efficiency spending in the second half should not recur in 2015. Drake also asked about capital spending stepping down after 2015, and management said it did not expect anything much beyond the $40 million range unless attractive opportunities arose. Mario Gabelli asked about the value of the Kaleo/Intelliject investment; management said the balance-sheet value was about $39 million at year-end, representing just under 20% ownership, and that it was not consolidated. He also asked about pension cash contributions and receivables, and management said pension cash in was roughly $2 million in 2014 and expected to be about the same in 2015, while the receivables increase reflected higher Q4 revenue rather than an issue.